2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

[santafe2]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Until the broader global economy picks up, the demand for electricity will stay low.
The big investor utilities have been shutting down coal plants and using natgas.

I expect that when the economy finally picks up, the big utilities will start buying new natural gas units rather than installing new solar or wind.


Renewable power will inevitably beat natgas and coal by the time our grandchildren have grandchildren of their own, but I don't see how it could be a good investment that will give rapid bubble-style return to an investor.

Renewable energy is still dependent on subsidies and regulatory support. It will remain difficult to gauge the level of long term support in the US until we have a national Renewable Portfolio Standard, (RPS) and a long term investment tax credit strategy. Today these RPS programs are generally managed at the state level and every state has a different standard. Some states have only non binding requirements for renewables while other states have stated through regulations, impossibly high goals. Hawaii for example has a technically impossible, 100% renewable energy goal.

From an investment point of view this is an almost impossible landscape to navigate. I'll give you one example at the national level. The renewable energy investment tax credit was scheduled to drop from 30% to 10% in 2016 and in December the ITC was extended through 2020. Now, many utility scale projects that would have been shoehorned into 2016 will be installed on a more sane schedule and 2017 won't be the year where inventories build up while the renewable energy markets adjust to a 10% ITC. But how do you make investment decisions in this environment?

Not possible. Renewables might generate spectacular speculative returns like uranium stocks did some years ago, but it is missing one key characteristic to be a good bubble candidate - it's not big enough.

If we go back and read EJ's writings you won't get a real bubble until everybody, including the government, the Fed and Wall Street, are behind it.

Correct. No will have to guess if this is happening. The happy headlines will be everywhere. Your Uber driver will be explaining his renewable investment strategy.

[Southernguy]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Some time ago, couple of years if I recall well, EJ focused on the margin debt outstanding as a possible advance indicator of a bear market. I found the following work updating such: http://www.advisorperspectives.com/d...bt-and-the-SPX

[Southernguy]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Would you call it a bubble on the scale of tech/telecom or housing or the current bond insanity? Other than the creation of gold ETFs and ETNs, I don't think Wall Street peddled a lot of paper related to the gold market, including IPOs.

IMHO we should differentiate: 1) The magnitude of the bubble counting the total amount of money involved (housing and tech orders of magnitude bigger than gold. 2) The magnitude of the prices increases in a (maybe) small sector. No importance from the point of view of an individual investor if the overall bubble is 10 billion or 10 trillion as soon es she is in the game. The fall in oil prices brought down prices of renewable stocks and etf's. There are a lot of articles spread all over the internet about the exponential growth renewables are undergoing. China is at the avantgarde of the changes. Notwithstanding Thrifties considerations very worth taking note of.

[astonas]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Wall Street surges at end of awful January

Good call! Thanks!

By the way, any updates on how your own company is doing?

[EJ]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

I do not see another run-away train like I did on late 2007. In fact, I will not be surprised to see markets recover starting next week.

Wall Street surges at end of awful January

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

the gold market is really quite small, yet it managed to go parabolic a few years ago.

Would you call it a bubble on the scale of tech/telecom or housing or the current bond insanity? Other than the creation of gold ETFs and ETNs, I don't think Wall Street peddled a lot of paper related to the gold market, including IPOs.

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

the gold market is really quite small, yet it managed to go parabolic a few years ago.

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

You might be right, Southernguy, but I have doubts.

Until the broader global economy picks up, the demand for electricity will stay low.
The big investor utilities have been shutting down coal plants and using natgas.

The trade journals report that nearly all the new electrical production being installed is renewable, but that's only part of the story.
The rest of the story is that very little new generation is being installed, so renewables are big fraction of a small number.

No doubt wind and solar are important now, and will be more important in the future over a span of 50 years or a hundred years.
I call myself a long-term investor, but that's too long term for me.

I expect that when the economy finally picks up, the big utilities will start buying new natural gas units rather than installing new solar or wind.
The press often reports that a coal plant has been "converted" to natural gas, but in reality they take out all the old equipment end-to-end and install all new gas combustion turbine equipment. Damn few power plant boilers have ever been converted from coal to natgas.

Here's a table from EIA that shows that the capital cost of larger natgas unit (210 MW) is about 1/3 that of wind power. http://www.eia.gov/forecasts/aeo/ass.../table_8.2.pdf. The fuel is free for wind power, so the $/Whr looks small for wind when you ignore capital costs. A big generator and gas combustion turbine package from GE or Siemens is a technical wonder and pretty hard to beat if you want to make money selling electricity.

The article you link to mentions a big project in Morocco that is installing 850 megawatts of wind power. That might seem like a lot of power, but if you've worked in the industry it really isn't that big a power plant. Forty miles from my house is a coal fired power plant that's being shut down, the Conesville plant http://www.sourcewatch.org/index.php...le_Power_Plant
That plant has four generators, and one of them puts out 846 MW. The four units together total nearly 2,000 MW. There are similar plants shut down all over the US.

Renewable power will inevitably beat natgas and coal by the time our grandchildren have grandchildren of their own, but I don't see how it could be a good investment that will give rapid bubble-style return to an investor. Maybe if you can find some smallish manufacturer that will grow like crazy in the small renewable market.

Not possible. Renewables might generate spectacular speculative returns like uranium stocks did some years ago, but it is missing one key characteristic to be a good bubble candidate - it's not big enough.

If we go back and read EJ's writings you won't get a real bubble until everybody, including the government, the Fed and Wall Street, are behind it. That's what it took to make the tech/telecom bubble and drive stocks like Microsoft, Cisco, Sun, Dell, HP, Worldcom and other large names into the stratosphere, along with all the smaller tech IPOs in the late 1990s. That's what it took to create the subprime and property bubble a mere half decade later.

The entire category of renewables isn't big enough to be able to absorb enough capital for Wall Street to float enough paper to make it worth their while.

[Southernguy]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Thanks Thrifty for your comments. Lots of food for thought.

[thriftyandboringinohio]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Can renewables be the next bubble inflating, that is, after a long time of healthy growth?
http://oilprice.com/Alternative-Ener...il-Prices.html

You might be right, Southernguy, but I have doubts.

Until the broader global economy picks up, the demand for electricity will stay low.
The big investor utilities have been shutting down coal plants and using natgas.

The trade journals report that nearly all the new electrical production being installed is renewable, but that's only part of the story.
The rest of the story is that very little new generation is being installed, so renewables are big fraction of a small number.

No doubt wind and solar are important now, and will be more important in the future over a span of 50 years or a hundred years.
I call myself a long-term investor, but that's too long term for me.

I expect that when the economy finally picks up, the big utilities will start buying new natural gas units rather than installing new solar or wind.
The press often reports that a coal plant has been "converted" to natural gas, but in reality they take out all the old equipment end-to-end and install all new gas combustion turbine equipment. Damn few power plant boilers have ever been converted from coal to natgas.

Here's a table from EIA that shows that the capital cost of larger natgas unit (210 MW) is about 1/3 that of wind power. http://www.eia.gov/forecasts/aeo/ass.../table_8.2.pdf. The fuel is free for wind power, so the $/Whr looks small for wind when you ignore capital costs. A big generator and gas combustion turbine package from GE or Siemens is a technical wonder and pretty hard to beat if you want to make money selling electricity.

The article you link to mentions a big project in Morocco that is installing 850 megawatts of wind power. That might seem like a lot of power, but if you've worked in the industry it really isn't that big a power plant. Forty miles from my house is a coal fired power plant that's being shut down, the Conesville plant http://www.sourcewatch.org/index.php...le_Power_Plant
That plant has four generators, and one of them puts out 846 MW. The four units together total nearly 2,000 MW. There are similar plants shut down all over the US.

Renewable power will inevitably beat natgas and coal by the time our grandchildren have grandchildren of their own, but I don't see how it could be a good investment that will give rapid bubble-style return to an investor. Maybe if you can find some smallish manufacturer that will grow like crazy in the small renewable market.

[Southernguy]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Can renewables be the next bubble inflating, that is, after a long time of healthy growth?
http://oilprice.com/Alternative-Ener...il-Prices.html

Which begs the question what now? Commodities had their heyday from 2001 to 2011. Global housing appears to be in its last innings in a few remaining bubble cities. Gold went back to being a commodity and busted with the others starting in 2011. Bonds of all sorts were bid to the stratosphere until the first cracks in HY started to appear in 2014 and yield spreads widened.

EJ's view for a couple of years is that the only undervalued sector in the US economy is private, entrepreneurial companies (with a bias towards tech I believe).

I sense Hendry thinks the long term, low interest rate environment is going to favour entrepreneurs, business creation, business growth and equity markets in many places around the globe. He was clear in another interview a couple of years back that he was long China (through FTSE China 50 futures I think) but because of its volatility one could only have a small position in that equity market.

Edit added: Strikes me that if China manages a "soft landing" the pressure to move capital out will reverse and that will end the very upper echelons of the Pac Rim luxury housing bubble cities.

[Bundi]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

The itulip portfolio hasn't done that great since 2009. Since then, we saw stocks rebound and gold go down.

Not so sure that is the case. You’d have to do the math on the various private offerings that have been made available since 2009. It seems there have been some rather fundamental investment thesis decisions made that your comment is not fully reflecting. Many of them have to my knowledge anyway not yet played out to completion.

[Bundi]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

The itulip portfolio hasn't done that great since 2009. Since then, we saw stocks rebound and gold go down.

Not so sure that is the case. You’d have to do the math on the various private offerings that have been made available since 2009. It seems there have been some rather fundamental investment thesis decisions made that your comment is not fully reflecting. Many of them have to my knowledge anyway not yet played out to completion.

[Southernguy]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Can investing in alt. energy; for example TAN be an alternative to oil stocks or derivatives?

[Polish_Silver]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

The itulip portfolio hasn't done that great since 2009. Since then, we saw stocks rebound and gold go down.