by David Fessler, Advisory Panelist, Investment U
Friday, September 5, 2008: Issue #850
As a degreed electrical engineer, I’ve always been fascinated with energy and infrastructure. Watching a huge bridge being built over a river, a tunnel being bored through a mountain, or an offshore oil rig drilling tens of thousands of feet down gets my heart pumping.
Projects like those truly are a testament to the ingenuity of man, and they’re necessities in any country with a growing economy. Right now, however, dwindling fossil fuels and crumbling infrastructure here – and the lack of it elsewhere – are huge problems in need of solutions.
Massive amounts of capital will be required to solve them – $53 trillion just on the infrastructure piece alone. And the opportunities for investment are nearly endless within the infrastrucuture and energy sectors.
Let’s take a look at the energy sector first…
T. Boone Pickens On The Oil Crisis
In his July 8 interview on CNBC, T. Boone Pickens said, “Oil is getting more expensive to produce, harder to find and there just isn’t enough of it to keep up with demand… and now it’s reached the point of crisis.”
December 31, 2005 passed into the annuals of history with little notice. On that day, half of all the crude oil ever found was consumed – over one trillion barrels were gone in the blink of an eye. In the last 10 years alone we’ve used 500 billion barrels.
But the energy picture could get much worse.
“Oil prices could be $500 a barrel within three to five years,” warned senior energy advisor Dr. Robert Hirsch. “The reason is we’re limited by geology… there just isn’t that much oil out there. We need to produce three to four million barrels of new oil each year just to stay even (to offset the decline in older fields).”
Think Hirsch’s $500/barrel oil is a pipedream? Then consider the political turmoil in Nigeria, Iran and Angola… all powder kegs that could explode at any moment, immediately cutting off millions of barrels of daily supply.
For 200 years, the world’s energy supply has primarily come from burning fossil fuels. But increasing global demand is outstripping the world’s ability to supply them. Emerging economies are clamoring for the good things in life we have. And it all requires more and more energy.
The 21st Century Energy Paradigm Shift
The good news is that record oil prices are the catalyst that’s ignited the “21st Century Energy Paradigm Shift,” as I like to call it. And this time, there’s no turning back.
The next 50 years will see major advances in alternative energy supplies, like solar, wind, geothermal and others. At the same time, we’ll start to see a gradual shift away from fossil fuels.
But dwindling natural resources aren’t the only problems facing us…
- Just over a year ago on August 1, 2007, the bridge carrying Interstate 35 over the Mississippi River in Minneapolis collapsed, killing 13 people and injuring over 100 more.
- According to the American Society of Civil Engineers, it’s one of an estimated 160,570 bridges that have been deemed structurally deficient or obsolete. That’s a whopping 27% of all of the bridges in the country.
- A recent a study by the Associated Press found that only 12% of the nation’s 1,020 worst structurally deficient bridges had been fixed.
Surprised? Don’t be.
Pete Rahn, the Transportation Commissioner of Missouri, had this to say, “At some point, relying on miracles is not going to be the best way to manage our system. I would pray we don’t have to have another disaster to bring about the right attention to this. I see very little political will there.” (Politicians, please take note.)
But it’s not just the nation’s bridges that are falling apart. Roadways, water and sewer lines, water and sewerage treatment plants, and the power grid are all in dire need of replacement or major upgrades.
Emerging economies around the world are spending big money – at twice the rate of developed economies – to upgrade their infrastructure. Why? A study by the World Bank estimates that adding 1% to a nation’s infrastructure “stock” results in a similar 1% gain in Gross Domestic Product (GDP).
The 2 Best Places for Your Money Right Now
Now some of this is unnerving and downright scary, but here’s the good news: The energy and infrastructure sectors represent perhaps the two best places to put your money for the foreseeable future…
Energy and infrastructure have an incestuous relationship:
- You need energy to create infrastructure.
- And you need good infrastructure to move the energy to where it’s needed.
- One can’t exist without the other.
More importantly, the world needs cheap energy not just to function, but also to spur global economic growth. Emerging economies need good infrastructure for the same reasons. Look at all the countries in the world, and you’ll find the one’s with developed economies also are the ones with good infrastructure and cheap energy.
Roads, bridges, railways, ship ports, airports, electrical grids and pipelines are all examples of the types of infrastructure projects underway all over the world, but especially so in developing countries.
Think about this: China spent more on infrastructure in the last five years than in all of the 20th century. And it’s just getting started.
If history is any guide, mankind will continue to improve himself and the environment around him, and the transformation will offer opportunities for investors taking note… I’ll be writing more about the infrastructure and energy sectors in the coming weeks and months. We’ll delve into both sectors in detail and take a look at some of the exciting investments each has to offer.
We’ll be keeping watch on these equipment, crane and drilling companies powering our future…
Today’s Investment U Crib Sheet
- After a bruising day in the market like the one we experienced yesterday, it’s natural for investors to get defensive and look to sell. But it’s the great investors that see these down days as buying opportunities. After all, Warren Buffett does. Take a look at yesterday’s issue to see how the “Oracle of Omaha” finds his most profitable winners in Investment U Issue #849, Warren Buffett’s Investment Strategy: Time to Buy the Ultimate No-Brainer.
- Last week, Floyd Brown showed us how to find bargains in deep value investments. Many of these shares are selling at a discount not because of poor performance, but simply because of negative investor psychology. Here’s a strategy for finding these bargains, and for distinguishing them from companies on their deathbed.
- And if you’re having trouble finding your next big investing idea, David Fessler shows us how to find winning stocks on your own in Investment U Issue #847, Stock Market Research: How To Find Winning Stock Ideas On Your Own.