Previous Columns
8:30 AM EST, Tuesday, April 3: This is a cherry picker. Do I really want one? My friend Frank Derfler writes, "Harry, if you're going to invest in windpower, you'd better have a cherry picker. YOU DO NOT WANT TO CLIMB THE TOWER to oil the blade."
Reader Peter Zhu writes, "Wind turbines are toys for millionaires to play. For 99% of the ordinary Americans, it is not worth it. Think about the time and extra money at the front, plus the expensive repair and maintenance. The cost is much more than the $ saved to buy gas/electricity. It is ridiculous."

As I wrote yesterday, "the economics of (wind turbines), though improving, still suck. I need the maintenance and noise like a hole in the head."

Still, it's frustrating. I desperately want to cut the family's fossil fuel energy consumption. Our next cars will be hybrids. For now I pursue the strategies I've written about -- from foam insulation to unplugging TVs when we leave town, to turning down thermostats, etc.

Like Silicon Valley, I'm searching to invest in new energy sources. Biodiesel attracts. A friend has discovered a fuel source that grows much faster than corn. And several readers have written, "Watch uranium." Stocks of uranium producers have exploded. One reader writes:

As a canuck, I put my mad money into Canadian Uranium Jr.'s which are promising production some time in the future. I'm looking for ten-baggers. As your portfolio manager I advise you to go with the producers. Companies hedged at lower prices, but they have production, and they make money. In Canada, Cameco and Denison Mines. In France Areva, in OZ, BHP, although their Uranium exposure is dwarfed by other projects.If you want juniors, I can fill this page.

I looked at uranium producers when I was in Australia. But they seem way overpriced. Time for another look. Nuclear power plants are actually clean, and not as dangerous as they once were.

This is huge energy news. The Supreme Court yesterday ruled that the EPA has the authority to regulate heat-trapping gases in automobile emissions: Today's Wall Street Journal online reported:

The Supreme Court yesterday accused the Bush administration of shirking its duty to protect Americans from the potential danger of greenhouse gases through the EPA's refusal to regulate tailpipe exhaust and other emissions blamed in part for global warming. The 5-4 ruling may quicken the growth of official and corporate support for such regulation, even as it holds the prospect of costly implications for auto makers and energy companies.

The justices asserted that the state of Massachusetts, one plaintiff in yesterday's case, had standing to bring the suit in the first place, in part because of the harm it could suffer from rising sea levels blamed on global warming and because the original defendant -- the U.S. -- was in a position to do something about it. "The sovereign prerogatives to force reductions in greenhouse gas emissions, to negotiate emissions treaties with developing countries, and (in some circumstances) to exercise the police power to reduce motor-vehicle emissions are now lodged in the Federal Government," Justice John Paul Stevens wrote for the majority. The Environmental Protection Agency's "steadfast refusal to regulate greenhouse gas emissions presents a risk of harm to Massachusetts that is both 'actual' and 'imminent,' … and there is a 'substantial likelihood that the judicial relief requested' will prompt EPA to take steps to reduce that risk."

The potential damage of greenhouse gases make them de facto air pollutants and thus the EPA's responsibility under the Clean Air Act, Mr. Stevens wrote. The agency's "laundry list" of reasons for avoiding action and refusal to even judge the danger of such emissions don't excuse what amounts to unlawful negligence, and once the case returns to a lower court the EPA must explain "its reasons for action or inaction," he said.

Though the ruling doesn't force the EPA to act, it suggests the agency will face additional legal trouble if it doesn't, and it amounts to what the New York Times calls "a strong rebuke to the Bush administration, which has maintained that it does not have the right to regulate carbon dioxide and other heat-trapping gases under the Clean Air Act, and that even if it did, it would not use the authority." In what The Wall Street Journal calls a second victory for environmentalists, the court ruled, unanimously, to reverse lower court support for an EPA move to allow operators of coal-fired power plants to significantly overhaul old plants without installing new state-of-the-art antipollution equipment.

The court's decisions come at a time when a growing proportion of American industry has to varying degrees been jumping on to the ecological bandwagon, concluding, as the Journal puts it, that "it was only a matter of time before they were hit with a rule that will limit how much fossil fuel they can burn." But "how such regulation will affect particular industries and companies remains unclear because the rules have yet to be written and will be the subject of an intensifying fight in Washington," the Journal says.

Climate-change concerns are affecting a spectrum of businesses' energy decisions, and are among the reasons responsible for the building momentum world-wide to renew development of nuclear power, Cambridge Energy Research Associates recently noted. And the court's blow for auto makers comes as pressure on them is already building in Washington to reduce the carbon-dioxide emissions from vehicles through higher fuel-economy standards, "a move that could cost the auto companies billions of dollars," the Detroit News adds.

Still, as the Los Angeles Times says, if yesterday's decisions were a major victory for California and other states that want to regulate greenhouse gases, "the battle is not over." Before California, for example, can implement its gas-emission regulations it still faces opposition from the EPA and a lawsuit from the auto industry. But yesterday's rulings improve the state's chances.

The New York Times reported:

WASHINGTON, April 2 — In one of its most important environmental decisions in years, the Supreme Court ruled on Monday that the Environmental Protection Agency has the authority to regulate heat-trapping gases in automobile emissions. The court further ruled that the agency could not sidestep its authority to regulate the greenhouse gases that contribute to global climate change unless it could provide a scientific basis for its refusal.

The 5-to-4 decision was a strong rebuke to the Bush administration, which has maintained that it does not have the right to regulate carbon dioxide and other heat-trapping gases under the Clean Air Act, and that even if it did, it would not use the authority. The ruling does not force the environmental agency to regulate auto emissions, but it would almost certainly face further legal action if it failed to do so.

Writing for the majority, Justice John Paul Stevens said the only way the agency could “avoid taking further action” now was “if it determines that greenhouse gases do not contribute to climate change” or provides a good explanation why it cannot or will not find out whether they do.

Beyond the specific context for this case — so-called “tailpipe emissions” from cars and trucks, which account for about one-fourth of the country’s total emissions of heat-trapping gases — the decision is likely to have a broader impact on the debate over government efforts to address global warming.

Subprime Homesick Blues. James Surowiecki is one of my favorite financial writers. This piece of his is from the latest issue of the New Yorker magazine:

Not long ago, New Century Financial—a mortgage lender specializing in loans to the subprime, or high-credit-risk, market—dubbed itself “a new shade of blue chip.” Today, with its stock price down more than ninety per cent in the past six months and the company close to bankruptcy, it looks more like a new shade of Enron. And it is not alone. In the past year, more than two dozen subprime lenders have shut their doors. The percentage of their borrowers who are delinquent (meaning that they’ve missed at least one payment) has doubled, and predictions of more than a million foreclosures have become commonplace. As concerns grow that the subprime crisis could spread to the rest of the housing market, pundits and politicians looking for a culprit have seized on New Century and its ilk, charging them with causing the crisis with their “predatory lending” practices, duping tens of millions of homeowners into borrowing more money than was good for them.

The backlash against the subprime lenders is understandable, since their business practices were often reckless and deceptive. Instead of responding to the slowdown in the housing market by cutting back their lending, they pressed their bets—last year, six hundred billion dollars’ worth of subprime loans were issued. Many of the lenders hid their troubles from investors, even as their executives were dumping stock; between August and February, for instance, New Century insiders sold more than twenty-five million dollars’ worth of shares. And there’s plenty of evidence that some lenders relied on what the Federal Reserve has called “fraud” and “abuse” to push loans on unwitting borrowers.

For all that, “predatory lending” is a woefully inadequate explanation of the subprime turmoil. If subprime lending consisted only of lenders exploiting borrowers, after all, it would be hard to understand why so many lenders are going bankrupt. (Subprime lenders appear to have been predators in the sense that Wile E. Coyote was.) Focussing on lenders’ greed misses a fundamental part of the subprime dynamic: the overambition and overconfidence of borrowers.

The boom in subprime lending made huge amounts of credit available to people who previously had a very hard time getting any credit at all. Borrowers were not passive recipients of this money—instead, many of them used the lax lending standards to make calculated, if ill-advised, gambles. In 2006, for instance, the percentage of borrowers who failed to make the first monthly payment on their mortgages tripled, while in the past two years the percentage of people who missed a payment in their first ninety days quadrupled. Most of these people did not suddenly run into financial trouble; they were betting that they would be able to buy the house and quickly sell it. Similarly, last year almost forty per cent of subprime borrowers were able to get “liar loans”—mortgages that borrowers can get simply by stating their income, which the lender does not verify. These loans were ideal for speculative gambles: you could buy far more house than your income justified, and, if you could flip it quickly, you could reap outsized profits. Flat-out fraud also proliferated: consider the mortgage taken out by one “M. Mouse.”

While some subprime borrowers were gaming the system, many just fell victim to well-known decision-making flaws. “Consumer myopia” led them to focus too much on things like low teaser rates and initial monthly payments rather than on the total amount of debt they were assuming. Then, there was the common tendency to overvalue present gains at the expense of future costs—which helps explain the popularity of so-called 2/28 loans (which come with a low, fixed-interest rate for the first two years and a much higher, adjustable rate thereafter). People were willing to trade the uncertainty of what might happen in the long run for the benefit of owning a house in the short run.

Another thing that led subprime borrowers astray was their expectation that housing prices were bound to keep going up, and therefore the value of their house would always exceed the size of their debt. This was a mistake, but one that many Americans have made in response to the real appreciation in housing prices over the past decade—how else could one justify spending two and a half million for a two-bedroom apartment in New York? Given the government’s subsidizing and promotion of home ownership, it’s not surprising that borrowers leaped at the chance to buy a home even on onerous terms. The problem, of course, is that the cost of misplaced optimism is much higher for subprime borrowers.

The result of all this is that many subprime borrowers would have been better off if lenders had been more stringent and not granted them mortgages in the first place; that’s why there have been countless calls for the government to ban or heavily regulate “exotic” subprime loans like the 2/28s. But what’s often missed in the current uproar is that while a substantial minority of subprime borrowers are struggling, almost ninety per cent are making their monthly payments and living in the houses they bought. And even if delinquencies rise when the higher rates of the 2/28s kick in, on the whole the subprime boom appears to have created more winners than losers. (The rise in home ownership rates since the mid-nineties is due in part to subprime credit.) We do need more regulatory vigilance, but banning subprime loans will protect the interests of some at the expense of limiting credit for subprime borrowers in general. And while the absence of a ban means that some borrowers will keep making bad bets, that may be better than their never having had the chance to make any bet at all.

The battle between Heaven and Hell
An engineer dies and reports to the pearly gates. St. Peter checks his dossier and says, "Ah, you're an engineer - you're in the wrong place." So the engineer reports to the gates of hell and is let in.

Pretty soon, the engineer gets dissatisfied with the level of comfort in hell, and starts designing and building improvements. After a while, they've got air conditioning, flush toilets and escalators, and the engineer is becoming a pretty popular guy. One day God calls Satan up on the telephone and asks with a sneer, "So, how's it going down there in hell?"

Satan replies, "Hey, things are going great. We've got air conditioning, flush toilets and escalators, and there's no telling what this engineer is going to come up with next."

God replies, "What??? You've got an engineer? That's a mistake - he should never have gotten down there; send him up here."

Satan says, "No way! I like having an engineer on the staff, and I'm keeping him."

God says, "Send him back up here or I'll sue."

Satan laughs, "Yeah right. And just where are YOU going to get a lawyer?"

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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