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Simit Patel's  Instablog

Simit Patel
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I possess 10+ years of trading and investing experience, with a focus on precious metals, currency, energy, and technology markets. My decisions are based on market cycles, valuation metrics, technical analysis, and industry-specific trends and technologies. I typically hold positions for... More
My company:
InformedTrades
My blog:
Forex Trading Journal
My book:
Wealth Management in the New World
  • Wind Power Is A Scam, ETFs Remain Significantly Overvalued 0 comments
    Jan 17, 2012 11:14 PM | about stocks: PWND, FAN
    While I don't consider it prudent to short stocks in an inflationary environment -- which I believe we are now in, given that the US money supply, as measured by MZM, has soared to new all-time highs (and that other central banks will likely follow the Fed as they historically have) -- though I do acknowledge that shorting can have some value based on certain strategies. For instance, those who want to speculate upon a spread -- that capital will flow from one sector to another -- or as a way of hedging other long positions may find value in strategically shorting.

    And in that regard, there are few opportunities I find more compelling than wind power ETFs -- namely (NYSEARCA:FAN) and (NASDAQ:PWND).

    Here's the rationale, and what type of strategies shorting these ETFs could fit into:

    1. Wind gets my vote for being one of the least promising and most likely to be a scam of the alternative energy scene, surpassed only by ethanol. Wind simply takes too much land, is too expensive, create environmental headaches in the form of bird deaths, and creates literal headaches in terms of what happens to the people who live near them -- a particuarly expensive problem when one considers how much land it takes to generate powerful wind turbines. At least solar has potential opportunities in small applications -- like solar-powered computers and backpacks with solar panels -- the same opportunity is not available for wind. Moreover, because wind power generators require rare earth minerals for their construction -- an increasingly scarce commodity whose current production is controlled almost entirely by China -- the cost issue is likely to become even more significant.

    2. Because wind cannot generate sufficient power and is too expensive by virtually any measure, it simply cannot survive without government stimulus. And as over 7 trillion in government bond coupons are due in 2012, I believe some forms of fiscal spending are at risk of coming to their conclusion. I doubt it will be the sacred cows of health care, social security, and national security; rather, the renewable energy that few know about and don't work anyway seem more likely, in my opinion. And so, shorting wind ETFs seems to be one of the best potential options, if one is looking for something to short in this environment.

    3. Being very bullish on nuclear energy, I think a way of hedging partially against a deflationary scenario would be to couple long positions in uranium and nuclear assets with shorting wind ETFs, which I think could be hit especially hard in the event of a contraction in the money supply and a corresponding prolonged bear move in stocks.

    4. Another reason I favor these ETFs as short candidates is that while both PWND and FAN are near their 52 week lows and over 50% off their highs, they are also still above $6. As such, I think there is still much room to go. If a leading solar company like First Solar (NASDAQ:FSLR) could go from over 170 to under 30 within 2011 (a decline of over 80% in 10 months time), I think the wind ETFs could experience an even more cataclysmic fallout.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: short-ideas Stocks: PWND, FAN
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