Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
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
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,
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.
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
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.
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,'
there is a 'substantial likelihood that the judicial relief requested' will
prompt EPA to take steps to reduce that risk."
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
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.
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
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.
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 countrys
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.
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 Financiala mortgage lender specializing in loans to the
subprime, or high-credit-risk, marketdubbed 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 theyve 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.
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 betslast
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 theres plenty of evidence that some lenders relied on what the Federal
Reserve has called fraud and abuse to push loans on
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 moneyinstead, 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 loansmortgages
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 costswhich 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.
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 decadehow else could one justify spending two and a half
million for a two-bedroom apartment in New York? Given the governments
subsidizing and promotion of home ownership, its 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
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;
thats why there have been countless calls for the government to ban
or heavily regulate exotic subprime loans like the 2/28s. But
whats 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.
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?"
"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
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."
"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 .
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