Bullsh!t

Last Saturday was a wet day in Dublin. It was wet enough that I had to cut short a cycle to Bray because I was getting soaked. Determined to get something out of the day, I decided to go for a swim at Bull Island instead. Swimming, I reasoned, can be done in any weather as getting wet is the primary objective.

I swam a few lengths of the beach before returning to my car. I threw my things in the boot and prepared to drive off. It was then I noticed my passenger window had been smashed in! Someone had broken into my car and stolen my phone, keys, and jacket.

Shortly afterward a Garda car arrived to patrol the beach. I stopped them and reported the matter. They took a witness statement from me (not that I had seen anything), and towed my car away for forensic examination.

The worst thing of it all is the inconvenience. It is what I hate most about petty theft: the disproportionate inconvenience of the act to the agrieved versus the minor reward for the thief. Having my phone stolen is of great inconvenience to me; I have to lock the number, pay to have it replaced, get all my contacts again, etc. Whereas the thief will get little or nothing for selling it on the black market.

Fortunately, I had just renewed my car insurance that morning, and had windscreen cover. So the cost of the glass is covered by my insurance without affecting my no claims bonus.

As for the contents that were stolen, well they're gone. And I hope that phone gives you cancer buddy!

Fuel Gauges and Comsumption for VW Golf

Running On Empty

I have long suspected that fuel gauges are not accurately graduated in general, so I decided to record the rate of decline of my Golf's fuel gauge over a period of a few weeks. These are the results of my little experiment.

I filled my fuel tank with Statoil Unleaded Regular (95 Octane). A VW Golf MkV has a fuel tank capacity of 55 litres and I stopped filling when the fuel pump first clicked, so I have reason to believe that 55 litres is what I had in the tank at the start of the experiment.

Crucially, I conducted the same type of driving right through the experiment. I did not take any long, extra-urban trips; I drove only to and from work, 20kms through the city from my house. All my driving was urban driving, on the same route, at the same time of day. Therefore, the rate of fuel consumption would have been constant at any given stage in the experiment.

When the fuel gauge had reached 1/2 way, I had travelled 350kms. Now if the gauge was accurately graduated, one would expect that I would travel another 350kms on the second half tank, giving me a total of 700kms on 55 litres. Equally, one would expect that at 1/4 fuel remaining, I would have travelled an additional 175kms for a total of 525kms.

However, when the fuel gauge read 1/4 full, the odometer read 500kms travelled.

The next point of note was when the fuel warning light came on. According to VW's manual, when the fuel light illuminates, there are 7 litres of fuel remaining. This would mean that at that point, I would have used 48 litres of fuel. The fuel light came on when the odometer read 560kms. (Aside: the light illuminates earlier when driving on an incline, and turns off on a decline, showing that the fuel sensor is located towards the front of the fuel tank.)

According to the fuel gauge, I travelled 350kms on the first 27.5 litres (0.078 l/km), 150kms on the next 13.75 litres (0.091 l/km), and just 60kms on the following 6.75 litres (0.112 l/km).
According to the fuel gauge, my fuel consumption rose as the tank emptied. As we know this to be untrue (if anything fuel consumption should have fallen as the car got lighter), we can conclude that the fuel gauge is inaccurate. If you like, the top half of the tank is 20% larger than the bottom half.

As for average fuel consumption, I travelled 560kms on 48 litres of fuel. This gives a fuel consumption rate of 0.085 litres per kilometre, or 33 mpg. Contrast this to the official VW fuel consumption figures for urban driving of 0.095 l/km or 29.7 mpg. This better than advertised performance can perhaps be accounted for by the few extra-urban stretches to my commute, more than offsetting cold starts (the engine consumes more fuel than normal in the first few kms after being started until the engine reaches normal operating temperature) and inefficiencies in my driving style.

Usefully, this also tells us that when your Golf's fuel warning light comes on, you can still drive around the city for a further 82.35kms before you run out of fuel; Which should be plenty of time to find a service station.

Update

I repeated the test using Shell V-Power, a high performance fuel with a higher than normal octane rating (99 RON) and extra detergents and lubricants. I discovered a couple of interesting things in this second test.

Firstly, the needle doesn't move from full for 100kms. This indicates that there is a considerable quantity of fuel above the fuel sensor when the tank is full. It also explains the apparent difference in fuel consumption between the top and bottom halves of the fuel tank. When the first 100kms is taken out of consideration, the remaining fuel consumption is...

Secondly, using the V-Power fuel I got to 375kms on 1/2 a tank. This compares to 350kms on standard Statoil Unleaded. V-Power gave 7% better fuel consumption while costing only 4% more (€1.20 per litre for V-Power vs €1.15 for standard fuel). Therefore, the more expensive V-Power is actually better value for money.

Central Banks' Futile Efforts to Avert Second Great Depression

The world's central banks moved recently to cut interest rates and increase liquidity in global markets. Most notably the Fed cut its base interest rate by 0.5%, but other central banks have also moved to lower the cost of borrowing and make more money available to banks and other borrowers. This is an effort to halt the tightening credit crunch that has been griping the world's markets since August. While they have calmed the tempest for now, the frenzied sell-offs will soon reappear, continuing the market's lurch towards a deep depression.

The reality is that our economies have become addicted to cheap credit. The economies expanded at an abnormal rate on that new money supply and it has spawned asset inflation bubbles and risky investments that now threaten those same economies. We cannot wean our economies off cheap credit by lowering interest rates and giving them more of the same stuff. Globally, assets are overpriced and the markets must contract to return to normal levels. Unfortunately, it is unlikely that we will be able to so carefully manage the deceleration of our economies that we can return them to their stable levels without entering a period of severe recession.

Some observers claim that the credit crunch is now over, and that we've successfully weathered the storm [1]. Others claim that while banks suffered in the recent turmoil, the so-called real world economy escaped unharmed [2]. Neither of these claims are accurate. While the credit turmoil may have subsided for now, the underlying problems which brought it about have not gone away, and it will resurface again with teeth. You cannot suck as much money out of a monetary system as the credit crunch is doing without feeling the effects. Both the banks, who remain exposed to an enormous amount of loans that will not be repayed, and the 'real-world' companies who are fed at both ends by the banks' credit cannot simply carry on unaffected as participants of a monetary system now circulating significantly less money.

The last decade has seen unprecedented and unjustified credit expansion. When that credit contracts, the assets priced by that credit will be revised downwards, people will feel poorer and spend less, and the economy will enter a deep recession. The record overdraft that was the credit bubble must be repayed. It took years of low interest rates to accumulate that debt. Setting them a couple of percent lower now in the face of the debt-collectors is not going to save us.

Financial Markets Headed Off A Cliff

The stock markets have been turbulent the last few weeks, as everyone is aware. But if you think that we have already seen the worst then you are in for a big shock. The turbulence of the past weeks are as the tremors before an earthquake or the rapids before a waterfall.

The recent stock market volatility has been attributed to the sub-prime mortgage crisis in America. Fears of loss of revenue from securitized mortgage packages due to sub-prime foreclosures triggered much of the losses. But the sub-prime crisis is only one symptom of a far larger credit bubble that will cause a severe credit crunch and economic contraction as it deflates. The credit bubble, essentially the creation of vast amounts of new money in financial markets, supplied the sky-high loans that drove property prices to record highs worldwide, allowed corporations and private equity groups to purchase each other for astronomical sums, and provided the capital to purchase stocks pushing markets to new highs. The credit bubble, since its creation in 2000/2001, is why the world economy has appeared to surge forward at an unprecedented speed and why prices (when you include fixed asset prices, such as property) have inflated so much over the same period. When more money is available to purchase the same assets, people will pay more for them causing prices and markets to rise.

As easily as that money was created, it can disappear. And when it does, asset valuations will be forced to revert to their former positions. The apparent gains of the last few years will be lost. Triggers like the recent sub-prime concerns will spark a wider credit contraction; Fund managers no longer want to purchase risky securitizations. That form of credit is removed from the market. The lenders and funds that rely on these securitizations incur losses. Banks reprice risk higher, raising interest rates, reducing loan amounts, and lending to fewer people. Another source of credit, risky bank loans is lost. Banks revenues are cut and they start taking losses. Now the banks are becoming really risk averse and they think twice about even lending to each other in case one of them fails, so they raise interbank interest rates. Further credit sources are lost. Money pours out of the system. All the while the companies and consumers that rely on these sources of credit begin to hurt as the credit is no longer available to them. Companies scale back expansion plans, affecting employment. Consumers (if they haven't been laid off by their companies) can no longer borrow or spend as much so lower their price expectations, and the value of consumer assets falls (especially high credit assets like houses). It is a vicious cycle of contraction that will have implications for every part of the economy.

When will it all happen? When will we step off this cliff? Well, it has already started, the current market volatility will continue for another several weeks or months at most. But eventually a tipping point will be reached, the market will be spooked and will plummet by a degree that makes recent losses look like nothing. Since February this year I have been predicting a crash around October, and I hold to that. I hope you're holding on to something too, because this is going to hurt.

America's Cup Nail-Biter

Alinghi won the 32nd America's Cup today, in the most dramatic fashion imaginable. In fact, it was drama beyond imagination. Hollywood could not have penned the final to the 7th, and deciding race of the series.

After an engaging pre-start, both boats started deal level, then Alinghi passed New Zealand at the weather mark after a tight duel. New Zealand clawed past again on the way downwind, splitting tacks at the bottom mark. Alinghi drew level on the layline to the top mark, and dialled down at New Zealand as they crossed, forcing New Zealand into a penalty and behind. It looked all over for New Zealand. Surely the cup was Alinghi's as they headed downwind with a 130m lead and New Zealand still owing them two turns.

And yet... less than 1km from the finish the Kiwis spotted the wind ahead dying and backing by 90 degrees. They hoisted their jib in readiness. Alinghi sailed on unaware of the wind shift ahead. Suddenly it hit both boats; Alinghi's spinnaker was ripped out of the pole and went in the water; New Zealand dashed ahead as Alinghi fumbled to recover. But there was still those two turns. New Zealand attempted them right on the line, and completed the second... just as Alinghi brought her bow across the line. Alinghi had won, by a single second. The America's Cup, sport's oldest trophy, had been captured by the narrowest of margins.

That race was the best sporting event I have ever witnessed. And I have seen a few as a Munster supporter. I couldn't even breathe as the boats approached the line together. In fact, I had to lay down on the floor before I passed out! The excitment was too much even for my NTL digital TV, which decided that the best moment to pack up would be 3 seconds before the finish of the best race ever! I was left in unknowing agony, and had to find out the result from the Internet. That was the most drama imaginable, and now I need to lie down.

The Perfect Storm

A storm is brewing in the Irish housing market. Most commentators would agree that the weather has worsened, but remain divided over how bad it will become. Bullish EAs forecast improving weather after the election, while bears warn of darkening clouds. Yet all hang back from offering firm forecasts, saying "well, we can't predict the future". While we can't predict the future with absolute certainty, we can look to the past as the best indicators of future performance. And history tells us that we are headed for the storm of the century.

The economic history of the world is strewn with asset bubbles. From the Dutch tulip mania, to the dot.com bubble, and countless real estate bubbles, history provides us with a great deal of data about speculation-driven asset bubbles. And from this data, we can learn a thing or two about our own home-grown asset bubble, the Irish housing market, and where it is headed.

Analysis of housing bubbles reveals an interesting fact, one that conflicts with the "common knowledge" offered by Irish EAs. House prices don't always go up in the long term, and they most certainly don't rise at 10%pa, outperforming all other asset classes. In fact, two very long term studies of the US and Amsterdam housing markets, over 150 years and 400 years respectively, both showed that house prices only increase at the same rate as inflation. So it seems that you can go wrong with bricks and mortar after all.

Armed with this knowledge, what can we infer about the Irish housing market? Well, quite a lot actually. Knowing that house prices only match inflation in the long run, if we can plot the rate of house price increases against the rate of general inflation, we can determine how far from the mean our market has become. So lets do that!... And what does this graph show us? It shows us that our rule of general inflation does apply to the Irish market, where house prices were flat in real terms (relative to rises in the cost of living) for 20 years from 1970 to 1990, and fell from 1980 to 1987. It was only since 1996 that house prices began to depart from historic norms, surging upwards every year, pausing only momentarily in 2001, before racing again to our current unprecedented high. According to this data, Irish housing is overpriced from 60% (for new builds in Cork) to 68% (for second hand houses in Dublin). (2006, 2007 data not included.)

If you accept that we have been in a housing bubble (and the above data proves that we have), then a house price crash is inevitable. All asset bubbles mean revert (as confirmed by a recent OECD study).

Granny 2.0

I rewrote my grandmother's website recently: www.gladysleach.com. My gran has been painting since before my parents were born, and is very well-known in Cork. She mostly does paintings of local buildings and landscapes. My aunt now sells her art through the website.

I originally wrote the website for my aunt back around 2003. It was a typical zero-budget, table-driven, non-standards compliant, ugly thing then. Not one of my more proud programming achievements.

I feel much happier about the new site though. It is at least fully standards compliant. I have been learning loads about XHTML and CSS in the last year or two, and I finally applied that knowledge in re-developing this website. I think the site also looks a lot nicer. I'm still no graphic designer, nor do I wish to be, but I think I did a reasonable job this time of making the site fairly attractive and easy to navigate.

To Burst A Bubble

Something monumental is happening in Ireland. The property bubble which has lasted this long decade, has begun to burst.And I for one, welcome it in.

Ireland has long watched the value of its property assets rocket skyward. House prices have climbed by double digits, year after year, after year. The government has toasted record tax receipts with champagne and multi-billion euro surpluses. Home owners have celebrated becoming accidental millionaires by buying BMWs befitting their new found wealth. Everyone with a stake in the market cheered "boom"!

Those with vested interests, property owners, market speculators, landlords, builders, real estate agents, and the government, were all being too blinded with cash to stop and wonder where the money was coming from, and how this apparent bonanza could be our ruin in the making.

At the same time, another segment of the Irish population, those not already on the so-called "property ladder", watched with despair as their chances of ever owning a home to live in vanished into the distance. For these young people, the "property boom" only made them feel poorer. This despite the fact that these were the same people driving Ireland to its new levels of productivity and international competitiveness.

Ireland has deluded itself these last several years, into thinking it was richer than it was, by imagining the value of its property to be more than it is really worth. And what is worse, it borrowed and spent all that imagined wealth away. For Ireland, it is time to face reality. The debt collector is at the door.