There's a lot of hubbub about H.R. 2454, otherwise known as the "cap and trade" program. My main criticism is that is that cap and trade programs require inter-country cooperation to be effective, but inter-country enforcement mechanisms have not been clearly defined or tested. What will the U.S. do, for example, if China "cheats" on carbon emissions? China, after all, uses mostly coal for its energy needs. (Perhaps we'll have some version of the International Atomic Energy Agency (IAEA), but for carbon checks.) Another problem: although heavy-handed enforcement will strain relations between countries, a heavy hand is necessary to convince everyone to play by the rules.
In any case, I jumped into commodities earlier this week (a few days too early), and am happy to hold UNG, FCG, WMB, WPZ, GSG, COP, and DBC. If approved, President Obama's cap and trade program will reduce coal and encourage more natural gas and solar power. Thanks to environmentalists, America may finally be able to reduce its use of "dirty" energy sources, including oil.
As I've already pointed out, the "cap and trade" program is not perfect--the government may end up artificially increasing certain commodity prices by transferring subsidies from coal to other energy sources. Even so, I'd rather subsidize clean energy than environmentally harmful energy sources.
Owners of Market Vectors Coal ETF (KOL) might want to assess the impact of the cap and trade program very carefully. Although it provides some exposure to Chinese coal companies, all coal companies will remain an uncertain bet as cleaner energy becomes more viable. After all, why would power plants use coal when they can use natural gas? From the EIA:
In the electric power sector, natural gas is an attractive choice for new generating plants because of its relative fuel efficiency and low carbon dioxide intensity. Electricity generation [will account] for 35 percent of the world’s total natural gas consumption in 2030, up from 32 percent in 2006.
You might still be wondering, "Why natural gas? Why not nuclear, wind, or solar companies?" Elementary, my dear Watson--it's the simple process of elimination.
First, America has far more natural gas than petroleum. Many Americans already know we have more natural gas than oil, but I am very surprised to see so many people overestimating cap and trade's foreign policy implications. If you think switching to natural gas will crush foreign regimes, don't kid yourself--the Middle East still has the world's largest supply of natural gas. I am willing to bet that in ten years, Russia and Iran spearhead a new natural gas "OPEC." That's okay--America won't ever be as dependent on natural gas imports as it has been on petroleum imports. In fact, Canada will probably be the largest foreign beneficiary of increased natural gas use.
Second, wind power looks D.O.A.--T. Boone Pickens, its most visible proponent, has scratched the idea, at least in Texas. That's not a good sign for the Pickens Plan.
Third, solar power is more complicated than it looks because it requires lots of empty land to put all the solar panels a power plant requires. Solar panels are most effective when powering relatively small structures, like houses and outdoor emergency phones. In any case, I don't know of any solar power plants that can supply power on the same scale as traditional power sources. (I am not an expert on solar power, so I appreciate being corrected if I am wrong.) At least for now, solar will not displace natural gas, but will probably work in conjunction with it.
Fourth, nuclear power suffers from a major image problem. Chernobyl will force legislators to hedge their bets on other energy sources and/or slowly adopt nuclear power.
I hope I've adequately explained why I believe natural gas has a bright future. If we're weaning ourselves from "dirty" energy like oil and coal, and solar and wind power have years to go before effective nationwide use, what's left? Aside from nuclear power, which suffers from a NIMBY problem, there's just natural gas. (Please don't get me started on ethanol--the idea of driving up food costs to get oil is untenable--and both Alan Greenspan and Charles Munger agree.)
Mind you, I do not expect natural gas prices to rise immediately. Even if the Senate approves the cap and trade bill, also known as H.R. 2454 (American Clean Energy And Security Act of 2009), it will take years for demand to dent the current supply of natural gas.
Why, then, am I buying natural gas and commodities companies now? Two reasons: one, current natural gas prices seem relatively low; and two, if Congress removes certain subsidies for natural gas companies or does not supply them with adequate incentives, companies will halt or reduce natural gas drilling, which will reduce supply and increase natural gas prices.
You might also wonder why I own ConocoPhillips (COP), an oil company. Petroleum will continue to be an important resource (petrochemicals, etc.), and many oil companies also have natural gas interests. In addition, oil companies sell an essential product and pay high dividends (unusual in our current era of 1% money market rates). I also don't mind buying anything Warren Buffett owns.
It is important to note that I hold all of my commodity-based shares in a retirement account to minimize taxes. Owning UNG in a regular account creates tax implications because of its partnership structure. I am not certain, but apparently, UNG does not pay out distributions, but imputes income to its investors anyway. Any more information on UNG's tax issues would be appreciated. (Feel free to leave a comment, especially if you're a CPA.) UNG's tax structure doesn't affect me because I hold my shares in a retirement account, but I am still curious.
Regardless of whether H.R. 2454 passes, the future of the energy industry is clear: the winner will be either nuclear or natural gas. I am choosing natural gas because it has a higher chance of widespread adoption. Fairly or not, nuclear power will always be linked to Chernobyl, Three Mile Island, and Davis-Besse, which reduces its appeal.
Disclosure: I own UNG, FCG, WMB, WPZ, GSG, COP, and DBC. I have recommended to family members to sell KOL if they own any shares.
Disclaimer: The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.
Update: Of the 20 million barrels of oil consumed each day, 40 percent is used by passenger vehicles, 24 percent by industry, 12 percent by commercial and freight trucks, 7 percent by aircraft, and 6 percent in residential and commercial buildings. (Source) Cap and trade will first impact the 30% slices (industrial and commercial/residential building) of the energy consumption pie, because not enough automobiles currently run on natural gas.
Bonus: below is an interesting link from the State Department on energy use:
http://www.state.gov/g/oes/rls/rpts/car/90316.htm
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Thursday, July 9, 2009
Wednesday, July 8, 2009
Clay Bennett
I usually reference Tom Toles when it comes to politically sharp cartoons, but Clay Bennett is right up there:
http://www.timesfreepress.com/news/cartoons/
http://www.timesfreepress.com/news/cartoons/
Most Popular Poet in U.S.
The most popular poet in the U.S. is a Muslim? Apparently so, according to Time magazine.
http://www.time.com/time/magazine/article/0,9171,501021007-356133,00.html
Here with a loaf of bread beneath the bough,
A jug of wine, a book of verse, and Thou
Beside me singing in the wilderness -
And wilderness is Paradise now.
Suffering ennobles a man,
Enduring the oyster-shell's prison makes a pearl of a water drop;
Though worldly goods perish,
Let your head remain like a cup -
When the cup is empty it may be filled again!
by Jalaluddin Rumi, better known as Rumi.
http://www.time.com/time/magazine/article/0,9171,501021007-356133,00.html
Here with a loaf of bread beneath the bough,
A jug of wine, a book of verse, and Thou
Beside me singing in the wilderness -
And wilderness is Paradise now.
Suffering ennobles a man,
Enduring the oyster-shell's prison makes a pearl of a water drop;
Though worldly goods perish,
Let your head remain like a cup -
When the cup is empty it may be filled again!
by Jalaluddin Rumi, better known as Rumi.
Tuesday, July 7, 2009
MJ
The big news today was Michael Jackson's funeral. The most emotional moment was hearing Michael Jackson's daughter, Paris, speak:
"Daddy has been the best father you could ever imagine..."
Just an absolutely heart-wrenching moment.
"Daddy has been the best father you could ever imagine..."
Just an absolutely heart-wrenching moment.
Cold War II?
The radio is abuzz about VP Biden's so-called "green light" to Israel to attack Iran's nuclear arsenal. Maybe I'm over-analyzing VP Biden's comments, but I think the White House is trying to take pressure off Iran's protesters. In other words, this might be a classic diversion tactic.
Iran's current regime is in a tough spot. It lacks the manpower to pre-emptively attack another country, especially when so many of its military members have to handle protesters and internal dissent. Even setting aside international law, an Iranian attack against Israel would be a suicide mission because of Israel's nuclear arsenal. Attacking Saudi Arabia, an American ally, or American troops stationed in neighboring countries would also be a suicide mission for obvious reasons.
Israel, on the other hand, is also in a tough spot. Although it has the advantage in terms of weaponry, it must still weigh the overall benefits versus the costs of attacking Iran. At this time, the costs of an Iranian attack are undefined and possibly unmanageable because of Iran's influence in Iraq and Afghanistan, not to mention Iran's long range ballistic missiles. In addition, Iran doesn't lack the ability to defend itself. Iran has wartime experience because of the 1980-1988 Iran-Iraq war and has formidable support in Hezbollah, which has recent experience fighting against Israeli troops.
As for VP Biden, he seems to be playing the role of bad cop to President Obama's good cop. That's not necessarily a bad strategy, because even if VP Biden goes overboard, his words aren't binding--after all, he's not the President. In any case, President Obama is also in a tough spot. He knows his options are limited. Most Americans do not want to sacrifice more American troops in another non-defensive war. As a result, it looks like a stalemate and another Cold War until the fall of the current Iranian regime and a Middle Eastern glasnost.
Update on July 7, 2009: I just saw CNN's ticker--President Obama said there is no "green light" for Israel to attack Iranian nuclear sites.
All this attention on Iranian nuclear capabilities ignores the possibility that the current Iranian regime might be out in the next three years. Meanwhile, North Korea already has nuclear weapons and has threatened American interests. If I lived in Hawaii, I'd be more than a little concerned to be within shooting distance of North Korea. I am concerned President Obama hasn't provided a plan for containing the North Korean threat. As of today, North Korea, not Iran, represents the greatest threat to the United States.
As for Israel, it should focus on peace with Lebanon. Hamas and Hezbollah are greater threats to Israel than Iran. A prosperous, friendly Lebanon will cause Hezbollah and Hamas to wind down operations the same way the Provisional Irish Republican Army (IRA) gave up power to Sinn Féin once Ireland became prosperous. The 2006 Israeli-Lebanon war showed that force won't work in Lebanon. If Israel wants peace, having Lebanon as a peaceful partner is key. An Israeli-Lebanese partnership should be a higher priority for Israel than a possible Iranian threat three years from now.
But then again, what do I know? I've never visited North Korea, Lebanon, or Israel. Still, I hope one day to see all three countries experience lasting peace.
Bonus: Alan Dershowitz on Israel in the WSJ (7/3/09):
http://online.wsj.com/article/SB124649366875483207.html
A majority of American-Jewish supporters of Israel, as well as Israelis, do not favor settlement expansion. Thus the Obama position on settlement expansion, whether one agrees with it or not, is not at all inconsistent with support for Israel...
I believe there is a logical compromise on settlement growth that has been proposed by Yousef Munayyer, a leader of the American-Arab Anti-Discrimination League. "Obama should make it clear to the Israelis that settlers should feel free to grow their families as long as their settlements grow vertically, and not horizontally," he wrote last month in the Boston Globe. In other words, build "up" rather than "out." This seems fair to both sides...
Iran's current regime is in a tough spot. It lacks the manpower to pre-emptively attack another country, especially when so many of its military members have to handle protesters and internal dissent. Even setting aside international law, an Iranian attack against Israel would be a suicide mission because of Israel's nuclear arsenal. Attacking Saudi Arabia, an American ally, or American troops stationed in neighboring countries would also be a suicide mission for obvious reasons.
Israel, on the other hand, is also in a tough spot. Although it has the advantage in terms of weaponry, it must still weigh the overall benefits versus the costs of attacking Iran. At this time, the costs of an Iranian attack are undefined and possibly unmanageable because of Iran's influence in Iraq and Afghanistan, not to mention Iran's long range ballistic missiles. In addition, Iran doesn't lack the ability to defend itself. Iran has wartime experience because of the 1980-1988 Iran-Iraq war and has formidable support in Hezbollah, which has recent experience fighting against Israeli troops.
As for VP Biden, he seems to be playing the role of bad cop to President Obama's good cop. That's not necessarily a bad strategy, because even if VP Biden goes overboard, his words aren't binding--after all, he's not the President. In any case, President Obama is also in a tough spot. He knows his options are limited. Most Americans do not want to sacrifice more American troops in another non-defensive war. As a result, it looks like a stalemate and another Cold War until the fall of the current Iranian regime and a Middle Eastern glasnost.
Update on July 7, 2009: I just saw CNN's ticker--President Obama said there is no "green light" for Israel to attack Iranian nuclear sites.
All this attention on Iranian nuclear capabilities ignores the possibility that the current Iranian regime might be out in the next three years. Meanwhile, North Korea already has nuclear weapons and has threatened American interests. If I lived in Hawaii, I'd be more than a little concerned to be within shooting distance of North Korea. I am concerned President Obama hasn't provided a plan for containing the North Korean threat. As of today, North Korea, not Iran, represents the greatest threat to the United States.
As for Israel, it should focus on peace with Lebanon. Hamas and Hezbollah are greater threats to Israel than Iran. A prosperous, friendly Lebanon will cause Hezbollah and Hamas to wind down operations the same way the Provisional Irish Republican Army (IRA) gave up power to Sinn Féin once Ireland became prosperous. The 2006 Israeli-Lebanon war showed that force won't work in Lebanon. If Israel wants peace, having Lebanon as a peaceful partner is key. An Israeli-Lebanese partnership should be a higher priority for Israel than a possible Iranian threat three years from now.
But then again, what do I know? I've never visited North Korea, Lebanon, or Israel. Still, I hope one day to see all three countries experience lasting peace.
Bonus: Alan Dershowitz on Israel in the WSJ (7/3/09):
http://online.wsj.com/article/SB124649366875483207.html
A majority of American-Jewish supporters of Israel, as well as Israelis, do not favor settlement expansion. Thus the Obama position on settlement expansion, whether one agrees with it or not, is not at all inconsistent with support for Israel...
I believe there is a logical compromise on settlement growth that has been proposed by Yousef Munayyer, a leader of the American-Arab Anti-Discrimination League. "Obama should make it clear to the Israelis that settlers should feel free to grow their families as long as their settlements grow vertically, and not horizontally," he wrote last month in the Boston Globe. In other words, build "up" rather than "out." This seems fair to both sides...
Islamic-Compliant ETF
Below is an interesting article about how deeply religious Muslim investors avoided the full brunt of the stock market crash:
http://seekingalpha.com/article/147358-religious-muslims-now-have-an-etf-to-call-their-own
Hint: if you can't invest in companies that charge interest on loans, you avoid investing in banks.
Update: my friend, M. Izak, reminds us that Muslims aren't against banks per se. He says the current banking system is anti-Islamic because it charges interest rather than fees. Banks may rely on fees instead of interest payments but have chosen to rely on interest payments.
http://seekingalpha.com/article/147358-religious-muslims-now-have-an-etf-to-call-their-own
Hint: if you can't invest in companies that charge interest on loans, you avoid investing in banks.
Update: my friend, M. Izak, reminds us that Muslims aren't against banks per se. He says the current banking system is anti-Islamic because it charges interest rather than fees. Banks may rely on fees instead of interest payments but have chosen to rely on interest payments.
Hiking in the Dark: Don't Do It
Lesson learned: never, ever go hiking without a whistle; lots of water; food; blanket; and phone # of the ranger. Also, try to go in the daytime and with someone--when it gets dark, hiking gets scary if you're by yourself. I got lost hiking last weekend in Almaden Quicksilver park and walked, in fear, for 3 hours straight before finding my way out.
My sole saving grace is that I had lots of water, which saved my hide. Without the water, I could not have walked that long, even with fear as a motivator.
My friend Marlene B. had these recommendations:
~Always bring your phone--you never know where you'll have a signal.
~ Always have water
~ Bring a snack
~ Wear sunscreen
~ Hat... you can put a solar kind of emergency blanket in your pack.
~ NEVER HIKE ALONE! I don't care if you're a boy!
~ Take a map unless you know the route for sure
Other people suggested toilet paper, a headlamp and a GPS. One really good idea was attaching a bell to your backpack and letting it ring. It's the best way to make noise to make the predators look up and away instead of startling them. (Thanks to Mike I. for the recommendation.)
I was not expecting that level of wilderness on the side trails (which I went on accidentally). I couldn't see a darn thing, and the path got really narrow. I expected better signposts, maybe even lighted signposts. When it got dark, I could barely see/read where I was going. One disconcerting but apparently normal event was that my hands felt inflated--I had a hard time making a fist. (If anyone knows the science behind this phenomenon, please post a comment.) Then, birds started chirping, so I started singing to let the animals know I was coming. At least my night hiking trip is going to be a funny cocktail party story. I guess state parks are one place where the lawyers haven't been able to make the experience foolproof. That's a good thing.
My sole saving grace is that I had lots of water, which saved my hide. Without the water, I could not have walked that long, even with fear as a motivator.
My friend Marlene B. had these recommendations:
~Always bring your phone--you never know where you'll have a signal.
~ Always have water
~ Bring a snack
~ Wear sunscreen
~ Hat... you can put a solar kind of emergency blanket in your pack.
~ NEVER HIKE ALONE! I don't care if you're a boy!
~ Take a map unless you know the route for sure
Other people suggested toilet paper, a headlamp and a GPS. One really good idea was attaching a bell to your backpack and letting it ring. It's the best way to make noise to make the predators look up and away instead of startling them. (Thanks to Mike I. for the recommendation.)
I was not expecting that level of wilderness on the side trails (which I went on accidentally). I couldn't see a darn thing, and the path got really narrow. I expected better signposts, maybe even lighted signposts. When it got dark, I could barely see/read where I was going. One disconcerting but apparently normal event was that my hands felt inflated--I had a hard time making a fist. (If anyone knows the science behind this phenomenon, please post a comment.) Then, birds started chirping, so I started singing to let the animals know I was coming. At least my night hiking trip is going to be a funny cocktail party story. I guess state parks are one place where the lawyers haven't been able to make the experience foolproof. That's a good thing.
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