Philip Greenspun’s Weblog

Aircraft owners at Hanscom Field divide up into doctors, techies, and “money guys”. One of the money guys mentioned that Kohlberg Kravis Roberts, one of the largest private equity (buyout) firms, has performed about the same as the S&P 500 over the years, if you account properly for leverage. In other words, if KKR had borrowed money to the same extent that they have and, instead of carefully selecting and managing businesses to buy, had simply put the cash into the Vanguard S&P 500 index fund, they would have returned just as much to investors.

If their selections don’t outperform the S&P 500, where is the genius of KKR? In the fee! Their investors could have borrowed some money and leveraged up the S&P for fees that would have been a fraction of 1%. Instead, they gave up 20 and 30% of their gains to the managers at KKR. So the real genius of the private equity firms was, we thought, to deliver similar results to those of public companies, if you’d bought additional stock on margin, but to collect fees that are 100X larger than the fees charged by indexers such as Vanguard.

[KKR also offered a full partnership to Ken Lay, the Chairman of Enron, shortly before Enron’s meltdown and after more savvy Wall Street analysts and funds were predicting a collapse and shorting the stock.]

Now the news stories are all about the favorable tax treatments received by employees at hedge funds and private equity firms. Ronald Reagan cut the capital gains tax in order to encourage folks to invest in risky young companies in hopes of keeping more of the rewards if a company succeeded. It was one of the most spectacular economic growth policies in U.S. history. It is tough to see why it should apply to hedge and private equity employees. These folks put no money at risk. If the fund goes up, they take 20-30% of the upside. If the fund goes down, they lose nothing. They certainly don’t need any incentive from the government to continue to go to work under these conditions. What they take home as a management fee looks like ordinary income and yet it is taxed as though they had made an investment in a stock and waited patiently for 5-10 years before cashing out.

After all of their talk about class warefare and inequality, you’d expect the Democrats who control Congress to eliminate tax preferences for guys who take no risk and yet receive a salary of $50 million/year. The newspapers seem to be predicting otherwise, however. It may be that this falls under the general principle that there is no point in trying to tax rich people more than 20%. If you try to hit a rich person with a tax of more than 20%, he or she will come up with an exotic, possibly offshore, way to avoid paying the tax.

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I’m trying to finish up shopping for a cheap desktop computer for the hangar. Dell has a compact C521 machine with a dual-core CPU, 2 GB of RAM, and a DVD burner. The price is a flight instructor-friendly $399. The top of the page says “Dell recommends Windows Vista Business”. Underneath, the shopper is offered a choice of two operating systems: Windows XP Home and Windows XP Professional.

[Since the only thing that we will use this machine for is running a Web browser and maybe an ssh client, it seemed like a safe way to try out Vista.]

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I upgraded my desktop computer with Adobe Photoshop CS3. It comes with Bridge, an application for sorting and captioning photos. Opening a folder with a few hundred RAW-format photos takes minutes of processing time gathering statistics and generating previews, maybe twice as long as in Bridge CS2. Selecting an image and moving it to a “rejects” subfolder takes about 5 seconds, about 5X longer than in Bridge CS2 (the same operation in the Windows XP File Explorer is instant). What kind of feeble desktop computer am I using? A year-old Dell XPS with a dual-core 2.8 GHz CPU and 4 GB of RAM. It is too bad that Cray isn’t around to make supercomputers now that Adobe is going to require consumers to use them….

[It would seem that I owe Adobe’s programmers an apology. I copied the files from my Infrant NAS box (a cheap RAID 5 connected via 1 Gbit Ethernet onto my local hard drive). The performance improved by a factor of between 10 and 100. The Infrant has always been ridiculously slow when serving its Web admin pages, so I probably should have suspected this before writing the posting. I guess my workflow is going to have to be “keep everything on the local disk until processed, then copy to the disk array”.]

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A friend went to an exclusive private school with China Forbes, who, as a Harvard undergrad, met Thomas Lauderdale, who founded the group Pink Martini in Portland, Oregon in 1994 “to play political fundraisers for progressive causes such as civil rights, the environment, affordable housing, and public broadcasting.” China Forbes is now the lead singer and the group came to Boston Symphony Hall the other night to play to a full house.

The group itself looks like a prep school Class of 1992 reunion. The members are all thirtysomethings and have names such as “Phil Baker”, “Robert Taylor”, and “Brian Davis”. The crowd was remarkably white, even by Boston standards, and averaged around age 55.

A cornerstone of Pink Martini is nostalgia for things that they were all too young to have experienced, e.g., songs from movies of the 1930s and 1950s. No distinction is made among cultures or languages. The first half of the concert included songs in Spanish, French, English, Japanese, Italian, Portugese, and Arabic. The group played one of their own songs, whose lyrics were in French (even the French hardly write songs in French anymore, do they?).

Despite the personal acquaintance and the amazing technical skill of the instrumentalists, my friend became bored with the concert and we escaped at intermission. A Cuban singing Cuban songs would have been more interesting to us, or a Portuguese singing in Portuguese, or an old person singing old songs, etc.

The white middle-aged crowd loved it, though. Maybe you have to listen to NPR and watch PBS for a few thousand hours then fret about affordable housing before this music hits home?

[One might note that the Boston Symphony Orchestra players are too young to have attended the premieres of the pieces that they typically play. What is the difference between the BSO and Pink Martini? The BSO folks train for decades to work within one continuous musical tradition. They don’t put on a party hat and say “Now I am a Cuban.”]

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One of my young relatives, who will remain nameless to protect him from the ridicule that he so richly deserves, has decided to attend Harvard College. He is inclined toward math, science, and engineering. Had he asked me for advice, which he did not, I would have suggested Olin College of Engineering in Needham, Massachusetts (“out west” as we Boston/Cambridge folks say). Harvard, of course, has a great reputation, but it is mostly for research achievements. It occurred to me to wonder why any high school kid would sign up to be an undergrad at a research university.

Research universities do not bother to disguise the fact that promotion, status, salary, and tenure for faculty are all based on research accomplishments. A high school kid with an above-average intelligence should thus be able to infer that a professor at such an institution would spend as little time as possible with undergraduates. Joe Research Professor will want to talk first with his postdocs, second with his graduate students, third with other faculty members. Any time that Joe spends talking to an undergraduate will reduce his chances of getting tenure, his status within the university, his salary, and his status among peers at other institutions. Teaching undergraduates or meeting with them face-to-face falls into the same category as watching television or other leisure activities. Joe Professor might enjoy it, but in the competitive academic world he inhabits is unlikely to indulge.

An Ivy League college would make sense for a rich kid who wants to party with other rich kids. An Ivy League university would make sense for graduate school, where the professors do have an incentive to talk to the students who are working on their research grants.

It seems surprising that kids, faced with a $200,000 purchase decision, are so dazzled by the Ivy League reputations that they fail to ask the obvious question “Why would a busy professor trying to deliver on a research grant want to talk to me?”

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The theme of our MIT Reunion 2007 was energy. John Fernandez, a professor of architecture at MIT, gave a talk about how the urbanization and wealthification of humanity has led to climbing energy consumption. Here are some interesting facts:

• half of all of the construction in the world occurs in China
• concrete accounts for 6-8% of CO2 emissions
• Percentage of Chinese urban households with air conditioners: 24% in 2000; 87% in 2007.
• Shanghai every year adds more building space than exists in all of Manhattan
• World population is heading to 9-10 billion, of which 6 billion will live in cities (up from 3 billion today)
• In the U.S., residential and commercial space accounts for 40 percent of our primary energy consumption; 38 percent of CO2 emissions are from operating buildings.
• Globally, lighting accounts for 19 percent of electricity usage.
• an American will consume 3.6 million lbs. of materials in his or her lifetime
• the percentage of renewable materials in a building constructed in 1950: 15%; in 2000: 5%.
• the folks at http://www.globalfootprint.org/ estimate that humanity is currently consuming more than one Earth’s worth of stuff; i.e., we are dipping into stores of forests and water faster than they are being replenished

Fernandez talked about a lot of ways to build energy-efficient structures: glass that reflect heat in the summer; double-walled houses that don’t offer easy thermal exchange interfaces; etc. He did not mention what seems to me to be the easiest way to reduce energy consumption: stop heating, lighting, and air-conditioning houses in which nobody is home. A toilet knows whether you are standing in front of it. Why can’t a brand-new house know when everyone has left? Consider the House-as-Smart-as-a-Toilet (TM) in the summer. When the last person leaves, it lets the temperature rise to 80 degrees, turns off the lights, and closes the blinds. When an owner of the House-as-Smart-as-a-Toilet (TM) programs his or her car GPS to “destination home”, the car communicates the ETA to the house and the A/C is turned back on. When the owner arrives home, the House-as-Smart-as-a-Toilet (TM) opens the blinds, evaluates the resulting light levels, and turns on lights as necessary.

MIT’s president Susan Hockfield spoke briefly. She seemed charming, competent, and energetic. Her talk was also boring, insipid, and laced with cliches such as “herding cats”.

At lunch, the oldest alum stood up. He was apparently in great health, a member of the Class of 1935. Each class’s fundraising manager stood up to report on the total amount raised ($1-15 million) and the participation rate (25-70%), after which everyone was supposed to clap (my offer of a gift to MIT was rejected a year ago (story)). In the spirit of MIT competitiveness, I suggested that our table of 1982 graduates should actually boo the other classes, but this policy was not adopted.

We 1982ers had dinner in the new Brain and Cog Sci building, a magnificent structure. Compared to modern students, it is striking how few of us went into finance, law, or medicine. Seemingly everyone was doing science, engineering, or business management (usually of a fairly technical business). Despite the fact that our class was more than 80 percent male, a lot of women alums showed up and the guys managed to find wives and have children somehow.

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Yesterday my friend Julian had a business meeting in Manhattan, so we fired up the Robinson R44 at 0700 and headed down there. stopping at 0815 in Oxford, CT (OXC) to refuel with 100LL and coffee before proceeding straight to the city. We obtained VFR advisories from NY Approach, who handed us off to LaGuardia Tower. The controllers wanted us to fly across Long Island Sound (always fun in a single-engine piston aircraft, but especially unnerving in a helicopter without popout floats), over the “south stanchion of the Throgs Neck Bridge” and then “over the tower cab” (where the controllers sit at the top of the tower) of the LGA airport at 1500′. This is known as the Whitestone Bridge route, even though it doesn’t involve the Whitestone Bridge and isn’t on the NY Helicopter chart. From the top of the airport, we proceed to the 59th St. bridge and down towards the E. 34th St. heliport (6N5).

The heliport consists of a strip of asphalt seemingly underneath FDR drive. There are six spots marked by lines, seemingly far too close together for helicopters to park. A big Bell was on Spot 4. Spots 1, 2, and 3 were empty. They could have asked me to land on Spot 1, leaving ample space between me and the spinning Bell. Instead, they wanted us on Spot 3, right next to the $2 million Bell, loaded with jet fuel. Presumably they were trying to leave the first two spots free in case a big Sikorsky wanted to come in. I forced myself to concentrate on the painted lines, told myself that people probably do this all of the time in bigger helicopters and don’t touch rotors, and tried to banish thoughts of the spinning adjacent Bell from my mind.

Julian got out, reaching the street at about 9:20 a.m. (saving at least 1.5 hours compared to driving to Logan from his suburban house, going through security, taxing a taxi from LaGuardia, etc.). Some of my friends who live in Manhattan got in and we lifted off for a sightseeing tour down to Coney Island, over the Intrepid’s new location, around the Statue of Liberty, over Ellis Island, up the Hudson, over Central Park, and down by the United Nations and past the Brooklyn Bridge to the Downtown/Wall Street heliport (KJRB) where the R44 could be parked for a few hours. The Port Authority folks took a more realistic view of the average Robinson pilot’s likely skills and asked me to park about three pads away from the nearest other helicopter.

Julian had his meeting, so I decided to look at loft spaces to rent. I think it would be fun to have an apartment in Manhattan for trips down every couple of weeks and with high ceilings to use as a temporary photo studio. I had a list of places culled from Craig’s List and also some brokers. The high cost of New York real estate is amazing. A $4000/month apartment in New York City will either be an exquisitely crafted closet or a shabby normal-sized dwelling. The places where a visitor might conceivably say “this is a nice apartment” start at $5000/month.

What amazed me more, however, was the inefficiency of the market. Most markets for most products in the U.S. are fairly efficient. Cars that cost about the same are more or less equally nice and functional. If you spend more money at a hotel or restaurant, it is usually better than a cheaper place. Houses that are reasonably similar and reasonably close together sell for about the same price. The first apartment, at 11th and 2nd Avenue, was advertised as being a “loft” and “drenched in light from three exposures”, $3900. It was two average-sized rooms with a total of about four average-sized windows, all of which faced a central airshaft. At 11:00 am on a sunny day, it was too dark inside to read a book. It seemed like a ridiculously bad value, but the broker said confidently that it would rent at that price. Just on the other side of the island, in the West Village, she showed a couple of apartments that were actually cheaper, in a beautiful building, with a lot more light, with a view of the street instead of the airshaft, etc. Something seems badly wrong with the market if these dissimilar apartments were being offered at the same price.

The brokers themselves seemed very odd. In NYC now, they try to collect 15% of a year’s rent for their services. You would think that people with sales jobs like these would be exceptionally smooth in dealing with customers. Yet most of the brokers didn’t bother to introduce themselves and were not even curious to know my name.

Given the expense of a NY apartment and the hassle of running around the city looking at places that aren’t as advertised, you’d think that there would be a market for much better information about rental units. Apartments would be in a database, characterized by floor plan, square footage, total window area, a grading system for condition (possibly assessed by an independent appraiser), etc.

Maybe the readers in Manhattan can enlighten us as to why the process is so painful and inefficient.

[The flight back was beautiful, up the CT beach at 500′ (after watching the waterside mansions pass undernath, the back seat passenger said that he never imagined there were so many rich people in this world), sun behind us. We stopped at Lanmar in KGON to investigate their Cirrus service capabilities, ended up chatting for a long time, and proceeded back to Hanscom for a 7:15 pm arrival.]

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One technique that I learned from an instructor with 30+ years of experience is teaching simulated engine failures (“throttle chops”) by rolling off the throttle on a Robinson only enough to split the needles and bring the engine down to 90% RPM. That way, if the student does not react properly, the rotor speed will not drop below 90% (once it gets to 80%, you are dead; the trip from 90 to 80% in an R22 with the collective still up takes about 1 second).

You can generate the nose yaw and the low RPM horn without chopping the throttle to idle. This also makes sense in helicopters where there is a risk that the engine will actually quit if the throttle is chopped suddenly, e.g., older R44 Raven IIs.

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The helicopter instructors at East Coast Aero Club spent today doing some recurrent training in simulated engine failures and 180-degree autorotations with a Vietnam vet who has tens of thousands of hours of helicopter time. For 25 years, he ran a helicopter flight school with a lot of Japanese students. “They would come to our school through the U.S. Commercial license and then go over there for about 10 hours of training and some ground school. They would take their checkride in an R22 and fail the first few times. Most of them gave up after that.”

How hard is the check ride in Japan?

“I would fail it,” this expert pilot said. “The checkride takes 2.5 hours and involves a three-leg cross-country. You aren’t allowed to use any navigation equipment. No GPS. No VOR. The instructor forces you to fly off course for 15 or 20 minutes. Then you have to use an E6B to calculate an intercept angle to the original course and figure out a new ETA and fuel consumption.”

You have to use an E6B while keeping your hands on the flight controls? “Yes.”

We went around the room. Paul said “I couldn’t use an E6B while flying an R22.” Joris said “I couldn’t use an E6B while flying an airplane.” I said “I don’t think I could use an E6B while sitting here at this conference table eating a sandwich.”

Now we know why it is rare to find a Japanese who is unqualified for his or her job.

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I’ve written two new articles on photonet:

• Canon 16-35 lens review
• Guide to Victoria Falls

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