Guest Post: The New Rising Sun?

Submitted by Leo Kolivakis, publisher of Pension Pulse.

In my last comment on the ‘Golden Cross‘, I warned people not to be overly reliant on technical signals. Someone on Naked Capitalism commented that it is better to use the exponential 50 and 200 day moving averages, which lends more weight to more recent data.

While it is true that the 50 and 200 day EMA are not showing a Golden Cross yet (you can verify this for free on Yahoo Finance, for example, on the S&P 500), there is a danger when you just look at technical signals and ignore other things like fundamentals and liquidity.

On his blog, Luc Vallée discusses the chronicles of a second wave of foreclosures and notes the following:

Another incoming large wave of home foreclosures could bring a new series of bank failures and renewed financial distress and, as a result, prolong the current economic recession well beyond 2010. This is because, according to Mckitrick, resets on Option-ARM mortgages, currently averaging $2 billion a month, will rise to $25 billion per month by late 2011; mostly in California and neighboring states. This means we could relive the nightmare of the last two last years when we went through a big wave of resets.

I have already alluded to how Alt-A resets will slam alternative investments and I think it is wise for people to understand the difference between bottoming out and a full fledged recovery.

Importantly, given the economic destruction and spare capacity in the economies of industrialized nations, it increasingly looks like the next recovery will be the weakest recovery in post-war history and expect interest rates to stay low longer than what the market is currently pricing in.

But this does not mean that the world will come to an end. Any student of economics who has studied Schumpeter’s creative destruction knows that dynamic changes are constantly occurring in the economy and that innovation will displace older mainstream industries.

Today, I want to focus on one of the new industries in alternative energy, the solar industry. I am personally invested in this industry, both long-term and short-term (trading), and I think it will be the next “new thing”.

Greentechmedia notes that the U.S. House of Representatives cleared a big hurdle late Friday by passing a bill that set goals for reducing the United States’ greenhouse gas emissions, a first in Congressional history.

The Associated Press reports that the solar industry to see faster than expected growth:

The solar energy industry will grow faster than expected during the next few years as American utilities invest heavily in large-scale solar farms, analysts with Barclays Capital said Tuesday in a research note.

Barclays analyst Vishal Shah noted that demand for utility-scale solar projects could eventually make up half of the U.S. market. Major utilities could install about 5 gigawatts of solar photovoltaic projects during the next three years, the analyst said.

Solar power is still a tiny player on the American electrical grid, however.

The utility-scale projects currently in operation in the U.S. provide 444 megawatts of energy to the grid according to the Solar Energy Industries Association. That’s enough to power 2.8 million homes, and it’s only a fraction of the power generated by another alternative energy source, the Palo Verde Nuclear Generating Station near Phoenix.

That amount is expected to jump more than 12-fold in the next few years, however, with dozens of new solar plants under development in California, Arizona, Florida and Hawaii.

Shah said SunPower Corporation, First Solar Inc., Suntech Power Holdings Co. and Yingli Green Energy will be the primary players in utility-scale projects in coming years.

Because of the banking meltdown, the expansion depends heavily on the promise of billions of federal stimulus dollars that Congress earmarked for solar in the past year.

Power companies have had trouble raising money for major projects, and they still don’t yet know how they can access federal grants and loan guarantees.

SEIA spokeswoman Monique Hanis said the Treasury Department and the Department of Energy are expected provide more information this summer.

“The sooner we can get some guidance, the sooner we can get moving on these projects,” Hanis said.

While some are skeptical of government intervention, there is no doubt that the solar industry will need strong government incentive programs to continue expanding. In California, for example, the legislature must act to keep solar glowing.

If the U.S. does not get its act together, it risks losing ground from other countries which are actively promoting the solar industry. Europe’s solar power seen competitive in 2010. Japan is relighting its solar PV industry.Beijing’s bid to boost the solar energy sector could draw more than $10 billion in private funding for projects and put China on track to become a leading market for solar equipment in the next three years.

Not everyone is convinced solar is the way to go for clean tech. Some feel a more realistic energy option to be invested in for the next 5-20 years is nuclear energy.

But all these naysayers forget that advances in photovoltaics could make solar cost competitive:

Building-integrated photovoltaics (BIPV) is poised to change the face of construction, energy and urban planning in the coming decade.

The Department of Energy has estimated that BIPV technology could potentially generate 50% of the electrical needs of the U.S. and other developed countries, and the DOE’s Solar America Initiative has set the goal of making solar cost-competitive with grid electricity by 2015.
In this continuing effort the Department of Energy just announced the selection of 24 new solar projects to advance photovoltaic technology research, development, and design, ultimately lowering the cost of photovoltaic generation. The competitively-selected projects will be eligible for up to $22 million from the President’s American Recovery and Reinvestment Act and will be matched by more than $50 million in cost shared funding from private partners.
Many of the projects selected focus on improving the effectiveness of the materials used to capture the sun’s rays.
So which stock do I like in the solar industry? My top pick is LDK Solar (LDK), a popular solar stock with pro investors. There are other excellent picks in this sector, like Yingli Green (YGE) who is seeing a pick-up in demand and Trina Solar (TSL) who got $57 million in new credit:

Trina has been helped in recent months by a decline in the cost of polysilicon, the material it uses to turn sunlight into elecricity in its solar cells, but like others in the industry, has suffered from a steep drop in prices for solar panels.

Chinese solar companies have also seen volatile earnings swings because of the sharp moves in the value of the euro versus the U.S. dollar. Europe is the biggest market for solar products.

The new facilities from Standard Chartered Bank (China) Ltd brings its total credit facilities to $520 million.

Credit is important for these companies to continue expanding. Their debt levels are high, but this reflects strong expansion and difficulties keeping up with demand.

I will end by warning all of you, solar stocks are not for the feint of heart. If you cannot stomach crazy volatility, do not bother investing in these stocks. The big hedge funds love manipulating them through naked short selling, an abusive practice that has finally caught the attention of global watchdogs.

I see huge potential in the solar industry and I am a long-term investor in the sector. I also trade them in my short term account because I see the way they move when volume picks up in the sector.

On that note, I am off to enjoy this sunny Sunday afternoon in Montreal.

[Note: Here are the symbols of solar stocks I track: CSIQ, ESLR, FSLR, JASO, LDK, SOL, SOLF, SOLR, SPWRA, STP, TSL, WFR, TIM.TO, TSL and YGE. The symbol for the solar ETF is TAN.]

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  1. "DoctoRx"

    1. Everyone "knows" that the next bubble/boom is alternative energy.

    2. A purer play ETF than TAN is KWT.

  2. JP

    A "moving average" is nothing other than a low-pass filter. Crossing of 2 different moving averages is the subtraction of 2 low-pass filters with different time constants. It does not change signal-to-noise unless the noise is significantly different outside of that part of the spectrum.

    In short: You might as well ditch that crap, it's voodoo. Go and back test it: You will find that the predictive power is much less than the standard deviation.

  3. Alan


    I am personally invested in this industry, both long-term and short-term (trading), and I think it will be the next "new thing".

    You get a cookie for full disclosure. Since you're personally invested financially, emotionally and for public repute, I don't expect to persuade you of anything. But I do admire your candor in stating you're talking up your trade.

    I agree completely it will be the next "new thing". Solar PV, Wind and "Cellulosic" ethanol are being promoted by the same kind government activities and policies that created the late real estate bubble, mortgage backed securities and subprime lending. It's all there for those with eyes to see; tax policy, regulatory compulsion of businesses (utilities and what's left of materially productive industry in this case) to do things they otherwise wouldn't do, government backed loan guarantees, arbitrary bureaucratic suppression of potential competition, a large parallel community of activists, promoters and consultants feeding on the golden river of government money and "talking their book"…

    There is no doubt some people will get very rich out of this. Al Gore plans to be one of them. Others will get very comfortable. The same happened in the late r.e. bubble. Not everyone lost money. Just the vast majority.

    Whether the overall society will be enriched by this latest "new thing" or further impoverished as a result is another question.

    The promoters no longer bother to conceal the fact they intend to jack up electric rates for consumers. How this will help consumers with negative income growth lead any "recovery" is left unexplained.


    1. Will government mandated higher power and fuel costs a) accelerate or b) retard the " incoming large wave of home foreclosures."

    2. Will government mandated higher power and fuel costs a) increase or b) reduce the cost of goods sold. At least Made In USA goods.

    3. Will government mandated higher power and fuel costs leave consumers a) more credit worthy or b) less credit worthy to lead a real estate recovery, or even form an r.e. bottom?

    Just ignore it, the same way most people ignored the jobless recovery after 2001, stagnant to negative real income growth and the fast decaying credit quality of real estate buyers in late 2005. It'll all work out through the magic of "modern technology" and "creative destruction", right?

    knows that dynamic changes are constantly occurring in the economy and that innovation will displace older mainstream industries.

    True. There's always an economy of some kind. This was true even after the collapse of the western Roman Empire.

    I've been working for several years in biomass energy. Biomass gasification applications to be precise. As a result I went back to college for another degree, this time a BSME. I'm a junior now. (sorry Yves, a top ten b-school degree wasn't enough).

    it's only a fraction of the power generated by another alternative energy source, the Palo Verde Nuclear Generating Station near Phoenix.

    Too bad the AP writer Leo cited didn't bring out the key factor in comparing power generation sources: capacity utilization rates. Palo Verde's faceplate 3,800 megawatts of generation capacity features capacity utilization rates of 90% and higher, 24/7.

    Now that sundown is approaching in sunny Montreal, perhaps Leo will comment on Solar PV's comparable capacity utilization factor.

    (hint: it ain't even half of Palo Verde's)

  4. Leo Kolivakis


    I am sure you are a lot more knowledgeable than I am on the capacity utilization rates of nuclear vs. solar, but I think we are ignoring the unbelievable technological revolution going on in the industry right now which are bringing efficiency levels up and costs down.

    Building nuclear reactor plants takes years and a lot of expertise. There is also the NIMBY reaction you have to deal with. People do not want to live anywhere near them.

    So solar is there to make Al Gore stinking rich? News to me since he is already stinking rich and commands huge speaking fees. As for others, the Walton family owns a good chunk of industry leader First Solar and don't be surprised if Wal mart starts putting up solar panels in all their stores.

    The alternative energy bubble is a bubble we desperately need. I know all bubbles suck up valuable resources to a particular sector, but I would rather it goes into alternative energy than alternative investments.

    By the way, the ETF index I referred to (TAN is the symbol) isn't perfect but it is more liquid than the one DoctoRx posted above.



  5. burrite

    Naked Capitalism is one of my favorite blogs. I have learned a great deal from Yves, Leo, Ed etc.

    So it is with some surprise that I read this piece, which struck me as ill-informed and not worthy of the content generally posted on the site.

    Starting from a premise like "The AP reports that the solar industry to see faster than expected growth" (though how they know it'll be faster than expected is beyond me, since they clearly don't have a clue how much growth is expected), then citing a single hack sell-side analyst (Barclays' Vishal Shah) as a source, and concluding by recommending investments in LDK, TSL and YGE (3 commodity Chinese manufacturers of solar components) is the type of analysis I'd expect to see on a Yahoo chat board, not on Naked Capitalism.

    LDK Solar, by the way, produces wafers made from polysilicon, which it sells to other companies who make cells & modules which are used in solar panels. There is virtually no technology involved in producing these wafers, and, due to the weak financing environment and excessive investment by LDK and its competitors, the average selling price of a wafer has dropped by roughly 65% in that past nine months, from $2.40/watt to $0.90/watt. This has caused massive losses for LDK and its competitors.

    To compound matters, LDK has invested close to $1.6 billion to build a polysilicon manufacturing plant (polysilicon is the raw material used to manufacture solar wafers). Polysilicon, which was in shortage from 2006 to 2008 due to rapid growth of solar demand and limited new capacity, has recently moved into massive oversupply. The price of poly has fallen from $425/kg to $60/kg in recent months. This glut is likely to worsen in 2010 and 2011 due to new plants being brought on line by LDK and others, making it likely that poly prices will fall toward marginal cost (around $20/kg).

    That price will make it impossible for LDK to service the debt it incurred to build its new plant, and makes it highly likely the company will go bankrupt.

    The new demand from US utilities cited in the article will be nice, but will be nowhere near enough to end the glut (I estimate the poly market by 2011 will be able to supply about 24gw of annual solar demand. Demand this year is about 5 gw…the most optimistic estimate I have seen for demand in 2011 is about 12 gw (my own estimate is 9 gw).

    More details available for those who care, but would suggest Naked Capitalism stick a bit closer to what it knows in the future.

  6. Todd Wood

    The bottom line is: Can this category of investment (solar/energy) save us from the oppression of the supper-rich. The answer is, no.

    Naked capitalism and other economic blogs are now filled with the newly dis-possessed.

    Formerly oppressors ourselves, now we, too, are the oppressed.

    Wow! The injustices! The corruption! So unfair. …..Billions of people around the world (in fact, the majority) say, "yes, we know.."

    "Only God can help us now," is the common refrain from the oppressed. Why? Because, it's true.

    The last thing that you can expect is for the oppressor to come to your rescue.

    We just don't get it, do we? We are now the wretched of the Earth, too, and it is no shame to turn to God and to cry at His feet. Only He can help us, because only He will identify with our pain, and not the oppressor. Only He is just, and not the oppressor. Only in God can we find hope, not in the next policy or post.

    We must learn how to cry at the feet of God, bowed with our face to the floor, or we may go insane longing for the justice and purity that feed our souls. Or, persecuted for this need, we may loose our sanity to paranoia.

    Martin Luther in his "I Have a Dream" speech in Washington said, regarding getting back on the bus and going back to Georgia, that – out of the faith that God will one day restore justice, one could hew a stone of hope out of this sea of despair.

    Let's hew that stone, now. "He that gains his life will lose it; He that loses his life for my sake, will gain it." and "I am the way, the truth and the light."

    God is "the way," because His way is the bloodline of Love and the only path to Hope. What better way is there to live or to die? How else could Martin sleep at night amid the anger, but with this sweet knowledge in his heart and mind?

    We are earning our right to pray and to cry with our boots on. We have been shown The Way to die wearing them, too. Suffering is not the coward's way to God, but the narrow gate to God. Run towards it!

    Now, I'm still waiting on Yves for the next, wonderful post!

  7. Sivaram Velauthapillai

    I'm just a newbie with a dubious record so take what I say for what it's worth ;) Anyway…

    I think Burrite, in the comments, cites some of the important aspects of alternative energy, at least solar. As Warren Buffett would say, there is a difference between something being a good investment, and something helping society.

    The fact of the matter is that many solar manufacturers are commodity businesses. There is nothing wrong with commodity businesses but it essentially means that your fate depends on external factors such as input costs, demand, and so on. Their margins are low, they compete in perfect competition environment, largely in China, and so forth.

    Furthermore, as Burrite alludes to above, silicon costs are deflating. This is actually great for consumers but it is possible that many manufacturers will end up losing money.

    Unless you think prices are going to skyrocket–hard to see given the economic problems, declining incomes, etc–the only hope with the solar manufacturers is to bet on the low-cost producer.

    I do think Burrite is wrong on one thing. He/she suggests that supply will outstrip demand. This is possible but one thing to always keep in mind is that declining prices creates new markets–this is especially true for emerging industries. If you look at personal computers, for example, they were initially very expensive and only the upper middle-class really purchased them (outside of business.) But as prices declined, the market size grew exponentially. Companies that didn't seem to have a bright future in the early 90's all of a sudden were turned into key players. I don't know if solar demand will increase sufficiently to make up for potential loss from the decline in price, but you just never know.

  8. Greg Hall

    As long as the housing market is distressed, residential solar will be slow. Commercial (with REITs, etc) is also not a fast solar adopter in this financial environment. Nuclear is the pratical answer for the next 40 years. Yes, some will make money in solar, especially with all the next tax credits and subsidies coming online. But the road will be bumpy.

  9. Leo Kolivakis

    To burrite and all the solar skeptics, including the fella that sent an email to Yves Smith.

    You do not have to believe me or invest in solar if you do not believe in it. I have done my research and I am not recommending stocks with my finger in the air. I do not talk the talk, I walk the walk. How many analysts tell you they are personally invested in solar?

    Anyways, go back to my blog and read the piece on investment labyrinth. I see what the top hedge funds and mutual funds are buying. I couldn't care less about what some analyst from Barclay's is writing.

    I also stated that these stocks are manipulated and extremely volatile. Just last week, LDK fell to $9.50 before climbing right back up. I made over 200% on Yingli last quarter with gut wrenching volatility. These stocks will make you puke but that is fine with me.

    Anyways, always check out who the top holders of stocks are. For example, for LDK:

    You will see Jabre Capital and Renaissance technologies, two well known hedge funds. You will also see Morgan Stanley and JP Morgan.

    I am not saying this means much because they are in and out of positions, but I have done my research and sticking with my guns.

    You can do whatever you want but do not criticize me for putting my balls on the table.

    By the way, the best stock in the last three months was PALM…not a solar but man did it fly and get away from me!!!



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