Einhorn and Energy

Last Friday, I ran this much-talked-about – if sobering – investment assessment by David Einhorn, cautioning that it might lead you to buy some GLD. (Somebody did – it’s up 5% in a week; 17% since first suggested here nine months ago. Surely you and I move the global gold market.)

My plan had been to follow it immediately this Monday with your own good comments, and then with something upbeat.

Well, here I am finally doing that. (This coming Monday we’ll get back to pomegranates.)

But first . . .

CIVIL MARRIAGE LICENSES

Tuesday, a law allowing citizens of Maine to marry was overturned – by other citizens of Maine. The same thing was done not so long ago in California.

If you think it’s wrong for the rights of a minority to be rescinded at the urging of religious leaders*, here is a small but very easy way to help.

*Why are our rights even any of their business? Can’t they just condemn us to eternal damnation and be satisfied with that? As they condemned those who would allow women to vote or those who would free the slaves or those who would allow people like Clarence Thomas to marry women of a different race?

And now . . .

EINHORN II

Steve Vance: “I agree with Einhorn’s call for smarter regulation, but while he may have studied government in college, he didn’t take enough economics. According to Paul Krugman’s recent calculations, the appropriate Fed funds rate to address our situation is -5.6% – yes, a negative number. Given the impossibility of achieving that, fiscal policy is required. This isn’t the time to be spreading Einhorn’s hand-wringing about deficits. And Brad DeLong nicely explains why more deficit spending (preferably in the form of smart stimulus, as you suggest) is not only a good idea, but a good deal. Our government balance sheet isn’t great, but it’s nowhere near as bad as it would be if we tried Einhorn’s ‘fiscal discipline’ approach. (See: Hoover, Herbert.)”

☞ I agree! This is absolutely the time for a decade of smart and massive infrastructure investment/stimulus.

Lynn Gongaware: “Why gold and not TIPS as a hedge against inflation?”

☞ I like TIPS, too. (Be careful to buy recently issued ones, without too much inflation accretion already built into the settlement price – lest deflation deflate that accretion.) But note that in a world of turmoil, you could have a situation where gold goes up even when inflation does not. So they’re not exactly the same. And Einhorn was talking about gold, not TIPS, so that’s what I picked up on.

The truth is, I hate that I’ve even been suggesting GLD, or that I own any myself. For most of my life I’ve mocked it as a sterile investment, which it is; a metal that derives its value less from its utility than from its scarcity so that digging up more of it adds no real value. But if you read the Einhorn piece, you might decide to have some – very small – portion of the you’ve worked a lifetime to build in gold.

Brett Scheiner: “Einhorn’s gold commentary mentioned in your column Friday was much discussed among my value investing lot, as was Ackman’s pithy counterpoint. Einhorn is clearly a brilliant man and a deeply thoughtful investor – I truly enjoyed his new book, Fooling Some of the People – but I found Ackman’s thinking far more compelling: buying strong US businesses whose prices will rise with the inflation that concerns Einhorn is as good a hedge as gold with the additional benefit of profits (and dare I suggest dividends?) flowing while you wait. And the chance to buy a few of those businesses at a meaningful discount to what you believe to be their intrinsic value?”

Peter S: “I have been saying for some time that the real heart of the problems faced by the United States (and there are many, and they are HUGE) is that our senators and congressmen/women do not have term limits. Instead, we see people who get elected, then have the incredible resources of the incumbent to give them an overwhelming advantage in the next election. These elected offices are treated as a career, when the framers of the Constitution intended for people to serve for a limited time and then return to private life. When FDR was elected for a 4th term, Congress passed an amendment to limit presidential terms. Do you see a body that is intoxicated with wealth, power, and fame voting to restrict their time in office? And they wonder why Congress has an approval rating that is lower than used car salesmen! The end result is that they act to do things in the short term that will get them reelected, which means that they are not willing to make the decisions that are fiscally sound over the long term. We continue to spend money on the national credit card, to a point where there is likely no realistic way we will ever pay it back.”

☞ I agree the problems are huge and that political reluctance to do anything unpopular is one of them. But I disagree on term limits. There are certainly reforms to be made – including LOTS more exceptions to the custom that chairmanships are based on seniority rather than competence. In my view, though, the issues that legislators have to deal with are so complex, it makes sense to build real, deep expertise and have continuity. I’m not sure we should deny voters the choice of reelecting someone they like. I think Clinton would have been reelected and that the world would have been better off if he had. I’m not sorry FDR got to serve almost four terms. I’m really glad Barney Frank is still in the House. I wish Ted Kennedy were still in the Senate. And so on.

ENERGY – THE NEW FRONTIER

And now for the hopeful part of the story. If there’s a deus ex machina available to sweep aside some of the huge problems Einhorn outlines, it is the continuing acceleration of technology (see, as always, Ray Kurzweil’s dazzling take).

Imagine our managing to muddle for a decade even as alternative energy gets closer and closer to being cheap. Imagine printed solar-voltaic film on every window powering buildings. Imagine the low-hanging energy efficiencies we could wring out of our economy in the meantime. Imagine zinc-air batteries that store more than three times the energy of lithium-ion.

Cheap clean energy, if we can make it from here to there, offers the prospect of tremendous prosperity. And, of course, greater national security and hope for the environment.

And we now have a President, again, who gets it. Who appointed a Nobel-Prize-winning physicist to be his Energy Secretary instead of an industry lobbyist.

I haven’t met Secretary Chu, but I did have a chance to hear his senior advisor Matt Rogers recently as he talked about the grants and loans the Department of Energy is engaged in making – and the highly competitive merit-based process by which they are awarded.

In the area of cutting-edge technology, they have thus far chosen 37 projects to fund, any one of which, if it panned out – like a battery that promises to bring down the cost of storage by 95% – would be a total game-changer.

I can’t do all this justice, but I tell you it filled me with hope.

Just listen to the President addressing the MIT community three weeks ago:

[T]he Recovery Act that we passed back in January makes the largest investment in clean energy in history, not just to help end this recession, but to lay a new foundation for lasting prosperity. The Recovery Act includes $80 billion to put tens of thousands of Americans to work developing new battery technologies for hybrid vehicles; modernizing the electric grid; making our homes and businesses more energy efficient; doubling our capacity to generate renewable electricity. These are creating private-sector jobs weatherizing homes; manufacturing cars and trucks; upgrading to smart electric meters; installing solar panels; assembling wind turbines; building new facilities and factories and laboratories all across America. And, by the way, helping to finance extraordinary research.

In fact, in just a few weeks, right here in Boston, workers will break ground on a new Wind Technology Testing Center, a project made possible through a $25 million Recovery Act investment as well as through the support of Massachusetts and its partners. . . . Hundreds of people will be put to work building this new testing facility, but the benefits will extend far beyond these jobs. For the first time, researchers in the United States will be able to test the world’s newest and largest wind turbine blades — blades roughly the length of a football field — and that in turn will make it possible for American businesses to develop more efficient and effective turbines, and to lead a market estimated at more than $2 trillion over the next two decades.

. . . Now, even as we’re investing in technologies that exist today, we’re also investing in the science that will produce the technologies of tomorrow. The Recovery Act provides the largest single boost in scientific research in history. Let me repeat that: The Recovery Act, the stimulus bill, represents the largest single boost in scientific research in history. . . . And my budget also makes the research and experimentation tax credit permanent — a tax credit that spurs innovation and jobs, adding $2 to the economy for every dollar that it costs.

And all of this must culminate in the passage of comprehensive legislation that will finally make renewable energy the profitable kind of energy in America. John Kerry is working on this legislation right now, and he’s doing a terrific job reaching out across the other side of the aisle because this should not be a partisan issue. Everybody in America should have a stake — (applause) — everybody in America should have a stake in legislation that can transform our energy system into one that’s far more efficient, far cleaner, and provide energy independence for America — making the best use of resources we have in abundance, everything from figuring out how to use the fossil fuels that inevitably we are going to be using for several decades, things like coal and oil and natural gas; figuring out how we use those as cleanly and efficiently as possible; creating safe nuclear power; sustainable — sustainably grown biofuels; and then the energy that we can harness from wind and the waves and the sun. It is a transformation that will be made as swiftly and as carefully as possible, to ensure that we are doing what it takes to grow this economy in the short, medium, and long term. And I do believe that a consensus is growing to achieve exactly that.

The Pentagon has declared our dependence on fossil fuels a security threat. Veterans from Iraq and Afghanistan are traveling the country as part of Operation Free, campaigning to end our dependence on oil — (applause) — we have a few of these folks here today, right there. (Applause.) The young people of this country — that I’ve met all across America — they understand that this is the challenge of their generation.

Leaders in the business community are standing with leaders in the environmental community to protect the economy and the planet we leave for our children. The House of Representatives has already passed historic legislation, due in large part to the efforts of Massachusetts’ own Ed Markey, he deserves a big round of applause. (Applause.) We’re now seeing prominent Republicans like Senator Lindsey Graham joining forces with long-time leaders John Kerry on this issue, to swiftly pass a bill through the Senate as well. In fact, the Energy Committee, thanks to the work of its Chair, Senator Jeff Bingaman, has already passed key provisions of comprehensive legislation.

So we are seeing a convergence. The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it’s important to understand that the closer we get, the harder the opposition will fight and the more we’ll hear from those whose interest or ideology run counter to the much needed action that we’re engaged in. There are those who will suggest that moving toward clean energy will destroy our economy — when it’s the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim — make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.

So we’re going to have to work on those folks. But understand there’s also another myth that we have to dispel, and this one is far more dangerous because we’re all somewhat complicit in it. It’s far more dangerous than any attack made by those who wish to stand in the way progress — and that’s the idea that there is nothing or little that we can do. It’s pessimism. It’s the pessimistic notion that our politics are too broken and our people too unwilling to make hard choices for us to actually deal with this energy issue that we’re facing. And implicit in this argument is the sense that somehow we’ve lost something important — that fighting American spirit, that willingness to tackle hard challenges, that determination to see those challenges to the end, that we can solve problems, that we can act collectively, that somehow that is something of the past.

I reject that argument. I reject it because of what I’ve seen here at MIT. Because of what I have seen across America. Because of what we know we are capable of achieving when called upon to achieve it. This is the nation that harnessed electricity and the energy contained in the atom, that developed the steamboat and the modern solar cell. This is the nation that pushed westward and looked skyward. We have always sought out new frontiers and this generation is no different.

Today’s frontiers can’t be found on a map. They’re being explored in our classrooms and our laboratories, in our start-ups and our factories. And today’s pioneers are not traveling to some far flung place. These pioneers are all around us — the entrepreneurs and the inventors, the researchers, the engineers — helping to lead us into the future, just as they have in the past. This is the nation that has led the world for two centuries in the pursuit of discovery. This is the nation that will lead the clean energy economy of tomorrow, so long as all of us remember what we have achieved in the past and we use that to inspire us to achieve even more in the future.

I am confident that’s what’s happening right here at this extraordinary institution. And if you will join us in what is sure to be a difficult fight in the months and years ahead, I am confident that all of America is going to be pulling in one direction to make sure that we are the energy leader that we need to be.

Thank you, everybody . . .

☞ Have a great weekend.