Monday, October 31, 2011

NASDAQ Boots Ener1 (HEVV.PK) And Taxpayer Loses Again

Energy companies that got federal loan guarantees are dropping like flies.  Why, just yesterday I blogged about the collapse of Beacon Power and the stimulus money it wasted.  BTW, I may have underestimated the total amount BCON actually borrowed under the loan guarantee.  Today we see another federally-backed company, Ener1 (HEVV.PK), getting delisted from NASDAQ because its financial statements aren't trustworthy.  Here are some highlights of this marvelous winner's recent operations. 

The Ener1 subsidiary that got the DOE grant, EnerDel, spent $53mm in taxpayer money to employ 253 people, costing $209,486 per stimulus job.  The company now employs 33 people, for a total program cost of $1,606,060 per job.  The stimulus jobs just keep getting more expensive.  That's what's funny about government procurement; a fixed-dollar contract drives up per-unit costs as the contractor discovers just how difficult it is to provide back-end support.  Just ask Lockheed Martin about their success with the F-35 . . . but I digress.

The news for taxpayers keeps getting worse with DOE's loan guarantees and grant programs.  At least Uncle Sam isn't the only institutional investor who's in the hole; Aspire Capital Fund threw $2mm down the tubes in August.  I hope this latest flop has the decency to change its name from Ener1 to something more appropriate, like Ener0 or EnerNothing. 

Full disclosure:  No position in HEVV, ever.

Alpha-D Update 10/31/11

Well, it sure didn't take long for GDX to start its climb back up.  Its rise triggered the covered calls I had written in both my accounts, so I bought back the entirety of my holdings today and renewed the covered calls. 

It's funny how I've had to repurchase my GDX holdings at slightly higher prices than the exercise prices at which they've been called away.  The cash flow I get from the covered calls pretty much makes up for that, so all-in-all I'm committing pretty much the same amount of capital to my GDX position every month.  It represents my gold hedge against the U.S. dollar. 

Those are the only change for today.  The news out of Europe alternates between brief euphoria at each new non-solution to sovereign debt and despair when reality returns. 

Sunday, October 30, 2011

The Limerick of Finance for 10/30/11

MF Global looks for forced sale
Plunging share price has turned buyers pale
This thing might unwind
Some big firm wouldn't mind
It can buy select assets, then bail

Beacon Power (BCON) Bankrupt, More Federal Loan Guarantees Wasted

Uncle Sam needs to get out of the investment management business.  He just can't pick a winner.  Beacon Power Corp. (BCON) filed for bankruptcy today.  A quick look at the company's financial results shows us why this company has never been out of trouble.  SG&A spiraled wildly out of control starting in 2008.  If this was the result of a huge sales effort, nothing came of it as sales never regained the $1mm threshold the company had before SG&A exploded. 

A company that had very little debt up until 2009 was now emboldened to assume $25mm in debt in 2010 thanks to its success in getting DOE on board.  The good news is that BCON did not exercise the full amount of the loan guarantee (actually only about $3.4mm as noted on page 102 of their 2010 annual report), so the total loan loss to the taxpayer is far less than $43mm.  The bad news is that the loan guarantee came after DOE had given the company a Smart Grid Stimulus Grant of $24mm in November 2009.  This grant was supposed to fund a second flywheel energy storage facility with a 20 MW capacity.  That second plant never got past the site selection and environmental impact phase of its development.  Way to go, Beacon. 

Throwing good money after bad money isn't good enough for the federal government.  Beacon never even met the loan guarantee's covenants that were designed to safeguard recovery value for DOE.  For example, on page 22 of its 2010 annual report, Beacon states that it was obligated to "put its technology into escrow" (patents? or hard assets?) so that DOE could assume control of the 20 MW plant if Beacon couldn't make it work.  The plant is nonexistent, so there is no escrowed technology for DOE to recover.  The company contributed $26mm of its own cash and in-kind assets to the flywheel project (page 34 of the 2010 annual report), but there is no indication that those assets were escrowed specifically for DOE.  It seems likely that other general creditors will recover the remaining value of the assets pledged to support a project DOE underwrote with a loan guarantee. 

Way to go, Uncle Sam.  The federal government was so eager to prove that stimulus money was effective in building a green economy that it apparently couldn't even write a loan guarantee that would recover something if it all went kaputsky.  Read Beacon's annual reports before the corporate website disappears.  Somebody please prove me wrong. 

Full disclosure:  No position in BCON, ever. 

Friday, October 28, 2011

Cowardly Banks Now Scared Away From Debit Fees

Maybe those noisy protesters from the so-called 99% are having an effect on the system already.  Banks that are too big to fail are getting too scared to charge more fees.  Chase and Wells Fargo are backing off plans to assess more fees on debit card transactions.  BofA hasn't budged yet, probably because they're in such terrible shape and will have to have their corporate fingers pried away from their new fee plan once the boardroom gets sufficiently terrified.  A bank in that much trouble must have either a pretty high pain threshold, extremely tone-deaf management, or a billionaire investor like Warren Buffett who assures them they'll be bailed out now matter how many new fees they assess.  Oh, wait, that's right, it's the last choice.  Okay, that explains it. 

Doesn't Berkshire Hathaway still own WFC too?  And isn't JPM historically a Rockefeller family franchise?  If so, they and other "healthier" banks will figure out more devious means of financial repression.  Depositors need to read the pop-up windows every time they log into their accounts from now on, because failing to click "No Thank You" on one  may result in the assessment of some stealth annual fee for non-acknowledgement. 

Full disclosure:  No positions in bank stocks at this time. 

Thursday, October 27, 2011

Market Goes Nuts Over Last-Ditch Euro Debt Deal

Today's big news out of Europe was hardly a surprise but the market acted like it had never been priced in.  An agreement to draw a firebreak around Greece's debts using French and German money has been obvious for days if not weeks.  Maybe sellers are finally glad they found one last group of gullible buyers onto whom they can offload some equities before everything is shredded. 

I give my readers credit for being intelligent, but the odd few might need an explanation of my sarcasm.  The EFSF as presently constituted is still too small to backstop anything beyond a bailout of banks holding Greek sovereign debt, even with principal writedowns.  Any further deterioration in Greek state finances, or even further hints of trouble with Spain's or Italy's debt, will overwhelm the EFSF's ability to respond in time.  European governance is too fractured to reach a broader bailout agreement, and the European Central Bank is too weak to backstop banks unilaterally or flood the market with liquidity. 

This means that any further bad news at all from Europe will require the U.S. Federal Reserve to immediately offer massive dollar swap lines to shore up the euro and its member states' various underwater banks.  The future of European unity now rests with Washington.  Europeans have done all they can for themselves, once again. 

Wednesday, October 26, 2011

Early Look At Living Systems Behind Occupy Wall Street

Examination of any nascent insurgency requires documentation of the living systems giving it sustenance. 

The organization that used to be known as ACORN no longer formally exists, but its staffers have formed the nucleus of new groups such as New York Communities for ChangeThe NYCC now supports the Occupy Wall Street movement with fundraising and staffing. 

The Left's own Mother Jones describes how labor unions provided early support for the Occupy movement.  Other blogs have reported on how labor union activists were apparently brought in by bus and paid to appear in Occupy events. 

A story this big deserves an ironic cant.  Goldman Sachs pulled out of a fundraiser for a credit union when it discovered Occupy Wall Street would be an honoree.  GS does not share any target markets with that credit union so concern over anti-trust collusion should not have been a deal-breaker.  It is safe to say that GS is not part of the living systems support structure. 

Tuesday, October 25, 2011

First Solar (FSLR) CEO Out - Is There Hope?

First Solar (FSLR) has seen better days.  A shake-up in the CEO's chair was expected given the company's share price performance, down to the low 40s from over 170 in less than a year.  The stock's fundamentals now look compelling from a deep value standpoint:  a single-digit P/E ratio, low long term debt, positive FCF, five years of ROE growth.  The most recent quarter's nose-dive in net income is a cause for concern, but fortunately they don't have to worry about competing on price because their cost of production is low enough to compete with even China's state-subsidized solar makers

A brief word on FSLR's core technology is in order.  First Solar has the distinction of being the first solar (okay, pun intended) manufacturer to produce solar panels at a cost of $1/watt.  The key to their success has been the use of cadmium-telluride.  The price of cadmium has been deregulated since the 1950s, its worldwide supply sources are geographically diverse, and there is a growing market for recycling cadmium in the U.S.  Tellurium, although not a rare earth element, is so rare in geological availability that the U.S. government has difficulty estimating its worldwide production.  If resource availability will ever constrain First Solar's ambitions, falling tellurium supply will be the main culprit.  Tellurium is largely a byproduct of copper mining and the world price of "Dr. Copper" has fallen this year in response to slackening world demand.  The long-term outlook for tellurium is not rosy, as Jack Lifton has noted in this article addressing FSLR's ambitions.  No matter how compelling a value FSLR may appear based upon financial reports, the realities of geology will govern its future.

Full disclosure:  No position in FSLR at this time. 

Monday, October 24, 2011

Updating The Alpha-D For 10/24/11

I didn't need to make many portfolio changes this week.  My covered calls on FXI and GDX expired unexercised.  I renewed my covered calls on FXI to expire next month.  With GDX, I sold my calls in my IRA to expire this Friday, and in my taxable account I sold them to expire next month. 

My intent in splitting the GDX expirations was to capture a larger cash premium in my IRA with a lower strike price that is much closer to the current market price of GDX.  I needed a shorter expiration date to minimize the possibility that volatility would spike and sell away the GDX holdings.  My GDX holdings' value is below the most recent price I paid to recapture them after they were sold away (thanks to covered calls) some months ago.  Part of the challenge of a covered call strategy is maintaining the underlying stocks as a long-term investment while minimizing capital gains from selling them and avoiding capital losses from repurchasing them. 

I continue to hold several California muni bonds that will mature next year.  I am considering putting some cash into TIPS but I must complete some analysis first.  Individual TIPS may not adjust in value quickly enough to keep pace with high inflation, but a TIPS bond fund or ETF may be able to keep up.  I'll let you know which vehicle I choose (if any) once I've figure that out.

Sunday, October 23, 2011

Friday, October 21, 2011

Frankish Kabuki Presages Euro Debt Non-Solution

It sure looks like the Frankish ethnic cousins - France and Germany - have pretty much settled on an uneasy compromise for injecting fresh capital into the EFSF.  France had wanted it to act like an insurer but Germany said "nein" to that, so the fund will likely remain only a liquidity provider.  That takes care of Greece for the time being, with short-term melt-up rallies aplenty coming for stocks on both sides of the Atlantic.  Maybe France will see the light behind limiting the EFSF's firepower once it considers how its sovereign credit rating is getting trashed

The bad news is that the continent's bad debts are now obviously too big for a Greek-sized rescue fund. Germany has drawn the line at any further rescues beyond Greece.  Italy and Spain, when and if they fail to make sovereign debt payments, are beyond the EFSF's reach.  China will not bail out Europe; it has too many insolvent banks and municipalities at home to shore up.  The U.S. may provide a repeat of its massive swap transfers, but if Europe's collateral (that's the euro, folks) dissolves the Fed will have to create untold amounts of new dollars to shore up its own balance sheet.  That giant sucking sound you'll hear will be the sound of non-U.S. institutions running to dispose of their dollars.  No foreigner wants to hold a devalued dollar.  Rushing to drop a devalued currency can very well launch hyperinflation for Americans holding no other asset besides U.S. dollars. 

Enjoy your weekend! 

Nota bene:  I am long FXI and GDX (which I have held for diversification purposes) and a few California state muni bonds.  I hold a lot of cash right now because I believe this European situation will result in a very serious downturn in may equity markets. 

Thursday, October 20, 2011

Evolving Gold (EVG) Exploring In The West

Evolving Gold (EVG.TO and EVOGF.PK) is prospecting in several well-explored areas.  Their challenge is to bring several years' worth of effort to fruition. 

The company's recent financial history deserves scrutiny.  They closed a private placement in July 2010 for $15.6mm and apparently burned through it in about a year.  Goldcorp owned 19mm shares worth $0.82 a share at that point.  EVG secured their most recent private placement in August 2011, receiving $5.8mm.  This placement valued the company at $0.56 per share (not counting warrants, which at an exercise price of $0.75/share have no value at present).  The investors keeping this company alive with cash infusions are expecting progressively lower valuations, which is no surprise given the company's operating history.  Appointing a new CEO in March 2011 was a necessary step in retaining investor confidence and keeping their drilling programs on track. 

Several years' worth of exploration efforts in multiple properties have yet to result in independently verified assays or a 43-101 compliant report.  The lack of confirmed 2P reserves makes it impossible to establish a firm valuation for this company.  The delays in confirming announced discoveries seem to to stem in part from an inefficient drilling program.  EVG's most recent investor presentation emphasizes vertical drilling, yet the Carlin trend's geology is so well-known that vein locations can probably be estimated more accurately than EVG has done so far.  Talented drillers can drill at slants to intercept multiple veins with one bore hole; it isn't clear whether EVG has ever considered slant drilling in any of its properties, let alone the Carlin trend.  Their recently completed airborne radiometric and magnetic surveys of their Rattlesnake property should have been completed long ago, so the company's plan for renewed drilling is long overdue.  Agnico-Eagle must be wondering if its commitment to fully fund exploration at Rattlesnake is worth the cost. 

The viability of the Rattlesnake property is worth a mention. Photos of the property reveal a varied topography of multiple hills and spurs with 40-degree inclines.  EVG claims Rattlesnake's ores have plenty of oxides that will allow for efficient gold separation through heap leeching.  The only suitable place to locate a heap leeching pond is a plateau that looks to be several miles from the primary drill intercepts, so the logistics requirements of trucking ore a few more miles will add costs to any operation.  JV partners like Agnico-Eagle will need to know this before committing to development. 

EVG investors will need patience.  The firm has been operating for over four years and needs to show results.  One thing they can do immediately is commit to wisely using cash.  They closed their last fiscal year with $8.7mm in cash and now seem to have about $6mm on hand.  Most of that $6mm seems to have recently arrived from the August private placement mentioned above.  Did they completely spend their March cash balance in eight months?  Keeping exploration costs under control will be imperative, because they will have to raise more private placements in 2012 to complete the surveying they should have done in the first place prior to drilling holes.  They should also consider the cost of future purchases of mineral rights from those private landowners in the Carlin-Humboldt project who are not yet fully on board with development.  A bet on an exploration-only company is a bet on managerial talent.  Management should take a page out of other junior miners' playbooks and investigate whether its properties sit astride geothermal vents.  Leasing some property to a geothermal developer can provide them with cash flow they'll need to survive. 

Full disclosure:  No position in EVG at this time. 

Tuesday, October 18, 2011

Apple And Goldman Sachs Miss Earnings

Two blue-chips the analyst community counts on to drive bulls over cliffs have faltered.  Apple has missed Q4 earnings estimates.  When your earliest adopters are fanatically devoted to shiny new products and expect version 5, an interim product called 4S just won't do.  Delaying it one month didn't help either.  Amazon's new gizmo will bring full blast margin compression to a commoditized product.  Apple's ability to extract monopolistic rents from this market is peaking, so it absolutely must milk this cash cow to fund the rest of Steve Jobs' legacy blueprints. 

The second unpleasant surprise for bulls is an even worse story of eroding monopoly power.  Goldman Sachs lost money for itself.  I'll skip the hard-core analysis and just say that bad karma from publishing equity research that lost money for clients has finally caught up to the firm. 

These two stocks are symbols of the gossamer knowledge economy as much as railroad stocks used to be bellwethers of the old-fashioned America.  It's time to fold up the revival tent, bull investors, and head for defensive ground. 

Full dislcosure:  No positions in AAPL or GS. 

Monday, October 17, 2011

IMF Understates Its Potency, Europe Overstates Its Unity

Mme. Lagarde seems fairly sure that the IMF doesn't need any more boosts to its financial firepower.  This is not comforting in light of a mounting Eurpoean political logjam.  Greek politics are in paralysis, stifling any pro-austerity vote and emboldening civil servants who refuse to do their jobs and citizens who refuse to pay taxes.  German officials are dialing down expectations for next week's EU summit, telegraphing to all parties the high price Germany will charge for acquiescing to even a minimal bank bailout plan.  Europe's inability to stick to the details of an agreed-upon plan has made staving off sovereign defaults much more difficult to solve.  Both debtors and creditors are unwilling to meet in the middle.

If the IMF has already secured a promised backstop from the U.S. then Mme. Lagarde has every reason to be confident that no further reserves are necessary.  The Fed has already established a precedent of unilaterally offering swap lines to foreign banks, which amounted to $16T worth of loan guarantees during the last round of this crisis.  On the other hand, if European political leaders think that tighter vertical EU integration will be the deus ex machina needed, they must know that it will not fit this timeline.  One week is not enough time to both forge a revised EU constitution and ramrod it through every member state's parliament. 

The most probable result of next week's action will be another toothless agreement in principle, followed by noncompliance from the PIIGS and immediate sovereign debt downgrades.  We will then see whether the IMF activates its pre-existing swap lines with the Fed, and whether those loans stay locked into Eurpean banks' reserve requirements as non-hyperinflationary balance sheet decorations. 

Sunday, October 16, 2011

The Limerick of Finance for 10/16/11

China says the yuan will be stable
Pledges to keep it range-bound if able
Falling exports do cost
Lead to Chinese jobs lost
You won't read that in some Asian fable

Friday, October 14, 2011

Horizon Off The Exchange

Horizon (HRZ) has gone . . over the horizon.  The NYSE is forcing it to delist because its market cap is too tiny.  I warned my readers about this stock a long time ago.  Check my older blog postings and my Seeking Alpha Instablog postings on Horizon's problems with debt and the options it could have chosen.  Go ahead, I dare you. 

If you don't dare, that's fine.  I'm still right anyway.  HRZ is now just another penny stock.  You can call it the YRCW of the seas, with the same poor prospects and insoluble problems. 

Full disclosure;  No positions in HRZ or YRCW at this time. 

Thursday, October 13, 2011

Reshoring Jobs Can Be Fun And Funny

BCG has turned bullish on America.  Their study of manufacturing costs in China drives them to conclude that 3mm jobs can be "reshored" to the U.S.  There are some problems with that conclusion.  The manufacturing infrastructure that used to enable those jobs was also shipped overseas, and it won't come back without major investment.  U.S. workers also lack the skills to do many of the hi-tech they could do before offshoring.  Plenty of other emerging economies have lower production costs than China, so global wage arbitrage can still keep manufacturing jobs from coming back here. 

If jobs are to return to the U.S., they will have to fit the changed skill sets and personal characteristics of most Americans.  Let's get creative, America!  Lots of grown adults in this country like to play video games, so perhaps they could get jobs as "gold farmers" who earn online credits for game-playing masters.  Asians have a lock on that job sector for now, so we'll have to give them a run for their money. 

Americans can also get jobs clearing out the vacated branch offices of banks that are bound to collapse all over again.  Fitch has put a bunch of U.S. banks on negative credit watch, so waiting for them to fail can become a fun game.  Fired bankers will only have a few minutes to clear out personal belongings from their cubicles, so plenty of temp jobs will be available for Americans who can spend a few weeks moving very attractive furniture to auction houses. 

Another great source of future employment will be the cleanup effort needed in the aftermath of the Occupy Wall Street movement.  New York City will soon require the Occupiers to leave Zuccotti Park so city streets can be restored to a semblance of civilization.  This is a full employment program for janitors and garbage truck drivers all around the nation.  Will the otherwise unemployed Occupiers want to take jobs cleaning up the messes they made?  I doubt it.  Today I walked past the OccupySF gathering in front of the Federal Reserve Bank of San Francisco on Market Street.  The sad losers squatting there wouldn't recognize productive work if it hit them on the head.  It's only a matter of time before they get hit on the head anyway. 

In case you haven't figured it out by now, I'm being really facetious with these suggestions.  Avoiding the poor career choices I've mentioned here will require the kind of hard work to which many Americans have grown unaccustomed.  Roll up your sleeves, people.  It gets worse before it gets better. 

Wednesday, October 12, 2011

Low Spot Rates Portend Tougher Times for Shippers

Shipping stock aficionados need to take note that Trans-Pacific spot rates are hitting lows.  Expect to see the effects on shippers' earnings in Q4.  The carriers that come out healthy will be those that avoided rushing into newbuild orders in late 2010.  Check the 2010 and 2011 10-Ks' MD&As for mentions of capex committed to new hulls. 
Oh, BTW, the pending federal legislation to slap sanctions on China for keeping its currency strong will probably launch a trade war that hurts the rest of those shippers that stayed healthy.  We won't see much more of the modest August rise in container traffic; that was driven by macroeconomic demand in Asia for commodities and beggar-thy-neighbor pricing differences with bulk shippers.  Choppy waters lie ahead for ocean cargo carriers. 

Nota bene:  No positions in shipping stocks at this time. 

Monday, October 10, 2011

College Grads' Earnings Head Down, Illegals Head To College

My headline should have grabbed your attention, especially if you recently went heavily into debt to obtain a bachelor's degree.  The WSJ reports that college grads' inflation-adjusted earnings have declined by about a tenth in a decade.  How does that sheepskin look on the wall now?  Hopefully it's loaded with a bunch of pretty calligraphy that has some aesthetic value, because it's not worth anything else. 

In a related development, state governments are cutting what they spend on K-12 education.  This probably does not result from any realization that a well-rounded formal education now has rapidly eroding earning power and is thus a poor investment.  It has more to do with the bloat that's accumulated in state-run schools for years thanks to unneeded technology toys (iPads for all!), useless administrators (i.e., multicultural curriculum specialists), and overinvestment in suburban schools that will be socioeconomically untenable as the viability of suburbs erodes. 

Whatever austerity measures are unfortunately visited on K-12 education should be more appropriately directed towards state-run collegiate systems.  Malinvestment in higher education shows no sign of slackening despite the disappointing WSJ report on earnings.  California's madness continues with the enactment of the California Dream Act, a law that would provide more financial assistance to the children of foreigners who break the law than to out-of-state U.S. citizens who want to study in the Golden State.  I am disgusted with this development and the blatant pandering to an interest group that it represents. 

Middle class earnings continue to disintegrate for educated professionals.  Legitimate government functions continue to hollow out with cuts to basic education.  California's response is to provide more subsidies for an alien presence within our borders that undermines the rule of law.  We should start asking college-educated U.S. citizens how they feel about subsidizing the educations of people who should not be here. 

Nota bene:  My own bachelor's degree from the University of Notre Dame is completely and utterly worthless. 

Sunday, October 09, 2011

The Limerick of Finance for 10/09/11

Investing?  How bad can it get?
It's not safe to take a long bet
Europe's bank plan is weak
Credit prices will freak
This market has not bottomed yet

Sinopec Buys Daylight Energy In Chinese Bid For Dominance

China's five-year plan must be a fun read.  It's worth wondering whether the chapter on resource acquisition specifies penetration of North America.  Sinopec is buying Daylight Energy for C$2.2B.  The real news is how Sinopec will control its North American assets .

Daylight's properties hold 174mm boe in proven and probable reserves, according the company's 2010 annual report.  These assets are primarily in mature fields in Western Canada and require techniques like fracking to force oil into production.  Dividing those reserves into the acquisition price means Sinopec is paying about C$12.64/boe, an incredible bargain to the 2010 average oil price of C$74.62/bbl.  Granted, only 21% of those 2P reserves are crude oil and the rest is natural gas.  Still, Daylight was able to realize prices in 2010 for its NGL and natural gas that were consistently higher than average market prices.  This indicates it is a well-run company.

Sinopec (SNP) is majority-owned by the People's Republic of China.  Its senior officers are Communist Party officials who provide input on energy matters to China's senior political leadership.  This buyout is a strategic action by the Chinese government.  Daylight's 2P reserves are a drop in Sinopec's bucket (BTW, the Chinese convention of measuring reserves in tons and not boe is irritating).  The real agenda behind this acquisition is to establish further precedent under Canadian law and WTO rules for Chinese acquisition of North American natural resources.

It is relevant to consider how this acquisition factors into Chinese national strategy.  Acquisitions outside China allow the curtailment of production within China to husband resources for future use, i.e., in wartime, when foreign supplies might be unreliable.  Non-Chinese resources can also be denied to China's competitors in the event China needs to exercise influence.  It would behoove the Canadian government to review Sinopec's proposed acquisition of Daylight Energy under the Investment Canada Act in light of these security concerns. 

Full disclosure:  No positions in SNP or Daylight Energy at this time. 

Friday, October 07, 2011

The Dexia Domino Falls

Dexia?  What's that, some compact European car?  Oh, it's a European bank that's insolvent even though plenty of stress tests said it would be just fine.  Funny, I've never heard of it.  Not many people in the U.S. had heard of Creditanstalt in the 1930s, but that was the European bank that kicked off a lot of other insolvent dominoes when it went bust early in Great Depression 1.0.  Everything old is new again. 

We're going to hear more about desperate European moves to float credit to underwater banks.  They'll buy time but they won't matter.  Germany prepares its own Plan B to ringfence banks' equity support within national borders, almost as if it expects the IMF to exhaust itself with QE aimed at sovereign debt.  Germany seems to be hedging its bets in case the grand experiment in Continental unity proves too good to be true.  Better to leave equity backstops in national hands if some nations are forced to quit the euro. 

We should all hedge our bets.  Stockpiling several months' worth of preserved food and household consumables is a good Plan B in case a credit freeze makes transcontinental logistics temporarily untenable.  Wearing old clothing as long as possible is also a good plan in case rioting mobs start fighting over the last pair of jeans in the storefront window before they firebomb the whole mini-mall in frustration.  There are plenty of good Plan Bs left over from the 1930s if we start doing our homework.  Everything old is new again.  

Full disclosure:  No positions in any European banks at this time. 

Thursday, October 06, 2011

Bank Of England Throws UK Savers Under The Bus

Take note of today's comments from the Governor of the Bank of England.  He does not disguise the fact that quantitative easing - using artificially created money as credit to purchase sovereign debt - is inflationary.  He openly admits that this pro-inflationary policy will hurt savers on fixed incomes and that hurting them is necessary to avoid a new recession. 

The Bank of England has declared war on the most vulnerable people in British society to delay the inevitable destruction of financial asset valuations.  The best we can say is that the BOE is more forthright than the Fed about its true intentions.  The U.S. dollar and pound sterling will soon be in a race to the bottom, right after the euro implodes of course.  If the BOE has to throw savers under the bus, it should at least be a London double-decker bus.  God save the Queen. 

Full disclosure:  No position in the U.K. pound or any derivative thereof at this time. 

Wednesday, October 05, 2011

RIP Steve Jobs, 1955-2011

Steve Jobs passed away today after a very long illness.  I never met Mr. Jobs but the products he inspired at Apple introduced me to computing technology.  I first touched a Macintosh in elementary school, where the machine was worshipped as some kind of exotic totem.  I thought it had untapped potential because our class never used it to learn anything; instead its games were considered a reward for students who behaved themselves.  There had to be more to computers than just that. 

I later discovered just how much more there was.  In college I typed almost all of my papers on Macintosh computers.  The first computer I ever bought myself was a Macintosh.  It was difficult for me to eventually switch to a "Wintel" platform with my first laptop because the Mac was so easy to use, but the limited amount of software available for Macs left me no choice. 

Mr. Jobs did things his way, all the way.  He never compromised on quality in designing something original.  Even Bill Gates, a lifelong competitor, thanked Steve Jobs for being an insanely great human being.  Steve Jobs' life holds tremendous lessons for entrepreneurs.  Thank you, Mr. Jobs, for all that you are. 

Tuesday, October 04, 2011

Rare Earth Alternatives Get DOE Tech Funding

America's dependence on Chinese rare earth production is the Achilles heel of its technology base, not to mention its defense establishment.  The U.S. government's studies of the situation have produced little popular alarm as America has yet to face a rare earth element "Sputnik moment" to capture its imagination.  The scientific community is moving ahead anyway with steps to ensure this country has some kind of technologically-enabled future in the event of a Chinese rare earth embargo. 

ARPA-E has selected a plethora of research projects for funding, including proposed alternatives to existing paradigms in energy and materials.  The $31.6mm for Rare Earth Alternatives in Critical Technologies (REACT) has quite a few irons in the fire.  The projects that look for crystal and nitrite alloys could potentially obviate the need for neodymium-based magnets in motors.  The price for neodymium, for example, has gone stratospheric because demand for 4G phones and other gadgets has proven to be price inelastic.  As an aside, Amazon's (AMZN) introduction of cheap Kindle Fire tablet computers will destroy Apple's (AAPL) pricing power and render that price inelasticity moot, which means alternatives to neodymium and tantalum are an imperative if consumer electronics makers expect to meet their sales targets over the long term. 

ARPA-E's other programs look as intriguing as REACT.  The Plants Engineered To Replace Oil (PETRO) umbrella would be a windfall for owners of unbuildable urban land if they could grow camelina as a cash crop for biofuel.  That unused lot or unpaved right-of-way on a piece of commercial property can be a source of cash with some camelina for an on-site bioreactor. 

The projects under the other three energy-related umbrellas would be a boon for solar thermal producers.  Covering the Great Southwest with concentrated solar towers and mirror arrays could exploit that technology's full potential with improved transmission links to national grids and better storage methods.  Molten salt, anyone?  Not if molten glass, phase change materials, and nanostructures work a whole lot better. 

Alternative technologies (if proven viable) are good news for high-value manufacturers who won't have to relocate large plants to China.  It should go without saying that REE alternatives would be the death knell for China's long-term strategy of attracting manufacturers to its rare earth monopoly.  DOE is firing a return volley in the ongoing U.S.-China contest for world technological supremacy.  The Anglo-West's elites may have finally awoken. 

Full disclosure:  No positions in AMZN or AAPL at this time.

Monday, October 03, 2011

Final Verge Of Last Ditch

We've been hearing about doom for months and the financial cliff we were all supposed to have trundled off by now has turned into a long, gentle slope down.  Greece is making its latest last ditch attempt of several to make the cuts it has always promised but never fulfilled.  Even the normally supine analyst community has had enough of this endless parade of tomfoolery and is predicting a global CDS blowout.  That's really nice.  Maybe they read my blog, or maybe their prop funds have gone short to clean up the clients abandoned by other hedge funds that aren't cutting the mustard.  Maybe they've just run out of lies to tell and have defaulted to telling the truths that a toddler could see in the markets. 

Maybe I should have sold more of my FXI holdings if China's bonds are suspect too.  Alternatively, maybe hanging on to some FXI will prove prescient if a forced yuan appreciation makes Chinese corporate earnings look more attractive.  At least I don't have to close up shop due to massive losses, redemptions, and liquidity crises like a bunch of stupid hedge funds.  Just get this whole market crash over with already so I can buy some bargain stocks. 

Sunday, October 02, 2011

The Limerick of Finance for 10/02/11

The Duke-Progress merger must prove
Competition that won't be removed
This fulfills anti-trust
Public interest's a must
For the FERC to say "okay, approve"