Global Market Comments
March 29, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(TLT), (FCX), (XOM), (OXY), (WPM), (TSLA) (FCX)
Tag Archive for: (TSLA)
Occasionally I get a call from Concierge members asking what to do when their short positions options were assigned or called away. The answer was very simple: fall on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have SEVEN spreads that are deep in the money going into the APRIL 19 option expiration. They include:
(TLT) 4/$87-$90 call spread
(FCX) 4/$37-$40 call spread
(XOM) 4/$100-$105 call spread
(OXY) 4/$59-$62 call spread
(WPM) 4/$39-$42 call spread
(TSLA) 4/$140-$150 calls spread
(FCX) 4/48-$51 put spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit spread.
What the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!
All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.
Sounds like a good trade to me.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (FCX) position after the close, and exercising his long April $40 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Global Market Comments
March 22, 2024
Fiat Lux
Featured Trade:
(MARCH 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(DIS), (GLD), (BITB), (UUP), (FXY), (F), (TSLA), (NVDA), (FCX), (UNG), (TLT), (MCD)
Below please find subscribers’ Q&A for the March 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.
Q: Do you recommend a form of dollar-cost averaging, and what is it?
A: Absolutely, yes. It is impossible for anybody to get an absolute bottom when you're buying, so the best thing to do is time average. If you have a position you like, go in there every day and buy a little piece. I bought Nvidia (NVDA) practically every day for months and boy did that work! (NVDA) had already gone up a lot, but I just kept buying it and buying it, averaging up and up. So that is the way I dollar-cost average. It's really more of a time averaging than a price averaging. No one knows where tops and bottoms are, even if they promise you that they do.
Q: Are you still long the Yen (FXY) and shorting the Dollar (UUP) given current conditions?
A: I actually don’t have any positions in the currencies, because the volatility is so low compared to stocks. Suffice to say that over time when US interest rates go down, currencies should go up, especially the Yen, which has been depressed for such a long time.
Q: Can gold (GLD) and Bitcoin (BITB) go up at the same time?
A: Absolutely. They almost always go up at the same time, because they are liquidity-driven assets, and when liquidity is as rich as it is now, all liquidity-driven assets go up at the same time which includes gold, silver, and Bitcoin and other cryptos. The only difference this time is that the source of liquidity is not the Federal Reserve—in fact, the Fed is quite restrictive right now with their high-interest rate policy—the new source of liquidity is corporate profits, especially from technology stocks, and that is unlimited and not subject to political whims. It’s always there and it’s always growing; it's a much better form of liquidity than the old form from the US government.
Q: What are your thoughts on the Disney (DIS) and Peltz fight, and how should that affect the stock price?
A: Whenever Nelson Peltz gets involved in a company, it's almost always positive for the stock even if he makes boards uncomfortable. That's why he's going in—to force better management. He usually succeeds and then gets out at a higher price. And if it means forcing some things on management they don't like (and I'm not really sure in the case of Disney what it is he's pressuring them for), he gets his profit and he leaves, and that's what corporate raiders do.
Q: Should I buy the dip in the EV narrative?
A: Not yet. You need a global economic recovery for that to happen, especially in Europe and China. We forget how prosperous we are here, and how weak things are in pretty much the rest of the world—and that is where the EV sales have really collapsed. So let the burden of proof be on the EV companies to report better sales and better technology, and then I'll be back in. Tesla periodically has 80% corrections: we’re right at the tail end of one of those. We may have another 10% to go and that's it. I'm a fair-weather friend, I only like to be long stocks when they're going up. How about that?
Q: I am understanding correctly that you believe the transition from technology and semiconductors to commodities and elsewhere is actually showing long-term strength growth for the tech stocks since they are mostly going sideways from here and not crashing with the rotation.
A: What I see is a time correction in technology where after tremendous moves they go sideways for a period, and new money switches over to other sectors like commodities and energy. And then you'll have a rotation back into technology after they've had a rest, probably before the end of the year. This back-and-forth kind of action could go on for many years—I've seen this happen before. So that's what I'm trying to position for now. And you know, I'm not alone in saying I don't like buying stocks after they tripled in a year. It's almost a no-win trade if you're a professional manager.
Q: Are we heading towards $90 a barrel in oil (USO), and will we pass $100?
A: Yes, we’re definitely headed to $90. But I think the new range is sort of like $65 to $95 because when you get up to the high prices, all of a sudden supply starts coming out of the woodwork, especially from the United States, which is already the world's largest oil producer at 13 million barrels a day. As soon as you get a high price, money just starts pouring in to start new drilling, setting up the next price collapse. The United States is the cap on global oil prices and China is the floor. They come in as the buyer of last resort as the world's largest consumer whenever prices get super cheap, and that actually is a best-case scenario—not only for us but for OPEC. Because their investments do well in the US when oil is in a $65 to $95 range. Any higher than that, the stock market crashes, wiping out the value of their savings. And that is how the modern world has evolved.
Q: Will today's Fed meeting be a non-event?
A: Yes, no interest rate changes until June, maybe even later. And the market is basically telling us that—dead in the water as it is. Dow is nowhere, and there are no big moves. Everyone is just treading water here.
Q: Would you take profits on NVIDIA (NVDA)?
A: Yes, some profits. I structured my own personal portfolio so I have expiring front month short put positions, which are ringing the cash register every month, but my long-term LEAPS I'm keeping. Because I think you could have another 50% move up in a year in (NVDA) stock given their dominant position in the market, and the fact that the new Blackwell chip, the $40,000 Blackwell chip is taking over the world. It's essentially a computer on its own, and it writes its own software. Nobody else is close to that, nor will they be. So keep the long-term positions to LEAPS, and keep taking profits every month. And you have to keep in mind also that (NVDA) is almost every portfolio manager's larger single position through capital appreciation, or they're not in it at all, and they're looking for a job or driving an Uber cab somewhere.
Q: Should I buy Ford (F) or Tesla (TSLA) or both?
A: Wait for the market to start discounting the Tesla Model 2 when it comes out next year. Maybe you start buying the stock in 6 months or a year. Probably the better question is not Ford or Tesla, but Tesla or Rivian (RIVN), which seems to be making progress in their mass production. I just don't see any future for the legacy car companies at all. They're just so far behind in technology. I spent most of my life trying to tell them what to do, and if they had followed my advice, they would be much better off than now.
Q: How long can an employment number stay strong? I feel like we have been waiting for a recession for almost 5 years now.
A: Actually the last real recession was the pandemic in 2020, which only lasted a couple of quarters. We may not have another real recession for 5 or 10 years. Why? Because we're in the roaring twenties and we have 6 more years to go. We also are in the new American Golden Age, and who's been predicting that for the last 10 years? I have! It's all about demographics. We happen to have peak spenders, i.e. people in their thirties and forties, at all-time highs, and that is what drives the economy—that is what makes the golden ages predictable as they have been for hundreds of years.
Q: How are the stem cell injections working?
A: Fantastic. After I got shot in the hip last year in Ukraine, I got one and I literally was walking around in weeks and eliminated the pain completely. I went from talking about hip replacement to climbing Kilimanjaro in literally a matter of weeks. So yes, they work for me. I know they don't work for everyone, but I've used them on both my knees, my back, and my hip, and they've been wildly successful. I won't need any more stem cell injections until I go back to Ukraine and get shot again.
Q: Where are you traveling to this time?
A: I’ll be working out of Florida during April, and probably take the quickie trip to Cuba. After that, it's Ecuador and the Galapagos Islands where I want to challenge Darwin’s Theory of Evolution. It turns out that it is in the same time zone as New York, so it'll be easy to work there from a time zone point of view. The Space X Starlink has provided great Internet everywhere, the Galapagos and Ukraine.
Q: Our real estate commission is about to disappear. Will that benefit housing prices?
A: You get what you pay for. If you have commissions drop from 6% to 1%, you'll get 1% worth of the service out of your agent. So if you want your house sold and sold well, you’d better keep paying the commission. Otherwise, your agent will not work for it. You get what you pay for. However, I always thought real estate commissions were too high for too long, and that may be about to change. And if you don't believe me, try selling your house on the internet someday. It doesn't work.
Q: Does the US have the infrastructure for electrification?
A: No, it does not. That means it has to be built out, and that is why we own Freeport McMoRan (FCX) and you should too! Anything involving electrification involves a lot of copper. The grid has to double in size to accommodate the needs of AI.
Q: Should I continue with natural gas (UNG)?
A: If you have a long-term position I would hang on because you're only one cold snap away from a major rally, and at some point, China will come back on stream as a major buyer. So long term I would hold it. Short term positions I would get rid of it before accelerated time decay wipes out your position.
Q: Will the US 10-year Treasury bond (TLT) go below 4% again?
A: Yes, when you get the Fed on an interest rate cutting cycle, 4% is easy; and by the way, home mortgages will be much cheaper in a year, so it's probably not a bad idea if you're buying a home now to take an adjustable-rate mortgage (ARM) then refinance after the Fed finishing cutting rates.
Q: Should I buy the dip in McDonald's (MCD)?
A: Probably not. The concern there is that the weight loss drugs are destroying American appetites and reducing their need for fast food. Eventually, some 100 million Americans could end up taking weight loss drugs. So that's why the stock is sold off. Fundamentally, (MCD) is a low-margin retail play so it's never interested me. The good news is that they're cutting jobs with computers. So that is the only reason to buy it, is the computerization effort. Walk into a new McDonald’s and you can only order by computer. The people there don’t even know how to take a verbal order. This is even more widespread in Europe where labor costs are higher.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Home Sweet Home
Mad Hedge Technology Letter
March 15, 2024
Fiat Lux
Featured Trade:
(POACHING FOREIGN TECH)
(TSLA), (OCDO.L)
Europe is reeling and now it is becoming Silicon Valley’s playground.
The evidence is all over Europe and quite clear-cut at this point.
The royal 7 from the likes of Tesla (TSLA) and Apple (APPL), who have been responsible for most of the stock market gains this year, are leading the charge to cherry-pick the best tech companies in Europe.
Many European companies are now waving the red flag amid commercial electricity costs spiking 100% in many Western European countries.
The unrelenting electricity increase has caused a mad rush to relocate the best European talent to the United States.
Or, if they don’t relocate out of their own will, many are buy-out targets just like the recent news of British online grocer Ocado.
They are on the verge of tasting the sweet hand of acquisitive cash from Amazon (AMZN).
Poached or not poached – Silicon Valley is dominating.
Ocado Group shares jumped the most in more than five years.
Even though the acquisition never came to fruition, this is the type of environment we find ourselves in, as European tech takes the Silicon Valley money before they can go themselves organically without any external help.
Ocado’s stock soared in 2018 on a landmark deal to build warehouses and license software to US supermarket chain Kroger Co., boosting the grocer’s credentials as a technology company. Ocado has partnerships with several grocers, but investor focus has shifted to profitability as demand for automated warehouses slows.
Amazon wasn’t only interested in Ocado, they had to abandon the iRobot deal.
Amazon’s deal to buy Roomba maker iRobot fell apart after iRobot said the deal had “no path to regulatory approval in the European Union.”
iRobot also announced layoffs of around 350 employees, or around 31 percent of its workforce as part of a restructuring.
Ocado has developed, leading automated warehouse technology that could be of great use to Amazon if it tried to take over the European supermarket industry, which it might.
Many American tourists might experience how outdated and obsolete many European supermarkets are these days.
On the corporate side, when I talk to many European workers on the ground in Milan and Brussels, the consensus is that finding a job at an American big tech firm is considered the proverbial golden paycheck.
European counterparts are mired in inefficiency and unproductivity, and the politicians who exist as 27 European Joe Bidens are ruthlessly driving the industry into the ground by taxing and regulating the hell out of them.
European workers also take 2 months of vacation every year along with 15 to 20 federal holidays per year.
When I read the tea leaves, the next expansion of Silicon Valley is to gobble up anything of perceived value in Europe and anything in any European Union country is fair game.
This buying spree could trigger another leg up to big tech and expand margins.
American tech possesses the powerful balance sheets to wield around the world and dominating the European supermarket industry would add to the top line.
Amazon has already forayed into the food industry with Whole Foods in America so this should be viewed as something similar to that.
Look for big tech to enter strategic European industries and eventually buy something like Manchester United or any other high-quality asset.
Mad Hedge Biotech and Healthcare Letter
March 14, 2024
Fiat Lux
Featured Trade:
(TIPPING THE SCALE)
(NVO), (LLY), (VKTX), (PFE), (TSLA)
Imagine, if you will, me sitting down for my morning coffee, flipping through the latest in the biotechnology and healthcare world, when I stumble upon a story that's about as juicy as they come in the world of pharmaceuticals.
The headline? Novo Nordisk's (NVO) stock is on a joyride to the moon, courtesy of their latest heavyweight champ in the weight-loss drug arena, Amycretin.
And let me tell you, this isn’t some minor upgrade. This new candidate is like Wegovy's bigger, bolder cousin.
Now, for those of you who've been tracking the pulse of the market with me, you know I've got a soft spot for stories like these. It's not every day you see a drug come out swinging, making Wegovy look like it's been skipping gym sessions.
As for Novo, the stock didn't just jump following the reports about Amycretin’s performance. It practically did a backflip, soaring over 7% in Copenhagen. And Stateside? We're talking an 8.4% leap to a whopping $135.28. Yes, my friends, that's record-breaking territory.
Let me put this into perspective. Novo Nordisk, with this surge, practically eyeballed Tesla's (TSLA) market value and said, "Hold my beer."
We're talking about a market cap north of $560 billion. Makes you wonder if Elon's feeling the heat, doesn't it?
But this isn’t the last time we’ll hear about Wegovy. Novo’s former golden child of weight loss hasn't been kicked to the curb yet. Far from it.
In fact, the US Food and Drug Administration (FDA) recently stamped it with a seal of approval for reducing heart attack and stroke risks.
This is huge. Why? Because it cracks the door wide open for Medicare coverage. And considering more than 40% of American adults are wrestling with obesity, that's no small target market.
Now, I hear you asking, "But isn't Wegovy's price tag a bit... steep?" Sure, at over $16,000 annually, it's not chump change.
Still, this approval could shift the entire healthcare chessboard. Imagine, medications that once were shrugged off by insurers now potentially becoming mainstays in treatment plans. More importantly, this decision could lead to a surge in demand like never before.
Let me explain why. Prior to this FDA approval, insurers were practically turning their noses up at coughing up the cash for these types of meds. Despite that, folks were clamoring for Wegovy like it was the last slice of pizza at a party.
What do you suppose happens now that Wegovy's got the golden ticket for conditions that insurance can't help but cover? I mean, we're about to see demand go from "Please, sir, I want some more" to a full-blown Oliver Twist riot.
Given this demand, it’s no longer surprising that the scene is getting crowded with competitors itching for a piece of the pie.
Eli Lilly's (LLY) not sitting this dance out, with Zepbound and Mounjaro drawing eyes and opening wallets. Actually, analysts are already placing bets, with some forecasts shooting as high as $60 billion by 2030 across various applications.
Aside from the established names in this niche, there are also up-and-comers like Viking Therapeutics (VKTX) with its impressive trial results for VK2735. Then there's Pfizer (PFE), fumbling a bit with orforglipron but not out of the game yet.
For all of us watching all these unfold, this is the kind of narrative we live for. Novo Nordisk's Amycretin and the bustling competition in the obesity drug market are not just stories of medical innovation; they're tales of market intrigue, investment opportunities, and, yes, a bit of drama.
Before getting in the fray, I suggest you wait for the dip. For now, just grab your popcorn (low-cal, of course) and stay tuned. This biotech thriller is just getting started, and something tells me the plot twists are going to be worth the price of admission.
Global Market Comments
March 13, 2024
Fiat Lux
Featured Trade:
(The Mad MARCH traders & Investors Summit is ON!)
(HOW TO BUY A SOLAR SYSTEM),
(SPWR), (TSLA)
With California having cut the amount that PG&E has to pay for third-party home-generated solar energy by 75% this year, the price of solar panels has crashed. That’s why SunPower (SPWR) shares have just cratered from $50 to $3.
As a result, deals of the century are being offered almost everywhere in the US. This is fortuitous as the price of public utility-generated electricity is rocketing everywhere by up to 15% a year.
It’s just a question of how long it takes Moore’s law-type efficiencies to reach exponential growth in the solar industry.
Solar electricity accounts for 4.75% of total US power generation, up from 3.96% in 2022, and compared to 27.3% in California. That means we are only five doublings away from 100% when energy essentially becomes free.
The next question beyond the immediate trading implications is, “What’s in it for you?”
I should caution you that after listening to more than 20 pitches, almost all of the information you get from fly-by-night solar installation salesmen is inaccurate. Most don’t know the difference when it comes to a watt, an ohm, or a volt.
I think they were mostly psychology or philosophy majors if they went to college at all.
The promised 25-year guarantees are only as good as long as the firms stay in business, which for many poorly run operations will not be long.
Talking to these guys reminded me of the aluminum siding salesman of yore. It was all high pressure, exaggerated benefits, and relentless emailing.
I come to this issue with some qualifications of my own, as I have been designing and building my own solar systems for the past 60 years.
During the early 1960s, when solar cells first became available to the public through Radio Shack (RIP), I used to create my own simple sun-powered devices from scratch. But when I measured the output, I would cry, finding barely enough power to illuminate a flashlight bulb.
We have come a long way since then. For years, I watched my organic bean-sprout-eating, Birkenstock-wearing neighbors install expensive, inefficient arrays because it was good for the environment, politically correct, and saved the whales.
However, when I worked out the breakeven point compared to conventional power sources, it stretched out into decades. So, I held off.
It wasn’t until 2015 when solar price/performance hit the breakeven sweet spot acceptable for me, about six years. I actually earned my money back in only four years, thanks to PG&E’s rapid price increases. Thanks to global warming my solar system is also becoming more efficient, not less. Why, I can’t imagine although higher heat might be bringing greater output.
Then I launched into overdrive, attempting to get the best value for money and game the many financing alternatives.
The numbers are now so compelling, that even a number-crunching, blue state-hating Texas oilman should be installing silicon on his roof.
A lot are.
My effort was the father of the many solar research pieces and profitable Trade Alerts you have received since.
Here are my conclusions up front: Learn about “tier shaving” from your local utility, and buy, don’t lease. All electrical utility plans are local.
First, about the former.
Every utility has a tiered system of charging customers on a prorated basis. A minimal amount of power for a low-income family of four living in a home with less than 1,500 square feet, about 20% of the U.S. population, costs about 10 cents a kilowatt hour.
This is a function of the high level of public power utility regulation in the U.S., where companies are granted local monopolies. There are a lot of trade-offs, local politics, and quid pro quos that are involved in setting electric power rates.
My local supplier, PG&E (PGE) has five graduated billing tiers, with the top rate at 55 cents a kWh for mansion-dwelling energy hogs like me (one Tesla in the garage and a Cybertruck on the way).
In order to minimize your up-front capital cost, you want to buy all the power you can at the poor person rate, and then eliminate the top four tiers entirely. Do this, and you can cut the cost of your new solar system by half.
Your solar provider will ask for your recent power bills and will help you design a system of the right size.
Warning! They will try to sell you more than you need. After all, they are in the solar panel-selling business, not the customer-value-for-money delivery business.
On the other hand, if you are a scientist or engineer, you can simply calculate these figures yourself. In my case, I use 18,000 kWh a year, but by installing only a 9,000 kWh/year system, my monthly power bill dropped from $500 to $50 a month.
This system cost me $32,000, or $22,400 net of the 30% alternative energy investment tax credit, giving me a breakeven point of four years and eight months.
Don’t focus too much on the panels themselves, as they are only 25% of a system’s costs. The big installers constantly play a myriad of panel manufacturers off against each other to get the cheapest bulk supplies.
The majority of the expense is for labor, the inverter needed to convert DC solar power to AC wall plug power, and permitting.
As for me, Mr. First Class All the Way, I specified only 19 of the best American-made, most efficient 335 kWh SunPower (SPWR) panels.
If I had settled for lower-cost 250 kWh imported panels and just bought more of them, I would have saved a few thousand bucks. That’s fine if you have the roof space.
One other frill I ordered was a top-of-the-line SunPower SPR-6000m inverter, which includes two 110-volt AC outlets. Many solar systems won’t work without access to the grid to run the inverter and software.
This will enable me to operate independently of the grid in case it is knocked out by an earthquake or storm, and power a few select appliances, such as my refrigerator, cell phones, laptop, and, of course, my car.
Once you get your connection notice from your utility, you enter electricity Nirvana, selling power at a premium during the day, and buying it back at a discount at night.
You are, in effect, using the grid as a giant storage device, or battery.
You can then log into your account online and measure how much your solar panels are generating in San Francisco, even from places as remote as Africa, as I did last summer.
My statement is posted below, showing my roof is happily generating about 38 kW a day, or one full Tesla 100kW battery recharge every 2 1/2 days.
Since my system is in California, it also expresses the solar energy produced in terms of gallons of gasoline equivalent, tree seedlings grown over 10 years, an average home’s power consumption for one year, or the number of tons of waste sent to a landfill.
Call this “feel good” with a turbocharger.
At the end of every 12 months, the utility will then perform a “true up” calculation. If you produce more power than you used, the utility owes you a check.
Buzzkill warning!
PG&E has to pay me only its lowest marginal cost of power, or 4 cents/kWh for the excess power I produce. That is why it pays to underbuild your system, which for me costs $2.49/kWh to install, net of the tax credit.
This was the quid pro quo that enabled PG&E to agree to the whole plan in the first place. So, you won’t get rich off your solar system.
I am now protected against any price increase for electricity for the next 25 years!
PG&E has already notified me of back-to-back 7.5% annual rate increases for the next two years to pay for the replacement of their aging, dilapidated infrastructure, a problem that is occurring nationally.
Oh, and my $32,000 investment has increased the value of my home by $64,000, according to my real estate friend.
Now for the lease or buy question. If you don’t have $32,000 for a solar installation, (or $16,000 for a normal size house with no Tesla’s), or you want to preserve your capital for your trading account, you may want to lease from a company such as Solar City.
The company will design and install an entire system for you for no money down and lease it to you for 20 years. But after your monthly lease payment, Solar City will end up keeping half the benefit, and raise your cost of electricity annually.
In my case, my monthly power bill will have dropped from $450 to $250. And you don’t get any 30% investment tax credit. However, this is still cheaper than continuing to buy conventional power.
So if you can possibly afford it, buy, don’t rent.
This being Silicon Valley, niche custom financing firms have emerged to let you have your cake and eat it, too.
Dividend Solar (click here for their site) will lend you the money to buy your entire system yourself, thus qualifying you for the investment tax credit.
As long as you use the tax credit to repay 30% of your loan principal within 15 months, the interest rate stays at 6.49% for the 20-year life of the loan. Otherwise, the interest rate then rises to a credit card like 9.99%. A FICO score of only 690 gets you in the door.
There are a few provisos to add.
You can’t install solar panels on clay or mission tile roofs popular in the U.S. Southwest (where the sun is), or tar and gravel roofs, as the breakage or fire risk is too great. The racks that hold the panels down in hurricane-force winds simply won’t fit.
If you want to maintain your aesthetics, you can take the mission tiles off, install a simple composite shingle roof, bolt your solar panels on top, and then put back the clay tiles back around the edges. That way it still looks like you have a mission tile roof.
Also, it is best to install your system in the run-up to the summer solstice, when the days are longest and the sunshine brightest. Solar systems produce 400% more power on the longest day of the year compared to the shortest, because of the lower angle of the sun’s rays hitting the Northern Hemisphere.
Tesla (TSLA) has added a whole new chapter to the solar story.
It offers the PowerWall, a 13.5 kW home storage battery that will cost up to $7,000 (click here for “The Solar Missing Link is Here!”)
The development is made possible by the enormous economies of scale for battery manufacturing made possible by the new Gigafactory near Reno, Nevada.
The Gigafactory will double world lithium-ion battery capacity in one shot. Plans for a second Gigafactory are already in the works.
This will permit homeowners to use their solar panels to charge batteries during the day, and then run off them at night, making them fully energy-independent.
Yes, a total American solar energy supply in 15 years sounds outrageous, insane, and even ludicrous (to use some of Elon Musk’s favorite words).
But, so did the idea of a 3-gigahertz laptop microprocessor for a mere $1,000 24 years ago, when Moore’s law first applied.
The graphics for my own solar power supply are below:
SunPower SPR-6000m
