Gates of Emporia

It's the Transmission, Stupid

2008-11-24T16:44:00.002-07:00

Yet another "here's what you need to do, Mr. President" from energy gurus. This one is from the Demand Response Smart Grid Coalition and it lists a total of 21 to-do's. 21. These guys just don't get it. There's only one thing that the federal government needs to do to realize a renewable energy future and that's transmission. Heck, they don't even need to build it. They just need to lead the planning of it. Build the transmission to the high-sun and high-wind spots and everything else pays for itself. It really is that simple.

Obama's Windfall

2008-09-22T09:17:00.004-06:00

Yglesias writes about his fear that the federal debt will get so bloated because of the bailout that Obama will have no resources with which to fuel his agenda. I disagree strongly. In fact, Obama is going to have a multi-trillion dollar windfall once things return to a semblance of normality. The United States government already owns 70% of the mortgages (thanks to the Fannie/Freddie natonalization) and is about to purchase almost all the rest, along with a huge bundle of other assets.

The pundits like to refer to these securities as "toxic debt", which leaves the impression that they are worthless. That's missing an important point: the toxicity is already priced in. Even Lehman Brothers had knocked their mortgage-backed CDO's to 65% of their book value. Other banks that acted more aggressively now claim only 35% of the book value on their balance sheet. In other words, these things are dirt cheap.

A more likely circumstance is that, as the government winds down its holdings and sells the securities back to the private markets, it will pay off all the debt that is about to be incurred over the next few weeks and then have a handsome profit. A handsome profit on a multi-trillion dollar sale means several hundred billion dollars of "free money".

While this might seem like pollyanna-ism, there's plenty of precedent to believe that it's a likely scenario. Most times in the past when governments intervened to stanch a financial bloodletting, it resulted in a net surplus within five years: Mexico in 1992, Thailand in 1996 and most notably, South Korea in 1997. I'm writing a book for Amacom about the Korean economy and I've been studying the after-effects of the 1997 crisis. While many people were saying that the events of November 1997 were the death knell for the Korean miracle, the country's economy grew at a faster rate for the five-year period following the crisis than at any other five-year period in it's history.

For those that believe that the current bailout bailout money is simply disappearing into a black hole, wake up. The only way for that to happen is for a massive disruption to the U.S. economy. Think the Great Depression, only worse. If that is our fate, then the government borrowing a few trillion now is of little consequence--the economy as a whole will be declining in value by tens of trillions of dollars. And if that were to happen, then inflation would skyrocket, making the trillions in debt much easier to pay off in the future.

Both candidates have been rightfully criticized by their deer-in-the-tractor-trailer-lights response to the crisis, with Barack Obama's only saving grace being that he has said fewer stupid things than John McCain has. But there is one thing that Obama can do now that would noticeably improve the global economic outlook: Promise that he will end deficit spending by the end of his first term in office. He hasn't done it in the past because he didn't want to enter office with a financial handicap. Now that he will probably get a windfall of several hundred billion dollars from the profits of this bailout, he can afford to make the promise.

Why is such a promise so important? Because borrowing is what got us into this mess and ending the practice is the only thing that will get us out. The masters of the financial markets have proven without a doubt that they are dumber than rocks. But the stock market itself is still the most intelligent social brain that we have. If it senses that both candidates will end the insane practice of deficit spending, it will respond accordingly. And Obama will be given credit for showing economic leadership that resulted in a new tide of optimism. And if things get so bad that the bailout assets don't appreciate in value, no amount of federal deficit spending will help us, not to mention the fact that our government might collapse and we'll all be shooting at each other from our caves. All-in-all, it's pretty much a can't-lose proposition, huh?

P.S.--For those that might interpret this post to mean that I've gone all Keynesian on you, please remember: I'm firmly against this bailout. I say we should let AIG, Fannie, Freddie and even Goldman go under and prepare for financial market meltdown. If we have to use government money to be buying private companies, let's save it for the GM's, GE's and Boeing's of our country, not the banks. Or better yet, keep the government out of all this and let the markets correct things. Instead, we've got a government that is acting like a hedge fund--using borrowed money to buy stocks.

Who Needs Warren Buffet?

2008-09-18T17:08:00.003-06:00

Has it occurred to anyone else that if Lehman, Goldman, Morgan Stanley etc. were to disappear in a poof of white smoke, maybe it really won't matter to anyone besides their shareholders and employees? It's been a long time since I've noticed any investment banker who actually added value to any deal in which he was involved (yes, they're all he's). These guys are so wrapped up in their castles-made-of-sand derivatives that the only books being wiped clean are their own. There is of course the issue of the massive sudden disruption to the markets, but that will get sorted out in the end.

In other news, the United States of America is about to invest several trillion dollars in buying up assets for pennies on the dollar that will inevitably be worth more than they are today. I'm in the let-them-burn camp myself, but let's hear an exclamation of awe for the greatest value investor in history: the federal government.

Prolate Spheroid

2008-09-17T10:04:00.004-06:00

The three worst playcalls and the single best one from last week's NFL action:

The Worst:
*Mike Nolan, 49ers vs. Seahawks: Your opponent is starting one wide receiver who didn't play football last year and another one who is an undrafted rookie. And you play the whole game in nickel formation? It didn't even work: Hasselbeck got the ball to his receivers, who were open. They just kept dropping the ball. Yeah, you won the game, but only because your opponent had more injuries than Saint Sebastian.
*Scott Linehan, Rams vs. Giants: There wasn't any single move you made that was awful. But your decision to not quit during the offseason is the call that you blew. Your team is as bad as any in the history of the game. It doesn't matter how well you call plays when the team you lead is down by twenty points throughout the game.
*Mike Smith, Falcons vs. Buccaneers: The tradition of arguing with the officials is one of the worst aspects of this sport. The biggest nagger, we seem to be telling our children, is the one who wins. So kudos to rookie coach Mike Smith. You kept your mouth shut all day until it mattered. The officials mistakenly announced that two penalties by the Buccaneers offset each other, giving Tampa Bay posession of the ball after a fumble. You started to blow your top, but then went out fifteen yards into the field and stood there, hands behind your back and mouth closed, contrite-schoolboy style. You risked a personal foul penalty for the team, but by not screaming and remaining on the field, you forced the official to meet with you. Ten seconds of calm explanation caused the official to correct his error and changed the posession--rightfully--back to the Falcons. A good coach chooses his battles with officials and, when he decides to engage, acts like a dishonored professional, not like Tonya Harding.
The Best:
*Bill Belichick, Patriots vs. Jets: One probably assumes that Mike Shanahan should get this commendation for his famous two-point play. That was courageous and all, but it wasn't good play-calling. It was a roll of the dice. You, on the other hand, pulled a little trick that resulted in your team garnering a few extra yards during a fourth quarter punt. The Jets were out of timeouts when the New England offense came on for a surprise fourth down attempt. Suddenly the Pats fled the field and the punt team came on and quickly kicked the ball. That might seem simple, but in reality it's a feat of choreography that rivals the Beijing Olympics' opening ceremony. The Jets were left with their defense on the field and couldn't properly return the punt. It was just a few yards. But it's a miracle for a coach to earn a few yards in the ebbing minutes of a close game. It's no wonder that your team is 2-0 even though you've been forced to play Sarah Palin at quarterback.

Bankruptcy, Baby, Bankruptcy

2008-09-15T13:14:00.005-06:00

Lost in the midst of the stunning series of events on Wall Street is the fact that the federal government seems to be wising up. Rather than bail out Lehman or Merrill Lynch, it sat stonefaced all weekend and refused to come to the rescue. Forget oil drilling. The new motto of the Feds should be "Bankruptcy, Baby, Bankruptcy". It's all a necessary part of starting to heal a very ill patient. Fear might cause some to lose a lot of their money (I should know--Bank of America is my largest holding). But investors and financial execs have to understand that it's up to them to break out of this siege. The cavalry is not coming.

A Request to Infectious Greed Readers

2008-09-12T09:37:00.004-06:00

Paul Kedrosky publishes one of the best blogs I've ever read. Instead of logorrhia, readers are presented with a few short posts a day. Each one raises an interesting nugget of data that often challenges my assumptions and sometimes leads to new ways of looking at things. He even sometimes does real research just for a blog entry (something which I avoid at all costs).

That's why I asked Paul to send out an old-fashioned call for help to his readership for me. My book, Jewish Wisdom for Business Success , co-written by Rabbi Levi Brackman, is coming out next week. The Rabbi and I are on a mission: to open up the debate about Jews and money. We feel that it's been locked in a box out of fears of political incorrectness. That only leaves the conversation to the anti-semites and the ill-informed.

I'm scheduled to do some public debating regarding the subject. I'm trying to find some solid statistical evidence of economic success rates of various ethnicities, including Jews. I want to be armed with solid data when I make the case for our hypothesis that the religion itself is part of the reason for the business success of Jews.

I've combed through lots of census data, most of it unhelpful because there's no entry for "Jewish" on the long form. I've read all the social sciences literature and the economics literature on the subject that I could find. But sociologists tend not to write about economics and economists tend to stay very far away from ethnicity.

So here's my request: Do you know of any datasets, studies or raw data sources with regards to the Jewish community (and other ethnic groups in the U.S.) that shows economic or income performance compared to the population at large? If so, please let me know about it by emailing me at samjaffe (a) gmail.com (whether it supports my hypothesis or not).

Two points:
*I'm looking for data that is more bulletproof than "I know a lot of Jews who are lawyers...".
*This is not an exercise in anti-semitism. If your data is comprised of secret minutes for last week's meeting of the Elders of Zion, send it to mahmoud.ahmadinejad@deathtoisrael.com, not to me.

DARPA=Pork

2008-09-12T08:37:00.004-06:00

DARPA's new coal-to-liquids solicitation, which was brought to my attention by the excellent Wired blog about defense technology called Danger Room, might be a good idea. But from a global warming perspective, it is disastrous.

The $4.5 million solicitation calls for a research project that would devise a method to turn coal into jet fuel. As Danger Room points out, it would help the United States lose some of its addiction to petroleum. But then the solicitation mentions "environmentally friendly". They talk about utilizing the hydrogen from coal. WRONG.

Coal isn't a hydrocarbon. It is almost completely carbon. In fact, it's one of nature's most effective methods of fixing carbon from the atmosphere and burying it deep underground, thereby keeping it from playing havoc with our climate. The only way to get hydrogen from coal is to turn the rock into methane (a process which pulls four hydrogen atoms from the atmosphere and attaches them to each carbon atom), and then turn that methane into a liquid fuel. In the end, you release the same amount of carbon into the atmosphere as you would if you were burning the coal in a campfire pit. To attach all those hydrogen atoms, however, you need to add a lot of energy, water and equipment capital cost. Altogether, you end up releasing at least twice as much carbon into the atmosphere as you would by drilling and burning the equivalent amount of crude oil.

If you want to keep coal as a part of our energy pie while avoiding global warming, there is only one way to do it: carbon sequestration. That means turn the coal into methane or syngas, burn the methane and then capture the carbon part of the exhaust and bury that underground. I am a VERY firm supporter of research and project finance in that arena. But anyone who talks about a simple coal-to-liquids process without the extremely expensive step of burying the carbon is proposing a greenhouse gas nightmare.

This isn't just bad science. According to the Washington Post's Intel Dump column, it goes counter to last year's energy bill, which prohibits the federal government from purchasing fuel which has a higher greenhouse gas weighting than plain-old petroleum. In other words, if DARPA's project works economically, the Department of Defense will still be prohibited by law from buying the stuff. Huh?

I used to view DARPA with the same geeky reverence I had for the Apollo program and Star Trek. Now that I've had professional contact with the organization, I know that it has become simply another government pork program. The main reason anybody gets a grant from DARPA is either because there was political pressure from the system placed on the institution or because the grantee played a lot of golf with the grant administrator. I'm sure a few of the granted programs are worthwhile and will someday bear fruit. But for the most part, it's my opinion that a cancer has attached itself to DARPA. And it's terminal.

The Five Myths of Jews and Money

2008-09-09T21:05:00.005-06:00

I've been collecting data regarding Jews and money for the purposes of marketing our book, Jewish Wisdom for Business Success. When talking in the press about Jewish success in business, I want to make sure I stand on firm empirical ground in regards to whether there's statistical evidence that the Jewish community is more successful than the population at large when it comes to making money.

In the course of my reading, I've identified some surprising themes, which I'll summarize here as the five myths of Jews and money. It's a teaser: I'll provide more depth and breadth to the assertions in the weeks ahead. But here are my big five:

*Jews developed the banking industry because they dominated the money-lending industry in the middle ages, thanks to a Church proscription against usury (something which didn't apply to Jews).

*Jews are more successful in business than any other immigrant community in the United States in the last 100 years.

*The Jewish religious tradition views poverty as an emblem of piety.

*Karl Marx' theories were based on traditional Jewish concepts of communal partnership and the sympathy for the victimhood of the lower class.

*The patriarchs of the Torah were penniless wanderers who lived from day to day on the kindness of others.

Anybody who has any thoughts, advice or suggestions for data sources on any of the above assertions, please drop me a note at samjaffe (at) gmail.com. Likewise, if you think of a more obvious candidate for a myth--something that is commonly accepted in popular culture but is in fact baseless in fact--please make a suggestion.

An Energy Policy That Makes Sense

2008-09-04T10:11:00.008-06:00

This post began as an email to a friend who is about to take up an energy policy position at a major NGO. It was an attempt at giving my thoughts on energy policy from the perspective of a small entrepreneur who has dove into the deep end of the energy pool. This is coming from someone who understands all of the major renewable energy technologies and is trying to make a living by predicting how things will play out in the next five years. Two other things you should know about me is that I have a revulsion for government participation in markets (based on my years as a journalist on Wall St. and seeing how corrosive they can be to functional systems) and yet I have a strong appreciation for how powerful they can be when applied intelligently (based on my expertise on Korea--I'm writing a book now for the American Management Association about the Korean economy).

With that in mind, here's what I would do if I had the next President's ear:

*Scrap the ITC and PTC--they've done their appointed jobs and are now hurting the industry as much as helping it.

*Heavily subsidize the $300 billion T&D buildout that will be necessary to bring all that bulk solar and wind to the markets. If need be, nationalize this process.

*Target the far ends of the downstream and uspstream portions of the energy chain with government incentives (loan guarantees, subsidies, tax credits, whatever...).

*Avoid subsidizing the consumer (i.e. Obama's idea of a $7000 tax credit for buyers of new PHEV's).

*Avoid Feed-In Tariffs at all costs (the ultimate sledgehammer approach to fixing the system).

*Avoid a cap-and-trade system at all costs (it will end up being needlessly expensive for the economies involved and will become a massive bureaucracy that will become a political patronage system).

The fundamental thing that I understand that most people don't understand (yet), is that we've already reached the promised land of grid parity. In preparation for launching Panea, I spent a year doing very fundamental research and modelling regarding the state of all the various energy technologies. The fundamental truth that I learned from all that data sifting is that wind and solar are now competitive with coal. There are severe capacity bottlenecks for both, but in terms of fundamental science and economics, renewables have finally fulfilled their promise. They don't need subsidies anymore.

If we want to hasten the advent of a renewable-based economy, our energy policy should be based on addressing the physical limitations that are now the only barriers standing in the way: manufacturing capacity, commodity shortages, transmission & distribution, energy storage and smart grid applications. I'll keep posting on this theme in the coming days. In the meantime, good luck with the new gig Samir.

Know Any Good Jewish Money Jokes?

2008-08-22T09:33:00.001-06:00

Part of what my co-author, Levi Brackman, and I are trying to do with our book "Jewish Wisdom for Business Success", is to open up the public debate about Jews and money. The only way to avoid wondering why there are so many Jews on Wall Street and in the corner offices of corporations and on the rolls of philanthropy is to make the subject verboten. For some reason that's what our society has chosen to do.

Stifling public discussion leads to only one thing: the inevitable disentanglement of a subject from truth. While publicly discussing Jews and money might be uncomfortable for some, repression leads to far worse things (like mistaken assumptions, incorrect analysis of data and ,um, genocide).

Levi and I feel that there's no mystery here. The statistically relevant trendline of Jewish success in business is not due to "smart" genes or to a secret Yiddish cabal that controls the levers of power. It's the religion itself. And our attempt to prove that hypothesis is what our book is about.

As part of our attempt to open up the debate, we've decided to launch a video contest. We want you to video-record you telling your funniest joke about Jews and money. Then send in your video by email (samjaffe (at) gmail.com) or send us a Youtube link. We will be posting the best videos on both www.gatesofemporia.com and www.levibrackman.com. Once we've collected a suitable number of entries, the three winners will get a free autographed copy of "Jewish Wisdom for Business Success".

All you have to do is to include the line: "This is my entrant for the Jewish Wisdom for Business Success Joke Contest" either at the beginning or end of the video. The video should be no longer than 3 minutes (hopefully a lot shorter than that). And make sure you include an email or phone number which we can use to contact you if you win.

The jokes will be judged on the humor of the joke and the quality and effect of its delivery. And for the I.Q.-challenged, we don't consider anti-semitic jokes to be funny. Save it for the Klan rally.

Lessons From the Squeeze

2008-08-22T08:57:00.000-06:00

The coming solar boom is going to quickly elicit comparisons to previous booms--and busts. The dot.com boom will of course be the most tantalizing parallel for pundits to make, however it doesn't hold much in the way in lessons. When people buy stocks based on complete fantasy, it's not hard to figure out why things went wrong.

The solar boom, however, will be based on real products being shipped and real profits being made. First Solar, for instance, has factories, warehouses and trucks. Its valuation might be insanely high, but at least its all being calculated on real kilowatthours being produced.

A better place to learn about how to deal with booms is in the current bust of financial stocks. In this case there are many fundamental points that are similar: the impact of subsidies on the run-up; the lack of expertise in analysis of complex subjects; and the mistakes made in how executives dealt with the capital markets. I'll write about all three, starting with the last one today.

There is a mistaken assumption that capital markets do what they are supposed to do: provide capital to business projects that are worthy while turning away unworthy suitors. That's because the capital markets ability to do things right are limited by the sum wisdom of the human beings who run them. When bull-fever is rampant, the capital markets overinvest. When a credit squeeze clamps down, they underinvest. The reason is simple: fear. A banker who is afraid of losing his job because of underperformance in comparison to his fears in the midst of a bull market will overinvest. A banker who is afraid of losing his fear out of losing the bank's money will underinvest.

So how does Buddha CEO ride this tiger known as the banking industry? The lesson of the current credit squeeze is clear: when the capital markets are flowing, take as much capital as you can. Because when the squeeze is on, there is simply nothing that can be done.

Let's take banking stocks today as an example. These companies had no difficulty finding private equity cash, sovereign wealth fund cash and lots of other kinds of cash in 2006. They were riding on the back of a housing boom that everyone wanted to benefit from. The Buddha banks (mainly JP Morgan and Goldman Sachs) took the cash while limiting their exposure to the very thing that was causing the cash flood: mortgage-based securities.

The rest of the banks took the cash too. But they reinvested their capital into the same thing that was causing people to wave bundles of Ben Franklins at them: the housing market.

The moral of the story for the solar industry is that when the floodgates open--take the cash. I'm not talking venture capital--that's a different type of beast and is not a limiting factor in the solar space now. I'm talking about debt. There will be a time in the near future where bankers will be beating a path to the Buddhha CEO's door, begging to lend money. Let them.

The key for managing the inevitable credit squeeze that will follow a few months or years later is not whether you got financing on the right terms. It will be in how you spend the money. Corporate jets and fish fries with celebrities for your sales staff are not Buddha moves. Creating real factories, real project development, real panels and real kilowatthours is what will make you look like a Buddha when the credit squeeze inevitably tightens.

To put it another way, take a hint from long-distance runners. When running uphill, they put their minds in a downhill mindset. When running downhill, they put their minds in an uphill mindset. During the boom, spend your new capital as if there were a credit squeeze. If you do that, then you will still be able to afford credit when it becomes outrageously expensive--the track record you've established will be what opens the closed gates.

Hizzoner's Plan

2008-08-20T19:27:00.000-06:00

Another day, another prominent political figure releases a renewable energy Apollo plan. At least, when it comes to Mike Bloomberg, we know that this one will never materialize. Bloomberg's last five-year-plans were left crumpled by the legislative wastebasket after other politicians reminded him that he is the mayor of New York, not the totalitarian dictator of New York.

Mike's latest "idea" is to put wind turbines all over the place in New York. See a building? Stick a turbine on it. See a bridge? Why not put two or three there.

There's just one thing that the Mayor forgot: wind data collection studies. New York city is a relatively small patch of land. And it's not an especially windy place (except in places where architectural miscues lead to rip-roaring wind canyons). Why would a wind developer place his turbine on the Pan Am building when he could put it in the Texas panhandle and get three times as much revenue-producing power from it?

Can we please stop covering every public figure's "plan" as if it's important. These quarter-baked scribblings on a legal pad are not worthy of the tired, weary, life-bitten public's very short attention span.

Are You Picken My Nose?

2008-08-18T14:23:00.001-06:00

Barack Obama met with Slim Pickens recently (“Oh, he’s not so bad,” he said to a liberal supporter about the man who financed the Swift Boat attack ads). A recent poll showed that 75% of Americans support his plan. I should be fuming mad about the reception America has given to the man’s napkin sketch of a strategy.

Yet, I’m not banging my head against the wall. Why not? Because I caught the nonegarian (he’s probably not really 90 years old—he just looks it) on PBS’ News Hour a couple of weeks ago and he mentioned something that he has previously omitted in his description of the plan. Cars, he says, are not his main target for NG conversion. “It’s the trucks. They belch diesel oil and they are bought and operated by businesspeople, not consumers.” What’s that, Slim? Are you actually starting to make sense?

Forget that taking NG out of power production is a disastrous idea. Forget that we don’t have the technology yet for cheap conversion of petroleum engines. The concept of incentivizing truck owners to switch over to natural gas has real merit. The technology is close. The space constraints and passenger safety issues aren’t there when you mount everything on the top of your trailer. And the pennies that can be saved over the course of several years are enough to make it worthwhile for a business owner.

The concept works on class 8 long-haul freighters as well as it does on the Dodge Ram your plumber drives. It thus removes our biggest NOx producing engines from the road while at the same time lowering the demand for diesel.

Now if Pickens could just figure out where all that extra gas is going to come from (No, Slim, it can’t come from the wells that you own), we might just have a real plan.

The Subsidy in Spain Falls Mainly on the…

2008-08-18T14:21:00.000-06:00

Ask anyone in the solar field how the government to do subsidies right, and you’d better have a chair handy. Everybody has their own opinion—and is happy to spend a lot of time telling it to you. Not surprisingly, everyone’s opinion is different from everyone else’s opinion.

That doesn’t mean that there isn’t a best answer. If we remove the politics and intransigency (“That’s how we’ve always done it!”) and then settle down for some serious number crunching, I’m sure that a very good program can be determined. To work, it has to: a) cost as little as possible, b)incentivize the right things, c) have some self-termination clause programmed into its code and d) cost as little as possible.

As this blog proceeds, I’ll explore a number of factors that go into a good subsidy program. The first step should be looking at programs that have been tried in other countries and in individual states. Today’s case study is Spain.

If Spain’s solar subsidy program had a motto, it would be “Too Much, Too Fast”. The government declared that it would massively subsidize photovoltaics and solar thermal in the form of Feed-In-Tariffs. The idea was to reach 10% renewable electricity generation by 2010.

Just two years after this program was put into place, 12% of the country’s electricity is renewable. How great is that! Project accomplished two years prior to the deadline and goals over-achieved.

There’s just one fly in the mascara. The Spanish government has spent almost $7 billion in subsidy payments. That’s three times as much as it projected. They just didn’t anticipate that supply would increase (with the advent of thin film manufacturers) while external demand dropped (Germany’s market became less attractive because of demand congestion). They also didn’t expect that a whole lot of people would show up when they announced to the world that they were giving away free money.

The latest scuttlebutt is that the country will drop its feed-in-tariff from 45 Eurocents to about 30 Eurocents, while also dropping its cap for new solar installations from 400 MW to 300 MW. While industry spokesbugs jump and shout that such a move would be disastrous, it still makes for the best solar subsidy in the world.

What does this tell us here in America? Three points:

Do your homework. Don’t overpay, bankrupt your treasury and then change the rules.
Feed-in-tarrifs are difficult to calibrate and one year’s correct value could be dramatically overpriced for next year.
Base the plan on the technology that will be available in the next ten years, not what’s available now. Spain thought they would convince a few people to put silicon on their roofs. Instead, a huge amount of far cheaper thin film went up (why, after all, would you want to spend $4 in installation costs when you could spend $1.50 and still get the exact same price for your product, guaranteed by the government).

If our goal is to put up as much solar as quickly as possible, by all means, let’s do what Spain did. If our goal is to incentivize a clean technology with as little interference in a free market as possible, let’s file Spain’s plan under “G” for Grande ClusterF**k.

My Little GT Solar

2008-08-18T14:20:00.001-06:00

In other “selling picks to goldminers” story, GT Solar is now a public company. The much celebrated IPO failed miserably in its first day of trading by dropping 15%--not an auspicious start. It has since stabilized at around $12.

Some claim that this IPO was actually a success. They’re wrong. Any IPO investor is going to look at this event as a harbinger of things to come in the new energy space, which means there will be fewer IPO’s in the next three years than there would have been had GT Solar gone up by 15%. Fewer IPO’s means less venture capital funds flowing into the arena, which means fewer startups.

GT Solar did get one piece of booty from their IPO: a great ticker symbol. SOLR should have gone to one of the upcoming solar public market births (NanoSolar, Miasole, Heliovolt, etc.). Instead the boring equipment-maker gets a snazzy name. Maybe they can sell it to one of the newcomers next year and make back that 15% for shareholders.

Inverters for Sale—Going Fast

2008-08-18T14:19:00.001-06:00

One of my all-time favorite renewable energy stocks, Xantrex, is going away. Schneider Electric, a French company, is buying it at a 55% premium over market price. The reason for selling out, according to Xantrex chairman Mossadeq Umadally, is that it needs to build a vastly larger sales and marketing department. Borrowing Schneider’s, he says, is cheaper and faster than building one from scratch.

Another reason, of course, is that Ummadally—and other insiders—are ready to cash out. That’s a much more likely prime motivator than any “business” reason. The company has reached profitability and is on the top of its game—what a great time to sell.

So should shareholders rejoice, or should they upchuck on their charts? How about neither. A 55% premium is pretty good for a company that makes power boxes, although given a few more years of solar growth, the company’s stock price surely would have increased by more than that. One thing to watch is an exodus of skilled engineers launching their own startups in British Columbia. Now is the right time for new ideas and for cashing in your stock options.

How Not to Build Renewable Energy

2008-08-18T14:18:00.001-06:00

My good friend Herb Rubinstein just called me to tell me he’s leaving the non-profit group he had been helping to run. The organization is called i-Cast and had an unusual mandate of finding renewable energy projects in Colorado for students to work on. Now i-Cast is changing that mandate to finding renewable energy projects for low-income residents. Nice notion, but can we please let the rich people pay for the bleeding-edge stuff first? Herb understandably disagrees with the change of focus—not because he doesn’t like helping poor people but because he just can’t make it add up. Good luck, Herb, and I have no doubt that you’ll find a better opportunity to improve the world.

Slim Pickens Picks a Plan Out of his Nose

2008-08-18T14:14:00.000-06:00

The man’s a billionaire, so he must be smart, right? Then why is he putting forth such a stupid plan? T. Boone "Slim" Pickens, oil man and international financier, is spending a few million of his pieces-of-eight to publicize his “Pickens Plan” for energy independence. In a nutshell (actually, there’s not much more to the plan than a nutshell), the “Plan” calls for increasing the U.S. windpower generation capacity to 20% of all electricity generation and then taking all the natural gas that is saved to power our cars.

Reasons “The Plan” is destined for “The Trashcan”:

*The federal government is calling for 30% windpower generation by 2030. You can’t call your plan a plan if somebody else already planned it.

*Natural gas peaker plants are the only method we currently have to level out the stochastic patterns of windpower production. Eliminating them makes windpower drastically less effective and more costly.

*If we start using natural gas to power our cars, prices will rise dramatically, causing further pain to poor homeowners who rely on the already expensive fuel to keep their children from freezing in the winter.

*Adding natural gas compression, storage and combustion to a car costs at least $10,000 and could be as much as $20,000. That’s CHEAPER than an electric plug-in hybrid.

*Switching from gasoline to natural gas is somewhat cleaner, but it’s STILL A FRIGGIN FOSSIL FUEL, SLIM!

WaMu Gets it up the Wazzoo

2008-07-28T09:25:00.000-06:00

Fear comes in may forms. There's vague anxiety, nail-biting, jaw-dropping awe, trembling terror and why-not-pee-in-your-pants-because-I'm-about-to-die-anyway. That latter fear is what stockholders of WaMu are feeling these days (including myself). Of all the financials I own, this one has performed the worst. That's quite a feat considering some of the stinkers in my portfolio. The reasons are many: subprime write-downs, regional bank chaos, low reserves, shaky strategy, worldwide financial collapse...

But WaMu deserves better than it's got. It shouldn't be a $4 stock. It should be a $7 stock. Welcome to the world of value investing.

All successful value investors have one characteristic that--without it-- leads to surefire ruin. Fear. They understand the emotion of fear and they know how to deal with it. They understand that fear is what undervalues stocks to begin with. And they are willing to jump into the pool aided by reason when the rest of the market is indulging in fear-inspired screaming.

So let's hear it for being fearless about WaMu. Even though I've lost 60% of my investment in it, I'm still not selling it.