What Happened Last Time Energy Costs Spiked
We’ve all been here before. We’ve seen the price of energy, and particularly gasoline rise and fall.
How the nation reacts to this price spike, will depend entirely upon how long we think it’s going to last.
And I don’t mean to be a David Downer, but I do think we’re going to have high fuel and energy prices, for quite a while. To me, that was the real message that President Biden was delivering over the weekend. You don’t recommend insulating your home, or putting solar panels on the roof unless you think we’re making a long-term change in course.
And that’s just where I think we are. On the road to a permanent adjustment in energy. And this will predictably bring about some interesting trends in most of our lifestyles.
For me, this is another vivid example of mandated change, initiated by our Leaders in Washington. A Free market would make any such change, if it were really needed, in a seamless and more humane manner. I’m concerned today, that many are going to suffer real hardship as energy is a central component in our way of living.
And whether you think we got here because of Presidential Fiat, as I do. Or as a natural result of societal evolution, here we are.
And, as any good investor, let’s see if we can make the best of our current circumstances.
The President alludes to a couple of these emerging trends in energy usage, in his Executive Order of last Friday.
First, he encourages the use of alternative energy. Such as solar, wind biomass, etc. For investors, alternative energy companies have proven to be a mixed blessing over the years. Doing well when a Democratic Administration provided direct subsidies and tax relief. Doing poorly, and sometimes failing when those subsidies are taken away.
The Heritage Foundation has put out a long list of failed solar companies. Some of the most well-known were: Solyndra, at a cost of half a billion paid by the US Government, in other words from taxpayers. “A123 Systems”, at a taxpayer-funded cost of $370 million. And the current champion, Abound Solar, has a cost to taxpayers of $790 million dollars.
Another major trend that we see every time gas prices rise for a long period of time, is that cars shrink.
Just kidding. Actually, the auto companies introduce small compact cars designed to get higher gas mileage. The objective is to make those stops at the gas station a little less painful.
For those of you who remember the OPEC Oil Embargo of the 1970s, you may recall that Detroit introduced such forgettable cars as The Mustang II. A smaller version of the none too large Mustang. Or the Chevy Vega. A car that my family was stuck with…err I mean fortunate to purchase. Which had an aluminum engine block which liked neither high summer heat nor low winter cold.
And finally, there was perhaps the oddest car of all the AMC Pacer. A car that looked like the 1960s version of the 21st century.
But, as I say the objective was good gas mileage, not necessarily good auto design. I’m afraid we may well see all of that again. As car makers around the world must deal, once again, with higher gas prices.
Finally, at the long end of our time frame, we’re likely to see changes in our homes. If energy prices remain elevated.
Now, I have to add a caveat to my developer friends. I’m not talking here about this year. But we’re looking at what trends to expect if energy costs stay where they are now.
The first trend is alluded to by the President. Insulation and other forms of passive construction will come in high demand, as people look to save money on heating and cooling costs.
I would think there would be further demand for the already booming Tiny Home Movement. As saving energy becomes one of the most attractive features of these minuscule dwellings.
Condominiums should also benefit from their energy efficiency.
If your energy bill exceeds your house payment, perhaps it’s time to find an alternative.
Overall those are just a few of the trends that are easy to identify in a world where energy is becoming more and more expensive. I’m sure that you can think of many others.
Economic News
The big story of the overnight is the surprising Trade Surplus that China enjoyed in May. This is in spite of the fact that their major port complex in Shanghai was shut down for much of the month. The result of the Zero Covid Policy of the Chinese Administration.
For China, May’s Trade Surplus came in at just a smidgen under 79 billion dollars (US). Which coincidentally was nearly equal to the US Trade Deficit for May. Which came in at 87 Billion.
For those who don’t see the correlation between China’s Trade Surplus, and the US Trade Deficit. So far this year China’s Trade Surplus has been $290 Billion Dollars, with the US representing more than half of their total trade.
Whatever the United States will not or cannot make. China seems more than willing to sell to us. At a handsome profit!
…
The European Central Bank just announced its latest interest rate decision. A bit of a surprise here. In spite of the inflation spiking throughout Europe, the ECB has decided to keep interest rates unchanged at Zero. The Street had expected them to raise rates.
…
Then a little later this afternoon, we will get the latest auction on the 30-year Treasury Bond.
Interesting that Wall Street does not have a posted estimate on the long bond. In spite of the fact that just yesterday the 10-year T Bond went over the 3% mark for the first time in this interest rate cycle.
I’ll be watching this auction closely.
…
In earnings today, a couple of surprises. Fuel Cell Energy, which is just the sort of alternative energy producer that the President touted in his latest Energy Speech, Fuel Cell reported its latest quarterly results, and Wall Street is none too pleased, as their shares are being sold at the moment.
On the other hand, Jewelry continues to shine. As one of the nation’s largest Jewelers Signet has just reported solid earnings for the last quarter.
Later this afternoon we will get results from cloud-based Docusign, and from Vail Resorts.
…
Have a great day!
DAVID
