TOM CASTEN ON RECYCLING ENERGY

“We think we could make about 19 to 20 percent of U.S. electricity with heat that is currently thrown away by industry,” he says. “This electricity is just as pristine as making it with a windmill or making it with a solar collector – no additional fuel, no additional pollution. Just a little bit of additional brains.”

☞ The idea – not a new one – is to capture the heat from our nation’s smokestacks and convert it to energy. How can this not be worth doing? AND YET IT’S AGAINST THE LAW (more or less). Click here for the whole story, or here to listen to it – four and a half minutes – on NPR.

One more example of how we can have a brighter future if we can get on with the job of problem-solving, not impeding change.

FIRST MARBLEHEAD, NSMC, CON ED – AND THE TITANIC

Here is a case for not selling your FMD. Or for buying more (and then perhaps, after 31 days, to avoid the wash-sale rule, selling your original shares for a tax loss).

Or, if you never bought any in the first place (why didn’t I listen to you?), for buying it now – but only with money you can truly afford to lose (because if anyone failed to take this warning seriously before, I should hope that, with FMD at $3.46, down from $26 where some of us first bought it and $56 where some of us – I have in mind particularly me – were too dumb to sell it), you now do.

The very fact that many wince at the mention of FMD, and that much tax-loss selling likely throughout the rest of the year, whets my interest.

Certainly, the company faces very real challenges it may not surmount. But it’s often when no one wants something that it’s most worth considering. (‘Buy straw hats in the winter, for summer will surely come’ – Bernard Baruch, the Warren Buffett of his day.)

My first experience with this phenomenon was with the stock of a company called National Student Marketing Corporation – NSMC. It went public at $6 in April, 1968, touched $140 in late 1969, split four for one, and bottomed out at 37.5 cents about a year later. The president of the company went to jail, as did one of its auditors. The lowliest of its vice presidents went to business school and wrote a book about it. And the point of this story is that,while it’s true you could have made 23 times your money buying the stock at $6 and selling it at $140, it’s also true that you could have made a more than a dozen times your money buying it at 37.5 cents and selling it $6.50 several years later, when the final liquidation was complete. With one difference: at $6 in April, 1968, no stock was really available unless you were one of the few able to get in on the IPO. So many people wanted it, its first real public trades were done at $10 or $12. Whereas at 37.5 cents a few years later, you could have bought all you wanted – because no one wanted it.

Similarly, in 1974, Con Ed – founded 151 years earlier to supply gas light to New York City – got into such a bind, thanks to OPEC and some other problems, that its stock had taken a terrible beating.

At the risk of quoting from my own book (never an attractive quality) . . .

Attracted by its 9% yield and hopelessly ignorant of its problems, I [bought] 50 shares at 20. Shortly thereafter, Con Ed omitted its quarterly dividend for the first time in twelve thousand years and, to my dismay, I found myself buying 100 more shares at 12. Then 100 more at 8½. Then, even, 100 more at 6. I kept buying because I just could not believe that the State of New York—which needed only to grant Con Ed’s rate requests to solve all its problems—would prefer to have the company go bankrupt, and thus have to take on the burden of power generation itself. (Especially considering New York’s own financial position at the time.) Sure enough, the state began cooperating, the dividend gradually was restored (even raised a notch), and the stock recovered to 20. (It would later go on to double and split.) I would be lying if I told you I was smart enough to hold all 350 shares, or even most of them, all the way back up to 20 and beyond. But at least I held some. And I made sure that the first 50 shares I sold were the 50 I had purchased at 20, thus giving me a nice loss to help out with my taxes. The last shares I sold I had held long enough to qualify for long-term capital gain.

☞ Not to say this will necessary happen with FMD, by any means. But I do think kids will continue to go to college and I don’t think they will all be able to go via government loans alone. Student loans still survive bankruptcy, and FMD’s are co-signed by the parents. So there may yet be a business here, and that FMD may yet be able to reemerge. Or not. We’ll see.

Subprime mortgage lenders collapsed because so many of their loans were bad. That’s not necessarily the case with student loans, backed (at least in theory) by a lifetime of earnings once the student graduates (and before the co-signing parents retire). Arguably, it’s the freezing up of the credit markets, not company-specific failings, that led to the stock’s collapse. Which makes the collapse no less real, but some form of recovery at least a little more likely.

Then again, one can certainly imagine FMD going the way of other ships lost at sea.

My continued apologies to those of you who have gone – and my preemptive apologies to any of you who may now go – down with the ship.

(Here’s the link to that NPR link again, on energy recycling, if you have four and a half minutes to listen.)

 

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