Obama’s New “Economic Fuel”… and 7 Ways to Profit
by David Fessler, Advisory Panelist, Investment U
Monday, November 10, 2008: Issue #883
Our next President will be faced with unprecedented challenges in health care, energy, global warming, an aging infrastructure and huge “legacy” automobile businesses that are teetering on the verge of bankruptcy.
He’s also being presented with an incredible opportunity… one that, if implemented correctly, could have profoundly positive effects on the economic health of the world, just when we need it.
For years, the engine that fueled global economic growth was the spending of the American consumer. Market crashes because of the dot-coms and the housing boom have left many individuals with too much debt and not enough money. Americans are tapped out, and they’re closing their wallets.
Reinvigorating our economy rests upon jumpstarting consumer spending - and ultimately improving the financial condition of millions of Americans. It’s much easier said than done - and this new administration will have its work cut out for it.
If you’ve got an eye on how these government actions could benefit your bottom line, you should take a look at our past. You might find these newest sources of “economic fuel” and wealth creation look surprisingly familiar. The government’s solution could be just the thing our portfolio needs for a healthy return in the years to come…
The Cause of The Current U.S. Economic Slowdown
Ask most people to give you the cause of the current economic slowdown enveloping the United States and the rest of the world, and their likely answer will be the explosion of housing and the subsequent bubble in the credit markets.
But that was just the peak of the problem, not the beginning. The trouble has its roots in something that started 20 or 30 years ago.
That was when we started seeing the shift away from personal savings in America and toward the beginning of a huge consumer credit crisis.
And now, we are witnessing first-hand the effects of the increasing use of massive leverage can have on the markets, and ultimately on the American consumer. They’re broke and can no longer be the fuel that powers the world’s economic engine.
With consumer spending slowing, layoffs increasing and hiring all but stopped, the prospects for future economic growth aren’t particularly bright. Or are they? We have almost everything we need to fire up the world’s economic engine again: The ingenuity of the American people, plenty of factories, etc.
There’s only one thing missing… the fuel to get it going again. So what’s going to be the new “fuel?” History is a great teacher, and we need look no further than the Great Depression, and Franklin D. Roosevelt’s New Deal.
The New Deal was a series of programs Roosevelt employed between 1933 and 1936 with the intent to provide work for the unemployed, reform of financial and business operations, and economic recovery. Here are a couple of examples:
- The Works Progress Administration (WPA) was the largest of the New Deal agencies. It alone was responsible for providing almost eight million jobs. What did all of those people do? They built public buildings, roads, bridges and other infrastructure projects. Anyone who needed a job could easily become eligible.
- Another program, created by an act of Congress in 1933, was the Tennessee Valley Authority. The TVA, as it was known, was chartered to provide food, navigation and flood control, electrical generation, fertilizer manufacturing and general economic development for the people of the Tennessee Valley, a region hard hit by the Great Depression.And it was just what the doctor ordered: The TVA’s projects were catalysts that fueled unprecedented economic growth in the area that continued through the 1960s. Today, the TVA’s 43 power plants make it one of the largest producers of power in the country.
7 Companies Profiting From a “New” New Deal
While the slowdown we are experiencing is nowhere near as severe as the Great Depression, the solution will be the creation of similar New Deal programs in two specific areas: the infrastructure and energy sectors.
More specifically, developing energy savings, making alternative forms of energy our mainstream sources, and building the green infrastructure to support what will be our growing energy independence.
More insulation in a house’s walls, lower thermostats, fluorescent bulbs, more fuel efficient cars and commercial building energy management systems are just a few of the ways to save energy. Public transportation is another. Expect the new government to provide tax incentives for these and other programs as short-term incentives to save. Companies that stand to benefit are Owens Corning (NYSE: OC): insulation, General Electric (NYSE: GE): lighting and Johnson Controls (NYSE: JCI): energy management systems.
Clearly wind, solar geothermal and tidal energy companies stand to benefit, too. While a comprehensive list is beyond the scope of this article, companies like First Solar (Nasdaq: FSLR): solar panels, Ormat Technologies (NYSE: ORA): geothermal and Vestas Wind Systems (PINK: VWDRY): wind turbines, will do well.
As new green sources of energy begin to come on-line in a big way, the nation’s electrical grids will have to be upgraded to move the power to where it’s needed. This is a huge project, and one of the biggest winners will be ABB (NYSE: ABB): power and automation technologies.
Ironically, the same government that’s trying to find a solution to the energy problems we face has been the biggest roadblock to solving them. The trillion dollar coal and oil subsidies prolong the carbon industry’s advantage over - and are a constant roadblock for - fledgling alternative energy companies.
The new President and his administration have an opportunity to turn the recession ship around, before it runs aground. By implementing new energy and infrastructure projects, thousands of new jobs will be provided at a time when they are desperately needed, and most importantly, these projects will provide the fuel to restart the world’s economic engine.
We’ll be watching.
Good investing,
David Fessler
P.S. There’s no question that individual efforts to save energy and move to alternative sources will make a difference. And to find out what individuals across the United States are doing in that regard, check out Project Tandem. It’s the story of two young documentary photographers, who for the next year are cycling over 11,000 miles around the United States. They’re documenting individuals who are stepping up to help the environment. I’ve personally met these two enthusiastic young people, and I expect the culmination of their efforts will be extraordinary.
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Today’s Investment U Crib Sheet
- The Obama administration could have the biggest impact on the financial landscape seen since Roosevelt. And if our new President achieves his goal of raising taxes on high-income households, municipal bonds could be a once in a lifetime opportunity.
- Another product of a Democratic presidency could be the increased support and funding of renewable resources. While sources like ethanol, hydrogen, solar and natural gas look promising, this energy source could solve our foreign oil addiction.
- And for investors who are worried about a Democratic presidency on their portfolios, foreign stocks could be the answer. Here are four “safe haven” countries to invest in.
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