Agora Financial’s Rude Awakening

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Dubai, UAE

• A closer look at the “Brown Bottom”…in gold,
• 20% by 2010: The amount of California’s power that MUST be derived from renewable sources by that year,
• From knave to fool: The tale of “Seven Suckers” and plenty more…

Byron King, with a few notes on geothermal energy…

We have finished Day 2 of the Geothermal & Investment Summit. It was an
information-dense set of presentations from some of the leading lights of the
renewable energy development and finance community.

The utilities of the US, if not those in many other parts of the world, have
pressing needs not just to supply power to energy-hungry consumers. But more
than that they must meet both public and political pressures for using
renewable energy sources. Apparently heedless of the impact to the
environment of the Middle Kingdom and abroad, China commissions a new coal-
fired plant every 5 days. Yet in the US there has not been a new coal-fired
power plant permitted in about a year. So over time in North America, the
older systems are passing away. The question is, what will take their place?

To the extent that the public envisions renewable energy systems, the image
it holds is of tall poles with windmill systems on top with blades turning.
Or there is an expectation of solar systems mounted on rooftops, facing the
sun. But these are intermittent sources of energy production. Some of the
time - most of the time, really - the wind does not blow. And at least in the
nighttime, the sun does not shine. So for each Megawatt of power that moves
through the grid, down to meet the load, the requirement is for three
megawatts of installed capacity of wind and solar. Build three, get one. In
the big picture, this is not a good use of resources.

But not so with geothermal, which has demonstrated the ability to meet base
load power requirements. Geothermal offers the prospect of heat energy from
the bowels of the earth, 24/7/365. The fuel is, as the saying goes, “free.”
Or at least, the heat energy of the earth will last a long time, such as at
Locarno in Italy, which has been producing steam since 1904, good times and
bad, in war as in peace. And with a geothermal plant, consider what is not
there. No rail line, for the trains hauling coal from the mine. Come to think
of it, no trains. No mine. No mountain top removal in West Virginia. No
yellow gear, pushing piles of spoil. No valleys filled with that spoil. No
carbon dioxide going up a stack. No stack, even. No NOx. No SOx. No
particulates. The air is cleaner. You can smell it.

On a large scale, geothermal will change the entire energy equation of our
culture. And as much of the fossil-fired infrastructure from decades past has
reached the end of its planned service life, geothermal offers a new way
forward. There is little choice. We have to take this road.

But then again, is geothermal a story that is too good to be true? We won’t
say it in those words exactly. But what are the limitations? They are many.
At the geothermal conference, the room is full of people over age 50, and
people under 30. An entire generation is missing, simply not part of the
industry. This is a legacy of two decades lost to under-investment, a long
procurement holiday, a time when few were hired and many were laid off. And
there is a serious lack of the right kind of rigs, of pipe, of bits, of
skilled personnel who understand how to bring hot water and steam out of a
hole in the ground. There is a lack of turbine systems, and valves, and
insulation materials. And prices for everything, from concrete to galvanized
steel, have been moving up along with the world construction boom.

Really, at the level of boots on the ground the geothermal industry is maxed
out. It is growing, to be sure, but the growth is constrained because
barriers to entry are high. You actually have to know what you are doing to
make a geothermal well, and to put a system together. You need real
equipment, sturdy and well-built and designed from the inside-out to function
in extreme environments. There is no faking it.

That is why we are here, of course. We are meeting the players, and taking
notes. We are taking lots of notes.

[Joel's Note: Okay, here’s what you need to know about this whole geothermal
buzz.

1. Senate Bill #107 has forced the Californian government to derive 20% of
its total energy needs from renewable sources just like geothermal by
the year 2010.
2. That means huge investment that will light a fire under many “under-
the-radar” companies skirting the fringes of the industry at present.
3. Byron King, of Outstanding Investments fame, will be sending a report
in less than 36 hours detailing his 5 favorite penny stock plays in
this very sector.
4. Due to the nature of the companies, in particular their tiny size and
massive profit potential, the reports are limited to a strict number of
recipients.
5. Already a third of these reports are spoken for.
6. And this is the most important one, the ONLY way you can ensure you are
on the list and poised to profit is by following this link:

Byron King’s Energy & Scarcity Investor: Special Geothermal Investment Report

—- 5 Geothermal Stocks Set To Soar: The report —-

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without Burning One Ounce of Coal, Oil or Gas

California Senate Bill # 107 Will Legally Force California to Produce 20% of
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AND — 18 MIT Scientists Say that “Slow Volcano” Power Can Produce 2,000
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————————————————–

Fools Rush In…and Out
By Bill Bonner

The central challenge to investors is to spot the biggest blockhead among
them. In today’s column, we take a guess.

One of the conceits of market theorists is that prices are set rationally –
based on investors’ independent judgments. In fact what happens is that mass
sentiments and easy credit get them better of them. Even sophisticated
investors get carried away by the crowd, like dead martyrs…or they are
tempted away by artificially low lending rates. Instead of buying assets with
predictable yields, they’re greedy for capital gains or fearful of losses.
The trend continues, the emotion intensifies…one fool sells to
another…until, finally, the greatest fool of all enters the market and the
trend reverses.

Who’s the greatest fool today? Sub-prime CDO buyers? Google shareholders? We
might as well be looking for the biggest oaf on television; there are too
many candidates to choose from. So, we begin by rounding up the usual
suspects - central bankers and contemporary art buyers. The former have a
long record; the latter, a flamboyant one.

Probably no central bankers are more prudent than the Swiss. At the end of
the ’90s, the Swiss had the third largest gold horde in Europe – after
Germany and France. But then, the Swiss central bank lost its head and
decided to ‘diversify’ its holdings. The result: it dumped half its bullion –
at the worst possible moment. The yodelers sold 1,300 tonnes in the five
years between 2000 and 2005. From those sales, the Swiss realized about $14
billion. If they’d just held onto the stuff, it would be worth about $34
billion today – a difference that would be worth about $2,700 to every man,
woman and child in Switzerland.

Meanwhile, closer to sea level, but with his head still in the clouds, the
UK’s Chancellor of the Exchequer, Gordon Brown, had a similar notion. In
1999, he announced a plan to sell half of kingdom’s gold. In the event, he
sold 395 tonnes, at an average price of about $275 per ounce – or, in real
terms, the lowest price since the early ’70s. Some sales were recorded at the
absolute lowest price - $256 per ounce, which came to be known as the “Brown
bottom” of the great bear market in gold, 1980-1999. The Greatest Fool of
All had made his move.

This week, the fools bumped into each other…coming and going. The Greatest
Fools of yesteryear – the poor fellows who bought Kruggerands in January,
1980 – were finally back to breakeven. Twenty-seven years ago, gold sold for
more than $800. It took more than a quarter century; but now it has
recovered. And now, the fools who sold Britain’s gold in 2000-2005 are out
nearly $7 billion

What are central banks doing now? Gold sales by the banks are said to be at
an 18-year low. When they begin buying gold, we will begin to wonder. When
gold purchases by central banks rise to an epic high, it will be time to
sell.

Meanwhile, art – like gold - has no real, intrinsic value. But as contrary
indicators, art buyers are probably nearly as reliable as central bankers.

Wayne Thiebaud’s “Seven Suckers” sold for $4.5 million on Tuesday. It was a
“record for the artist,” said the International Herald Tribune. Above the
caption is the photo…of, well, seven suckers. No, not a photo of Gordon Brown
and his colleagues; it is a still life of silly little candy lolly-pops. The
piece was part of a collection of dubious works, which passed from the hands
of knaves into the hands of fools via Christies in New York earlier this
week.

A new record was also reached by John Chamberlain, who crushed some sheet
metal in 1960 and called it “Hatband.” The work brought $2.81 million, more
than twice the previous record, set earlier this year, for a work by
Chamberlain.

Another feature of the collection was a group of what we know in America as
“Cigar Store Indians.” For reasons unexplained, shops that sold cigars, in
the 19th century, set out a wooden Indian as a marker of their retail trade,
similar to the way barbers used a barber pole. The most anyone ever paid for
one of these wooden Indians came in 1990, when a buyer bought a 1875
sculpture, “Cigar Store Princess,” for $10,450. But that was before the great
credit bubble expanded investors’ wallets and squeezed their brains. This
past Tuesday, someone bought one of these wooden Indians for $217,000.

Contemporary art has gone up 55% this year alone. Fools rushed in every time
the auction houses opened their doors. But the very day that the “Seven
Suckers” was sold for $4.5 million, not a single sucker could be found
willing to spend more than $6 million for Willem de Kooning’s untitled 1942
“nondescript” painting. It brought only $5.3 million, barely half the upper
estimate. Even in the art market, the Greatest Fool may have already come and
gone.

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———————————————————–

Rude Endnote: We were fascinated to hear Richard Branson tell a packed house
at the Leaders in Dubai conference that “Dubai will be under water in 50-
years if issues of global warming are not addressed.”

We were not surprised that someone would utter such a statement…only that
the owner of an airline company would do so. The aviation industry is the
declared archenemy of the global warming movement. It’s no secret, of course,
that Branson owns quite a few of these pesky polluters himself. So, when the
inevitable question regarding hypocrisy came from the crowd, our ears piqued
for the answer…

“We can either sell our planes to British Airways or Emirates and watch their
shareholders reap in the profits,” teased the silver-headed billionaire, “or
we can carry on and take 100% of our profits and put them into trying to
develop a fuel that will change the environment.”

To your climate-ignorant editor, that sounds a little like a king saying,
“Well, we could either lay down our arms against the savages and let tare
each other apart (scoff), or we can keep raping and pillaging, using the
profits to develop more humane ways of conquering lands afar.”

To his credit, Branson is putting a wee pinch of his money where his mouth
is. He’s pledged $25 million dollars to anyone who can eradicate carbon from
the atmosphere. Of course, $25 million is merely a blip on the balance sheets
of Virgin Atlantic, so you’re not likely to see Dick take a shot at his own
prize anytime soon.

Cheers,

Joel Bowman
Rude Awakening