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Energy Makes the World Go Round

A discussion on why investing in energy may be a solid long term decision

There has been plenty of talk of alternative energy – especially the “acceptable” kinds (solar, wind mostly).

But what many people refuse to see is that the world still runs on mostly conventional energy sources. And the idea of depending mainly on alternative energy is years away and requires billions  of dollars (and oftentimes, miles of open space for solar).

There’s also the problem of how to provide “base load” power. Base load means consistent and able to handle the base level of regular energy use. Alternative energy often has a problem with this. For example, solar power has one large fundamental problem – NIGHT. Wind power faces the issue of when the winds don’t blow. And furthermore, it adds cost and years to develop batteries to store overproduction of solar/wind power for later (night) use.

So what to do?

Right now, China produces most of its electricity with coal. The US uses about 50% coal. France uses about 85% nuclear.

Why coal? Because it’s cheap. Why nuclear? That’s cheap too (after the large upfront investment to build the plant). The average American home, which has grown larger (by square footage) over the past 30+ years, requires more and more electricity. Of course a lot of this is wasted but it brings us to a big decision:

keep our current lifestyle with cheap energy or downsize our life and pay 50-100% higher rates for Cape Wind and other type electrical sources.

If you don’t want to downsize, and in fact, many Asians, Middle Easterners, Eastern Europeans and Africans hope to UPSIZE their lives, then you need cheap energy.

Ergo – oil, coal, and natural gas will be with us for a while longer, making the next 10 years a potentially very good period to invest in various energy ideas and enjoy the growth.

Asian Influence and Currency policy

Asian countries are experiencing massive cost of living increases – with many reasons to blame. Commodities across the board, from food to metals to energy have had price increases of 30, 50, 100%+ in the past 12 months.

Clearly, life is getting expensive for Asians (and Brazilians, and Russians, etc) just as they are trying to get ahead. In my opinion, there is one thing that countries can do to offset this. And I mean especially the countries with economic growth – allow their currencies to strengthen vs the dollar.

If they allow that, then oil and food, often priced in dollars, will become CHEAPER for Chinese (and other) consumers and allowjng them to buy MORE, which would in turn further drive up the price in dollars. As Americans, we will be hurt tremendously if this happens.

However, one way to offset this pain is to invest in energy and use the growth and dividends to offset this potential cost increase.

There are many options – individual stocks, exchange traded funds for those who like to invest in a specific area but don’t want to pick individual companies, mutual funds and buying a commodity itself (like oil or gas).

Consider these options in your portfolio if you are as concerned as I am about the rising cost of energy as the world demands more.

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