The Internet Is Dead (As An Investment)

By James Altucher | A Dow Jones Newswires Column

I can live all day inside the Internet. I can talk to my friends, listen to music, watch TV, trade stocks, play games, do work - all on the Internet. From 6 a.m. until 10 p.m. every day I can spend on the Internet and it would be a day well spent.

But run for the hills when it comes to advising clients to invest in the Internet.

Columnist and portfolio manager James Altucher explains to Simon Constable why Google, Facebook and other internet plays are dead from an investment standpoint. Plus what stocks are hot in the rest of the economy.

The days of infinite margins, 1,000% productivity gains, and growth of market throughout the universe are long over. Internet companies now should be treated, at best, like utility companies that get bought at about 10 times earnings and sold at 13 times earnings. Even then, I'm not sure I would give the Internet sector the same respect as the monopoly-protected utility sector.

Don't just ask me. Ask the best. Nobody can figure out a business model.

Time Warner would rather keep their legacy old-media businesses like People magazine than hold onto one of the biggest Internet companies out there, AOL. And News Corp. is shaking up its MySpace business as it figures out its next steps. (News Corp. owns Dow Jones, publisher of this newswire.) Microsoft has spent billions on Internet strategy without a dime of profit. And even Google can't seem to find any other business model other than the one they stumbled into when they bought Applied Semantics in 2001 that had a little piece of software called AdSense. And the new guys: Twitter and Facebook are still scrambling for profits despite blistering usage growth.

What about the nuts-and-bolts guys? Cisco, at 15 times earnings, trades in line with the S&P 500. Buy them when they start giving a steady dividend.

Let's face it. Electricity greatly improved our quality of life. But I'm not going to get excited about buying a basket of utility companies. Same for the Internet. Can't live without it, but can't live with it (in my portfolio).

So what do we do?

In this economy, it's back to the basics. Regardless of how you feel about $1 trillion in stimulus (with more probably on the way), the best growth is going to come from the companies that help us spend that stimulus.

Check out LNN, Lindsay Corporation, that does boring stuff like highway repair (they make those orange cones) and helps upgrade water infrastructure. With half of all hospital beds in the world filled by people with dirty water-related illnesses, this one is a good bet.

Or little known Colfax Corporation, CFX. At nine times forward earnings, this company is in the "fluid handling" business. Boring. But in a resource-starved world we need them to get oil quickly through the pipelines and into the refineries. And we can't forget about ASTE, Astec Industries, which is like the "Amazon of Asphalt" and is a major player in highway repair (think stimulus again).

The exciting plays right now are the companies that are rebuilding the country along with the economy. Save the Internet for your iTunes downloads. But focus client portfolios on the future. Next article: my favorite biotech plays.

James Altucher is a managing partner of Formula Capital, an alternative asset management firm, and an author on investment strategies. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.

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Embattled organic sector worries about regulation

By Mari Saito

WASHINGTON (Reuters) - California farmer Tom Willey was first attracted to organic farming 21 years ago after noticing how many chemicals he was using in conventional farming.

As a certified organic farmer selling everything from artichokes to zucchinis from his 75-acre farm in the San Joaquin Valley in California, Willey has become a respected pioneer in the organic farming community.

But now with the deep recession in the United States, farmers such as Willey are worried about the future of organic farming that grew sharply during the boom times.

The industry, which prides itself on delivering wholesome and safe products, also is worried and even a little angry about new food safety rules emanating from Washington.

"There is a lot of transparency in the organic food system and we've had it in place for several decades and we do so willingly," said Willey. "The lack of that is what characterizes industrial producers."

The global market for organic food has grown sharply over the past decade, with the United States accounting for about 45 percent of the global share.

Sales of organic food have soared from $1 billion in 1990 to an estimated $20 billion in 2007 and by 2006 became the fastest growing sector in the industry, according to the Organic Trade Association.

But now growth is coming to a halt as Americans tighten their purse strings and opt for cheaper alternatives.

"Millions of people who were occasionally buying organic products have cut back to save money and we're seeing the real decrease in growth in the last nine months," said Ronnie Cummins, the national director of the Organic Consumers Association.

Whole Foods Market Inc, a chain that sells organic and luxury grocery items, reported in May that quarterly sales fell nearly 5 percent from its stores opened at least one year. Profits also fell but the company said it avoided going into the red by cutting prices to keep consumers coming back.

Neil Currie, an UBS analyst said consumers are seeking lower prices and staying clear from luxury food products.

"Organic food comes at a premium price and Whole Foods sales have been quite negative," said Currie.

Growth in the organic sector dwindled to 12.5 percent last year compared to the 20 percent it used to enjoy.

"We might not see that kind of growth again," said Cummins.

An added worry for organic farmers is a new food safety legislation that passed last month in the Energy and Commerce committee of the U.S. House of Representatives that would be the most sweeping reform of the food safety system in close to 50 years.

The U.S. food supply system has been battered by a series of food recalls -- covering a range of products including lettuce, spinach, peanuts and most recently, cookie dough -- since 2006 that have eroded consumer confidence.

Under the new legislation, the industry would have to pay a $500 registration fee per facility to pay for more plant inspections. Farms, restaurants and retail food establishments that sell their products directly to consumers, not businesses, are exempt from this fee. There would be a $175,000 cap on such fees.

Organic farmers still say the definition of a facility is unclear in the legislation and they worry about additional costs that might be incurred on small businesses. Inspections will be more frequent, taking place every six to 12 months at high-risk facilities and between 18 months and three years for lower-risk locations.

As part of a broader food safety overhaul, the Obama administration recently announced the creation of a new post of deputy commissioner for foods at the U.S. Food and Drug Administration. The position would oversee all food safety activities within the agency.

Most organic farmers believe food safety reforms are necessary, but they worry small and medium organic farmers will be unfairly targeted.

"Based on the escalating cost that would be involved in conforming to this legislation -- administrative fees, record keeping and internal labor requirements -- we can force out of business some of the highest quality practitioners," said Mark Kastel, an analyst at the Cornucopia Institute in Wisconsin.

Kastel said organic farmers are tempering their enthusiasm for food safety reform with some skepticism.

"The same players who helped create the problems that exist today are enthusiastically embracing what they say is the answer," he said.

"It's unsettling when grocery associations and major processed food producers get together and agree with the government that they're going to do this without any regard to the high quality organic practitioners."

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Exxon faces $1 billion fine for sabotaging Texas oil wells

By Daniel Tencer

ExxonMobil’s sabotage of some 100 Texas oil wells in the past 17 years — going so far as to plug up some wells with explosives — means the world’s largest oil company could be liable for penalties of up to $1 billion, the Texas General Land Office says.

Jerry Patterson, commissioner of the state’s land office, released a report earlier this week asking the Texas Railroad Commission — which regulates the state’s oil industry — to investigate “ExxonMobil’s intentional sabotage of oil wells in Refugio County as well as the company’s fraudulent reports covering up the damage.”

“Exxon committed irrefutable, intentional and flagrant violations of state rules regulating the oilfield,” Patterson said in a statement (PDF).

The allegations stem from a lease the company signed with a Texas family, the O’Connors, back in the 1950s to exploit oil fields on the family’s land. When the relationship “went sour,” Patterson states, the energy giant had the oil wells plugged up in such a way that no one else could use them.

Patterson says the company’s reports on the sealing of the oil wells was “fraudulent.”

“When the relationship turned sour in the 1990s, Exxon-Mobil terminated the lease and plugged the wells,” states Patterson’s report. “As per state rules, Exxon filed paperwork with the Railroad Commission outlining its well-plugging procedures and filed sworn affidavits as to the final condition of the wells. The O’Connor family soon learned those reports to the Railroad Commission were fraudulent.

“When an independent producer, Emerald Oil, attempted to capitalize on new legislative incentives to reopen abandoned wells, they found the old Exxon-Mobil wells hadn’t been plugged but sabotaged — filled with junk, cut well casings, contaminated oil tank sludge and even explosives. Many of the wells were left unrecoverable.”

Under Texas state rules, ExxonMobil could be fined as much as $10,000 per sabotaged oil well per day, or some $1 billion in all.

“The allegations paint a false and misleading picture of Exxon Mobil’s involvement in the O’Connor oil and gas leases,” ExxonMobil spokeswoman Margaret Ross stated in a Bloomberg article. “The area in which the wells are located has a water table very close to the surface. It was critical that Exxon protect the groundwater by plugging the wells solidly and thoroughly.”

The Wall Street Journal reports that the Texas Railroad Commission’s attorney “sent a letter to Exxon Mobil’s attorney, asking the company to reply to the complaint by July 31 and stating that the agency would take no action pending receipt of the response.”

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20 Ways for Renters to Stay Cool and Save Money this Summer

By Chris Baskind in Living

The problem with most articles about summer energy saving is that they’re geared for homeowners. But more people are renting then ever before.

So you’re a renter? That power bill insert suggesting you upgrade attic insulation is probably more frustrating than useful. The same applies for most tips related to improving property. If your appliances are furnished, it’s likely you don’t even have the option to replace them with more efficient models.

What’s a renter to do?

Summertime energy prices can turn a trip to the mailbox into a stressful experience. But while major home improvement projects may be off the table for renters, it’s still possible to take some of the sting out of summer power bills. The key is conservation.

If you can’t change your living space, change your behavior. Reducing consumption is the greenest of green. We’ve rounded-up twenty ways to stay cool and save money through the warmer months. While you may already be doing some of these, you should find a few that will fit your energy saving arsenal.

Take action and save!

Set your air conditioner to 78 or higher. An obvious pointer, but also one of the most ignored. Running your air conditioner at colder temperatures won’t cool down a room any faster than a more moderate setting, but it will force your system to work harder. Worse yet, it’s easy to forget to turn it back up. Stick with the warmest setting you can tolerate, and move on to other stay-cool ideas.

Wear cool, loose clothing — even indoors. Shorts, absorbent fabrics, and loose-fitting clothes all work outdoors. They’ll work inside, too. It’s your space: dress for comfort. The cooler your clothing, the less you’ll need air conditioning.

Indulge your taste for spicy food. There’s a reason Indian and Latin food is hot: It makes you sweat! If you have proper air circulation, sweating is an effective way to cool down. That sheen on your arms, face, and legs is pretty much odorless, by the way. Crank up the heat in your food, and you’ll feel cooler. It may also provide other health benefits, such as improved circulation.

Use box fans to improve air circulation and set existing ceiling fans properly. This goes hand in hand with not being afraid of a little sweat. Fans use a fraction of the energy required by air conditioning. Just as in the case of wind chill outdoors, moving air will substantially lower the perceived temperature. During the summer, a ceiling fan should (in most cases) be running counterclockwise when viewed from below. You want the setting with maximum downdraft. Flip it next winter to bring warm air down from the ceiling. Just keep in mind that fans are for people, not rooms. There’s no point running them when nobody is around.

Take cold showers. If you live in an area experiencing water shortages, skip this one. Otherwise, a quick three-minute cold shower is a fantastic way to cool down. Going longer than three minutes won’t make you feel much cooler, so skip the soap and just enjoy the relief. For regular showers, avoid using hot water during the summer. In most temperate locations, tap water is plenty warm for bathing by July. The cooler you run your shower, the less heat and steam you’ll need to remove from your living space. Use the exhaust fan if it’s vented outdoors.

Drink plenty of water. You can’t sweat if you’re dehydrated. While some traditions, such as Ayurveda, discourage consumption of cold liquids, they’ll temporarily cool your body core. Alcohol and caffeinated drinks tend to dehydrate, so choose wisely.

Draw drapes and blinds on windows exposed to direct sunlight. Window coverings are one of the few home additions tolerated by most landlords. Curtains, blinds, and windowshades can all go with you at the end of your lease. In warm weather, you’ll want to be sure the space at the top of curtain between the rod and the wall is covered, or hot air will rise through the gap. It’s possible to buy curtains and shades with thermal ratings, so shop around or make your own. Window coverings have the added benefit of keeping heat from radiating outward during the winter.

Cook outdoors. Grilling is a classic summer pastime. Best of all, it keeps heat outside. Of course, you want to minimize the environmental impact of outdoor cooking. Digging back in the Lighter Footstep archives, you’ll find a section called “The Green Barbeque” at the top of this article.

Use the microwave. The lowly microwave is your kitchen’s most efficient plug-in appliance. In addition to saving money year-round, microwave ovens are a good bet for summer cooking. Here’s why: Microwaves direct most of their energy into the food, rather than the kitchen. That means you’ll stay more comfortable and burn less energy removing cooking heat from your home.

Eat more smaller meals through the summer months. The bigger the meal, the harder your body must work to digest it. Try splitting mealtimes across the day, opting for more and smaller meals when it’s warmest. This will keep your body from having to stoke its metabolic afterburners. It’s also a great time to experiment with cold foods — perhaps even raw cuisine. Less heat in the kitchen; less heat in your tummy.

Spend more time outdoors or away from home. Why not soak up someone else’s air conditioning? A little window shopping never hurt anyone, and it’s likely there are several ice cold destinations within walking distance or a short bicycle ride from your home. While eating out is a luxury for a lot of people these days, blowing a couple hours with a frosty drink and a book someplace cool isn’t a bad way to spend a sweltering summer afternoon.

Try a cool pillow. It’s tough to sleep when you feel like you’re in a sauna, and the alternative is running a fan or air conditioner all night. In addition to dressing out your bed with seasonally appropriate sheets and bedcovers, consider a “cool pillow.” They’re marketed under names such as Chillow (Lighter Footstep has no current relationship with this company). Cool pillows are designed to draw heat away from your head, where about 30 percent of body warmth is dispersed. They require no power or special preparation. Here’s a low-tech idea for beneath the sheets: Fill a hot water bottle or two with icy water. It’s like a refrigerator for your bed.

Shut down unnecessary electronic devices. Here’s another year-round energy saver. During the summer, however, it’s even more important to pull the plug on home electronics. Anything with a transformer creates heat. Shut down unused desktop computers (they have cooling fans for a reason); televisions; entertainment systems — pretty much everything with a plug.

Wash your clothes at night and line dry them in the morning. Some power companies offer off-peak rates to their customers. Take advantage of these. In any event, even a properly vented clothes dryer radiates heat. Restrict its use to the coolest part of the day. Wherever possible, line dry clothes. It worked for our parents’ generation, and it will work for ours. This should be no problem if you’re renting a house. A simple line between two sturdy supports will do, and umbrella-style clothes lines are an affordable investment. Line drying is more of a challenge for apartment dwellers. You may be able to get away with a small line on a porch — check your lease terms. It’s also possible to dry indoors, and there are many retractable lines and racks made just for that purpose. Indoor drying may be the best choice if your area is dusty, or if you happen to be particularly susceptible to outdoor allergens.

Shut down your furnace pilot light. It’s small thing, but there’s no point running a gas furnace pilot light through the summer months. Locate the gas shutoff valve. There are safety issues here, so if you have any question about how to properly extinguish a pilot light, consult your building supervisor, utility company, or heating and cooling professional.

Close doors to unused rooms and closets. You winter clothes do not require air conditioning, so get into the habit of keeping closets and cabinets closed. Shut unoccupied rooms and their cooling vents. If you’re using window units, close the door in the air conditioned room whenever practical.

Replace or clean your air conditioning filter. Dirty filters dramatically reduce air conditioner efficiency. Check your filter once a week, and replace as often as necessary. Filters are generally throwaway items, but some may be reusable of thoroughly vacuumed. Clean window unit filters once a week. Some window air conditioners have a warning light to indicate when air flow is restricted.

Close your fireplace damper. If you’re fortunate enough to have a fireplace, close the flu during warm weather months. Chimneys are another void you don’t need to cool, so keep fireplace doors shut or construct an airtight screen to close the hearth when not in use.

Replace standard bulbs with low-energy equivalents wherever practical. The heating effects of incandescent bulbs are generally overstated, since most lights are mounted close to the ceiling. But every degree matters when you’re trying to keep power bills under control, and the money saving benefits of year-round CFL or LED light use are obvious. Concerned about the mercury in CFLs? These dangers are usually overstated, also. But proper CFL handling and disposal is a responsibility. See Five Ways to Dispose of Old CFLs. Better yet, take the CFL Recycling Challenge.

Talk to your landlord. Property owners usually take action when it’s in their financial interest. So do your homework and see what might make sense in terms of energy saving improvements. There may be local, state, or federal incentives for things such as improving insulation values or weatherization. Landlords of utilities-provided rentals will be particularly receptive to to projects which save them money over the long term. In any case, you may be able to obtain permission — or even rent credit — for making small improvements on your own. You’ll only know if you ask.

Can you think of more?

While a start, this list is by no means inclusive. Got a tip to add to the list? Show off your green cred in our Comments section, or visit out Contact page and drop us a line. We’ll share your ideas with all the other Lighter Footstep renters!

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Bankruptcies low in states that don't seize wages

States that allow debt collectors to seize consumers' wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.

This link highlights a dilemma for credit-card companies and other debt chasers: By going after wages — an increasingly popular maneuver since the recession began, lawyers say — they risk pushing consumers into bankruptcy court, where judges can reduce or wipe away all sorts of financial obligations.

The apparent relationship between so-called garnishment laws and states' bankruptcy rates also bolsters the arguments of consumer advocates, who have long said that intercepting someone's wages to pay their debts only increases their financial vulnerability.

After gathering millions of bankruptcy records from 2006 until now, the AP plotted the number of filings for each U.S. county in its Economic Stress Map — a geographic, chronological and visual depiction of economic misery based on unemployment, foreclosure and bankruptcy data.

While bankruptcy rates vary for many reasons, the five states that prohibit or strongly limit wage seizures — North Carolina, Pennsylvania, South Carolina, Florida and Texas — all have drastically lower rates than their neighbors, with particularly striking differences along borders, where economic conditions are similar but bankruptcy rates are not.

South Carolina's bankruptcy rate is almost one-quarter that of Georgia's; Pennsylvania has half the rate of Ohio; North Carolina has about one-third the rate of Tennessee; Texas has a smaller rate than all its neighbors; and Florida has just about half the rates of Georgia and Alabama.

The Carolinas, Pennsylvania and Texas prohibit wage garnishment, except in special circumstances such as unpaid taxes or child support. Florida prohibits garnishing wages from the head of a household.

The nationwide bankruptcy rate is 42 percent higher than the rate in those five states.

Bankruptcy filings have been steadily rising since the end of 2005, when a change in federal law sent filing rates plummeting. The number of filings in May were 35 percent higher than a year earlier, and more than 1.2 million cases have been filed in the past 12 months.

Debts are usually delinquent for several months before companies target consumers for recovery. Creditors must get court approval to seize a person's wages or other assets. Federal law and state laws restrict how much can be taken — typically 25 percent of "disposable" income, or income after taxes and other legally required deductions.

If a person files for protection under Chapter 7 or Chapter 13 of the federal bankruptcy code, it automatically overrides a court order to seize somebody's wages.

While counties do not maintain statistics on wage seizures, attorneys say the recession and credit crisis have made lenders more aggressive about seeking court orders to grab borrowers' wages. The reason is simple: with the competition for collecting unpaid debts on the rise, a creditor that gets the authority to garnish wages gets the first grab at a person's finances, leaving others to fight over what's left.

The mere threat of a wage seizure is enough to cause some people to seek bankruptcy-court protection, attorneys say.

Still, credit collection companies view wage seizures as a tool of last resort, according to David Cherner, the director of state government affairs at ACA International, a trade group that has hundreds of debt collection members around the country.

"The debt collection industry isn't necessarily enjoying a lot of success at this point," in part because personal bankruptcies are on the rise, Cherner said. "While volume (of credit collection activity) is up, consumers are hurting."

In South Carolina, limits on wage seizures have given people leverage in their negotiations with creditors and have helped keep them out of bankruptcy court, said Carri Grube Lybarker, a staff attorney with the state's department of consumer affairs. Lybarker said those who are behind on their debts because of an emergency medical expenditure, divorce or job loss are sometimes able to regain their financial footing and make good on what they owe.

Professor Rich Hynes, who teaches and researches bankruptcy and finance issues at the University of Virginia School of Law, said he sees signs that garnishment is playing a role in bankruptcy rates, but he added that plenty of other factors are at play.

Bankruptcy rates may be influenced by a variety of state laws that protect consumers, including rules on how foreclosures can proceed, regulations on attorney advertising or debt-to-income ratios. Hynes also said issues such as the culture of local courts can play a role in those differences.

In Tennessee, which has the highest concentration of bankruptcies, Nashville-based attorney Edgar Rothschild said wage seizures frequently tip his clients over the edge, and into a Chapter 7 or Chapter 13 filing. He also said the rates may be influenced by the differences of local judges, trustees and lawyers.

Cheryl Greer of Vinemont, Ala., sought protection from creditors under Chapter 7 of the federal bankruptcy code in May.

Before filing for bankruptcy, Greer, who mainly lives off Social Security checks but also works part-time as a clerk at Wal-Mart, managed to pay off thousands in credit-card debt and keep up with other bills, including the monthly mortgage on an $80,000 home.

But she couldn't escape the unpaid debts of a former roommate she had tried to help out.

Greer agreed a few years ago to help her roommate consolidate debt. That left Greer on the hook for several thousand dollars her roommate owed to a debt collection company, which in February 2008 was granted the authority to begin seizing up to a quarter of Greer's monthly income.

When she eventually filed for bankruptcy, Greer reported $7,112 in non-mortgage debt, most of it stemming from her former housemate.

In Greer's county of Cullman, bankruptcy rates are moderate by Alabama's standards. But over the past year there have been 16 bankruptcy filings for every 10,000 individual tax returns — a higher rate than any county in the five states with stiffest anti-wage garnishment laws.

For people in dire situations, filing for bankruptcy may be the only way to prevent themselves from digging an ever-deeper financial hole.

For her part, Greer said she might have one day been able to pay off her debt — if it wasn't for the court order allowing her wages to be taken away. Although disappointed by her financial failures and somewhat stung by the stigma that comes with a bankruptcy filing, she's also feeling a sense of relief now that she's filed for bankruptcy.

"I don't have (creditors) hounding me," she said.

US lurching towards 'debt explosion' with long-term interest rates on course to double

In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.

The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.

The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.

He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.

The study is damning because Mr Laubach was the Fed’s economist at the time, going on to become its senior economist between 2005 and 2008, when he stepped down. As a result, the doubling in rates is the US central bank’s own prediction.

Mr Congdon said the study illustrated the “horrifying” consequences for leading western economies of bailing out their banks and attempting to stimulate markets by cutting taxes and boosting public spending. He said the markets had failed to digest fully the scale of fiscal largesse and said “current gilt yields [public debt] are extraordinary low given the size of deficits”.

Should the cost of raising or refinancing public debt in the markets double, “the debt could just explode”, he said, adding that it would come to a head in “five to 10 years”.