May 21, 2009

1)?????? Investors which took my New Year advice to load up on emerging markets are now facing the vexing problem of what to do with all of their new found wealth. The emerging market ETF has soared by 57% to $33, and two of my favorites, the China ETF and India ETF's, have doubled from their bottoms. The average emerging stock market is now up 50% on the year. The good news is that I believe this is just the down payment on a multiyear, tenfold move for many of these markets. The bad news is that all of these markets are way overbought on a short term and technical basis, and that we have to expect pullbacks this summer that could give up as much as half of the recent move. If you are a trader, take the money and run. If you are a long term investor, no pain no gain. I don't think any of these high growth plays are going to revisit the 2008 lows. Those were once in a century bottoms. This is the only long equity exposure you should have for the next decade.

2) John Doerr, partner at leading venture capital firm Kleiner, Perkins, Caufield & Byers, has been an early stage investor in Google, Yahoo,?? Amazon, Sun Microsystems, and Intuit and has one of the best 10,000 views of the long term trends. In just 15 years the Internet has grown to a $1 trillion industry with one billion users. By comparison, energy is a $6 trillion market with four billion users. While the US government was an early and massive investor in the Internet, they are nowhere in the energy sector. Only five of the top 30 wind, solar, and battery companies today are American, and we are way behind in research. What would the world look like today if Microsoft were a German company, and Google, Yahoo, Ebay and Apple were Asian? We don't want to replace a dependence of foreign oil with a dependence on foreign batteries. While I realize that John, who dates back to the 8088 chip days at Intel, is looking primarily for VC plays in the next big disruptive technology, it is always helpful to know what the smart money is doing.

3) There are very few people I drop everything to listen to, and one of them is Daniel Yergin of Cambridge Energy partners, your go to guru on all things oil. He says that our imports of Canadian tar sands oil have doubled since 2000 to 19% of the total, and may reach 40% by 2035, keeping it America's number one source of foreign supplies. The problem is that tar sands burn the majority of energy they extract on site to 'manufacture' more oil, creating a mine to tailpipe carbon footprint that is 10%-15% greater than conventional crude. With awareness of global warming growing, the new political realities may not tolerate this. Last year's crude crash tabled 70% on the new projects in Alberta, which are enormously capital intensive. But the next price spike will guarantee a role for tar sands, even though it is the world's most expensive source and is creating an ongoing ecological disaster.

4) I met with Richard Haas, ex-Bush administration diplomat and president of the Council on Foreign Relations, promoting his new book, War of Necessity, War of Choice: A Memoir of Two Iraq Wars. Although the focus now is on economic issues, the Obama era will be defined by the way it deals with the multiple foreign crises that are headed its way. Our most likely next war will be in Pakistan, where an unstable government of 175 million, with 100 nuclear weapons is ceding territory by the day. Obama has upped the ante in Afghanistan by sending 17,000 new troops there because we were clearly losing the war. His diplomacy initiative with Iran may defer the country from seeking its own nukes. Unfortunately, Bush thought Islamic rule there would fail, and didn't want to do anything to support it. By launching two wars in the region, we have made them justifiably paranoid, and given them a convenient whipping boy for their own economic failures. The good news is that so far, Iran has only refined reactor grade, and not weapons grade uranium. Bush invaded Iraq to launch a democratization movement in the Middle East, but achieved the opposite result, and made Iran the new regional power. Bush cherry picked his intelligence and surrounded himself with sycophants to achieve the conclusion for war he wanted, with disastrous consequences. There are a flood of new Iraq books out there and this is one of the better ones.

QUOTE OF THE DAY

'Green new energy could be the mother of all markets, said John Doerr, partner at leading venture capital firm Kleiner, Perkins, Caufield & Byers.