Sometimes a flush is not a bad thing....

I had lunch today with an interesting character we shall call the Maverick, as he seldom seems to hew to the conventional wisdom.  This habit has served him well over many years, with the occasional misfire, such as an ill-advised venture into the Middle East financial markets just before the various Arab Springs put an end to that particular boom (and by “ill-advised,” we mean precisely that.  He listened to “someone who knew,” but alas, they did not.).

I wondered aloud what he was up to these days.  He has in the past been a partner at a major Wall Street firm (back when it still had partners), built his own business into one of the most successful operations in its area, and managed a hedge fund family whose assets at their peak were in the billions.  Now he is semi-retired, but his restlessness keeps him engaged in various enterprises, some philanthropic and some not.

The Maverick finds the energy question compelling.  He now operates two small funds that invest in various forms of energy that are distinctly non-green, in that they are profitable without subsidy or tax incentive — but that was not the topic of today’s discussion.

“It’s a gold rush,” he said, referring to the grand contest (now only in its initial stages) to determine the energy sources of the future.   “And you know who makes money in a gold rush?”

Well, gold miners, I assumed.

“No.  Most of the miners die broke.  The people who make the money are those who sell the picks and shovels.  They can’t lose.”

He then described a large investment he had made in a small company.  It makes bearings.

These bearings, which employ a proven but obscure technology, will reduce the friction in the wheels and transmission of a full-sized car to such an extent, he says, that the car could be moved by one hand of one person pushing on it.  More practically, if installed on a tractor trailer, they will improve the fuel efficiency of the truck by one mile per gallon.

Doesn’t sound like much, does it?  Well, a big rig tractor trailer only gets about 5 miles per gallon.  Saving a gallon a mile translates into a 20% efficiency improvement. Further, these bearings require no lubrication, eliminating the cost in both labor and oil that lubrication entails.

“So I don’t really care whether the truck burns gasoline, or diesel, or LNG, or propane, or cooking oil salvaged from the fryers of McDonald’s.  Let someone else go prospecting for that gold.  I’m here to sell them the picks and shovels.”

The applications to passenger cars are just as dramatic, but the cost is currently prohibitive compared to trucks.  But economies of scale could well solve that problem, and, given a chance, probably will.  Imagine the impact on our fuel consumption if every car and truck in the country used 20% less fuel.

And there you have it.  Will this venture make the Maverick a large profit — or will it turn into another empty office in Dubai?  He doesn’t know, but he’s willing to take the risk.

He’s willing too take the risk because he sees a chance to take excess capital (that many would argue he shouldn’t be allowed to have in the first place) and invest it profitably.  Why can’t the government do this?

Well, the people who invented and manufacture this technology have no lobbyists.  They do not make campaign contributions.  Do you think they can get anyone in Washington to listen to them?

But the Maverick, somehow, found them.  Capitalism has many flaws, and many critics, but this is capitalism at its best, taking advantage of government at its worst.