Last week I spent some time at my hunting and fishing club in Northeastern Pennsylvania. During our social hour, much of the conversation centered on the possible auto company bailouts, 401Ks that have been decimated, and with the recession firmly in place, concerns about the best ways to make money in 2009.
In 1932, the problems were hauntingly familiar: a stalled economy, banks on the verge of insolvency, a housing industry in shutdown, ballooning entitlements, soaring unemployment. This is what Franklin D. Roosevelt was faced with when he tried to lift America out of the Great Depression.
But unlike 1932, none will be more difficult – or more important -- than weaning this nation off its 100-year dependence on fossil fuels, and repairing our aging, crumbling infrastructure.
The scope of the need is unprecedented: collapsing bridges and pothole-filled roadways, 100 year-old water and sewer systems bursting on a regular basis, outdated airports and shipping terminals, an under-powered national electricity grid and antiquated flood-control dams and locks.
There are solutions, however, and many exciting investment opportunities will be afforded to investors who position themselves properly.
The Stark Reality: Our Fossil Fuel Addiction is Killing Us
We’re all too familiar with the energy side of the problem. Economic growth grinds to a halt without readily available, cheap sources of energy. But the engine of our economy – and that of the rest of the world has been designed to run from the ground up on fossil fuels.
Nearly 1 trillion barrels have already been burned up… and half of that in just the last 10 years.
The current demand destruction has some experts suggesting crude could drop as low as $20 a barrel. But supply destruction is right behind the current drop in demand. The big drop in oil prices has rendered many expensive oilfield development projects no longer financially viable.
Anything below $90 a barrel blows a hole in the balance sheets of Canadian tar sands companies as well as those of Iran and Venezuela.
OPEC – with 40% of the world’s oil supply under its control, isn’t going to stand by and continue to sell oil at bargain prices either. It plans to cut production – and keep cutting it -- until oil is back up over $100 a barrel again. But an outsized demand for oil isn’t our only problem…
Look Out Below: American Infrastructure Is Falling Apart
How has our infrastructure fallen into such neglect? The reality is that once it’s created, it’s largely ignored… until something breaks and needs fixing. Sadly, we’ve reached the point where falling bridges, collapsing dams, and water main breaks are destined to become commonplace stories on the nightly news.
What would it cost to fix these and other crucial infrastructure problems? The American Society of Civil Engineers puts the number at $1.6 trillion dollars, more than half of the entire annual federal budget of the United States. How will we pay for it? People power.
You see, if enough people are put back to work, tax revenues increase, consumer spending rises and we’re back on track economically. It’s a bit of an over-simplification, but in general that’s how economic growth happens.
There’s only one thing missing… the fuel to get the economic engine moving again.
Back in the early 30s, in the midst of the Great Depression, the U.S. was in far worse shape than it is today, but the problems were hauntingly familiar: high unemployment, banking failures, and a swiftly shrinking economy.
Franklin D. Roosevelt, Democratic candidate for the upcoming election, said that if elected "I pledge you, I pledge myself, to a new deal for the American people."
Subsequent to his inauguration in 1933, FDR followed through on his promise with his New Deal.
He created the Civilian Conservation Corps. He pushed Congress to pass banking reform laws, emergency relief programs, worker relief programs for the unemployed, and agricultural programs.
And it was just what the doctor ordered: millions were put back to work, and the U.S. economy began to slowly recover.
It’s Energy and Infrastructure to the Rescue: The "Green New Deal"
While the slowdown we are experiencing is nowhere near as severe as the Great Depression, the solution will be the creation of similar New Deal programs in two specific areas: energy and infrastructure.
Some areas I think you’ll see addressed early on are making alternative forms of energy our mainstream sources, and building the green infrastructure to support what will be our growing energy independence. More importantly, these programs will provide millions of meaningful jobs to displaced blue- and white-collar workers.
Expect the new government to provide tax incentives for these and other programs as short-term incentives to save.
Here’s a few of the many big, blue-chip companies that stand to benefit from "Green New Deal" programs:
- Owens Corning (NYSE:OC) makers of insulated glass and building insulation.
- General Electric (NYSE:GE) wind turbines, energy control, infrastructure products.
- Johnson Controls International (NYSE:JCI) energy management systems for buildings and vehicles, hybrid vehicle batteries.
Clearly, wind, solar and geothermal energy companies stand to benefit, too:
- First Solar, Inc. (NASDAQ:FSLR) manufactures thin-film solar panels.
- Ormat Technologies, Inc. (NYSE:ORA) geothermal and recovered energy power producer.
- Vestas Wind Systems (VWSYF.PK) world’s largest wind turbine manufacturer.
As new green sources of energy begin to come on-line in a big way, the nation’s electrical grids will have to be upgraded to move the power to where it’s needed. This is a huge project, and one of the biggest winners will be ABB, LTD (NYSE:ABB) a provider of power and automation technologies.
President-elect Obama and his administration have an opportunity to turn the recession ship around, before it runs aground. By implementing new energy and infrastructure projects, thousands of new jobs will be provided at a time when they are desperately needed, and most importantly, these projects will provide the fuel to restart the world’s economic engine. We’ll be charting his progress and researching exciting investment opportunities in the weeks and months ahead.
Disclosure: no positions