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May 02, 2007

Change
by Ron Ellison

Like a lot of things in life, change sometimes takes a while.

Just recently Toyota surpassed General Motors as the number one auto manufacturer on the planet, putting an end to GM's 76-year reign at the top.

For the record, not that the news surprised many, Toyota sold 2.348 million units worldwide for the quarter versus GM's 2.26 million. Toyota had been nipping at GM's tailgate for several years.

Nearly 20 years ago an environmentally friendly, politically active cardiologist we know sported a bumper sticker on his car about how one nuclear accident could ruin one's whole day. Nuclear power in those days was about as unpopular as much of America's foreign policy appears to be these days.

The near disaster at Three Mile Island in Pennsylvania that happened in 1979 was dimming in folks' memory when in the spring of 1986 Chernobyl, a nuclear power plant in the Ukraine, exploded in the early morning hours, putting the fallout fears squarely on the front reactor for many.

At Three Mile Island, while much of the nation waited and watched, officials struggled for five days trying to diagnose the problem and figure out if a full scale evacuation of the region's 25,000 residents was necessary. Fortunately nobody was killed or injured. For the nuclear power industry and its proponents, however, Chernobyl turned out to be their worst nightmare. Aside from those killed and injured in the initial blast, the threat of contamination became widespread when a radioactive plume spilled over much of Europe eventually reaching the east coast of North America.

A 2005 World Health Organization report estimated that of the 6.6 million people exposed 9,000 would succumb to some form of cancer. So for years the prospect of using nuclear power as a source of energy in the U.S. was deader than the campaign promises of most presidential candidates.

Highly industrialized countries like Japan and France depend on nuclear power for much of their energy. France in fact enjoys an abundance of energy, selling much of its excess power to other European nations. With crude oil prices hovering between 60 and 70 dollars a barrel and gasoline prices surpassing three bucks at the pump here at home, to list just a couple of things, nuclear power as a viable source to meet the nation's growing energy demands has become the not-so-new kid on the old energy block.

When television shows popular with the proletariat like CBS's "60 Minutes" feature stories about the revival of nuclear energy you know the change has been in the ozone layer for a while. Witness the run-up in prices, especially those with nuclear power plants, in utility shares over the last three years, not to mention big buyout firms starting to sniff the air of opportunity here because these plants offer the prospect of generating more than just clean burning, cheap energy.

The last time anyone talked seriously about building a new nuclear power plant in the U.S. was 1978. Now about 15 companies have expressed interest. Even some environmental groups have joined the chorus when faced with dwindling natural gas supplies and dirtier sources of electricity.

In a recent article in Barron's one money manager discussed his thesis of "permeable borders" and its ramifications. Recall before the Berlin Wall fell and the Nixon agreement with China many of the world's borders were nearly impermeable. At the time these events caused celebrations long and lush around the globe. In the mid-1980s one of the most popular business books predicted a borderless global society. Soon free-trade agreements began popping up like spring flowers.

Though it took awhile people learned that more than goods and those seeking a better way of life could permeate these open borders. Diseases and terrorists should readily come to mind here. Today China is building a wall across its border with North Korea and much discussion about the U.S. erecting a similar wall with neighboring Mexico is making the political and social rounds.

Earlier this month demonstrations against illegal workers erupted in China, Iran sent 25,000 foreign workers home and growing unrest about illegal immigrants in the U.S. captured the headlines. Nor are these incidents all that isolated.

Then there is identity theft, a growing problem in our ATM, plastic card, cell phone carrying universe. In medicine they talk about space-occupying lesions. Well, anyone who's had his or her identity stolen (and it doesn't stop with individuals) understands lesions that travel across space.

According to some sources nearly half of the new jobs created in the last four years are housing-related. Even many of the Taco wagons that roll around to construction sites selling food depend to some degree on the real estate market. Housing is more than just a figment of the American dream. Today, if one can believe the so-called experts, housing comprises roughly 20 percent of the economy.

Another way of viewing it is on a market capitalization basis. Take the S&P 500 Index. In the good old dot-com days technology made up a much larger share of the S&P than it does now, only to be replaced by financials since the market tanked in 2000. Back in 1998 with crude oil languishing around ten dollars a barrel and gas at the pump selling around a buck, the energy component of the S&P was miniscule. It's much bigger today.

We recall at the time attending a talk at the Disneyland Hotel in Anaheim. The guest speaker, a well-known market and television economic pundit, smugly suggested gold prices would remain low and higher oil prices, should they ever return, wouldn't be a tax on the consumer.

A physician we know in California whose practice depended much of workmen's compensation cases recently witnessed a good part of his business vaporize owing to changes in state reimbursement laws. Though the date for the legislation to take effect was well publicized, it caught our friend off guard and he let go a third of his staff after the fact not before.

The point is these things just didn't suddenly occur. The terrorists who knocked down those twin towers didn't just suddenly decide one day to do it. Most diseases don't just suddenly appear. They follow a course; they have a past, a present, a trend. And oh yes, for those either culturally or politically challenged or both, in medicine it's called a profile.

So what's one to make of this current stock market which recently made several consecutive day highs, all in the face of what can best be described as mixed news? And what should one look for? The answer is a six lettered word: CHANGE.

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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