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The Other Street
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Thirty years of salt mine experience as an institutional investment advisor, both on the Buy and Sell side. A graduate of Columbia Business School (MBA) and Chimie Paris Tech (MSChe), I started my Wall Street career with Brown Brothers Harriman & co, went West with Montgomery Securities and... More
My company:
Capital Max, Inc.
My book:
Anatomy of the Meltdown - 1998-2008. The Worst Decade in Stock Investing, or Was It? 2nd edition, with a new introduction by the author.
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  • Stephen Jobs
    I always hoped this day would not happen. I thank you for your services to mankind. You are a ubiquitous part of my children's life, meaning you are family. You will never go away, as your star will shine above and they will look to you for inspiration. And courage to fight 'til the end. By my book, you are still alive, with many decades to go. But without the physical pain. 

    Go on, Woody. Buzz Light is covering you.
    Oct 05 8:24 PM | Link | Comment!
  • The Next Solar Mirage: Crescent Dunes, or Solyndra v2
    The Department of Energy is making headlines these days. Half a billion dollars for bankrupt Solyndra, another billion for Crescent Dunes and Mesquite One, and rumors of another $5 billion by this Friday, when provisions of the 2009 American Recovery and Reinvestment Act expire. Secretary of Energy Chu and Interior Secretary Salazar are having a ball. To date, under this program which extended the 2005 and 2007 Energy Acts, $36.68 billion have been lent, creating 63,947 jobs . This equates into $605,000 per job, and you can double that to include private capital. Aside from what follows, tell me who in their right mind would expect a positive return on this investment?
    One would be quick to associate the Bush administration with these. In fact, the 2009 Act specifically created Section 1705 to amend Title XVII of the EPA of 2005, for the following categories of projects, which must commence construction not later than September 30th, 2011:
    -        Renewable Energy systems that generate electricity
    -        Electric power transmission systems
    -        Leading-edge biofuel projects that reduce GHG
    No project had been approved under the 2005 Act, and the first project approved under ARRA was … Solyndra, in March 2009. The $535 million Public Loan is now history, and so is the $1 billion that the company raised in private capital.
    While this article deals mainly with private projects, the point is this as far as public equities are concerned: Solar is only viable for political reasons. The motive behind public funding is not R&D in hope of a technical breakthrough. Solyndra is the best example with CIGS – Copper Indium Gallium di Selenide. This technology was supposed to drop the cost of solar energy per Watt to less $0.5 – that was in 2006 or about. We now still are at around $1.3 in manufacturing costs alone. I found this slide show   interesting to summarize  the complexity of the issue, even though it seems to have been sponsored by ISET, one of the long term suspects in the field – the others being Miasole, DayStar, NanoSolar, and Heliovolt. A reader also pointed this one out to me, Natcore Solar. By their own admission, as they tout their technology:
    [it] promises to allow mass manufacturing of tandem solar cells with twice the efficiency of the best solar cells available today. This would mean that solar energy would finally be cost-competitive with conventional power”.
    Rest my case, the law of physics has reached its limits, and this is nothing new, much like fuel cells. There always will be a new wave of believers, but this one seems to have been narrowed to the well politically connected few, which are making the best of cheap taxpayer money while it lasts. Indeed, to talk about the Crescent Dunes Solar Energy Plant to be built 175 miles of Las Vegas, the numbers are up hauling. First, to my knowledge, the company that is building it, SolarReserve, has not published an estimate of the full cost. I will assume that the $737 million in Loan Guarantees covers 80%, as the firm has raised $140 million in private capital. So the total comes to say $900 million. This excludes 235 miles of transmission line which NV Energy, the buyer of the output, will have to foot. Actually, this is another misnomer, as NV will include it in its rate base and will receive a return of some 6 to 8% on it, depending on Nevada’s PUC. Republican Governor Sandoval may not like it, but he’ll swallow it so that Harry Reid does not get all the credit.
    So, how does the math work? $900 million for 110 MegaWatt (NYSE:MW) of name plate capacity. Attention please: Solar has an average efficiency ratio of 20%, meaning that the effective capacity is 20% of name plate, hence 22 MW. Times 365 days times 24 hours/day, this means 193,000 MWh in annual production. Here is the first red flag. The company states that it will produces more than twice that, i.e. 480,000 MWh, based on a revolutionary technology.
    The second red flag: the company, in the “Our Technology” tab of their website, says “[We] will build power plants designed as Solar Power Towers”. The key word is “will”. The third red flag: the company says, in the “About Us” tab, second paragraph, “Actually, this technology has been proven […]. United Technologies’ subsidiary, Rocketdyne, demonstrated the technology at the Solar One and Solar Two power plants in Southern California”. What the company does not say is that Solar One was built in 1982 and decommissioned in 1988, and Solar Two operated from 1996 to 1999, both 10 MW in size. 

    The fourth red flag: this interview on Fox in April 2011, of the CEO of the company. . His argument: it’s a loan guarantee, to be paid out over 25 years. Well, as we have seen with Solyndra, you can only pay the loan back if you make a profit. Sure, they have a Power Purchase Agreement with NV Energy. But this does not mean they will be able to produce the power at a profit.
    Last red flag: Argonaut Private Equity is a partner in the deal, albeit a small one. Guess who that is? The same who is a major stakeholder in Solyndra, and the investment vehicle of Barack Obama’s billionaire supporter, George Kaiser. This Reuters’ article does him justice
    Oh, and I forgot the essential, job creation. This $900 million-and-then-some pig, if it can fly, will generate 450 construction jobs and 45 permanent jobs. It will also presumably generate “significant property tax revenues” and “millions in annual operating budget which will be spent in the region”. It better. At some $2 million per job, the taxpayer should get at least some cents back on his dollar.
    Argonaut or Mirage, if one cannot trust Washington, the DOE, a Nobel Laureate, a billionaire from Oklahoma, the Chinese, or even Wall Street, no wonder solar stocks are under a bit of pressure.

    Instablog courtesy of Capital Max (r) and The Other Street (r)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: solar, energy
    Sep 29 2:13 PM | Link | Comment!
  • It’s 1190 Again. Do You Know Where Your Money Is?
    I submitted an article on Monday evening, titled “I told you so”. Willingly a  bit pompous, but somewhat short on fundamentals and “actionable” content according to SA editors. Instead of disagreeing, I posted it as an Instablog for those of you who follow me. After all, writing on SA is a fun and intellectually worth exercise, but the pay is lousy. What makes it enjoyable is the back and forth of ideas, but this costs time. I felt I had said what I needed to repeat, Buy. Beyond that, I had nothing to add to my previous articles.
    So hopefully you bought, or at least covered your shorts. I will not reproduce my Instablog here, can’t do by SA rules, but let’s sum it up. First, August 6 and 7 looked like the climax Monday 12 seemed to confirm. In the meantime, three major events. One, the Dollar. It went up – and the S&P went up .That was different. Two, Jurgen Stark resigned from the ECB and was replaced (?) by Joerg Asmussen, Social Democrat, pro-Europe – did I hear Eurobond? Three, the market did not break the dreary “bear flag”, and instead recovered as only the Invisible Hand would .
    Ladies and Gentlemen, this is the White Swan The SA editors are going to say I cite too many of my articles,  and that’s not good for audience. My take is this. So far we have been consolidating in the 1120-1190 area, and while the worse has happened, it has not happened. I kind of like to take credit for being on record for kind of calling the danger, then kind of calling the opportunity.
    Now what? I hate to say, it’ ain’t over. I think the European situation is pretty much under control. Just look at it this way, which is pretty much a stereotype. Societe Generale is run by Frederic Oudea. Forget my pun, he has no Idea. He is a basic French technocrat, schooled at Polytechnique, then ENA, and a Sarkozy protégé. He was put in charge when the former CEO Daniel Bouton could not “explain” the $7 bn loss incurred by one of his rogue trader, Jerome Kerviel. Oudea can recite SocGen P&L and Balance Sheet by heart but funny enough, nobody, even Hall of Fame Maria Bartiromo of CNBC, has asked him about off-balance sheet or mark-to-purchase items such as … CDS.
    Of course, this would be the Black Swan.It is not going to happen, for one very simple reason. Survival. Europeans dislike each others, and this is an understatement. But they are not going to go back to the previous route, War. At least for the foreseeable future.
    Somebody today said European TARP. I suggested this a few weeks ago. Not that I can influence policy, but I was placing bets. Whichever way they do it, it’s going to happen. Now, make no mistake. The weaker countries may find their way out, but at the end of the day the EU will be weakened by its weakest link. Hence the welcome divorce from the euro.
    So, now that we have taken care of the European variable, what’s left? What’s today’s date? September 14. Oops, we have to start thinking about Q3 earnings. They are not looking good, especially for those exposed to Europe. I know the Earnings Yield, as high as it is, anticipates a rop in the E, but the question, as always, will be how the market reacts. Actually, this one will be particularly interesting. My bellwethers are MMM and AXP.
    Forgot one thing, got to be “actionable”. 60% net long, target S&P 1270. My portfolio has a high beta, hence the 60%. This market is not driven by fundamentals, it is driven by liquidity, itself driven by fear of a banking crisis. Take these away, rip your face off. The resistance will be Q3 earnings, and the liquidity test will be the reaction to these. I think the next trading range is S&P 1190-1250.

    Instablog courtesy of Capital Max (r) and The Other Street (r)

    Disclosure: I am long AGM, TOL, MYE, SANM, ADSK, VECO, SLM.
    Sep 14 10:21 PM | Link | Comment!
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