But first . . .
Have you been following Borealis? Long-time readers know I own a ton of shares in this ridiculous speculation, and that they will either go to zero (how can they not?) or else to the moon. It got a little more interesting when Boeing expressed its interest a few months ago, and when an elevator-motor manufacturer signed a joint venture deal, but the stock is still in the $4-$5 range where it usually is (leaving aside the day it briefly hit $11), giving the whole company, with its 5 million shares outstanding, a market cap of about $25 million. I have friends with houses that cost more than that.
Well, one of the three main assets Borealis claims to have . . . it has not one impossible blockbuster but three separate ones (could there be any more red flags?) . . . is a solid state chip using some sort of revolutionary quantum physics that turns heat into electricity. Cool Chips, they’re called. And recently, shares in that Borealis subsidiary began trading under the symbol COLCF. (Go to pinksheets.com to get quotes on stuff like this.) It traded a mind-boggling 2,400 shares Tuesday at an average price of 11 – $26,000 change hands! – giving Cool Chips, with 7.3 million shares outstanding, a market cap of about $80 million.
The Cool Chips subsidiary seems to have generated some interest at a Nanotechnology conference you can read about on the Borealis website.
Borealis (BOREF) owns 71% of COLCF, or $57 million worth at the $11 price. And it owns the other two alleged blockbusters, as well – an electric motor that’s 30% more efficient than everybody else’s electric motor, and a gigantic iron ore deposit on the edge of Canada, within three paces of a deep water port.
Because Borealis has 5 million shares outstanding and owns 5.2 million Cool Chips shares, each Borealis share more or less owns one Cool Chips share. So on Tuesday you could buy a Cool Chips share directly for $11, or indirectly by buying a Borealis share for $4.50 (and get the rest of the company ‘for free’).
As nutty as it may be to buy BOREF for $4 or $5, it seems at least a little less nutty than to buy Cool Chips for $11.
I am having so much fun with this. I’m guessing it will be several years – if ever – before Boeing is actually using Cool Chips to reduce the weight of its planes or Dell is using them to cool the inside of my laptop. Same for the Chorus electric motors and all that iron ore supposedly sitting off Bamff or wherever it is (I like saying ‘Bamff’). But the fun is in the anticipation. Actually winning the lottery, if one were ever to suffer that misfortune, brings with it all sorts of psychological problems I may not be ready to confront.
And now back to Dick Davis (at greater length tomorrow, I promise):
Item 7: The Income Buyer
It’s been a difficult time for those who depend on their investments for income. After being spoiled by double-digit returns, yields have been declining for years, especially on the short end. Similar to the decade of the ’90s when greed often paid off, many bond buyers who reached for yield in longer maturities and more speculative paper, profited as yields came down. The more conservative investors were penalized. However, more times than not, higher return means higher risk. I believe that in most cases, the income buyer who, for example, reaches for a marginal 8 to 9% yielding utility or corporate bond or preferred or REIT will do better total-return wise by buying the higher rated, lower yielding security and making up the difference in appreciation. Mutual fund maven Michael Lipper says, ‘Being yield-hungry is possibly the worst disease you can have, especially coming out of a recession.’
Last year, because the stock market had a down year, most holders of fixed income securities did better than stockholders. But generally speaking, bonds are used as a vehicle for income, not capital gains. To make money in bonds, you need to predict interest rates which means you need to be nimble and lucky. The best known guru in the field, the bond market’s answer to Peter Lynch, is William Gross, whose PIMCO Total Return is the nations largest bond fund. One caveat: Income buyers looking for higher yields can take some solace in the common perception that yields have likely bottomed and should be headed higher as we come out of the recession. A ‘Barron’s’ cover story says, ‘It’s time to lighten up on bonds. The 20 year slide in interest rates is just about over.’ The yield on the 10 year U.S. Treasury bond when this story appeared 3 months ago was 5%.