Monday, February 25, 2008

Sub-prime mortgage mess explained

You're all no doubt familiar with the sub-prime mortgage disaster that has wreaked havoc on the stock market. But do you really understand what this mess is all about? If you don't, here's something to help you. There's a slide show making the rounds that uses cartoons to do a great job of explaining the mess (original author unknown)! I found it in a recent post by Roger Ehrenberg. Here it is for your viewing pleasure:

Download explanation_of_sub_prime_issue.pps

Saturday, February 23, 2008

Solar panels for the home

The San Jose Mercury News recently reported that Severin Borenstein, a business school professor at UC Berkeley and the Director of the UC Energy Institute, says that:

Installing solar panels on homes is an economic "loser" with the costs far outweighing the financial benefit ...
The technology, using photovoltaic panels to generate electricity, is not economically competitive with fossil fuels and costs more than other renewable fuels

The solar industry, naturally, disagrees with Borenstein's conclusions. But I have to say that, based on the little research I've done, I have not been convinced about the financial utility of installing solar panels. In my mind, the primary benefit of installing solar panels appears to be the good feeling one gets from doing something about climate change. Borenstein explicitly notes that

...he didn't take into account the feel-good benefit or societal value of installing a solar system on your roof.

But is there a different way to get these benefits without incurring the financial costs of installing solar panels? I think there is.

Some utilities allow you to opt for "green energy" alternatives; for a small premium one can buy energy from renewable sources. For example, Palo Alto Green is a program that allows you to buy your electricity from renewable sources for a premium of only 1.5 cents per kWh. Currently, 97.5% of the this renewable energy is from wind and the remaining 2.5% from solar. (Of course, the actual energy delivered to your home isn't guaranteed to be from a renewable source, but the utility promises to buy the right amount of electricity from renewable sources based on the usage by subscribers to this program.)

We've been subscribers to this program for some time now. And based on Borenstein's analysis, I don't think I'm going to rush in to install solar panels on our roof. Rather, I'll let the utilities install large solar farms or other renewable energy sources, and get the "good feeling" by supporting their efforts. Presumably, the utilities will ensure that these renewable sources are cost effective.

Thursday, February 21, 2008

Lunar eclipse

Did you see last night's total lunar eclipse? It was a lot of fun. The total eclipse phase started in our area at around 7:11pm, a very convenient time to watch it with our kids. I got home from work a little before that, bundled everyone into the car, and drove to the north end of Shoreline Park for a clear view of the sky. We've been having rain lately, so there was a good chance that our view would be obscured by clouds. Fortunately, the clouds cooperated, and we saw the eclipsed moon quite clearly in the sky!

I was a little concerned that during the total eclipse we wouldn't see the moon at all (in which case how would I convince my kids that anything was actually happening...:-). But that's not what happens: you could clearly see a faint, reddish light on the moon. Why can you see the moon during a total eclipse? Wikipedia has the answer:

The Moon does not completely disappear as it passes through the umbra because of the refraction of sunlight by the Earth's atmosphere into the shadow cone; if the Earth had no atmosphere, the Moon would be completely dark during an eclipse.

And why does the Moon appear reddish during the eclipse?

The red colouring arises because sunlight reaching the Moon must pass through a long and dense layer of the Earth's atmosphere, where it is scattered. Shorter wavelengths are more likely to be scattered by the small particles, and so by the time the light has passed through the atmosphere, the longer wavelengths dominate. This resulting light we perceive as red.

I took my camera along to take a photograph of the eclipse. Unfortunately, I failed. Even though I figured out the setting to keep the shutter open for as long as I wanted, and even though I had a small tripod to stabilize the camera, I was unable to force the camera to actually take a photograph, i.e., the shutter didn't actually open...:-( Not sure what I was doing wrong. But I have two friends in my office who are master photographers (check out some of Simon's amazing photographs)! I'm sure they'll educate me on what I did wrong.

Wednesday, February 13, 2008

Science Fair Project

It's time for our kids to do a project for their school's Science Fair. Last weekend I helped them do their projects. One of them wanted to build an electric motor, so I found instructions for building a simple electric motor (via, a really great site for all your Science Fair needs). Here's a video of what she built:

Now here's a question (specially for the electrical engineers amongst you...!): why exactly does the armature rotate? To help you figure it out, here's how the motor is set up. The armature is made of magnet wire with a non-conducting enamel coating. The axle supports (in which the armature axle rests) are made from a thicker wire which normally has a plastic insulation; we stripped the plastic insulation exposing the bare wire. Each axle support is connected to one end of the battery, and there's a magnet under the armature. In addition, there's a clever little trick (described in the instructions). Can you figure it out?

Talking about the Science Fair, this year Leigh Klotz and I are running the Science Fair at our kids' school. We put together a page of links to web resources for Science Fair projects. Check it out---you'll find all kinds of really great projects.

Sunday, February 10, 2008

ETF portfolio 2007 returns

With the carnage currently going on in the worldwide financial markets, it seems odd to be talking about last year's returns... But maybe that's exactly what one needs to do

Some time ago I had written about using a portfolio of ETFs. In that post I had recommended a specific set of portfolios originally suggested by Burton Malkiel. So how did these portfolios do in 2007? Not too bad, it turns out:
  • Conservative portfolio: 3.2%
  • Moderately conservative: 5.2%
  • Moderately aggressive: 7.7%
  • Aggressive portfolio: 10.6%
(All returns as reported by Morningstar. Returns include reinvested dividends, with reinvestment taking place as soon as possible. Returns do not include the effect of taxes.)

For comparison, the S&P 500 returned 5.5% in 2007.

The details of the returns in the various components of the portfolios can be found here. Some noteworthy points:
  • Emerging markets (VWO) did particularly well last year, returning 37.3%.
  • REITs (VNQ) crashed horribly, returning -16.5%. This is presumably related to real estate woes led by the sub-prime crisis.
  • Surprisingly (to me at least), Treasury Inflation-Protected bonds (TIP) did remarkably well, returning 11.9%.
All in all, a modest year for the portfolios. 2006 was substantially better---I don't have the details but the moderately aggressive portfolio that we use returned somewhere between 16% and 17%. This year is proving to be much more challenging, with all markets already down some 10%. Nonetheless, I'm going to stay the course. Let's see what the year brings.

Saturday, February 9, 2008


Olivia Judson, an evolutionary biologist and author of Dr. Tatiana’s Sex Advice to All Creation, writes The Wild Side science blog at the NY Times. Her most recent post is the first in a series on genetic mutations. She admits to being obsessed by mutations:

It’s wondrous to think that mutations, accumulated over billions of years through the action of natural selection and the other forces of evolution, have produced such diverse life forms as vampire squid, coconut palms, death cap mushrooms, giant Gippsland earthworms, Etruscan pygmy shrews, E. coli — and us.

So what exactly are these mutations?

They are accidental changes to an organism’s DNA; they typically happen when the cellular machinery makes a mistake as it copies DNA from one cell to the next.
The canonical mutation — the one everyone learns about in biology class — alters the part of a gene that contains the instruction to make a protein.

But, only about 2% of the genetic material contains instructions to make proteins. So what happens to mutations in the remaining 98%? On possibility is that this 98% is involved

... in regulating where and when the genes they are made from will get switched on. ... So mutations to the switches can alter how the protein is deployed.

Much research still needs to be on these "switches". The article gives lots of examples of the effects of different types of mutations and makes fascinating reading.

Baba Amte

I was talking to my dad this morning and he told me that Baba Amte had died. Baba Amte was a well known social activist in India. He was best known for his work with leprosy patients. It all started one day when the young Baba Amte had an encounter that changed his life:

Lying before him was a man in the last stages of leprosy. The dying man had no fingers. ... he forced himself to return and feed the man. He also put up a bamboo shed to protect him against the rain. That man, Tulshiram, died in Baba's care and irrevocably changed young Amte's life.

He went on to found Anandwan, the Forest of Joy. Anandwan was a place where leprosy patients were treated and then rehabilitated. Baba Amte believed that "Charity destroys; work builds". Thus, it was important to give these poor patients a sense of dignity and self-worth by making them productive members of society.

Once the leprosy-affected persons were fit enough to leave the hospital they ceased to be 'patients'. They became working members of the community, busy in the fields or workshops where a variety of products were being manufactured. This made Anandwan a virtually self-sufficient 'village'.

He went on to found many more centers for leprosy patients, and later became active in the Narmada Bachao Andolan (an effort to prevent the building of dams on the Narmada river that would displace millions of people).

Baba Amte won numerous awards recognizing his efforts, including the Magsaysay Award and the Padma Vibhushan (India's second highest civilian medal). He was 94 when he died. He is survived by his two sons continue the work that he began.

Wednesday, February 6, 2008

Hillary's mortgage plan

During last week's Democratic debate, I was surprised to hear Hillary Clinton's plan for the sub-prime mortgage crisis: she wanted to freeze the monthly interest rate on ARMs for five years. My instant reaction was "what a bad idea that would be". Obama responded well, essentially saying something to the effect that this would increase mortgage rates for everyone else. Economists Thaler and Woodward have a much more detailed criticism of this plan. Here's the (unsurprising) conclusion:

Undertaking such an intervention can only raise interest rates on mortgages (and maybe other interest rates as well) as markets attempt to incorporate risk premiums to cope with possible future interventions. Promising the American people that you can fix things by just lowering their interest rates is dishonest, a fairy tale that won't come true.

Monday, February 4, 2008

Super Bowl XLII

What an incredible game! And best of all, the Patriots lost! This was probably the most fun I've had watching a Super Bowl (other than, of course, the last three 49er Super Bowl victories which I enjoyed more...).

Bill Simmons, an ESPN columnist and a Patriots fan, has written this great article about how the game unfolded. And this is how he describes the play of the game:

...but really, everything you need to know about Super Bowl XLII happened on the Miracle Play To Be Named Later -- you know, the third down on the do-or-die drive when Eli Manning ripped himself away from the entire Patriots defensive line (THEY HAD HIS JERSEY!!!!!!) and threw a pass that hung in the air forever like one of those sports movie passes, and even though David Tyree and Rodney Harrison had an equal chance of getting it, Tyree jumped a little bit higher, hauled in the football, trapped it against his helmet and somehow held on while Harrison was doing everything but performing a figure-four leg lock on him.

Check out a replay of this amazing play here (or search for [eli tyree super bowl] on YouTube).
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