As any investor knows, these past eight months have been very unkind to investment portfolios. Of all of the sectors that have been hit hard, the renewable energy (like wind, solar, geothermal, biomass, wave and tidal) sector has been really hard hit. Over the 2008 calendar year, for example, PowerShares WilderHill Clean Energy (PBW) lost 69% while PowerShares Global Clean Energy (PBD) lost 60%. First Trust Nasdaq Clean Edge U.S. Liquid Series (QCLN) and Market Vectors Global Alternative Energy (GEX) each lost 66% and 61% respectively. By comparison, the Energy Select Sector SPDR (XLE) lost only 39% over the same time period. While alternative energy ETFs with an international exposure fared slightly better than domestically focused ones, the losses were still huge.

President Obama’s recent fiscal stimulus package has a number of green energy initiatives like $2 billion for advanced clean battery systems, $4.5 billion for upgrading power transmission networks, and $4.2 billion for energy efficiency projects, and this should give the U.S. green economy a much needed boost (see Senate Passes Stimulus Package: Boon for Renewable, Energy Efficiency).

After the December 16, 2008 announcement from the U.S. Federal Reserve, we now know how low interest rates can go. It should now be clear that any investor who has not yet panicked should be panicking now. By signaling to the world that the Federal Reserve is prepared to lower interest rates to zero (or very close to zero), the Federal Reserve is indicating that the economic situation in the U.S. is much worse than many previously thought.

Since the U.S. accounts for approximately 30% of world economic output and 50% of global equity markets, the situation bodes poorly for the rest of the world as well. China and Japan, for example, both need a healthy U.S. economy to sell their exports, and other countries around the world are affected by what happens in these countries by the complex ties that modern globalization brings.

A recent article in The Economist (August, 2, 2008, page 54) describes how Russia is trying to build a high technology economy. By designating the city of Dubna as a free economic zone (a zone where Russian high technology companies can legally operate and pay lower taxes), the Russian government is hoping to duplicate the success of Silicon Valley or Bangalore.

A number of different technology initiatives are being pursued, but one in particular, nanotechnology, has already received a lot of government funding. According to the article, in 2007 the Russian government put $5.5 billion into a state corporation for nanotechnologies. Nanotechnology is the science of manipulating materials at the atomic level. Developments in nanotechnology could have profound impacts on the cloths we wear, the food we eat, and the homes we live in. Nanotechnology offers the potential for enormous breakthroughs in computing, energy, and biotechnology. Does Russia's investment in nanotechnology signal a renewed interest in nanotechnology?

There is recent news out of China that the government there is going to raise the prices of gasoline and diesel by 16% and 18% respectively. Now a 16% rise in gasoline prices sounds like a lot, and in many economic markets it is, but in the case of oil markets things are always more complicated. The important fact to remember is that the demand for oil is relatively insensitive to the price of oil. In China, a 1% increase in the price of oil reduces oil consumption by approximately 0.03% in the short run (which is a period up to about one year).

As an example consider the impact of an 18% increase in the price of oil in China. This will reduce the demand for oil by 0.54%. Last year China consumed on average 7.86 million barrels of oil per day. This is a lot of oil (9.3% of total world demand in 2007). So, 0.54% of 7.86 million barrels of oil per day works out to a little over 42 thousand barrels of oil per day (roughly twice the amount of oil consumed per day in Iceland). By comparison, last year the United States consumed 20.7 million barrels of oil per day (approximately 24% of the world total).

During the past week, several economic factors worked in unison to push crude oil prices to an all-time high. The European Central Bank suggested that it might raise interest rates in response to inflation concerns in the European Union. This announcement pushed the euro up against the dollar and gave oil prices a boost as investors looked to hedge the falling dollar with an investment in a hard asset. The oil market got a further boost when Israel's transportation minister made less than flattering remarks about Iran. Iran is the second largest oil producer in OPEC and any supply disruptions from Iran would surely jolt the global oil market (a market in which oil production has been hardly growing over the past few years).

On top of this, emerging economies like China and India are still increasing their consumption of oil. Couple these developments in the oil market with the current economic situation in the United States (low interest rates, sluggish economic growth, rising inflation and rising unemployment) and it is not hard to see why oil is seen by many as the choice investment.

The last twelve months have turned out to be a wild ride for investors in alternative energy ETFs. Many alternative energy ETFs reached record highs late last year before getting caught in the overall stock market weakness that has occurred over the past few months. Energy security issues and global warming have prompted investments in alternative energy and it is important to realize that investment in alternative energy is for the long term. There are now several alternative energy ETFs to choose from. Not all alternative energy ETFs are the same. Alternative energy ETFs vary in size, performance, and holdings.

With net assets of $1.38 billion, PowerShares WilderHill Clean Energy (PBW) is the largest and oldest alternative energy ETF. Three other popular alternative energy ETFs are newer and considerably smaller in size. PowerShares Global Clean Energy (PBD) has net assets of $155 million. First Trust Nasdaq Clean Edge U.S. Liquid Series (QCLN) has net assets of $40.2 million while Market Vectors Global Alternative Energy (GEX) has net assets of $265.2 million.

Energy security issues such as dwindling global oil supplies in the face of increased global demand, and political insecurity in oil rich countries, coupled with increased concern about the natural environment including global warming and local air quality issues are driving factors behind oil price movements. Rising oil prices should help spur greater demand and supply of alternative energy.

According to New Energy Finance, global investment in clean energy rose 35% in 2007 to close out the year at close to $120 billion. Investing in individual alternative energy companies can be challenging for the average investor, and in response, there are now a number of interesting alternative energy ETFs. The largest alternative energy ETF, by assets, is The PowerShares WilderHill Clean Energy ETF (PBW) with assets totaling $1.38 billion.