"Ten Halloween Facts That Lead Back To Energy"

We last visited Energy Burrito in ""Ten Tenuous Ryder Cup Links to Energy""
Here's EB:

With Halloween coming up, let’s take a look at ten scary Halloween facts, and how their numbers leave a trail of blood back to our dearly beloved energy complex:

2) 16% of adult Halloweeners dress up as a witch each year.
(This is the same amount, in Bcf, that industrial demand consumes of natural gas each day).

4) 28 million Halloween cards are sent each year.
(28% of energy used for industry and manufacturing is from natural gas).

6) Chocolate is the most popular candy for trick-or-treaters, with Snickers #1.
(Unaware of this fact, I referred to the oil market as being ‘more nutty than a Snickers bar’ in last week’s burrito bites. As a sidenote, In my extensive research for this post I read conflicting information to say Reece’s Peanut butter cups were #1. Either way, both are nutty so is a moot point)....Seven MORE

"The Fragility of Virtual Ownership"

From Prudent Bear's The Bear's Lair:

The foreclosure crisis has highlighted again a major flaw of our modern economy: the fragility of ownership and property rights in the Internet age. Quite apart from the possibility of an electromagnetic pulse [EMP] field blanking out everybody’s servers, the sheer complexity of computer-managed structures such as securitization can make them very difficult if not impossible to unravel. At some point, we will all pay a major price for this flaw.

Securitization was always going to involve these kinds of problems. The idea that you can take a simple instrument like a home mortgage and dice up payments from it in hundreds of different directions, with mortgages being securitized and re-securitized, worked all right in the investment banks’ computers, but would never have worked on paper!  Naturally, with sloppiness all round and a fair admixture of fraud, together with a lot of expensive lawyers available, the result has been an unholy mess. Even without fraud in the computer systems themselves, the passage of time, as not only the original deals but the original deal management systems become forgotten, will ensure that ownership rights become untraceable. For a substantial percentage – perhaps 5%, perhaps 10% – of the mortgages written between 2002 and 2007, this process will result in the property rights, in both the mortgage and the underlying house, becoming unenforceable because the evidence for them does not exist in unambiguous form.

While securitization has given rise to the most immediate problems, there are other areas in which property rights have been rendered more uncertain by computerization. Dematerialized bonds and stocks, the great back-office fad of the 1980s and 1990s, mean that investors are now completely dependent on the record-keeping capabilities of New Jersey computer servers. Banks, investment companies and credit card companies increasingly badger their customers to go “paperless” thus leaving themselves with no tangible record of their assets and liabilities.

The dangers of this are obvious. The science fiction threat of an “EMP” nuclear attack is far greater now than it was in the early days of the Internet around 1995-96, although electronic equipment was already as vulnerable then as it is now. Back then, banks still sent paper statements and transactions in general generated a blizzard of paper, even though the Internet was rapidly becoming a popular means of communication. Hence an EMP destruction of the 1995-6 Internet would have left us with written records of almost all significant transactions. That is far from being the case today. Far from having improved our defenses against EMP we have made ourselves infinitely more vulnerable. Like holders of California subprime mortgages with inadequate documentation, our property rights have been sharply diminished.

Ownership rights were not particularly solid in the ancient world; there was always the risk that someone with more clout or simply a bigger band of thugs would dispossess you. Outside Song Dynasty China, the first attempt at a society with solid ownership rights occurred in the reign of England’s Henry VII. He established the rule of law, even applying it to the baronage and setting up a system of Justices of the Peace to enforce prohibitions against random thuggery. His Tudor and early Stuart successors violated property rights frequently, but after the Restoration the protection of property rights increased rapidly – an increase that coincided with Britain’s economic take-off and to some extent caused it....MORE

Earlier this year we had a couple posts on dematerialized accounts (Demats) in India:

Can Hindu Deities Open Brokerage Accounts Allowing them to Trade Securities?

UPDATE: Bombay High Court Rules Hindu Deities MAY NOT Trade Securities
No demat accounts for Hindu gods

MUMBAI: Let gods remain in temples and not enter the stock markets, said the Bombay High Court while dismissing a petition seeking orders to authorities to allow Hindu gods to open demat accounts.

"FuelFix Q&A: Why energy traders are slow to adapt to rule changes"

An area we take a special interest in, see links below.
From the Houston Chronicle's FuelFix blog:

New rules from the latest round of financial market regulations could dramatically change energy trading — yet many firms are moving slowly to adapt, according to a study by software provider NICE Actimize and law firm Fulbright & Jaworski.

Of the energy trading representatives polled, none thought enforcement actions were going to drop-off as new CFTC rules kicked in and the impact of the Dodd-Frank Act is felt.
But in the face of increased scrutiny from regulators, more than one-quarter of the respondents said their organizations don’t have enough staff and resources to comply with the new rules. Read the full survey here.
We asked the Actimize team (who just so happen to sell systems that do automated compliance) to talk more about what’s coming for energy traders. Excerpts are below.
When the new CFTC rules kick in, what will a trader (say, gas futures trader) find different about his or her job?
Traders may be surprised to learn that regulators may already have better compliance surveillance systems than they have now. In addition:

• The CFTC is looking to install hard position limits, rather than the limits currently managed by the regulators such as the CME and ICE
• The CME and CFTC currently monitor intraday position limit violations
• The remaining CFTC impacts are generally Dodd-Frank related

How will Dodd-Frank change things?
Firms must begin to prepare now or they will not be able to keep up with the ever0increasing regulatory requirements that are the reality of the post Dodd-Frank era. Some examples:

• Swap transactions will need to be reported to a central public data manager
• Swap transactions will need to be reported within 15 minutes of execution
• Public power, state, local and federal counterparties may have a “duty of care” attached to them — meaning a trader has the obligation to give them a “fair price”
• There is a new whistleblower program in energy trading with a “bounty” for employees who turn their company in – and they can go to the feds first
• The CFTC may implement “cross market” positions – accumulating futures and look-alike swaps in one position limit
• The CFTC has new market oversight powers that allows for expanded enforcement actions
• Each trade will be required to have a hedging purpose for hedge exemptions from position limits

Why do so few of the companies monitor intraday activity and why does that matter?...MORE
See also:
The man who lost $6 billion (Brian Hunter, Amaranth)
(many links)
Saracen Attempts the Reverse Amaranth and...Yes!... Sticks the Faceplant Landing!

Brian Hunter, Natural Gas and Enron

Blackout: Enron and the California Power Crisis (Transcript)

 

And scariest of all, here's a meeting on cap-and-trade where the man from Enron is the smartest guy in the room:

Enron on Cap-and-Trade

From "Climateer Investing on Carbon Trading and Traders":

I'm sure long-time readers have gotten tired of seeing these two quotes:

"I don't know if climate change is caused by burning coal or sun flares or what," said the Moscow-based carbon cowboy. "And I don't really give a shit. Russia is the most energy inefficient country around, and carbon is the most volatile market ever. There's a lot of opportunity to make money."

-from The Bored Whore of Kyoto

and:

The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal...I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at.
-New York Times, May 8, 2002

"... Ghosts, Conspiracies and Other Weird Happenings in Central Park "

From Mental Floss:

For a while, Central Park, the 770-acre green oasis in the middle of Manhattan, wasn’t considered a place you really wanted to go. In the early 1980s, there were 1,000+ crimes of various types committed in the park every year, but muggers and vandals aren’t the only creeps that have run rampant there. From its opening in 1857 through today, the park has played host to all sorts of scary things going bump in the night.

A Secret and a Mysterious Death
The weirdness starts at the very beginning with Calvert Vaux, co-designer of the park. If a letter apparently written by Vaux in 1895 is to be believed, he possessed knowledge of a secret of historical importance hidden in the park, as well as a set of papers that could aid in discovering that secret when deciphered. Vaux said in the letter that there were those who wished for the secret to remain hidden and that he feared for his life. He was found drowned in Brooklyn’s Gravesend Bay two months later. Vaux wanted other people to be aware of the secret in the park and the distribution of the “Central Park Papers” is currently administered by David Wise, who sells copies of them through his website.

Are the letter and the secret real, or this is an elaborate game? No one knows, as those who have purchased the papers and discovered the secret are bound by a contract that requires them to fulfill Vaux’s wish to keep their discovery confidential. If you’re in New York, you’ll just have to figure out the truth for yourself.

The Monsters take Manhattan
Over an entrance to Belvedere Castle is a cockatrice, a legendary creature resembling an oversized rooster with a reptilian tail, designed by sculptor Jacob Wrey Mould. While these legendary beasts haven’t been found in the castle, New York City or anywhere else in the world, the park does have it’s share of monsters.

Nick Redfern, author of several books on the paranormal, tells a story about a strange, bipedal humanoid creature spotted at the edge of the park. The thing was covered with rust-colored hair and stood no more than three feet tall. One eyewitness claims the creature charged at him, stopped, stared right into his eyes for several seconds and then disappeared under a bridge.

Not all the park’s monsters are mythical, though....MORE

"Historical Midterm Election Results and Market Performance "

From Bespoke Investment Group:

For those interested, below we have compiled a table showing midterm election results along with the Dow's performance on election day and during election week since 1900.  For each midterm election, we highlight the President and his party affiliation, the number of seats the President's party either gained or lost in both the House and Senate, and the number of seats each party held as a result of the election....MORE

(Note: The market was closed during election week of 1914 due to World War I.)

"The Herd Mentality: Uncertain Returns Raise Questions About the Payback for Cleantech Investment"

"The honest politician is one who when he is bought,
will stay bought."

Our Hero

The first recipient (April, 2007) of the prestigious "Climateer: Our Hero" award,
Sen. Simon Cameron, Republican and Democrat of Pennsylvania.

Just making the point that if your business model depends on politicians, you'd best bet on dependable politicians. Or stock up on Depends.

From Knowledge@Wharton:

Using tax credits, low-interest loans and grants, the Obama Administration plans to invest more than $50 billion in electric vehicles, renewable energy and other clean technology -- or "cleantech" -- ventures by the end of next year, reports Bloomberg BusinessWeek magazine. Such huge, unprecedented government spending is also encouraging private capital to continue flowing into the sector, not least because many federal programs -- which include rebates, grants and loan guarantees -- require private matching funds. The most recent example of investor interest was Google's announcement last week that it will spend $200 million on a transmission project to harvest electricity from wind farms off the mid-Atlantic coast. The project is expected to cost $5 billion overall.

As a result, total cleantech venture investment in North America, Europe, India and China between January and September this year was $5.7 billion, slightly up from the $5.6 billion invested in all of 2009, according to the Cleantech Group, a research and networking company.

But to what extent is today's fast-paced investment in cleantech a victim of irrational exuberance and the herd mentality often associated with venture capitalism? Quite a lot, say experts at Wharton and in the larger investment community, who also warn that the flurry of activity is no guarantee that cleantech investment will pay off as handsomely as some predict. "There's a danger of 'faddishness' as people chase what they perceive to be the next big thing," says Eric Orts, Wharton professor of legal studies and business ethics. "There could be a lot of money chasing not as many good ideas."

This isn't just a concern in the U.S. China, for example, is also "priming the pump" with a host of subsidies of its own, he says. These include $15 billion for a number of electric car pilot projects, and various rebates to individual consumers when they make green purchases. According to New York Times columnist Thomas Friedman, "China Inc. just named its dream team of 16 state-owned enterprises to move China off oil and into the next industrial growth engine: electric cars." As other countries hop on the bandwagon, Orts -- who is also director of Wharton's Initiative for Global Environmental Leadership -- wonders about the relative strength of the business cases underpinning all the new cleantech investments.

'The Dirty Stuff'
Experts also note that subsidies shouldn't be the only way governments can support cleantech. For instance, given the widespread outrage over the Gulf of Mexico oil spill, the timing could be right for legislators to increase taxes on oil and coal. "You tax the dirty stuff so the clean stuff has an automatic pricing advantage," says Orts. But he acknowledges the Herculean task of getting such legislation approved given upcoming mid-term elections and potentially heavy lobbying on Capitol Hill.

That doesn't mean discussions should stop there, however, notes Lise Dondy, president of the Connecticut Clean Energy Fund, which promotes clean energy development on behalf of state utility rate payers. "This country has not taken a stand on carbon, and unless you can put a price on carbon in some way, renewables end up dependent on those subsidies," she says. "It's anathema to investors not to have a consistent policy over the long term."

What's more, she points out, "subsidies come and go." A case in point: the federal income tax credit (of up to $2,000) that applies to 50% of an electric car charger purchase, which expires December 31. With lame-duck House and Senate sessions starting in November, it is unlikely that the tax break will be renewed, which could potentially be a heavy blow to the country's nascent electric vehicles development.
Raffi Amit, Wharton professor of entrepreneurship, makes the point that cleantech startups -- unlike, say, new Internet ventures -- "require large amounts of capital before they yield a return for investors.... When fixed costs are very high, it presents a different level of risk." Nonetheless, cleantech investments are tantalizing, he says, because "the return is enormous if some of these investments pan out. There is no doubt that we'll be making a gradual change from fossil fuels to wind, sun and water."

Earth, Wind, No Fire

Last year, 10% of electricity consumed in the U.S. was generated by renewable sources. The U.S. Energy Information Administration (EIA) of the Department of Energy projects that the amount will increase to 17% in the next 25 years. It also forecasts a 41% increase in U.S. non-hydro renewable electricity generation between 2008 and 2035, while installed wind energy capacity grows rapidly, more than doubling between 2008 and 2013, to around 50 gigawatts. Meanwhile, the American Solar Energy Society says that grid-connected solar power -- having grown 40%, to 435 megawatts, in 2009 from the previous year -- could increase between 50% and 100% this year alone....MORE

"Marc Faber: Fed's QE2 Could Trigger Market Correction"

From Economic Forecasts and Opinions:

Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the potential impact of further quantitative easing (QE2) by the U.S. Federal Reserve in a Bloomberg interview on Oct. 36 (clip below).

Correction Triggered by QE2?

Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.

Equity has done well in Sep. and Oct months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue. 

Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.

But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.   

Equity Better for the Next Decade

Looking at investing for the next ten years, equities, emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash.  However, Faber advises against financial, auto, and aircraft.  He's been in the high tech sector and likes Microsoft (MSFT).

Precious Metals Due for Pullback

Faber is currently recommending agriculture commodities, and the accumulation of precious metals.  On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expect the next leg up in 2011.    

Dollar Near An Inflection Point

Faber says dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought....MORE 

HT: ZeroHedge

Federal Reserve Bank of San Francisco: "A Long Time to Return to Normal"

Mark Thoma at Economists View:

...I've been expecting a long, slow, agonizing recovery, in part because there's little chance that fiscal policy authorities will give the economy the boost it needs to recover faster. As I noted yesterday, the forecast from Macroadvisers is that employment won't fully recover until 2013. I made the same forecast about a year ago, but full recovery by 2013 is looking optimistic now. I wouldn't be surprised if it takes even longer than that.
The San Francisco Fed is also expecting a slow recovery:
a



And, again, even that might be optimistic given that they are forecasting an average growth rate for 2010 of 2.5% and today's estimate came in below that.

This is not a strong report. As Calculated Risk notes above, this won't derail quantitative easing. However, I don't expect another round of quantitative easing to have a large impact on the growth rate of GDP. Thus, while this won't derail QEII the problem is that it won't move fiscal policymakers to action, and fiscal policy is, in my opinion, the best way to help the economy recover faster.

One Million to Lose Unemployment Benefits in December: Macro Effects

Unemployment benefits are creating jobs faster than practically any other program

-Speaker of the House Nancy Pelosi

July 1, 2010

That quote was reported by Fox on July 1.
On July 2 Media Matters' headline was "UPDATED: Pelosi was right: Economists say unemployment insurance stimulates the economy" and said it wasn't fair to do the reductio ad absurdum.

As a sidecar to the mental, emotional and spriritual devastation that prolonged unemployment wreaks there are other, more societally diffuse questions that the current situation raises.
For example, what happens to GDP when the checks stop?

Okay, maybe that wasn't the question you had but it struck me as a good one.
Another good question is What happens to GDP when, per the CBO, the net interest paid on the federal debt triples over the next nine years to $723 Billion, which, assuming a 400mil. population, works out to an average of $1807.50 per person.

Family of five? Pony up 9 Grand. Per year. Forever. And that's only if you balance the budget in 2020.
Here are the CBO's numbers. Summary.
and here's a look at the first question.
From The Big Picture:

...Not Finer for the “99er”

I had dinner last Sunday night with David Rosenberg. He is beginning to look at the possible effects from what he calls the “99ers” going off extended unemployment benefits. I knew this was coming but had not really looked into the fine print. He wrote me later:

“The looming expiry of the emergency unemployment benefits in the U.S. poses a very large risk to aggregate personal income over the next few quarters. Currently, combined with state programs, someone who loses their job is entitled to 99 weeks of unemployment benefits (a “99er”). However, the extended benefits are set to expire on November 30th, and our back-of-the-envelope calculations shows nearly a million 99ers will be cut off in December alone, with the remainder (about 3 to 4 million) falling off the rolls by April.

“Given that the average weekly unemployment cheque is about $300/week, this amounts to nearly $80 billion (annualized) loss of aggregate income over the next few quarters. This means that personal income could fall by 1.0% QoQ annualized for each of the next three quarters, starting in Q4. The 2% QoQ real GDP estimates pencilled in for Q4 2010 to Q2 2011, will look far too optimistic if such a loss of income does occur. Given that material downside risk to growth going forward, we intend to do more detective work on this file.”

Government checks of one form or another are about 20% of total personal income in the US. Will the lame-duck Congress extend those benefits? Will they extend the Bush tax cuts? I just (literally) got off the phone with Suze Orman. She said she thinks they should raise the limit to $500,000 or $1 million. That higher number would be a reasonable compromise, in my humble opinion. Will the Republican Congress and Senate agree when they come back?

I don’t want to get into the small-business person making $300,000 and living in a very volatile business climate where they feel the need to save rather than invest and create new jobs. These guys need all the working capital they can get. And let’s be clear, this year’s “profits” becomes next year’s working capital when you are a small business owner. Your credit line at the bank just isn’t cutting it anymore.

"Two billion people at Stewart-Colbert rally"

Joel Achenbach understands new media:

...When in doubt, go with the most hysterical headline.

(Rule one of blogging is that the End Of The World will be good for page views.)
-World War Five

Which we trotted out for our intro to "Oil spill: Even worse worst-case scenarios! (BP)".

From the Washington Post:

Everyone calls it "The Rally." No further explanation needed. All my friends and neighbors are going, and I may just have to go too as a trustworthy crowd estimator and Sheryl Crow reviewer. I just got off the phone with a friend who is on one of 200 buses from New York City rented by HuffPo to carry people to the Stewart-Colbert rally. Extrapolating from that figure I can estimate the crowd size at 2 billion people, plus or minus 200 million. But this is a tentative number not yet subjected to peer review. Also I am sitting on my porch at this precise second....MORE

Since the Raison d'être of this blog is money, here's the Christian Science Monitor:

Rally to Restore Sanity and/or Fear raises big money. Who gets it?

Saturday's Rally to Restore Sanity and/or Fear, organized by Jon Stewart and Stephen Colbert, has raised hundreds of thousands dollars without selling a single ticket. Where's the money going?

While it’s still not clear how seriously to take the now-hybridized Rally to Restore Sanity and/or Fear, the events have raised a serious amount of money already – and their organizers aren't keeping it....MORE

[Spoiler Alert: no conspiracy, just a couple good causes -ed]

Simply Spooktacular: FT Alphaville's Halloween Reading List

As I was pondering putting together some Halloween linkbait [ooh, the story of "The Monster Mash"! -ed]
I wandered through the back alleys of Alphaville until I came upon:

Further reading, special Halloween meets finance edition

Some financial ghoul links for Halloween:

- 13 money-themed costumes for Halloween.
- Living in a ghost town.
- Six nightmares for Wall Street.
- The average US credit score is 666.
- Ireland’s unfinished developments are ‘ghost towns’.
- Haunted foreclosures.
- For Halloween, I’m going as a MERS Vice-President.

And many MORE

Entrepreneur or Failure?

Via the Dilbert blog:

Hurricane Watch: Tomas May Hit Category 3 By Thursday Morning

From Wunderblog:

Dr. Masters comments:

...Intensity forecast for TomasThe forecasters at NHC are puzzling over the latest intensity forecasts for Tomas. The latest intensity forecast from the GFDL, HWRF, and SHIPS models are not that impressive, and they keep Tomas as a strong tropical storm or weak hurricane for the next five days. The wind shear forecast from SHIPS is particularly odd--the latest 18Z forecast predicts high wind shear of 20+ knots beginning Sunday morning, and the previous SHIPS forecast held wind shear below 15 knots for the next five days. The latest runs by the GFS, ECMWF, and UKMET models all show a very favorable environment for intensification over the next five days over the Caribbean, with Tomas positioning itself beneath an upper level high in a light wind shear environment. The best bet is that Tomas will intensify into a major hurricane over the Central Caribbean by early next week....

...Track forecast for TomasAfter Tomas reaches the central Caribbean 4 - 6 days from now, there are two possible track scenarios depicted by the models--a continued westerly motion towards Nicaragua, or a sharp turn to the north, with a track over Hispaniola or Puerto Rico. Steering currents will be weak, and we'll just have to wait and see how the steering currents evolve....MORE

Hard Truths About the Rare Earth Element Business (MCP; REE; AVL.TO;; LYSCF: REMX)

From MIT's Technology Review:

Can the U.S. Rare-Earth Industry Rebound?

The U.S. has plenty of the metals that are critical to many green-energy technologies, but engineering and R&D expertise have moved overseas. 

Rare-earth elements were obscure until the past year, when China, their primary producer, tightened export quotas on the materials. Rare-earth elements are used in a multitude of technologies, including magnets for wind turbines, hybrid-car batteries, fluorescent lightbulbs, and hard drives.

China is not the only country with significant reserves of these valuable materials; in fact, the U.S. was their primary producer until the 1990s, when the Chinese began undercutting the Americans on cost. Now companies in the U.S. and Australia are ramping up production at two rich sites for rare earths, but the process will take years. Getting from rocks to the pure metals and alloys required for manufacturing requires several steps that U.S. companies no longer have the infrastructure or the intellectual property to perform.
Contrary to their name, rare-earth metals are abundant in the Earth's crust, and significant reserves are concentrated in the United States, Australia, Brazil, and other countries. According to the U.S. Geological Survey, there are 13 million tons of extractable rare earths in the United States, 5.4 million in Australia, and 19 million in Russia and neighboring countries. In 2009, China had 36 million.

In the 1970s and 1980s, the Mountain Pass mine in California produced over 70 percent of the world's supply. Yet in 2009, none were produced in the United States, and it will be difficult, costly, and time-consuming to ramp up again. "When you stop mining in this country, as investment goes down, expertise on cutting-edge technologies is exported as well," says Carol Raulston, spokeswoman for the National Mining Association. Rare-earth researcher Karl Geschneidner of the Ames National Laboratory in Iowa also sees a lack of what he calls "intellectual infrastructure" for rare-earth technology development in the United States.

The two mines that will be stepping up production soonest are Mountain Pass, being developed by Molycorp, and the Mount Weld mine, which is being developed by Lynas, outside Perth, Australia. Mountain Pass has the edge of already having been established. But the company cannot use the processes used in the mine's heyday: they're both economically and environmentally unsustainable.

Several factors make purification of rare earths complicated. First, the 17 elements all tend to occur together in the same mineral deposits, and because they have similar properties, it's difficult to separate them from one another. They also tend to occur in deposits with radioactive elements, particularly thorium and uranium. Those elements can become a threat if the "tailings," the slushy waste product of the first step in separating rare earths from the rocks they're found in, are not dealt with properly.

Mountain Pass went into decline in the 1990s when Chinese producers began to undercut the mine on price at the same time as it had safety issues with tailings. When the Mountain Pass mine was operating at full capacity, it produced 850 gallons of waste saltwater containing these radioactive elements every hour, every day of the year. The tailings were transported down an eleven-mile pipeline to evaporation ponds. In 1998, Mountain Pass, which was then owned by a subsidiary of oil company Unocal, had a problem with tailing leaks when the pipeline burst; four years later, the company's permit for storing the tailings lapsed.
Meanwhile, throughout the 1990s, Chinese mines exploited their foothold in the rare-earth market. The Chinese began unearthing the elements as a byproduct of an iron-ore mine called Bayan Obo in the northern part of the country; getting both products from the same site helped keep prices low initially. And the country invested in R&D around rare-earth element processing, eventually opening several smaller mines, and then encouraging manufacturers that use these metals to set up facilities in the country.

Meanwhile, worldwide demand for rare-earth elements has been growing. This year demand was 125,000 tons; by 2015, it is expected to grow to 225,000 tons, and Molycorp spokesman Jim Sims notes that this projection does not include the wind-turbine industry, which is expected to be a major market. State-of-the-art wind turbines like those that will be installed at the world's largest wind farm, an 845-megawatt facility in Oregon, use high-efficiency rare-earth magnets. They can be 10 times lighter and smaller than comparable magnets but equally strong. Each of these magnets requires a ton of rare earths, Sims says.

Molycorp renewed the Mountain Pass mining permit and began R&D of its own in 2004. This year, using rock that was mined before a previous permit expired and new separation technologies it has developed, the company will sell 3,000 tons of rare earths. By 2012, Molycorp expects to produce 20,000 tons a year, and under its current mining permits could double capacity to 40,000 tons. Sims also says the company will produce rare-earth products at half the cost of the Chinese in 2012. According to the company, these savings will be made possible by several changes, such as eliminating the production of waste saltwater. Molycorp will use a closed-loop system, converting the waste back into the acids and bases required for separation and eliminating the need to buy such chemicals. The company will also install a natural-gas power cogeneration facility onsite to cut energy costs.

But Ames Lab's Geschneidner notes that one major source of cost in the separation process can't be eliminated--the fact that it simply takes a long time. Milled rock is shaken again and again in a mixture of solvents to separate the elements by weight; depending on the ultimate purity that's required, this must be done 10,000 to 100,000 times. The result is then sold as a concentrate or treated to produce rare-earth metal oxides....MORE

I saw the MIT story yesterday and promptly forgot to post, what with the FSLR and PWER action and all.
HT: for reminding me goes to naked capitalism
We have a lot of posts on the subject, use the search blog box keywords: rare earth

"Government workers: 'We need love too.'"

From the Christian Science Monitor:

Just before Saturday's Rally to Restore Sanity in Washington, government workers will hold their own rally to put a human face on 'faceless bureaucrats.' It's called 'Government Doesn't Suck.'...

Your Brain and Financial Bubbles

From the New York Times:

Idea Lab
Microscopic Microeconomics

In the last decade or so, the American economy has been undone by a series of bubbles. First there was the dot-com boom, in which start-ups without business models were suddenly worth billions of dollars. Then after a brief recession, we began speculating about real estate, so that Las Vegas tract homes tripled in value before they even had roofs. The latest suspect for a bubble is gold, which has doubled in price over the past three years.

Why are bubbles such a persistent feature of financial history? Economists argue that these speculative frenzies are caused in part by market failures like too much liquidity or lax regulation. Cognitive psychologists, meanwhile, see bubbles as a case of pattern recognition gone awry, as people extrapolate the past into the future. In recent years, neuroscientists also have become interested in bubbles, if only because the financial manias seem to take advantage of deep-seated human flaws; the market fails only because the brain fails first. Read Montague, at Baylor College of Medicine, has spent the last few years trying to decipher the bits of brain behind our irrational exuberance. It’s microeconomics at its most microscopic.

Montague’s experiments go like this: A subject is given $100 and some basic information about the stock market. After choosing how much money to invest, the player watches as his investments either rise or fall in value. The game continues for 20 rounds, and the subject gets to keep the money. One interesting twist is that instead of using random simulations of the market, Montague relies on real data from past markets, so people unwittingly “play” the Dow of 1929, the S&P 500 of 1987 and the Nasdaq of 1999. While the subjects are making their investment decisions, Montague measures the activity of neurons in the brain.

At first, Montague’s data confirmed the obvious: our brains crave reward. He watched as a cluster of dopamine neurons acted like greedy information processors, firing rapidly as the subjects tried to maximize their profits during the early phases of the bubble. When share prices kept going up, these brain cells poured dopamine into the caudate nucleus, which increased the subjects’ excitement and led them to pour more money into the market. The bubble was building.

But then Montague discovered something strange. As the market continued to rise, these same neurons significantly reduced their rate of firing. “It’s as if the cells were getting anxious,” Montague says. “They knew something wasn’t right.” And then, just before the bubble burst, these neurons typically stopped firing altogether. In many respects, these dopamine neurons seem to be acting like an internal thermostat, shutting off when the market starts to overheat. Unfortunately, the rest of the brain is too captivated by the profits to care: instead of heeding the warning, the brain obeys the urges of so-called higher regions, like the prefrontal cortex, which are busy coming up with all sorts of reasons that the market will never decline. In other words, our primal emotions are acting rationally, while those rational circuits are contributing to the mass irrationality.

This is a costly mental mistake. Montague notes that investors who listened to the prescient dopamine neurons would earn much more money than the typical subjects, largely because they would get out of the market before it was too late. “It’s crazy to think that there’s a signal in our head that’s so much smarter than we are,” Montague says....MORE

The Days Big Losers: Nervous System, Respiratory Stocks (FSLR; PWER)

If you were long either First Solar or Power-One today there may be some dark humor found in Tickerspy's list of the 10 worst industry groups:

1-Day Losers

View All

Genetic Analysis Stocks		-6.6%	track
Nervous System Stocks		-3.1%	track
Chinese Solar Stocks		-2.6%	track
Fuel Cell Stocks		-2.5%	track
Chinese Oil and Gas Stocks		-1.7%	track
Respiratory Stocks		-1.4%	track
Chinese IT Stocks		-1.1%	track
Medical Instruments and Suppli...		-1.1%	track
Korea Stocks and ADRs		-1.1%	track
Electric Grid and Smart Meter ...		-1.1%	track
View All 1-Day Losers

It should be safe to go back in the water on both PWER and FSLR next week.

"PAUL TUDOR JONES: BUY THE MOMENTUM BUBBLE"

From Pragmatic Capitalism:

World renowned hedge fund manager Paul Tudor Jones says global imbalances are causing extreme problems in the USA and that the Fed’s response is ultimately creating an environment exactly like the late 90′s when the Fed bailed out LTCM.  In short, Tudor Jones says the current economic malaise is being caused by the manipulation of the Yuan and the loss of US labor to China.  This currency imbalance has resulted in a much weaker US economy over the last 15 years:

“The root cause of the unemployment woes is quite obvious. In the United States alone, in the last two decades, nearly six million jobs in manufacturing have been lost overseas. This equates to nearly four percentage points of the current 9.7% US unemployment rate. As importantly, the migration of these jobs contributed to the most unsustainable economic imbalance in the world today—China’s persistent bilateral trade surplus with the United States. During the last decade, China accumulated almost $1.4 trillion of US debt and at least $2.3 trillion in global assets. These figures could grow to $3.8 trillion and $7 trillion, respectively, over the next decade if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating.”

He believes the Fed is responding to this structural deficiency via QE and it reminds him an awful lot of 1999 when the Fed bailed out LTCM and flooded the system with liquidity in anticipation of the Y2K meltdown:

“Our current situation is highly reminiscent of 1999, when the fear of a Y2K computer meltdown led central banks to deliver global liquidity pulses in an effort to cushion any possible negative fallout from the failure of systems and the Internet.  Once again, policy leaders symptomatically attacked a structural deficiency.  Most of that excess liquidity ended up in a very narrow list of approximately 100 NASDAQ stocks, as $20B a month poured into margin accounts to purchase technology stocks.  Between October 1999 and March 2000, the NASDAQ nearly doubled.
With the Federal Reserve Board about the embark upon a LSAP program of over $1 trillion dollars, it is certainly important to understand exactly where much of this liquidity will roost.  And the similarities between 1999 and today bear heeding.”

Using the 1999 template his conclusion is simple – buy what has worked thus far in 2010 and short what hasn’t worked:...MORE

You may also be interested in:

Paul Tudor Jones Interview at Institutional Investor 


"Tudor Sells Completely Out of Renewable Energy Holdings (LON: REH)"

"L.A. Transit Spends $5 Billion to Decrease Ridership"

Not the Onion.

Earnings: Power-One Pops, Drops (PWER)

The company reported last night:

Power-One Soars As 3Q Results, 4Q View Smash Estimates‎

and the stock jumped 20%. As we said in September's "Best in Class: Power-One Poised to Invert Solar Stocks" (PWER):

...Here's the six month chart from BigCharts, note how the earnings gap-ups in both May and August were both filled before the stock resumed the uptrend. Something to remember for the next earnings report.

The difference this time was that the market knew how to play it:

Nation's Unemployment Outlook Improves Dramatically After Fifth Beer

Source

"Barclays Capital Says First Solar's Earnings Beat And Raise Wasn't Enough" and Hapoalim Raises Price Target to 25% Below Current (FSLR)

The stock is down $10.28 at $140.87.
From SmarTrend:

10/29/2010-Barclays Capital issued a note to clients discussing earnings from First Solar (:FSLR), calling the company's beat and raise insufficient to appease investors.

BarCap analyst Vishal Shah said, "Beat/raise not enough: Investor expectations went up going into the call and given the positive investor backdrop, the magnitude of beat was probably not enough, in our view. Lack of positive news flow on the Agua Caliente financing front, unexpected cost increase and 17c negative tax impact were some of the additional sources of disappointment. That said, the long term thesis remains relatively intact post Q3 earnings, in our view - 2011 captive business is the reason most investors are willing to pay a premium valuation and bull case 2011 earnings power of $10 is still possible....MORE

From Benzinga:
Hapoalim Securities Has Notes On First Solar 

Hapoalim Securities is raising its price target on First Solar, Inc. (NASDAQ: FSLR) to $105 from $100 after the company reported earnings after the bell yesterday. It is maintaining its Sell rating on shares.

In a note to clients, Hapoalim writes, "FSLR's 3Q10 results surpassed our and consensus estimates driven by revenue upside and lower-than-expected opex, but we expect the stock to come under pressure as new guidance for 2010 EPS of $7.50-7.65 likely didn't meet rising hopes it may hit $8.00. Moreover, hopes that the sale of Agua Caliente would occur in 4Q10 were dashed as management suggested 1Q11 was most likely. Finally, while FSLR generated healthy cash flow in 3Q10, evidence of the substantial cash needs of the project business rose to the surface. After raising our estimate for 2010 EPS largely on the 3Q10 upside and 2011 EPS on a higher ASP base, we raise our price target from $100 to $105."

ABB Outperforms, Stock Doesn't (Does Too!) ABB

It all depends on the time-frame you choose.
Endpoint bias is a favorite tool of data manipulators wanting to push an agenda.
In the last week ABB is down 7.29%, the S&P 500 is up 0.06%
The S&P wins at at the 1 and 3-month marks.
Anything longer and ABB is the better performer.
At a 5-year timescale ABB is up 173%, the S&P is down 1.21%.
Today the stock is trading down 33 cents at $20.68.
From Zacks Analyst blog:

ABB Ltd. (ABB - Snapshot Report) outperformed the Zacks Consensus revenue and earnings estimates for the third quarter of 2010. The company reported revenues of $7.9 billion, ahead of the estimated $7.76 billion, while earnings per share were 34 cents, ahead of the estimated 31 cents.

Orders rose 18% and revenues increased 2% in local currencies, including an 11% increase in service revenues. This was due to a higher demand from industrial customers for energy efficient and capacity enhancing products. Demand increased across a gamut of industries, including metals and minerals, marine, pulp and paper, discrete manufacturing and renewable energy.

Orders were up 26% in Asia, primarily on higher base orders. Power Systems, followed by Process Automation and Discrete Automation and Motion contributed primarily to growth. Orders in local currencies were more than 50% higher in Europe compared with the same period in 2009. In the Americas, orders decreased 16%.

Revenues grew in the quarter on the back of strong growth in short-cycle automation businesses as recent orders were executed. Revenues in the longer-cycle businesses were flat to lower, reflecting the decline in orders received during 2009 and 2010. Service revenues increased 11% year over year....MORE

The Wall Street Journal's story is headlined:
UPDATE: ABB Set To Resume Growth Amid Strong Orders

First Solar Downgraded by Deutsche Bank, Trading below the 50-day SMA in Early Pre-market (FSLR)

UPDATE: "Barclays Capital Says First Solar's Earnings Beat And Raise Wasn't Enough" and Hapoalim Raises Price Target to 25% Below Current (FSLR)

Original post:
I saw some shares trade hands at $139.50, currently $140.55 -10.60
A quick hit via StreetInsider:
Deutsche Bank Downgrades First Solar (FSLR) to Hold; 2010 Strong; 2011 Maybe Not as Much

Deutsche Bank downgrades First Solar (Nasdaq: FSLR) from Buy to Hold. PT lowered from $155 to $125

Deutsche analyst says, "First Solar reported 3Q10 results that exceeded estimates and bumped up 2010 guidance to effectively reaffirm near-term outlook. We believe solid fundamentals out to yearend is already priced in, and that 2011 outlook will set the direction for the stock going forward....MORE

Here are some lines on the chart (via Big Charts):

Major Support is at the 50 day MA $139.69.

Major Support is at the 100 day MA if the 50 day does not hold ($132.54).

Allstate Misses on Earnings, Revenues, Stock Closes Generally Mournful and Reflective (ALL)

Back on September 1 we decided Allstate was worth a trade at $27.70:

A Contrarian Hurricane Earl Trade: Allstate Insurance (ALL)

On September 10 with the stock up 7.8% at  $29.87 we posted:

Update on the Allstate Trade: Caught an Upgrade from Citi (ALL)

And on September 13 with the stock at $30.12 it was:

Chicken Trader Bailing on Allstate Trade (ALL)

So I felt pretty silly when the darn thing went on to trade as high as $33.29 on October 14.
Today it closed down 6.31% at $30.43 and might be worth another look after the analysts digest what happened in the third quarter. Here's Zacks:

Allstate Misses on Low Top Line

Allstate Corporation’s (ALL - Analyst Report) third quarter operating earnings of 83 cents per share came in way behind the Zacks Consensus Estimate of 97 cents and 99 cents recorded in the year-ago quarter.
Results for the quarter deteriorated primarily due to lower-than-expected premiums coupled with higher expenses in the Property-Liability insurance segment, along with relatively higher tax expenses. However, lower catastrophic losses, prudent capital management and strong liquidity were quite impressive during the reported quarter. This is reflected from growth in book value per share.

Allstate’s net income for the reported quarter came in at $367 million or 68 cents per share, compared with $221 million or 41 cents in the prior-year quarter, reflecting growth of about 66%. Operating income, which excludes realized net capital gains and losses from the sale of investments as well as accruals on unhedged derivative instruments, for the reported quarter was $452 million, down 16.0% from $538 million in the year-ago quarter.

Allstate reported total net revenue growth of 4.3% year over year to $7.90 billion and also came in about 14% higher than the Zacks Consensus Estimate of $6.95 billion.

Quarter in Detail
Property-Liability net written premiums were $6.76 billion, down 0.6% from prior-year quarter. This segment’s combined ratio deteriorated by 1.2 points year over year to 95.9%....MORE

Bloomberg's story was headlined:

Allstate Plunges After Earnings Miss Analysts' Estimates on Sales Decline

Reuters' was:

Allstate shares at six-week low on earnings miss

Which would take us back to, oh, September 14 when it closed at $30.27.

"Potash profit soars, raising bar for BHP bid" (POT)

From MarketWatch:

Potash Corp. of Saskatchewan said Thursday its third-quarter results were the second-best ever for the company, news that raises the stakes for Anglo-Australian miner BHP Billiton, whose unsolicited bid for the giant fertilizer producer faces a deadline next week

The Canadian fertilizing giant reported quarterly earnings of $402.7 million, or $1.32 a share, from $247.9 million, or 82 cents a share, in the same quarter last year.

Revenue for the Saskatoon-based company climbed 43% to $1.6 billion.
The strong earnings report raises the bar for BHP’s (BHP 82.84, +2.12, +2.63%)  proposed $130-a-share takeover offer, which the Saskatchewan government flatly rejected last week.
The province said the $38.6-billion valued bid was “grossly inadequate,” citing C$3 billion in revenue losses over 10 years for the region if the takeover succeeds.

“That revenue is also needed to keep our tax levels competitive for other businesses and for Saskatchewan families,” Premier Brad Wall said last week.

The bidding war, which began more than two months ago, nears an end next Wednesday, when the Canadian government must make a decision on the takeover....MORE

"First Solar Q3 Revs, EPS Beat; But Gross Margin Off; Shrs Fall" (FSLR)

The stock is getting spanked in after-hours action, down $9.97 (6.6%)
We'l have some comments on the earnings call tomorrow.
Here's Barron's Tech Trader Daily:

First Solar (FSLR) shares are taking a hit in after hours trading, despite better-than-expected Q3 results.
For the quarter, the company reported revenue of $798 million and profits of $2.04 a share, ahead of the Street at $778.8 million and $1.95. First Solar noted that latest quarter results include a one-time tax hit of 17 cents a share related to the repatriation of $300 million of profits from profits held in overseas subsidiaries; excluding that factor profits would have been $2.21 a share.

For all of 2010, First Solar now sees revenue of $2.58 billion to $2.61 billion, up from previous guidance of $2.5 billion to $2.6 billion; the Street had been expecting $2.58 billion....MORE

And 24/7 Wall Street:

First Solar Margin Pressure Trumps Earnings & Guidance (FSLR)

 First Solar, Inc. (NASDAQ: FSLR) looked like a decent report, but there is a sell-the-news reaction taking place in the after-hours trading session.  The solar giant posted 16% higher earnings of $2.04 EPS versus $1.79 a year ago.  Revenues rose 66% to $797.89 million.  Thomson Reuters had estimates of $1.95 EPS and $778.76 million in revenues.

 Earnings would have been $0.17 higher but the company took a $0.17 charge related to the repatriation of $300 million in profits brought in from a foreign subsidiary....MORE

First Solar Reports, Beats on EPS, Stock Down 5.5% (FSLR)

 UPDATE: "First Solar Q3 Revs, EPS Beat; But Gross Margin Off; Shrs Fall" (FSLR)
Original post:
The stock is down $8.31 (5.5%).
Sorry about the light posting today, hope this helped:

Thinking of Fading First Solar's Earnings: "4 U.S. Solar Stocks: Earnings Preview" (FSLR)

We'll have more in a bit.
Here's the release:

First Solar, Inc. (FSLR 143.49, -7.66, -5.07%) today announced its financial results for the third quarter ended September 25, 2010. Third quarter 2010 net sales were $797.9 million, an increase of $210.0 million from the second quarter of 2010, primarily due to increased system sales (driven principally by the sale of the 60 megawatt (AC) Sarnia Phase 2 project in Canada), partially offset by a decline in our module average selling prices and lower blended euro exchange rates. Quarterly net sales grew 66% from $480.9 million in the third quarter of 2009, due to increased systems revenue and module production volumes, partially offset by a decline in our module average selling prices and lower blended euro exchange rates.

Third quarter net income per fully diluted share was $2.04, up from $1.84 in the second quarter of 2010 and up from $1.79 in the third quarter of 2009. The third quarter net income includes a one-time tax expense of $14.7 million, or $0.17 per fully diluted share, relating to the Company's decision to repatriate $300 million of earnings from certain of its foreign subsidiaries. Quarter over quarter, the net income increase was primarily driven by higher net sales partially offset by the one-time tax expense. Year over year, the net income increase was primarily driven by higher module production, lower module cost per watt and increased system sales, partially offset by reduced module average selling prices and the above one-time tax expense.
"We continue to execute on our growth strategy and to develop sustainable markets for solar electricity," said Rob Gillette, CEO of First Solar. "Our investment in research and development combined with plans to nearly double our manufacturing capacity will help us meet robust customer demand while continuing to drive down the cost of solar power."

For 2010, First Solar projects:

Net sales of $2.58 to $2.61 billion, increased from the previous guidance range of $2.5 to 2.6 billion. Earnings per fully diluted share of $7.50 to $7.65, increased from the previous guidance range of $7.00 to $7.40. Total capital spending of $550 to $600 million. Operating cash flow of $595 to $620 million....MORE

Climateer Line of the Day: Damn Arrogant Economist With Faint Praise Edition

Today's Winner is President Obama:

Lawrence H. Summers, the chief architect of the Obama administration’s economic policies who is leaving the White House, received an accidental back-handed compliment from his boss.
Appearing on “The Daily Show with John Stewart” on Wednesday night, President Obama said,

“In fairness, Larry Summers did a heck of a job in trying to figure out how to …”

“You don’t want to use that phrase, dude,” Mr. Stewart interjected.
“Pun intended!” the president responded to laughter....

-Via DealBook 

For anyone interested in understanding the root causes of the mess the economy is in I can't recommend Frontline's "The Warning" highly enough. Here's our post:

Oct. 21, 2009 
Frontline's "The Warning": Now Taking Prop Bets on When Obama Fires Larry Summers' Ass

The guy is not just arrogant. He was way, way wrong. Summers will be leaving the administration to "persue other interests" Here's the  video...

Oct. 22, 2009
What Is Political Capitalism?

...I was looking for a quote to answer a gentleman who really disliked my posting the video in yesterday's post "Frontline's "The Warning": Now Taking Prop Bets on When Obama Fires Larry Summers' Ass".

The point is the unholy alliance between big business and government which has basically perverted the founders view of representative democracy.

The sixteen years of the Clinton and Bush administrations institutionalized this fascist version of government to an extent that is truly amazing. 

Sept. 21, 2010 
Breaking: "Summers Expected to Leave White House After Election" (and some thoughts on arrogance)

I usually don't have much time for Gluskin Sheff's David Rosenberg. His pig-headed refusal to listen to the market as the averages advanced more than 70% was not only arrogant but expensive for his firm's clients.

I can handle arrogant as long as you're right, hell I can tolerate a fat guy in a grass skirt and spike heel Manolo Blahniks if he's right.
It would be fun to watch him tottering around.
But Mr. Rosenberg hasn't been right for a while and he's not funny.

Funny is important if you're doing the Angel of Death schtick. Here's our thinking ...

Now I'm probably a mental midget* compared to the former Harvard president but I know how to treat people right....

...*Maybe not:

How Larry Summers lost Harvard $1.8 billion

I've never lost $1.8 bil. in my life.
[never had it either -ed]

"...Is Lynas The Best Rare Earth Play?" (LYC.AX; LYSCF; MCP; AVL.TO; REE)

From 13D.com via ZeroHedge:

...Here is 13D's October 21 take on Lynas:

Lynas Corp (LYC:AU, AU$1.76; LYSCF, $1.73)- which announced a new agreement with a major Japanese firm a day after our last article-remains our favorite in the field, and likely provides the shortest path to free cash flow among major rare earth miners. We expect that recent rare earth supply concerns will enable Lynas to continue signing agreements to sell essentially all phase-1 production and enough phase 2 output to accelerate expansion. Thereafter, it may be able to separate and market rare earth concentrate from other mines, such as its own resource in Malawi and output from Northern Uranium's Australian resource before developing its Crown polymetallic depost.

Another indcator that LYC may be due for a major move higher is the October 26 downgrade by JPM from overweight to neutralm with a A$1.71 price target. As is well known, when a broker is downgrading something, it is buying it from clients. Nuff said. An extract from the JPM report authored by Alistair Reid:

Overall, we believe LYC has a strong competitive advantage given its position as a viable source of new non-Chinese supply of rare earths. However, given the stock’s recent out-performance and potential risks around the timing and cost of delivery of the IREP, we believe investors should consider reducing any OW position. We continue to watch for further progress in bringing the IREP on-line including completion of the concentrator by early CY11E, securing funding solutions for the expansion, executing further customer offtake agreements, updates on the construction schedule and marketing of synthetic mineral products.

Without doubt the stock has had a dramatic run up, and has returned about 194% YTD, and 130% in just the past three months, and is due for a pullback. That said, it would appear that while many of the other names in the space, which have had a comparable move higher, would be far more of the story-type picks, Lynas may be positioned to be a relative outperformer and a likely long hedge to all short "bubble pop" exposure.

We will present more on the name in the coming days. In the meantime we present JPM's initiation report in Lynas for all those who wish to get acquainted with the name....MORE

Thinking of Fading First Solar's Earnings: "4 U.S. Solar Stocks: Earnings Preview" (FSLR)

UPDATE: "First Solar Reports, Beats on EPS, Stock Down 5.5% (FSLR)"
Original post:
The company reports after the close today. As far back as 2008 the stock was exhibiting a pattern of running up into earnings and then struggling. We posted this on July 28 of that year:

First Solar to Beat and Raise, Market Yawns (FSLR)

The stock has had a very nice run since we posted "Hapoalim Cuts First Solar Target to $65 on Cadmium Telluride Risk; It Won't Matter and Probably Sets an Intermediate Low (FSLR)" on June 8, 2010.
The stock did indeed set the intermediate term low that day, at $100.19, here's the chart, from BigCharts:




Nothing in the price action to indicate a problem, a small caution flag in the shrinking volume.
Today the stock got to within $1.07 of its 52-week high and started looking shaky.
Currently at $151.30, up a buck.
On the corporate level, the company is producing flat out and will beat* analyst's estimates.

Here's some more insight from TheStreet.com:

A solar analyst recently quipped that an investor would have to be a Darwin Award winner to expect bad results from solar companies in the third quarter. Just look at the results from the MAC Global Solar Index (above), which highlights the strong comeback of solar from June's doldrums.

When it comes to the U.S. solar companies, though, a blanket expectation for good results and beat and raise numbers isn't necessarily the way to think about trading solar stocks as a rule ahead of earnings. In fact, the four solar companies presented below provide a good way to break down the diverse expectations and issues for earnings season.

Good results are certainly expected to be the case with First Solar(FSLR), the solar industry bellwether, which kicks off earnings season with its after-market report on Thursday. It's safe to say its report sets the tone for the entire industry....

...FSLR Data Debate Point: There have been 11 upward revisions to EPS in the past 30 days on FSLR, by far the most of the four stocks profiled here. MEMC Electronic Materials is second, with 4 upward revisions to EPS.

Key Earnings Themes:
Eliminating Surprises: Last quarter, First Solar surprised investors with the revelation of what it called a "manufacturing excursion" that affected 4% of its capacity. In plain English, it was a manufacturing problem with First Solar's much-touted advanced thin film manufacturing process, leading to warranty claims. Many analysts thought the warranty issue -- in particular since First Solar took almost a year to reveal it -- was the reason for the post-earnings selloff. No one seems to be expecting a repeat of the warranty issues given First Solar's manufacturing prowess, but it's certainly an earnings surprise item to watch, and for First Solar investors to hope is a thing of the past.

Management Tone: First Solar had a reputation under Michael Ahearn of being overly conservative in its outlook. After last quarter's earnings, some analysts were still making the case that First Solar was too sober in its outlook given its earnings performance. A few weeks ago, First Solar released the type of bullish news about 2011 that made it seem to some solar watchers that First Solar had taken a page from the Chinese solar company playbook. First Solar put out a press release stating that it had already received orders for shipments of 380 megawatts above expectations in 2011. First Solar didn't name the clients doing the ordering, or provide any pricing. It is also the first time in the history of First Solar as a public company that it has issued a press release citing anonymous future orders.

Was the 2011 order release a sign that First Solar might be taking a more aggressively optimistic stance headed into 2011?

Project Focus:The split between First Solar's module sales into the open market and the modules it reserves for its project pipeline has been a major issue since it began making pipeline acquisitions. However, it seems that headed into this earnings call, there is more focus than ever on the project outlook for 2011, as the German "pull-in" of 2010 is expected to end, or at least markedly slow down. Expectations for a slowdown aren't limited to the German market. In the Czech market, a tax on solar power plant revenue should be an issue that First Solar is forced to address. The European situation makes for more pressure from the Street on First Solar to provide confidence about the pipeline headed into 2011.
In the past, though, First Solar has been anything but forthcoming about project details. The last three quarters in row the Street has received the same answer: First Solar says it won't focus on any individual project in its discussion, taking a portfolio approach that is de-risked project to project.
In any event, analysts may be looking for management's response to the Northrop Grumman appeal to the conditional use permit awarded to the AV Solar Ranch project, in the news of late, and an update on the financing and sale of the Agua Caliente project.
Here's the full tale of the earnings tape on First Solar:
Consensus EPS Estimate: $1.94 per share
Range of EPS Estimates: $1.44 to $2.26
Earnings Consensus Direction in Previous 90 Days: up by 19 cents
EPS Revisions up in Last 30 Days: 11
Previous Quarter EPS: $1.84 (outperformed Street consensus of 24 cents)
Consensus Revenue: $778 million
50-Day Moving Average: $142.97
Short Interest as Percentage of Float (Nasdaq): 21.6%
Gain or Loss on Day of Last Earnings: 9% decline
Lowest Share Price Since Last Earnings: $121.72 (August 20)
Highest Share Price Since Last Earnings: $151.39 (Sept. 29).

...MORE

*Here's our pick for First Solar Theme Song: