Seattlest: The Next Market Bubble is Here Already

Jeremy M. Barker

Thu, 17 Jan 2008 14:52:56 -0800

I'm not sure this entirely makes your point, Charles; why should the two concepts--the real value of the energy sector and a market bubble--be mutually exclusive? The comparison to the "reality" of the dot-com bubble or the housing bubble is not entirely accurate, either. The tech sector growth in the 1990s had huge impacts, sparking a massive rise in American productivity growth that continues to this day. As for real estate, that should have been a far more stable market. The problem in both cases was, as argued in the piece above, had to do with finance and investment, to which I see no reason to believe that alt energy is any more immune than any other sector. The argument above--"we did not need 6500 square foot ramblers and $1 million condos but we need alternative energy"--actually misstates part of the housing bubble problem. The problem never had to do with stock--housing supply is fairly sticky because ramp up and construction takes so long. In fact, the problem likely had to do with the fact we didn't have more 6500 sq ft ramblers and over-priced condos. Low interests and a renewed push by the government as part of Bush's "Ownership Society" encouraged more and more people to consider ownership, which was anyway a deeply ingrained component of the American imagination. At the same time, exotic processes were developed to securitize real estate debt. Whereas previously most home loans were underwritten and/or held by the large clearinghouses like Fannie Mae, a few years ago means were developed to securitize debt so that it could be traded on the market. This increasing demand for the securities had two impacts, at the beginning and end of the bubble: at the beginning, it increased the push towards ARMs that would eventually cause the bubble to pop (to wit: the sub-prime market), and at the end of the bubble, the complex web of holdings made it problematic when default increased for the lenders to refinance debt. Normally of course the lenders have a substantial incentive to help borrowers refinance, since the lender would lose more money on the foreclosure. But with the billing services outsourced and the debt holders themselves not serving as lenders, extricating debt from the securities in order to prevent foreclosure created a deadly loop; financing options dried up, foreclosures went up, and massive losses accrued. The core of the piece in Harper's concerns whether or not these realities exist in the alt energy market; I see no reason to believe they don't. Massive government expenditure, public popularity, and the possibility of strong returns on investment could lead to a massive increase in demand for securitized holdings in alt energy companies. The piece from the P-I I referenced above demonstrates part of this issue, particularly vis-a-vis the encouragement for publicly controlled funds to be invested in the market. CalPERS was hit extremely hard by the dot-com bust, and recently the NY Times reported on the massive losses to Florida cities that deposited money in a state controlled pool that was itself heavily invested in housing debt. In short, bubbles have nothing to do with how important or "real" the goods of the sector in question; they have to do with finance and investment. And the consequences from unwise investing are very real.

Charles Redell

Thu, 17 Jan 2008 14:32:20 -0800

To whit. This was announced today: "The U.S. wind energy industry installed 5,244 megawatts (MW) in 2007, expanding the nation’s total wind power generating capacity by 45% in a single calendar year. Wind power’s strong performance is expected to continue this year, with AWEA’s initial estimates indicating that 2008 could equal 2007 in new wind capacity installed." This is the third consecutive year of record growth for wind energy in the US and turbine manufacturers are back ordered by 2 years, at least. via

Charles Redell

Thu, 17 Jan 2008 14:01:10 -0800

As someone who covers the energy industry for the energy industry, I gotta throw a bit of a damper on this. While it's true that there is a lot of hype around certain aspects of the alternative energy industry of late, the alternative energy industry is based much more in reality than housing or tech. We're not talking about Jeff Bezos sitting in his garage using a door for a desk here. There are two reasons: First of all, we did not need 6500 square foot ramblers and $1 million condos but we need alternative energy. There is simply no way we can go on spending $100 per barrel on oil and producing electricity from coal and expect to have a planet to live on in 25 years. Second, by default, many alternative energy technologies are developed over a long time period making the ones that actually IPO a safer bet. This is because electric utilities and the people that regulate them do not move quickly. When they make a decision, generally, it stays made and is sound. A wind farm is supposed to last 20-30 years, minimum. A nuke plant even longer. The technologies that are getting put in the ground have got to show demonstrated results before anyone with any money is going to even glance at them. Yes, there are fly-by-night companies out there trying to earn a buck, but there are also companies like utilities taking a very long view and moving very slowly.

jdavin

Thu, 17 Jan 2008 12:56:27 -0800

> As with the dot-com bubble, the failure of government and the unaccountable business interests combined to screw over Americans from coast to coast. Business interests did not screw over Americans. No one forced them to buy exorbitantly overpriced homes with loans they couldn't afford to pay for. Sure, gov't and business are partly to blame for allowing the public to be stupid, but how about some personal responsibility here? :)