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July 01, 2008 – Comments (19)

It’s not often that a line is funny enough to get me to nearly spit my morning coffee all over the computer screen, but the opening line from today’s post by gold bug / dollar hater Addison Wiggin’s “5 Min. Forecast” is a classic:

“Congratulations! If you can read our daily forecast today, we gather you have at least enough cash to pay your monthly utilities. Thus, you’ve survived the worst June for stocks since the Great Depression. Kudos.”

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Even though the second quarter has mercifully come to an end, I am afraid that the economy is going to get worse before it gets better.  The unemployment rate has been rising over the past several months because businesses have been laying off their employees.  Some analysts are looking for the unemployment situation to improve as we approach 2009, but I personally believe that it will continue to get worse.  The other shoe, layoffs by state and local governments, has yet to drop…but it’s coming.  BusinessWeek published a great article on this subject yesterday titled The Next Victim of the Real Estate Crisis

The strong economy of the past several years has enabled states to rake in tons of money from sales and income tax, and especially from collecting property tax on skyrocketing home prices.  Much like the domestic automakers who are starting to feel a ton of pain after squandering the last decade’s boom in auto sales, many states’ balance sheets are already in bad shape and they are just starting to see lower tax revenue.  According to the Center on Budget & Policy Priorities, at least 30 states have reported budget shortfalls totaling approximately $48 billion as they finalized their 2009 fiscal budgets (most states’ fiscal years begin today).

State and local governments will likely begin to use up their reserves and then rack up huge debts rather than cutting spending in any meaningful way, hoping that the economy will turn around before they set their 2010 budgets next July.  However, that trend is not sustainable and I believe that they will eventually have to cut their budgets.  Reduced spending by the government and the layoffs that  they may eventually have to make will prolong and possibly exacerbate the current economic slowdown. 

This is one reason why I am so negative on the economy and I strongly believe that the Federal Reserve will have to keep interest rates at a much lower level than many analysts and economists believe, causing the dollar to fall even further and inflation to get even worse.  Translating my last statement into a tangible investment strategy, I plan on staying underweight…if not short consumer discretionary stocks and long companies that will benefit from the high commodities prices that will likely result from a U.S. dollar that continues to fall like oil, metals, and even ag commodities.

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Going back to my earlier reference to my about keeping the lights on, the tide seems to be turning for nuclear power.  After not building a single nuclear power plant in the U.S. since the end of the Civil War (I might be a little off on the exact timing, but you get the idea) more and more politicians and U.S. citizens seem receptive to building new plants.  I have been building positions in two power companies that have nuclear plants over the past several months and I have added a number of power companies that have exposure to this sub-sector to my CAPS portfolio.  As I mentioned in a previous blog post, the U.S. does not have enough power plants to meet its growing need for electricity (see post: Put a charge into your portfolio by playing this trend). 

Add this insufficient power generating capacity to the ever increasing likelihood that a government which has all three branches controlled by Democrats will eventually pass some sort of cap and trade or carbon tax law and nuclear power becomes an extremely attractive long-term play.

 

Deej

19 Comments – Post Your Own

#1) On July 01, 2008 at 10:56 AM, kdakota630 (29.78) wrote:

I'm not ready to get excited about nuclear too much just yet, but it's certainly worth keeping on the radar.

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#2) On July 01, 2008 at 11:49 AM, columbia1 wrote:

I checked the tags for nuclear and did find one stock that was worth putting in my caps profolio DUC it has a 7.3% dividend and just come off a bottom!!

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#3) On July 01, 2008 at 1:39 PM, DemonDoug (48.37) wrote:

I have a theory about nuclear.  We won't be seeing any new nuclear power plants in the US for a long time.  And maybe never.  Why?  A simple five letter acronym: NIMBY.

Where is the waste going to go?  Where will we put the plants?  Where is the waste going to go?  Where is the waste going to go?

I'll stick with wind and solar, thank you, with virtually no negative environmental impact and no need to store extremely harmful, radioactive waste.

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#4) On July 01, 2008 at 2:15 PM, eldemonio (98.61) wrote:

Demon,

"I'll stick with wind and solar, thank you, with virtually no negative environmental impact and no need to store extremely harmful, radioactive waste."

Sounds like you're afraid of change - change of your genetic code.  Harmful?  Radioactive waste may benefit our society.   If we want to live in an X-Men style future, we must increase our exposure to radioactive waste.  Personally, I hope to develop some type of super speed / jumping abilities.

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#5) On July 01, 2008 at 2:42 PM, edwjm (99.87) wrote:

eldemonio:

You need to do some more research on genetic changes - in science, not science fiction or fantasy!

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#6) On July 01, 2008 at 3:02 PM, charlesblazer (98.37) wrote:

Who needs nuclear waste to develop super powers?  Just drink Bud Lite...

http://www.youtube.com/watch?v=pVOaLold7N8

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#7) On July 01, 2008 at 4:07 PM, hansthered0 (< 20) wrote:

Deej man, I love your blog. Keep it up.

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#8) On July 01, 2008 at 4:31 PM, TMFDeej (99.29) wrote:

Thanks hansthered0.

Deej

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#9) On July 01, 2008 at 4:33 PM, TMFDeej (99.29) wrote:

That's some funny stuff eldemonio.  Perhaps more nuclear waste would solve our food problem too because you could breed mutant chickens with ten legs each and GIANT fish.

Deej

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#10) On July 01, 2008 at 4:34 PM, AnomaLee (28.73) wrote:

I live within a 25 minute drive from one nuclear power plant, and I campaigned to raise awareness on another which was the source of an incident of neglect and radioactive leak, the Davis-Besse Nuclear Power Station. This was when I was more active... According to the NRC, Davis-Besse has been the source of two of the top five most dangerous nuclear incidents in the United States since 1979(excluding TMI).

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#11) On July 01, 2008 at 4:40 PM, TMFDeej (99.29) wrote:

Hey Doug.  Thanks for the comment.  Funny that you mention not-in-my-backyard.  CNBC published a poll either yesterday or today, I forget which, that showed the public is surprisingly open to having a nuclear power plant or a refinery built within 20 miles of their home.  The numbers were much more positive than previous polls have been.  Who knows what would happen if push comes to shove though.  Perhaps will become a lot more open to the idea when the cost of electricity doubles.

My investment premise isn't based upon these companies building new plants anyhow...they'd probably take at least until 2016 to build and cost a trillion dollars.  My point is that existing, non or low carbon emitting power plants would have a significant advantage if some sort of carbon tax is passed, which I suspect will happen.  I'm not looking to buy companies that might build a nuke plant some time when I'm 100 years old, I want the ones that are operating them right now.

Wind and solar power take up waaaaay to much space and are not as efficient as nuke power.  Having said this, I'm playing that angle anyhow with FPL.

Deej

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#12) On July 01, 2008 at 5:26 PM, DemonDoug (48.37) wrote:

Wind and solar only take up way too much space when you factor in the power the plant outputs and the geographic area the plant takes up.

Nuclear power will end up taking up much more space in the long run due to the waste.

The thing about solar and wind is that I believe eventually power generation in the US will start matching a more Dutch-style system, with lots and lots of smaller plants, which I believe is the most efficient way to do it.  Imagine how much power a windmill at the top of the sears tower would generate?  Or imagine if we put solar panels on the tops of every skyscraper in NYC?  How much real estate does this take up?  Answer: zero.  How much waste is generated on the day-to-day operations of these power generators? Zero.

I believe the nuclear thing is really just another political boondoggle.  Yes it generates power but at what cost.

My assertion and belief is that in the next 50-100 years, energy needs will be met by continually diverse sources.  We will still be using fossil fuels and nuclear, but they will be a smaller percentage in a large basket of power options.  I'm imagining a pie chart where green energies currently take up small slices of the pie, and fossil fuels making up the majority, and in 100 years that chart being much more evenly distributed between wind, solar, geothermal, hydroelectric, nuclear, fossil fuel and biofuels.

I also believe that even though the market share of fossil fuels will fall, the demand for fossil fuels will still be the same or higher in the next 10 years, hence the bullishness on oil and gas.

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#13) On July 01, 2008 at 6:47 PM, colonelnelson (42.68) wrote:

CNBC published a poll either yesterday or today, I forget which, that showed the public is surprisingly open to having a nuclear power plant or a refinery built within 20 miles of their home.  The numbers were much more positive than previous polls have been.

Ah, yes.  A potent reminder to never underestimate the average American's short attention span or long term memory.

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#14) On July 01, 2008 at 8:36 PM, GreenMycon (< 20) wrote:

I anticipate that the newer power plants that get constructed will be mostly natural gas plants allowing for added efficiency due to combined cycle technology.  Additionally, you can anticipate to see some gasification combined cycle plants coming online which incorporate co-firing of biomass to reduce emissions.  There are also the newer more efficient power plant designs that make use of algea to recapture much of the CO2 that is released and use it as a biomass feed for cofiring.

None the less, some new nuclear power plants probably will be built to meet our growing energy demand.

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#15) On July 01, 2008 at 9:26 PM, XMFSinchiruna (27.60) wrote:

No Nukes!  :)  I can't stand them.  We lack the wisdom as a species to keep our planet safe from them.  AnomaLee, I too was active in campaigning against them.  [There's another one]  ;)

I had a job once that entailed pouring through hundreds of thousands of recently declassified documents relating to nuclear issues and the exposure of Americans to radiation from leaks, accidents, weapons tests around the world, etc. etc.  If people knew what we've done with nukes in the past, they'd never stand by and let them be used today without a concerted fight.  Of maybe I'm giving people too much credit.  :)

That being said... Deej... your blog is fantastic!

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#16) On July 01, 2008 at 10:38 PM, zygnoda (27.39) wrote:

CNBC published a poll either yesterday or today, I forget which, that showed the public is surprisingly open to having a nuclear power plant or a refinery built within 20 miles of their home.  The numbers were much more positive than previous polls have been.

Wow, those are some weird folks.   There are  three refineries not far from where I live.  No sane person wants one in their backyard.  They are filthy and tend to dump things into the water.

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#17) On July 01, 2008 at 11:05 PM, Tastylunch (29.39) wrote:

Re: nuclear NIMBY

 that's why ES (Energy Solutions) looks to me like it may be attractive long play. They deal with Nuclear waste and cleanup.

You know how polticians like things that look  a win-win at least on the surface.

great post as usual Deej

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#18) On July 18, 2008 at 7:23 PM, eskatonic (29.27) wrote:

Congratulations! If you can read our daily forecast today, we gather you have at least enough cash to pay your monthly utilities.

 

funniest thing I've read all day too 

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#19) On July 18, 2008 at 7:28 PM, eskatonic (29.27) wrote:

eventually someone will wise up to geography and will blanket the south bank of the rio grande with nuke plants.  then they'll put solar panels on top.

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