Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
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on Auction Rate Preferreds.
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8:30 AM EST Thursday, April 3, 2008: Silver
and gold are rebounding. I bought some GLD and SLV yesterday and goodness gracious,
the market is down 48 points, but I'm up a few shekels. I remain positive on
both these ETFs. As the world talks about the "R" word (recession)
and the dollar continues its collapse, money will continue rush to precious
metals. A flight to safety, and all that. (Today's Wall Street Journal
front-paged, "Bernanke raised the prospect of a U.S. recession as the economy
staggers under a housing crisis and tightening credit.")
The
next bubble will be alternative energy. It's already happening. The hottest
is First Solar, a real company making real sales and real earnings and now rebounding
from its recent low.
Goldman Sachs
recently put out the first issue of its "Private Wealth Forum:"
In it there was a really well done "Alternative Energy Roundtable."
Excerpts:
According to
the International Energy Agency, some $20 trillion will be invested toward
the development of reliable energy alternatives over the next 25 years. Not
all of those investments will be successful.
Nevertheless,
energy renewables now comprise one of the global economy's most robust industries
worldwide, with growth rates for some segments projected at 25% annually.
Goldman Sachs,
for example, has made successful investments in wind and solar. Cellulosic
ethanol also appears promising, in that it addresses the critical issue hurting
the profitability of corn-based ethanol (the primary source of ethanol in
the US) -- namely, competition with the food sector for feedstock. Fuel cells
have yet to become profitable.
The fastest growth we're seeing is in wind and solar photovoltaics (PV) although
solar is growing from a very small base. Geothermal and hydro are growing
slowly. We see opportunities at different parts of the value chains for the
various technologies. For example, with wind power in Europe, there are the
forgers of metal for turbines, turbine assemblers, wind farm developers, and
wind farm operators. Currently, the strongest growth appears to be in parts
and components suppliers who can't keep up with the current demand. The same
is true for solar.
The cost of solar, in particular, is likely to fall dramatically -- many estimate
by as much as 50% by 2010.
Over the last several years, installed wind capacity has grown at a rate of
25% annually, and growth rates of between 15% and 25% are expected for the
next 10 to 15 years, largely driven by government mandates for increased alternative
energy. The EU, for example has mandated that 20% of its energy come from
alternatives by 2020. That's a powerful driver. I can't think of any other
industry projected to grow at 15% - 25% per year for 10 - 15 years.
In developing countries, alternatives are particularly attractive because
in many instances, they don't require connection to a grid. Thus, the high
costs of building a grid can be avoided.
It's true that some of the biofuels are at a disadvantage because of their
exposure to high input costs. From the perspective of a commodity investor,
it's a good time to buy inputs like corn and soybeans, because that's where
a lot of the pressure comes from.
Cellulosic-based ethanol could be a viable technology over the long term.
Right now it requires a lot of upfront capital investment, but the cost of
inputs -- wood chips and waste -- are much lower than for corn based ethanol.
Of course, breaking down cellulosic inputs for ethanol is a much more complicated
technology than that for corn-based ethanol. There are pilot projects underway
and once the technological hurdles are surpassed, funding costs will come
down.
What are the greatest risks to consider when investing in alternative energy?
The two main risks are: (1) that companies are not well managed, you might
call it executive risk, and (2) that government regulation supporting the
industry does not occur as quickly as anticipated. The industry is very heavily
driven by regulation, and if participants don't understand the direction of
government policy, that's a risk.
The wind industry
offers almost a textbook example of executive risk. The first entrants were
small operations run by scientists with minimal or no business or managerial
experience. The primary focus of many early entrants was making sales, and
they ignored the implications of their industry's long supply chain -- the
average wind turbine has about 8,000 components. Many of these businesses
found they couldn't fulfill their contracts because of supply-chain bottlenecks;
they were pushed into late payments and their businesses faltered. Since then,
more sophisticated executives, knowledgeable about the management of working
capital and supply chains, have come to lead many wind businesses. The sector
has been performing very well over the past nine months.
Similarly, in some segments of the solar sector, margins now are unsustainable
high. A surge in demand for solar led to a bottleneck in silicon supply. As
a result, silicon prices multiplied as much as 10-fold, and silicon producers
have been earning margins of 50-60%. But the projected increase in world capacity
from 15,000 tons of silicon per year currently to 100,000 - 125,000 tons of
silicon per year by 2010 will exceed demand, so it looks like the market will
move from undersupply to dramatic oversupply.
Some 50 countries have renewable energy policy targets in place. The EU has
set a goal of deriving 20% of its energy from renewables by 2010. At present,
renewables account for about 7% of the EU energy mix and a fraction of the
power sources worldwide.
The US has no nation renewable energy standard, but 24 states have adopted
their own RPS mandates. And 15 states have adopted emissions reduction programs.
If
you're running your business, you must plan for declining sales: Strategies:
1. Arrange bank credit lines if you can.
2. Keep inventories low.
3. Promote via low-cost tools like the Internet. Beef up your web presence.
4.
Cuddle and coddle your best customers. Visit them. Take them to dinner. Ask
how they're going. Listen.
5.
Keep an eye for local "bargains." For the first time in eons, you
can actually buy residential real estate and rent it out for a reasonable rate
of return -- without assuming any land or building capital appreciation in your
ROI calculations.
6.
Spend a little more time getting in shape and getting your people in shape.
I used to bribe my employees $500 to give up smoking.
Today's
Nuveen Conference Call
Nuveen
Investments will host a conference call at 10:00 a.m. central time to discuss
the refinancing of the funds ARS. Nuveen anticipates high call volume
and encourages attendees to access the call via the live streaming audio link
to facilitate the registration process. Online participants will be able to
submit questions. Attendees can access the teleconference on Nuveens Web
site,
www.nuveen.com, or at
http://w.on24.com/r.htm?e=105775&s=1&k=68694868A5B290FE248355A2D480F2A3
Attendees
who prefer to participate by phone can access the call by dialing (866) 311-5247
or (212) 729-5043 and referencing conference ID number 41908989.
Can
you believe anything you read? The simple answer
is probably not. The better answer is "Check, Check, Check."
On April 1, my friend, Mike Marcus, who runs a successful telecom equipment
supply operation, called AbleComm,
sent out a press release saying Panasonic will use plasma displays in its cell
phones. The release was a spoof. But it got widely picked up by the legitimate
media, e.g. InfoSync.
Some
useful health tips. From the latest issue of Men's Health
magazine:
1.
Men with the highest fitness levels are three times less likely to die of cancer,
according to a University of Buffalo study.
2.
National Cancer Institute researchers found that eating fruit may prevent colorectal
polys, growths that often precede cancer. In the study of 32,000 people, scientists
determined that men who consume five servings of fruit daily were 38% less likely
to have polyps.
3. Close the lid
before you flush. "With the flush of a toilet fecal pathogens can splash
out of the bowl and settle on nearby surfaces, including you. Unfortunately
ingesting as few as 10 particles of various viruses or bacteria can cause a
slew of nasty symptoms, such as diarrhea, fever and vomiting. Your best defense?
Always close the lid before you flush, and of course, wash your hands, please."
4. Forgive and forget. University of Miami researchers discovered that people
who forgace a close friend or family who treated them badly reported fewer aches
and pains, compared with those who kept sulking.
Two
recent favorite New Yorker cartoons:
They're willing to throw in their kidneys.
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You have to shake it if you want to see it snow again.
(A Kanin cartoon.)
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The
Murphy twins, again
Two men were sitting next to each other at a bar.
After a while,
one guy looks at the other and says, "I can't help but think, from listening
to you, that you're from Ireland "
The other guy
responds proudly, "Yes, that I am"
The first guy
says, "So am I."
"And where
about from Ireland might you be?"
The other guy
answers, "I'm from Dublin, I am."
The first guy
responds, and so am I "Sure and begora, And what street did you live on
in Dublin ?"
The other guy
says, "A lovely little area it was, I lived on McCleary Street in the old
central part of town."
The first guy
says, "Faith and it's a small world, so did I.! So did I."
"And to what
school would you have been going?"
The other guy
answers, "Well now, I went to St. Mary's of course."
The first guy
gets really excited and says, "And so did I. Tell me, what year did you
graduate?"
The other guy
answers, "Well, now, let's see, I graduated in 1964."
The first guy
exclaims, "The Good Lord must be smiling down upon us! I can hardly believe
our good luck at winding up in the same bar tonight. Can you believe it, I graduated
from St. Mary's in 1964 my own self."
About this time,
Vicky walks into the bar, sits down, and orders a beer.
Brian, the bartender,
walks over to Vicky, shaking his head and mutters, "It's going to be a
long night tonight"
Vicky asks, "Why
do you say that?"
"The Murphy
twins are drunk again."
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 on this site. Thus I cannot endorse, though some look 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 Michael's business school
tuition. Read more about Google AdSense, click
here and here.
Go back.
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