13/01/2011 - 00:00

‘Investor beware’ the message for 2011

13/01/2011 - 00:00

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‘Green’, not greed, may be good, but investors will need to be patient if they want a decent return.

‘Investor beware’ the message for 2011

MOST financial tips are about how to make money. Sometimes it is more valuable to know how to avoid losing money. Top of that list for 2011 is the colour green.

Since it is not easy to buy (or sell) a colour, a more detailed explanation is required. Green, in this case, refers to the many fashionable, but horribly flawed, ‘good for the environment’ investments marketed to a gullible public.

Before rushing to abuse Bystander for being politically incorrect, a failing inherited from a few decades of looking for the truth, consider a few examples of green money losers from the past few years.

• Geothermal power. This is an old favourite because it sounds so deliciously simple, just pump cold water down into hot rocks, extract hot water, make steam, and turn a turbine to generate electricity. Problem: Geothermal is yet to be proven as a commercially viable power alternative.

• Biofuels, such as diesel made from palm oil, and ethanol made from wheat and corn. Viable in small doses but failed three years ago when the rising price of the feedstock (cereals and other foodstuffs) priced biofuels out of business and even led to food riots in poor countries. History is repeating itself today as food prices soar.

• Clean coal. What a joke, but an official government-sponsored joke, which is said to be about cleaning up the emissions from burning coal. Unfortunately, it doesn’t work on a commercial basis and is being quietly shelved.

• Rooftop solar power. Works in part, but only with heavy government subsidies, which have effectively been eliminated because it is not commercial and would eventually bankrupt the government agencies forced to buy high-priced home-generated electricity.

• Geo-sequestration of carbon emissions. Another technology that sounds useful but which is nothing more than an industrial version of sweeping pollution under the carpet. It has yet to be proved as a technology, let alone as a commercial proposition.

The list goes on, but if in doubt about the pain caused by going green, ask anyone working for the Australian government about the troubles with insulating homes with pink batts. Not only did it cost billions of dollars, it burned down a few homes and resulted in the deaths of a few installers.

Invest in companies promoting green technologies, if you must. However, do it from an informed perspective, and be prepared to wait years for a financial return.

Green might make you feel good but it will not make you money, yet.

Costs rule

WHAT started Bystander on this contrary thought train was a graph produced by Bloomberg New-Energy Finance, which showed the cost structure of different ways of producing electricity, before government subsidies.

No prize for guessing that the cheapest was coal, closely followed by natural gas. Then came a sharp kick to landfill gas (old rubbish dumps), geothermal, onshore wind, biomass, offshore wind, solar and wave power.

From little more than $50 a megawatt hour the costs rise steadily until hitting a peak of more than $500 per megawatt hour for wave power.

Admirable as all the alternative technologies are, there is a financial factor at work that dedicated green-power believers seem unable to accept, and that is the need for all of their green solutions to receive heavy-duty, taxpayer-funded, subsidies.

In world recovery from the gravest financial shock for 80 years it is stretching the generosity of taxpayers to imagine that they will go on paying for fashionable innovations which may, or may not, ever stand on their own commercial feet.

Just don’t do it

NOW for more examples of where not to put your money in 2011.

• Europe. A wonderful holiday destination but a region doomed to be the sick man of the global economy, and possibly the trigger for the next phase of the global financial crisis. Outsiders have questioned for some time the viability of a ‘super-state’ comprised of countries which have disliked each other for 1,000 years, and more. All of the issues confronting Europe are concentrated in the euro, a currency much sicker than the $US.

• Foreign exchange trading. Avoid at all costs the latest get-rich-quick schemes being promoted by foreign exchange brokers who have launched a marketing blitz aimed at retail investors, making it sound awfully simple to buy and sell Swiss francs and British pounds without really explaining the risks. It’s only a matter of time before gullible speculators bleat about losing their life savings. Where are the corporate cops from ASIC when they’re needed?

• Any retailer without an internet marketing solution. The year ahead, which has started with pleas from some retailers for government tax assistance, will end with the disappearance of well-known retail brands because they failed the basic calling of their trade – delivering what the customer wants.

• Internet offerings that seem too good to be true. Last week’s $US450 million investment by Goldman Sachs in Facebook values the social network site at $US50 billion. The same over-stretched investment multiples applied to General Electric would value one of the world’s biggest companies at $US3.75 trillion rather than its current $US200 billion. Dot.com crash Mark 2, here we come.

Holiday value

ON the subject of fools and their money being soon parted, it was interesting over the Christmas break to dig into the reason why Rottnest Island is failing as a holiday destination.

Not surprisingly the answer was price, with this one delicious example demonstrating how Rottnest has priced itself out of the holiday market. A night in a lakeside unit at the Rottnest Lodge (summer scorcher special) will cost $330. A night in the five-star Mandarin Oriental Hotel in Singapore will cost $S359 which, at the current exchange rate, is $A278 – close to 20 per cent less than the Lodge.

The airfare to Singapore obviously does some damage to this comparison, though it might not be long before the Rottnest ferry service is charging the same as the flight.

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“Keep out of the suction caused by those who drift backwards.”

EK Piper

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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