You are here

It's All Thermodynamics ... and Arbitrage

Submitted by admin_matt on Thu, 2017-12-28 11:59

Differences that exist in close proximity can be harnessed for energy and/or profit. Some examples ....

When you have two gasses (or liquids) of different temperatures separated by a wall, and then you open a window in the wall, the gasses move between the two partitians to eventually equalize the temperature. That flow of gasses can be harnessed for profit. I recently visited a geothermal plant in the Imperial Valley of California in which they do exactly that.

When there is a temperature difference between two sides of a device called a thermocouple, electricity is generated. That electricity can be used to power things, such as this heat powered fan for your woodstove.

Or with electricity, when there is a voltage difference between two terminals and you switch in a conductor between the two, you get current flow. Ohmic resistance restricts the flow. 

In financial arbitrage, when a subset of people value one thing more than another and another subset of people value the other thing more, a flow of goods between the two groups can be implemented for profit. Poorly designed government regulations and other impediments can often restrict the flow.

There is potential energy in differences, or in the arbitrage case, potential profit.

My customers have talent in real estate investing, but lack enough funding. I have access to money, but no talent in flipping properties or landloring (believe me, I've tried). The differences in our situations are what makes our relationships profitable for both parties.

I recently had an extended stay in San Diego, moving my mom into assisted living. I developed a relationship with a Mexican American entrepeneur there. I gave him a lot of my mom's furniture, which he took across the border to Tijuana to sell. I benefitted by getting rid of the stuff quickly, without having to rent a truck and hire help, and he benefitted by making a few extra bucks. I call this "border arbitrage". I imagine that border walls somewhat restrict border arbitrage, although motivated entrepeneurs often find ways around such things.

While there, I met a young American woman who worked in San Diego, but lived in Tijuana, to save a lot of money on rent. She was a single gal who didn't even speak any Spanish! But she was doing a form of financial arbitrage, profiting by the much lower rents in Tijuana and an advantageous exchange rate.

Differences that exist in close proximity (gasses of different temperatures separated only by wall, countries separated by walls and a border checkpoint, entrepeneurs of different talent sets) are all opportunities for profit. It really all boils down to thermodynamics.

Matt