Foreign Alternatives to Domestic Problems

People interested in the safety of investing short term cash
in certificates of deposit who are unhappy with yields they’ve been receiving
may want to consider some other options. The total return on CD’s has been
hammered throughout the economic crisis by the compounded effects of the
declining U.S. Dollar and the fiscal stimulus packages designed to lower
interest rates and create inflation. This has created a net negative return for
the people who are most reliant on income generating, principal protected
investments.

The fiscal stimulus plans have been designed to keep
interest rates low with the intention that low rates will spur economic growth.
The hope has been that businesses will take advantage of these low rates by
borrowing money and putting it to work increasing their gross revenues and
hiring more workers in the process. However, early on in the economic crisis
when the Federal Reserve Board began printing money and slashing rates, the
money they created was bottlenecked by the banking industry trying to heal
their own balance sheets and make up for their own overextension into the sub
prime real estate lending market. Thus, much of the initial stimulus never made
it to small businesses that might have been willing to borrow early on. The
depth and severity of this crisis has since scared off those same businesses as
it has dragged on and on with no pickup in consumer demand. Now that the money
is finally flowing, businesses have no need to ramp up production.

The official unemployment rate is 3.5% higher now than it
was when the economy collapsed in October of 2008. I have a hard time cheering
about an unemployment rate just because it’s less than 10%. Perhaps a more
telling statistic is that the number of employed people aged 16 and over has
declined by 5.8 million people over the last two years. The fiscal stimulus
package has not been designed to create employment. The effect is a mild opiate
for the masses in the form of increased subsidies and treatment of the economic
symptoms like home and auto loans without establishing a rigorous protocol for
fixing the economy and weaning the public off of its pain medication.

The haphazard way in which the fiscal stimulus has been
doled out has been viewed by the world as U.S. Dollar negative. The U.S. Dollar
Index, which is down approximately 14% since the crisis began, only tells part
of the story. This index is calculated by the value of our Dollar against a
basket of foreign currencies. The Euro Currency, Japanese Yen and the British
Pound dominate that currency basket. These three countries, which total more
than 80% of the U.S. Dollar Index each have their own economic crises to deal
with and are therefore, not reflective of the global value of our currency.

The only real source of global inflation at the moment is in
the emerging countries. China is main headline and rightfully so. China holds
the key to the next wave of developing middle class. Their growing consumer
base will fuel the next round of global economic recovery, along with India,
Brazil and numerous smaller Asian economies. These countries are experiencing
their very own, “Industrial Revolutions.” Their metamorphosis is happening much
faster than the one in our history books and it is their healthy economies that
can provide those seeking principal protected earnings some measure of value.

Those of you invested in domestic money markets and CD’s are
well aware of the deleterious effects of declining interest rates and a falling
Dollar. The compressed yields aren’t enough to offset the waning value of the
principal denominated in U.S. Dollars. Fortunately, the global economy brings
global alternatives. Our firm trades currency futures. We do not have access to
foreign certificates of deposit or, global money market accounts. These ideas
are from my personal finance management and are being passed along because they
are investments that I’m personally entertaining.

A brief survey of domestic six month CD’s provides us with
investment opportunities ranging from a low of 0.05% at Fifth Third Bank to a
high of 0.20% at Chase and PNC Bank. Compare those with the following six-
month foreign currency deposit rates; South African Rand- 3.68%, Norwegian
Krone – 0.6%, Mexican Peso – 2.14% and the Australian Dollar at 3.25%. These
investments are not free money and the risks need to be understood. These risks
include but are not limited to, the currency exchange rate between the U.S.
Dollar and the currency you choose to invest in and also include interest rate
policy shifts within the individual countries. However, as it becomes clearer
and clearer that the United States’ Federal Reserve Board is going to continue
to push for lower rates and flood the market with cheap Dollars via their
second round of Quantitative Easing, it becomes increasingly important to protect
the value of what we have and that means trading shiftless Dollars for global
industrial development.

This blog is published by Andy
Waldock. Andy Waldock is a trader, analyst, broker and asset manager.
Therefore, Andy Waldock may have positions for himself, his family, or, his
clients in any market discussed. The blog is meant for educational purposes and
to develop a dialogue among those with an interest in the commodity markets.
The commodity markets employ a high degree of leverage and may not be suitable
for all investors. There is substantial risk of loss in investing in futures.

A Model for Economic Recovery

I’m re- posting an article I read this week. It’s so easy to focus on the problems and argue about the details. I had completely forgotten the magnitude of Canada’s economic turnaround. This is a great example of focusing on the solution.
All rights go to John Mauldin and David Hay.

O Canada!

“Debt and deficits are not inventions of ideology. They are facts of arithmetic.”

– Paul Martin, Canada’s finance minister at the start of the country’s “Redemptive Decade”

Arrivaderci, Italia; Yo, Canada

It’s ok—you can be honest with me. Many of you on the receiving end of this newsletter were probably wondering if I had developed some kind of Italian infatuation, sort of like the young cyclist in that fun movie from the late 1970s, Breaking Away. You can rest easy. Although I readily concede it is a breathtakingly beautiful country (save for Naples, which we discovered is the Tijuana of Italy), my wife and I were thrilled to be back in the US of A, where the first thing I did was order a cheeseburger.

Certainly, the Italian locals were consistently friendly and extremely gracious even as we mangled their lovely language. However, as they opened up to us, it became clear how fearful they are about their country’s economic future. Like so many southern European nations, Italy’s debt levels have soared to grotesque levels, even compared to our own current state of fiscal debauchery. Therefore, it was somewhat ironic that one of the two books I read while over there was about Canada and, specifically, the extraordinary financial turnaround that country has made over the last 15 years. Remarkably, if you were to roll the clock back to 1995, Canada was actually deeper in debt than Italy. In those days, the Canadian dollar was derisively known as either the Loonie (after the bird on Canada’s $1 coins) or the Northern Peso. The situation was so dire that the Wall Street Journal ran what turned out to be a pivotal article in which the authors asserted that Canada had become “an honorary member of the Third World in the unmanageability of its debt problem.”

This editorial set off shock waves around the world and, of course, within Canada itself. To its credit, Canada’s political establishment got fiscal responsibility religion in a hurry; it was almost like they went from being atheists to Southern Baptists overnight. And, get this: for the most part, it was Canada’s equivalent our Democratic Party that assumed the yoke of pulling the country back toward the high ground of financial solvency. Do you think that perchance we could learn a thing or two from Canada’s experience?

Canada High and Dry

It’s been a consistent theme of mine for a year or more that Americans are not going to passively accept the disastrous fiscal path on which our brilliant political parties have put us. It has also been my belief that politicians from both sides of the aisle would get the message. At this time last year, there weren’t many who agreed with me (in fact, when I put forth this theory to the CEO of a huge financial firm 13 months ago, he looked at me like I was suggesting the Mariners’ front office knew how to run a baseball team). But the public backlash against unsafe and insane fiscal policies is now unmistakable, and it’s very much a bipartisan movement. Politicians, being the generally feckless creatures they are, have scrupulously (or should that be un-) avoided putting forth much in the way of tangible solutions prior to the critical mid-term elections, now just a month away. Yes, I know, the GOP came up with the Pledge to America, and it’s a start—of sorts—but it strikes me as woefully unequal to the massive task. A far more rational way to approach the problem (I realize that rationality and politicians rarely converge) would be to make the book I just finished—The Canadian Century, Moving Out of America’s Shadow—required reading for all incoming members of Congress. It would be nice to demand this from incumbents as well, but let’s face it: most of them don’t even bother to read the legislation they put into law.

Many of you also know that I’ve brought up the remarkable Canadian renaissance more than a few times. Thus, I was truly excited to read the aforementioned book after seeing a review of it earlier this year. Though I was aware of the happy outcome, I really had no idea how Canada pulled off moving from “basket case to world beater,” in the writers’ own words. And there’s no exaggeration in that statement; Canada then was in far worse shape than even we are now in our headlong rush to fiscal perdition. For example, in the mid-1990s, one-third of all government revenues were being devoured by interest costs on Canada’s rapidly escalating debt. To illustrate how bad that was, in the US today interest expenses consume just 10% of tax revenues, excluding the non-cash interest accrual on Treasury debt held by the Social Security trust fund (more on that later).

By the 1990s, Canada had also become one of the developed world’s most socialized economies, with the government accounting for 53% of the country’s GDP. Economic growth was stagnating, while debt levels were inexorably and dangerously mounting. At its scariest zenith, Canadian federal and provincial government debt amounted to 120% of GDP, with roughly 70% at the national level and an outrageously bloated 50% owed by the provinces. Again, to put that in perspective, despite our debt binge over the last decade, US government debt is around 60% of GDP, while state debt is nearly 17% of GDP, or 77% overall (this is based on net, not gross, debt and excludes the Social Security trust fund holdings as well as intergovernmental liabilities). Moreover, unlike in our present situation, Canada’s interest rates were rising due to worries about the nation’s solvency. Its coveted AAA credit rating was yanked, and the market was treating it as an increasingly unreliable borrower. In other words, it was much like the situation a number of European countries find themselves in today—except that Canada didn’t have Germany to bail it out. As you can readily see, there’s simply no question that Canada was in some very deep doo-doo. Which begs the multitrillion-dollar question: How the heck did it get out of that jam?

Northern Composure

As I’ve given various speeches over the last year, it has become clear to me that very few Americans are aware of the extraordinary recovery Canada has achieved since the mid-1990s. When I bring it up, most people seem surprised that Canada could have gone from a laughing stock to the envy of the developed world in just a decade. But, actually, 10 years wasn’t the true recovery period. And that was my big surprise from reading The Canadian Century. The reality is that Canada achieved stunning progress in a mere three years. Further, this time frame was consistent at both the federal and provincial levels. In case you think I’m exaggerating the speed and magnitude of the rehabilitation, let me provide some specificity:

• Paul Martin, the finance minister for the national Liberal Party, unveiled a budget in early 1995 that shocked all the cynics accustomed to smoke-and-mirrors accounting. It reduced program spending by 8.8% over two years (and our politicos quiver over a mere hint of spending freezes).

• As part of this radical spending rationalization, federal government employment was reduced by 14%.

• Federal grants to the provinces were reduced by 14% as well, but the trade-off was that they were allowed to control how the money was spent. Provincial governments also needed to provide half of all funding (i.e., put skin in the game).

• While some taxes were raised (and, according to the authors, these worked against the recovery), spending cuts were 4 ½ times tax hikes.

• Canada’s welfare system was dramatically modified. Rather than just providing a blank check to the provinces (which administered the welfare programs), Ottawa incentivized them to put the funds to better use. Benefits were cut for single, employable individuals and aggressive efforts were made to get them back in the work force.

• Despite accusations from the far left that the poor would suffer due to these changes, the percentage of welfare recipients fell in just a few short years from 10.7% of the population to 6.8% by 2000. From 1997 to 2007, the percentage of Canadians classified as low-income plunged by over 30%.

• The tax structure was dramatically redesigned. Corporate tax rates were cut by nearly a third, taxes on corporate capital were abolished, and personal income and capital gains taxes were reduced.

• The General Services Tax (basically a consumption tax or VAT) was instituted to pay for the tax cuts described above. While initially very unpopular, it was a key part of the rehab plan.

• The Canada Pension Plan (CPP), the country’s version of Social Security, also underwent major surgery. Instead of payroll taxes gradually rising to 14%, the increases were pulled forward but capped at under 10%. This produced immediate surpluses that were invested in higher-returning corporate securities. (As noted in past EVAs, this is a huge defect with our Social Security system; its many trillions are tied up in low-yielding US government bonds that simply add to our overall national indebtedness.) The CPP today is well-funded and actuarially sound.

• As a result of these actions, and many others I’ve left out, the federal budget was balanced within three years.

After achieving this remarkable feat, Canada went on to produce 11 straight budget surpluses. This allowed our northern neighbors to reduce their federal debt from 80% of GDP to 45%. Further demonstrating how quickly good policy can turn things around, the provinces enacted similar measures. Most of them also moved to balanced budgets or surpluses within just three years, though in the case of Ontario it took five years. However, that was still one year ahead of schedule (pronounced “shh-edule”, of course). By contrast, even Congressman Paul Ryan’s allegedly bold goal to balance the US budget will take decades to attain.

One of the recurring themes from The Canadian Century is the concept that not all taxes are created equal. Some have a much more negative impact on economic activity than others. This totally resonates with me and it’s why I believe estate taxes should be our version of the VAT. However, I would concede that possibly a combination of the two might be necessary and desirable.

Most of all, I have tremendous respect for what has worked in the real world and within a country so similar to our own. By the way, in case you think that Canadians universally supported these rational reforms as they were first enacted, consider how similar our northern friends are to us. They are every bit as fractious as we are. There was a cacophonous chorus of extreme Keynesians (those who believe government spending should never be cut) who predicted Canada’s grand experiment would be an abject failure. Yet, despite all those who were sure that downsizing government would do the same to their growth rate, Canada’s economy grew at 3.3% per year versus the developed-world average of 2.7%. Notwithstanding Canada’s undeniable success, should we decide to follow in its footsteps, be prepared for folks like NY Times columnist Paul Krugman to wax apocalyptic. Come to think of it, given his forecasting track record, that would be a good thing.

Quite an amazing story, eh? Unquestionably; and it’s interesting that today, most of Europe is essentially following the same game plan (without giving Canada credit—probably due to its legendary pride, bordering on arrogance). Yet there is one immensely important difference.

The Crucial Currency Tailwind

The aforementioned Wall Street Journal article from early 1995 that strongly suggested Canada was careening toward bankruptcy not only served as a national wake-up call, it also tanked the Canadian currency. While this collapse was highly embarrassing to its citizenry, it sowed powerful seeds of recovery. Canadian goods became very inexpensive on world markets, thereby stoking demand. And Canada’s real estate became irresistibly attractive to both American and Asian investors, drawing in massive amounts of hard currency. As mentioned in numerous past EVAs, this is the vital missing link for countries like Italy. The stunning rise in the euro from the depths early this summer is the worst thing that could be happening to the Continent, especially for the weaker countries—almost all of them except Germany.

Fortunately for us, our situation is much more like Canada’s was in the 1990s. The buck is once again seriously undervalued, not only against the euro but versus the yen as well (the dollar recently touched 15-year lows against Japan’s currency). This will greatly aid our exporters, who are already prospering.

Perhaps I’ve missed it, but I haven’t heard a single representative from either party bring up the notion of emulating Canada. Both parties seem to be infected with, among other maladies, an acute case of Not Invented Here-itis. Maybe it’s time for all of us who are deeply concerned about our country’s financial future to harness the power of the internet to influence the many fresh faces that will soon be moving to the other Washington. The good news is that this incoming class promises to be far less indoctrinated by their respective parties’ failed ideologies and much more open to innovative concepts. If they are, it’s not a stretch to believe that our finances can begin to track the Canadian path, as illustrated below.

Role reversal time? The Canadian Century was clearly written for domestic consumption. As such, there is a fair amount of chest-puffing over Canada’s accomplishments, as well as some thinly veiled savoring of our own current predicament (the Germans have a perfect word for this: schadenfreude). Yet the authors also concede a few chinks in Canada’s armor. For one thing, they note that there is some serious backsliding going on when it comes to adhering to the fiscal reformation creed. A certain amount of this is attributable to combating the ravages of the Great Recession, even though Canada was not nearly as hard-hit as the US. But beyond this, the authors are seeing clear evidence that the resolve to restrain spending seems to be waning. Alas, this does seem to be the natural cycle of democracies: Governments spend recklessly until the situation is so bleak there is no choice but to drastically cut back. Once financial health is restored, there then seems to ensue a long, almost imperceptible erosion of fortitude until a crisis hits and debt levels rise so terrifyingly that corrective action becomes unavoidable. Often, as in Canada, it’s the more putatively liberal party that administers the tough but necessary medicine.

The book is also quite candid in its admission that Canada’s healthcare system is largely as dysfunctional as our own. The authors point out the immense challenge that lies ahead for both countries in bringing the wealth-devouring beast of healthcare under control. It’s hard to disagree with their belief that both the US and Canadian healthcare systems need a healthy injection of incentive-based economics, competition, and behavioral modification. Thus far, neither country has made much progress in that regard.

For me, though, the key message of this book is that the future does not have to be a depressing choice between accepting sub-par growth or committing fiscal suicide. Canada’s experience emphatically demonstrates that replacing bad policies with good ones leads to dramatic and rapid improvement, with the shift to financial soundness restoring confidence and actually boosting long-term growth. Some forty years ago, then US President Richard Nixon famously remarked, “We’re all Keynesians now.” To fully channel his inner Keynes, Nixon needed to take us off the gold standard, which he did in 1971. The keys to the perpetual printing press had been found. Soon thereafter a new economic term was coined: stagflation. These days, at least when it comes to fiscal policy, a far wiser statement would be: “We’re all Canadians now.” If we want to right our nation’s financial ship, we might be well-advised to swallow our pride and follow the lead of a country that has long been in our shadow. This is likely to be far more effective than further pursuing failed economic policies from our distant past. Page 6 Evergreen Virtual Advisor (EVA) October 8, 2010

David Hay | Chief Investment Officer | Evergreen Capital Management, LLC

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

Stock Market Players are Increasing their Bets

There’s a difference between a tradeable rally and a fundamentally sound trend. The stock market has been exceptionally strong since Labor Day, turning positive for the year around the middle of September. During this period the two dominant news themes have been the Republican party’s campaign gaining momentum and the Federal Reserve Board’s verbalization of their willingness to do whatever it takes to keep the economy churning. Additionally, we are heading into the strongest seasonal period for the stock market on an annual basis. When these factors are combined with equity managers who have to put money to work on the long side to keep pace with the index, we see a stock market that defies logic by gaining momentum as it rallies.

 

The S&P has had three outside bars in the last five trading sessions. Typical market movement is just over one outside bar per month. Analysis of these three days shows that they all started lower based on overnight concerns and finished higher on the day’s trading here in the U.S. Whether the buying that came in was from fund managers trying to get capital into the market at a discount, traders covering their short positions or foreign money coming in to buy our equities at a dollar denominated discount is irrelevant. Buying is buying.

 

We’ve clearly identified the trend is higher. There are sectors with fundamental support like Potash, ADM, ConAgra, Freeport McMoran and so forth. These commodity based companies should rally in an economic environment dominated by a declining dollar. It’s good to own, “stuff.” In fact, the basic materials sector is up over 20% on the year, led by precious metals. An argument can also be made that the historically low interest rates have created a new type of carry trade, where borrowed money is being put to work owning, “stuff.”

 

The flip side of the stock market’s rally combines technical resistance, bearish commercial positions and a deteriorating labor market. Technically, resistance comes in another 2.5% higher around the April highs at 1200. Also, the market has lost about 15% of its open interest since making the August lows. Healthy trends are supposed to gain open interest as they progress.

 

Moving to the commercial positions, the open interest peak at the August lows coincided with the last commercial net long position. Over the last couple of weeks, the commercial traders have moved to a dead net short position. This includes a record short position in the Nasdaq. This type of behavior is a perfect illustration of why we follow the commercial traders. Small speculators and funds were accumulating short positions at the August lows while the commercial traders were buying the market against them. We are seeing the exact opposite play at the market’s top, right now. Small speculators and funds are putting money to work in the market as the commercial traders have gone from long position liquidation to outright short position initiation over the last two months.

 

Finally, the public unemployment rate held steady at 9.6% for the month of September. However, looking deeper into the data, we see that the economy has added only one month’s worth of new jobs over the last year and 90% of those jobs have gone to hiring workers over the age of 65. Employers are paying minimum wage for experience and reliability, not rebuilding long- term work forces. The data also shows that part time workers for, “economic reasons,” which means they can’t find full time employment is the highest ever recorded. The last piece of doom and gloom comes from Richmond Federal Economic Conditions Survey, which shows that companies are issuing a hiring freeze with the one of the largest single month declines that the Number of Employees Index recorded in the last decade. This is reinforced by the plunge in the Workweek index and the New Orders Index.

 

We may be approaching a climactic event in the stock market. The data spreads that went into crating this article have never been wider. The Federal Reserve Board is talking about a second round of quantitative easing. Their dialogue has created a rush into tangible assets like the commodity markets. It is supplying an artificial floor for the stock market and it has created a rush to buy short and medium treasuries. These moves are based on conjecture and hyperbole. What if the Fed sits tight? The markets have provided the Fed with the action they’ve been unable to create through their own actions. Inflation, low interest rates and a healthy stock market are exactly what they’ve been trying to construct. What happens when these bubbles burst?

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

 

Oil Addiction

The United States’ energy dependence has followed the same path as a junkie. We have become addicted to cheap oil over the last forty years. In fact, our entire economy was built on cheap oil. Just like any good junky, we weathered the initial supply crisis in the 1970’s and, having seen the error of our ways, vowed to set ourselves straight. Fortunately, it was just a temporary shock and we didn’t really mean it. Besides, remember how bad it was? It was horrible for domestic employment and inflation was everywhere. We were invaded by foreign automobiles. We were forced to listen to crackpot after crackpot on the evening news telling us that we should be using alternative energy sources available right here in the U.S.  Thank goodness that didn’t last.

 

Fast- forward to 1990 and a tiny little country in the Golden Crescent was having its, “freedom” threatened. Amazingly, one little country, smaller than New Jersey and with fewer people than the city of Houston, was able to mobilize the mightiest fighting force in the world. A desperate addict needing a fix will do almost anything to ensure their supply keeps flowing. The subsequent rally in oil prices was hardly noticed due the prosperous economic times of the period. We got to watch the war on TV with Wolf Blitzer calling the commentary from the video feed on the nose of precisely guided weapons. The technology boom got underway, the war was a huge success and we reveled in national pride.

 

Here we are in 2010 and we’ve gotten used to paying a higher premium for petroleum products and we’ve successfully defended our suppliers. My issue is this; the United States must develop a consistent and focused energy plan if we are ever going to become self -sustaining. We have the resources. The U.S. has greater natural gas reserves than the Saudi’s have oil. This past week I’ve read two alarming pieces targeting the future of the United States’ energy consumption. After doing some research on my own, it has become clear that there is a major disconnect between where we are being told we are headed versus where we actually are headed.

 

The government stimulus packages and vehicle emission standards have pushed for electric cars as the primary source of green energy. It’s made for great press as our ailing auto manufacturers have produced catchy, warm and fuzzy commercials and brainwashed the general public into believing we are on the road to self-sufficiency, leading us away from foreign oil dependency and the wars it has brought with it.

 

However, if look behind the Wizard’s curtain, we reveal some startling facts.

The U.S. currently imports 67% of its oil.

The cessation of Gulf oil production will increase this to 75% by 2012. This will put oil at $125 per barrel and gas at $4-$5 by 2012.

Half of our top ten oil importers are countries that are unsafe to visit according to our State Department. Their official language reads, “Travel Warnings are issued when long-term, protracted conditions that make a country dangerous or unstable lead the State Department to recommend that Americans avoid or consider the risk of travel to that country.” This includes countries like, Iraq, Nigeria, Saudi Arabia, etc.

According to T. Boone Pickens, our current energy policy prices in oil at $300 per barrel by 2020. Oil is currently just over $80 per barrel.

 

I wrote about the spread between natural gas and crude oil a few weeks ago stating that it was near an all time high. The spread between any two markets is based on using a standard measure for both to determine absolute value. Energy markets are measured in British Thermal Units, BTU’s. This defines how much work or, power, is generated by the combustion of a given quantity of substance. The current relationship between crude oil and natural gas is that it takes $14.07 worth of crude oil to do the same work as $3.80 worth of natural gas. This means we pay about 3.7 times as much for crude oil to do the same amount of work as we would for natural gas. The five- year average for this ratio, including today’s inflated price is, 1.7.

 

Natural gas has always sold at a discount to crude oil and until the last 10 years, the relatively low price of crude oil has dictated business as usual. In the wake of 9/11 and the global recession, the government has spent hundreds of billions of dollars aimed at stimulating the economy, nurturing energy independence, cleaning up the environment and improving the infra structure of the country. Unfortunately, the money from that pie, our tax dollars, have been sliced so thinly that the result is virtually, nil. Our dollars’ have been spent on a Jack-of-all trades and master of none. This is most clearly evident in the outside investment and performance of alternative energy source companies specializing in wind, geothermal, solar and fuel cells, which have all lost at least 30% over the last year. Clearly, the investment community has little faith in the current administration’s ability to coordinate a sustainable alternative energy plan.

 

Finally, the push towards electric automobiles is simply a public relations gimmick. According to the U.S. Energy Information Administration, highway diesel usage trumps residential gasoline consumption by more than an 8 to 1 margin. Does it really make sense that the government enacted emission restrictions on passenger vehicles prior to commercial vehicles? Electric, residential automobiles with two seats and a 100 mile range are not going to effectively address the problem of energy independence.

 

The primary focus of our energy policy should be natural gas. It burns 30% cleaner than crude oil and nearly twice as clean as coal, which it’s also currently cheaper than. Finally, in energy equivalents, apples to apples, we have three times more energy reserves than Saudi Arabia. We should regain our dignity by developing the infrastructure, creating fueling stations and putting our people to work through the use of new technologies with an extended shelf life. This is a fundamentally sound path towards a cleaner, more productive and independent country.

 

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.