We desperately need a power source that is clean and renewable. The human race needs to overcome this major hurdle so we can live on and advance our civilization.

The question is, do we want to continue polluting our planet so our children and our children’s children will have to deal with the problem, or do we want to solve it now? We need a “Manhattan Project” type initiative to break our addiction to oil and gas. In the past century, our society has made tremendous advances due to cheap energy from fossil fuels, but the time has come to move on.

So what is the answer? We need a cheap energy source that produces energy without producing greenhouse gas emissions. While wind and solar power are two alternatives, wind is unreliable because wind does not blow all the time, and solar power is still in the infancy stage of development. Wind and solar should be part of the big solution, but we need massive amounts of energy to power our cars and maintain our lifestyle.

The best answer is nuclear power. We have the technology right now to power our planet for millions and millions of years. Nuclear power can produce enough electricity to power all of Earth’s homes and cars.

Another benefit of nuclear energy is that it can be used to turn our oceans’ salt water into fresh water. Humans could have an unlimited amount of clean drinking water. And, the fresh water from the desalination process can be used to farm the desserts and boost our food production.

Okay, I know there are many people out there that hate nuclear energy with a passion. People are scared of all the nuclear waste that is produced and fear a nuclear reactor meltdown. What if I told you about a rapidly developing technology called a “Breeder Reactor” that can actually recycle the nuclear waste into more fuel? Not only would we not have nuclear waste to worry about, but we would have sufficient fuel to power our reactors forever. Nuclear reactor technology has come a long way since the incidents at Three Mile Island and Chernobyl. Today’s new reactors are extremely safe, and the chance of an accident occurring is almost impossible.

Breeder reactors use a mixed plutonium fuel that has “fast” neutrons that prolong the reaction and hold more energy. A coolant like sodium is used to control the internal neutron flux in the breeder reactor. breeder reactors open the door to an infinite amount of fuel for the production of electricity.

Many countries like France, Britain and Japan have already constructed breeder reactors and the technology is quickly improving and reaching its full potential. It is currently more expensive to recycle the fuel than just mining it, but the cost will come down to competitive levels as more breeder reactors come online.

Now that we know nuclear power is safe and produces clean energy, we need to focus on getting away from fossil fuels and start developing this clean energy source. I propose a Herculean effort to start building new nuclear power plants around the globe. We need to get our best scientists onboard to take nuclear power to its full potential. Now is the perfect time to launch this project as switching from fossil fuels to clean energy is a massive project that will create many jobs during this period of global recession.

Imagine a planet with no pollution problems and no energy or water shortages. Picture what mankind can achieve with an inexhaustible and safe supply of cheap electricity derived from nuclear power.

Source: Is Nuclear Power the Answer?

And not only here in the U.S., either.

France’s GDF Suez (GSZ:Paris), newly-formed energy group, and Spain’s Iberdrola (IBE:Madrid) just announced that they will join forces to build nuclear plants in the United Kingdom… As have German companies RWE and E.ON (EOA:Hamburg).

But friendly European countries teaming up to build nuclear power plants isn’t the only card in play. Nuclear energy is on the table in Russia, China, and Iran.

German company Siemens (SI:NYSE) is expected to partner with Rosatom in Russia to invest $45 million in a transformer factory. The two companies are hoping to partner on more projects, too, in both Russia and Germany, and also in other countries.

China is well on track to double its nuclear power capacity over the next ten years. In 2009 alone, the country expects to add 8.4 gigawatts-worth of nuclear power plants. In fact, China is investing about $84.8 billion in the power industry this year. Technology will come from “third-generation nuclear power technologies, such as the AP100 developed by the United States-based Westinghouse Electric Co,” said Fu Manchang, secretary-general of the Chinese Nuclear Society, to China.org.

With so much development on the nuclear energy agenda, it should come as no surprise that the geopolitical eye has once again fixed itself of Iran, and the posibility of its nuclear weapons program.

Today, representatives from five permanent member countries of the UN Security council met to talk about diplomacy and Iran’s nuclear ambitions. Yesterday, it became public that Iran had launched its first home-built satellite. This means that long-range weapons and the ability to fire ballistic missiles are fast becoming a reality.

This has folks a little edgy, as many people believe that if Iran gains nuclear weapons, and has the ability to fire long-range missiles, it might attack Israel.

But the UN Security council is encouraged by the new U.S. administration’s “willingness… to engage in talks with Iran.”

That won’t make the job any less hard, and if indeed Iran capitulates to every demand in order to pursue a peaceful nuclear energy program, would the UN Security council actually sanction the move? How can it not when China is pouring money into nuclear energy programs, and when Russia, our old Cold War enemy who is still dismantling its nuclear bombs, is partnering with Western companies to develop plants?

If we’re ready to negotiate, we’d better be ready for a nuclear Iran… even if it’s just to generate electricity, not bombs.

Source: Nuclear Energy Back on the Table

This from The Daily Reckoning:

Contrary to the common misconception, we have no energy shortage. In fact, we have more energy available than we could ever use. If not for the anti-nuclear movement, the funders of terrorism would not be awash with petrodollars and our economy would be significantly stronger. Unfortunately, rock musicians and actors had more influence on energy policies than scientists like Petr Beckmann, whom I was lucky to have as a friend.

Dr. Beckmann was a Czech refugee from Nazism who spent much of his career in America promoting nuclear power. Until he died, Beckmann was treated as some sort of demon by the environmental movement. No longer.

Today, even green leaders are admitting the folly of rejecting this cheap, clean and safe (when compared rationally with other energy sources) technology. If there were justice, Beckmann would have statues erected in his honor.

The green turnaround on nuclear power is particularly relevant now. President-elect Obama has picked several global warming activists to serve as top officials. The most important is Harvard physicist John Holdren. As presidential science adviser, he could have a significant impact on energy policy. His career, in fact, has focused on climate change, next-generation nuclear energy and nuclear disarmament.

From the perspective of an investor, what does this mean? Among other things, it could rapidly accelerate the transition from the current generation of nuclear power plants to the next. I would, incidentally, never invest in a technology simply because it has political support. Ethanol, for example, had lots of it. It was never a good idea, though, and is finally being recognized as such.

Nuclear power as we know it today is obsolete. Current light water reactors use uranium-235. This fuel is not only expensive, but its byproducts create problems. They are difficult politically to handle and can be used to create nuclear weapons.

Those byproducts are, ironically, the reason we initially adopted uranium-235. America needed the materials for nuclear weapons. Power plants using uranium-235 provided them. Regulators, naturally, favored the technology despite the fact that there were superior fuels – especially thorium.

Thorium is not only far more abundant than uranium-235, but thorium reactors do not produce waste materials useful in nuclear weapons. In fact, the wastes are far less hazardous and much cheaper to deal with. Thorium reactors are safer in general to operate, producing little radioactive threat outside their shielding. They cannot, in fact, experience a catastrophic meltdown.

This is a much bigger deal than it appears on the surface. Fuel costs, though much lower for thorium, don’t play much of a role in total nuclear power costs. In his book The Nuclear Energy Option, Bernard Cohen estimates that safety measures to counter meltdowns account for about 75% of current plant costs. As thorium plants can’t melt down, energy costs would be significantly lower.

Additionally, thorium reactors can be almost any size. Prototypes have been made small enough for military aircraft. This makes them economically viable in developing countries without the additional cost of large-scale electrical infrastructure. Thorium reactors would also be easier to sell internationally because they cannot be used to manufacture nuclear weapons.

The shift to thorium would facilitate economic, environmental and nonproliferation causes. So why are we still building plants that burn uranium-235? This is one of the hazards of government involvement in the sciences. Once grants and regulatory attitudes that favor a technology are in place, they are huge barriers to competitors.

A free market would favor thorium over uranium anyway. Coincidentally, Obama’s administration could significantly reduce barriers to thorium energy production. I’m looking hard now at several ways to take advantage of this development.

There is one potential wrench in these works, though. It’s nuclear fusion, and it could change everything. The fuel for fusion is essentially free, so the cost of power generation is a matter of capital costs and maintenance. I’ve been a skeptic about the economics of fusion, but that has begun to change. It appears that early research grants may have derailed and forced out more promising and cheaper fusion technologies than those favored by various governments’ research efforts.

Source: The Ultimate Alternative Energy

This from Money Morning:

With his landslide election victory Tuesday – coupled with Democratic gains in the House of Representatives and in the Senate – U.S. President-elect Barack H. Obama II will have the ability to pursue more or less any policy he wants.

For investors who have been trying to analyze the economic outlook for the New Year, the election of U.S. Sen. Obama (D-Ill.) provides a major piece of the forward-looking jigsaw puzzle that these analysts hope to assemble. That’s because the likely trends of the United States and other economies around the world – and the relative success of different sectors within those economies – depends crucially on who’s in the White House, what policies they have, and how effectively they can pursue those policies.

Only one thing keeps the triumph of the incoming Democratic president from being totally complete: The Republicans appear to have held onto 41 Senate seats, enough to prevent the Democrat majority from overriding a united filibuster. In practice, however, there are few issues on which the Republicans will be completely united. Thus, on only a few “litmus test” issues – such as the “Employee Free Choice Act,” which removes the secret ballot from union elections – is this filibuster threat likely to be effective.

Obamanomics: From the Environment to Health Care

A review of President-elect Obama’s economic policies – characterized by the term, Obamanomics – clearly offer profit opportunities. Let’s take a closer look at some key areas to consider in 2009.

In the economics area, Obama’s two signature policies are a promise to institute a “cap-and-trade” system of carbon emissions permits to combat global warming, and a substantial expansion in state healthcare provision, notably to include universal healthcare provision for minors.

On the energy front, the support of U.S. Sen. John McCain (R-Ariz.), for the “cap-and-trade” system will make it much easier for Obama to pass legislation quickly, probably in the first half of 2009. Under Obama’s proposed legislation, emission permits will be auctioned to utilities and other businesses with substantial carbon emissions. This has the advantage of being more of a free-market approach than McCain’s plan to give away the permits for free, which would have required the creation of a huge government bureaucracy to decide who would get those permits.

Even so, Obama’s approach has the disadvantage of imposing gigantic new costs on utilities and other carbon emitters. Indeed, Obama himself has said that new coal-fired power plants would become hopelessly uneconomic under his plan – chiefly because of the costs of the emissions permits they would need. That suggests that nuclear power plants (which he does not oppose) would account for the majority of new power-station construction during the Obama presidency – although solar, wind and other power-generating technologies that look pretty and can be made to work also will fare well.

The corollary of Obama’s emissions permit program, therefore, is that an investor should sell coal-producing companies and coal-fired electric utilities, and invest in nuclear power stations and uranium-mining companies. In principle, there should also be opportunities in the solar- and wind-power sectors, but the “new energy” fad of the last couple of years has already driven their valuations to uneconomic levels.

On the healthcare side, investment recommendations are more difficult to isolate. Generally, Democrats are skeptical of the patent protections enjoyed by pharmaceutical companies – as well as the high prices those protections create – so the major manufacturers of patented drugs should be avoided.

Conversely, the producers of generic drugs appear poised to benefit from the increased spending on healthcare – especially the manufacturers of pediatric healthcare products, including pharmaceuticals – should benefit from the Obama program’s emphasis on children’s healthcare.

Financial Crisis Redux

Of all the questions investors will have about the New Year – following Obama’s victory – is what the new administration will do about the current financial crisis.

A federal bailout package – consisting chiefly of spending increases – seems almost certain in the short term; that will cause the federal deficit to balloon even more than it has already, will make U.S. Treasury bond financing increasingly difficult, and will further stoke inflation. In those circumstances, avoid Treasury bonds, except the inflation-protected buying Treasury Inflation Protected Securities (TIPS), the principal and interest of which are linked to the Consumer Price Index (CPI). TIPS currently have an attractive yield around 3.0%.

It seems likely that an Obama administration will tend to impose costs on the financial-services sector in return for the bailouts it receives – perhaps, for example, banks will be required to funnel lending into low-income areas, or toward other chosen beneficiaries. Limits on financial-sector remuneration also may make it difficult for the major banks to do business, particularly in the trading area. The Democrats have a more aggressive attitude toward “predatory lending” than the Republicans, and will undoubtedly find innumerable examples of such lending in the mortgage and credit card area over the next few years, which they will wish to punish. Hence, financial sector investments should be generally avoided.

Potential Profit Plays

On the other hand, both Obama and the Democrats seem more likely to propose bailouts for states and municipalities that find themselves in budgetary hot water because of the recession that’s sure to come (if it’s not here, already). Thus, municipal bonds, which carry a considerable credit risk under a tight-fisted Republican administration, may be thought of as less vulnerable to default under an open-handed Democrat administration with sympathy for the issuer’s problems, particularly if that municipality represents a core urban Democratic constituency.

When New York City got in trouble, U.S. President Gerald Ford – the Republican who succeeded the disgraced Richard M. Nixon – took an unsympathetic attitude and The New York Daily News captured his perceived attitude with the headline: “Ford to City: Drop Dead!” No such episode will occur under the urban-oriented, free-spending Obama!

And that makes munis a “Buy.”

Also in the “Buy” category are automobile and auto-parts companies. No matter which candidate ended up winning Tuesday, the victor would almost certainly decide to bail out U.S. carmakers, as well as the suppliers that rely on them. After General Motors Corp. (GM) was rebuffed in its bid for aid by the Bush Administration, the bailout of U.S. carmakers is now being billed as a top priority for the incoming President Obama.

Automakers such as GM and Ford Motor Co. (F) benefit from being the headliners in an iconic U.S. industry – especially because it’s one that employs lots of potential Democrat voters in industrial states and suffer from international competition that increasingly riles the more protectionist Democrats. A bailout is thus inevitable, probably without involving the automobile companies in a Chapter 11 bankruptcy. And that makes their shares worth a “flutter.”

President-elect Obama’s supporters celebrated ecstatically Tuesday night. Investors should be more skeptical. But looked at carefully, an Obama administration – and Obamanomics – would still seem to offer opportunities for profit in the New Year.

Source: Money Morning Outlook 2009: Obamanomics Offers Investors Plenty of Profit Plays in the New Year

This from Investor’s Daily Edge:

It’s finally here.  The long awaited and hard fought election will end tomorrow (at least I hope we don’t see a repeat of 2000 where we don’t know who won for weeks).  Rather than make predictions about the election itself, I want to tell you how I think things will play out after the election.

First, I think the overall market will rally after the election regardless of which candidate wins.  There could be a knee-jerk reaction to the downside should Obama win, but this is part of the old belief that Democrats are bad for business and investing.  History tells a different story than the actual belief though.

The thing that will happen on Wednesday is that the uncertainty will be removed.  The uncertainty of the election has been weighing on the market for the past few months.  It’s been hard to tell, because of the credit crisis, but trust me the election has been weighing on the market as well.

So overall we will likely see the market rally over the next couple of months.  Historically the market rallies after elections, regardless of whether it is a Republican or Democrat that is elected.

Secondly, as I have expressed in recent articles, the market is extremely oversold and the sentiment is extremely bearish.  So even if this weren’t “the most important election of our life” we would likely see a year-end rally.

As far as each candidate and the sectors they will impact the greatest, the scenarios are very different in some areas and very similar in others.  Let’s look at the winning and losing sectors under both Obama and McCain.

The big winners with an Obama victory will be Biotechnology and Alternative Energy.  With Biotech, the fact that Senator Obama wants to give the healthcare system a complete overhaul will push for new technology that improves healthcare at a lower cost.  Look for incentives to flow into this sector whether it is with tax credits or grants, there will be a push for new developments from the group.  Senator Obama also supports stem-cell research and should he win, look for a boost to stocks in this arena.

Alternative Energy, particularly solar, will be a big beneficiary of an Obama administration.  On the campaign trail he has said he wants to direct $150 billion towards alternative energy and lowering our dependence on foreign oil.  As we all know, what is said on the campaign trail and what is done after the fact can be very different.  While he might not able to direct the whole $150 billion toward the sector, you can bet there will be money pushed that way, how much money is available will be determined later.

One sector that will certainly get hurt with an Obama administration is big-cap pharmaceuticals.  The same desire to overhaul the healthcare system that I mentioned as a benefit to biotech will be a hindrance to pharmaceuticals.  The reason for this is that he will likely push for lower drug prices at the consumer level.  This will limit what the drug makers can charge and limiting their revenues.

As for McCain, the obvious winners will be the Defense sector and oil and gas sectors.  While Obama believes a timeline should be set for withdrawing from Iraq, McCain doesn’t believe such a mandate should be put forth and the U.S. will likely continue to spend heavily on Defense should McCain win.

A McCain victory should also provide a boost to nuclear energy companies. He has made it clear on the campaign trail that he is in favor of finding alternative energy sources beyond oil, but where Obama prefers wind and solar energy, Senator McCain prefers nuclear energy.

One area that will likely lose should McCain win is the infrastructure sector.  Senator McCain wants to curb government spending, at least that is what he is saying on the campaign trail.

Like I said about Mr. Obama wanting to spend $150 billion on alternative energy sources, what is said on the campaign trail and what actually happens after the election are two different things.  Remember President Bush campaigned on less spending as well, but there haven’t been any cuts in spending over the last eight years.

Regardless of which candidate wins, they will be inheriting one heck of a mess.  The current economic environment is one of the worst I have seen in my lifetime, the deficit that we are facing is astronomical, and the job losses we have had over the last year have combined to make this a daunting task for the next administration.

Consumer confidence is at an all time low recently.  The best thing the new President could do for this country is lift the spirits of our citizens.  Consumers are not likely to open up their wallets until they see hope that the economy is improving.  Lifting the confidence level might get them to open their wallets a little.

Regardless of who wins tomorrow, I wish them luck.  They are going to need more after the election than they need it in the election.

Source: Winning And Losing Sectors After The Election

This from the Rude Awakening:

Earlier this week, I attended a privately sponsored presentation on U.S. energy policy. The main speaker was a senior faculty member from Carnegie Mellon University. This guy has been “doing electricity” for about 40 years or so. He has written reports for the National Academy of Sciences. When the people at the U.S. Department of Energy have a question about electricity, they call this CMU professor.

The news is not good. In 2007, there were about 144 new coal-fired power plants on the drawing boards of the U.S. energy utilities. But, said the professor, “We will probably build none of them.” Indeed, “The electric industry in the U.S. is in terrible shape,” said the CMU man. So we should expect local and regional brownouts and blackouts to become common occurrences “within five years.” But the first isolated instances of brownout and blackout will hit us much sooner than that.

Why is there such a gloomy forecast? Because essentially, the deregulation of the 1990s was botched. According to the CMU electricity expert, botched deregulation “slowed investment, raised prices and led to more and more uncertainty.” So now few utilities or their executives want to take political, regulatory, technical or financial risks. Hence, the entire long-range planning cycle has broken down.

It’s almost impossible to decide what to build, and at what scale. Costs are exploding, particularly for new construction. It’s safe to say that most power plant construction cost projections have doubled within the past 18 months. The prospect of fast-changing environmental regulations also adds to the uncertainty. No one wants to build a power plant and learn in five or 10 years or so that environmental regulations are going to shut it down.

Even the alternative energy industry — with wind, solar and geothermal as the poster children — has formidable challenges. The biggest issue is cost competitiveness. That’s because alternative systems provide power at costs that range from slightly higher to much higher than traditional power from, say, coal plants. Then there are issues of reliability, due to the intermittent nature of wind and solar, and the still-novel nature of geothermal power. And other issues include the lack of transmission from the usually remote sites of wind and solar facilities.

Overall, U.S. power producers face the prospect of many different forms of investment uncertainty. What will be the availability of different fuel mixes? Will coal still be useable? Or will natural gas be available at a cost they can afford? Can power producers invest in nuclear systems when there is still no definite program for disposing of the waste stream over the next 50 years? Or should the utility companies go all out for alternative systems?

But the next question is how much can consumers afford to pay? And what rates will the regulators allow? If utilities invest in alternative power systems (like wind or solar) that produce electricity at, say, 20-30 cents per kilowatt hour (kwh), will the regulators set those relatively high costs as the level of reimbursement? And for how long? What if the regulators permit the higher costs for only a few years and then penalize the utilities because some “better” technology comes along? At the end of the day, the base line cost of electricity is set against the cost to produce comparable coal or natural gas-based electricity. And this cost setting occurs even though there is a growing bias against burning carbon in the U.S. political and regulatory culture. One attendee at the discussion commented, “When you’re in a ‘no-win’ situation, guess what? You can’t win.”

The CMU professor has looked at historical trends for power in the U.S. His best estimate is that over the next decade or so, the price for electricity will about double on average throughout the nation. “This would put the cost of electricity about on par, as a percentage, with where it was back in the 1950s.” But that is only if people keep making investments in new power systems and the nation adopts conservation and efficiency measures on a large scale. Absent that? It’s lights out.

So you might not see it in your daily life — not yet, anyhow — but the power industry is currently paralyzed by the uncertainty of lopsided risks. And as old power plants age and go off stream, there will be less and less reserve power. Costs are going to rise. And reliability will fall. It’s inevitable.

So one investment sector that ought to do well over the next five years is power and backup power systems. And particularly, the companies that should do well are involved in power systems that are off the drawing boards and in some phase of construction, or near completion.

Source: A “Jaws” Market

This from Taipain Daily:

For the last 25 years, Soros observes, the “motor of the world economy” has been the American consumer. And not only has the American consumer been aggressively consuming, he “has been spending more than he has been saving.”

“So that motor is now switched off,” says Soros. “It’s finished. It’s run out of — can’t continue. You need a new motor.”

The declines of that truly awful week when the Dow lost 18% were tied to the credit crisis. Before governments across the globe stepped up, there was a fear that nothing would be done.

The declines that followed Monday’s rally, however, were tied to a separate issue… rooted in fears that the US consumer may, after many years and countless false alarms, be well and truly tapped out.

If so, we don’t know what the new “motor of the world economy” is going to be.

Soros has a notion of what that new motor could be. Moral aspects aside, I think he is right. It’s an idea some readers will like and others will hate…

“We have [another] big problem,” Soros says. “Global warming. It requires big investment. And that could be the motor of the world economy for years to come… instead of consuming, building an electricity grid, saving on energy, rewiring the houses, adjusting your lifestyle where energy has got to cost more until you introduce those new things. So it will be painful. But at least we will survive and not cook.”

The Green New Deal

Concerns over global warming and the high cost of fossil fuels are closely aligned. Whether or not you embrace the concept of global warming – and there is still real debate on the subject – you no doubt remember the sky-high fuel prices the world had to deal with earlier this year.

Energy prices are falling now, mainly due to deflation fears and the phenomenon of “demand destruction.” But when global growth resumes, energy prices will go right back up again. And then there are the indirect costs, like the rampant pollution and quality-of-life issues that plague China and India.

Many top thinkers thus agree with Soros. There is a very strong feeling that the world needs a “Green New Deal”… an alternative-energy-focused motor that can get the global economy humming again.

2008 versus 1932

Let’s take a quick look at the similarities between now and the 1930s.

When FDR took office in 1932, a devastating financial crisis was in full swing. (Sound familiar?) The country was desperate for leadership. Partisan lines were blurred as the whole of America demanded change.

FDR wasted no time laying into the bankers. His harsh words were right in synch with today’s times: “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men….The money changers have fled from their high seats in the temple of our civilization.”

Fled from their high seats, indeed. After declaring a bank holiday, FDR wasted no time in drafting new legislation, overhauling the system, and generally trying to get America back to work.

American farmers were a major focus of FDR’s New Deal. The general belief was that farming held the key to getting the economy back on its feet. In the end, many controversial programs and measures were put in place… more than a few that live to this day. While farming served as the linchpin back then, green energy can serve as the linchpin now.

So was the original New Deal effective? Was it a good thing? That’s a can of worms your humble editor would rather not open.

Some feel FDR did little more than dig holes so he could order men to fill them up again. The skeptics further argue it was really only World War II that brought the United States out of its epic slump. FDR’s defenders, on the other hand, feel that the programs implemented and leadership provided were absolutely necessary for the times. Your humble editor shrugs.

Pragmatic Thoughts (Not Moral Pronouncements)

We are more interested here in sussing out what’s likely to happen, rather than debating the right or wrong of whether it should. And in that regard, it looks like the pieces are in place for the new FDR (i.e., America’s next president) to implement a Green New Deal.

Consider the backdrop of current events:

• We are in a time of unprecedented financial crisis (not unlike 1932), with little or no dissent toward the assertion that free-market capitalism has imperiled its very existence (and must be reined in).

• The American public – and the world at large – is desperate for leadership, to a degree that is only possible in a time of true crisis. (When things are better, people focus on their day-to-day lives.)

• Political leaders have the added impetus of avoiding at all costs a repeat of the mid-to-late 1930s. Their desire to sidestep the full “Great Depression experience” creates an added sense of urgency.

• In terms of economic thought, John Maynard Keynes rules the day. When all the “guarantees” are added up, trillions have already been committed on both sides of the Atlantic. Trillions more could well follow.

• U.S. consumers account for 20% of world GDP in spending terms (Martin Wolf). Global leaders everywhere are deeply aware of the danger of John Q. Public sputtering out, and thus deeply keen to get a new “motor” up and running.

• Alternative energy is the “motor” candidate for which all the right boxes are checked. There is moral authority (via global warming concerns); global buy-in (via the energy issues all non oil-exporting countries face); massive scale and scope (projects too vast for the private sector to handle, i.e. retrofitting tens of thousands of gas stations across the U.S.); and, last but not least, a genuine need for massive spending (many trillions for new and upgraded infrastructure).

From Pelosi to Eisenhower

We are likely to see more crisis spending in the days ahead. Like the war in Iraq, the final tally for government involvement in the global financial system will only rise and rise. (Unlike Iraq, however, there is at least the possibility that taxpayers will profit… but that’s a speculative notion, and a very long-term one at that.)

On October 8, House Speaker Nancy Pelosi gave a foretaste of this with her call for a $150 billion stimulus package aimed at Main Street rather than Wall Street. Assuming an Obama win, the Democrats are planning to hit the ground running on November 5. That means breaking out the checkbooks for Round Two (and Three, and Four, and so on).

If McCain wins, the spending outlook doesn’t change that much. He, too, has plans to bail out U.S. homeowners. A Republican White House paired up with a Democratic Congress might even touch off a “top this” contest to see who can be more generous.

Whoever wins, the U.S. budget is going to be busted like never before…. and it will not be long before the “Green New Deal” starts taking shape. As it does, do not be surprised to hear a buildup of references to good old Dwight Eisenhower.

Roughly one half century ago, President Eisenhower signed the Federal-Aid Highway Act of 1956. As a result, there are just under 47,000 miles of interstate highway crisscrossing the United States today. The longest stretch, route I-90, runs a full 3,000 miles across the continent.

Ike’s highway system was not at all cheap to build, and still costs upwards of $80 billion a year to maintain. But given all we’ve gotten these past 50 years, who will dispute it was worth it? The open road is an indelible part of American life and culture – not to mention the incalculable value of transport, or the millions of truck stops, burger joints and bedroom communities that sprang up on the new interstate.

From Roof to Shining Roof

When you start with Ike’s highways, it’s not hard to imagine the same type of grand vision applied to green energy solutions.

The soaring speeches practically write themselves. Just imagine it: Millions of proud, hard-working Americans climbing up on the roofs of their eco-friendly homes, installing the solar panels that will set them free from the burden of high energy costs, while leading an industry boom that restores and renews the nation.

Or picture fresh-faced toddlers waving from the back seats of biodegradable electric cars – cars built by American hands in freshly capitalized Ford and GM plants, designed to travel up to 300 miles per day on near-zero emissions, plugging into the natural gas and nuclear-powered grid at night to refuel. My Country ‘Tis of Thee, Sweet Land of Li-ber-ty…

OK, that was a little cynical. But you get the idea. If the US consumer is tapped out, then America — and the world — will need a new deal. So why not make it a green one? And on top of that… whisper it now… who wouldn’t mind another investment bubble (this time in alternative energy shares)?

Mind or not, we’re going to get one of those, too… a new bubble, that is. When the next mania comes, alternative energy is almost certainly where it will take root. Financial panics will come and go, just as they’ve been doing for thousands of years — did you know Wikipedia has an entry for “The Business Panic of 33 AD”? — but human nature never changes.

Who Pays for All This?

By now you might be wondering: Who’s gonna pay for all this stuff? Where will the money come from?

It’ll mainly be taxpayers, of course… the same people who always pay. But a mass investment wave in global green infrastructure will at least have some nice follow-on benefits. Like Eisenhower’s highways, we’ll get something solid in return for our investment — unlike the trillions that simply vanished into the maw of the great Wall Street housing bubble ponzi scheme.

Over-eager investors will also voluntarily pay a big chunk of the “green” bill, too. I speak here of those who will wind up plowing their money into the green tech bubble (once it inflates) at the very height of the boom, paying for excess capacity that plummets in price to become a cheap consumer good later.

In other words, excess capacity in the short run will lead to wonderfully cheap green energy in the long run. It will happen with “green tech” the same way things are playing out now with bandwidth. A few years back, bubble-hyped telecom investors fudged the profit calculations on thousands of miles of fiber-optic cable. In result, they were forced to sell their stakes at a blowout loss, leaving the cable in the ground for you and me to enjoy at low cost.

It’s an old historical pattern. We saw it even earlier with the railroad boom and bust. After the great railroad investment debacle, the trains and tracks were still there for the country to use. On the heels of the Green New Deal will be the Green Mega-Investment Bubble – and then, when that bursts, a wonderful glut of energy saving technologies on the other side.

But now we’re getting ahead of ourselves… There will be huge profits to be made on the run-up in all things green, likely sustainable for many years, before we circle back round to bust again. And so it goes.

Source: The Return of FDR, Part III: The Green New Deal

But Smart Commodities UK editor Garry White says a number of nuclear power projects are already underway in other parts of the world. India plans to build between 18 to 20 new nuclear plants over the next 15 years. Even the Middle East is shifting to the atom for its future energy needs.

Nuclear plants are also proven to be effective at water desalination. This will be vital in emerging markets, where populations are rising rapidly.

This is from Fleet Street Daily:

He [Bodman] made the comments on the same day as the US senate signed off the nuclear co-operation deal with India. It was also a few days after Russia agreed to help Hugo Chavez with a nuclear programme. But if you want to feel assured about the prospect for nuclear power, just have a look at what is going on in the Middle East. A place awash with petrodollars.

There are two main reasons for the rush to nuclear power in Iran and Saudi Arabia. And neither of them is the pursuit of nuclear weapons.

The first of these is the fact that they don’t have as much oil as everybody thinks. The second is water.

Let’s take a look at Iran’s reserve situation.

The simple fact is that Iran HAS to develop nuclear power because the country is running out of oil. Iran’s “massive” oil reserves are a big, fat lie.

One of the people who made that reality crystal clear to Iran’s leaders a few years ago was Dr Ali Morteza Samsam Bakhtiari.

Dr Bakhtiari started working for the National Iranian Oil Company back when the Shah was in power. For 36 years he worked for the company in a variety of senior positions until he retired.

This is what he told President Mahmoud Ahmadinejad:

“As for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay.”

The current estimate of Iran’s reserves is 136 billion barrels. That’s the second highest oil reserves in the Middle East after Saudi Arabia. Dr Bakhtiari thinks this should be closer to 36 billion barrels.

I believe that Ahmadinejad needs to go nuclear because his country’s oil industry is struggling to keep its oil production at close to 4 million barrels per day. And it’s only going to get worse.

That’s why Iran needs nuclear – and that’s why Ahmadinejad will never give up his nuclear programme.

The second reason is water.

The population in the Middle East is set to soar in the next 15 years. In Saudi Arabia, almost 40% of the population is under the age of 14. It has a fertility rate of 5 children per woman. The country is set for a massive population explosion at a time when its infrastructure is creaking.

The Kingdom is already the world’s largest producer of desalinated water. It currently has 27 desalination plants which provide 70% of its drinking water requirement. But it will need more. Much more.

That’s where nuclear power comes in.

Desalination is an extremely energy-intensive process, but nuclear plants can be used for the duel purpose of producing electricity and desalinating water.

Nuclear desalination is a proven technology. Kazakhstan produced water by nuclear desalination for almost 30 years until its reactor was decommissioned in 1999.

The country’s BN-350 fast reactor at Aktau successfully produced up to 135 MW of electricity and 80,000 m3/day of potable water over 27 years. Around 60% of its power was used for desalination.

Then there’s Japan…

It has ten desalination facilities linked to pressurised water reactors operating for electricity production. They have yielded 1000-3000 m3/day each of potable water.

India has also got in on the act. In 2002 it set up a demonstration plant coupled to twin 170 MWe nuclear power reactors at its Madras Atomic Power Station.

So, Mr Bodman needs to be a little less US-centric when talking about the future of nuclear power. The world’s going nuclear whether the US does or not. There’s plenty of money in the Middle East, in Venezuela, in India and in China.

Source: Iran Needs Nuclear because it’s Running Out of Oil

I had a bet in one of our morning meetings about six months ago.

I bet everyone in the room that when British Energy was sold, it would go to Electricite de France SA. If it didn’t happen, I’d eat my hat.

Then, at the start of June, the deal with EDF fell through. It looked like I’d made the wrong call. My colleagues are uncharitable folks, I’m afraid. They laughed at me.“You were so categorical,” they said, “But you were wrong.”

Well, it looks like I might be about to have the last laugh. And it’s all down to one man. His name is John Hutton.

It seems odd praising a member of the current Labour government, but John Hutton is that rare breed of politician… a man doing the right thing.

On Thursday last week, he risked the ire of the Guardianistas by saying that getting our energy strategy right was more important than pandering to the whims of every green organisation in the country.

Well done him.

We must defeat dogma

The environmentals have already cost us vital time and damaged our prosperity. They have delayed our new energy strategy in the courts and at places like Kingsnorth power station. We can’t let them win.

“The government repeatedly tells us climate change is the biggest threat we face and this seems to suggest that he (Hutton) doesn’t even get the basics,” said Friends of the Earth climate campaigner Dave Timms.

Sorry Dave. It’s you that doesn’t get the basics. You are just blindly following an unthinking dogma.

By 2012, the last of our Magnox nuclear reactors will be closed. A number of older coal-fired stations may also have been shut down – especially if people keep listening to people like Dave.

Demand is expected to overtake supply somewhere between 2012 and 2015, creating a serious generation gap. There is a real chance that the lights could go out within the next 5 years. Unless we do something about it.

Coal and nuclear is the answer

To fill the energy gap we will need more coal-fired power plants. If we don’t, we are going to be at the mercy of the Russians because we need their gas. That would be a disaster.

We also need to start building the next-generation of nuclear power stations right now. When these are ready, we can decommission the dirtier coal plants.

Of course, coal burning will put extra emissions into the atmosphere, but I am afraid that is something we will have to live with. The alternative is far scarier.

An economy without energy is a dead economy. It brings strife, political turmoil and poverty. This is where Friends of the Earth and Greenpeace are trying to lead us.

They oppose coal power. They oppose nuclear power. But they don’t have any reasonable alternatives.

They have various flowery theories about developing alternative power, but they have no plans that could produce the amount of energy an economy the size of Britain needs.

If we listen to them, we are on a one-way track to an energy poor future. Energy poverty will generate real poverty.

So, Hutton is starting to put the greens in their place. Well done him.

He’s also right about British Energy, owner of all our nuclear power stations. We need to sell it to the French – and sell it soon.

We should sell British energy to the French because they have the skills and we do not. It’s that simple.

France generates 79% of its energy from nuclear power and has some of the best nuclear engineers in the world. We have a skills shortage that is getting more acute by the day.

Despite the opening of a nuclear skills academy in Cumbria and new plans for a National Nuclear Laboratory, we don’t have enough engineers.

On 12 August, Bill Macdonald of the Health & Safety Executive Nuclear Directorate said:

“We have a real demographic problem because 40% of our staff are over the age of 60. We are struggling to get enough specialists; you can’t train them from nothing. If it takes longer, it takes longer. The [nuclear] programme will be put back; the government don’t like it.”

That’s why we need the French… and why we need them now.

John Hutton also said that a deal between EDF and British Energy could be done in the next fortnight. There is light at the end of the tunnel.

Let’s hope the deal goes through. For all our sakes.

P.S. To discover how you could profit from out looming energy crisis click here.

Source: We Might Have a Future in Two Weeks’ Time

POLITICS & ECONOMICS

The exciting news this week was that the U.S. economy is not actually in crisis. That’s right, it turns out the economy grew a healthy 3.3% y-o-y in the second quarter (not 1.9%, as previously estimated). Strong export growth and private inventories were behind the acceleration, said the Commerce Department.

But before we get ahead of ourselves, Dan Amoss warns us that GDP data isn’t always a good indicator of economic progress.

Besides, Chuck Butler says this outturn is just a ‘blip on the recession chart’. Firstly, the desperate government resorted to handing out checks to stimulate consumption for a month or two.

Then there was the weak dollar making America’s exports cheaper for most of the world. Between April and June, the US dollar index hovered in a range of 71 to 74, barely above its record low of 70.7 set in March. Since then, the index has spiked around 6.5% to reach 77.1 at the close of this week.

Without these twin influences going forward, Charles says growth will be ‘sluggish to nonexistent’. Sure enough, consumer spending stagnated in July, as inflation reached the highest rate for 17 years. Ouch.

Still, U.S. stocks had a day in the sun, as the market decided to take the GDP data at face value. Too bad both the S&P 500 and Dow Jones are down over 12% since the year began.

Of course, it won’t be long until the U.S. economy has a new captain to steer it through these murky waters.

The Republican Party will have its turn next week, but it was the Democrats that threw their party first. The convention was staged in Denver, and Senator Barack Obama officially became the first black presidential candidate. His acceptance speech was a stadium spectacle, and gave him an eight-point lead over rival John McCain in Gallup’s daily poll.

But what will really matter in this year’s election are the candidates’ economic policies. In an effort to shed the “tax and spend” tag, the Obama campaign is focusing on proposed tax relief for America’s middle class. But Martin Hutchinson says tax hikes are a much better alternative to a budget deficit that spirals out of control. Dan Amoss says spending huge sums of money to rescue the economy will just make matters worse going forward.

No matter what the captain does, some icebergs just can’t be avoided.

OIL & ENERGY

Our insatiable thirst for oil and dependence on other countries to supply us with black gold has presented us with great investment opportunities during the energy crisis.

Democratic Presidential Candidate Barack Obama tells us how he plans to invest in the green collar job movement and focus on wind and alternative energy. Yes, this will create more jobs here in the USA but does he realize that the parts needed for these monsters are made in BRIC nations? Perhaps not, but a well-informed investor could see the opportunity in this while OPEC and Russia tremble at the thought of the USA not depending on them in the near future! See what Byron King has to say here.

And speaking of alternative energy, have you ever stood next to just the base of one of the new model windmills that are going up right now in the Northeastern US? The bases and parts alone occupy so much space you need a lot the size of two football fields just to store the parts.

Andrew Gordon of Investors Daily Edge has his eye on emerging market countries like China and Russia for nuclear energy alternatives. He is bearish on oil majors and is sticking with smaller plays like this oil company from South Africa, called Sasol (NYSE:SSL).

EMERGING MARKETS

At times like these, we wonder what the US government would do for a budget like the Chinese. The spectacular opening ceremony to the Beijing Olympics is said to cost somewhere in the region of $300million. Global media quotes $40 billion as the total cost of the games.

Of course, math isn’t an exact science in China. But the Shanghai Stock Exchange has lost exactly 54.7% of its value in 2008 so far. It seems even the world’s fastest growing large economy is not immune to the global correction, prompting the government to draft a $58 billion economic stimulus package.

Is China a bargain yet? Ian Davis says Chinese stocks are not a screaming buy yet, but will be if the price-to-earnings ratio sinks to 12 (it’s currently as 16). Cris Sholto Heaton says investors should stay clear of exporting firms, which will suffer from a fall in demand from the US and EU. But, he thinks infrastructure companies are well protected from an external slump, and will continue to grow rapidly.

Jim Rogers has no doubts over China’s profit potential. “I have never sold any of my Chinese companies,” he told Money Morning in an exclusive interview. “You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.”

Following on from this, William Patalon III gives us six convincing reasons to invest in the Dragon economy here.

US STOCKS

The mob lined up to hurl a few more stones at Fannie Mae (FNM) and Freddie Mac (FRE) this week.

Warren Buffett declared “the game was over” for the troubled mortgage financiers. Former IMF-chief Kenneth Rogoff said they should have been closed down 10 years ago. Ratings agency Moody’s slashed its credit scores for both, citing the difficulties they would have in raising new capital.

It is the shareholders that are feeling the sting of these blows. As the trading week closed, Fannie’s stock was down 37%. Freddie had slumped 52%. “Mr. Market has called Henry Paulson’s bluff” says Dan Denning, “…it knows that without direct nationalisation, these government sponsored enterprises won’t last the month“.

So the government is preparing the life support machine. It certainly can’t allow these two giants to die. To do so would be “catastrophic” for the global financial system, according to Yu Yongding, former advisor to China’s Central Bank. Eric Roseman thinks US Treasury bond yields could collapse if the Fed doesn’t intervene soon.

But if something is “too big to fail”, how much does it cost to keep alive? Byron King says this new era of government bailouts will divert hundreds of billions of dollars away from vital infrastructure projects to covering Wall Street’s bad investments.

And who will foot the bill? Why, the humble taxpayer of course…

We hope you have a great Labor Day Weekend!

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Until next weekend,
Contrarian Profits Staff

Marc and Julie