5 December 2008

Gold and Clean Tech: Two Sides, Same Coin

by John Rubino

Henry Kissinger used to say that the tricky thing about foreign policy is that information and options are inversely related. That is, when you have the widest range of available policy choices you generally have the least information, and vice versa. As information accumulates, options dwindle, until you're left with absolute clarity but only a single viable course of action. That's a pretty apt description of today's global economy. As it has become clear that we're headed into either a deep recession or outright depression, and that the half-measures announced in the past year won't stop the implosion, the list of policy options has collapsed to just one: Flood the system with newly-created currency to bail out pretty much any company or municipality that asks for help.

If history and common sense still apply, this pretty much guarantees a currency crisis brought on by oversupply of increasingly-worthless paper. So buy gold and silver. Simple and straightforward.

But there's another side to this coin: The destination of all this new government spending. For politicians, a world in crisis is a world open to serious renovation, without the usual constraints of deficits and interest rates. So along with the anxiety comes a certain amount of excitement that normal times rarely offer.

Put another way, in crises governments are unusually powerful, so November's election was unusually important. Luckily (for those wondering what happens next) it offered a clear choice between McCain's promise to maintain the military empire, drill for new oil, and build nuclear plants, and Obama's platform of less military and more alternative energy. Obama won big, which means he and his congressional allies will have free reign to induldge their inner FDR.

They'll have some public fights over health care and which Senator's constituents get the biggest bailouts. But one thing they'll all agree on is that the energy infrastructure should be rebuilt along green lines. So expect non-stop rhetoric about "carbon neutrality" and "green jobs." And because the amount of money necessary to offset the deleveraging of the banking system is huge, expect truly massive subsidies, tax breaks, and outright spending for wind farms and solar rooftops and smart grid upgrades--all flowing into what is still a very small base of clean tech companies.

Which makes today a pretty good release date for my new book:

A few excerpts from Chapter 1:

It was nice while it lasted. More than nice. The age of cheap energy, free water, and abundant food was the smoothest stretch of highway that humanity has ever traveled. But now that road has developed some very big potholes.

...The consequences of the past century's mistakes range from inconvenient to disastrous. But focusing solely on the bad news ignores the other side of the coin: Problems create opportunities, and big, complex problems create vast opportunities. Solving any of the looming environmental crises is worth literally trillions of dollars, so extraordinary amounts of capital are flowing into "clean" technologies, with completely predictable results: New energy sources, benign techniques for managing waste streams, even new ways of fishing and farming are being developed that have the potential to put us on a path to sustainable abundance -- or at least to avert disaster. The rise of clean tech is, in other words, an investment theme with long, long legs.

...Add it all up -- a burning, multifaceted need for clean tech, new technologies that really work, and enthusiastic support from every major government -- and you've got the financial world's dream market. According to the National Venture Capital Association, venture capitalists poured $2.6 billion into clean tech in 2007, up about 400 percent from 2005 levels. Silicon Valley legends have shifted seamlessly from info tech to clean tech, with names like Vinod Khosla, Elon Musk, John Doerr, and Paul Allen now cropping up constantly in deal announcements. And companies of all types have discovered that green technologies are both good business and good PR. Google, for example, has promised to pour hundreds of millions of dollars into alternative energy research in an attempt to become a leader in that field, and Wal-Mart is putting solar panels on the roofs of hundreds of supercenters. Meanwhile, virtually every major investment bank and mutual fund is building a presence in clean tech. Goldman Sachs, for instance, has stakes in a wide range of wind and solar power firms and Citigroup recently promised $50 billion for green investments and financings in the coming decade. As an analyst at one of the new green research boutiques told me recently, "Interest is significant to tremendous. Some clients have funds with dedicated investment categories for clean tech and other funds have an interest in high-growth technology, but there isn't a major account that I visit that doesn't understand the political, societal, economic, scientific, and business argument of clean tech. Everyone is aware of it."

... If clean tech is so inevitable, why bother reading another word? Why not just access your brokerage account and move your life savings into a random list of solar, wind, and biofuel stocks? Because, to put it bluntly, hot markets are dangerous markets. When the reasons for investing in a given sector are this compelling, con artists and delusionals come out of the woodwork. In the coming decade, we'll be inundated with breathless accounts of new clean technologies that are sure to save the planet and make early investors rich beyond imagining. And the financial community -- which, in a perfect world, would act as gatekeeper to protect investors from the untried and unwise -- will become the main facilitator of the boom. Venture capitalists will feed these sure-things to investment bankers, who will sell them to stock brokers, who will sell them to us.

Think back to the dot.com era for a sense of green tech's future. During the second half of the 1990s, virtually any company with even the vaguest relationship to e-commerce got venture funding and then was taken public by unscrupulous investment bankers, and then sold to credulous investors seduced by the promise of easy money. As it turned out, the Internet has worked as advertised, changing the worlds of entertainment, shopping, and communication almost beyond recognition. But the vast majority of people who loaded up on late-1990s tech stocks had lost most of their money by the end of 2001. Clean tech differs from the dot.coms in ways that will be explained in later chapters. But human nature is what it is. When something seems to have unlimited potential, it becomes, by definition, hard to measure and therefore hard to value. Tools for distinguishing fantasy from reality are crucial, and that's what this book attempts to provide.


No comments: