Brexit deal or no deal

daryanblog

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Theresa May, aka the yellow submarine, is famous as a politician who doesn’t actually advocate any particular policies. Largely because she knows that any idea she comes up with is generally going to be a bad idea (e.g. the treatment of the Windrush or the dementia tax).

So its probably not a huge surprise to hear that her brexit trade policy has been criticised from both sides of the house, with both leavers and remainers arguing against it. Even Donald Trump turned his nose up at it. And its almost certain to be rejected by the EU. Its effectively been declared dead before the ink’s had a chance to dry.

And the Tories are now taking a pounding in the polls, slipping behind labour again, with a sharp rise in UKIP support (recall that in some marginal seats every vote for UKIP is effectively a vote for…

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NATO Funding

daryanblog

Trump, in between insulting his hosts and committing several diplomatic faux pas, criticised other Nato members over their defence spending, most notably Germany. However, the situation is a little more complicated that he suggests. If anything this is a case of the pot calling the kettle black.

Firstly, Germany has a very short coastline, and thus not much of a navy (which means they don’t need to but expensive kit like nuclear subs or aircraft carriers). And they also don’t have nuclear weapons. Both of these factors reduces their military spending considerably, as well as the number of personnel required.

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Overall, Germany has the 5th largest military in NATO. And with the exception of Turkey all of the other 3 are both nuclear powers with a large navy. It also has the 4th largest military budget (in terms of overall spending). And again, all of the 3 ahead…

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What “new tech” needs to learn from “old tech”

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Much is made of how “new tech” companies (Uber, Tesla, Amazon, etc.), often start ups from out of silicon valley, represent a new paradigm in how they do business. Its not just that they tend to be heavily dependant on the internet and new technology, but the manner in how they run their companies and pursue new business ideas is decidedly different from how other more established corporations go about things. While this can often lead to them being ahead of the curve, I worry if it also leads to them making schoolboy errors and thus much more risky firms to invest in.

Tesla under Elon Musk is a good recent example of all that can go wrong. He’s been in the wars recently, with all sorts of problems within his companies, notably Tesla. His promises to raise production up to 6,000 cars a week hasn’t been met due to production problems, with workers complaining about being over worked as it is. Ironically the production problems seem to be more related to too much automation rather than too little.

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Too many robots are spoiling the broth!

And its not just issues with the model 3, this is merely one of a long list of woes, ranging from hacks of its computers by bitcoin bugs, and fights with regulators and investors. Solar city is also causing problems, not least the addition of £2.9 billion to Tesla’s not inconsiderable debt pile. This in a company that recently reported a £700 million loss last quarter, with a burn rate of money at the rate of $6,500 a minute.

Indeed, its worth looking at Tesla’s financials. They take in $11.76 billion in revenue with 35,000 employees producing 30,000 cars a quarter. By contrast Ford takes in $156.8 billion with 202,000 employees producing 1.65 million cars per quarter. This implies that Ford produces 8 times more cars per employee than Tesla and requires a quarter the investment. Now as I discussed previously, we need to be careful comparing a startup like Tesla to an established car company like Ford, which isn’t so much a car company, but a pension fund that makes the odd car. And since we’re talking about it Ford took a $4.8 billion loss last year (which kind of puts Tesla’s losses in a different prospective). But even so, Tesla is still well behind in terms of where its productivity needs to be.

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And to make matters worse, there’s the temperament of Musk himself. His decision to send his car into orbit for example (not exactly the sort of thing a sane person does!). He’s made several ill-timed statements, vetoed certain questions at a press briefing because “they weren’t cool, even accused a member of his staff of sabotage and he’s gotten himself into a pissing contest with journalists (CEO 101, arguing with journalists is like mud wrestling a pig, you both get dirty and the pig seems to enjoy it). He also threw a strop after the Thai’s decided against using his (untested) submarine to rescue the trapped kids last week. While he’s long been known to be a bit of an eccentric, these sorts of public displays are not helping his, nor Tesla’s, image.

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Ultimately I would argue the problem with Tesla and many similar tech companies is they are way too top down. With someone at the top making decisions and not enough due diligence being applied to those decisions. The normal practice in firms outside of silicon valley is to bring in a bunch of experts to scrutinise any such proposals. Engineers and scientists will work out the technical feasibility, bean counters will go over the numbers, while sales and marketing will try to establish if its a product they can actually sell and turn a profit on. But this doesn’t seem to happen in silicon valley firms, where often the desire is to be first to market and damn the torpedoes. This kind of attitude is at least partially to blame for a number of Tesla’s woes.

For example, this too many robots business. We’ve been here before. As I mentioned in a prior post, back in the 80’s Japanese car companies, facing labour shortages and high wages, went gaga for robots. They filled their factories with so many of them that the few remaining workers were afraid to go to the bathroom, least the find a robot in the cubicle ready to wipe their arse. Well needless to say, they soon discovered this didn’t improve quality as much as they’d hoped. And while they reduced the number of low wage employees, this was countered by having to employ technicians to maintain the robots and the higher capital costs of fitting out the factory. So a little bit of research by Musk or his staff would have reveals this.

Another production bottleneck at Tesla was the decision to switch from aluminium to steel for the model 3. While steel is cheaper and easier to work with (thus reducing costs), there are differences in how its worked, notably in terms of welding together joints. Indeed some experts have raised concerns about the quality of Tesla’s spot welds. Poor quality welding would not only lead to production problems, but NVH issues (rattling “tin box” sort of noise) and longer term corrosion problems. So while a good idea, it was one that should have involved a little bit more forethought as to its implications.

On a related note, Musk has also recently announced that Tesla will be opening up car production in China. Which is probably not surprising, as Trump’s tariff’s (somewhat ironically) means you don’t want to be a company that exclusively manufacturers in the US.

I’ve talked before about the issues relating to Musk’s proposed hyperloop and BFR rocket. Now this is not to say there isn’t any harm in doing research into these fields. But you’d want to test the technology first (and again establish whether there’s a market for these transport options) before say, starting to tunnel under LA. Which is the problem when you move from the software world to the real one. Screwing up in the real world costs lots more money and you can end up leaving a lot of very expensive holes in the ground.

But in fairness to Musk and Tesla, he’s hardly the worst offender. After all, he is producing cars and rockets, they have working hardware which is being incrementally improved (the question is whether he can pull it altogether before he runs out of cash). By contrast some howlers have come out of silicon valley startups that make Musk look like about as frugal as a Scottish Presbyterian minster.

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Juicero, now practically a text book in how to fail!

In just the last couple of years or so we’ve seen the collapse of Juicero, various crypto-currency bubbles, the outright fraud that was Theranos, the infamous fyre festival, those two water woo devices I made mention of, the similarly doomed Mitte (which seems to combine the worst aspects of Fontus Fart Us and raw water), the Triton aqualung scam, the Skarp laser razor and don’t even get me started on solar roadways. And I recall a few years ago those bomb detectors that turned out to be nothing more than an aerial with a supermarket asset tag.

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The next Steve Jobs” turned out to be little more than a fraudster hyped up by the media

Other bad ideas in the works of becoming failures include Amazon’s idea of drone delivery. Which aside from a host of legal, privacy and practical problems (I live in flat, what’s the drone supposed to do? crash through a window!) its likely to come to an abrupt end after someone’s pet cat gets decapitated by one (cats, certain dog breeds and passing birds of prey, all have a high prey drive, they’ll likely try and attack any drone they see). Or Uber’s self driving taxi’s. While autonomous vehicle research has some merit, Uber’s goal is the narrow desire to avoid having to pay its drivers. Inevitably they are just moving too fast for society to keep up. And it might actually hinder or hold back development, once the inevitable regulatory crack down hits.

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That escalated quickly!

Clearly many of these ideas won’t have gotten funded if anyone had paused for a wee while and done some due diligence prior to signing on the dotted line. A few basic back of an envelope calculations, or a bit of basic market research….or consulting a small child and the obvious flaws in these projects would have been identified before millions of dollars were wasted. Indeed, in the case of Theranos, someone did do due diligence, warned his employers something didn’t add up, but they ignored him. What is going on here? I mean I’m assuming these companies are hiring business studies graduates, what are you doing with them, having em make the tea?

So it seems to me that there has been this cultural shift. Many people seem to treat technology as if its some sort of mobile phone app. Got a problem? Install technology. And even the CEO of tech companies seem to have fallen for this fallacy. There is perhaps a need for “new tech” to take a leaf out of the book of “old tech” companies. Basically, if something sounds to go to be true, then it might well be. Thoroughly fact checking everything, bring in neutral outside experts to analysis anything you might lack the technical expertise to do. And be wary of any charlatan who tries to sell you some sort of “black box” solution.

Posted in 3D printing, aviation, cars, clean energy, economics, environment, flying car, future, robot car, space, sustainability, technology, transport, water scams | Tagged , , , , , , , , | 2 Comments

The Southsea bubble: brexit edition

daryanblog

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I joked before about how when the brexiters talk the talk aboutexciting” trade deals “in emerging markets” they don’t say where are these mysterious new markets. Timbuktu? Peru? El Salvador?….Well actually yes. The brexiters think that they can substitute trade with the largest single economy in the world, for trade with Latin America. Things I’ll say in jest, they’ll say with a straight face. Humour and satire are again being outrun by facts.

So, what’s wrong with this idea? Well firstly the South American economy is worth only about a quarter of that of the EU economy. And while the UK literally has a pipeline to the EU, via the channel tunnel, Latin America is the other side of the world…and on the other side of the inter-tropical convergence zone (if you’re a nervous flyer, you don’t want to fly to south…

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Uber crash update

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We’ve got a bit more information on the Uber crash from a few months back. Firstly it would seem that the computer identified the victim as a cyclist (as she was pushing a bike) and thus it likely didn’t anticipate her stepping in front of the car. Why didn’t the “driver” then stop the car? Because she was watching TV at the time. So this kind of highlights a point I’ve long made about autonomous vehicles. A bored, inattentive driver will have mere milliseconds to react to a crisis, and they will almost certainly not be able to respond in time.

All of that said, the victim herself also isn’t entirely blameless. There were traces of drugs in her system, which probably explains her failure to look both ways before stepping onto the road. So it is starting to sound like a standard car accident, a car “driver” who wasn’t paying attention, a pedestrian who also wasn’t…..and an inexperienced learner driver (the computer) which misinterpreted the actions of a cyclist/pedestrian.

Indeed, this does highlight the problems a computer faces in making decisions. For example, take the two photographs below. I’m going to guess that anyone reading this would automatically slow down if you saw the little girl, but you might not slow down for the guy on the racing bike (in fact if you met him on an open road, you might speed up so you could overtake safely!). There is a level of judgement you’ll apply and its difficult to see how you teach that to a computer.

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Another example, I was coming down the A9 the other day (aka “the highway of death”) and I noticed a guy in an Audi coming down to a junction in front of me, guessing he won’t stop (like the big “stop” sign in front of him says he should!) I slowed down a wee bit and held my foot over the brake. And low and behold, he pulled out in front of me, forcing me to brake. Again, how do you teach a computer that certain drivers are cu*ts?

So there’s a long way to go before AI can fully take over from human drivers. I can see some possibility for using them, but probably only in a controlled environment, such as motorways, and where all the vehicles on the road are autonomous. Unfortunately, Uber’s main motivation seems to be simply at finding away of eliminating its drivers and saving itself some cash.

My guess is that the “driver”, while certainly at fault (thought its not entirely her fault) is going to get hung out to dry. Arizona is the sort of place where a hispanic on a low wage has about as much chance of getting a fair trial as you’d get in Salem in the 17th century. Its going to be all too easy to pin the blame on an obvious scapegoat and that’s what I suspect they’ll do.

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What happens when the carbon bubble pops?

One of the issues regarding energy that often gets missed is the financial implications of the transition away from fossil fuels. With assets worth many trillions of dollars, which a transition away from oil could well render worthless, one has to worry about the economic consequences once the penny drops.

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I think the problem is that many people just don’t realise just how fossil fuels, in particular oil, is deeply embedded in the world economy. Just considering the world’s top ten oil companies, they pull in about $3 trillion in revenue each year. If just those ten companies formed their own country, they’d be the 5th largest economy in the world. So a not insignificant amount of the money sloshing around the world’s financial markets is fossil fuel money. Either the profits raked in by oil companies, which they are looking to invest (notably the oil revenue from oil rich states). Or its money that the oil companies are raising in loans (borrowed against their existing oil stocks) to go out and look for more oil.

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And to make matters worse, given that fossil fuel’s have traditionally been seen as a “safe” dependable industry, some of the heaviest investors in fossil fuels are usually the very people who can least afford to take losses, pension funds for example.

Then there’s the petrodollar conundrum. American’s economic strength is in part based on the simple fact that oil is traded in dollars. Obviously, we’re doing less trade in oil in the future, suddenly we don’t need as many dollars floating around. The value of US treasury bonds falls out of bed, interest rates go up and the US can’t afford to service its debts anymore. And guess who is the biggest holder of US treasury bonds? Yep, pension funds. So any popping of the carbon bubble might easily spark a serious financial crisis, with pensioners and US pension funds finding themselves at ground zero.

Naturally, taking action on climate change will require that a significant proportion of these trillions worth of fossil fuels will have to get left in the ground. However, even if we ignore climate change, which of course we can’t (but there are some in the world who think we can!), that simply delays the problem. Fossil fuels, and oil in particular, will still be stuck with the risk of a financial bubble. There’s the small matter of peak oil.

Part of the problem with peak oil is I think many don’t fully understand it. People talk of “running out” of oil, when its more a matter of supply v’s demand and the economic consequences of trying to tie these two together. Plus the fact we can’t necessarily pump oil out of the ground at any arbitrary rate of our choosing.

Most of the oil we’ve exploited up until now has been the cheap, easy to access oil. What we’re increasingly left with is the more expensive oil. The capital expenditure needed to extract this oil is much larger than for conventional oil plays. Its a lot more expensive to drill in deep waters, frack or build the vast infrastructure needed to process tar sands oil than it does to run a traditional oil drilling operation. Higher capital expenditure makes for more financial risk.

Now if the oil price were to say go to $200 a barrel and stay there, we’d be able to pay off those debt’s easily enough, but that’s not happening. Instead oil prices have largely stagnated. And the worry for oil companies would be that if they were to fall, not only would they cease to make money on the oil play’s in operation, but they could easily be rendered insolvent. So the oil industry is becoming more risky and less profitable.

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Now historically, the assumption was that oil prices would just keep going up and the suckers customers would have to just deal with that. But the growth of renewables has created a alternative to fossil fuels. While renewables are still some way off competing against fossil fuels on price, the gap is narrowing.

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Consider for example this article relating to the Canadian tar sands which compares the outcome if instead of investing $200 billions in tar sands, Canada had instead invested it in renewables. Its a bit of a simplistic way of looking at things, but you get the message. It wasn’t a sensible investment, the Canadians got screwed.

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There’s a bit of a debate about what would be the “breakeven” oil price (or NG price) where fossil fuels would become uncompetitive, but this ignores how the energy industry works (i.e. the differences between heating demand, electricity and transport fuels). Even so, its clear that as things stand, in some areas, notably electricity production and home heating, fossil fuels like oil and coal can’t compete any longer against renewables (although natural gas can do so….for now!).

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In other areas, such as transportation, oil prices could drift upwards to some extend, but my guess is anything above $100 a barrel won’t be a good idea, as that would likely encourage more fuel efficient vehicles (hybrids) and fully electric cars. And before anyone says subsidies, recall that fossil fuels are in receipt of vast subsidies, about $5 trillion a year by one estimate (worldwide), far more than we spend on renewables.

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Fossil fuels are also in competition with each other, not all fossil fuels are equal. Natural gas for example is in a battle for market share with coal, a battle that coal is losing. But even within the oil industry there’s competition, as certain producers, such as those in the middle east, can pump at a much cheaper price than say oil shale producers in America. Without a significant rise in oil demand, and thus oil price, the Saudi’s can just pump and sell at a lower profit margin. Yes, that will hurt their economy, but its not going to bankrupt them.

In fact even that last statement isn’t entirely correct. Because the truth is that US shale oil doesn’t compete with Saudi oil, it never has and it never will. Its the wrong kind of oil. Saudi light crude is the preferred oil for running things like cars and trucks. We could well see a scenario where the price of oil does climb, but only for the types used in vehicles and hence the tar sands and shale oil producers still end up losing their shirts.

What all of this indicates is that fossil fuels is going to become constrained to various narrow energy niches over time. And the danger is that those niches are going to start to implode on them, either because they just can’t pump enough of the stuff at a low enough price, or technological changes simply makes their product obsolete. The recent collapse of the coal industry in the UK is a good example of how this might play out, making them something of a canary in the coal mine (if you’ll pardon the pun).

On top of all of this, there’s disinvestment in fossil fuels. This is being pursued by many who argue its unethical to invest in fossil fuels given all we know about climate change. As a result a number of investors have started to pull their money out. However, given everything I’ve said, there’s a compelling economic argument in favour of fossil fuel disinvestment as well (particularly if you are a pension fund!). So the danger for the fossil fuel industry is that they could find it harder and harder to borrow money and invest in new oil projects, leading to eventual drops in production.

Now given all I’ve said, some might argue that it would be sensible to keep investment in fossil fuels going for the sake of financial stability. This I suspect is the line the Koch brothers will take when they put it to Trump. However, this assumes we can ignore climate change, and again we can’t do that. Renewables are part of the solution not the problem. They provide an alternative source of energy and an alternative market for investors to invest their money. The carbon bubble is going to pop anyway, because all bubbles inevitably do so. That’s economics 101.

And a correction caused by the bursting of an economic bubble doesn’t necessarily mean a financial crisis. The bursting of the dot-com bubble, while certainly bad news for anyone investing in a company with .com at the end of its name, it didn’t trigger a global financial meltdown. The coal industry, as noted, is collapsing, yet I don’t see investors leaping out of windows on Wall Street over it. That’s because the markets have known since the 1980’s that coal is a dying industry and took their money and ran along time ago. There’s economic problems (leading to social problems) in coal mining communities (soon to be ex-coal mining communities!). But this has more to do with ineffective government policy, which has focused on trying to improve efficiency in the coal industry or relaxing environmental rules (so they can dig more coal), when the fundamental problem is that nobody wants to buy their product anymore. They should instead be running down the mines and focusing on developing new industries to provide alternative jobs.

So in theory, if everyone sees it coming and everyone reacts accordingly (investors gradually pull their money out of the industry, the oil majors cancel any risky expansion plans and focus on running down the fields already operating, governments encourage investment in renewables to make sure there’s no energy shortfall) we’ll all be fine.

But there’s the problem. I’d argue that all the indicators are that while some will get out and others may even attempt some sort of big short of the carbon bubble, many in the markets and certain governments simply won’t see it coming. Egged on by special interests, they’ll try to defy the laws of economic gravity and while they will succeed for awhile, eventually they’ll fail, unleashing a heck of mess. And its a mess that could easily bankrupt entire countries and lead to another depression.

Posted in cars, clean energy, climate change, economics, energy, environment, fossil fuels, Global warming denial, peak oil, politics, power, renewables, Shale Gas, Shale oil, subsidy, sustainability, sustainable, Tar Sands, transport | Tagged , , , , , , , , , , , , , , , , | 3 Comments

News roundup

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Do panic

A few months back the brexiters complained that they wanted the Royal Mail to celebrate brexit by issuing stamps to mark the occasion. Well RM seem to have met them half way by issuing a set of “Dad’s Army” stamps. Clearly someone at RM is trolling the brexiters.

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Inevitably perhaps, others have been creating their own versions of potential brexit stamps.

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Our Brexit, hallowed by thy name

Meanwhile, back in the mad house, Saint Theresa of Maidenhead May suggested that an extra £20 billion would be available after brexit for the NHS thanks to the “brexit dividend.

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This was met with incredulity by many. At the time of the referendum when they made similar claims, it was pointed out that the UK only really spends about £8 billion on its EU membership, once farm subsidies, rebates, research funding, structural funds and other things…

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