Cardboard Spaceship

Yum, Yum, Pig's Bum!

The title of the post is what small brutish British children being brought up in their upper class nurseries and boarding schools would shout when presented with bacon. 

The reason I am writing about that is that the Spaceship has been working with pork this week.  Mrs Spaceship ordered a half pig from one of the local farmers recently, and spent Saturday down at the local abattoir making sausages and packaging our half of the beast in question. 

Eating meat has some conundrums, which for me are:  "what the hell am I actually eating, and did the animal suffer?" 

The local abattoir is a very small affair that does one beast at a time.  So the animal comes with the farmer, without being stressed, and then is dispatched, and butchered on an individual basis, with the local butcher, and the people who are taking the meat, so you know what you are getting - bio grass fed local produce.

Mrs Spaceship was told that when these local beasts raised on grass outdoors go the main abattoir, it turned out that the staff in the main abattoir would get bribed up to a thousand Swiss francs to swap the good beast for a factory one by the local retail butchers.  So the Boucherie de Molard, one of the best in Geneva, now sends all its beasts to the small local one here to make sure that there is no substitution.  (Something that apparently is obvious to a farmer, that might not be obvious to the layman, it seems.)

Mrs Spaceship came back with some of the initial produce last night, and as today dawned sunny and pleasant, we decided to do the first barbecue of the year, which is not bad for the 31st of January.

Here is the barbecue lighting up:

I decided to cook not just with charcoal, but also with cuttings off the local grapevines, which give a lovely smokey flavour.  Just to finish it, I added some rosemary and laurel leaves.  The sausages are made yesterday.

 

And they cooked up just fine, thank you. 

Great way to have a Sunday lunch. Wonderful to be standing in the winter sun, and cooking outdoors.

Figured Out what is Happening the A5 in Germany

If you a regular reader, I posted about going to Germany and back on one tank of Diesel.  (It's all fun and excitement here in the Spaceship, I tell ya.) 

In that I mentioned that they seemed to be knocking down lots of bridges over the A5 autobahn, and I drove up and down in the last two days of the week for a meeting in Germany.  This time, I noticed that what I had taken to be normal seasonal removal of brush and trees next to the road was running for kilometre after kilometre, and then I dawned on me that this is a prelude to widening the road from two to three lanes in each direction.  Right enough, and here is the 225 million needed to do it from Baden Baden to Offenberg.

So that's set my nerd mind at rest then. 

SAP and Deutsche Bank

I work for SAP, but I am always limited in what I can talk about because I work in sales, as solution consultant and architect, so I know about all the forthcoming deals.  Trouble is, because of stock market and other regulations, not to mention simple business confidentiality, I can only rarely talk about it.

Today I see that we have stated in the press release that goes along with the Q4 results, that the following statement is included.

"In December, Deutsche Bank and SAP signed a letter of intent to start a multi-year initiative in 2010 to replace individual software solutions in its home market by a new core banking system based on SAP for Banking solutions. The SAP implementation underpins the bank’s strategy to push for a high degree of industrialization and standardization of processes."

I'll leave that statement to speak for itself.  The team did a great job, and I am pleased to have made some small contribution to the overall effort.

Horizontal Versus Vertical Genetics

I very rarely have a genuine "ohmigawd!" moment when reading, but this article did it for me. 

I studied Genetics at university, and while whatever knowledge I had is now more than twenty years out of date, I still find the subject as interesting as I ever did. 

The article talks about the views of a very good evolutionary microbiologist Carl Woese, working with physicist Nigel Goldenfeld have postulated, that most evolution was not vertical, in the sense that it passed from parent to offspring, with genetic variations between generations, but horizontally, with organisms swapping DNA sequences with other, even completely unrelated organisms.

The latter idea might sound a bit daft to the layman, but microbes are perfectly willing to swap DNA sequences with each other, what no-one had really understood was how important this might be.  (Me included I know all the basic facts in the article, and I had never even remotely considered what the true implications might be.)  From the article:

"At the root of this idea is overwhelming recent evidence for horizontal gene transfer - in which organisms acquire genetic material "horizontally" from other organisms around them, rather than vertically from their parents or ancestors. The donor organisms may not even be the same species. This mechanism is already known to play a huge role in the evolution of microbial genomes, but its consequences have hardly been explored. According to Woese and Goldenfeld, they are profound, and horizontal gene transfer alters the evolutionary process itself. Since micro-organisms represented most of life on Earth for most of the time that life has existed - billions of years, in fact - the most ancient and prevalent form of evolution probably wasn't Darwinian at all, Woese and Goldenfeld say."

In support of this they talk about the efficiency of the DNA coding for the proteins that it produces, and how exceptionally good it is at dealing with transcription and other errors.  Basically, to make a protein, which is used to regulate all the chemical interactions in the body, the DNA in the chromosome of a cell, is unzipped, a messenger RNA matches up with its opposite DNA, to make a sequence of three sign codes for the amino acids that make up the protein.  The final assembly is achieved by the fact that each amino acid is linked to a transfer RNA specific for that protein, which makes a kind of assembly line of the amino acids that then are bound together in the ribosomes of the cell, and the protein chain goes off and gets involved in the highly complex, and as yet not fully understood process of protein folding.  

Even just this high level description lets you see there is room for error, like zipping up a jacket wrongly.   However, the way the system works, it is very resistant to errors in the transcription.  This is a fact that we never really discussed, how come we have one DNA process for all living organisms, and how come it is so efficient?

"In 1991, geneticists David Haig and Lawrence Hurst at the University of Oxford went further, showing that the code's level of error tolerance is truly remarkable. They studied the error tolerance of an enormous number of hypothetical genetic codes, all built from the same base pairs but with codons associated randomly with amino acids. They found that the actual code is around one in a million in terms of how good it is at error mitigation. "The actual genetic code," says Goldenfeld, "stands out like a sore thumb as being the best possible." That would seem to demand some evolutionary explanation. Yet, until now, no one has found one. The reason, say Woese and Goldenfeld, is that everyone has been thinking in terms of the wrong kind of evolution."

This is where it all gets madly brilliant.  They modelled random DNA assignments for the codons, and then tried to evolve a single efficient system using vertical inheritance.  They could not get it to work.

"While the ability of the code to withstand errors improves with time, they found that the results were inconsistent with the pattern we actually see in two ways. First, the code never became shared among all organisms - a number of distinct codes remained in use no matter how long the team ran their simulations. Second, in none of their runs did any of the codes evolve to reach the optimal structure of the actual code. "With vertical, Darwinian evolution," says Goldenfeld, "we found that the code evolution gets stuck and does not find the true optimum."

Then they tried it using the horizontal approach, and they found that this worked well.

"The results were very different when they allowed horizontal gene transfer between different organisms. Now, with advantageous genetic innovations able to flow horizontally across the entire system the code readily discovered the overall optimal structure and came to be universal among all organisms. "In some sense," says Woese, "the genetic code is a fossil or perhaps an echo of the origin of life, just as the cosmic microwave background is a sort of echo of the big bang. And its form points to a process very different from today's Darwinian evolution." For the researchers the conclusion is inescapable: the genetic code must have arisen in an earlier evolutionary phase dominated by horizontal gene transfer."

This is quite simply some of the most important biological thinking that I have seen in decades, if not ever.  Amazing.

Global Prospects for 2010

I see this morning that the UK has finally limped out of recession with a startlingly low 0.1% growth, that after the usual revisions might not even be real.   As the Bank of England continues with Quantitative Easing, AKA running the printing presses, this level of growth is spectacularly poor.  Where is the growth coming from?  Well, the main growth area was the public sector.  Anyone else see a problem with that? 

I've been suffering a bit of doomers block on this one, but here's what I see coming, and it ain't cheerful, as far as I understand it. 

When the banks damn near tanked, there were two main policy efforts.  Firstly, pump huge amounts of government money into the banks, to hold them up day to day.  Second, pump huge amounts of imaginary money into the bond markets via the previously mentioned Quantitative Easing.  

Now, that's pretty much what everyone one did, whether you were sucking at the tit of the taxpayer, or the IMF, really depended on how bad your situation was or is. 

So, banks are okay now, right?  Well, no, not really.  They didn't collapse, but they are still in a real mess.   The balance sheets that they need to repair are getting hit in three ways:

Firstly, the money that they do have has to be paid back at some point, after all it has been taken from someone to be given to someone else, with the bank taking a skim on the process.  (That's what banking is, so I'm fine with that.)  Issue is when do you have to give it back?  If it is a bond, the payments may run for a decade or even several decades, so you do not have to give back the money anytime soon, although you do pay (very little at the moment) interest on it.   However, a lot of money at the moment is short term, because people are not going to lend you long term cash at what has to be the lowest interest rates in the West since, well more or less, ever.  Quite reasonably, I want to get it back in a year, so that I might lend it to you again, but not at that low interest rate if I can avoid it. 

None other than the IMF are commenting on this at the moment.

"The IMF also warned that banks face "a wall of maturities looming ahead through 2011–13" in their shorter-term funding. It added: "A future retrenchment in confidence therefore could severely weaken banks' ability to roll over this debt."

In other words the banks have less capital, and have to reign in lending, but also may not have the assets to covering the lending they already have.  Sound obscure?   It is exactly this problem of long term lending and short term assets that did in Northern Rock.

Secondly, the Tin Foil Hat crowd's favourite bank, the Bank for International Settlements, is looking at how to realign the Basel II accord which is the global framework for ensuring that no bank could ever pose a systemic or major credit risk by setting a prudent and well thought out set of rules for making banks reserve capital to cover all their potential defaulters and other sundry problems.  

First draft worked a treat, didn't it?  RBS, Hypo Real Estate, Bank of Ireland, etc. 

So now, they are going to introduce a bunch of additional measures that will demand extra capital to be reserved on the balance sheet.  How much?  Barclays Bank reckons it will need about 17 billion more in capital to match the likely requirements. 

"Banking analysts recently estimated that Barclays would need to raise an extra £17bn in capital to comply with the new rules, with other banks facing similarly large bills. With some insiders suggesting that even the new stricter Basel rules on capital do not go far enough, the potential cost could be higher still."

But who is going to lend them the money?  Shareholders might be feeling a bit tapped out at the moment, and the shares are beginning to look expensive to many people already.   Also, the last thing that the governments want is the massive contraction in lending that a major bank capital accumulation might require.  

Finally, to compound both of the above problems, the suddenly deeply unpopular President Obama has taken to the idea of lynching a few banks to try and get the trampled American masses back on his side.  The Volcker Rule, as laid out in the 30 billion dollar speech, so called because that's how much bank shares declined on the news, aims to get rid of the idea of banks making profits trading on their own behalf. 

Basically, it would mean that all bank activities would have to serve a client purpose, and not just to enrich the bank.  Seems sensible on the face of it, but one thing is also clear, it will reduce bank profitability, and while that may sound Okay in this morally outraged climate, it also means that banks would have to take longer to get back to being sound, as they have less incoming money to stuff into the holes in the balance sheet.  

So banks will have less capital, well, won't we just do what we are doing now, and stuff government cash into them so that they can go on?

 Well, no, because even governments have to get the money from somewhere.   Oftentimes its the poor taxpayer who can be fleeced, and that's going to happen.  London and New York have already seen the tax hits coming.  Second option is to borrow from people who have money, but right now, if you have cash, as already mentioned, you don't really want to tie it up at the current low returns, so you will be reluctant to lend.  China is showing signs of weariness, and Japan, as we shall see, is about to be out of the picture as a global lender.  Which is why some countries are finding it hard to float off bond sales.  Finally, you can print it up using the QE that has already been mentioned.

But here's the rub.  In saving the banks and the financial markets, the sovereign countries of the world have taken on the banks bad debt, and made it sovereign bad debt.  For the first time in a while, people are seriously discussing sovereign default, e.g. where a country reneges on its debts.  The last major one was Argentina, in 2003.   There are others, my honeymoon location of choice the Seychelles being one of them.

So, it can happen. 

But not the big ones, right? 

Wrong, it might seem.  Read this absolutely brilliant, if rather nerve wracking, article by John Rubino on the current state of Japan.  He thinks that even a minor uptick in the interest rates would put Japan into a debt compound trap, where it cannot make the payments, and so people start anticipating default, and so charge more interest, literally compounding the problem. 

"The gist of the argument is that Japan is heading for a “debt trap,” which will unfold as follows: When its pool of domestic savings runs out (as it will in the coming year) the Japanese government will be forced to borrow from foreign investors, who will doubt its ability to pay and demand a higher interest rate. As billions in short term paper roll over at ever-higher rates, interest costs will rise, requiring even more borrowing, which causes investors to demand even higher rates, and so on, until it dawns on the markets that this is a self-reinforcing cycle. Buyers scatter, rates spike, the economy crashes, game over."

He sees three outcomes, one is that the market more or less self corrects, minus the smoking wreck of Japan, the other two are less good.  Either the whole sovereign credit systems seizes up, or the banks do a QE storm to buy up the troubled flow, and end up hyperinflating a la Zimbabwe.  

Its not just Japan, Eurozone has the PIIGS, the UK is borrowing like crazy, and the USA has its own problems.  

So, if I have to make a prediction for 2010 its that we are going to see at least one major sovereign in big difficulty,  if not in actual default.  First time a big one cannot get a bond auction away, then we will see what happens. 

Or to quote Ludwig von Mises of the Austrian school of economics:

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."

Enjoy the show, you've paid a lot for the ticket. 

Paywalls and the Future of Media - Not Good

Rupert Murdoch has gone on record saying that all of his news media will be behind pay walls online. 

He might want to consider the rip-roaring success of the Long Island based Newsday, which went behind a pay wall, and in three months sold 35, yes that's the right figure, 35 subscriptions in three months.    So a 4 million dollar launch netted 9,000 dollars.  Ouch.

This also drove the number of unique visitors to 1.6 million from 2.2 million in the same period.  Double Ouch.

Now, you can argue that the London Times and other august organs are more likely to attract subscribers, but are they really? 

IPCC, Glaciergate, and the Increasing Doubts over AGW

It seems that the Himalayas are safe, the glaciers will not, as claimed, melt by 2035.  A claim that given that this is 25 years away should have raised some scepticism in the first place. 

Behind it, there is the usual peril of science for sale, and that's the bad bit.  Seeking grants from the Carnegie Corporation amongst others, the claim was added to the grant requests.  If, as a layman, you get such a statement from an apparently reputable source, then wouldn't you reach for the cheque book, after all, we are talking about the water supply to 40% of the world's population?

It is not that there was no dissent to this point of view.

"Last November, however, Dr Raina, the country's most senior glaciologist, published a report for the Indian government showing that the rate of retreat of Himalayan glaciers had not increased in the past 50 years and that the IPCC's predictions were recklessly alarmist. This provoked the furious reaction from Dr Pachauri that tarred Dr Raina's report as "arrogant" and "voodoo science". Only weeks later came the devastating revelation that the IPCC's own prediction had no scientific foundation."

I've said it before, and here I say it again.  The world is a disastrous state of overpopulation, resource depletion, and pollution.  We need to react, and react now.  What we do not need is one of the greatest potential misallocation of resources in the history of the world.  

My feeling is that with the total unravelling of the Copenhagen process, we may have dodged a major bullet.

The Senator from Enron

I have a great respect for the notion of the American First Amendment allowing Free Speech, it's one of pillars of what has been one of the 20th century's great nations. 

What I fail to see is why a corporation is considered to have the form of a legal person, and therefore has inalienable rights to bribe and skew the politic process, bending it to a corporate desire.  That's effectively the green light that the US Supreme Court gave to the corporations when it ruled on Thursday that there should be no limits on political spending for corporate entities.

President Obama says it well:

“This ruling strikes at our democracy itself,” Mr. Obama said, adding: “I can’t think of anything more devastating to the public interest. The last thing we need to do is hand more influence to the lobbyists in Washington, or more power to the special interests to tip the outcome of elections.”

So if Monsanto wants GM crops mandated, or Exxon wants to drill Alaska, they just have to make sure that they have the best government that money can buy.  From democracry to plutocracy to kleptocracy in such a few short years.

One Nobel Prize Winner Gives Up on Another...

Paul Krugman, the Nobel prize winning economist, has given up on another Nobel prize winner, the one for peace.  I talk, of course, about Barack Obama.  If a thinking liberal like Krugman has given up within 12 months, then I think that the game is up.  Right when the world could really do with some leadership.

Germany on One Tank

I have been blogging lite of late, mainly due to work, which is busy.  As you may have seen, SAP put out a good Fourth Quarter 2009, and my feeling is that the market is coming back. 

I went to Germany, to Walldorf, to talk to a customer, and made the 1000 Km round trip on one tank of Diesel.  I used to have a petrol Audi A6, and it would give me about 500 or do Km per tankful.  I sold that when I joined SAP, and got a staff car, as it were, another...  Audi A6, but this time a Diesel.  

I thought, bah, Diesel, noisy, slow, etc.  Turns out that they fixed that since I last drove one in the 1980's.  Driving a steady 120 km/h,  even on the Autobahn, and using cruise control which seems to be very effective in controlling not only speed, but imposing strict fuel discipline, by not "hunting" around the speed as a human does. 

So I got 1000+ Km out of one tank of fuel, which is nothing short of amazing for a big comfortable car. 

The other thing is what is wrong with the bridges over the A5 in Germany?  They are tearing down at least three of them in a highly delicate "don't drop the bridge on the road when demolishing it, and then build a new one in the place" type operation.  Must be some kind of stimulus thing?