Steven P. Gregory's Blog, page 3

Waiting For My Interview

At some point, surely CNN will get around to interviewing every licensed pilot in the United States about Malaysia Airlines Flight 370.  I’m an inactive private pilot and no doubt pretty far down the list, but I’m nevertheless preparing for my interview.  Mine may be the shortest interview aired on the subject, but it may be the (most? only?) honest one.  I imagine that it might go something like this:

Anderson Cooper:   Mr. Gregory, in your opinion, what happened to Malaysia Air Flight 370?

Me:  I don’t know.

The New York Times’ Editorial Page: Playing College Football is a Job

The New York Times opined today on its editorial page that playing college football is a job.  I couldn’t agree more.  Moreover, as the Times notes, the only participants in major college football who aren’t getting rich are the players.  And Obama wants to punish the Russian oligarchs?

I’ll let the New York Times do the heavy lifting on this one.  The editorial is here.

Small Investors May Not Be Able to Sue Crooks Much Longer

Most small investors probably didn’t notice when the United States Supreme Court (the “Court”) heard oral arguments on Wednesday, March 5, in a case out of the Fifth Circuit styled Halliburton Co. v. Erica P. John Fund, Inc.  But the outcome of this case could create a profound impact on the ability of small investors to sue for securities fraud, no matter how egregious or obvious the fraudulent statements may have been.

Since the release of the Court’s opinion in Basic, Inc. v. Levinson in 1982, securities investors suing for fraud under the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 have been granted the presumption that they relied on the fraudulent misstatements or omissions made by the defendants under the theory that those misstatements were baked into the price of the security.  Stated differently, Basic applies the efficient markets hypothesis to securities fraud class actions.  Without this presumption, which has come to be called the “fraud on the market” presumption, each individual member of a class would be required to show reliance on the false or misleading statement or omission, rendering class certification under Rule 23(b)(3) of the Federal Rules of Civil Procedure problematic, because individual issues of reliance would predominate over common issues.

In Halliburton, at the class certification hearing in the trial court, the Defendant sought without success to rebut the fraud-on-the-market presumption that the misrepresentation was incorporated into the price of the stock by introducing evidence that the misrepresentation did not distort the price.

In an era post-crash when the confidence of small investors in the integrity of the markets remains shaky, overturning Basic’s fraud-on-the-market presumption would carry the risk of further alienating small investors and supporting even further the recently-current idea that the “one percent” have become wealthier on the backs of the “ninety-nine percent.”  The guess here, based on reviews of the argument (especially those posted at scotusblog.com), is that while the Court may tinker slightly with the Basic holding, the fraud-on-the-market presumption will remain in place.  If so, individual investors ought to raise a glass to common sense having its day in Court.

Why I Did Not Buy [a] Tesla [Stock] This Week

As it happens, I am, more or less, in the market for a car.  Our son commutes to an urban private school in our oldest car, a Volvo SUV (averaging sixteen or seventeen miles per gallon); I’m a little tired of the manual transmission in my Boxster; a little tired of its small size (it’s a little cramped, even for my five-ten); a little tired of a car with only two seats.  I drove it on tracks (e.g., the incomparable Barber Motorsports Park) at Porsche club events enough times that I reached a saturation point.  Bored.  Sort of a “been there, done that” feeling.  Professional race car drivers must surely be part hamster (around and around and around and….).  My wife rarely drives the Boxster.  The other vehicle is a Honda pickup truck with a little body damage and the slowest steering I’ve ever seen on a road vehicle — it’s more like a ship’s wheel on a supertanker.  My wife and son will drive it, but neither likes it.

So, this weekend, after mountain biking with a friend, we were driving home and speaking of cars and oil and energy and such (techie guy stuff, yeah — he’s an engineer), and I mentioned this automotive quandary and, in context, that I’d read that a Tesla Model S battery pack stores enough electricity to run the average house for three-and-a-half days.  Yes, days, not hours.  Combine that energy storage with solar recharging, and you’re off the electrical grid, maybe forever.

And a light bulb (hah!) went off.  Why not a Tesla Model S?  Yes, they’re expensive, but you’ll never buy gasoline again, they require virtually no maintenance (no oil changes, no transmission fluid changes, no power steering fluid, no spark plugs, and, because of regenerative braking, no brake pads for 100,000 miles).  (No, a Tesla Roadster, he said (he’s sort of a sports car guy)).  Well, first, Tesla no longer manufactures that model (they make only the Model S), and second, the Roadster was just an electrified Lotus Elise, and I would not pay fifty cents for a Lotus Elise, having climbed across the gunwales of one and sat in it for thirty seconds and rejected it before buying the Boxster.  I’ve seen creative kids build more substantial cars out of cardboard boxes.

But the Model S differs from a Tesla Roadster as a Trabant differs from a Mercedes-Benz S550.  The Tesla Model S, if the automotive press can be believed, may be the best luxury car in the world.  Motor Trend Car of the Year for 2013.  Heavy.  Substantial.  Safe (the major factor to my wife).  Consumer Reports considers it the best car they have ever tested.  Highest marks for safety in its class, which includes the BMW 7-series and the S-Class Mercedes, both of which it outsold last year.

Back home, I mentioned this epiphany to my wife.  We proceeded through a mildly-enthusiastic period, during which I filled in a form for a test drive on Tesla’s website.  A couple of hours later, a nice-sounding fellow from Tesla in Palo Alto called me back and left a message on my cell phone.  As I write this, I haven’t yet called him back.

Tesla owners report few quibbles.  Sometimes the automatic door handles don’t pop out when commanded.  The interior (designed for a sleek contemporary Apple-ish look?) includes no storage bins, a minimalist glovebox, and the rear seats have no cupholders and no fold-down armrest.  Nevertheless, owners seem to love the car.  Quality, safety, reliability, even range (real-world range is about two hundred miles, though Tesla claims 265 for the most expensive package) seem at least adequate for a large, expensive luxury car.

But one issue has kept me from calling back for that test drive:  what if Tesla doesn’t survive?

Tesla faces numerous obstacles.  It offers only one model.  According to some analysts (see link here), sales in the U.S. appear to be declining as potential buyers wait for promised improvements to the Model S and as others wait for the new Model X or the promised Model E, the affordable Tesla.  Tesla also faces supply constraints, which led it to plan for and announce that it will build the world’s largest lithium-ion battery plant.  That undertaking itself poses enormous risks and challenges:  Tesla doesn’t own the technology; Tesla has never made a battery; Tesla’s sales must increase by more then ten-fold to justify the cost of the plant; battery margins may not decline; Tesla hasn’t yet selected the plant site, let alone conducted an Environmental Impact Assessment or hired and trained workers; another battery technology could disrupt Tesla’s plans.  See article here.  These issues aren’t really different in substance, mutatis mutandis, from the issues that have crashed other automobile startups, from Tucker to DeLorean to Sterling to Fisker.  It’s the chicken-or-the-egg problem.  We could sell more cars if we had the capacity, and if we had the capacity….  Automobile manufacturing is capital-intensive even if you don’t have to build a new battery factory in order to have the capacity to build more cars.  A risk-ratcheting effect applies which is unique to Tesla.

Maybe it’s cool to have a DeLorean in your garage today, but when it needs parts, you can’t drop down to Autozone.  This problem looms a million times worse for Tesla owners, who own not simply a new car from a new manufacturer, but a new, one-off technology.  A good shop could probably drop a small-block Chevrolet engine into that DeLorean.  If battery technology bypasses Tesla, if they can’t get the plant out of the ground and producing batteries soon enough, if they go bankrupt because sales revenues don’t meet projections . . . when that battery dies, the Tesla will never be anything but an expensive paperweight.

These considerations did not occur to me in a car buyer’s vacuum.  As a speculator, I already owned a few puts on Tesla.

Like its Model S, Tesla stock is expensive.  The price to earnings ratio, the traditional measure used to determine whether a stock’s price is reasonable, even after a twenty-point drop from the all-time high, remains non-meaningful, or impossible to calculate:  the company reported a net loss of sixty-two cents per share for 2013.  Nevertheless, the share price increased by 616 per cent from March of 2013 to March of this year, and the stock is up over 1,300 per cent since the IPO.  Tesla’s market cap sits at around $30 billion.  BMW’s market cap is just over $70 billion.  Tesla projects it will sell 35,000 cars this year.  BMW will sell over two million cars in 2014.  Tesla’s stock chart appears to have printed what technical traders call an “exhaustion gap” above $215 per share (the stock is now around $239), and the stock recently fell below an important trendline.

So instead of buying a Tesla Model S, I doubled my put position (And of course, the stock went up the next morning and I got stopped out of the position.  So it goes.).

I hope Tesla survives, because the United States needs another successful auto manufacturer, because the Tesla Model S is the most intensively-U.S.-sourced car in the world, and because, as Road & Track wrote, “[f]or the first time since automobiles had fins, the world stands in awe of a car from the United States,” and because I’d really like to own a Model S, and I wouldn’t mind replacing the Volvo with a Model X.

But history, and, ironically, even technology, may not be on Tesla’s side.

P.S.  Legendary investor Jeremy Grantham is on board with Tesla — the car, if not the stock.  See Grantham’s recounting of a ride in a friend’s Tesla here.

Social Media, Social Issues: Sexual Abuse in an Alabama Women’s Prison

I do social media.  I’m not saying I “get” social media; like charisma, or beauty, or likeability, whether someone “gets it” is for others to judge.  But I’m there:  9,000 Twitter followers (and following-ers), and 600-plus Linked-In connections and Facebook friends (Can’t someone come up with a collective noun for social media connections?  Maybe cyberfriends?).

I also conduct informal social media experiments.  For example, I’ve noticed that when I or a Facebook friend posts anything personal — a baby picture, a child’s junior-high graduation announcement, a puppy’s graduation from house training, what someone made for supper — likes and comments flood my Facebook news page.  Similarly, post a lost-cat or adopt-this-doggie story, and cybersociety will beat a path to your door.  Post a political story or comment, though, and unless it’s controversial and argumentative enough to bring out the trolls and haters, the post is greeted with silence.  And post a link to an essay longer than three paragraphs, say, to 93-year-old Roger Angell’s recent meditation on aging published in his beloved New Yorker, no matter how incisive, reflecting, educational, or life-altering the article, and you can almost hear the “unfollow” buttons clicking.

So I should not have been surprised when my link to a story reported by The Birmingham News about prisoner sexual abuse in the Alabama women’s prison called Julia Tutwiler (why are prisons named for persons who were never incarcerated?) garnered exactly one “like” and one comment, both by a fellow lawyer who reliably shares my views on this particular issue (but not, certainly, all others).  Maybe it’s the “ick” factor, but my social media connections were seemingly unaware or unconcerned.  To paraphrase one Birmingham journalist (in a Facebook comment), if someone posted a link to such outrageous treatment of dog, cats, or horses, Facebook and Twitter would explode.  At least in my little corner of social media, my posting of the News’ reporting on this story drew almost no attention at all.

Surprised, no.  Saddened, yes.  Here under the noses of Alabama citizens thrives a human rights debacle similar in character, equal in horror, to the systematic rape of Bosnian Muslim women by Bosnian Serbs, https://en.wikipedia.org/wiki/Rape_in..., mass rape during the Rwandan genocide, https://en.wikipedia.org/wiki/Rape_du..., or the outrage of contemporary human trafficking.  https://en.wikipedia.org/wiki/Human_t....  These larger, ongoing human rights issues dwarf the Alabama prison problem in terms of scale but not in terms of substantive, victim-by-victim violations of human rights.

According to The Birmingham News, on January 17 of this year, the United States Department of Justice released a report of its investigation of sexual abuse of prisoners at Julia Tutwiler Prison.  The report found prison conditions unconstitutional “and condemned the ‘toxic, sexualized environment’ at Tutwiler,” according to the News.  The report resulted from an investigation commenced in April 2013 after a National Institute of Corrections investigation (requested by Alabama prison commissioner Kim Thomas) found problems with male supervision of female prisoners at the prison. Thomas issued the request when the non-profit Equal Justice Initiative reported receiving complaints about sexual abuse and harassment at Tutwiler.   http://blog.al.com/wire/2013/04/us_ju....  To be blunt:  Alabama female prisoners have been raped and otherwise sexually abused for decades, and state authorities have done little or nothing about it.

Who is ultimately to blame for this situation?  The guards?  The prison administration?  Politicians who for decades have ignored these problems and kept prisons underfunded?  Yes. And no.  Ultimately, all those groups are but the instruments of the citizens of Alabama.

Nelson Mandela, who should have known, wrote:  “It is said that no one truly knows a nation until one has been inside its jails.  A nation should not be judged by how it treats its highest citizens, but its lowest ones.”

This human rights scandal marks another permanent stain on the reputation of Alabama, right alongside slavery, racism, three-strikes laws, inequality in school funding, and others.   Is this how Alabama wants to be judged?  Where is the moral outrage?  Where are the right-wing “Christians” — or, indeed, any “Christians” — on this issue?  Why aren’t Alabama religious groups picketing in Montgomery and demanding an immediate and permanent solution to this ongoing problem (The Department of Justice concluded that it dates back almost two decades.)?  Surely they recognize the applicability here of Matthew 25:40 (“Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.”) — not to mention the Golden Rule, perhaps the most fundamental ethical or moral normative statement of decent human behavior, one found in more or less the same version in virtually every human culture and religion.  To put the hay down where the goats can eat it, if your sister or niece or aunt had somehow run afoul of the law and were sentenced to serve time in Tutwiler Prison, is this the way you would want to see her treated?

Make a difference.  Repost the news stories from al.com.  Call or email the Governor, your state senator, and your state representative.  Remember the admonition attributed to the British statesmen Edmund Burke:  “All that is necessary for the triumph of evil is that good men do nothing.”

Publishers Weekly Nails It: New Review of Cold Winter Rain

Last week, Publishers Weekly, one of the major voices in the publishing industry, posted a new review of my first novel, Cold Winter Rain.  I’m not saying this just because the review is unswervingly positive, but this reviewer perfectly captured the tone and the atmosphere of the novel.  Great review:  Read it here.

Slow Drivers: Stay Out of the Left Lane

A police officer makes a point to a slow driver in the fast lane.

How the Economic Machine Works, by Ray Dalio: A Post-graduate Degree in Economics in 30 Minutes.

You’d listen if this video featured Warren Buffoon (sorry, misspelling) Buffett.  You should listen to Ray Dalio.

Shift in Magnetic North Pole Induces Manuscript Error

The editor of my first novel, Cold Winter Rain, performed her task almost without flaw.  As I am also married to her, the quality of her work heightened my appreciation of her capabilities with language, memory, analysis, persistence, even organization, all the requisite skills of a successful book editor.  (She is a retired college English teacher.)

I had spent over a decade working sporadically on the novel until, a few months before its completion, I finally had enough daily time to devote to the work and, simultaneously, had written enough of the manuscript to see a way through to the end.  But through so many stops and starts, conflicting descriptions, dates, times, anniversaries, events found their insidious way into the book.  My editor wife sorted these out with only an occasional suggestion that I might have taken more care with descriptions of clothing or temporal references.

But one mistake slipped through, an error that few editors would have caught, I suspect, except one who possessed all the above-listed traits as well as a pilot’s license.  Slate, the main character in Cold Winter Rain, is a pilot.  Though the character’s accomplishments in the air exceed mine by several flight levels, I do hold a private pilot’s license.  Early in the novel, Slate flies his airplane, a Czech L-39 jet trainer surplussed for private sale in the United States, into the Birmingham, Alabama, airport (or BHM, as flight charts and commercial flight schedules designate it), landing on runway 5.  Later, however, heading for New Orleans, he departs on runway 24.  The reciprocal runway designation for runway 5 should be 23, not 24.

A friend, a fan of the novel who happens to be an active pilot and an engineer, pointed out this error after reading the book during a commercial flight to Albuquerque.

So how did I make that mistake?  I did not misidentify the runway.  During the decade I spent writing the novel, the Birmingham airport authority repaved BHM’s main, twelve-thousand-foot runway.  Originally the runway had been designated as 5/23.  These numbers refer to the magnetic heading, or orientation, of the runway.  The magnetic compass of an aircraft rolling down any runway 5 on takeoff should indicate a magnetic heading of “050,” or fifty degrees.  When the main runway at BHM was repaved, the magnetic heading had changed since the big number “5” had been painted at the approach end of the runway and that runway designation had been printed in aeronautical publications.  The new runway designation became 6/24.  The magnetic heading had changed, not because the paving contractor changed the runway’s direction by ten degrees, but because the magnetic north pole had changed position. See this video news report about a similar change required for the Tampa, Florida, airport in 2010.  The magnetic north pole, now in the Canadian Arctic, has been moving toward Russia for the last ten or so years.  See the Wikipedia article here.

Anyone who has played with a magnetic compass at home or on the road, or, especially, in the air, knows that magnetic north and true north vary by zero, one, a few, or several degrees, depending on where on the planet the measurement is taken.  Aeronautical charts contain corrections for the difference between magnetic north and true north.  These corrections themselves have to be changed periodically as the magnetic north pole moves.

Pilots call this phenomenon of having to correct their course from magnetic north to true north “compass error.”  Sometimes, though, if a writer takes too long to finish a book, the movement of the earth’s magnetic field may induce a manuscript error as well.

Obsession With Safety Slows Innovation in Space

In his new book Safe is Not an Option, author Rand Simberg argues that too much emphasis on safety — most of it fueled by politicians — threatens to stifle human effort to push back the frontier of space.  Here is a link to an interview with Simberg in Popular Mechanics.  See my earlier post linking to an article about the disingenuous use of the word “safety” by elected officials.