High Moon

No, the title isn't a typo. If I'd meant to talk about the election again I would have called this post High Noon; it only means that I'm prone to making bad puns. I really do want to talk about today's full moon and how high it is in the sky.

I find that one of the pleasant compensations of the colder temperatures and loss of daylight this time of year is that it is also a time of brilliant full moons. Whether you call today's full moon the Harvest Moon or, more correctly, the Hunter's Moon, its appearance is the same. The full moons surrounding winter solstice in late December are higher, brighter and up in the sky longer than at other times of year. We may lose the sun earlier in the day, but the moon takes its place when its phase is near full.

This assumes, of course, that the sky isn't clouded over. More importantly you need to live at mid to high latitudes to get this effect. Since Ottawa is midway between the equator and the north pole, it qualifies. And the further north you go, the longer the moon is in the sky although it doesn't get quite to high above the horizon. This high full moon phenomenon is no coincidence; it is always true. The reason is that at full moon the moon is almost, but not quite, positioned directly opposite the sun from our vantage point.

I won't draw any fancy charts myself, though you can find those here on Wikipedia and in other referenced articles. The basic mechanics are as follows. The Moon orbits the Earth in nearly the same plane that the Earth orbits the sun; the planes are inclined to each other by 5 degrees. If the orbits were in the same plane there would be both a lunar eclipse and a solar eclipse every month. Instead the moon usually misses the Earth's shadow at full moon.

Now because of the opposite positions of sun and moon there are a couple of interesting geometrical facts. One is that at full moon, moonrise and sunset occur at the same time (again, not exactly but close enough), as do moonset and sunrise. This means that when the sun isn't in the sky the moon is (and vice versa), so that the full moon is visible throughout the long winter nights. Second, when the sun is low in the sky during the day it dips far below the horizon during the night. Since the moon is opposite to it, the moon must therefore rise high in the sky, reaching it's peak at local midnight (when the moon is due south, and not according to the clock). The same effect occurs in the southern hemisphere, offset with the seasons by 6 months.

The result is that for the next several months of cold weather for the days surrounding full moon each month we will have a brightly lit landscape throughout the night. Since the cold often brings clear skies we are likely to get the full benefit of this effect.

Is it of any use other than being pretty? Perhaps not in the city where there is artificial lighting. It is in the great outdoors where it is very noticable and useful. That's why the Harvest Moon and Hunter's Moon have the names they do; these are activities taking place outside of cities. For urban dwellers it does however have a recreational benefit. Think of midnight skiing and snowmobiling. With only a small amount of care and avoidance of deep shadows among the trees it is possible to frolic all night long, if you remember to dress warmly.

Think about that and look up the next few nights, which will hopefully clear from time to time. Winter does have its perquisites. Make your night-long party plans now.

Strategic Voting as "Prisoner's Dilemma"

In game theory there is a well-known scenario commonly known as a prisoner's dilemma. The basic form is as follows (from the Wikipedia entry):

In its "classical" form, the prisoner's dilemma (PD) is presented as follows:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

Strategic voting in the federal election shares some interesting similarities. As an example I'll look at the riding I live in, Ottawa West-Nepean. The two highest-polling contenders are Baird (Conservative) and Pratt (Liberal), with Baird in the lead. Far lower in the standings are Rivier (NDP) and Coates (Green). Now let's say I have a fervent wish to turf Baird from office and that I have leanings toward the Green Party (irrespective of the local candidate). Here are some conventional voting strategies that can be employed in the present instance:

• Vote for Coates: Call this a principle-based vote. However I strongly suspect she will get few votes and therefore my vote for her will not only not get her elected, it will leave Baird with his margin intact over Pratt. That is, my vote Coates leaves the contest between Baird and Pratt unchanged.
• Vote for Baird: Call this the unprincipled vote. Believing he'll be elected (based on the polls) I want to be on the winning side, even though I don't want him elected. This tactic is common in many places across the country in the belief that more benefits (pork) will come their way.
• Vote for Pratt: Call this the strategic vote: I prefer neither Baird nor Pratt, but by voting this way I increase the chance of defeating Baird since Pratt polls in second place by a wide margin.

Notice that in none of these approaches did I mention who I feel would be the best local representative. That is, the candidate who would best represent my local, not federal, interests. Typically there isn't often much to decide on that way since most elected MPs are only moderately responsive to local matters. Therefore I'll narrow the decision criteria to federal issues, and which are nearly always party aligned (enforced by the party whip).

To vote on principle (Coates) with any optimism requires that I not only believe that many other voters are also aligned with Greens on principle and that they will vote on principle. Like in the prisoner's dilemma, a mutually-beneficial outcome requires cooperation among non-communicating voters.

Unfortunately the election is far more complex a scenario: there are tens of thousands of potential 'prisoners' and there are several choices. There are also other competing principles such as the one for defeating Baird, which similarly requires voter cooperation. Not only that, many voters don't realize they're in a game of prisoner's dilemma and so do not consciously cooperate or defect.

I suspect that anyone in this position who looks at the problem this way will in the end throw up their hands in frustration and just vote for or against Baird. Therefore the game of prisoner's dilemma is lost, and the poll results hold through to the election itself and Baird is re-elected. Now it is true there are mathematically and computationally-proven optimum strategies for prisoner's dilemmas, but, unfortunately, they are entirely unreliable in the above election scenario; any one voter is unable to alter the momentum toward game loss solely using the ballot box. Regardless, some do try to think their way through it.

Note: In no way does any of the above truly represent my own voting intention. I simply picked a local and perhaps not so hypothetical example to illustrate the problems of strategic voting.

Not An Insatiable Appetite for Risk

Here's a funny quote:

Outspoken Connecticut Senator Chris Dodd has been out front denouncing the "companies that form the foundation of our financial markets" for "their insatiable appetite for risk."

Nonsense. It was an insatiable and unrestrained greed that is at the foundation of this crisis. When ex-CEO Fuld of Lehman was quizzed by Congress about his approximately quarter-billion dollar compensation, he did not acquire that with an appetite for risk. He and others were richly rewarded taking a percentage of the massive and obscure risk that they sold to others. Fuld has his money; the market collapse doesn't affect him, assuming he keeps that money in cash or gold. The only risk he took on what that of being found out before he could make his escape. He won.

So that was the method used. Buy a broken-down car (risky and over-valued debt), sew up the upholstery, steam-clean the engine compartment and paint the body, then tie it all up with a pretty pink ribbon and sell a fleet of the crud to others. The transaction fees on $62 trillion are substantial.

When the cars wouldn't travel in a straight line and kept stalling out, the buyers began to notice. They then looked around and found that everyone's car was the same. The streets are jammed with useless hunks of painted metal, making it impossible for anyone to get from point A to B.

It'll take a lot of bulldozers and tow trucks to clean up the mess. The metal recyclers are choking on the supply.

Startup Fear Factor

In the past 10 days there were two venture capital forums in Canada. The Banff Venture Forum last week, and the Ottawa Venture and Technology Summit this week. Both featured many startups looking for investor exposure, and investors talking among themselves. I was at neither, since I am not a VC and, as a budding entrepreneur, I just don't see the point of trying to get accepted into these venues. After all, VCs are always available to meet and talk, but not to invest. Not now.

As I described in an earlier article, there is no investment because there is no visibility of profitable exits. It's very simple but it get obfuscated by rhetoric from the VCs not doing any new investing. Here are some quotes from articles from CBC and Business Week:

"Rather than sprinkling a little bit of money in 15 or 20 companies, most VCs now would prefer to put more money in eight or 10 companies and make sure those companies have a better chance to succeed."
-Neal Hill

Does this mean they did poor due diligence in the past? There was some of that, though they got away with it because the exits used to be fast and easy; they passed the weak companies off to others. To be a bit cruel, we can call this dumb money selling to dumber money.

...the companies that went public or got acquired went for smaller amounts of money, and took longer than ever to get there.

Nortel, to pick a local example, now has a market cap barely over US$800M. They do not have the currency to acquire companies, even if they had the desire to do so. With far less competition for acquisitions, those large companies that do have money prefer to wait for the desirable startups to become distressed or bankrupt and the pick up the technology, intellectual property and key engineering staff for a song from investors desperate for any return, even if it's pennies on the dollar.

"Maybe you do have to slow things down a bit to preserve a little more cash, but to create more steady business."
-Bernie Li

That is to say, to a VC's portfolio companies, you are not going to get any more money for a long time. You can choose to sink or swim.

Jason Calcanis has much the same message, coming from the entrepreneur side of the fence:

It’s my believe that the economic downturn will be much worse than it is today, and that 50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.

Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.

Ouch!

So there you have it. Not only is it not getting better for entrepreneurs, it's getting worse. Further, expect to see more VC firm go moribund or exit the field altogether. With no exits their existing funds are tapped out. No new money comes in because current investors are losing, badly, over past 5+ years. New investors are staying away because they don't see the pay off. With the current credit crunch there is even less risk capital available - so-called 'safe' instruments are now also proving to be brimming with unanticipated risk.

There is low to zero IPO activity in the US (adjacent chart taken from the referenced article by Bespoke Investments). Closer to home there were no IPOs on TSX in September following a year-long slide lower. Those that have IPO'd recently are under water. That's why investors won't subscribe to new IPOs.

But if IPOs and M&A activity dries up, then it trickles down to investors. One of the more popular statistics being thrown around right now is that fewer start-ups have gone public this year than in any year since 1977. With IPOs out of the question, that leaves an acquisition. And, if the buyer knows the company doesn't have the chance to go public, valuations are depressed, he said.
-Hrach Simonian, Canaan

It isn't all doom and gloom, so let's end with something at least slightly positive. For many years the tax regime in Canada has been unattractive to venture investing. It's as if the government does not want money to go into innovative and risky ventures. It is especially difficult for foreign money to operate easily in Canada. All this friction in the administration of taxation and investment, both for incoming and outgoing money, makes Canada a poor choice for investor dollars, unless a specific opportunity is so attractive that an investor is willing to take the pain.

The problem is not particular to any one party in power. Both Liberal and Conservative governments have been slow to act, despite a lot of lobbying from the financial and entrepreneurial sectors. Here are a couple of articles that reference tax law improvements, as suggested by Mark McQueen of Wellington Financial and John Ruffolo of Deloitte. If you are unfamiliar with the issue these viewpoints may be informative.

And finally, here is an example of how the problem cannot be solved. VC is investor money. With the market in the tank there is no investment. Cheerleading is frivolous and unhelpful. But thanks for trying.

Camouflage Squirrels

In addition to the usual black-coloured squirrels we have in this area we also have the gray-coloured variety. I have recently discovered that, unlike black squirrels, gray squirrels blend in very well with asphalt pavement.

This is not good. For the squirrel.

This cannot be an evolutionary adaptation to living in close proximity to humans.

Time To Sell ... Your SUV

I've written a few posts on the market but I have been deliberately silent during the ongoing meltdown. What more could I possibly add? Better to save all those valuable pixels for more important topics. Sure, like everyone else I'm hurting, but mostly because I did not do enough selling when I felt I ought to. Just like millions of others.

No, what I want to do right now is follow up on this article I wrote in late July. Unfortunately (or fortunately, depending on your viewpoint) the event I mentioned has come to pass. West Texas Intermediate crude is now under $90/bbl. This means it's time to sell your SUV.

With gas hovering around $1 per litre here in Ottawa those gas guzzlers no longer look so bad. That means we should expect resale values to rise. Except of course that with everyone's paper losses these last few weeks there may be few buyers for a while.

Things will get better though, and that means oil will very likely bottom and begin to rise again into 2009. So if you do have an SUV and you get a bid, you might just want to take it. Oil may never see $80 again.

Zero-sum Health Care

Imagine there are 3 children gathered around a table. On the table is a plate containing 2 cookies. It is obvious to them that they can't each walk away from that table with one cookie. This is a simple example of a zero sum game.

Now imagine that every car you see on the road gets 20 km/L or better. No SUVs, no Hummers, although there are still commercial vehicles that are not so fuel efficient. The reason there are no other types of cars is that they've been legislated off the roads. If you've hidden one away and take it on the road the police will confiscate it. There are no economic incentives like carbon taxes; you just can't buy a vehicle that burns too much gasoline.

These are very simple scenarios to introduce the idea of health care in Canada. It came to mind when I read this article citing a study that, in essence, declare health care in this country to be a zero-sum game. There is only so much to go around, so if you place more over here there will be less over there. Just like cookies and children.

Health care delivery to each individual is to a large degree capped. You want more, you can afford more, but you can't get it. Just like banning gas guzzlers from the road. This is not entirely true in the real world since we do allow some health sectors to sell their products and services to those willing to pay. Two examples are dentistry and pharmaceuticals.

Well, fine, but is this good or bad? Is health care really a zero-sum game, like in the article I referenced above, and assuming the study is accurately quoted in the article?

Health care is a business. You pay and they provide service. Except because the government acts as an intermediary you do not pay the professionals directly. Instead the government(s) taxes us and then puts in place a tightly-regulated regime whereby the professionals and service-delivery institutions get paid. Of course you already understand this since every Canadian is well-versed in this topic, so I won't dwell on it.

The point here is that the market has been distorted with the best of intentions. Want more than what is available and you're willing to pay more? Too bad, get in line. Or, if you're able, get what you want across the border. But no SUVs on our roads.

Now let's consider what might happen if there really were a pay-for-service health sector, a private one, whereby those willing to pay don't have to stand in line or go without. The conclusion in the quoted study says that there is a fixed amount of health care to distribute so if some goes to this private sector, their customers will get more and the rest of the population will get less. I don't know how they arrived at this conclusion but it flies in the face of basic economics and markets.

First, we must acknowledge there is hysteresis in provision of health care. That is, there is a lag in increasing the capacity of the system, regardless of money, since it takes years to train doctors, nurses and other professionals. Attracting them from other countries is possible, but as we've already seen it has its limits. We can only move so fast. So if you open up some areas of health care to the private sector the study's conclusion must be true in the near term. Some professionals will move to the private sector because there is demand for what they can provide, and so the public sector will have less capacity. Nothing can change this in the near term.

Except that once you broaden your time horizons it is no longer true that the game is zero-sum. It never was true, it was only the latency at work. If it's properly managed, and it would have to be managed carefully to avoid the worst case scenario, the injection of new money into health care by those willing to pay for private care means that there is more money in the overall health care sector.

Under the current system the only way to get more money into the system is to allocate more tax revenue to it. This means increasing your taxes or taking away from other tax-financed sectors like, say, the military, roads and pensions. To get more health care without increasing the amount of money going to it requires decreasing the amount given for every procedure and salary. This would be like the children cutting up the 2 cookies so that each could get an equal portion of 2/3 of a cookie. Presumably the Canadian Federation of Nurses Unions, which funded the cited study, would not agree to this, and neither would doctors and hospitals. It is arguable this tactic has been taken about as far as it can without further deterioration in the system. Examples include c. dificile (less money spent on hospital hygiene), doctors emigrating to the US and other calamities.

So the only practicable way to get more money into the system, and therefore more delivered health care, is with a private option whereby those willing to pay are able to do so. This means there will be more SUVs on the road (to flog my analogy a bit more) if they pay us more for the privilege. While there may be some added congestion on the roads until we add more lanes, everyone else still gets to drive their cars and can even dream of owning a Maserati. But it will take time. Adding more slots into nursing and medicine programs at universities is pointless unless there is money to pay the graduates or they will either forgo the opportunity or else emigrate afterward. Private health care can be a way to accomplish this.

In conclusion, health care is only a zero-sum game when we allow our governments to distort the market, with our money, until that is all it can sustain. It doesn't have to be this way, and neither does anyone have to go without should there be a private option. How it's put into practice is most important. That and the political will, if we tell our governments we are willing to entertain the experiment. Until we face up to this basic fact of money, the politicians will do nothing and we can expect the deterioration to continue.

Some Observations on the Federal Leaders Debate

The media is saturated with reports, analyses and score sheets listing who won or lost, so I won't add to any of that. Instead I'll give a few impressions I walked away with after sitting there for two hours.

In business I've learned that when you are making a pitch or even giving a reasonably lengthy talk or presentation each member of the audience is likely to walk away with a memory of only one message. Your job as the speaker is to decide on that one message, communicate it and make it stick. I'll try here to distill my own take-aways after hearing them speak and debate.

Harper: I would have thought that after the experience of the French language debate that, as many anticipated, Harper would be more aggressive. He wasn't yet I believe he should have been. He was quick on the uptake but bland in both responding to the others' attacks and in his own challenges to the others. This obsession with appearing 'prime ministerial' is fine, but I think Canadians liketo see a little more fight in their politicians. We are a hockey nation after all. However it was his slipperiness when pestered about his past utterances of quite extreme policies (predating the previous election) like on Iraq, the poor, health care and so on, that made a lasting impression on me. He kept dodging those questions when he should have taken them head on, and defused those concerns, by speaking about how he has to represent the broader population and how he has learned the importance of doing so. I know he can do it since he has done it. Last night he didn't. The other message I got was that he has no broad election platform for the Conservatives. He was entirely non-responsive to well-delivered barbs from the others on this. It leaves the impression that this election is for this personal ambitions.

Dion: He came across as calm and assertive but never rude. Frankly I expected him to stumble badly and he didn't, even with the reports I heard of how well he did the previous evening. He did only a fair job in communicating and defending his plans and policies, but stood out from the others by having a pretty clear program in mind. Like with Harper I think he could have been more aggressive, though perhaps it was enough for many people to see that he has some strength of character. The key message I took from this is his character. Before this I had grave doubts that he has what it takes to be Prime Minister. Now I am reassessing my opinion of him.

Layton: This is a man and party frozen in time. No matter the situation the country is facing they keep reiterating the same program and messages. It's as if they can't see past their ideals to deal with the real world. Layton comes across to me as disconnected. This is despite his honest concerns on the gutting of Canada's industrial base. He continues with his 'tax the rich and tax the corporations' with no sense of understanding of how the economy works. This is old news and so not the message I left with. The impression he left me with came from his continuous interruptions and heckling of Harper and Dion. That kind of bad behaviour makes the others look even better than they are while make Layton look like boorish. This is no prime minister.

Duceppe: He was of course under the least pressure and could speak his mind frankly and even with some humour. Despite the Bloc's peculiar position I always find that refreshing. His key message was not sovreignty but rather that provinces should get preeminence over federal powers, especially in domains which are constitutionally assigned to the provinces. He did quite well in getting that message across, and how the federal government keeps undermining provincial powers through taxation and transfer payments, with those payments dependent on subordinating provincial programs to federal direction.

May: For a neophyte May handled herself quite well. Despite this I saw two important problems with her performance. First, for a party that is still poorly understood she has the burden of crafting a vision of the Green Party that everyone can easily grasp. I did not see any such message last night. There were lots of interesting tidbits but she failed to wrap it in the cloak of a clearly-articulated strategic whole. It may exist but I didn't hear it. However I think her worst error was at the very end. When the leaders were asked about their very first priority should they form the government, May chose to focus on proportional representation. I was stunned. With all the problems we face she chose to give priority to her party's selfish needs. I still can't get over how she could have made this blunder.

On a final note I want to mention a couple of things about the moderator. I give him a strong thumbs up on how well he managed the debaters and keeping the proceedings orderly, on topic and on time. That was very refreshing. The one thing that grated was his twice (at least) grovelling to popular entertainment culture with his ridiculous references to the concurrent US debate and how ours is, perhaps, almost as interesting. This isn't about entertainment; this is about our country. Does he have an inferiority complex about his Canadian-ness? I don't.

Like Spam, Political Attack Ads Work

Ask anyone and they are almost certain to tell you they dislike or hate attack ads. There have been plenty of those lately in our federal election. I commented on this an earlier post, to give a different take on them, in the style of a satire.

Similarly, everybody it seems hates email spam and telemarketers. Yet email, telemarketing (despite DNC lists) and attack ads continue and are even increasing in volume. All of this is costing someone money so why does it continue? Of course it's because it works. Email spam has the lowest "hit rate" (ratio of messages sent to revenue and orders), while attack ads, though difficult to gauge their effectiveness, seem to be the most productive of this loathsome trio. That's good for the financiers of the ads since they are quite a bit more expensive than spam and telemarketing.

If you are reading this (and I can't except even myself), you are very likely to be swayed by attack ads, while simultaneously claiming and even believing that you dislike them. And so they continue.

Listening to the reports of the French leaders' debate Wednesday night it was also evident that Harper knows where to draw the line. If he were to mouth the words or even just the tone of voice used in their attack ads on Dion it would surely backfire. The marketing strategy is good - the public face of the party looks and sounds reasonable, while the viciousness is mouthed by others. That way, should an ad or spokesperson cross the line in the public's opinion the ad or person can be rapidly, and publicly, retracted or rebuked with minimum damage. Which they've already done at least once so far.

We'll likely see the same softly-peddled attack strategy in the English debate. But you never know. Speaking in his native tongue it is possible Harper will let his words run ahead of his brain, since he does have a temper. Maybe that's what to watch for - one of the other leaders to provoke him to make a newsworthy outburst.

Measurement Windows and Comcast Throttling

In my preceding post on Comcast's neutral throttling I left something out that may be of interest, though perhaps not a major factor in the impacts of their new system. This has to do with how their measurement windows are implemented.

Comcast says they are using 15 minute intervals (windows) to measure traffic usage of individual subscribers and of shared connections. They do this to determine whether there is congestion of the shared connection (80% threshold) and to identify heavy usage subscribers (70% threshold).

This is an indirect measurement of congestion since the percentage of capacity says nothing about whether traffic is delayed or lost. This is like counting cars and trucks at the onramps of a freeway and, without looking at the freeway or the offramps, deciding how well traffic is flowing to its various destinations. It can work quite well most of the time if you have done ample analysis beforehand in a controlled environment so that there is a reliable correlation between a threshold level (percentage of capacity) and congestion performance.

What I found interesting is that how the windows are implemented is not mentioned in Comcast's FCC submission. There are two basic methods to consider. However, first let's calculate the thresholds for a 15 minute window.

• If the shared connection is 100 Mbps the 80% threshold is 0.80 x 15 x 60 x 100 = 72 Gbps, or about 9 GB.
• For an 8 Mbps subscriber the 70% threshold is 0.70 x 15 x 60 x 8 = 5.04 Gbps, or about 630 MB.

Now let's take a look at the two windowing methods:

1. Non-overlapping windows: To illustrate with an example, let's start the clock at 10:00. At 10:15 we look at the traffic for the preceding 15 minutes and make the determinations of congestion and high usage subscribers. We do the same thing at 10:30, 10:45, and so on.
   
2. Sliding window: Again, we'll start the clock at 10:00, noting that there is not a 15 minute interval until 10:15, at which time we look at the traffic and make our determinations as in the first case. But this time we won't wait until 10:30. Instead we will use a sliding window with a 1 minute interval. This means we do the next measurements and determinations at 10:16 using the data from the 15 minute window 10:01 to 10:16. We do it again at 10:17 for the window 10:02 to 10:17, and so on every minute.
   

The outcomes are different and so are useful to understand. The sliding window provides a superior solution (for Comcast) since there would be earlier discovery of congestion and heavy usage. For example, if a subscriber streams at the maximum 8 Mbps beginning at 10:07, using non-overlapping windows it would not be caught until 10:30, giving a 23 minute period during which other subscribers may suffer degraded performance. With a sliding window the heavy usage would be caught at 10:18, after only 11 minutes (5.04 Gbps = 8 x 10.5 x 60). With non-overlapping windows the time to catch that subscriber can range from 11 to 25 minutes, so it is almost always worse than with sliding windows. There is a similar impact on congestion detection although the results are less predictable due to the variable load of other subscribers.

A disadvantage of sliding windows is that it can be more expensive because the measurements and determinations for congestion and heavy usage are done more frequently. This can be managed by picking an interval other than the 1 minute choice in my example. There is also the possibility of technical constraints on the interval (frequency) due to the equipment being used.

As can be seen there are pros and cons of Comcast's windowing choice on all subscribers, though whether each difference is a pro or a con depends on your viewpoint.