Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

[BDAdmin]

POWER HUNGRY: REINVENTING THE U.S. ELECTRIC GRID
Could Energy Innovation Create A 'Green Bubble'?
- by Jeff Brady, National Public Radio, May 01, 2009


One argument for a major overhaul of the U.S. electricity grid is to encourage the development of more renewable sources of energy, such as wind and solar. President Obama certainly has gotten behind green energy, and his administration is part of a concerted effort to help the industry grow.

In the wake of the housing bubble, that has some asking whether the country is headed for a renewable energy bubble.

Eric Janszen founded the financial advisory company iTulip in the midst of the Internet stock bubble. Janszen, whose company was named for the Dutch tulip bulb bubble in the 1630s, has made a career out of studying financial bubbles.

He says bubbles start with a kernel of something good — say, homeownership or the development of the Internet or, in this case, energy that causes less pollution. But then, he says, outside forces come in and create a sort of mania.

"You'll know that we're at some stage of an energy bubble when you start to hear about how you can get rich quick in the energy market," Janszen says. But first, he says, a few things have to happen. There must be significant government involvement designed to focus energy and capital on the specific industry — and clearly that's already happening.
"To really make these things go, you need a new source of credit," he says. In the housing bubble, it was mortgage-backed securities. Janszen says this element is important because you need a lot of capital gushing in to inflate stock and other asset prices.

Developing Plans, Finding Funding
But credit is a problem right now for renewable energy developers. Texas oilman T. Boone Pickens was forced to delay construction of a 1,000-megawatt wind project in Texas, and worries about an impending renewable energy bubble aren't keeping him up at night.
"I wake up in the night wondering 'Where am I going to get the money to build this project, because I've already got $150 million in it'," Pickens says. He says part of the problem is that natural gas prices have dropped by more than half since last summer, and it's difficult to justify using wind to generate electricity when gas is so much cheaper. Add to that one of the other challenges of wind: It's going to rely heavily on an upgraded electricity grid that isn't built yet to get power from wind corridors to population centers.

Pickens says another issue may stand in the way of a renewable energy bubble: While the Obama administration is promoting the industry, the specifics of the government's plans aren't completely clear.
"But I think once you get through this year, it's going to be pretty clear how they expect [to] cause the industry to kick off and go," Pickens says.

Congress is working on legislation that would limit greenhouse gas emissions and then turn them into a commodity that can be traded. Such a cap-and-trade system might be the seed for creating the credit necessary to get a renewable energy bubble going, Janszen says.
"Some think the investment banks will get into the cap-and-trade business and figure out a way to use that market to create securities that can then be the foundation for an asset price inflation," Janszen says.

So, while a few people out there still see the potential for a renewable energy bubble, more pieces have to fall in place first, not the least of which is major upgrades to the country's electricity grid.

Planning for that is under way. The Electric Power Research Institute was given $1.3 million in federal stimulus money recently to develop a framework for grid developers to follow. The group expects to complete that work by early summer.

http://www.npr.org/templates/story/s...30&ft=1&f=1001

NPR, Morning Edition, May 01, 2009 - Listen on NPR.org

[Guest]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Is iTulip here putting out feelers for early outliers of the long awaited Alt-Energy bubble?

One comment is that the more reputable participants of that future bubble market, which exist today in small cap state stand a good chance of being the mid-cap participants three to five years down the road, which is about when iTulip thinks this market will gain sufficient investors to have achieved "critical mass".

But there's another way to view it: if we imagine an alt-energy bubble out in 2013-2014 to be ramping up, it would be better to own it's beginnings today, with the small, prudent amounts of capital, and be selling part of one's gains then, to the stout hearted incoming participants of a flourishing alt energy bubble out in 2013-2014.

That way, by owning fledgling assets with a conservative (modest) part of our money, we avoid the quandary of prospective investors out in 2014, who will be wrestling with thorny qestions such as whether that alt-energy booming market then will be resting on fundamentally sound economic underpinnings.

The "sound underpinnings" are instead captured at the time of purchase, by being very early, when a future much grown asset remains still in embryonic (and hence heavily discounted) state.

[EJ]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Is iTulip here putting out feelers for early outliers of the long awaited Alt-Energy bubble?

One comment is that the more reputable participants of that future bubble market, which exist today in small cap state stand a good chance of being the mid-cap participants three to five years down the road, which is about when iTulip thinks this market will gain sufficient investors to have achieved "critical mass".

But there's another way to view it: if we imagine an alt-energy bubble out in 2013-2014 to be ramping up, it would be better to own it's beginnings today, with the small, prudent amounts of capital, and be selling part of one's gains then, to the stout hearted incoming participants of a flourishing alt energy bubble out in 2013-2014.

That way, by owning fledgling assets with a conservative (modest) part of our money, we avoid the quandary of prospective investors out in 2014, who will be wrestling with thorny qestions such as whether that alt-energy booming market then will be resting on fundamentally sound economic underpinnings.

The "sound underpinnings" are instead captured at the time of purchase, by being very early, when a future much grown asset remains still in embryonic (and hence heavily discounted) state.

Trading is not what we do here--we specialize in long term macro economic trends--but I am aware that readers are interested in what we think the markets are going to do within our framework, primarily in relation to the condition of the FIRE Economy and the government response to Debt Deflation as the FIRE Economy declines.

A few reminders and an update on the iTulip position on alternative energy.

The Harper's The Next Bubble article was written in the summer of 2007 and published in March 2008. It forecasts a future "bubble" in alternative energy and infrastructure.

Dec. 27, 2007 announced the start of the Debt Deflation Bear Market in 2008 that was likely to take U.S. markets down as much as the Nikkei in its first year of debt deflation, 40%.

Feb. 2008 I appeared on CNBC with an alternative energy fund manager. I advised going to cash due to the coming debt deflation bear market, and noted that the alternative energy is especially vulnerable, but that at some point after the decline alternative energy was to lead a stock recovery for all of the reasons explained in The Next Bubble.

Nov. 25, 2008 in Beware Relief Rallies Update 1: DJIA 7552 the bottom? I made the case for a lower low to come.

Mar. 27, 2009 in Debt Deflation Bear Market: First Bounce I assert that a bounce from the early March lows is likely.

Now we are working on a Debt Deflation Bear Market Year Two analysis. While it is always tempting to jump into a rising market, we resist doing so now for two reasons.

One, we don't have to. Since we dodged the collapse last year, we have all of our money still and are not motivated to try to recoup losses by trading the market today.

Two, a policy of fiscal spending to halt a "balance sheet recession" (debt deflation) without economic restructuring is a road to ruin. The economy will recover briefly then fall back, either when the money is spent or the politics of spending change. After a number of rise and fall cycles, we will run out of credit. That may happen sooner than we think. My past record of over-optimism on this score leads me to elicit the opinions of others. I'm sure there are those who look at capital inflows and the 10 year bond and believe we're already there. I've learned to not under-estimate central banks, but then it's now just as possible to over-estimate them, too.

[Slimprofits]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Two, a policy of fiscal spending to halt a "balance sheet recession" (debt deflation) without economic restructuring is a road to ruin. The economy will recover briefly then fall back, either when the money is spent or the politics of spending change. After a number of rise and fall cycles, we will run out of credit. That may happen sooner than we think. My past record of over-optimism on this score leads me to elicit the opinions of others. I'm sure there are those who look at capital inflows and the 10 year bond and believe we're already there. I've learned to not under-estimate central banks, but then it's now just as possible to over-estimate them, too.

Please correct if I'm not understanding this. It seems as if a gigantic shift has occurred within the last few months. Two examples:

On January 3rd you wrote, "The only event of twelve noted that has not occurred since then: a currency dislocation. We do not know how it will unfold but expect to see a major currency event this year."

Today, it's "After a number of rise and fall cycles, we will run out of credit."

And



How recent a relevation is "I've learned to not under-estimate central banks?"

Frankly hearing that sentence from either you or someone logged in as "FRED" is pretty shocking.

[cjppjc]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Loved this line.

we resist doing so now for two reasons.

One, we don't have to.


Nice:cool:

[WildspitzE]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

"You'll know that we're at some stage of an energy bubble when you start to hear about how you can get rich quick in the energy market," Janszen says. But first, he says, a few things have to happen. There must be significant government involvement designed to focus energy and capital on the specific industry — and clearly that's already happening.
"To really make these things go, you need a new source of credit," he says. In the housing bubble, it was mortgage-backed securities. Janszen says this element is important because you need a lot of capital gushing in to inflate stock and other asset prices.

Spot on, and it's being treated as a massive priority (in spite of what pickens said publicly).

Re: infrastructure (especially existing/traditional energy and transportation), my experience is in EM, and I know of several multi-billion warehousing programs and funds that are being rolled out (with many more in the pipeline). The ultimate objective is to achieve critical mass of assets and then to lever (mostly through structured finance).

Re: alt-e, as I alluded to in a post in another thread, it's the same as infrastructure above but it's still at a much more infant stage - given the lack of the final decree. That said, a lot of legal and basic analytical work is being done.

[atlantafox]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Two, a policy of fiscal spending to halt a "balance sheet recession" (debt deflation) without economic restructuring is a road to ruin. The economy will recover briefly then fall back, either when the money is spent or the politics of spending change. After a number of rise and fall cycles, we will run out of credit. That may happen sooner than we think. My past record of over-optimism on this score leads me to elicit the opinions of others. I'm sure there are those who look at capital inflows and the 10 year bond and believe we're already there. I've learned to not under-estimate central banks, but then it's now just as possible to over-estimate them, too.

Doug Noland from PrudentBear has the following to say:
"The Greatest Cost" May 1, 2009
http://www.prudentbear.com/index.php...w?art_id=10221

I’ll try to explain my belief that dangerous Ponzi Finance Dynamics are in play with the current course of policymaking. First, I view panicked policymakers as seeing no alternative than to try to sustain the current (deeply maladjusted) economic structure. A more natural course of economic adjustment – from finance and consumption-driven Bubble Economy to a more balanced system – was going to be much too painful to endure. So a massive government inflation was commenced in desperation - with the grandiose objective of revitalizing securities markets, housing prices, and the overall U.S. economy. I just don’t see how this reflation goes much beyond stoking a susceptible artificial recovery.

First and foremost, with government finance now completely dominating the Credit system, I can’t even begin to contemplate how this process might nurture an effective allocation of financial and real resources. Indeed, I see today’s manifestations of Credit Bubble Dynamics as an extension of similar mispricing, misperceptions, and over-issuance that led to last autumn’s near financial collapse.

Admittedly, the massive extension of government Credit and obligations works wonders in stabilizing a devastatingly impaired system. Inflationism is always seductive; Trillions worth is absurdly seductive. Yet this extra layer of debt does little to affect change to the underlying economic structure. Actually, a strong case can be made that it only delays and sidetracks the necessary adjustment process. And, importantly, this enormous additional layer of system debt exacerbates system vulnerability.

At the end of the day, a system is made or lost on the soundness of its underlying economic structure. I posit that a sound economic structure is reliant upon only moderate Credit growth and risk intermediation. Our system requires massive Credit expansion and intensive risk intermediation. I would also posit that there are no benefits – only escalating costs – to throwing massive Credit inflation upon an unhealthy economic structure. And, returning to Ponzi Dynamics, one of the major costs to such inflationism is a massive expansion of non-productive Credit – obligations that are created without a corresponding increase in real economic wealth producing capacity. The debt can only be serviced by the creation of more debt obligations.

The danger is that markets too easily and for too long accommodate massive Credit expansion during the boom. Federal Reserve policies are fundamental to this dynamic. But at some point and out of the Fed’s control, as Wall Street learned, greed inevitably turns to fear and a reversal of speculative flows marks the onset of the bust. And it’s the massive inflation of non-productive Credit that ensures the unavoidable crisis of confidence. Can the underlying economic structure service the mounting debt load or, instead, is it the massively inflating debt load that is sustaining a vulnerable economy? And it is in this vein that I fear the Government Finance Bubble is on track to destroy the Creditworthiness of the entire economy. And this Ponzi Dynamic is The Greatest Cost to what I fear is a continuation of unsound policymaking.

[santafe2]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Is iTulip here putting out feelers for early outliers of the long awaited Alt-Energy bubble?

Luke, as you know, I'm in the midst of this industry. Some days we've got our swords out awaiting a policy shift that wipes us out and the next we're celebrating our genius. This is not a time to invest unless one has a deep understanding of the industry and is willing to put a stake in the ground and defend it with clear resolution.

As I've said in several posts over the last 18 months, the only sure bet I knew about was FSLR. On their recent jump, I'm out. They have eco issues which may not be resolved in their favor.

I see no RE bubble today. We're grinding it out against our competitors and without the clear favor we've received from the current administration, we'd be struggling like many others. Give it ten years, there are some amazing technologies working their way though the pipeline. When it explodes, RE will be huge but we're not there yet.

[ThePythonicCow]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

First and foremost, with government finance now completely dominating the Credit system, I can’t even begin to contemplate how this process might nurture an effective allocation of financial and real resources.

...

And it is in this vein that I fear the Government Finance Bubble is on track to destroy the Creditworthiness of the entire economy.

Expectations of a long term investment opportunity in alternative (non-petro) energy, whether in nuclear, gas, wind, solar or whatnot, presume "an affective allocation of resources." Such expectations presume that petro will become less available and/or more expensive, that we will need the same or more energy, and hence that some other source will become a big business.

Right now, our financial and political leaders are destroying the capital infrastructure required to fund investments. If the capital investment infrastructure has been turned to a barren wasteland, then no new major investment, whether bubble or sound, can grow.

A failed economy cannot allocate resources and fund investments affectively.

Nice explanation from Doug Noland - thanks. We are at increasing risk of this blowing up big time. Noland presents this case clearly. EJ seems to be considering the Dark Side more than he would like to admit in this public forum.

[ThePythonicCow]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

my experience is in EM

What is "EM" ?

[Guest]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Santafe2 -

Actually the part of "alt-energy" I was referring to was not conventional alt-energy such as wind, solar, geothermal, tide and so forth, but rather the nuclear end - fuel, plants, service, utilities, construction of, etc. Not to say that conventional alt-energy won't soar as well though. I appreciate EJ's response, and appreciate the simplicity and sobriety of EJ's asset management style. Find one gear and keep it until you arrive at a fundamental juncture requiring a change of gears. I wasn't talking about deploying audacious sums of money though.

My point was, I don't see why markets can't "sniff out" a really large trend that is approaching even against a highly unfavorable general backdrop. If the approaching event is massive enough .... When the trend is massive, it's arrival imminent, and it's set against a backdrop where there is nothing the government would like more than to kick off a new bubble, then alt-energy in the context of imminent Peak Cheap Oil seems a perfect candidate. Not least of the considerations, is that it's really going to be serious crunch time in five to ten years, according to the consensus of an increasing number of reputable oil industry proponents.

That is practically instantaneous in terms of your typical market reaction time, when we consider the magnitude of this thing - a once in history event - the end of the expansion of global oil production.

We are at the end of the first decade of the 2000's, and we all know with good assurance that we are going to have a fossil fuel crisis within the next 10-15 years. And there is no "higher density fuel source" at this transition. Nat Gas is not going to cut it as a sufficient substitute in scale, when you factor the developing world's anticipated robust growth. We can extrapolate from that, that if the markets can be forward looking there should emerge quite soon the beginnings of a market response to the future energy crisis.

It seems unreasonable (to me, anyway) to expect that if we have a global scale energy crisis in ten years, the energy segment of the markets should only "wake up" to this five years beforehand, i.e. five years yet in the future.

Given that backdrop for alt-energy (not just hype, but a massive real event substantiating it, which is due to arrive soon), it's entirely possible that a fledgling market in this sector has all the reason in the world to start bulling forward stealthily now, and not 3 or 4 or 5 years before the real crisis slams into us. This forward looking is what equity markets are supposed to always do, so why should it be any different this time, just because the global markets are mired in crisis and the FIRE mechanism is broken?

Here we have the largest resource crisis the world has ever faced just a handful of years away, but we are presuming the alt-energy companies who are the sole candidates to respond to that will remain firmly capped by the broad market slump? Their market caps are tiny, relative to the problem they will be tasked to solve.

I've posted this image before, but I re-post it to highlight the horrific dilemma approaching for the world - how do we keep machinery like this running ten or fifteen years from now? In the context of all this, it seems to me that the stock markets have some fairly good reasons, sooner, rather than later, to produce some sharp growth in the one sector which can respond even partially to this crisis.

METALLIC-AMBASSADOR-02.jpg

METALLIC-AMBASSADOR-01.jpg

Luke, as you know, I'm in the midst of this industry. Some days we've got our swords out awaiting a policy shift that wipes us out and the next we're celebrating our genius. This is not a time to invest unless one has a deep understanding of the industry and is willing to put a stake in the ground and defend it with clear resolution.

As I've said in several posts over the last 18 months, the only sure bet I knew about was FSLR. On their recent jump, I'm out. They have eco issues which may not be resolved in their favor.

I see no RE bubble today. We're grinding it out against our competitors and without the clear favor we've received from the current administration, we'd be struggling like many others. Give it ten years, there are some amazing technologies working their way though the pipeline. When it explodes, RE will be huge but we're not there yet.

[ThePythonicCow]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Dang Lukester - nice car. Guess you're the uncontested champ in the local demolition derbies.

I agree that it is a near certainty that petro will provide declining energy to "Western" economies.

But I am also certain that it is possible to sufficiently destroy the capital investment engine that we cannot mount the effort to replace petro with any alternative energy source of similar BTU's. I cannot predict whether we will manage that or not, but our illustrious leaders sure are doing their dangest to so destroy it.

[ThePythonicCow]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Not to say that conventional alt-energy won't soar as well, but the early mover is nuclear here.

I'm increasingly inclined toward natural gas filling the "energy gap," at least in the United States market for the next few years.

This assumes our economy doesn't self destruct so far that the only demand for new energy is from the military (or is that what you meant by increased nuclear energy :eek:?)

[ratfink]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

It was a nice surprise to hear Eric pop up in the piece; was this part of a larger interview, or just a drive-by quote?

[Thailandnotes]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

I see no RE bubble today. We're grinding it out against our competitors.

I'm sure most have bumped into this.
Curious if you would comment.
http://www.nytimes.com/2009/05/03/bu...r.html?_r=1&em