Saturday, June 04, 2005

Nuclear and hydro measures added to energy bill

Nuclear and hydro measures added to energy bill

The link is to an article about the energy bill, nuclear power and hydroelectric power reform. However the big point is in regard to interest rates.

Jim Rogers stated this morning that long rates eventually have to go up. He is right but eventually can be a very long time. The sharp run-up in interest rates in the 70's included the issuance of a very large amount of bonds to support the construction of nuclear power plants.

Leaders in the know predict that a nuclear power plant will be built in this country by 2014. This is a far cry from something like 40 of the old large style plants under-construction at the same time during the 70's.

I have made the point about productivity before but it clearly needs to be made again. Worldwide productivity growth is exceptionally strong. China is the leader but it is a worldwide phenomenon. China has more people unemployed than there are employed people in the USA. China has lost more manufacturing jobs in the past 10 years than any other country.

Manufacturing jobs in America declined again last month but again this is a worldwide phenomenon. It was in the early 1900's when more than half of all Americans were farmers. China only recently crossed that threshold.

One definition of inflation is too much money chasing too few goods. The world is producing all the goods we can possibly use and then some.

DOWN-SIZING!

My wife and I are preparing to sell our 4 bedroom 4 and a half bath home. We are very aware of having too much "stuff". We were both born early in the baby boom. Many our age have not begun to down-size yet. When they do, they will need to figure out what to do with the large, valuable, antique china cabinet, the freezer, or the extra large barbeque grill. There are 100's of millions of baby boomers around the world facing these problems. US citizens have plenty of dollars but also more stuff than they need. The worldwide productivity boom has by definition created wealth. Americans are as wealthy as they have ever been and they have more disposable income than ever before. The second home housing boom is a natural result and many more have not bought the second home than have. The second home boom will continue in the same way that the second car boom continued after its start about 45 years ago.

Nuclear power plants need to be built in America. Plants are already under construction in China, India and many other nations. However, the increasing demand for goods is no where near the increasing demand for services. Life is becoming less power dependent. The fellow that types on a blog page all day uses a tiny fraction of the energy in his "job" as the worker in a manufacturing plant.

We are blessed with an economy that adapts quickly. Therefore, the US unemployment rate is very low (5.1%) during a time when manufacturing employment is falling rapidly around the globe.

This week, the labor department report showed slow job growth. The household survey showed strong job growth. The data continue to confuse. The bond market swung wildly on Friday. By mid-morning, the 30 year bond was trading at the all time lowest rate ever. Don't bet that it can go lower. If there had been a 30 year bond in the 30's it would have traded much lower. Even in the early 50's real interest rates were very low. The situation was different in these times. The problem in those days is that people did not have enough money to buy what few goods were available. The situation today is that even 10 year old kids have lots of money and lots of goods. A slow down in the economy may only mean that kids only have 50 new toys a year not 75.

The good news for investors is that investors and companies are still cautious after the dot.com bubble. Investors generally do not reward companies that go after maximum revenue without regard to profits. Companies are not over-spending on expansion. This is keeping interest rates low but more importantly it is keeping profit growth strong.

SUMMARY:

Excess goods.

Low Capital Spending--including power plant construction.

Low interest rates.

Excess liquidity.

Low inflation--plenty of money but chasing plenty of goods.

Incredible productivity (17% annualized in the most populous country in the world).

BUY THE BULL MARKET!

2 comments:

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