But what might the new administration mean for more traditional – and more reliable –energy sources?

Oil is always the first energy source to spring to mind. But it’s hardly a solo act – coal and nuclear make up the other two-thirds of the top fuel trio. Coal delivers 50% of U.S. electricity needs, and nuclear power brings another 20% to the table.

The cold truth is that demand for energy of all types – and especially electricity – is going to keep advancing, domestically and worldwide. And developing alternatives to coal and nuclear will take time. For instance, tying wind and solar into the existing power grid will be enormously expensive and is likely to pose massive technical and engineering problems.

In fact, according to the International Energy Agency, renewable energy isn’t likely to make a meaningful dent in meeting the world’s energy needs before 2030, if then.

And regardless where the power comes from, our appetite for electricity will continue to skyrocket. Across the planet, overall electricity consumption is expected to double by 2030, increasing by 17 trillion kilowatt hours. While electricity demand will “only” increase by 50% in the U.S. market by 2030, demand will increase 400% in China and six-fold in India.

Our research indicates that President Obama will have very little flexibility in solving our short-term energy problems once he’s sworn into office next month. While he may prefer the environmentally friendly alternatives, most of those replacements are far from fully developed.

The bottom line: Obama’s apparent preference for renewable energy aside, coal and nuclear power are fully deployed, and in widespread use, meaning they’ll remain the backbone of our energy sector in the New Year – and for years to come.

Even so, it’s well worth factoring in all the possible players as we examine energy-sector outlook – and the accompanying potential profit plays – for the next 12 months.

King Coal Reigns Supreme

When it comes to future energy profits for investors, coal and nuclear will continue to be the “dream team” for years to come. Coal will provide the answer to our short-term and intermediate energy needs.  It’s plentiful, it’s cheaper than other available alternatives, and a big percentage of the world’s power plants burn it.

Nuclear power offers a long-term solution to energy shortages and a clean solution to global warming, as well. Uranium-fueled nuclear plants are cheap to operate, can run for long periods without refueling, and cause little pollution.

While there is widespread distaste for coal-fired power plants that spew billions of tons of carbon dioxide and other pollutants into the air, there’s no doubt coal will continue to be the dominant player in the electricity game for some time to come.

A full 50% of the electricity U.S. consumers use is generated by coal, and coal is king in the rest of the world, as well. According to the IEA, coal accounted for 42% of all worldwide electricity consumption in 2005.
But get this – the agency predicts coal use will explode by 73% over the next 20 years. That’s the largest projected percentage increase of all energy sources.
As you might suspect, China and India use 45% of world’s coal and will be responsible for 80% of that increase. China, alone, uses more coal than the United States, Japan and Europe combined.  China is utterly dependent on coal to run its factories and assembly plants, with coal supplying 80% of its electricity. The Red Dragon also is the world’s top producer of steel, a process that’s also a big burner of coal.

But while China is coal’s largest consumer and producer, the United States controls 27% of the world’s proven reserves, the biggest-single percentage on the planet.  That puts this country front and center on the worldwide coal stage, and President-elect Obama’s energy policy in the spotlight.

The president plays a pivotal role in shaping the nation’s energy policy, naming top officials at the U.S. Environmental Protection Agency (EPA), the Office of Surface Mining Reclamation and Enforcement and the U.S. Army Corps of Engineers.

Obama has proposed an economy-wide cap-and-trade system to reduce carbon emissions by 80% by 2050.  His system – which would set an overall emissions limit, then require polluters to buy allowances at public auction – would increase electricity rates and discourage coal consumption in the U.S. market. President-elect Obama even has stated that any utilities building coal-fired plants could go bankrupt buying pollution allowances.

And on Capitol Hill, newly emboldened Democrats recently tackled global warming and other environmental problems by choosing Sen. Henry Waxman, D-Calif., to head the House of Representative’s Energy and Commerce panel.  Waxman has already signed onto legislation that would ban any new coal-fired power plants that aren’t built using new technologies that capture carbon dioxide and store it underground, a key part of the Obama energy plan.

Luke Popovich, a spokesman for the National Mining Association, said he believes Obama will be pragmatic about the need to keep coal in the nation’s energy mix.

“He presumably would be sensitive to the impacts of energy policies given the perilous state of the economy,” Popovich said.

But while U.S. utilities may eventually be forced to tighten emissions rules and increase rates, Obama’s renewable energy plans will have very little impact on U.S. coal producers in the near future.

The world needs coal. We have it. And we’re going to sell it.

In the first half of 2008, U.S. coal exports increased by 13 million short tons, or 50%, over first-half 2007 shipments, according to the IEA.  Strong global demand for coal, combined with supply disruptions in several key coal exporting countries (Australia, South Africa and China), were the primary factors behind the increase.

But lately, coal prices, along with the prices of other fossil fuels, have suffered from the global economic crisis, and from a resurgent U.S. dollar. An 80% decline in global shipping rates has also fostered competition from other exporters, like Australia, which can now ship farther and compete with U.S. exporters.

As a result, the price of Appalachian Coal on the New York Mercantile Exchange (CME) has fallen to less than $80 a ton from $143 in July.

This will have a negative impact on coal producers until the world economy is able to gather itself back up and build up a new head of steam.

But don’t expect the slump to last long.  China’s economy is getting a shot in the arm from a gigantic $586 billion stimulus package, cementing growth expectations for 2009.  Expect U.S.exports to accelerate when that kicks in, probably in the second half of 2009.

Since the stock market usually leads economic indicators by six-to-nine months, right now is a good time to be looking at candidates for your investing dollar. But you should be cautious about pulling the trigger.  Watch construction activity in China – especially steel demand in the late spring – for the first signs of a rebound in coal prices.

When you think things are ready to take off, Peabody Energy Corp. (BTU) and Arch Coal Inc. (ACI) – the largest U.S. producers – are worth a look. For those who like to play a basket of shares, the Market Vectors Coal exchange traded fund (KOL), or ETF, provides the desired diversification. All three securities are trading at discounts of at least 80% from their July highs, and currently trade at bargain basement multiples.

If you want a coal play that bets directly on China, Money Morning Investment Director Keith Fitz-Gerald likes Yanzhou Coal Mining Co. Ltd. (ADR: YZC), one of China’s biggest coal suppliers. It produces lots of high-grade, low-sulfur coal, which burns cleaner and therefore fetches a premium price. The company boasts profit margins of 22%, when the industry averages half that.  The company profits are up a blistering 364% in the year’s first three quarters, compared with a year ago.  The stock trades at only three times earnings and has a dividend yield of 4.3%.

Nuclear Power: It Struggles in the U.S., but Thrives Abroad

Nuclear power is attractive to the energy industry because it produces electricity on a predictable, 24-hour basis – earning it the industry sobriquet of “base load” power. Coal and hydroelectric plants are the only other power sources that also rate that label. Such alternatives as wind, solar or biofuels do not.

During its term, the Bush administration tried to spark a “renaissance” in the construction of nuclear power plants.  And during his presidential campaign, Sen. John McCain stood firmly behind the industry’s hopes of building 45 new reactors by 2030.

Interest in new types of reactors seemed to hint at least at the beginnings of a new start. But President-elect Obama has been lukewarm on nuclear.  He acknowledges that nuclear is one of several viable components of the nation’s energy portfolio – the current 104-plant fleet provides 20% of America’s electricity – but has questioned its safety while emphasizing a need to diversify the nation’s energy mix with more wind, solar and other renewable sources.

“That’s sort of like my wife saying she’d support divorce under certain situations,” says William Kovacs, the U.S. Chamber of Commerce’s vice president of environment, technology, and public affairs.

In fact, the Barack Obama/Joe Biden New Energy for America Plan, while recognizing that nukes provide 70% of our non-carbon-generated electricity, says that “before an expansion of nuclear power is considered, key issues must be addressed including: security of nuclear fuel and waste, waste storage and proliferation.”  It goes on to say that the team of President-elect Obama and incoming Vice President Joe Biden “do not believe that Yucca Mountain is a suitable site as a long-term repository for spent nuclear designed for long-term storage.  In any case, the earliest the storage site could open would be 2017, and that was before Republicans lost control of the Senate.

With Senate Majority Leader Harry Reid, D-Nev., firmly opposed to nuclear waste storage in his home state – and with the Obama administration ready to hold the industry’s feet to the regulatory fire – any plans to expand the nuclear industry in the United States now face a high hurdle.

But nuclear proponents are hardly impotent.  The Nuclear Energy Institute, the industry’s most powerful lobbying group, helped craft the Energy Policy Act of 2005 with more than $12 billion in subsidies for nukes.

Maintaining nuclear energy’s current 20% share of generation would require building three reactors every two years starting in 2016, based on U.S. Department of Energy forecasts.  Right now, some 17 companies and consortia are pursuing licenses for more than 30 nuclear power plants with the Nuclear Regulatory Commission.

But the last operating license for a nuclear plant in the United States was issued in 1978, and the approval process takes a minimum of 24 months after site approval, which can take years.  Expect lots of public comment and infighting in Washington, as applications wind their way through the approval process at the NRC.

Meanwhile, the rest of the world is racing ahead with plans to up the ante in the nuclear power game. There are currently 440 nuclear reactors in 31 countries that generate about 16% of the world’s electricity.

Uranium-fueled nuclear energy is rapidly gaining global acceptance as a clean, reliable alternative to such dirty-burning fossil fuels as coal and oil. In a twin bid to combat global warming and keep up with soaring demand for electricity, countries are rushing to build nuclear power plants. Under current projections, 630 reactors will be operating in 55 countries by 2030.

It’s the new technologies those reactors are designed around that are aimed at allaying the public’s perception about the safety of nuclear power.  Toshiba Plant & System Services, which has built 112 plants in the past 12 years (more than any other company), is working on a “mininuke,” according to Forbes magazine. Called the “4S” (short for Super-Safe, Small and Simple), it uses a bath of molten sodium to produce steam twice as hot as steam from water-cooled reactors.  The 4S can crank out as much as 50 megawatts of power, easily enough to fire up a small factory, or to service an entire town that’s located off the main power grid.

On top of that, the mininuke can go 30 years without refueling, as opposed to typical reactors, which must be fed every 18 months. And the 4S will be safer, because the reactor core is deep underground, well protected against a terrorist attack or earthquakes.

China and South Africa are working on so-called “pebble-bed reactors,” one version of which is filled with 100,000 billiard-ball-sized spheres of coated uranium that are cooled by helium. That eliminates the need for enormous pressurized water-cooling systems and million-dollar containment domes, making them virtually meltdown-proof.

U.S. firms are also on the trail of smaller and safer designs. A Santa Fe, NM company called Hyperion Power Generation Inc., is working on a hot-tub sized design, which eliminates the need for the notoriously unstable uranium control rods. U.S. giant General Electric Co. (GE) is working on new, more efficient designs, as well.

No matter how you slice it, the fuel for the reactors in those plants all depend on a scarce commodity – uranium.  Flat out, there’s just not enough “yellow cake” to go around.  It takes seven to 10 years to transform a uranium discovery into a fully operational mine. With that kind of lag time, it’s clearly almost impossible for supply to keep up with demand.

Until recently, the market reflected the scarcity, rising as high as $137 a pound in 2007. But lately, despite the global shortages, uranium prices – in sympathy with other commodity prices – have nosedived.

Prices have fallen 40% this year, leading to a sharp decline in the share prices of mining companies, and eviscerating the financing for extraction projects. In the last month alone, six uranium mines in western Colorado and Utah were either put on hold or closed.

Some experts lay the blame for this current credit squeeze squarely at the feet of hedge funds – who they blame for buying up uranium – and banks no longer willing to lend money.

“Hedge funds were selling off their uranium to raise cash, and the prices just plunged,” said George E.L. Glasier, chief executive officer of Energy Fuels Inc., a Canadian junior miner that recently put a Colorado mine project on hold as part of a “capital preservation” strategy brought on by the credit crunch.

Uranium prices fell to $75 early this year, and fell as low as $44 this fall.  The spot price now is $55.

With the worldwide growth in the industry – and a classic supply/demand imbalance in the making – someone is eventually going to have to pay the price.  History shows when uranium prices move higher, uranium stocks almost always hitch a ride North. So when uranium prices advance – most likely to new highs – expect mining stocks to rise in virtual lock step.

But notwithstanding global growth – for now, at least – Obama’s energy plan and the mothballing of mines makes any uranium play a long-term proposition.

Besides Toshiba (PINK:TOSBF), the stocks to consider include Cameco Corp. (CCJ), the largest U.S. producer; and General Electric, which has a presence in the commercial nuclear power market here and overseas. Also, take a look at Rio Tinto PLC (RTP) and BHP Billiton Ltd. (BHP), huge international mining firms with large uranium deposits.  Each of these firms would stand to reap substantial profits from a resurgent price in yellow cake.

Outlook 2009 – and Beyond

However, regardless of what uranium does, coal is still the 800-pound gorilla in the energy world. In the United States, no matter how lofty our environmental intentions may be, it’s unlikely coal will be regulated out of existence anytime soon. That’s especially true overseas, where coal is playing a crucial role, fueling the transformation of such countries as China and India from “emerging markets” into first-order powerhouse economies. Given that, the world market simply can’t replace coal anytime soon, either.

As for nuclear power, safety improvements and other technological solutions make nuclear energy a viable energy source for the long term, eventually grabbing a bigger piece of the energy pie – especially overseas.

The bottom line: The economic outlook for both coal and nuclear power is upbeat.  Investors might look at both energy plays when considering how to allocate their portfolio – for the New Year and beyond.

Source: Surprise! Coal & Nuclear Power are Keys to Obama’s Energy Plan

The venture – Areva Newport News LLC – will emanate from a $360 million investment, and will lead to the construction of a 300,000-square-foot production-and-engineering facility, the two companies said yesterday (Thursday). It will employ 500 workers when completed in 2011, according to an MSNMoneycentral report.

Mike Petters, president of Northrop Grumman Shipbuilding, the unit that has signed on to work with Areva, told The Wall Street Journal that “we’ve watched manufacturing wane in shipbuilding and we’ve watched for other opportunities to go into adjacent areas…We think a nuclear renaissance is coming and we have the work force.”

The facility will promote U.S. market sales of Areva’s “evolutionary power reactor,” or EPR. Areva is seeking to get the reactor design certified by the Nuclear Regulatory Commission (NRC) for use in the U.S. market, The Journal reported.

The deal is also the latest illustration that commercial nuclear power – which has been on a more or less permanent hiatus in the U.S. market since the 1979 near-meltdown at the Three Mile Island nuclear powerlant near Harrisburg, Pa.— may finally be making a comeback in the energy-starved U.S. market.

There hasn’t been a single new nuclear plant built since the Three Mile Island accident; this new manufacturing facility will be the first of its kind built in this country in 35 years, the Newport News Daily Press reported.

The state-run Areva is trying to compete in an industry in which Japanese firms – such as  Hitachi Ltd. (ADR: HIT) and Toshiba Corp. (OTC: TOSBF), have come to play a large role. No surprise, too, that China is building up its nuclear capabilities, and has global objectives for that business.

“Our target is 80% U.S. content” for U.S. nuclear power plants, Anne Lauvergeon, chief executive of Areva, told  The Journal. Lauvergeon believes Areva’s linkup with Northrop will give the French company a competitive advantage over rivals that are more reliant on imported goods. That’s why she said that she’s emphasizing the need to have 80% of the content for U.S. reactors to be built domestically.

Orders from U.S. nuclear operators could top $100 billion in coming years, and some are hoping that a wave of nuclear construction could also bolster the U.S.’s ailing manufacturing sector.

Areva’s Lauvergeon said her company’s existing heavy manufacturing facility at Chalon/Saint Marcel, France, is operating at capacity with a five-year backlog of orders. Nucelar plants built with Areva’s design are under construction in France, Finland and China. Three U.S. utilities have selected Areva’s design including Constellation Energy Group Inc. (CEG), PPL Corp. (PPL) and Ameren Corp. (AEE).

With its decision to invest so heavily in the U.S. market – and to involve a partner – it’s clear Areva is highly confident that plans to build new nuclear plants in North America will move forward, The Journal reportedSource: French Nuclear Giant Areva Links Up With Northrop in Groundbreaking Production Venture

And history shows that such periods can be the worst for investors to navigate – especially when they follow a record stock-market run, such as the all-time-highs that U.S. share prices reached last fall.

In the United States, for instance, Dow Jones Industrial Average hit 381 on Sept. 3, 1929, a record pinnacle achieved in advance of both the Great Crash and the Great Depression that followed – and a level that wouldn’t be eclipsed again until November 1954 – more than 25 years later.

From the Great Crash, fast-forward 60 years, to 1989 Japan. On Dec. 29 of that year, the Nikkei 225 Index topped out at 38,957.44, before closing at 38,915.87. By the following September, stock prices had nearly been halved – and there was still much more bloodletting to go. (Despite several subsequent rallies up over the 20,000 threshold, the Nikkei ultimately bottomed at 7,830 in April 2003. It closed yesterday – Thursday – at 12,887.95, still down 67% from its trading high 19 years ago).

The fallout from Japan’s slow motion, stock-and-real-estate-market meltdowns was incredible. By early 2004, Japanese houses were selling at 1/10th their peak value, and commercial real estate was selling for less than 1/100th of its record highs. All told, an estimated $20 trillion in stock and real estate wealth was vaporized (although one could easily argue that the peak values weren’t real to start with).

That’s scary stuff, especially because many experts fear the U.S. version of the Lost Decade that’s to follow could be much worse. After all, the U.S. financial crisis is much, much bigger, and the resultant malaise is arguably going to take much longer to work through.

Let’s look at some of the some of the profit plays that will allow investors to sidestep a long U.S. slumber – and profit just the same.

1. Miss the Market Meltdown: The Dow closed at an all-time record high of 14,164.53 on Oct. 9 of last year. With yesterday’s 207-point rally, the Dow closed at 11,446.66 – leaving the 30-stock blue-chip index down 19% from the October record, leaving it right on the doorstep of a bear market.

But what if things were to get much worse? For the Dow to match the Nikkei’s wrenching decline of 67%, it would have to drop all the way down to 4,574.29 – an area it hasn’t seen since the first half of the 1990s.

Will the Dow drop that much? Probably not.

But it doesn’t hurt to hedge. That brings me to a key point: There’s a big difference between “diversification,” which most individual investors equate with “protection,” and actual “hedging,” which is part of an investment-protection package that professional traders employ. If we believe a market poised for a real fall, we want to hedge and find an investment that’s going to go up in value while everything else is going down.

For us, that investment is the Rydex Inverse S&P 500 Strategy Fund (RYURX). RYDEX URSA is a so-called “inverse fund” that’s designed to profit as the Standard & Poor’s 500 Index declines in value. In that way, it complements our other holdings by providing some portfolio stability.

As Money Morning Investment Director Keith Fitz-Gerald says, hedging is such a compelling strategy because financial studies demonstrate that “even though broad sections of the markets may decline over time and our portfolios with it, we need only have a small section permanently hedged at any given time. The reason is that, by having a small portion of our assets (5%-10% or less) earning above-average returns, our overall returns are far higher over time.”

2. Gold Isn’t Just for Hedging Anymore: Mention the word “stagflation” to anyone who worked and invested during the 1970s, and I’ll bet you’ll actually see that person physically shudder at the memory. Stagflation – the double-whammy combination of stagnant economic growth and high inflation – was thought to be an impossibility, until it showed up during that decade, leaving ruin in its wake.

But for our purposes, no matter whether we’re looking at stagflation or inflation, one thing is clear – we’re looking at higher prices. And when prices are on the upswing, gold is the one investment you certainly want to own.

Then there’s also the whole “Lost Decade” outlook for the U.S. economy. In a misguided attempt to slowly deflate the asset bubbles it created with a years of overly expansive monetary policies, the U.S. Federal Reserve is now keeping interest rates at artificially low levels – gambling it will still be able to launch a successful counterattack on inflation later on. What’s more, the central bank also has made the ill-fated decision to diversify into the “bailout business” with its intervention in the Bear Stearns Cos. (BSC) and Fannie Mae (FNM) and Freddie Mac (FRE) debacles.

The artificially low interest rates will continue to punish the U.S. greenback, sending it lower and causing inflation to accelerate. And the trillions in debt the U.S. government’s balance sheet will take on from the Fannie and Freddie bailouts certainly won’t help.

In addition to the bleak-sounding inflation-case for gold, there’s also what I like to call the “wealth case” for the “yellow metal.” As the consumer classes in China, India, Latin America and Emerging Europe grow in both breadth and depth, their ability to buy luxury goods will finally intersect with their desire. And gold will be a major beneficiary.

But how best to play it? There are mining companies, bullion, coins and even jewelry. Everybody has his or her preferences for gold investments, including us. We prefer the SPDR Gold Trust Exchange Traded Fund (GLD). There’s no delivery risk, it’s liquid, and you can buy and sell easily through any online brokerage.

Sanyo said it started procuring the display panels from Sharp in April, and would use them for the LCD TVs it’s producing for the North American market. And while Sanyo said it will keep buying LCD panels from other suppliers, too, the company also said that it’s in talks with Sharp about a program in which the two would jointly develop a line of kitchen appliances.

With its consumer-electronics business struggling, Sanyo has refocused itself strategically, betting its future on solar cells and rechargeable batteries, Reuters reported.

“We hope to expand our business by having a mutually complementary relationship with Sharp,” Sanyo spokeswoman Yuko Hosaka told Reuters. “Sharp’s strength in LCD [panels] is part of that.”

Sanyo sold about 1 million LCD TVs in North America in the business year that ended March 31.

Sharp’s Growing List of LCD Disciples

Sharp, which markets the Aquos line of LCD TVs, is the world’s third-largest maker of the flat-panel televisions, trailing South Korea’s Samsung Electronics Co. Ltd. (PINK: SSNLF) and Japanese consumer-electronics giant Sony Corp. (ADR: SNE). But Sharp has been trying to boost its market position and establish a consistent market for its LCD panels among rival flat-panel TV producers even as it invests to elevate its own productive capacity, Reuters reported.

As Money Morning reported back in February, Sony agreed to take a one-third stake in a $3.5 billion LCD plant that Sharp is building in Japan to meet the soaring worldwide demand for flat-screen television sets.

It plans to transform the LCD plant – which would be the world’s largest – into a joint venture: The Osaka-based Sharp will take a 66% stake, while Sony will take the remaining 34%.

While the companies would not say how much Sony would invest for its stake, Japan’s Nikkei newspaper said that Sony agreed to pony up $926 million, Bloomberg News reported. The factory will start production by March 2010.

While Samsung, Sony and Sharp rank one, two and three on the list of the world’s largest makers of LCD TVs, Japan’s Matsushita Electric Industrial Co. Ltd. – maker of the Panasonic brand – controls one-third of the plasma TV market.

Sanyo joins Sony, Toshiba Corp. (OTC: TOSBF) and Pioneer Corp (PINK: PNCOF) as companies that have all said that they plan to buy LCD panels from Sharp. But the Sony-Sharp alliance is an especially aggressive example of the linkups taking place among Japan’s flat-panel TV producers.

If it seems odd to have competitors buying and selling such a key component as an LCD screen, consider the challenges Sharp and its rivals face:

• They need to have a big-enough supply of the liquid-crystal display (LCD) panels to meet the accelerating demand.
• But these companies also need to keep their capital investments low at a time when flat panel displays are becoming a commodity, meaning the actual component prices can be expected to undergo the same steep declines as computer memory chips or memory drives.

In the face of burgeoning demand and tight supplies for LCD panels, companies are choosing different routes to fill their needs. Late last year, Toshiba decided to buy LCD panels from Sharp. But earlier this month, Panasonic-maker Matsushita said it would spend $2.8 billion to build an LCD plant of its own.

“Sony needed an extra source of panels because the large-size LCD TV market is growing faster than it had expected. As Sony expands TV production, it is natural to seek to diversify panel sources,” Park Hyun, an analyst at Prudential Investment & Securities, said during a recent interview. “Sony is likely to continue the partnership with Samsung … therefore Sony’s diversification strategy won’t have a negative implication for
the alliance with Samsung.”

For Sharp, the linkup with Sony serves as a hedge at a time when aggressive industry investments in panel-production capacity is boosting worries about a supply glut down the road.

“The problem will be 2010 and 2011,” said Shinko Securities Co. Ltd. (PINK: SKSTF) analyst Hideki Watanabe. “Just when TV demand is likely peaking, Sharp’s 10th-generation plant will come on-stream, and so will Matsushita’s new factory [causing the potential glut. But this] deal gives Sharp good risk hedging.”

The new Sharp-Sony factory would utilize the so-called “10th-generation” glass substrates, which can yield more panels than earlier-generation, smaller glass substrates, improving production efficiency and helping both Sharp and Sony offer flat-panel TVs at competitive market prices.

The new factory will produce LCD screens that have a diagonal reach of as much as 60 inches. Sony will receive a third of the factory’s output, with the rest going to Sharp. Initially, the monthly output will be 36,000 glass substrates, although the ultimate monthly output will reach 72,000 glass substrates.

The substrates are the output from which the flat panels can be cut.

Besides the flat-TV panels, the factory will also make so-called “LCD Modules,” which are flat-panel displays equipped with such components as a backlight unit and LCD driver chips.

“For Sharp, this is a positive step since it means a major buyer that would keep the 10th-generation factory busy,” Kazuharu Miura, a Daiwa Institute of Research analyst, told Reuters.

The venture reduces Sony’s reliance on Samsung – currently its main supplier – at a time when LCD TV sales are projected to rise 29% this year, easily outpacing demand growth for rivaling plasma-based TV sets. Both UBS AG (UBS) and Lehman Brothers Holdings Inc. (LEH) predict that the LCD shortage will persist throughout the year.

Worldwide sales of LCD TV are expected to reach 155 million units by 2012, double the 74.8 million sold in 2007, predicts the Japan Electronics and Information Technology Association. Demand for plasma TVs will likely reach 25 million units in 2012, 119% more than the 11.4 million sold last year, the JEITA said.

Sony is expecting to sell 10 million of its Bravia LCD TVs in the current fiscal year, which ends March 31. The suggested list price of the TVs range from about $500 to $1,600, according to the Sony Web site.

The company also has a second LCD joint venture – this one with Samsung – known as S-LCD.

That doesn’t sound much to get excited about, until you consider how well the Chinese and Japanese economies fit together.

Think of it this way: With China’s boundless supply of low-cost labor and Japan’s superb education system – and an ability to work together that’s clearly founded on considerable commonality of thinking – these two countries, as a pair, will be world-beaters.

In fact, they’ll be world leaders.

The Past has Passed

The summit – while modest – marked an important policy change from the mutual hostility during the premiership of Junichiro Koizumi, whose tilt to the United States and suspicion of Chinese motivations was symptomized by his love of Elvis Presley and visits to the Yasukuni Shrine, controversial because it includes convicted World War II criminals. Nevertheless, while Japan and China have many historical reasons to hate one another, so did France and Germany after World War II, and those countries have now been partners for more than 50 years in the European Union. Thus, a close economic partnership between Japan and China is by no means unthinkable.

Economically, China and Japan have much to offer each other. Both have shortages of raw materials and strong manufacturing sectors. However, the relative shortage of labor in Japan’s aging society, its superb education system and the surplus of labor in China all combine to make them natural partners. Already, Japan is China’s second-largest trading partner, taking 10% of its exports and supplying 15% of its imports. Conversely, China in 2007 surpassed the United States as Japan’s largest trading partner, taking 14% of its exports and supplying 21% of its imports.

Between them, China and Japan have a population of 1.4 billion people, more than twice that of the European Union or the North American Free Trade Association. Their combined gross domestic product (GDP) of $8.4 trillion at market exchange rates in 2007 was about half that of the EU or NAFTA, but was combined with growth of 7% in 2007, a current account surplus of $560 billion (compared with deficits in the EU and the United States) and foreign exchange reserves of $2.4 trillion.

Thus, even a loose bilateral trade association between China and Japan would be a powerful economic force. Free trade and free movement of labor between the two countries would enable them to deepen their economic relationship still further, making the Japan-China trade axis the most important in the world – even more so than any bilateral U.S. relationship. Longer-term, an EU-style economic union – perhaps including such neighbors as Korea, Taiwan and Vietnam – could become the world’s leading economic power, surpassing even the United States and the EU itself.

As a U.S. geo-strategist, one worries somewhat about this. The United States has traditionally been able to count on Japan as a counterweight, both economically, and to a limited extent, militarily against a resurgent and aggressive China. That no longer seems to be so certain; an immensely powerful alliance between Japan and China might develop into the United States’ military equal, and would certainly be animated by a world view very different from that of the United States or, indeed, the EU countries.

As an investor, one rejoices in it and seeks to find sources of future profit from the two countries’ deepening relationship. One such source of profits are major Japanese companies such as Toshiba Corp. (PINK: TOSBF). This major manufacturer of computers, medical electronic equipment and telecommunications systems has developed a highly integrated manufacturing capability in China, enabling it to synergize its technical innovation with China’s highly skilled, low-cost workforce. Toshiba’s shares are trading at about 22 times earnings, reasonable for a high-tech company.

Another might be a Chinese automotive manufacturer such as Brilliance China Automotive Holdings (ADR: BCAHY), already a strong automobile and bus manufacturer in the Chinese domestic market, which has a joint venture with Bayerische Motoren Werke AG, better-known as BMW, and potentially can benefit from its lower labor costs to attack the Japanese market. As relations between China and Japan improve, and tariff and non-tariff barriers in Japan are reduced, companies such as Brilliance may be major beneficiaries. Brilliance China trades at a pricey 48 times earnings, as it has only recently returned to profitability in the highly competitive Chinese automotive market, but its long term prospects appear excellent.

There are two categories of beneficiaries from a trading relationship between China and Japan that’s closer and more-barrier free.

The first group consists chiefly of Japanese high-tech companies that are able to take advantage of China’s lower labor costs and more-profitably attack the world markets.

The second group consists of low-cost, China-based manufacturing companies that can sell to Japan as a particularly juicy nearby market with similar cultural and taste characteristics – unlike the unfamiliar west.

Both types of companies are likely to be big long-term winners from this trend.

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Source: Two Ways to Profit as China and Japan Quietly Forge the Most Powerful Trading Alliance in the World