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January 17, 2006

They'll Be Back
by Ron Ellison

A decade ago regular gasoline sold for less than $1.30 a gallon in most states. Three Mile Island, a near nuclear meltdown at a utility plant outside Harrisburg, Pennsylvania, occurred in early 1979, now nearly 30 years ago.

Aging eyes aren't the only things that grow dimmer with time. Dividends, once all the favor with investors, fell out of favor during the TNT run-up, and are now back in favor. Same thing happened with platform shoes, the Volkswagen Beetle and leeches.

Thirty-one states have nuclear power plants. Of those with the heaviest nuclear concentration, six are blue or Democrat states and one is red or Republican. Most of those blue states are in the energy-hungry northeast. With the nation's hydrocarbon fix rapidly becoming an energy monkey too heavy to tote indefinitely, particularly given the geopolitical, increasing demand and diminishing supply risks, nuclear power may be the old, new kid on the block. And ditto coal, that dirty black stuff burned by power companies that emits a good portion of the CO2 environmentalists love to rail against.

Some of you may be old enough to remember the early 1970s when Medallion all-electric kitchens were all the rage. They were supposedly cheap, efficient and practically every new home sported one. Then those omniscient well-intentioned creatures called bureaucrats, politicians and environmentalists discovered natural gas was clean burning and abundant. Practically every new home built today uses natural gas.

According to a recent report, that's all about to change as power companies over the next decade switch from gas to coal as the fuel of choice for their new power plants. There are also some positive rumblings among backers of nuclear energy since prices for crude oil and natural gas soared the last couple years. To be sure, there will be opponents from the Green Peace crowd to the usual well-intentioned suspects. To date this winter has been somewhat mild. But as one well-known investment guru recently noted that something is out of whack when his energy bill goes up 50 percent in 45-degree winter weather. Despite conventional wisdom, higher energy costs don't go un-noticed by either the rich or the poor.

The point here is a basic one: idealism gets tossed to the back burner when the bell sounds for push and shove to get it on. Tempers flare and quite often riots happen. A bunch of folks, elderly or otherwise, freezing to death come some future winter coupled with long gas lines will stir the natives up pretty fast. Should that occur a lot of people won't care much if those politicians are in red states or blue states when they go looking for them. And look for them they could; it's happened elsewhere and it could just as easily happen here.

What all this has to do with investing is simply this: few meaningful changes ever occur without some catastrophic event that precedes them. Such things could be ingrained deep in the human genetic code. Humankind apparently has to touch the hot furnace to discover that it's indeed hot. Anyone who watched even a smidgeon of the recent Alioto confirmation hearings should get the point. Rational human behavior is an oxymoron, particularly in the nation's capitol. Proper respects to all those lumbering sociologists and psychologists, academic or otherwise, it's still near impossible to predict with any degree of accuracy human behavior.

Witness the guy at the corner bus stop sucking on a cigarette through the hole in his tracheosotomy. Some bureaucrats and politicos will doubtless want to blame it on addiction. Well, folks are pretty addicted to heating their homes in the dead of winter or cranking up that air conditioner during those hot, humid summers, not to mention having a little light to read and get around by. Too many people today, politicians and social do-gooders foremost, are too young to recall Blackout Wardens, officials who came around door-to-door during WWII and made folks turn off their lights.

If you believe the energy fix this country finds itself in is going to be fixed anytime soon, then skip this next point. On the other hand, if you think there is a possibility that this time around Nero will fiddle just to keep warm while the nation shivers, you might want to use weakness in the utility and energy sectors to load up, not so much for 2006 but for 2009 or 2010 or 2012. Label it investing for the future. Isn't that what investing is supposed to be all about?

Recall too General MacArthur and The Terminator informed us they'd be back. And so will higher energy prices.

Ron Ellison
Blasingham and Ellison Financial Group

Ron Ellison is a principal of Blasingham and Ellison Financial Group, a money management firm in Newport Beach, California, and can be reached at www.Befg1.com.

Copyright © 2005-2007 Ron Ellison

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