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Wednesday, February 13, 2008

Solar Capitalism

posted by on February 13 at 8:59 AM

Let the alternative energy bubble begin!

Phoenix-based thin film solar-module maker said fourth-quarter earnings brightened to $62.9 million, or 77 cents a share, from $8 million or 11 cents a share in the year-ago period. Profit rose about 50% from the third quarter.
First Solar said revenue climbed to $201 million from $52.7 million in the year-ago period.

Analysts surveyed by Thomson Financial forecast earnings of 53 cents a share and revenue of $180 million, on average.

During the fourth quarter, First Solar said it benefited from the full capacity of its new Frankfurt/Oder plant.

Shares of First Solar rallied 18% to $207.91 on Wednesday.
The stock traded above $270 a share in late December, but fell to the $150 level amid rocky market conditions in recent weeks.

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Posted by Mr. Poe | February 13, 2008 9:03 AM

wise investment is not a bubble.

Posted by max solomon | February 13, 2008 9:04 AM

So that means lots of investment in it, yes?

Posted by Abby | February 13, 2008 9:12 AM

So why, exactly, is this newsworthy? Or even interesting?

Posted by Fifty-Two-Eighty | February 13, 2008 9:14 AM

Wait 'til Charles discovers there's a huge multi-page spread in agate type of these every day in the paper.

Posted by Fnarf | February 13, 2008 9:18 AM

Some crackpot with no facts opines that the western capital markets depend on bubbles, Charles gloms onto it with his extensive econ background *cough* and wants to say that rising profits at a solar company is proof of said crackpot's 'theory'.

Charles, go take a non-Marxist macroeconomics class or two before you talk about markets again. Or just stick to aesthetics and navel-gazing. It's what you're good at.

Posted by NaFun | February 13, 2008 9:21 AM

A bubble accompanies every new technological field. Lots of small businesses start up. Most of them fail or get bought out. There was a railroad boom. There was an automotive boom -- there were once dozens of car manufacturers in the U.S., most of which no one has heard of today. This isn't something unique to the "new economy."

Posted by Orv | February 13, 2008 9:22 AM

Yeah, Orv, but look what happened to 'em. Kids today have never even heard of railroads or cars.

Posted by Fnarf | February 13, 2008 9:24 AM

And the economy is in tatters after those booms busted, hunh?

Posted by NaFun | February 13, 2008 9:27 AM

Hey NaFun:

I happen to agree that Charles is an idiot, but I read the same piece he did in Harper's, and I thought Janszen's point was basically sound. Which part do you disagree with specifically?

Posted by Judah | February 13, 2008 9:28 AM

Damn, FSLR stock is $223.51 a share today.

Posted by Carollani | February 13, 2008 9:31 AM

Looks like a giant weapon =D

Ah, so that is where the real WMD is at!

Posted by Brian | February 13, 2008 9:36 AM

The scare words, the lack of rigor in differentiating a bubble from a normal business cycle boom, the conspiracy theorizing, and heaping blame on Bush for everything that happens in the economy, for a start.

Posted by NaFun | February 13, 2008 9:45 AM

The problem with an alternative energy bubble isn't that there will be a stock boom, followed by a correction. The problem is that 60 years of regressive deregulation in finance and securities has created an environment where booms can easily become bubbles. More than that, the bubble we're currently heading into is actually just the most recent in a more-or-less-unprecedented string of bubbles that started with the tech boom in the early 1990s. So rather than one hard correction, followed by a period of tighter regulation, we're experiencing mini-corrections in an ever-expanding chain of securities inflation. The current market capitalization of publicly traded securities is so many orders of magnitude beyond the actual value of the market's assets -- and those securities are so thoroughly leveraged -- that a correction at this point would be profoundly catastrophic.

That basic point is supported by available evidence. The fact that the point is being repeated by Charles, who's an idiot, is unfortunate. But it doesn't undermine the essential logic of the argument.

Posted by Judah | February 13, 2008 9:50 AM

The problem with explaining away the boom-bust cycle as "corrections" is that it depends on an ideology that insists the market is normally rational. The bubbles and panics are ideologically defined as abnormal events that only happen in unusual circumstances.

To someone not indoctrinated in the market ideology, a simple glance at history tells you that booms and panics are normal, and what is unusual for the market to make any sense.

Regardless, please don't get your panties in a big knot every time you hear from someone who doesn't have faith in the market system. You think there is an invisible hand. I don't. Freedom of religion, that's all.

Posted by elenchos | February 13, 2008 10:04 AM

Volatility in an individual company's stock price is irrelevant. What is relevant is whether capital is attracted to an industry because of the potential to profit.

Dirty, evil, nasty, greedy corporate profits will do much more for the actual growth of alternative energy than altruistic desires to "do the right thing."

Posted by Westside forever | February 13, 2008 10:11 AM


The difference between religious beliefs (as opposed to religious organizations) and economics is that economic forces can and do kill people on a regular basis. Throwing up your hands because it's all just wonky and confusing is kind of on a par with signing off on politics because you think voters are fundamentally irrational.

Posted by Judah | February 13, 2008 10:14 AM

True, Westside. Unchecked corporate and personal greed helped us get to this super stable point in our economic cycle, secure in our homes and jobs. We're lucky to have greed so readily available, since altruism remains in such short supply!

Posted by tomasyalba | February 13, 2008 10:21 AM

Um, the other difference between market economics and religion is that market economics make people rich. Market economics make your life possible.

Posted by Fnarf | February 13, 2008 10:23 AM
Volatility in an individual company's stock price is irrelevant.

Not if the stock is being used as collateral for loans, which are then used to finance the expansion of industry. Or, worse yet, if the stock is being used as collateral for loans to buy more stock which is in turn used as collateral for even larger loans and so on. That's part of the behavior of a bubble and it's relevant as fuck.

Posted by Judah | February 13, 2008 10:23 AM


Ah bless.

Did you get the impression I was advocating against market economics in some way?

Posted by Judah | February 13, 2008 10:25 AM

I agree, Judah. But if you think belief in free markets isn't killing people every day, you might be a religious nut too.

Posted by elenchos | February 13, 2008 10:31 AM

Would you rather see a coal plant?

Ah, didn't think so ...

Posted by Will in Seattle | February 13, 2008 10:43 AM

I haven't read the article magazine article yet, but I have recently skimmed over my worn copy of James Grant's book The Trouble With Prosperity.

Typically with these sorts of new markets there is a gold rush at the beginning, built around some optimistic projections of potential gains. Speculators rush into the market hoping to get in early. Most of them make bad bets, but some hit paydirt and inspire mom-and-pop to start speculating. After the inevitable shakeout, mom-and-pop are busted out by poor returns and high transaction costs. But, the smart investors that did a good job of evaluating the market, and identifying or building well-managed firms, might do pretty well in the long run (Jeff Bezos).

There is little doubt in my mind that the combined pressures of peak oil production and the greenhouse gas catastrophe will fundamentally reshape energy markets. When the dust settles from the gold rush, we'll have a very different energy portfolio, probably a more diverse and cleaner set of energy supplies, as well as much more efficient consumption.

I'm just not smart enough to make the right bets and not much of a speculator, so I'll sit on the sidelines for now. That said, I like the prospects for algae biodiesel, smarter/cleaner nuke power, LED lighting, electrified transportation, more efficient power distribution, wind and tidal generation.

I'm no engineer, but I just don't see photovoltaic having an enormous impact. We have a real problem getting the right liquid fuels for transportation, and need a good carbon-neutral alternative that can be produced domestically on marginal lands without fresh water.

Posted by Curmudgeon | February 13, 2008 10:50 AM

bubbles are formed when the cost of debt allows speculation. busts happen when the returns on that speculation arent enough to repay the debt taken out for speculation. almost every bubble and bust has been caused by this expansion and contraction of debt supply. is that what is financing the investment in these companies?

also, isnt it the government that influences the cost and supply of debt? yes, yes it is.

Posted by Bellevue Ave | February 13, 2008 11:00 AM

@18 Greed is not a by-product of capitalism, it is part of human nature--the question is whether the economic system harnesses that trait for a net benefit or not. In a dynamic, chaotic system, like the economy, stability is not going to happen.

@20 This is called fraud. You cannot prevent greedy fools from being parted from their money.

Posted by Westside forever | February 13, 2008 11:01 AM

@17 this is now completely offtopic, but are you saying that religious orgs DON'T kill people all the time?


These are basic business cycle fluctuations, speculators rush into a market sector, invest heavily, the sector shakes out, the economy retracts for a bit, the next biz cycle takes over. Basic macroecon. I'd like to see your evidence to the contrary.

Posted by NaFun | February 13, 2008 11:03 AM

and i'd like to know what the point is here...

that there might be speculation in the energy market and that is bad? do some of you not understand that speculation is necessary to push technology forward and that contract and busts root out the inefficient players in that technology?

remember, these companies don't have to be publicly traded, and they can be run by the likes of elenchos and chaz. neither of them seem to be making a difference with clean energy that makes a damn though like these companies.

Posted by Bellevue Ave | February 13, 2008 11:05 AM


I think the relevance remark was more along the lines of "don't confuse the forest for the one tree." Or better yet "don't confuse weather for climate"

I suppose that getting hit by lightning is very "relevant" to the person being struck, and all the people he owes money (your point), but one lightning strike doesn't tell us much about the weather and even less about the climate.

I suppose it's a question of sample size. If 10,000 people are struck in the same country in the Spring of every year, then we can make some smarter observations about the climate, but we'd still be guessing about what might happen next year.

Very few alternative energy companies have been successful in the past, and we're going to see most of the new ones fail. But, I think that over the next 20 years we'll see a few become incredibly successful. The demand for new sources of cleaner is incredible and the industry is going to attract a lot of capital despite what's happening in finance markets.

Posted by Curmudgeon | February 13, 2008 11:06 AM

i'd like to see evidence that bubbles and busts in the market are a new thing. tulips anyone?

Posted by Bellevue Ave | February 13, 2008 11:07 AM

Religious organizations don't kill people all the time. Most of what you're thinking of isn't motivated by religion at all. Osama bin Laden is not primarily motivated by religion.

Posted by Fnarf | February 13, 2008 11:36 AM


re @17:
Yes, that's exactly what I'm saying. Only I cleverly disguised it by making a clear effort to distinguish between religious beliefs and religious organizations: "The difference between religious beliefs (as opposed to religious organizations) and economics is that economic forces can and do kill people on a regular basis."

re @14:
My evidence that the current economic downturn is not part of a normal business cycle is based on the general principles discussed in The Great Crash 1929, by Harvard economics professor John Kenneth Galbraith.

Essentially: There is frequently a disparity between the value of a corporation and the total value of its stock. This is natural, as stock prices reflect speculation about the future value of a corporation based on the profitability of that corporation, and the assumption that profits will be invested toward growth. Occasional increases in profits will generate a speculative boom, which will correct fairly quickly as profit growth levels off. However, stock prices can be leveraged, by using them as collateral to purchase more stock, thus creating a false demand for stock that can accelerate very quickly. This is one of several circumstances that can lead to a bubble.

Since the early 1990s, there have been several factors leading to unprecedented profit growth in corporations around the world, but not only are those factors unsustainable (cheap foreign labor, exploitation of developing world resources, etc), but the duration of their growth has created period of unusually sustained speculation. This sustained speculation has motivated widespread deregulation, particularly in finance, insurance and real estate, which has in turn resulted in unprecedented quantities of leveraging. The retraction of mortgage-backed securities, which is currently running into the hundreds of billions of dollars, is one example of the kind of collapse that over-leveraging has made possible. But it won't be the last collapse of that kind.

Large investors, meanwhile, are looking for a new bubbles -- like the alternative energy bubble -- to invest in so that they can offset the losses from mortgages. Only a bubble will suffice in this capacity, because only a bubble has the magnitude of market capitalization necessary to offset the losses incurred from a bubble. In theory these investors would then try to sell off at the top of the market and walk away with their capital gains intact -- leaving everyman investors holding the bag -- but that's probably not going to work this time. With credit as tight as it is and our national savings and economic buffers (interest rates, deficit spending, etc) so thoroughly depleted, it's unlikely that regular investors would be able to buy in to the level of speculation that would be necessary to offset the subprime mortgage losses.

And this is what Charles is referencing. The possible dangers of an alternative energy bubble aren't about whether the technology is useful. They're about what role that bubble might play in a larger pattern of stock inflation, bad investment, and a growing pool of bad debt.

Obviously that's a very short description of a very complicated situation, but that's what I see at work.

To put it another way, in more concrete terms: Starbucks' balance sheet, which incorporates a number of dubiously supported assets, says the company is worth about $2.3B. Market capitalization for Starbucks' stock is at about $13.6B. Now, profit growth is all well and good, but I don't imagine Starbucks Corp ever being worth 6 times what it's worth now. That magnitude of stock inflation is fine when assets are well supported and a diverse economy creates diverse opportunities for lower-risk investment, but neither of those things is true right now.

And it all makes me very very nervous.

Posted by Judah | February 13, 2008 12:22 PM

SBUX market cap is a function of potential future earnings plus the balance sheet. Asset values are priced according to anticipated future cash flows. Owning shares is like becoming part owner of a money printing machine. (In the case of SBUX the machine has been sputtering lately.)

Posted by Curmudgeon | February 13, 2008 10:13 PM
SBUX market cap is a function of potential future earnings plus the balance sheet.

Uh, no. Market capitalization is equal to the total number of shares times the share price. That's what market capitalization is a function of; look it up.

Share price is influenced by potential future earnings and balance sheet, but the real value of stock is only worth the total value of the company (per the balance sheet) divided by the number of shares. And balance sheet value, as I said, makes a number of pretty Micawberesque assumptions.

Posted by Judah | February 14, 2008 11:16 AM

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