Making Cash Out Of Trash

"We must continue investing in new methods of producing ethanol -- using everything from wood chips to grasses, to agricultural wastes.” - President George Bush, 2007 State of the Union address.

With high corn prices holding US ethanol producers captive, the race is on to find an alternative way to produce ethanol to meet the ever increasing energy demand for alternative fuels. To this end there are several companies that are looking into commercialization of various ethanol producing technology. One such company, BlueFire Ethanol Inc is seeking to take the lead in the cellulose to ethanol production process. BFRE, which currently trades on the the pink sheets, uses Arkenol Inc patented process to convert post sorted municipal waste, wood waste, rice and wheat straws and other agricultural residues to produce ethanol.

Arkenol's process separates the biomass from waste into cellulose and hemi-cellulose (the main building blocks of plant life) and lignin (the "glue" that holds the building blocks together), converts the cellulose and hemi-cellulose to sugars, ferments them and purifies the fermentation liquids into ethanol and other end-products. This novel process has not been commercialized but has been tested in bio-refinery pilot plants in Japan and California. To this end BFRE has identified El Sobrante Landfill, located in California, where it intends to build its first bio-refinery. The commercial plant is expected to start producing ethanol in 2009 and the company is not expected turn any profits before then. Once BFRE opens its bio-refinery, its profitabilty will depend on the cost of inputs and price of ethanol produced conventionally from corn or sugar cane.

On the other hand, BFRE's licence with Arkenol allows for its CEO to have his cake and eat it. Arnold Klann, BFRE's CEO, is also the owner of Arkenol Inc. This relationship allows him to profit from BFRE even if it does not make any profits while he collects payments, royalties and fees associated with the commercialization and production of ethanol using Arkenol's technology. Although he has invested a lot of equity into both BFRE and Arkenol, he stands to gain the most from the exclusive licencing agreement between the two companies.

The fact that BFRE is a development stage company and it trades on the pink sheets makes it a speculative investment. As such, the stock price will experience a lot of volatility as it continues with the construction and subsequent commercialization of its cellulose to ethanol bio-refinery.

Relocation Lottery

Peter Loescher*, President- Human Health, Merck, Moving Costs See the SEC filing

Expense	Amount
Relocation allowance	$15,000
Family transport	$24,976
Household goods transport	$52,165
House hunting	$3,933
Appliance replacement	$6,000
Temp. Maintenance	$23,552
Spousal allowance	$5,000
Education consultant	$23,835
Cross cultural training	$5,750
Destination Services	$4,950
Lease breaking	$29,568
Storage	$2,733
Tax Gross-Up	$103,160
Closing cost/home purchase	$31,634
Total	$332,256

One of the most important resource for corporations in the US, and the world all over, is human capital. Like other resources, it is not unusual for employees to be relocated to other work locations as companies continue to expand their operations globally. In some industries, it has now become the norm to expect to be moved between locations.

For anyone who has never relocated, it can be a daunting experience and thus a lot of companies have put in place relocation policies to make the process less disruptive and more appealing to their employees. These policies are meant to ensure that employees are treated fairly during the move and in the case where the move is critical for the firm, the employees are usually given the best deal.

Very early in my career, I was asked to relocate and continue with my job role in a newly established location. At first I resisted the move and considered resigning so as not to move to another country. My greatest fear was leaving my comfort zone and venturing into the unknown. After a few trips to my new work place I decided to take up the offer. At that point, I did not know what kind of assistance will be accorded to help ease the move.

As I went through my relocation package over the phone with the relocation consultant, I was hard pressed to contain my excitement as she read out my entitlements. I was offered much more assistance than I could have asked for. As if it was not enough, the consultant asked me if there was anything else they could do. Had I known what was in store with the relocation, I would never have been reluctant in the first place.

Since then I consider being relocated or sent on secondment as 'hitting the jack-pot'. This is because in addition to getting a promotion, the employee ends up pocketing most of the relocation allowances and the tax-gross up (depending on their tax status). This makes relocations and secondments the best way of advancing your career.

*Peter Loescher was appointed as the CEO of Siemens AG on 20th May and will be relocating to work in Munich, Germany.

Memorial Day Tribute

In honor and memory of the the sons, daughters, fathers, mothers, husbands, wives, brothers and sisters all around the world who lost their precious lives so that we may live in freedom. The world is a much better place because of their sacrifice.

T'is for freedom that Christ has set us free - Gal 5:1

The Best of USA; Goods Return Policy

There's only one place in the world that I know where you can buy a 60" wide screen television set, invite your friends for a Super Bowl Party, then return the TV the next day and get back your full refund. Wal-mart, liked by many for its aggressive pricing strategy, offers its customers the chance to return any items purchased in its store. Unlike Kenya, where goods once sold can't be exchanged or returned back especially if you still don't have a receipt or if a couple of weeks have passed since the purchase, most US retailers have a 90 day return policy.

As with such policies, there is always the tendency by some people to take advantage of the retailers. I remember back in my student days when we used to buy text books just prior to the exam then return them after sitting for the exams. Even worse, I once bought some text books, took them with me to Kenya during the Christmas break, had them photo-copied and bound at Data Center on Kenyatta Avenue and then returned them to the bookstore when I got back to the states. In that instance, I saved a couple of hundred dollars and to this date I still have these 'text-books'.

With my students days behind me, I had stopped abusing the goods return policy until two weeks ago. While cleaning the kitchen, I dismantled all the built-in appliances and in the process damaged a water line. After three trips to my local Home Depot and almost $50 poorer, I realized that I had bought 3 plumbing tools that I may never use again. Since I had only used the tools once and they were still in a new condition, I decided to return them back to Home Depot where they gladly received them back.

Some retailers have now started charging a restocking fee, especially for opened electronics, to prevent the misuse of the return policy by shoppers. Even then, it still does not deter people from returning goods especially if they are for a one time use as its still much cheaper than paying the whole amount for something that you've got no future use of other than cluttering your home. These returned opened items are then sold back at a discount under warranty and if they have no defect they make good bargains.

Buying a New Car

The slow down in the US economy has once again presented a good opportunity for those shopping for a new car. With the build-up in new cars inventory and the low interest rates environment, there's a high probability that we may soon see the post 9/11 car sales aimed at wooing buyers into showrooms. As it was then, car buyers were able to snap up fuel guzzling SUV's for low monthly payments extended over a long duration of time, usually between 5 to 7 years at 0% interest rates.

Unfortunately, the same can not be said of millionaires seeking to buy the priciest toys. To their dismay, Bentley and Ferrari models are sold out for the remainder of the year. The booming economy has brought a high demand for luxury cars such that manufacturers are not able to keep pace. The demand for top of the range cars is fueled by the dislike for used cars by tycoons and the fact that these high end cars have now become accessories to their high net worth status. Unlike Billionaire Warren Buffet who drives a 2001 Lincoln Town Car, most millionaires would not touch a car that cost less than $50K even if their life depended on it. As such they have to fight it out the the few custom made high end luxury cars that are produced every year.

Undoubtedly, the hottest car in town today is the 2008 Rolls Royce Phantom Drophead Coupe with a price tag of $407,000. While the Phantom Drophead Coupe is beyond the price range of 99% of the worlds population, the first ever model was bought by Raymond Lutgert, a real estate developer, for a whooping $2 million earlier this year. As with buying an apartment in Manhattan, the Phantom Dropdead Coupe is not available to everyone who can afford it. Previous Rolls Royce customers and selected high net worth individuals are usually given the opportunity to preview such models by way of invitation before it is available for sale. It is at this time, that orders are taken for future deliveries of these pricey custom made models.

For the those who have not received their invitations, they will have to contend with buying other less priced luxury cars like Mercedes, Cadillac or Range Rover. As cars continue to be viewed as status symbols, you can be sure that next year's deliveries of cars priced higher than the median US house price will sell-out faster than hot cakes.

Kenyan Kobe Beef, Revisited

This past Wednesday, Bill Clinton dined at the Kobe Club Steakhouse in Manhattan. He is reported to have eaten Fish and Chicken instead of the Kobe Beef.

A quick look at the menu reveals that they offer Australian and American Kobe beef at almost 50% discount to Japanese Kobe. Interestingly, Australian Kobe is priced higher than American Kobe. My guess is Kenyan Kobe would sell close to Australian Kobe in the US but fetch a higher price in Europe and the Middle East as it would not have to compete with American Kobe.

Kobe Beef From Kenya

Nyama choma, commonly referred to as nyam chom, is one of Kenya's best delicacy. In my travels, the best nyama choma I've ever eaten is from Kikopey, a small trading center along the Nairobi-Nakuru highway close to Gilgil town. Other popular nyama choma joints in Kenya include; Kenyatta Market (KM), Njuguna's along Waiyaki Way in Nairobi and Carnivore restaurant also in Nairobi. Despite my bias for Kenyan steaks, I've never eaten a steak dinner that came close in flavor and texture to the one sold at Kikopey.

All that changed when I ate authentic Kobe beef. At $30 an ounce (minimum 5 ounces per order!), Japanese Kobe is the best steak I've ever eaten! No wonder it sells at a high premium. My first bite almost chocked the life out of me. The piece of cow just melted away in my throat as I tried to swallow it. Unknown to me, Kobe steaks have a high unsaturated fat content that makes it very mellow unlike the normal steaks I am accustomed to eating.

The Kobe beef experience led me to research on Kobe beef on the internet. Surprisingly, I found out that you could buy 'cheaper' American Kobe beef from Wagyu cattle reared in the US. These Kobe steaks, from high breed Wagyu cattle, have the same characteristics as Japanese Kobe beef though they are not from full blooded Wagyu as those found in Japan. As I continued researching on the Kobe beef, I realised that it was possible to buy a few heifers, breed them to increase their numbers and start a Kobe beef farm. Unlike regular steaks, Kobe beef does not loose its flavour or tenderness when frozen and can therefore be exported or stored under frozen conditions while retaining its quality.

For $40/lb to $150/lb of Kobe beef, you can breed Wagyu cattle anywhere in the world and export its Beef to Western nations where there is demand for high quality steaks. With four high breed Wagyu heifers, each costing between $2,000 to $3,000, you can ship them to Kenya and start your own farm. Kenya has got cheap labour and produces barley, corn, rice and wheat that is best suited for Wagyu cattle. An initial investment of land and $30,000 seed capital is enough to start a Kobe beef producing farm within a span of five years.

Like Professor George Eshiwani who turned to fish farming after his stint at Kenyatta University, I have always harboured ambitions to be a farmer when I return to my homeland. I will continue researching on Wagyu cattle and visit a breeding ranch here in the US with a view to accomplishing my dreams. The frozen Kenyan Kobe beef can be exported to restaurants (and butchers) in Europe just like it is with the Crocodile and Ostrich farms in Kenya.

Patel Inc; Passage From India

Walk into a mid-priced hotel in the US and there’s 40% probability that the owner is called Patel (and if not, he's an Indian). All over America, the wave of the 1970’s Indian immigrants into the US have established their presence in the hotel industry. Thanks to President Lyndon Johnson who eliminated the immigration quotas, there are now 2.3 million Indians living in the US. While many of them are professionals, a large number of them, mostly from Gujarat, have gone into running their own businesses. Unlike their counterparts in Europe who are known for running Post-offices, kebab and corner shops, the Indian-Americans prefer to own franchises of gas stations, 7-11’s, Subway's and hotels.

The Patel’s, mostly from Western-India, rely on each other for help in order to succeed in their business endeavors. Many of them start with small outfits and with time grow their businesses into large companies. By employing their family members and friends, they are able to keep expenses low as they carry out even the most menial chores. In return for working for their relatives, the employees are later loaned out money to establish their own businesses. The Indian-Americans prefer a frugal lifestyle that allows them to invest most of their savings into their businesses.

Their success can be attributed to their strong family and community ties, whereby they pool money and help each other in establishing their own businesses. Their honor system allows for them to borrow from each other knowing to well that they have to repay and also loan out to other Gujarati’s. Unfortunately, their success has come with a price. Their well educated American-born children are establishing themselves as professionals and are shunning their family owned businesses in favor of white collar jobs.

Like the Patel’s, the same principles can be applied by immigrants from developing countries to establish their presence in businesses abroad. The fact that banks are less likely to give loans to immigrants should not be an excuse for failing to establish businesses. It’s no wonder that the richest Kenyans, Vijay and Bikhu, last name (surname) is Patel. Vijay opened his first pharmacy in the UK with a loan from his uncle and together with Bikhu have grown the business into a multi-million dollar company.

Investing In Your Health

Taking care of one's body can be a lot of work and time consuming. Unless you are genetically endowed with a lean body frame, today's lifestyle has made it easy to gain some extra pounds and become obese leading to a myriad of other medical issues. With America taking the lead in the percentage of obese people, the rest of the world seems to be catching up fast and today we have more over-weight people than those plagued with hunger/famine.

As health-care costs continue to rise, its now becoming increasingly clear that good health requires more than a balanced diet and the daily dose of multi-vitamins. While a change in lifestyle is also part of the solution, a good exercise regime can go a long way towards maintaining a healthy body.

When I moved abroad, I lost a lot of weight as I tried to adjust to the change in diet. After which, the second and dreaded phase kicked in 4 months later resulting in a rapid increase of weight. In a span of 6 months I had gone from an ideal weight, to under-weight, to over-weight and soon to be obese if I continued with my newly established lifestyle. It was not until a friend cycled 15 miles to visit me that I realised I was out of shape. I thought he had travelled partly by bus and I was inspired when he told me that he had cycled all the way. The thought of him cycling back challenged me to take a more active lifestyle.

No sooner had my friend left, I went online to shop for a used bicycle. Within a week I bought my first bike and took on to cycling as a way to keep fit. Were it not for cycling I would now be part of the 30% of Americans who are obese. Several years later, I rank the $450 dollars I spent on my bike and accessories as the best investment I've ever made. A regular cycling regime (on a bike that I enjoy to cycle) has made it possible for me to keep my girth in check.

Dendreon Corporation Fizzles

As previously thought, Dendreon Corporation failed to get the go ahead from the FDA for Provenge, their novel cancer vaccine. It would seem unusual that the FDA did not follow the recommendations of the FDA advisory committee who had previously voted unanimously on the safety of Provenge and the majority vote that the vaccine was efficacious. Unfortunately for Dendreon, government regulation is much more than a academic exercise and the FDA is mandated to ‘Protecting Consumers and Protecting Public Health’ rather than securing the profitability of Bio-tech companies.

With $500 million worth of shares sold short, the 'battle of Dendreon' was bound to be a nasty affair of the shorts pitted against the unwavering longs. After today’s announcement, the shorts prevailed and Dendreon lost $1 billion in market capitalization. Just as quick as it’s shares had trebled in a matter of days, the decent was as quick if not quicker.

"The FDA has requested additional clinical data in support of the efficacy claim contained in the BLA. The Company is seeking a clarification from the FDA as to the nature of the data that is being requested. The FDA has also requested additional information with respect to the chemistry, manufacturing and controls (CMC) section of the BLA."

A quick look at the FDA’s request reveals that the agency is not only concerned about the weak clinical data but also the chemistry, manufacturing and controls data. The FDA has requested more data on the ‘manufacturing’ process that requires a lot of manipulations/transportation before the drug can be administered to patients. Like most up-coming Bio-tech’s it is possible that Dendreon committed most of its resources to the clinical program and carried minimal work on the development of the product/process.

With approximately $100 million cash reserves, Dendreon will require additional funding to see them through the development of Provenge. To raise more money they will have to issue more shares (as usual), take on more debt, seek partnerships with deep pocketed Big Pharma’s or seek ex-US approval of Provenge.

You can be sure that we have not heard the last of Dendreon nor Provenge. With more money to be made, a lot of Hedge funds would love to milk Dendreon till its shares run dry or Provenge is finally approved in the US.

CanRoys; High Oil Price Pay-off

A few years back, over a drink of adult beverages during happy hour after work, a colleague mentioned that he had just bought an oil stock that pays 10% monthly dividend. I was curious about the stock and looked it up later. I found out that there were other similar stocks, natural resource trusts, that also paid high yields. While these income stocks are favoured by pensioners, I saw a good opportunity to earn some money while 'growing' my money.

Canadian royalty trusts, commonly known as CanRoys, usually own oil and natural gas properties that generate income which is passed on to the unit holders. The income generated is not taxed at the corporate level and is mostly distributed to the unit holders. As such, only the unit holders pay taxes, usually 15%, on the income received. Unlike US trusts, CanRoys ensure that they replace depleting resources by acquiring new assets to maintain their reserves.

CanRoy	Reserves	Price	Book Value	EPS	Yield	Debt/Equity
Pengrowth Energy (PGH)	10.1 years	$17.48	$11.30	$1.46	15.3%	0.23
Canetic Resources (CNE)	10 years	$13.87	$14.02	$0.96	14.6%	0.44
Harvest Energy (HTE)	9.3 years	$28.69	$19.75	$1.08	14.2%	0.94
Enterra Energy (ENT)	6.7 years	$5.20	$6.46	-$1.09	13.9%	0.67
Advantage Energy (AAV)	11.4 years	$11.60	$9.99	$0.67	13.8%	0.40
PrimeWest Energy (PWI)	12.3 years	$21.06	$14.85	$2.31	12.8%	0.59
Penn West Energy (PWE)	9.9 years	$31.10	$21.88	$3.14	11.7%	0.15
Provident Energy (PVX)	18.3 years	$11.65	$6.60	$0.60	10.9%	0.64

As with all investments, CanRoys come with risks;

1. High interest rates - Increases the cost of debt and makes them unattractive to investors when compared to higher paying certificates of deposits or money market accounts.

2. Price of oil and natural gas - Distributions depend on the price of the commodities they sell. Falling oil prices make them unattractive.

3. Declining production - Oil and gas are non-renewable resources that get depleted over time. Declining reserves will be accompanied by declining share price.

4. Tax laws - There is talk about the Canadian government plans to change the tax laws or the foreign ownership structure of royalty trusts.

5. Fluctuating Canadian dollar - This will affect the price of the commodity sold or the amount of income received in US dollars.

On the other side, CanRoys offer the advantage of providing a stream of income and an appreciating share price with increasing oil prices. If held in a non-retirement account, the Canadian taxes paid can be claimed as foreign taxes paid when filing taxes in the US. Owning CanRoys is also a way to diversify your portfolio.

Increasing gasoline prices, makes CanRoys worthwhile investments. The monthly income I receive goes into offsetting the high pump prices.

The Best of USA; 60 minutes

I can't remember when I first watched 60 minutes but it's certainly the only TV program that I watch faithfully. It kind of reminds me of the way my folks used to like watching Mambo Leo or Professional View back then in Kenya.

While there are many investigative television programs, 60 minutes stands out because of it presenters and their careful choice of relevant content. It's no wonder that the program has featured on Nielsen ratings since 1979. In the history of US television, 60 minutes is by far the most successful broadcast. Just like Njoroge Mwaura or Catherine Kasavuli pull the crowds in Kenya, the presenters of 60 minutes are also icons in the US media.

While many people find the Andy Rooney ending repulsive, I think his segment is the most entertaining part of the show. His forth-righted and no-holds-barred approach makes him quite an interesting character and adds flavor to the show.

Money Can't Buy an Apartment in Manhattan

Manhattan, known for its signature skyline, is certainly one of the most expensive places to live. Home to the NASDAQ and the NYSE, Manhattan is also one of the most sought after locations in America. Even with the so-called housing bubble in the US, the price of property in Manhattan seems insulated against the rest of the country. Five years after the bombing of the twin towers located in lower Manhattan, the average sale price of apartments in Manhattan hit the $1 million mark and is set to climb over the coming years.

While a million dollars may buy real estate almost anywhere in the world, in Manhattan it takes more than money to buy an apartment. Unknown to many people, not everyone with money can buy an apartment in Manhattan.

In Manhattan, before an apartment changes hands, the buyer has to be vetted by the Co-op board of the apartment building. The vetting process subjects the potential buyer to a lot of scrutiny and requires that the buyer furnish respectable character references. Because of these requirements, some people don't even bother shopping for an apartment knowing too well that they will be rejected by the Co-op boards.

Up to 10 percent of prospective buyers get rejected. The list of people denied a chance of buying exclusive addresses reads like the Who's Who list of celebrities. Madonna, Antonio Banderas, Mariah Carey, Michael Douglas, Calvin Kleine and Cher just to mention a few, are among those who have failed to buy property in Manhattan. The vetting process, which includes an interview, serves to bar people with questionable reputations or who lack certain characteristics from buying an apartment.

While the process has been railed at favoring 'old money' and 'family values', Co-op boards insist that the admission process is aimed at protecting other apartment owners from undesirable neighbours.

Money can buy a house but it can't buy a Manhattan apartment. Anyone wanting to own a piece of Manhattan, must prove that they can make a good neighbour.

*Additional reading - The Co-op Bible; Everything You Need to Know About Co-ops and Condos; Getting in, Staying in, Surviving, Thriving.

The Richest Kenyans, Part II

Despite increased global liquidity resulting in the appreciation of most asset classes (stocks, commodities, real estate, bonds, etc), there was no corresponding increase in the wealth of the richest Kenyans. Instead, Vijay Patel and Bikhu Patel's minimum net worth decreased by £11 million to £444 million and they fell to position 186 (from 149) in the 2007 Sunday Times Rich List.

While they remain the wealthiest Kenyans, the US richest Kenyan(s) wealth increased substantially in the last one year. The said Kenyans capitalized on their strong connections with leading US hedge funds to increase their net worth to not less than $500 million. With multi-million dollar investments in financial securities, real estate and private businesses, the booming world markets have buoyed their wealth to record levels.

-The Richest Kenyans, Part I