Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, November 30, 2006: We
continue the nice run on Wall Street. Fed Reserve Chairman Ben
Bernanke had an unusually upbeat assessment on the nation's economy. He warned
that tight labor markets could put more pressure on wages and prices
(and hence inflation). His remarks contrasted with the widely-held view on Wall
Street that slower economic growth will lead to interest-rate cuts, The
Wall Street Journal guessed that Bernanke's hawks message suggests rate
cuts are unlikely in the months to come.
The biggest risk
to growth, Mr. Bernanke said, is that the correction in the housing market
could turn out to be more severe and widespread. ... The rate of home-price
appreciation has slowed significantly and the overhang of unsold homes is likely
even larger than official figures show, he said.
Yet, says the
Journal, the Fed is clearly gaining confidence that housing won't experience
a hard landing. Pray he's right.
Yesterday's column was really good, says
he immodestly. It was on real estate re-fi. If you missed it, click
to ask your hedge fund:
1. Do you borrow money? My preference is no or minimal borrowing.
2. What's your liquidity? What's your largest position versus daily trading
volume? You're not looking for something like -- "We own two million shares
of a company that only trades 20,000 a day."
the answers are wrong, stay out. Remember my mantra: When in doubt, stay
delicious Australian miners: A story in the Australian Financial
Review carries a story about the ASX index nearing its record peak of 5491.
The leading winners
1 Perilya, up
2 Paladin, up 269.62%
3 Kagara, up 218.86%. (one of ours)
4 Minara, up 206.07% (one of ours)
5 Aquarius, up 155.09% and
6 Zinifex, up 143.60% (one of ours).
newspapers is insanity: Bad
salesmen make two mistakes:
They can't shut up, thus effectively "talking" themselves out
of the sale.
2. They argue with the customer's logic. They forget the prime
rule: It's his money. He can spend it however stupidly he wishes.
my amusement with all those billionaires trying to buy newspapers. None of them
know anything about newspaper publishing. But the frenzy is on. And heck, it's
their money. Let them piss it away.
stuff is getting ultra-cheap: The huge price
reductions are in hard drives and LCD monitors. You can buy a brand-new 120
gig hard drive on eBay for under $100. Put it in one of these enclosures. Bingo,
you have extra space for your movies, your photos and your backups.
This USB 2.0, 2.5"
hard drive enclosure is only $19.96. To buy, click
12 days of an Indian Christmas. The kids will
like it. Clean and cute. Click
what you always wanted. A web site devoted to 50-years of centerfolds
from Playboy. The girls have changed. The style of photography has also. The
models get paid more now. And the site is cheaper than buying the paper magazine.
end of Ingenuity: Thomas Homer-Dixon is the director
of the Trudeau Center for Peace and Conflict Studies at the University of Toronto
and the author of The Upside of Down: Catastrophe, Creativity and the
Renewal of Civilization. He wrote this Op-Ed piece in yesterday's New
York Times. It's long but very worth reading:
was on to something, after all.
background: Twenty-six years ago, in one of the most famous wagers in the
history of science, Paul Ehrlich, John Harte and John P. Holdren bet Julian
Simon that the prices of five key metals would rise in the next decade. Mr.
Ehrlich and his colleagues, all environmental scientists, believed that humankinds
growing population and appetite for natural resources would eventually drive
the metals costs up. Simon, a professor of business administration,
thought that human innovation would drive costs down.
Ten years later,
Mr. Ehrlich and his colleagues sent Simon a check for $576.07 an amount
representing the decline in the metals prices after accounting for inflation.
To many, the bets outcome refuted Malthusian arguments that human population
growth and resource consumption and economic growth more generally
would run headlong into the limits of a finite planet. Human inventiveness,
stimulated by modern markets, would always trump scarcity.
1990s seemed to confirm this wisdom. Energy and commodity prices collapsed;
ideas (not physical capital or material resources) were the new source of
wealth, and local air and water got cleaner at least in rich countries.
But today, it
seems, Mr. Ehrlich and his colleagues may have the last (grim) laugh. The
debate about limits to growth is coming back with a vengeance. The worlds
supply of cheap energy is tightening, and humankinds enormous output
of greenhouse gases is disrupting the earths climate. Together, these
two constraints could eventually hobble global economic growth and cap the
size of the global economy.
The most important
resource to consider in this situation is energy, because it is our economys
master resource the one ingredient essential for every
economic activity. Sure, the price of a barrel of oil has dropped sharply
from its peak of $78 last summer, but thats probably just a fluctuation
in a longer upward trend in the cost of oil and of energy more generally.
In any case, the day-to-day price of oil isnt a particularly good indicator
of changes in energys underlying cost, because its influenced
by everything from Middle East politics to fears of hurricanes.
A better measure
of the cost of oil, or any energy source, is the amount of energy required
to produce it. Just as we evaluate a financial investment by comparing the
size of the return with the size of the original expenditure, we can evaluate
any project that generates energy by dividing the amount of energy the project
produces by the amount it consumes.
physicists call this quantity the energy return on investment
or E.R.O.I. For a modern coal mine, for instance, we divide the useful
energy in the coal that the mine produces by the total of all the energy needed
to dig the coal from the ground and prepare it for burning including
the energy in the diesel fuel that powers the jackhammers, shovels and off-road
dump trucks, the energy in the electricity that runs the machines that crush
and sort the coal, as well as all the energy needed to build and maintain
As the average
E.R.O.I. of an economys energy sources drops toward 1 to 1, an ever-larger
fraction of the economys wealth must go to finding and producing energy.
This means less wealth is left over for everything else that needs to be done,
from building houses to moving around information to educating children. The
energy return on investment for conventional oil, which provides about 40
percent of the worlds commercial energy and more than 95 percent
of Americas transportation energy, has been falling for decades. The
trend is most advanced in United States production, where petroleum resources
have been exploited the longest and drillers have been forced to look for
ever-smaller and ever-deeper pools of oil.
an energy scientist at Boston University who helped developed the concept
of E.R.O.I. two decades ago, calculates that from the early 1970s to today
the return on investment of oil and natural gas extraction in the United States
fell from about 25 to 1 to about 15 to 1.
This basic trend
can be seen around the globe with many energy sources. Weve most likely
already found and tapped the biggest, most accessible and highest-E.R.O.I.
oil and gas fields, just as weve already exploited the best rivers for
hydropower. Now, as were extracting new oil and gas in more extreme
environments in deep water far offshore, for example and as
were turning to energy alternatives like nuclear power and converting
tar sands to gasoline, were spending steadily more energy to get energy.
the tar sands of Alberta, likely to be a prime energy source for the United
States in the future, have an E.R.O.I. of around 4 to 1, because a
huge amount of energy (mainly from natural gas) is needed to convert the sands
raw bitumen into useable oil.
Having to search
farther and longer for our resources isnt the only new hurdle we face.
Climate change could also constrain growth. A steady stream of evidence now
indicates that the planet is warming quickly and that the economic impact
on agriculture, our built environment, ecosystems and human health could,
in time, be very large. For instance, a report prepared for the British government
by Sir Nicholas Stern, a former chief economist of the World Bank, calculated
that without restraints on greenhouse gas emissions, by 2100 the annual worldwide
costs of damage from climate change could reach 20 percent of global economic
energy and climate problems are intimately connected. Petroleums falling
energy return on investment will encourage many economies to burn more coal
(which in many parts of the world still has a relatively good E.R.O.I.), but
coal emits far more greenhouse-inducing carbon dioxide for every unit of useful
energy obtained than other energy sources. Also, many potential solutions
to climate change like moving water to newly arid regions or building
dikes and relocating communities along vulnerable coastlines will require
huge amounts of energy.
Without a doubt,
mankind can find ways to push back these constraints on global growth with
market-driven innovation on energy supply, efficient use of energy and pollution
cleanup. But we probably cant push them back indefinitely, because our
species capacity to innovate, and to deliver the fruits of that innovation
when and where theyre needed, isnt infinite.
the best scientific minds cant crack a technical problem quickly (take,
for instance, the painfully slow evolution of battery technology in recent
decades), sometimes market prices give entrepreneurs poor price signals (gasoline
today is still far too cheap to encourage quick innovation in fuel-efficient
vehicles) and, most important, sometimes there just isnt the political
will to back the institutional and technological changes needed.
We can see glaring
examples of such failures of innovation even in the United States home
to the worlds most dynamic economy. Despite decades of increasingly
dire warnings about the risks of dependence on foreign energy, the country
now imports two-thirds of its oil; and during the last 20 years, despite
increasingly clear scientific evidence regarding the dangers of climate change,
the countrys output of carbon dioxide has increased by a fifth.
As the price
of energy rises and as the planet gets hotter, we need significantly higher
investment in innovation throughout society, from governments and corporations
to universities. Perhaps the most urgent step, if humankind is going to return
to coal as its major energy source, is to figure out ways of safely
disposing of coals harmful carbon dioxide probably underground.
But in the larger
sense, we really need to start thinking hard about how our societies
especially those that are already very rich can maintain their social
and political stability, and satisfy the aspirations of their citizens, when
we can no longer count on endless economic growth.
control at The Tickle Me Elmo Factory
Well, Lena is hired at The Tickle Me Elmo factory and she reports
for her first day promptly at 8:00 AM. The next day at 8:45 AM there is a knock
at the Personnel Manager's door. The Foreman throws open the door and begins
to rant about the new employee. He complains that she is incredibly slow and
the whole line is backing up, putting the entire production line behind schedule.
Manager decides he should see this for himself, so the 2 men march down to the
factory floor. When they get there the line is so backed up that there are Tickle
Me Elmo's all over the factory floor and they're really beginning to pile up.
At the end of
the line stands Lena surrounded by mountains of Tickle Me Elmo's. She has a
roll of plush red fabric and a huge bag of small marbles. The 2 men watch in
amazement as she cuts a little piece of fabric, wraps it around two marbles
and begins to carefully sew the little package between Elmo's legs.
Manager bursts into laughter. After several minutes of hysterics he pulls himself
together and approaches Lena "I'm sorry," he says to her, barely able
to keep a straight face, "but I think you misunderstood the instructions
I gave you yesterday... Your job is to give Elmo two test tickles."
Musician's Tune List
Hamas is that
Camel in the Window
On the Sunni Side of the Street
This Scud be the Start of Something
The Amman I Love
Yassir, That's my Baby
Tanks for the Memories
Sheik to Sheik
P.L.O. Young Lovers
Bedouin the Beguine
I've Grown Accustomed to Her Fez
Saddam, You're Rockin' the Boat
I Want to Hold Your Land
I Can't Get No Saudis' Faction
These Fuelish Things
There Will Never be Another Uday
She's Too Fatwa For Me
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.