CaptainJJack

Ethanol vs. Natural Gas or Coal: Comparison Not Even Close

While I agree with the comments on Ethanol, I have to say that there is a closely related compound, Methanol, that is far, far more promising.

Methanol for fuel is an idea that is 100 years old. The original process was developed by the Germans using coal, and it is what drove their war machines in the world wars.

Methanol is usually made from natural gas, today, but it is also being used in recycling wood products

I became interested after reading a book by George Olah: THE METHANOL ECONOMY. Olah was awarded the Nobel prize in Chemistry in 1994.

Olah is currently working on making methanol by adding hydrogen atoms to carbon dioxide, using pure hydrogen developed from cracking water at very high temperatures thereby addressing the cost issues with hydrogen production, and addressing global warming.

As a by product, he is solving the ultimate storage and transportation problems involved in a transportation fuel.

Essentially, all fuels are mechanisms for transporting hydrogen. Oil, gasoline, and natural gas are far superior as carriers to alternatives, especially ethanol and hydrogen.

But, methanol isn't bad both in terms of energy in versus energy out, and in ease of storage and transportation.

The hydrogen process Olah is looking at produces hydrogen as a by product in a nuclear reactor (i.e. the reactor produces HEAT for both electrical generation and for hydrogen generation --electrolysis is NOT used)

Buffett's Holdings Outperforming in Q4

I believe the market values of the banks will fluctuate a lot, and we should expect to see prices fall for a while.

But, for me, there is a difference between market fluctuation and risk. Real risk is actually losing money, and the ONLY way you deal with this is not to overpay.

For example, anyone who bought at the 1999 top ACTUALLY lost money.

I deal will market fluctuations differently. Here the issue is psychology and the fact that humans are hard wired to sell when the market bottoms and buy at market tops. The issue is not the value of my portfolio, it is how disciplined I am.

Most investors due far worse than either the pros or the overall market because they tend to buy at market tops and sell at market bottoms. Even a little of this kind of trading will KILL your overall returns.

As Graham pointed out often, it is relatively easy for a disciplined individual investor to consistently achieve adequate (i.e. market plus some nominal amount) returns, but it is very, very difficult to achieve superior (defined as > market + 5%, annually) returns.


On Nov 18 12:17 PM Crude Oil Trader wrote:

> I admit, even though I am a day trader I am sitting on some BRK.B
> in my Roth IRA and have been surprised it has held up as well as
> it has. My concern is the collapse of Wells Fargo and Bank of America
> taking the fund down. SP 500 @ 1130 is an area of great concern for
> all of these names.

Buffett's Holdings Outperforming in Q4

I have owned BRK for years, now, and I am amazed at how few people understand it.

Many, many years ago, conglomerates were all the rage. The sale was that you got "top managers" to oversee the business and allocate capital. Since "management skills" were guided more by the financial results than process results, you did not need to have industry experts, the argument went, you just needed people with discipline.

The reality was much different. They performed well, initially, as management skills and discipline really do make a difference, but it wasn't long before things fell apart.

First, there was a tendency to centralize, and this created massive bureaucracy and decisions often became political more than analytical, especially since the founder was usually charismatic and tended toward empire building.

Secondly, and related, overhead and "home office" staffs and costs skyrocketed.

Third, in order to keep the party going, they had to keep buying at ever higher prices.

Wall Street started to figure out, that the investor could do his/her own capital allocation without all this, and that conglomerates were adding nothing. They were, in effect closed end mutual funds with far higher costs.

But. what if you could hire one of the world's greatest capital allocators for $100,000/year, and he was so sure of his own skills, he put virtually ever dime he had into the deal.

What if, instead of having a huge bureaucracy, you had a "home office" consisting of 18 people.

What if the person almost never over paid for a business or a CEO to run the business ( the main exception being Conoco).

What if the person managed the businesses with far more discipline than any other manager you know -- again for $100,000/year, e.g. sitting on $50 Billion in very low yielding cash even when it clearly hurt.

I own Buffet's stock because it is by far the lowest cost mutual fund I can buy, and that he manages businesses as though he personally owns them.

For the most part, he does.

Why Invest in Oil Over Alternative Energy

I remember talking to a physicist a number of years ago about carbon and generating electricity.

He said to imagine that you were standing in front of a coal fired plant, and watch as a steady stream of coal cars dump their fuel. For a typical plant this amounts to thousands of cars dumping coal each year.

Now, imagine standing in front of another power plant of the same size where natural gas cars were streaming in. There would only be one fourth the number of cars, in terms of carbon delivered.

Now think about a nuclear plant. He said it would take only a few carloads (I think he said two) for an entire year, and these would have only minimal carbon.

Nuclear power plants are very safe, but nuclear power is not. The problem is that bad guys will eventually make a bomb.

It may take a while, but with a half life of thousands of years, the opportunity will arise. Even with probabilities less than 1 in 10,000, there will be plenty of time.

But, the genie is already out of the bottle. The bomb materials will not likely come from the US, they will come from North Korea, Pakistan, Iran, or Russia.

I say that Nuclear should be on the table. I understand the risks, but they have to be weighed against losing the snow pack in the rockies and the corresponding loss of water in the Colorado and the Ogallala aquifer, as well as the loss of snow pack in the Cascades and Sierras and the impact on our fruit and vegetable crops.

Buffett's Recent Portfolio Changes: What's the Message?

As a long time holder of BRK, I have followed Buffet for many years, and he makes a clear distinction between the 20 or so once in lifetime stocks to own, and everything else.

As a necessary condition, he looks for integrity and a focus on the long term shareholder. If a company falters this condition in any way, at any time, it's a goner.

After that, he focuses on the businesses. He likes businesses with strong cash flow, and he LOVES businesses with a history of strong cash flow and relatively low (compared to revenue) ongoing fixed investments. Look at his Coca Cola, American Express, Sees Candies, Wells Fargo, and Proctor and Gamble.

Historically, he has shied away from businesses that require a high fixed investment, especially in intellectual capital such as technology (as far as I know he has never owned a share of Microsoft even though I believe Gates is on his Board and is a good friend) and drug stocks. He claims that he just doesn't understand well enough what makes these businesses run.

This makes his new investments in drug stocks somewhat puzzling, although, at least with J&J, you could make the argument that it is a P&G look alike in the health care space.

BNI was also puzzling until I figured out how railroads were regulated, and I expect that Buffet will keep this stock as long as they are virtually exempt from antitrust laws even though as a business with high capital costs, they look more like airline stocks than anything Buffet would own.

As for COP, I am guessing he got into this using the standard developed by Graham that suggests for high capital intensive stocks in a rising market, you always want to own the second tier, less efficient companies. When the price of commodities fell, and not expected to rise soon, Buffet had no reason to own Conoco.

As for Buffet's political leanings, I have found him to be pretty middle of the road. He supported Obama this time after seeing eight disastrous years where, in the end, we tripled our debt, created a massive financial crisis, did not add a single job (actually, we will end up losing an enormous number of jobs), saw tax cuts lead to people buying Chinese goods at Walmart , caused a war that cost trillions, saw no increase in the real income in this country in almost a decade, and did nothing to address the long term Medicare crisis except, by adding a dramatically underfunded prescription benefit that made things even worse.

Buffet is no wild eyed Democrat, but it was Obama compared to what? That he still feels this way is more a result of where the Republican party, which has become the party of Rush Limbaugh, is as much as any feelings towards Obama.

Enough with the Buffett Critics

I own BRK, and while I do not idolize Buffet, I find the criticism of Buffet laughable. He is doing today what he has done for the last 30 years.

It was no accident that Goldman sought him out last fall, and they gave BRK a great deal..or...should I say, Buffet demanded a great deal.

Yes he had a lot of cash, but ask yourself why. Ask why Buffet has always been in a great position.

Once you answer to that, you will understand BRK, and once you understand that, you will understand why the critics will always end up wrong.

ConocoPhillips Financial Gauge Analysis for June 2009 Quarter

The analysis is distorted by the write-offs.

These write-offs were primarily Conoco's Venezuela's operations and a substantial write-off of Conoco's Lukoil investment. While they took the loss, I expect that the likely end result will be that the write-offs will prove to be conservative.

I hold Conoco, and I view it as a long term natural gas play (most of my holding in Conoco came from the conversion of my Burlington Resources shares). I also own CVX and XOM, as well as drillers DO and RIG.

I bought in 2005 and watched values skyrocket, then fall through the earth into Neverland recovering to where I am still down around 5%.

But, I think oil and natural gas will always be valuable, and I think that even though we have new technologies in natural gas exploration, we will end up using more than we can produce, and that new finds will be far, far more expensive to develop.

In short, I believe in peak oil and the ability of the Chinese and Indians to absorb as much oil as the world can produce.

And, while Solar and Wind are all the rage, now, I believe the real story of the US energy future will be new ways to use natural gas, especially in conversion to transportation fuels.

So, I will hold on to Conoco, and see what happens. I can afford to be patient, and while I am not smart enough to predict when to sell, I anticipate that there is a lot of upside at today's price.

How to Invest in Peak Oil

Peak oil is a function of supply and demand. The world currently uses about 1 billion barrels of oil every 12 DAYS.

If people in China had the same number of cars per household as the US, China alone would use close to 100 million barrels a day -- 15 million barrels a day more than we produce today.

Then there is India and the developing world.

Given the incredible energy efficiency of petroleum, especially gasoline, it will always be the first choice for energy, and oil will be a very valuable commodity as far as anyone can predict.

Natural gas is a wonderful heating source and while it can be converted to petroleum for transportation, it seems to be an unfortunate substitution since it is far more valuable for heating.

According to the just released biennial report of the Colorado school of mines, the US reserves have shot up more last year than they ever have in the 44 year lifetime of the biennial survey.

The US now has the highest total NG reserves, at 2,000 Tcf, followed by Russia, at 1,600 Tcf with Iran in third with roughly half of Russia.

Converting coal to methanol and other energy substitutes becomes theoretically viable with oil at $50 barrel, but that is before greenhouse gas capture.

So, I think that in the foreseeable future, while we may see spikes and dips, we should see a very strong upward drift in prices.

An Alternative to America’s Gasoline Crisis

To Howsie:

They are making syngas using the Fisher-Tropish Method. It is the same method as the CTL method as i point out, above.

The method was developed by the Germans in WWI because they were fighting a war and they didn't have oil. There are a number of companies that are using some derivative of the F-T method, and it is the method that the Chinese have announced that they will pursue as the CTL alternative.

An Alternative to America’s Gasoline Crisis

To waste precious natural gas on transportation would be a tragedy. Natural Gas is by far the most efficient way to heat our homes.
The problem is NOT a supply problem, it is a DEMAND problem. The price of oil did not DOUBLE in the last year because production dropped, it doubled because the markets started to figure out that in 20 years, China alone will need what the world produces today.
And the answer isn't ANWR or Offshore drilling.
The world uses 1 billion barrels of oil EVERY 12 DAYS!! ANWR is 10 billion barrels and proven reserves on ALL Federal land is only 19 billion barrels.
The answer lies in reducing demand worldwide. We can do this in two ways. First, we keep the price of oil high. Commodity brokers are fond of saying, nothing fixes high commodity prices like high commodity prices.
Secondly, we invest in alternatives, especially methanol. Methanol is the only viable answer, because it is the only transportation alternative ( It was used exclusively at the Indy 500 for 20 years until the politicians pressured them to switch to ethanol this year)that can actually fill the enormous requirement at a reasonable cost (roughly $2.5 per 2 gallons, the energy equivalent of 1 gallon of gasoline), using existing technology(Fisher-Trop...
While the current process uses Coal to Liquid (CTL), there is no reason why the exact same technology can't be used for converting solid waste to methanol, and this is currently being done with wood waste, although not on anywhere near the scale it could be.
Finally, if we look long term, methanol can be made from combining Hydrogen and Carbon Dioxide (3H2 + CO2->H3COH + H2O) making Carbon Dioxide an efficient delivery system for Hydrogen(i.e. methanol delivered in pipelines instead of ethanol).