Hot Water


Gualfin, Argentina

Our architect, Nick, came up to the ranch a few days ago. He called the solar engineer to try to figure out what was going wrong with our solar hot water system. We are at almost 8,000 feet — nearly on the tropic of Capricorn — with clear skies and the strongest sunlight we have ever seen. We have a whole bank of sleek, modern hot water heaters behind the house; but as near as we can figure, they are producing less hot water than a garden hose in the Maryland summer.

Well, Nick got on the phone to the solar power engineer, and then went behind the house to turn a few valves. Ever since, we’ve had plenty of hot water. "Go ahead," we told Elizabeth generously. "Take a hot bath…use as much hot water as you want."

The water comes down from the Andes. There is no meter to the house. If we don’t use it, it flows down into the pasture. The sun shines on the hot water collector…if we don’t use the hot water it just sits there. Whether we use it or not, the price is the same.

And then, there’s the electrical system, which has worked flawlessly since we’ve been here. The sun hits the solar panels, which charge up a bank of large batteries, which give up plenty of juice. The only trouble is you can’t run large appliances — except for one refrigerator/freezer. And those LED lights are cold and unattractive.

The whole system cost $75,000. All you have to do is to clean the dust off the panels from time to time and replace the batteries every three years or so. What’s the payoff? No power bills. What’s the rate of return on that? We don’t know, but if the utilities would cost $500 per month, the implied rate of return is 8%. Of course, up here the sun is so bright that conditions are ideal for solar power. And since there is no power grid…or any source of fossil fuels within range…we had no choice anyway.

But the nice thing about it is that the system works whether we have any money or not. It’s…well…like having savings. If you have to pay $500 a month, it means you have to get $500 a month from somewhere. It is as if you had to pay a mortgage. Unless you have a stock of money somewhere…you have to work and you have to earn…just to pay your utility bills. In fact, at a marginal tax rate of 34% you have to earn about $750 in pre-tax income in order to have enough money.

So the real rate of return, figured on a post-tax basis, is around 12%. Not bad. And it’s…well…almost guaranteed. Where else can you get a deal like that?

The only thing that would reduce your rate of return would be a big DECREASE in the cost of utilities. Not very likely in our opinion. On the other hand, a big INCREASE in the cost of utilities would be an implied greater rate of return on your investment.

Besides, if we are ever ruined financially, we can hitchhike out to the ranch and still take a hot bath.

u2022 As for raising cattle, yesterday, Francisco announced that the price had gone up.

"Don Bill," (we love it when he says that), "I just heard from some friends that cattle were bringing 2.6 pesos per kilo. Last year, we sold them for 2.2 pesos. This year, we’re going to make some money."

Herewith, a brief introduction to the cattle business:

We went over the accounts with Francisco. Just as being an NFL quarterback looks easy to a plumber, raising cattle looks easy to an economist. Each cow produces about 0.6 of a calf. Down on good land, the ratio is more like 0.9. But here, the pumas, the condors, the cold, or the drought tend to carry them off before they can be shipped off to market. The whole farm is littered with the bones of dead cows. Big. Small. And in between. The drought of 2002 killed hundreds of cows, Francisco told us.

"It’s a hard place to raise cattle," Francisco explained. "It’s too high…too dry…and too wild. But it’s all you can do here. I tell people that the condors kill the calves and they don’t believe me. But they do. They attack them just after they are born, before they can run away. One of two of them kill the baby calf…then the rest come down to feed on it."

While the output is thin, so are the costs. The cattle are not fed. They are not kept in pens. Nor do they get any medication…other than government-required vaccinations. They’re on their own. The only costs are the expense of employing the gauchos who look after them, which isn’t much. And each calf weighs in at about 120 kilos when it is sold. So you can do the math.

Plus, up in the hills, the local people who live on the ranch have a deal where they pay us a percentage of the animals that they raise, in lieu of rent. As we understand it, we get 16% of the goats, sheep and llamas. It doesn’t amount to much, since there is little market for these animals, but they are tasty when cooked over an open fire.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.