Markets seem to have dodged the bullet of imminent crash this week. We’re sticking with our “Super Bubble” thesis that cheap money across the globe is likely to drive all assets up to record highs in the next 12-18 months, before a liquidity black hole swallows them, or crushes them…or does whatever a black hole does.
Don’t be fooled by the announcement from the doddering old men of Europe’s Central Bank that they would raise short-term interest rates by a quarter of one percent to 3.75%. This is still 3.25% higher than short-term interest rates in Japan, proving that money is not yet expensive. And in any event, the elephant in the room is the fact that much of the credit/excess driving global bull markets has been created outside official channels. In other words, central bankers are not nearly as in control of the growth in credit as they would like you to believe. Nor are they firmly in control of levers that can arrest a free-fall in asset prices, when (not if) that occurs.
But we are probably quibbling over details. And then end is not nigh, yet. The real question is getting the timing right on when the “Super Bubble” will peak and what to do in preparation for it. After all, it will be dangerous to own any kind of equity asset at all after the blow-off blows up. But we are assuming since you are reading this, you have willingly assumed the risk of being invested in the equity markets. You are not a child in need of a government nanny to warn you what you can and cannot do with your freedom of action. Therefore we will treat you like a fellow adult and proceed with our best ideas and analysis.
Distributed energy, not biofuels or hydrogen, will be a “hot” sector in 2007. “This category totaled US$580 million in [investment] in 2006, up from $298 million in 2005. Solar led the way at $264 million, followed by fuel cells ($175 million),” we read in the report “Clean Energy Trends 2007.” Hmmn.
And just what is clean energy? Everything has a carbon footprint, leaving behind a sooty reminder that in physics just as in markets, you can’t get something for nothing. For example, nuclear energy has a rather sizeable carbon footprint when you factor in all the machines it takes to mine uranium for nuclear reactors. And coal?
Of course coal has a carbon footprint. It is mostly carbon. But we reckon there will be more cost-effective ways of reducing that footprint in 2007, with a little help from our friends in Japan.
The trick is not to bottle the carbon dioxide stuff after you burn the coal, and then inject in the ground like Botox for the earth’s crust (sequestration.) The trick, or the science, is to treat the coal before you combust it so it doesn’t release as much carbon (or sulfur and nitrous oxides) into the beautiful blue St. Kilda sky.
“India wants Japanese investment to build energy-efficient power plants to keep pace with electricity needs and 9 per cent annual growth,” reports Shigeru Sato in Bloomberg today. “Closer ties may provide opportunities in the South Asian nation’s market to companies such as Kobe Steel, Ltd. that’s developed clean coal-burning technology, and Toshiba Corp. for nuclear power reactors.”
We have reams of this kind of stuff on our unproductive desk at the Old Hat Factory. We are putting the finishing touches on a report, “Three Shares Set to Profit from the Green Energy Revolution.” There are charts, tables, bullets, numbers, and ticker symbols. Entire forests have been sacrificed for the cause of documenting the investment case for cleaner, greener energy. It is all rather exciting, and frankly, rather bullish, which is a bit of a change of pace for us.
But we are pretty sure that even though the financial market is racing ahead of the real economy, the real economy will still use and demand energy. And even though you can expect to see more volatility and greater declines in financial markets, it is not at all clear to us anymore that action in the share market will affect the underlying activity in the real economy.
Or maybe it is better put this way, if a stock market crashes in New York, will they hear it in the streets of Bombay and Beijing? The thud will be heard. And it will affect share markets. But the underlying economic trends, those are harder to displace. All of which is to say that alternative energy companies remain some of our favourites over the next few years.
Granted, many of these companies have low or no sales and no profits. But some have genuine commercial energy technologies that are cost-competitive with oil at today’s prices. And if oil doesn’t remain at today’s prices but goes higher, the picture becomes even greener…or brighter.
Markets and Money