The Greening of our society

Red bellbottoms, that’s what I think of when I think of fads.  I had a colleague in London who used to say to us when we wanted to invest in a hot sector – Do you want to wear red bellbottoms?  Do you remember when people did?  It’s not a good thing, my wise friend would say. 

My current red bellbottoms is the green story. It is everywhere.  I turn on the TV and I see everyone talking about it from rappers to Robert Redford.    I remember the 1970’s; and everyone was talking about it then.  Books were written such as one of my favorites appropriately titled “The limits to growth” in 1972.  The only thing with limited growth was the environmentalist movement and then we went back to consuming and consuming taking it to levels unheard of before in the 1980’s.  Of course, the 1980’s has easily been eclipsed in the past 5 years of excess.  I was recently driving by a local private school and there was a camel sitting on the lawn while the class sat around having their (I assume) biology lesson.  Maybe camels are the new status symbol?   I can’t imagine that taking place in the frugal, tight money 1970’s.

I love to look at the most active lists and best performers.  Now I see all kinds of names with “solar” in them.  I remember a few years ago it would have been “casino” or “gaming” but now it is “solar” or “sun” usually combined with “power” or “tech”.  Sometimes it is several of them as in Suntech Power.  I am still waiting for Solarsunpowertech (or one of its derivations) to appear.    What are these companies?  A few years ago I tried very hard to buy a solar heating system for my house.  It was virtually impossible and incredibly expensive and complicated.  I couldn’t navigate my way around so I asked my environmentalist brother to help me.  He told me to forget it, there just isn’t enough sun in our cold land to justify the prohibitive costs.  So much for my green aspirations.    

But if you want to combine 2 bubbles into one, Suntech Power is the one for you.  It is a (you guessed it!) Chinese solar power company that is pretty busy according to its website at conferences over the next couple of weeks, sometimes doing 2 conferences in 1 day and flying from NY to Washington to Beijing to partake.   I read a recent headline stating “Solar Stocks Plunge” but it was 7 weeks old and they are all back up.  Suntech Power is the blue chip of the solar stocks, I read in a blog somewhere, with revenues growing >100%.  The said same blog states that the solar industry faces a number of hurdles including a complete lack of competitive advantage over traditional energy sources on a cost basis (my research was correct) as well as rising silicon prices.  Suntech is not the only Chinese solar stock, there are several and the shorts are getting killed on them. 

Anyway, who knows when we will all be tired to death of the green campaign and go back to happily consuming energy and products like we used to and our kids will have to stop telling us it’s our fault, or at least we will stop listening.    Then, watch out, overvalued solar stocks, you’ll then have to prove you actually make money.

Let’s look at what we know about solar power:

1.                  it’s not cost effective

2.                  it doesn’t work in many parts of the world

3.                  it’s a long run phenomenon

I took a look at a few of the solar stocks that appeared within my radar screen to see how they stacked up on valuation and fundamentals, if any.  Solarfun, another China play is trading at 177x and Trina Solar is trading at only 64x.  Pricey assets for low margin manufacturing businesses, even if they do have high growth.

CFA accreditation bull market

There are 28,020 worldwide candidates in the CFA program.  My CFA number is in the 9000 range and obtained in 1987.  That means from the 1960’s until 1987 there were less than 10,000 CFA’s granted.  Now there are 28,000 writing the exams per year!  Talk about a bull market in CFAs and talk about a steady cash flow stream to the CFA institute – perhaps private equity should look at that asset?

I remember the last time I heard about  the unpronounceable Molybdenum, it was in the mid 1990’s and the end of the metals bull market.  I figure Moly can only be in a bull market every few years because few can actually pronounce it and the spread of its rise is limited to those who don’t get tongue tied easily.  Anyway, we are once again in a Moly bull market.  So, where does this leave us in the mining phase.  Well, it certainly can’t be in the early in the cycle because we certainly wouldn’t be hearing about Moly.  Moly is a metal that is rare and rarely heard about, except after it has had one of its monstrous moves up.   It is a market that is highly illiquid so any excess demand drives the price to outrageous levels. 

 April 10, 2007

(for today, anyway)

Just a little more than 6 months ago BCE shares were plummeting with the demise of the income trust, now they are soaring on the premise of a leveraged buy out, likely one of the biggest in history.  We hear that phrase almost every day now – “the biggest LBO ever”, it reads and then it is history as an even bigger one comes along.   But let’s get back to BCE, our subject of this blog.

BCE supplies telephone services to Ontario and Quebec, a business with declining prices and fierce competition.  The business used to a monopoly but now has many contenders.  Every week I get a call from someone new offering me the same residential and business services for less money and even less money and more services.(it would be more valuable if they could offer me a 416 telephone number something that is considerably more scarce and valuable).  Last week it was Wintel and the price was the lowest ever.  I currently have Rogers and my bill has been cut in half since I switched from BCE.  BCE hasn’t reduced its prices yet or if so but very little and it still has a large group of loyal customers who are willing to pay more for safety.    How long can it hold on?  Long distance is basically free for anyone with a computer (Skype) and Vonage’s stock price hits a new low on a daily basis (it fell 15% yesterday to a low of $2.88.  It came public at $17 just last May).   Why is BCE worth so much, especially since only a Canadian buyer can buy it (too bad, KKR).  What is an asset with declining market share and declining pricing power really worth to private equity buyers?  Rogers will likely own this market in 5 years just as they own the cable TV market, lock stock and barrel.  Rogers controls the cable TV market in Ontario and is eyeing the other assets that Bell has with a greedy eye.  Bell has managed to maintain its expensive internet service (BCE simpatico) which I still use but for how long?  Well, probably for some time as users are unwilling to move very easily due to email addresses.  This also was the case with phone numbers until this year.  Is Email here forever.  I recently read a headline in a tech magazine saying email would be dead within 5 years as a communication tool replaced by something else.  So, I guess that Sympatico may not be worth much after that.

But, Canadians do not really like change so I assume that there will always be those loyal customers who are willing to write monthly cheques to Bell Canada for overpriced services and continuity of service. 

What does one pay for an asset with declining growth and profits?  Private Equity is redefining prices in every asset class.

What will happen to the property bubble in Spain and why we care: