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COPYRIGHT © 2009  STANFORD WEALTH MANAGEMENT

June 2007

WHEN ENVIRONMENTAL CHIC DISINTEGRATES

       The highest-margin business for many a beverage company (and many a food company, as well) is…(drum roll, please:) water in a plastic container made from oil.  And yet, for all we know, that 89 cent bottle of “bottled” water came out of the tap next door.  It has been shown in many independent tests that most American municipalities’ tap water have less pollutants and such than most bottled water.

           In New York City, I was recently offered Voss, “glacial water from Norway,” for just $8 a bottle.           The offering went something like this:

           “Welcome to Tres Snootez.  I am Jacques.  (I hail from Rapid City but I’m really an actor, not a waiter, and I’m working on my French accent, so) I will be providing you wiz tonight’s delectable meanderings from Chef Michel, who may deign to allow you to say you touched one of his extravagantLEE ovairpriced amusees.  Would Monsieur care to begin by clearing his paLAHT with a Perrier from France, a Pellegrino from Italy, Fiji water from an aquifer deep below Fiji, or Voss, glacial runoff from the Norwegian fjords?”

           OK, snootez’s of the world.  I lived many years in Norway and, yes indeed, they do have some truly marvelous water.  I drink it from the streams, and the taps, whenever I am there.  I have actually been to Voss and dined at the Hotel Fleischer, arguably Voss’s most upscale restaurant.  And I have never seen a bottle of Voss on the tables.  Now they’ll dust one off if you’re some tourist who asks for it, but the truth is that tap water in Norway tastes exactly the same and has  the same chemical composition as the water in a Voss bottle: H₂O and nothing but H₂O.

           But here’s an even bigger rub: all that fancy imported water (in plastic bottles made from oil) has to be transported to Your Town, America.  Water weighs about 8.3 pounds per gallon.  And how many gallons of carbon-emitting jet fuel or ship’s diesel do you think it takes to transport 8 pounds of water from mountains in Norway to mountains in Colorado?  Granted, there are a few truly onerous municipal water systems.  Except for these, however, in a chemical analysis and a blind tasting of your favorite bottled water vs. tap, tap would most often win.

           The environmental chic movement is about to go bipolar.  It’s chic! to drink bottled water with funny names.  But it’s declassé to increase one’s carbon footprint.  Oh my, oh my, what’s a with-it limousine liberal to do?

           You heard it here first: I believe that once someone starts actually putting some numbers to all this, international trade in heavy packaged food and beverages -- and water, for heaven’s sake -- is going to decline, leaving some very big companies with oeuf et fromage on their corporate faces.            Personally, I’d rather use up my carbon credits flying my body to France for some Perrier rather than flying the Perrier to me.  As more people begin to catch on that food locally grown is probably tastier, and a damn sight fresher, than food (or beer or water) flown from half a world away, I think many of the large food and beverage companies will in fact be on the defensive...

           Why import millions of glass wine bottles from France when only ten or twenty thousand of those bottles bested California wines at the last dozen or so international blind-tastings?

           Cachet?  Mais non!  It’s the same with beer.  Currently the big American beer companies seem uninterested in making anything but yellow-colored carbonated water.  Yet there are hundreds of microbreweries in the US that produce  beers the measure of any in the world.  And Mexico produces more great beers than every big American company combined.  Here’s a thought -- on the off-chance there are Mexican citizens are in the US illegally, let’s invite them to return to Mexico with the guarantee of a job bottling  Bohemia, Negra Modelo, or Victoria Negra, which we can then transport with a way lower carbon footprint back to actual US citizens, those willing to put up with those pesky legal immigration procedures! 

           So — what are the investing implications of this epiphany about carbon footprints and such?  If I were a betting man, and in this business I certainly must be, I’d bet that once-”defensive” bets like food and beverage companies importing, say, water, wine and beer, and distribution firms catering to them, will be a poor choice going forward.  Looking in the rear view mirror is no  way to plan an investment strategy for the future.  <  >

 February 2007

“WE CAN NEVER DO MERELY ONE THING”

 

 

           The words in our headline are those of the brilliant American biologist Garrett Hardin.  Born in Dallas in 1915, Dr. Hardin took his first career position at the Carnegie Institute, where he soon realized it did little good to increase the world’s food supply without slowing the increase in the number of mouths to feed.  “We can never do merely one thing,” he said.

           Dr. Hardin's statement leads to an immediate demand that we search any action or inaction for its unintended effects.   It emphasizes:  Actions have consequences.  Inaction has consequences.

           What does this have to do with our current investing choices?  Absolutely everything!  When asking myself this question, I inevitably must recommend fossil fuels over green fuels.  The latter make me feel good but are too often pie in the sky.  The consequences of fossil fuels are dire and known.  The consequences of green fuels are glossed over, unknown, and possibly dire.  Why not go full-court-press to harness, say, wind, solar and biomass and let nature do it all cleanly and efficiently?  Ah, because “we can never do merely one thing.”

           Take ethanol, for example.  I recommended ethanol a year ago, but when I did so I recommended we use waste, fast-growing weeds, and non-edible plants like sawgrass  to create the ethanol.  What happened instead?  ARCHER DANIELS (ADM) and other agri-giants discovered that corn was more profitably sold to higher-paying ethanol refiners than to consumers or to farmers and ranchers for cattle, hog, and chicken feed.  So now the price of America’s favorite veggie has skyrocketed to 10-year highs, our beef, pork and chicken cost more, and some US cattle and hog farmers are going bankrupt and selling out to developers who build more houses farther out of the city making for longer commutes and more energy usage.  We can never do merely one thing!

           How about using wind power?  Britain’s Dr. James Lovelock is a contemporary of Garrett Hardin's and an equally famous big-picture ecologist.  Here is what he says about wind energy:  "To supply the UK's present electricity needs would require 276,000 wind generators… [T]he intermittency of wind means that, at best, energy is available from wind turbines only 25 percent of the time. During the remaining 75 percent, electricity has to be made in standby fossil fuel power stations…”

           So what do esteemed environmentalists like these men recommend?  Fossil fuels and nuclear.  Lovelock notes that an advantage of nuclear is how easy it is to deal with the waste it produces.  "Burning fossil fuels produces [54 trillion pounds] of carbon dioxide yearly.  The same quantity of energy produced from nuclear fission reactions would...occupy a sixteen-metre cube."                  Lovelock is so confident of our ability to store this radioactive material safely that he has offered to accept all of the waste produced in a year from a nuclear power station for deposit in a concrete pit on his own small plot of land.  He says he could use the heat from its decaying radioactive elements to heat his home. 

           So, what do we do?  I say we continue research on green alternatives.  But green isn’t enough. Black and gooey is still necessary — as is nuclear.  There is zero uranium in the Mideast.  There are piles of it in the US and our biggest trading partner and best ally Canada.  So why aren’t we building a nuclear plant a week?  Sure, we’ll need to store the radioactive waste safely.  But today we’re storing our excess carbon dioxide in the bubble of air we breathe.  How much worse could it be?!?!  “We can never do merely one thing.”  For this reason, I will analyze and sometimes take positions in the "I wish" technologies, but I will continue to stress the tried-and-true for the bulk of your  portfolio and mine.  For specifics in the uranium and nuclear area, read on… <   >

 is based on increased income, good investing, and savings.      

           Consumer spending based on borrowing from the paper profits on a house is a house of a different kind -- a house of cards waiting to fall.   After the Veuve Clicquot is all gone (a sad moment, I know...), the Hummer is traded in for a Prius, and the Niners have a winning season, the debt remains.  And those cheap adjustables of a couple years ago are starting to ratchet up -- and on the most overstretched homeowners.  Nearly 20% of the mortgages entered into in 2004 were to “sub-prime” borrowers.  I predict these homeowners will soon become renters and those holding their paper will soon become accidental landlords.

        So, you ask, since you weren’t dumb enough to borrow $300,000 just because your house appreciated $325,000; and you bought the Prius and a case of Bud instead of the Hummer and the Veuve Cliquot, why should you care that housing declines on the Crazy Coasts?  Because when they raid The House, it doesn’t matter that you really were just the piano player.  You’re spending the night in jail.  I think you and I are ahead of the curve in this thinking, so  I expect to stay fully invested through March or so.  I don’t see a decline until the wealth effect of year-end bonuses and raises wears off.  There will be moments when the price of oil declines, when the Fed doesn’t raise rates, and other good, if fleetingly good, news along the way.   Let’s make hay while the sun shines, but be prepared to roll it up quickly and get it in the barn before the rains come.  See specific recommendations on the pages that follow… <  >