Time To Move On to the Next Bubble: Clean Energy

[FRED]

Editor's Note: Mark Braly interviews Eric Janszen on The Next Bubble. Mark Braly was energy advisor to the mayor of Los Angeles during the 70s energy shock, author of the city's prize-winning energy plan, and president of a State of California non-profit corporation which made loans to renewable energy businesses. Now retired, he is a City of Davis, California, planning commissioner working on the city's zero-carbon program.

Time To Move On to the Next Bubble: Clean Energy
January 23, 2008 (Mark Braly - Renewable Energy Access)

The U.S. economy is a bubble economy -- going from bubble to crash to the next mania -- and the new bubble is likely to be clean energy, says Wall Street insider Eric Janszen in the cover story of the February Harper's.

We've seen two bubbles, internet and housing, within a decade, writes Janszen, "each creating trillions of dollars in fake wealth."

"There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle."

Here's why Janszen thinks the necessary next bubble will be clean energy. The new bubble sector must:

1. already be formed and growing as the previous bubble (housing) deflates. Check.

2. have in place or in the works legislation guaranteeing investors favorable tax treatment and other protections and advantages. Check.

3. be popular, "its name on the lips of government policymakers and journalists." Check.

4. "support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell." Is that coming? Janszen is quite expansive in his definition of clean energy, including a massive retooling of the country's transportation and power infrastructure.

Continued...

[WDCRob]

Re: Time To Move On to the Next Bubble: Clean Energy

Meanwhile a $5B rail extension along an incredibly congested corridor between Dulles Airport and the region's existing Metro system appears to be dead:

http://www.washingtonpost.com/wp-dyn...012401221.html

When this project (planned for decades and tied up by red tape and NIMBYism for several years) is approved and ground is broken I'll consider it a sign that the bubble is in full effect.

[touchring]

Re: Time To Move On to the Next Bubble: Clean Energy

Clean energy like biodiesel and solar energy? I think the bubble is already at late stage, these firms are already trading at PEs of hundreds, as much as dot com era companies.

If oil prices collapse, this bubble will blow up within months. :confused:

[Jim Nickerson]

Re: Time To Move On to the Next Bubble: Clean Energy

Clean energy like biodiesel and solar energy? I think the bubble is already at late stage, these firms are already trading at PEs of hundreds, as much as dot com era companies.

If oil prices collapse, this bubble will blow up within months. :confused:

Do you mind putting some symbol up for the companies you have in mind?

[touchring]

Re: Time To Move On to the Next Bubble: Clean Energy

Do you mind putting some symbol up for the companies you have in mind?

Last few months, I've read cases of solar energy stocks where PE rises to a hundred or more - a quick google will find some articles - e.g. http://www.theglobeandmail.com/partn...ock/solar.html

I'm sure these are exceptional cases, but this might support the view that there's a mini-bubble going on, especially when oil prices itself is experiencing a bubble - as a result of the Iraq war.

Suppose that bubbles can evolve into many stages, like the current Dot com 2.0 bubble, the clean energy bubble might burst, and then come back in a few years time.

[touchring]

Re: Time To Move On to the Next Bubble: Clean Energy

Do you mind putting some symbol up for the companies you have in mind?

Last few months, I've read cases of solar energy stocks where PE rises to a hundred or more - a quick google will find some articles - e.g. http://www.theglobeandmail.com/partn...ock/solar.html

I'm sure these are exceptional cases, but this might support the view that there's a mini-bubble going on, especially when oil prices itself is experiencing a bubble - as a result of the Iraq war.

Suppose that bubbles can evolve into many stages, like the current Dot com 2.0 bubble, the clean energy bubble might burst, and then come back in a few years time.

One factor, which i'm not sure if you have considered is the fact that emerging economies do not have as good control over the economy as America. Fiscal and monetary policies are limited in effect. As such booms often lead to extremely hard landing (i.e. the Asian Financial Crisis and Japanese depression), and if demand falls off, this might impact on oil demand from the developing world.

Take for example, many emerging economies have started to impose somewhat draconic price controls, e.g. China's price cap on coal and fuel prices has been causing blackouts and shortages at gas stations. The central government has threatened punitive measures for the management of companies that do not cooperate.

[Jim Nickerson]

Re: Time To Move On to the Next Bubble: Clean Energy

Last few months, I've read cases of solar energy stocks where PE rises to a hundred or more - a quick google will find some articles - e.g. http://www.theglobeandmail.com/partn...ock/solar.html

I'm sure these are exceptional cases, but this might support the view that there's a mini-bubble going on, especially when oil prices itself is experiencing a bubble - as a result of the Iraq war.

Suppose that bubbles can evolve into many stages, like the current Dot com 2.0 bubble, the clean energy bubble might burst, and then come back in a few years time.

One factor, which i'm not sure if you have considered is the fact that emerging economies do not have as good control over the economy as America. Fiscal and monetary policies are limited in effect. As such booms often lead to extremely hard landing (i.e. the Asian Financial Crisis and Japanese depression), and if demand falls off, this might cause oil prices to correct.

Take for example, many emerging economies have started to impose somewhat draconic price controls, e.g. China's price cap on coal and fuel prices has been causing blackouts and shortages at gas stations. The central government has threatened punitive measures for the management of companies that do not cooperate.

Thank you.

Here are the solar energy stocks mentioned in link.

The current solar leaders include:

FSLR – First Solar
STP – SunTech Power Holdings Co.
JASO – JA Solar Holdings Co.
CY – Cypress Semiconductor Corp.
The second tier ‘high fliers’ include:
CSIQ - Canadian Solar Inc.
AKNS - Akeena Solar Inc.
CSUN - China Sunergy Co.

[bda_guy]

Re: Time To Move On to the Next Bubble: Clean Energy

Clean energy like biodiesel and solar energy? I think the bubble is already at late stage, these firms are already trading at PEs of hundreds, as much as dot com era companies.

If oil prices collapse, this bubble will blow up within months. :confused:

In going through the recent EJ posts, this is what I have pieced together.

1) Heading into an economic recession, the price of oil would drop not only because of reduced demand but also because of a reduction in the speculative premium placed on commodities. This drop in price would stifle some of the short-term incentive for development of alternative energy and more energy-efficient technologies and put a damper on the price of stocks within this field.

2) Even though demand for oil would remain stable or possibly decline in the short-term, there would still be demand growth over the medium to long-term (all else staying constant) because of modest demand growth in the developed countries and, more importantly, rapid demand growth in emerging markets.

3) While demand growth of some sort will remain, the production capacity of cheap oil will decline at a significant rate. As production decreases and production costs increase, oil prices will increase and the supply of oil from harder-to-extract sources will increase depending on economic viability of the extraction process. Regardless, the production of more difficult to extract oil would not increase at a high enough rate to offset the decline in cheap oil.

4) As the extraction of cheap oil decreases and oil prices increase due to normal supply/demand issues, normal price pressures will be aggravated because:

4.1) Political/social instability will occur within countries that have been blessed with cheap oil but are finding production capacity dropping off rapidly ==> as revenue drops and overall profits decline, fewer people within those countries will prosper and less money will be available to government to appease the masses through various forms of direct/indirect social spending.

4.2) Meanwhile, wars will be initiated by countries, likely by those with strong economic growth potential and relatively young populations, that are trying to secure access to oil fields for their own future needs.

5) Within the context of free market capitalism, private investment in alternative energy and energy-efficient technologies will increase because of higher oil prices. However, private investment alone will not be at the level required to dramatically change the landscape of energy use over the near-term which brings me to...

5) Somewhere during this process, depending on the foresight and will of politicians, governments will declare a need to dramatically reduce their country's dependence on oil and dedicate a significant amount of resources to the cause, either through research centers/grants or more likely government-sponsored funding (ie. tax breaks, subsidies, etc). Whether this occurs gradually or it comes in a Kennedy-esque declaration will likely depend on the stability of countries around the world and any significant economic shocks.

The financial firepower directed/backed by government to "solve" the oil dependence issue will create technologies envisioned to have spectacular returns (fuelled by Wall Street's desire to make a buck, of course) and create speculative demand in all sectors of the economy supporting alternative energy, more energy-efficient technologies and their supporting infrastructure. Voila, we have the main crux of the Itulip investment theory for the next bubble!

6) One last elaboration before I end. If the US were heading into a once-in-a-century Great Depression-style recession, I'm certain a large public works agenda would be undertaken by the government to sustain a certain level of economic growth. (I'm only guessing but this is why I think (in addition to comments in #5) that "infrastructure projects" are included within the "clean energy" bubble thesis.) Another Great Depression in the US may dampen/slow but would not necessarily negate points #2 through #5 from occurring. If anything, the poltical/social instability outlined in 4.1 may occur before a significant reduction in production occurs if near-term revenues/profits to oil-rich middle east countries were to decline dramatically.


So, getting back to your original point touchring, I would agree that in the very short term, "clean energy" plays are very uncertain. However, the technology and real estate bubbles discussed on Itulip have taken 5-7 years to reach their true bubble maturity and I doubt that this one will be any different. Think of this as an investment strategy for the next 5-10 years (maybe longer), not the next three months! A pure oil play may reap some short-to-medium term benefits once the full effects of a recession are felt but the "clean energy" investments comes across as a more profitable long-term play to keep your eye on.

[Jim Nickerson]

Re: Time To Move On to the Next Bubble: Clean Energy

Welcome to posting, you obviously have been reading here a long time. Nice analysis, bda_guy.

I want to see people putting up some specific investment vehicles to be watching for opportunities to develop with regard to going long in them. Any ideas?

[touchring]

Re: Time To Move On to the Next Bubble: Clean Energy

Think of this as an investment strategy for the next 5-10 years (maybe longer), not the next three months! A pure oil play may reap some short-to-medium term benefits once the full effects of a recession are felt but the "clean energy" investments comes across as a more profitable long-term play to keep your eye on.

Yes, that's quite true. Timing is important. Another issue, with so many types of clean energy companies, betting on the right type with the best potential may also be tricky.

[jk]

Re: Time To Move On to the Next Bubble: Clean Energy

Yes, that's quite true. Timing is important. Another issue, with so many types of clean energy companies, betting on the right type with the best potential may also be tricky.

i would guess that if you plan to do any buying within the next 2 years, you will be best served by a diversified basket or mutual fund. it will be hard to pick the winners.

[metalman]

Re: Time To Move On to the Next Bubble: Clean Energy

awesome summary. someone's been paying attention. i'd add from a comment ej posted today that if things don't get shitty enough this year we get another fire econ candidate who tries to keep the gig going versus a slash and burn political changer (fdr type) who pushes aside big oil and other entrenched interests and does the new new deal.

[GRG55]

Re: Time To Move On to the Next Bubble: Clean Energy

Yes, that's quite true. Timing is important. Another issue, with so many types of clean energy companies, betting on the right type with the best potential may also be tricky.

Before this is done, the term "clean energy" is going to be stretched and reshaped in ways we probably can't imagine today. Look for some aspects of conventional energy to be "re-branded" as clean energy - natural gas would be one possibility.

Anyone expecting Big Oil to be "pushed aside" may be in for a big disappointment - the best of them will re-invent themselves (the early, and not yet successful, leader down this path is BP with its "Beyond Petroleum" sunflower).

I want to see people putting up some specific investment vehicles to be watching for opportunities to develop with regard to going long in them. Any ideas?

Here's one which I highlighted once before. Not an investment recommendation, but I have a position personally.

http://www.cleanenergyfuels.com/

[Jim Nickerson]

Re: Time To Move On to the Next Bubble: Clean Energy

Before this is done, the term "clean energy" is going to be stretched and reshaped in ways we probably can't imagine today. Look for some aspects of conventional energy to be "re-branded" as clean energy - natural gas would be one possibility.

Anyone expecting Big Oil to be "pushed aside" may be in for a big disappointment - the best of them will re-invent themselves (the early, and not yet successful, leader down this path is BP with its "Beyond Petroleum" sunflower).



Here's one which I highlighted once before. Not an investment recommendation, but I have a position personally.

http://www.cleanenergyfuels.com/

Thanks, GRG, nothing like "talking your book" (I got that from jk, I don't normally get into stock market vernacular).

It has been suggested before somewhere here that a list ought to be started for potential investments in the "next bubble" companies. There are already about eight in this thread including the one you mentioned: CLNE.

GRG, I note you wrote another thread, that you "lived" (past tense) in the Arabian Gulf, and earlier you listed that as your location, which I noted recently is changed to "At Large." When I first left the boondocks and went to San Diego to be a Naval dentist, from the outskirts to downtown on the interstates I kept seeing exits to "Frontage Road." The next day I asked a city-slicker why did they have such a long street in San Diego named Frontage Road, shit it went everywhere! Is "At Large" like Frontage Road? So if you're not in the Arabian Gulf, can you give us a hint where At Large is?

[GRG55]

Re: Time To Move On to the Next Bubble: Clean Energy

Thanks, GRG, nothing like "talking your book" (I got that from jk, I don't normally get into stock market vernacular).

It has been suggested before somewhere here that a list ought to be started for potential investments in the "next bubble" companies. There are already about eight in this thread including the one you mentioned: CLNE.

I don't like to "talk my book" (makes me more than a bit uncomfortable), and I generally try to avoid mentioning specific companies or investments for that reason. I don't mind throwing out a few ideas occasionally, but I try to make sure that people know if it's something I have invested in so they understand there is a potential personal conflict within that post.

GRG, I note you wrote another thread, that you "lived" (past tense) in the Arabian Gulf, and earlier you listed that as your location, which I noted recently is changed to "At Large." When I first left the boondocks and went to San Diego to be a Naval dentist, from the outskirts to downtown on the interstates I kept seeing exits to "Frontage Road." The next day I asked a city-slicker why did they have such a long street in San Diego named Frontage Road, shit it went everywhere! Is "At Large" like Frontage Road? So if you're not in the Arabian Gulf, can you give us a hint where At Large is?

You get the prize for attention to detail Jim. I didn't think anybody read my stuff that closely.

For now my wife and I are still resident in the Arabian Gulf (that's where our furniture and other stuff is), but after 7 years an opportunity to relocate presented itself, and for a variety of personal reasons we have decided to ship our stuff back to Canada later this year. I am "at large" simply because during the extended transition I am moving about quite a bit between western North America, Europe and the Middle East/North Africa. It's also one reason that I am having trouble keeping up with iTulip at a time when the posting activity and information flow has increased a lot and the markets so volatile.

I expect to keep working internationally, but plan to scale back my travel (commercial air travel is now a pain in the azz, actually. I'll be posting something about that in the Rant/Rave section shortly) and base out of Canada where I can spend more time outdoors again.