September 15, 2006 –
Although you hear a lot about alternative energy being a good investment today, I think that it’s still a lot more hype than reality. Yes I’ve heard the arguments for alternative energy investments such as high oil prices now make the development of alternative energy sources more appealing on a cost-benefit scale. And I know that major oil companies are pumping billions of dollars into developing alternative energy. Still, considering that Exxon declared over $9 billion in profits, not revenues, in just one quarter in 2006, several billion earmarked for alternative energy development is not a lot.
And while I’m also aware that companies like Vesta Wind Systems has jumped by 40% in the last six to nine months, I still think that they are more of a trading strategy rather than investment strategy for the time being. As you know we always discuss investing here, not trading, meaning that we wish to hold almost all of our investments for at least six months or longer, not just a couple of weeks or months. Although alternative energy is real, and it does work there are many reasons to be skeptical before jumping on board.
First of all, most crisis as presented by the media serve multiple interests, none of which includes the public at large. This is ironic because the major media all over the world seems to be deathly silent regarding real crises that do affect the public at large, such as one of the largest looming financial crises today. Anyone remember the travesty that was touted every single day in the media for at least a solid month leading up to New Year’s Eve 1999 that was called Y2K? And that whole “crisis” passed with not even a blip on anyone’s screen. But Y2K did serve many corporate interests. It served the media’s interest by attracting scores of readers and viewers and drumming up higher advertising revenues, and it served the technology industry’s interests by resulting in millions, if not billions of increased sales of computers and software by fearful consumers.
I would not be one bit surprised years later to find out later that the public relations branches of technology companies were the ones that manufactured and released the lion’s share of Y2K stories to the media for public consumption. Likewise this is why I’m skeptical of the Peak Oil crisis. Personally I think Peak Oil has been manufactured by big oil to justify higher crude oil prices. The term Peak Oil conjures up images of scarcity, and we know that scarcity in the supply-demand yield curve leads to higher prices. Furthermore, the media is happy to disseminate the Peak Oil theory because any type of crisis generates more advertising revenue for them. Personally I think that most of the crisis we hear about in the media are junk, cooked up in the back offices of public relations divisions of the very industries the well-publicized crises will benefit.
If anything, the threat of lost imports from Venezuela as Venezuela continues to strengthen trade relations with China poses more of a threat to the U.S. economy that the Peak Oil crisis. Over the next six years, China will invest over USD $5 billion in oil exploration and production in Venezuela and Venezuela will increasingly become less dependent upon the U.S. not only for its oil exports but also for oil infrastructure as China increasingly fills both of these needs.
With sophisticated 3-D and 4-D seismic imaging equipment today, we know that big oil has unearthed some huge reserves of oil in deep sea territories. In the past it was impossible to drill at the depths that oil and gas companies drill at today. But now, with the rapid development of deep-sea drilling technology, drilling at depths of 3,000 meters (over 10,000 feet) is not only becoming more common, but are leading to some significant oil and natural gas discoveries.
In fact knowing that exploration is increasingly going deep sea, I bought a Norwegian company that specializes in building deep sea drilling infrastructure called Acergy and in a little over two months I’m sitting on nice fat 25% profits. At this point I’ll employ tight stop-losses on the stock but I still wouldn’t be surprised to see it go much higher in the next year. The point is, I don’t buy the Peak Oil crisis. And if the Peak Oil crisis isn’t real, and there is still a trillion more gallons of oil to be pumped out of the ground, big oil can and will kill any alternative energy sources from making it into the mainstream. There will be just too much profit at stake. Furthermore, technology exists today that is economical to convert coal into oil. And everyone knows that coal is not scarce.
Many people believe that some of the alternative energy sources being discussed today like fuel cells and so forth are new. In fact they aren’t new at all and have been around for decades. They just have never made it into the mainstream because big oil has always successfully killed their development. In 1834, Thomas Davenport invented the battery electric car. In 1889, Thomas Edison built an electric vehicle using nickel-alkaline batteries. Over a hundred years later, in 1996, U.S. auto giant General Motors manufactured electric cars that ran at speeds of up to 135 kilometers an hour, released zero emissions, and cost only USD $0.16 per litre to operate. What happened to a car that was much more friendly to both the consumer and the environment than the petrol powered car? Big oil killed it because it was big oil unfriendly.
However, there is some irony in alternative energy investing. The irony is though this peak oil crisis is posssibly being manufactured by the oil industry, it WILL actually allow investors to earn profits in alternative energy stocks because the thundering sheep herd is gullible enough to believe the bull pushed upon them. In essence, enough of the gullible masses acting on deceptive information will push alternative energy stocks higher in the short term. But again we are about investing and not trading. So for this very reason, though I may be wrong, unless you want to constantly monitor these stocks and earn profits by active trading, I think the future for alternative energy INVESTING is just that — in the future.
Things are never what they seem. In martial arts engagement we refer to this as the “two strike kill”. If we see that our opponent is nervous, we faint the first strike and if the opponent jumps or flinches, we wait until he relaxes again before we commit a second real strike. Corporations endlessly use the “two strike kill”. They see that investors are nervous and jumpy as indicated by the volatility index. Then they release information about “crises” that never happen such as Y2K and hurricanes that never materialize, and like magic, they then get the “kill” as great spikes upward in price materialize in certain industries in the stock market. That’s why in martial arts, we develop a sixth sense. So that we can feel the intent of our attacker before he attacks. We call this sixth sense the advancement of our chi or ki.
This is a 100% true story. While in Bali on business, I was out in a popular tourist location in the Kata beach area. I felt extremely uncomfortable out that night and specifically I felt as though a terrorist attack was likely. Because of this strong feeling that would not go away, I left this area and returned to the safety of my hotel. Nothing happened that night, but I returned home the next day. As soon as I returned home and looked at the front page of the BBC news, I saw that two suicide bombers had killed people on the very block I had been receiving strong negative vibes just 24 hours prior. I actually think, though of course, I can never validate this suspicion, that the suicide bombers had been in the vicinity that night planning their attack for the next day. These types of occurrences among martial artists are very common as those of you who train in the martial arts well know. My first sensei repeatedly used to amaze me with the things he knew about me without my ever having told him.
Unfortunately it is impossible to use this sense to any advantage in investing. But the point is to know that the investment world is filled with deception and that everything, including crises should be taken with a grain of salt when allocating your money. It seems that the true crises that exist are the ones that the major media never reports (i.e. the absolutely negligent condition of the levees in New Orleans that lead to the Katrina disaster). The majority of the time, the media only reports on true crises after they happen. Remember this.
