October 12, 2009

 

1) I immediately recognized Robert Mueller as the kind of no nonsense, ex-Marine, Vietnam Vet that he was, the kind of officer who used to rip your? guts out for disobeying a direct order, which in my case was frequently. President Obama thought this is the man you want for your Director of the FBI, which is why Mueller survived as one of the few holdovers from the Bush administration. The Internet is not just a conduit for commerce, but also for crime and terrorism, and the bad guys are checking your doorknobs every day. Information is power, and fiber optic cable is a weapon. Terrorists, in particular, love the new Google Earth application. Only that morning, Mueller busted an American-Egyptian phishing ring, arresting 50, which looted 5,000 US accounts. We all must take ownership of the cyber security problem through the vigilant use of antivirus software, firewalls, sophisticated passwords, and constant patches. Tracing a 75 cent accounting discrepancy at UC Berkeley led to the smashing of a German industrial espionage ring that was tapping into university computers. Teenaged kids, like the Canadian who launched the biggest ?denial of service? attack against E-Trader and E-Bay, are to be feared. Be careful what you post on your Facebook page because it may kill a job prospect years down the road. The FBI is now embedding agents in police departments in Eastern Europe and China to take the fight global. When I got home, I immediately backed up all my files, reset my passwords, and bought my fourth antivirus program. I also installed bars on my windows and set booby traps on the front lawn for good measure.

 

2) I thought I?d pop next door to San Ramon and check in with Dave O?Reilly, the outgoing CEO of Chevron (CVX). The original Standard Oil of California, and one of the Seven Sisters, Chevron has a storied history. It discovered the legendary Ghawar field in Saudi Arabia in the thirties, the world?s largest, and later took over Gulf Oil (from Paul Getty), and Texaco. It is now the largest company in California.?? The problem for the US is that over the last 20 years demand has increased by 4 million b/d, while depletion has cut domestic production by 4 million b/d. The 8 million b/d gap can only be met with imports, which is why Chevron now earns 75% of its earnings from overseas, doing battle with Nigerian rebels and uncooperative foreign governments.?? The net net is that oil prices are going up. All alternative sources will need to be developed to deal with this widening gap, be it wind, solar, biofuel, or nuclear. Chevron is in fact the world?s largest producer of geothermal energy, accounting for 2% of its total supplies, is also the state?s largest installer of solar panels, and has invested $300 million in biofuel research. This is more than just ?feel good? money. The real impediment is that capital turnover in the energy industry is extremely slow. Coal fired power plants can last a century, and our 245 million cars last 15-18 years. Some of today?s low mileage clunkers will still be on the road in 2030. Even with the best efforts, Chevron will get three quarters of its revenues from oil in 2050. There is 100 years worth of investment in our current energy infrastructure and it won?t be replaced overnight. We will be lucky if we can cut CO2 emissions by 25% before 2050, a far cry from the Sierra Club?s 90% goal. The quickest way to cut emissions is to convert our coal fired power plants to natural gas. When Chevron took over Texaco in 2001, it inherited its legal headache in a $27 billion lawsuit over clean up of the Lago Agrio field in Ecuador, a hot button with environmentalists. Now David, a modest Irish engineer who came up through the research side of the company, has to be escorted by bodyguards at public events.

 

3) If we are just on the verge of entering a long term bull market for nuclear energy (click here for full report ), then you have to expect the same for nuclear fuel. Last year, the US consumed 55 million pounds of ?yellow cake? or uranium oxide (U3O8), but produced only 4 million pounds. The rest came out of stockpiles or from imports, much if it from the reprocessed Russian nuclear warheads. The new Department of Energy, under Dr. Stephen Chu, has made a big priority of making loan guarantees available to expand nuclear capacity from a lowly 20% of our total grid. The price of uranium is also rising, dragged up by crude, at one point popping 40% this year. The futures may be the better way to play this, as Uranium mining stocks are notoriously subject to manipulation, and are at the moment a tad expensive.?? In 2007, NYMEX started trading in uranium futures where one contract for 250 pounds is now worth 11,250. Good luck taking delivery is you aren?t running a nuclear power plant. You could be getting a midnight knock on your door from Robert Mueller.