Friday, July 31, 2009

Climateer Line of the Day: Marc Faber

Today's winner of the prestigious CLOD is Dr. Marc Faber:
“The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance. I’d be a bit careful about China.”...
-CNBC Interview via Futronomics
Here's some weekend video of Dr. Faber via the Socio-Economics History blog:
Marc Faber: Recent Rally is the Result of Excess Liquidity. The Worst is Still to Come!

There is a bubble that the FED and the government are creating right now and this is a bubble in government debt, in the size of it. They are being very successful at that.

Eventually the US Government will go bankrupt the way California is almost bankrupt, but that will take some time. The next bubble in my opinion can be a bubble again in equities.” Marc Faber told Bloomberg TV early this week.

Marc Faber was also a speaker at The Agora Financial Investment Symposium in Vancouver and had an hour long interview with CNBC Asia here are some of the quotes from Marc Faber :

“The world has not seen the end of the financial crisis and the recent surge in markets was a result of excess liquidity coming from central banks”, Marc Faber told CNBC in an interview.

“If you pump money into the system and you create large fiscal deficits, you create volatility,” Faber, author of the Gloom, Boom and Doom Report, told CNBC in remarks reported on its website.

“We’ve seen an intermediate low in March, we’ll rally for a year or so or maybe 18 months — the ultimate crisis will happen much later, and the ultimate crisis would clean the system,” he added.
Some other posts at the Socio-Economics history blog:
Hey, ya take your links where you find them.

El Nino in a Cold PDO – Are they Different?

In Wednesday's post "El Nino May Ease Worst Texas Drought, Cut Florida Storm Risk" I made passing reference to the difference:

...The last paragraph on California is iffy. We haven't had an El Nino since the Pacific Decadal Oscillation went into it's cool phase in September 2007 so all of the satellite and other high tech data was gathered during the 31 year PDO warm phase, entered in July 1976. We know about ENSO cold/PDO warm but you have to go back to 1947 for the start of last PDO cool phase, i.e. pre-satellite.

There is some reason to suspect that California and the southwest will have a weather pattern different from what our short term memories consider a typical El Nino.
Today, lo and behold, this showed up in the emails. From Intellicast:

Warming is taking place again this year in the eastern tropical Pacific.

Recently the SOI spiked 5 STD negative indicative of that trend towards El Nino.

Last year the warming peaked below threshold El Nino levels in July and returned to La Nina by winter.

This year there appears to be enough subsurface warmth to take it further.

But the PDO remains cold with some slight rebound. El Ninos tend to be briefer and weaker during cold (negative) PDO eras, which is where we have been it appears most of the time since 1998.

Note the positive PDO is a basin wide El Nino like pattern with more emphasis on cold northwest, the negative a basin wide La Nina like pattern with more northwest basin warmth.

MUCH MUCH MORE chart porn and analysis:
...The ENSO and PDO seem to reinforce each other and track well together. We should expect PDO to bounce some but if the Pacific is really in the cold mode, the El Nino should be brief and at most moderate like they were from the 1950s through the 1970s and again in the middle 2000s. La Nina should return if not by/during winter during 2010.

First Solar: Bull and Bear Mull Q2 Upside, German Rebates (FSLR)

A roundup of analyst commentary from Tech Trader Daily:

It was a strange quarter for solar panel maker First Solar (FSLR) last night. The company reiterated its forecast for 2009 revenue, which was probably expected, but it also beat Q2 revenue, leaving some disappointed with the lack of upside for the rest of the year. Moreover, the big issue on the call, the decision by the company to offer rebates in Germany is paradoxical given that it was $84 million in revenue from Germany, analysts say, that helped the company beat Q2 expectations. Do the rebates signal a continuing threat of price erosion and stalled customers as First Solar competitors cut their prices?

Here’s what the Street’s thinking today:

Mark Bachman, Pacific Crest: Reiterates “Outperform” rating on First Solar and $227 price target. Bachman raised his estimates for this year’s sales and profit to $2.05 billion and $8.21 from a prior $1.95 billion and $8.02. His model reflects higher production ramp-up at First Solar, but he’s also taking into account the threat of falling average selling prices and the company’s increase in R&D, which will offset higher production and lower operating profit. Bachman says a reiteration of 2009 forecast was expected, but that was before the company beat on the top line for Q2. Though Bachman believes he’ll be more “hard pressed” to defend the bull case for the stock, given that there was no warning to the Street about rebates, he does believe gross profit should hold up, despite rebates, at around 50%, rather than the 40% some bears are now calling for. Gross profit was 56.7% last quarter.

Ben Pang, Caris &; Co: Reiterating his “Buy” rating and his $205 price target, Pang writes that average selling price and gross profit concerns “are not going away anytime soon.” Pang lowered his 2009 revenue estimate to the mid-point of the company’s forecast, $1.94 billion, just like Bachman. “Although we do expect pricing pressure and industry uncertainty to continue,” writes Pang, “we still think First Solar’s cost reduction roadmap and strategic geographic positioning will allow them to capitalize on improving industry conditions.” Pang notes that higher-than-expected gross profit came from higher factory throughput last quarter. He thinks that going forward, margin improvement will come from “higher cell efficiency” in the company’s modules....MORE

Stock markets – secondary or primary bull?

From Investment Postcards from Cape Town:

Ever since Richard Russell (Dow Theory Letters) called a “Dow Theory bull signal” last Thursday, the debate has been rekindled as to whether the US stock markets are experiencing a primary (secular) bull market or a rally within a primary bear market, i.e. a secondary or so-called cyclical bull phase.

As mentioned previously, Russell views the March 9 low as a secondary low, saying: “We are now in a cyclical bull market as opposed to a secular or primary bull market. In effect, we’re in an extended bear market rally. The true bear market bottom lies somewhere ahead.”

Irrespective of terminology, 64% of the readers of the Investment Postcards blog see the current phase as one characterized by “irrational exuberance”, as cleaned from a quick poll a few days ago....

...Amid the uncertainty, the highly rated Ned Davis (Ned Davis Research) has just completed a research project in which he identified seven dimensions one could use to compare the March 9 low with secular lows of the past. His findings, as reported by Mark Hulbert on MarketWatch (hat tip: The Big Picture), were as follows.

(1) “Monetarily, money should be cheap and amply available”: Neutral. You might think that this factor should be rated as “bullish”, given how accommodative the Federal Reserve is currently. But Davis notes that banks are also significantly tightening their lending standards. Given the heavy debt load of both consumers and corporations suffer (see next criterion), banks are finding it “increasingly hard to find ‘credit-worthy’ borrowers”.

(2) “Economically, the debt structure should be deflated”. Bearish. This is the most negative of any of Davis’ seven dimensions, since the debt structure is by no means deflated. On the contrary, Davis calculates that the total credit-market debt load right now is nearly four times the size of gross domestic product, and that it takes more than $6 of new debt for our country to produce just $1 of GDP growth. That’s almost double the amount of debt required in the 1990s....MORE

Silicon Valley's Jobless Unplug From Tech

They're going where the money is going. If the money was flowing to the whittling sector, we'd have more whittlers in the Valley, ipso facto.
From the Wall Street Journal:

As Region's Unemployment Rises to 11.8%, Above National Average, Clean Energy and Health Care Draw More Applicants
Jobless workers in Silicon Valley are giving up on the region's dominant technology industry and trying to switch to other fields, as the area's unemployment rate spikes above the national and state average.

Job centers and community colleges across the region are reporting a surge in enrollment of out-of-work techies, with many looking to move into other industries. While data on the shift are scarce, the trend is evident at ProMatch, a government-funded organization in Sunnyvale, Calif., that helps unemployed professionals network, retrain and land new jobs.

Since the start of the year, ProMatch has seen its ranks swell from 180 attendees to its maximum capacity of 225, says Connie Brock, who helps run the group. Of those, about 80% are from the tech industry, and a third are seeking to transition to nontech jobs, estimates Ms. Brock. An additional 450 people have signed up for the waiting list to use ProMatch's services since January, she adds.

Many of the jobless techies are targeting new gigs in the clean-energy or health-care industries, according to ProMatch. Some are shifting even further afield, looking for jobs in teaching or financial consulting. People are leaving tech as "more tech companies are offshoring and some are shrinking, plus people are burned out and tired from having been there and done that," says Ms. Brock.

The activity at ProMatch illustrates how even workers in stronger pockets of the economy -- such as tech -- are having to adjust in the recession. For much of last year, unemployment in Silicon Valley remained under control as the tech industry initially held up in the downturn. But by late last year, tech spending had weakened, and companies such as eBay Inc. were announcing layoffs.

As a result, Silicon Valley's unemployment rate -- which was below California's average and largely tracked the national average last year -- has soared, surpassing the state average in May. By June, the area's unadjusted unemployment rate was 11.8%, worse than California's 11.6% and the national rate of 9.7%, according to the latest figures from California's Employment Development Department. The rate of job losses was particularly steep in sectors such as semiconductor manufacturing, where employment dropped more than 13% in June from a year earlier....MORE

Solar company results reflect weak global market

From Reuters:
First Solar Inc reported a quarterly profit on Thursday that handily topped Wall Street estimates, but its shares fell in extended trading after the company said it would start offering rebates to defend its position in Germany.

The solar panel maker's shares soared more than 10 percent after it announced its results but reversed course and fell 3.2 percent after the rebate program was outlined during a conference call with analysts.

"They say they're doing it through a rebate program, but it doesn't matter what you call it, they still have to cut prices," said Kaufman Bros analyst Theodore O'Neill.

First Solar, based in Tempe, Arizona, has weathered the global recession better than many of its peers because its cadmium telluride panels are cheaper to produce than the silicon-based panels that dominate the market.

That was underscored on Thursday as three smaller U.S. solar companies, Evergreen Solar Inc, Hoku Scientific Inc and Akeena Solar Inc, said they lost money in the second quarter.

A dearth of financing for renewable energy projects has contributed to a global glut of solar panels that has sent prices falling, hurting panel makers' margins.

At the same time, prices of silicon-based panels have come closer to those of First Solar's low-cost panels, chipping away at its competitive edge....MORE

First Solar Price Target Lowered at Barclays, Raised at Wedbush (FSLR)

From SmarTrend:
Barclays Capital Solar Energy analyst Vishal Shah said in a Friday note that while First Solar's (NASDAQ:FSLR) Q2 report was above consensus estimates, the upside was largely attributable to the $84 million Lieberose revenue recognition. The quarter was strong, but 2009 guidance was maintained with difficult second-half market conditions expected. He wrote, "Q2 was perhaps the peak quarter this cycle in many respects - margins, ASP declines (relative to Chinese competition), cost reduction benefits, bargaining power over customers - all 4 metrics peaked this quarter." Lowering the stock's price target to $140, he concluded, " FSLR remains best-of-breed technology provider with strong balance sheet and solid execution track-record. Relative to Chinese competition, we think there is less long term execution risk with FSLR story. Having said that, we believe shares could decline to $120-$125 levels in the near term at which point longer term earnings story becomes more interesting."
From StreetInsider:
Wedbush Morgan lifts its price target on First Solar, Inc. from $170 to $195, reiterating their Outperform rating. The firm said the company continues to post solid results despite difficult industry condition.

SI NOTE: Wedbush was one of the few analysts positive on the stock this morning. After trading 10% higher original following last night's results, shares of the battleground stock are now down 10%.

EEStor: " Leaked CEO conversation suggests electricity revolution coming "

That's The Independent's headline. The original at the New Zealand Herald is "Unlimited energy on the cheap - just a dream?". Here's the story:

Transcripts and audio files of a leaked phone conversation between the secretive CEO of Texas-based eeStore, Dick Weir, and an as yet undisclosed source have been doing the rounds online for the last 24 hours creating a stir amongst technologists and environmentalists around the world.

Whilst you'd be forgiven for thinking that a leaked phone conversation on the internet was merely yawn worthy, this particular conversation saw eeStore CEO, Weir confirming that they are mere months away from launching an uber capacitor which is an electrical component that would fully charge up in minutes yet hold enough juice to power electronic gadgets for days.

Should the scuttlebutt around this leaked conversation be something more than a cleverly orchestrated PR stunt, and eeStor's invention actually work, the implications are nothing short of revolutionary....MORE

First Solar: Downgraded at Credit Suisse (FSLR)

In pre-market trade the stock is down $18.74 at $173.55 (10.80%). From Notable Calls:
Earnings momentum peaking. While there has been a widespread concern on FSLR’s margins, FSLR’s stock in the meantime has benefited from its consistent track record of beat and raise quarters in the past. While CSFB expected upside to the quarter, FSLR's reported Q2 results were well above consensus. However, they think Q3 will be the last good quarter for a while for similar upside surprises; and they expect a period where estimate resets are asymmetrically skewed to the downside as we move into 2010. Firm expects the stock to look ahead of this peaking earnings momentum and pull back to lower levels....

...Notablecalls: This is a powerful downgrade from CSFB Solar Energy team. I'm actually surprised they didn't downgrade the stock to Underperform (the language is that strong). The stock will have 8-10% downside in store today....MORE

Vinod Khosla On Why Clean Technology Is Misunderstood

From the WSJ's Venture Capital Dispatch:
Vinod Khosla emphasized several times Thursday that costs – and not idealogy - will drive the clean technology industry, and said that much of the hype around cleantech is fueled by misunderstood information.

Khosla, a legendary venture capitalist and one of the most active investors in cleantech through his firm Khosla Ventures, said some of the books that have helped generate buzz were “probably written by English majors who could not get a real job,” he said onstage at the AlwaysOn Summit at Stanford University.

The industry is far more scientifically dense and difficult to predict than many seem to believe, he said, so almost everything being about cleantech today should be taken with a grain of salt.

“My favorite is Sheryl Crow saying to use one square of toilet paper instead of two,” he said. “We hear a ton of this stuff … and it won’t make a dent.”

The cleantech industry is being portrayed as the wave of the future, he said, and perhaps the basis of a lucrative new manufacturing industry in America. And while this could be true, it will be a much longer – and harder – road to get there than many believe, Khosla said....MORE

Thursday, July 30, 2009

Climateer Line of the Day: Goldman Sachs

Today's winner of the prestigious CLOD:
The image of Goldman Sachs (GS) as a Borg-like hive mind that breeds a bald master-race of capitalists has picked up speed during the last month....
-First sentence of Heidi Moore's The Big Money piece:
"Will Everyone Please Shut Up About Goldman Sachs?"

Replacing Gasoline with Natural Gas: How Much do we Have

Robert Rapier writing at The Oil Drum:
You may have seen the recent news that a report by the Potential Gas Committee says natural gas reserves in 2008 rose to 2,074 trillion cubic feet. The New York Times and the Wall Street Journal (via Rigzone) both had stories on it, and T. Boone Pickens issued a press release. In this post, I will look at how long these reserves might last, if used to replace US gasoline usage....

...A number of people have rightly pointed out that a 100-year supply implies usage at current rates. But it got me to thinking about how much natural gas it would take to displace all U.S. gasoline consumption. So in the spirit of my year-ago essay Replacing Gasoline with Solar Power, I will do the same calculation for replacing gasoline with natural gas. The big difference between this calculation and the earlier one is that solar power still has some technical issues to resolve (e.g., storage) and electric vehicles are not yet ready for prime time. On the other hand we are perfectly capable, today, of displacing large numbers of gasoline-fueled vehicles with natural gas.

How Much Do We Need?

The U.S. currently consumes 390 million gallons of gasoline per day. (Source: EIA). A gallon of gasoline contains about 115,000 BTUs. (Source: EPA). The energy content of this much gasoline is equivalent to 45 trillion BTUs per day. The energy content of natural gas is about 1,000 BTUs per standard cubic foot (scf). Therefore, to replace all gasoline consumption would require 45 billion scf per day, or 16.4 trillion scf per year. Current U.S. natural gas consumption is 23 trillion scf per year (Source: EIA). Therefore, replacing all gasoline consumption with natural gas would require a total usage of 39.4 trillion scf per year, an increase in natural gas consumption of 71% over present usage.

Assuming for the sake of argument that the 2,074 trillion standard cubic feet cited in the study is accurate, that the "probable, possible and speculative reserves" eventually equate to actual reserves, and that the gas is economically recoverable, that is enough gas for 53 years of combined current natural gas consumption and gasoline consumption. If you assume that only the proven plus probable reserves are eventually recovered, the amount drops to about 1/3rd of the 2,074 trillion scf estimate, still enough to satisfy current natural gas consumption and replace all gasoline consumption for almost 20 years.

We can also calculate in terms of oil imports. Right now the U.S. imports about 13 million barrels per day of all petroleum products. A barrel of oil contains around 5.8 million BTUs, but oil only makes up 10 million of the 13 million barrel per day figure. Other imports include things like gasoline (4.8 million BTUs/bbl) and ethanol (3.2 million BTUs/bbl). Scanning the list of imports, I probably won't be too far off the mark to presume that the average BTU value of those 13 million bpd of imports is about 5.4 million BTUs/bbl. On an annual basis, this equates to 25.6 trillion scf of natural gas, which would be an increase over current natural gas usage of 111%. Going back to the 2,074 trillion scf from the study, this would be enough to displace imports of all petroleum products (again, at current usage rates and not factoring in declining U.S. oil production) for 43 years.

What's the Cost?

Natural gas is presently trading at about $4 per million (MM) BTU (although December 2009 is trading at almost $6). Oil is presently trading at $71/bbl, which equates to $12.24/MMBTU. Gasoline is presently trading at over $17/MMBTU. Thus, natural gas is a bargain relative to oil or gasoline. Incidentally, I just checked on seasoned wood and wood pellets, and they range from $8-$12/MMBTUs. So it is cheaper to heat your house with gas than with wood. I am not sure I would have guessed that.

While natural gas is a bargain relative to gasoline, converting a gasoline-powered vehicle to natural gas isn't cheap. According to this source, it can cost $12,500 to $22,500 to convert a gasoline-powered car to natural gas....MORE

Akeena Shares Up Despite Q2 Rev Miss; Smaller Net Loss (AKNS)

Sorry for the light posting today, reality keeps intruding. The big news in solar will be First Solar's after-the-close earnings release. FSLR is up 3.71 %, AKNS 3.76%.
From Tech Trader Daily:

In a good omen, perhaps, for solar technology makers First Solar (FSLR) and Evergreen Solar (ESLR), which report tonight after the bell, Akeena Solar (AKNS) shares are rising despite a top-line miss in the company’s Q2 report this morning.

Akeena said revenue in Q2 fell 17%, year over year, to $5.9 million, lower than the $7.1 million consensus forecast, but thanks to a 30% drop year over year in operating expenses, the company was able to report a net loss of 9 cents per share in profit, above the 11-cent loss expected and narrower than the 18-cent loss a year earlier....MORE

Nanotech: The Key to Storing Carbon? And: Getting a handle on Expected Returns

A good catch by earth2tech. First some self-referencing. [reverencing? -ed]
In an April 15 post "Best strategy for long bear market 2010-2020" we said:
Mr. Farrell may be more bearish than necessary. We date the beginning of the secular bear* market to the first quarter of 2000 and use the DJIA's 11,722 close on Jan. 14 of that year. The Nasdaq hit it's all-time high on March 10.

We consider all of the time the market spent above that figure, starting with the Oct. 30, 2006 close at 11,727 through the all-time closing high 14,164.53 on Oct. 9, 2007 (coincidentally, five years to the day* from the low of the bust) and back down, to be an anomaly caused by Greenspan's loose-as-a-goose Fed policy. You could probably make the same argument for a portion of the 2004-2006 gains. One more factoid, the 2007 high did not exceed the 2000 high, on an inflation adjusted basis.

The last secular bear is dated 1966 to 1982, eighteen years, roughly equal in length to the 1902-1921 secular bear. For reasons I'll get into in a few months, we believe this cycle will be a bit shorter, call it approximately 15 years, which gets us to 2015 or so....
We re-referenced in a May Day post "Gail Dudack on What's Ahead for the Stock Market" with the last line highlighted. One of the reasons to expect a shorter secular bear is the growth that will come from nano-tech. The possibilities are mind boggling. That's also the reason to pay attention to Feynman, he coined the word "nanotechnology".
Here's earth2tech:

A recent breakthrough at Lawrence Berkeley National Laboratory is bringing together two sectors that people love to fixate on: nanotechnology and carbon sequestration. Although the combo may sound unusual, nanotechnology could actually be the only way we’ll figure out if geologic carbon sequestration — stuffing CO2 underground — actually works.

Here’s the deal: The most reliable way to store and secure CO2 is to get it to attach to a solid and form a carbonate. (Think coral covering rocks in the ocean.) That process is thermodynamically stable and also provides a long-term solution to holding onto CO2. The problem is that it takes a very long time for that to happen using current methods — as in, thousands of years.

But Lawrence Berkeley recently managed to produce nanoscale magnesium oxide crystals, which staff scientist Jeff Urban says could help speed up that CO2-solid bonding process. “Magnesium oxide crystals are known to influence processes and rates of reaction,” he said. “And if we can control the size and surface chemistry of the crystals, we may be able to dramatically increase the rate of CO2 being stuck to the surface.” >>>MORE

Berkshire Takes 9.9% Stake in China Electric-car Maker BYD (BRK.A; 1211 [Hong Kong])

From Bloomberg:
Warren Buffett’s Berkshire Hathaway Inc. completed the purchase of a 9.89 percent stake in electric- car maker BYD Co., whose shares have jumped fivefold since the deal was announced.

The China Securities Regulatory Commission approved the purchase, Hong Kong-listed BYD told the stock exchange today.

Berkshire is set to make a paper profit of about $1 billion from the deal, agreed in September, following the increase in BYD’s share price. The automaker has climbed in Hong Kong trading on publicity from the Buffett tie-up and because of rising demand for its fuel-efficient vehicles.

“Investors are buoyed by the potential growth in BYD’s electric-car business,” said Barry Leung, an analyst at Sun Hung Kai Securities Ltd. in Hong Kong. “The alternative-energy sector is clearly one that will continue to enjoy the support of the Chinese government.” Leung rates the carmaker “buy.”

Berkshire’s MidAmerican Energy Holdings Co. unit agreed to buy 225 million new shares of BYD for HK$8 apiece. That stock now has a market value of HK$9.4 billion ($1.2 billion), based on today’s closing price. Buffett will pay HK$1.8 billion.

BYD, also China’s biggest maker of rechargeable batteries, fell 1.3 percent to close at HK$41.65 in Hong Kong trading today, before the completion of the purchase was announced....MORE

See also:

Taiwanese Tycoon lashes out at Buffett over BYD Investment (BRK.A; 1211 [Hong Kong])

Follow up: "Berkshire Hathaway Doubts Taiwan Tycoon's Accusations Against Buffett's Electric Car Partner" (BRK.A; 1211 [Hong Kong])

Better Batteries: General Electric, A123 and the Power Grid. Plus Warren Buffett Does a Drive-by (Charlie too!)

Here's the Story on Berkshire's Munger (BRK.A)

Update: Warren Buffett/Berkshire Hathaway 2009 Annual Meeting Links (BRK.A)

Wednesday, July 29, 2009

Climateer Line of the Day: Hedge Funds

Pension Pulse takes home the prestigious CLOD with:

...The real good news for hedge funds is that the markets keep grinding higher.

Most hedge funds charge alpha fees for leveraged beta. Sure, they package it nicely, slap on some "risk management" and peddle it through a network of salespeople, but at the end of the day, it's "diguised beta".

They also got the politicians in their back pockets so I do not expect any major regulatory reforms. And while they collect 2 & 20 for their "alpha", the rest of society watches the stock market and their portfolios go up and down like a yo-yo....

From his post "Good News for Hedge Funds?".

Berkshire Hathaway A Triple Play in Renewable Energy (Now with Solar-y Goodness) BRK.A; ENER

If only they were pure play.
Wait!! What am I saying? Who wouldn't want See's Candies to go with their Geico insurance, Borsheim's pinky ring and Johns Manville Solar (you read that right).
[Dear Mr. Buffett, please forgive the shameless and transparent pitch for an ad or two -ed]

Berkshire controlled MidAmerican Energy has the largest portfolio of utility owned wind generation in the country, along with significant hydro. This makes the TP.
From PR Newswire (not a BRK company, Warren owns Business Wire which does not have the story yet):

Johns Manville's E3 Company and Energy Conversion Devices to Deliver Photovoltaic Systems for Commercial Roofs
Johns Manville (JM), a leading global manufacturer of an extensive line of energy-efficient building products, and Energy Conversion Devices, Inc. (ECD) (Nasdaq :ENER), a manufacturer of proprietary, thin-film amorphous silicon-based photovoltaic (PV) laminates announced that they have reached a multi-year agreement for ECD to supply its UNI-SOLAR(R) laminates to Johns Manville. To support its entry into the field of solar energy, JM has created and will market its unique capability through a new business entity, the JM E3 Company, more informally known as E3 Co.

According to Fred Stephan, vice president and general manager of the Roofing Systems business for Johns Manville, "This further strengthens our leadership in sustainable roofing. We are excited to partner with ECD to incorporate their lightweight, flexible and durable UNI-SOLAR laminates into our single ply, built-up and modified bitumen roofing membrane systems. Supported by JM's 150 years of commercial roofing experience and ECD's expertise in building-integrated photovoltaics, this agreement is our first step in offering a range of new solar-energy producing roofing products to our customer base."

Mark Morelli, ECD's president and CEO, said, "Johns Manville is well known for being a leading provider of high-quality commercial roofing products. We look forward to working with them to advance the adoption of clean, renewable power in the form of rooftop solar technology."

At less than one pound per square foot, UNI-SOLAR laminates are lightweight, non-intrusive and require no rooftop penetrations or mounting systems, eliminating the negative impact on roof life and performance that is associated with penetrating PV systems. Additionally, these thin-film PV laminates provide a solid return on investment through a low installed cost and low cost-per-kilowatt-hour of energy produced when compared to traditional rigid glass panel PV alternatives....MORE

About the pure play thing, back when the stimulus bill was first mooted I was looking for pure plays in caulk and/or insulation:

Stimulus: Tips on Trading the Caulk/Putty/Grout Complex

I got nuthin'. The largest caulk manufacturers are privately held.
The largest caulk gun manufacturer is a family business.
The largest silicone supplier is Momentive Performance Materials Inc. (formerly GE Silicone) controlled by an affiliate of Apollo Management.
Their slogan is "Changing the way you think about caulk".
They seem to be hurting. Here's the last 10Q.
Looks like a job for Private Equity Man...more

Naked girls and gold demand

I saw the Bihar state story a couple days ago but didn't work through the connections.
From Humble Student of the Markets:
Some interesting headlines came across my desk in the last few days and something doesn’t add up. The first headline was entitled Naked girls plough fields for rain:

Farmers in an eastern Indian state have asked their unmarried daughters to plow parched fields naked in a bid to embarrass the weather gods to bring some badly needed monsoon rain, officials said on Thursday.

Witnesses said the naked girls in Bihar state plowed the fields and chanted ancient hymns after sunset to invoke the gods. They said elderly village women helped the girls drag the plows.

The Wall Street Journal also reports that the Indian monsoon season has been very uneven this year [emphasis mine]:
After India's driest June in 83 years, four of 28 provinces have declared drought, and many farmers don't have enough water to grow a full crop. More than half of Uttar Pradesh, the most populous state and a key rice and sugar cane-growing area, is suffering from drought.

A poor crop yield could push up food prices, straining the government's budget and complicating the central bank's efforts to revive the economy without letting inflation get out of hand....
...I would remind you that India accounts for a large part of the world’s physical gold demand. Much of that manifests itself during the wedding season after the monsoons and demand is dependent on how the crops come in.

In a year where the monsoons are below average and uneven, what is that going to do to Indian gold demand?...

El Nino May Ease Worst Texas Drought, Cut Florida Storm Risk

An extensive piece on the agricultural impacts of El Nino, from Bloomberg:
The return of an El Nino climate pattern to the Pacific Ocean may relieve the worst Texas drought in 90 years and may reduce the threat of hurricanes ravaging orange groves in Florida.

El Nino, characterized by warming waters in the Pacific, “could bring relief” in the fall and winter to Texas, where farms are suffering from the lack of rain, the National Weather Service said July 16. The El Nino will last through the Northern Hemisphere winter and into 2010, presaging winter storms in the Southwest and a reduction in Atlantic hurricanes, the U.S. National Oceanic and Atmospheric Administration said July 9.

The threat of weather damage to U.S. crops helped send cotton to a 10-month high on July 21 on ICE Futures U.S. in New York, while orange-juice prices have surged 39 percent this year. Texas, which has lost $3.6 billion from the current drought, is the nation’s biggest cotton-growing state. Florida is the world’s largest grower of oranges after Brazil.

El Nino “would be a good thing for Texas,” said Drew Lerner, the president of forecaster World Weather Inc. in Overland Park, Kansas. “It would assure planting would occur more normally. There are less hurricanes in the Atlantic Basin in an El Nino year.”

Fewer storms also reduce the threat of damage to oil and natural-gas rigs scattered throughout the Gulf of Mexico. Crude- oil futures jumped 40 percent in 2005, touching a record high after Hurricane Katrina ripped through the Gulf....

...One of the first indicators of how El Nino conditions will affect the U.S. will be hurricane activity in the Atlantic next month, said Mike Palmerino, a senior agricultural meteorologist for Minneapolis-based DTN Meteorlogix LLC. The hurricane season runs from June 1 through Nov. 30.

Tropical storms gather pace in the Atlantic Ocean in August and peak around Sept. 10, said Chuck Caracozza, a National Weather Service meteorologist in Miami.

“If the tropical-storm-and-hurricane season is less active than normal, that will tell us this El Nino has the ability to impact weather patterns” later in the year, Palmerino said.

Citrus Crops

Florida’s orange production in the 2006-2007 season fell to the lowest since the 1989-1990 crop year after hurricanes ripped through groves in 2004 and 2005, according to the U.S. Department of Agriculture.

“Florida citrus growers, and really anyone tied to agriculture, are obsessive weather watchers,” Andrew Meadows, a spokesman for grower group Florida Citrus Mutual in Lakeland, said in an e-mail. “I’m sure they are following the El Nino patterns. If the forecast is fewer hurricanes in the Atlantic, then that’s terrific news and one less risk growers have to worry as much about.”

Palmerino, the DTN Meteorlogix forecaster, said a strong El Nino also may bring more rain to help ease a drought in California, the largest agricultural state, which produces everything from milk and beef to lettuce and strawberries. Winters also tend to be milder than normal in the northern U.S. and southern Canada during El Nino conditions, he said....MORE

The last paragraph on California is iffy. We haven't had an El Nino since the Pacific Decadal Oscillation went into it's cool phase in September 2007 so all of the satellite and other high tech data was gathered during the 31 year PDO warm phase, entered in July 1976. We know about ENSO cold/PDO warm but you have to go back to 1947 for the start of last PDO cool phase, i.e. pre-satellite.

There is some reason to suspect that California and the southwest will have a weather pattern different from what our short term memories consider a typical El Nino.

Point/Counterpoint: Does the U.S. Need More Government Stimulus?

Two from the WSJ's Real Time Economics blog:

Most economists say that the U.S. economy will return to growth in the current quarter. But the job market is expected to continue to remain under pressure. Some have argued that another round of stimulus is necessary to prop up the job market. Here Laurence Seidman, Chaplin Tyler Professor of Economics at the University of Delaware, makes the point that the costs of a high jobless rate are greater than the price of more stimulus. John Silvia, chief economist at Wells Fargo, responds that more stimulus would be counterproductive as the economy sits on the cusp of recovery.

Laurence Seidman says:

There’s no excuse for letting the unemployment rate stay above 8% all next year when it can be prevented for only an additional 2 percentage points in federal debt as a percentage of GDP.

Yet, according to the respected macro-econometric model of Ray Fair of Yale, that’s just what we’re doing unless we immediately multiply the magnitude of the fiscal stimulus package. Congress set the magnitude last February when the unemployment rate was 7.6%. Now the unemployment rate is 9.5%.

There’s no need to renegotiate the components of the stimulus package. Congress just has to vote to multiply all components of last February’s package by M for the last two quarters of 2009. I recommend M=4, an injection of $800 billion instead of $200 billion; the Fair model’s forecast for M=4 is shown under “Stronger Stimulus.”>>>MORE

Here's another Point/Counterpoint:

Okay, the second one wasn't really from RTE.

Tuesday, July 28, 2009

Gates Puts Feynman Lectures Online

Last November we had a post that began:

One way to ascertain a person's intelligence is to examine how they simplify the seemingly complex.

If you read Richard Feynman's 1974 Caltech Commencement Address "Cargo Cult Science" you get a feel for how a superior mind works. Another example is a comment he made after serving on the Presidential Commission that investigated the space shuttle Challenger disaster:

"For a successful technology," Feynman concluded, "reality must take precedence over public relations, for nature cannot be fooled.
It is almost childlike in its simplicity....

"Cargo Cult Science" is worth a read.
Here's the headline story from the New York Times' TierneyLab:

Microsoft Chairman Bill Gates believes that if he had been able to watch physicist Richard Feynman lecture on physics in 1964 his life might have played out differently.

Mr. Gates, of course, is legendary as a Harvard University dropout who went on to create the world’s most successful software firm. He has told associates that if had watched the lectures earlier in his life he might have become a physicist instead of a software entrepreneur.

However, Mr. Gates, who is also well known for his sharp and varied intellectual interests and his philanthropic commitment to education, said this week that he had purchased the rights to videos of seven lectures that Dr. Feynman gave at Cornell University called “The Character of Physical Law,” in an effort to make them broadly available via the Internet.

Microsoft Research announced on Wednesday that Mr. Gates, who purchased the rights to the videos privately from the Feynman estate, BBC and from Cornell University, in cooperation with Curtis Wong, a Microsoft researcher, has created a Web site that is intended to enhance the videos by annotating them with related digital content.

The name “Tuva” was chosen in reference to Dr. Feynman’s decade long — and ultimately unsuccessful — effort to reach the tiny Russian republic of Tuva, which is located in Asia, toward the end of his life.

Mr. Gates said that he had stumbled upon the film version of the lectures a number of years ago, watched them with a friend using a traditional film projector, and “fell in love” with them....MORE
From Wikipedia:
...Feynman was a keen popularizer of physics in both his books and lectures, notably a 1959 talk on top-down nanotechnology called There's Plenty of Room at the Bottom, and The Feynman Lectures on Physics. Feynman is also known for his semi-autobiographical books Surely You're Joking, Mr. Feynman! and What Do You Care What Other People Think?, and through books about him, such as Tuva or Bust! He was also known as a prankster, juggler, safecracker, and a proud amateur painter and bongo player. He was regarded as an eccentric and a free spirit. He liked to pursue multiple, seemingly unrelated, paths, such as biology, art, percussion, Maya hieroglyphs, and lock picking....
He also won a Nobel Prize in Physics.

Trina: Collins Stewart Ups Target to $35 on Lower Costs (TSL)

The stock closed up a nickel at $29.92.
From Tech Trader Daily:
Collins Stewart analyst Dan Ries raised his price target today on solar technology provider Trina Solar (TSL) to $35 from $30 after Trina last night pre-announced sales in line with estimates for its second quarter ended in June and announced a secondary offering of 4 million common shares....

...Ries raised his profit estimates substantially on the lower costs, despite lower average selling prices for the company’s parts. His calendar year 2009 estimate goes to $2.25 from $1.11. His calendar year 2010 goes from $2.25 to $2.55. Both estimates, he points out, are bove the $1.29 and $2.27 Street estimates....MORE

Trading: "Was Enron Right?"

Martin Hutchinson was UPI's Business and Economics editor. He's pretty sharp and this piece had a line that caught my eye.
From Prudent Bear:

The mammoth profits reported by Goldman Sachs and the investment banking end of JP Morgan Chase last week surprised markets and demonstrated once again the power of trading operations to earn spectacular returns, for their protagonists and even occasionally for investors. It was of course the theory of Jeff Skilling and the late lamented Enron that in the new wired world, business would increasingly be done from trading platforms to the great benefit of all. So was Enron not an obviously malevolent scam that deserved to get its top official a 25-year jail term, but a noble misunderstood pioneer of 21st century business?

The Enron thesis was an attractive one at first blush. Commodity and energy distribution is an expensive business, but the advent of Internet technology and efficient communications enabled costs to be taken out of it by making each stage of the distribution process tradable, with price discovery through open bidding rather than by wholesalers negotiating individually with utilities. Similarly, financial services could be made more efficient by taking loans off balance sheets through securitization, enabling home mortgages to be traded in bulk across New York trading desks and packaged to investors in Dusseldorf. Removing all those middlemen and shining the light of the market into obscure local operations should both normalize prices and reduce costs.

It all sounded very plausible when I heard Jeff Skilling expound it at a conference in April 2001, even as Enron's stock prices had gone into unexpected freefall. Whatever the man's failings, he gave a hell of a presentation.

We now know the fate of Enron and the home mortgage securitization market, which suggests there had to have been a flaw in Skilling's glossy presentation, whether applied to energy or financial markets. Nevertheless, Goldman's, JP Morgan's and indeed Bank of America's most recent earnings (the latter of which rested largely on good results at Merrill Lynch) suggest that 25-year jail sentences are not the inevitable outcome of practicing this theory; great wealth may also eventuate, at least for traders.

Trading is among the most intellectually opaque of all ways of making money. Modest analysis can uncover the secrets of profitability at almost all businesses, at least post facto, but not those of trading. Traders seem no cleverer than the rest of us, and rather less endowed with charm, although they clearly have excellent nerves. They are also unable to explain how they make money, or at least extremely unwilling to do so. Even books such as the excellent if annoyingly arrogant best-sellers of successful ex-traders such as Nassim Nicholas Taleb offer little further enlightenment beyond massive helpings of rather dubious philosophy.

One can understand "buy low and sell high." But if it were as easy as that, why couldn't everybody do it? Furthermore, why are the most successful traders almost all concentrated in the same houses? There appears to the naked eye very little difference between a trader at Goldman Sachs and a trader at a second-tier European bank, yet only the Goldman guy is likely to become seriously rich.

There are two major secrets to success as a trader....MORE

Oil: the Market is the Manipulation

A very smart post via The Oil Drum. When news of the CFTC declaration that speculation was the cause of last year's run-up in oil prices I thought about writing an "I told you so" post. We've done at least twenty posts on speculation in the oil markets in the last fifteen months.
Instead I confined myself to a single comment at Henry Blodget's GreenSheet:

CFTC Blames Oil Speculators For Price Spike

Sounds ridiculous. Look forward to reading. And I must say I don't understand why it seems so imperative to demonstrate that the cause was anything other than supply and demand.

... Climateer (URL) said:
I know you're skeptical but both Paul Tudor Jones and Wilbur Ross said last year that oil was a speculative bubble.
Ross went so far as to make the most leveraged bet on lower prices he could find, the decrepit Indian airline, SpiceJet.
If you remember the spike on 6Jun08, it was a machination to crush the shorts.
Although he was talking his book, Masters was right in pointing the finger at long-only index "investors".
The place where the CNBC talking heads go really askew is confusing "speculators" (who do a societal good" with the "investors" who were buying swaps from the friendly neighborhood derivatives salesman and whom GS threw under the bus* last November when it appeared their prop trading was being threatened.
Never forget that Blankfein came up via J. Aron"", the crown jewel.
*...Now Goldman is left with the ignomy of summarily abandoning the investors who listen to its research calls, telling them effectively that they’re on their own. On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.

Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened...
-Barron's, Nov. 20, 2008
**"When Blankfein asked about his title, a boss at J. Aron said,
'You can call yourself contessa if you want.'"
-Fortune, January, 2006
Here's Chris Cook at TOD:

...When I joined the International Petroleum Exchange as Head of Compliance and Market Regulation in 1990, the growing market in oil derivative contracts (futures and options contracts the purpose of which is to manage oil price risk) took off dramatically with the first Gulf War, and the IPE never looked back.

During my time at IPE major investment banks were completing a transformation into “Wall Street Refiners” who provided liquidity to the end user producers of oil and consumers of oil products who use derivative markets to “hedge” the risk that prices may fall, or rise, respectively. Indeed, I unwittingly facilitated their emergence by introducing new trading tools such as “Exchange of Futures for Swaps”, “Volatility Trades” and “Settlement Trades” which became hugely successful.

When I left IPE in 1996 the pieces on the present day oil market chessboard were pretty much set, and the game was commencing. It was already clear that the trend towards screen trading was unstoppable, despite the wishful thinking of the traders on IPE's open outcry trading floor. Moreover, market participation of investors through funds was already visible in embryonic form.

A Partnership made in Heaven?

There are probably few more influential people than Peter Sutherland. An Irishman with a high level legal and political background, he became a non-executive director of BP as early as 1990, and after a brief but successful period to 1995 as head of the World Trade Organisation he has been on the BP board ever since, from 1997 as chairman. He has also chaired Goldman Sachs International since 1995.

Lord Browne of Madingley was a career BP man who ascended to the top in 1995 and eventually fell from grace in May 2007 shortly before he was due to retire. He was on the Board of Goldman Sachs from May 1999 until May 2007.

BP have always been natural traders. Unlike Exxon, who are vertically integrated and produce & refine oil and distribute products, BP sell the oil they produce on the market, and buy the oil they refine. In the years since 1995, BP has made phenomenal profits by trading oil, and oil derivatives.

So have Goldman Sachs. You don't rise to the top in Goldman Sachs unless you are responsible for making a great deal of money: and their energy trading operations have made immense amounts.

The key player in Goldman Sachs is the current CEO Lloyd Blankfein, who rose to the top through Goldman's commodity trading arm J Aron, and indeed he started his career at J Aron before Goldman Sachs bought J Aron over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio.

It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates....

...Market Strategy

If you are an end user, then market volatility is your enemy – indeed, that is why end users began to use derivatives in the first place. But if you are a middleman, then volatility is your friend, and the only bad news is no news. Likewise, good access to market data is essential to end users – whereas privileged or “asymmetric” access to market data is beneficial for intermediaries.

The temptation is therefore always there for intermediaries to create artificial volatility through “hyping” or even creating news, and to move the market around. Whether or not BP and Goldman Sachs trading arm J Aron were involved in such collaborative behaviour during the late 90s is an interesting point, since they were uniquely well placed, but if they did, they wouldn't have been the only ones.

Certainly by 2000 manipulation of settlement prices – for the purpose of making profits “off exchange” - was rife on the IPE to the extent that the opportunity for profit to which it gave rise was affectionately known by IPE locals as “Grab a Grand”. When I discovered it by chance, and blew the whistle on it, my allegations were buried by the UK's Treasury, FSA and IPE between them, and so was I, personally and professionally.

Meanwhile, in 1999, Goldman Sachs managed to convince the US regulators, the CFTC, that they were entitled to the same regulatory “hedge” exemptions as those market participants who were genuinely hedging their physical requirements. This, combined with the collapse of Enron in December 2001, cleared the way for the complete takeover of the global energy marketplace which has followed in trading on (and off) the ICE platform, and prepared the ground for making money out of the growing constituency of financial investors.

Financial Investors

Through the1990s two new breeds of financial investors in the energy markets began to evolve
Firstly, the inaptly named hedge funds, which recruited, or were set up by, some of the top energy traders, who preferred to make money for themselves rather than their employer oil firms or investment banks. These traders began to take large bets in the oil and energy markets, using investors' money as risk capital, using both on and off exchange contracts, and as much “leverage” as they could command, either through derivatives, borrowing, or both.

This was good business for the “prime brokers” who acted as counter-parties to hedge funds and benefited both from commission and fee income, but also from privileged knowledge of order flow, superior knowledge of the physical market, and “front running” of customers wherever possible.

The lion's share of this prime brokerage business went to the ICE founders, Goldman Sachs and Morgan Stanley, who took different approaches to their necessary relationship with the physical market. Morgan Stanley acquired energy market infrastructure, particularly storage, whereas Goldman appear to have relied more upon their close relationship with BP. In the years from around 2002 until the Credit Crunch neutered the hedge funds, BP, Goldman and other prime brokers prospered mightily.

The advent of the Goldman Sachs Commodity Index (GSCI) fund in 1995 was one of the earliest examples of a fund investing in commodities for the long term as a “hedge against inflation”. To do so the fund ran increasingly significant positions in all commodity markets, but weighted towards energy. These positions were held over time, and had to be “rolled over” from month to month in the futures markets either directly, or through the intermediation of J Aron. This resulted in the phenomenon of what John Dizard documented as “Date Rape” and which I had observed – and pointed out to the FSA - several years earlier.

In the last few years, and particularly in the aftermath of the Credit Crunch, a massive wave of money has washed into a new breed of Exchange Traded Funds (ETFs) some of which exist solely to invest in commodity markets (ETCs). By mid 2008 it was estimated that some $260 billion of such money was invested in the energy markets. Compare that to the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most.

No one is in any doubt that this tidal wave of fund money caused a Bubble in oil prices culminating in a “spike” to $147.00 per barrel on 11 July 2008. But there appears to be a complete misconception – particularly in the US - as to how this Bubble occurred, and who was responsible. There is no consensus, and many conflicting theories, as to why it occurred and also why the oil price appears to be held at levels apparently unjustified by supply and demand....MUCH, MUCH MORE including this dénouement(or is it a J’accuse...!):

...The manipulation in the oil market is taking place at a different “meta” level to the Leesons and Hamanakas. The Goldman Sachs and J P Morgan Chase's of this world do not break rules: if rules are inconvenient to their purpose they have them changed....

Solar Disruptions: The Economist highlights the problem of picking winners

From E4 Capital, LLC:

We see at least four structural problems facing existing public solar power companies:

1. There is risk that some new entrant will leapfrog them by developing a better, disruptive technology.

2. Solar energy has to compete with the memory chip industry for its raw semiconducting materials, which, much like corn, gasoline and ethanol, breaks the link between input cost and selling price.

3. Competition comes not just from other producers of solar energy, but from other producers of electricity from other alternatives and conventional sources. On a LCOE basis, solar will usually lose on pure economics. Thus,

4. Demand is heavily reliant on subsidies that will inevitably be reduced or phased out....

...On point #1, we noted an article in the July 25 Economist magazine about two private Israeli companies (GreenSun Energy and 3G Solar), each with a promising-sounding technology. We won’t try to summarize them here, but the point is that this is one of many examples of pre-commercial technology that could potentially render current production methods obsolete, very quickly....MORE

HT: SolarFeeds

Hurricane Watch: Worldwide Accumulated Cyclone Energy Index Approaching 50-Year Low. And: A Risky Insurance Bet.

As promised yesterday in "Bill Gates takes on hurricanes. And: A Quiet Tornado Season":
Two months into a very quiet hurricane season, and following a quiet tornado season*, we are coming into the two most dangerous months for hurricanes. Until we get, at minimum, a tropical storm, I'll be posting on ancillary topics....
Don't go running out to buy the property/casaulty insurers now. That opportunity has passed.
I'm thinking of some sort of pair trade or maybe a straight directional bet, against.
There are three insurance ETF's, unfortunately none are pure-play p/c, each has health/life exposure.
The SPDR KBW Insurance (KIE) has the most life/health, the iShares Dow Jones US Insurance (IAK) the least, with the PowerShares Dynamic Insurance (PIC) in between. Here's the IAK vs. the S&P 500 over the last year. Down harder (think AIG), up faster:
Chart for iShares Dow Jones US Insurance (IAK)

Here's the story that got me thinking about such things, from the personal Florida State University webpage of Ryan Maue:
May - June - July Northern Hemisphere Tropical Cyclone Activity: With 5-days left in the month of July, the three month ACE sum for 2009 is in the lead for the lowest since at least 1970.

Sorted monthly data: Text File

and worldwide:

Global Tropical Cyclone Energy nearing 50-year lows

Figure: Using a longer-database of hurricane tracks for the globe, the recent downturn in global TC energy is nearing record low levels of inactivity - the lowest in 50-years. Full details forthcoming. [updated June 26, 2009]
So why am I thinking of betting against? The Atlantic Multi-Decadal Oscillation has gone positive again after five months of negative anomalies. The wild card is, of course, El Nino which has two effects, wind shear which stops hurricanes from forming but which, if they do form, raises the chances of an East Cost vs. Gulf Coast hit by a couple percent.

Last Thursday the Houston Chronical's SciGuy (Eric Berger) pointed out in "Hurricane season start is slow, but we're not off hook":

...El Niños'intensity

And while El Niños may suppress overall activity, such years can still produce savage storms. One of the three most-intense storms at a U.S. landfall, Hurricane Andrew, developed during an El Niño in 1992.

So have some of the most famed storms ever to strike Texas and Louisiana: Alicia (1983), Betsy (1965) and the great storm of 1900, which came during a severe El Niño, said Jill Hasling, president of Houston's Weather Research Center.

“There might be fewer storms during an El Niño,” she said. “But it only takes one.”

During an average Atlantic season, 10 tropical storms or hurricanes develop, but since 1995 the Atlantic has seen an upswing in activity that most scientists attribute to a long-term natural pattern.

Given this season's slow start and the onset of El Niño, most seasonal forecasters now say about 10 named storms will form, one of the lowest totals of the past 15 years....

The article has this table:


• 1900: Galveston hurricane, severe El Niño

• 1932: Texas hurricane, severe El Niño

• 1943: Galveston hurricane, moderate El Niño

• 1957: Hurricane Audrey, Texas/Louisiana, severe El Niño

• 1965: Hurricane Betsy, New Orleans, moderate El Niño

• 1983: Hurricane Alicia, severe El Niño

• 1986: Hurricane Bonnie, High Island, moderate El Niño

Source: Houston Weather Research Center

That 1900 storm killed 8000 people.

See also his blog post "Let's hope history doesn't repeat itself: The 1932 hurricane"

U.K.: "In Vestas in the future? Why offshore wind won’t work"

Great Britain is screwed in so many ways, on so many levels. I've started thinking of it as the California of Europe. A smart commentary from the Financial Times' EnergySource blog:

The UK government is offering £6m to the wind turbine maker Vestas in order to encourage the company to continue some operations in the south of England.

The company announced in March its intention to close its factory on the Isle of Wight - the only facility of any size making wind turbine parts in the UK.

This new £6m - which Vestas has not yet agreed to take up - would not save the factory, or the 600 plus jobs there.

It would fund, instead, a new development - a research and development facility for Vestas to experiment with making offshore wind turbines. If that facility went ahead, it could create up to 300 jobs.

But investors might ask themselves - what is really the point of that?

The loss of the UK’s only major wind energy manufacturing facility will be a disaster for the hopes of the UK’s fledgling green industrial sector. Meeting the European Union’s targets of generating 20 per cent of energy from renewable sources by 2020 will require the UK to generate 30 per cent of its electricity from renewables - mostly wind, because other technologies are not ready, are too expensive or too hard to implement.

This will cost about £100bn, almost all coming from the private sector, and will be paid for in higher electricity bills to consumers and industry. The government hopes that this investment will not just generate new green power for the UK, but kickstart an export industry that will generate hundreds of thousands of new green jobs.

It’s a nice idea. The reality is rather different....MORE

Monday, July 27, 2009

CalPERS appears to be a willing victim

Following up on "Calpers Sues Over Ratings of Securities":
...The security packages were so opaque that only the hedge funds that put them together — Sigma S.I.V. and Cheyne Capital Management in London, and Stanfield Capital Partners in New York — and the ratings agencies knew what the packages contained. Information about the securities in these packages was considered proprietary and not provided to the investors who bought them....MORE
Got that? We have a FIDUCIARY saying they bought stuff they didn't understand.
And weren't allowed to see.
"Hey Mister, I've got a magic box that will turn your dollar bills into C-notes!"
I'm pretty sure a smart young paralegal could draft the brief against CalPERS in about fifteen minutes.
From the Los Angeles Times:

The California Public Employees' Retirement System played along as three credit rating firms it blames in a suit gave three mortgage funds AAA ratings. Its investment in them led to a $1-billion loss.
Students of the fine art of pointing fingers know that the key thing is to not make yourself look like an idiot in the process.

By that standard, the California Public Employees’ Retirement System just flunked.

In a lawsuit filed this month in state court, CalPERS blamed the three major credit rating agencies, Moody's Investors Service, Standard & Poor's and Fitch Ratings, for its recent billion-dollar investment loss in three complex mortgage funds. The pension system says it got rooked because the firms gave the funds inflated AAA ratings.

The funds subsequently got liquidated at a fraction of their original value. CalPERS' share of the red ink could be more than $1 billion, the lawsuit says. (The rating firms all say the lawsuit is without merit.)

Winning this case requires CalPERS to paint itself as an innocent victim bobbing in a sea of Wall Street sharks, reliant for its investment judgments on the sagacity and integrity of Moody's and its brethren.

I know the feeling. I never invest in a stock before spending an edifying hour watching Jim Cramer on CNBC, equipped with a notebook and fortified with a bowl of Skittles.

But I'm not CalPERS, the biggest institutional investor in the country. In February 2006, when it plunged into these mortgage funds, its assets came to more than $200 billion. (It's considerably poorer now, but aren't we all?)

CalPERS has 2,300 employees, some of whom are financial professionals. It's big enough to pressure corporate boards (sometimes) to improve shareholder rights, knock off dishonest behavior and cut ties with oppressive governments.

But in the case of these investments, its excuse is: Moody's made us do it.

Before we examine this claim, let's recall why every California taxpayer should care about CalPERS, not just the employees whose retirement assets are in its hands.

A loss in the CalPERS portfolio has to be made up by public employers such as cities, counties and the state. For example, the 23.4% decline in its portfolio for the year that ended June 30 will necessitate an increase in public employer contributions to 19.7% of their payrolls, up from last year's 16.9%. That's a sizable hit for taxpayers.

So the pension fund's desire to stick the blame for its mortgage fiasco on someone else is understandable. Let's see if its argument holds water.

The investments at issue were "structured investment vehicles," or SIVs. As CalPERS describes them in its complaint, they were elaborately contrived pools of mortgages that made regular interest and principal distributions. The pools were supposed to comprise high-quality assets, CalPERS says, though it also says they held subprime mortgages, which are hardly the same thing....MORE
HT: Infectious Greed

Jeremy Grantham on ‘Deciphering the Strength of the Chinese Economy’

Grantham is one of the big dogs. From MarketBeat:

With Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner sitting down with Chinese officials as part of this week’s U.S.-China Strategic and Economic Dialogue, we figured it was a fitting time to spotlight this interesting segment from investment guru Jeremy Grantham’s July 2009 quarterly letter from the firm Grantham, Mayo, Van Otterloo in Boston, where he is the chairman.

Investors all over the world are relying on the gargantuan Chinese market’s development as a stable source of demand for everything from iPhones to industrial commodities, and are watching its economy with interest and concern....MORE

Bill Gates takes on hurricanes. And: A Quiet Tornado Season

Two months into a very quiet hurricane season, and following a quiet tornado season*, we are coming into the two most dangerous months for hurricanes. Until we get, at minimum, a tropical storm, I'll be posting on ancillary topics. From Dr. Jeff Masters' WunderBlog:
Bill Gates thinks big. His charitable foundation has poured $1 billion into the fight against that great scourge of humankind, malaria, resulting in the creation of a new vaccine that is 100% effective in mice, and is now headed towards trials in humans. If successful, Gates' efforts have the potential to save millions of lives. Gates has also turned his attention to another great scourge of humankind, the hurricane. In a 2008 patent filing that recently came to light, Bill Gates and his friends presented a scheme for reducing the strength of hurricanes by cooling sea surface temperatures, using a fleet of ships that bring up cold water from the depths. Can Gates really pull this off? I don't think so. The obstacles are fourfold: technical, financial, environmental, and legal.

Figure 1. A diagram from a 2008 Bill Gates patent filing, depicting an array of hurricane-control vessels in the Gulf of Mexico. Image credit:

Technical issues
While modification of hurricanes is theoretically possible, the scale of the undertaking is truly enormous. A fleet of dozens or hundreds of ships spanning a huge swath of ocean would be required, and these ships would have to be able to withstand the 50-foot waves and 160 mph winds a major Category 5 hurricane could deliver. As I discussed when a similar scheme was proposed in 2006 by Atmocean, Inc., it is not clear how long the cold water pumped to the surface will stay there--the cold water pumped to the surface is more dense than the water beneath it, and so will tend to sink, allowing warmer water beneath to replace it and warm the surface waters again. Modeling studies and field studies are needed to determine if the cold water can stay at the surface long enough to significantly affect a hurricane. Furthermore, simply cooling the ocean may have no effect on a hurricane, if the storm is in a favorable upper-atmospheric environment with low wind shear.

Financial issues
Any hurricane modification effort is going to be tremendously expensive. The cost of the array of cooling pumps proposed by Atmocean in 2006 for the Gulf of Mexico was pegged at $2.4 billion. Gates' scheme would have a similar cost. He proposes paying for it through government funding and the sale of insurance policies in hurricane-prone areas.

Environmental issues
A large change to the ocean temperatures over a wide area of ocean is bound to have significant--and unknown--impacts on fisheries and wildlife. Regional weather patterns may also be affected, intensifying droughts or bringing heavy rains and flooding....

*From NOAA's Storm Prediction Center, through July 25:

Annual Running Totals (Updated Frequently)
Tornado Reports | Hail Reports | Wind Reports
Annual Tornado Running Totals
Plot of the annual running total of tornado reports compared to inflation adjusted values. (Click on graph for a full description.)

Annual Tornado Trends