Yesterday, the final blow in the War on Coal was administered by President Obama via the EPA, which has become an unstoppable blunt weapon immune from intervention from both the legislative and the judicial branches of government. President Obama will brag about natural gas production under his administration. However, if President Bush deserved some credit for the death of Bin Laden, he deserves the overwhelming share of credit for creating the energy boom. That is the main reason why America is not currently in a Great Depression.
The economic toll on the country has already been devastating, but it is going to get worse, and the most ominous part of it is that it officially puts environmental theory, over the actual plight of human beings. In fact, the EPA will take actions, purportedly, to save Mother Earth that will cause Americans a lot of economic pain. Last week, the US Chamber of Commerce shocked the nation with a report that put actual figures to the next salvo set to destroy the coal industry, and to intimidate fossil fuel production in general.
The Cost through 2030:
* $51 billion each year
* 224,000 jobs each year
* $289 billion to consumers on electricity through 2030
* $586 billion lower total disposable income to US households through 2030
The Environmental result through 2030:
With global emissions climbing 31% from 2011 to 2030, the impact from today's announcement will be to reduce the level of carbon by a whopping 1.8 percentage points.
The American Coalition for Clean Coal Electricity Gas calculated that unleashing the EPA today, would cost the nation 3,000,000 jobs.
Watching the action in natural gas stocks late last week, I began to wonder if maybe an olive branch would be extended. After all, if the administration is going to take credit for the miracle of natural gas, it should loosen restrictions and open more public land for drilling, and take steps for the export of crude oil. Maybe there will be a realization that natural gas is the key if alternatives are ever going to work.
The German Experiment
"Deindustrialization in Germany"
Recent headline in major German newspaper
Misguided notions and miscalculations of being the first nation to replace fossil fuels with renewable sources of energy are beginning to have crippling affect on Germany. In fact, Germany will do to itself what rival nations have tried in the past- to derail its industrial machine. Ostensibly, post world war treaties were designed to reduce Germany's war machine and make them pay the cost of war, but the fact is these actions were focused on slowing that fabled industrial machine.
Treaty of Versailles
World War I
In addition to losing rich farmland with the surrender of West Prussia, Germany was also forced to pay the entire cost of the war of $6.6 billion. The last installment was in 1984, and to part with its major coalfields, when the Saar region was given to France for 15 years. These actions coupled with the money printing, and the post war defeat, led to hyperinflation by 1923, and from there we all know what happened.
World War II
The Allied victors leveled Germany with draconian measures aimed at converting the nation from its historic dominance in heavy industry, to light industry with the focus on exports like coal, beer, toys, and textiles.
* Steel production capped at 25% prewar level
* Heavy industry pushed back 50% of the 1938 level
* 1,500 manufacturing plants closed
* Locomotive production forbidden until 1949
* Automobile production at 10% of the 1936 level
The standard of living in Germany could not exceed the average level of the European nations, against which it had waged war (mostly France). Less than a year into these measures, it was clear that resentment could tip the scales, and that Germans might have considered becoming Communists. Having learned a lesson from the rise of Hitler, America began to relent on selling the idea that without Europe up and running, that all of Europe would experience a slow recovery.
The course was reversed, and Germany became eligible for aid and loans under the Marshall Plan. Now, Germany is clearly the economic leader of Europe, controlling continent-wide policies and purse strings. Now, it has unwittingly pulled a string that is quickly unraveling its position as a global economic powerhouse. There's no way anyone could have convinced German leadership in 2005, that pouring $138 billion into clean energy would result in record high energy prices, and in CO2 levels higher in 2013 than in 2008.
Pardon the Interruption
Considering all the hysteria about climate change, it might come as a surprise to some that, even before man learned of the benefits of fossil fuels, there were days when the sun did not shine, and the wind did not blow. That fact alone would make it seem crazy to think that one day, the giant machines of industry and the millions of homes that need electricity, could have their needs met consistently without interruption. The people of Germany are reminded of this fact known to mankind from the beginning of time.
In March, development began to expand the Brandenburg coalfield in Germany with designs of supply, of enough lignite (brown coal) to power local power plants for the next 30 years, or longer. The move had to be made; Germany is importing tons of American coal, and brownouts and blackouts have taken a toll on the nation. The dream that 25% of electricity will be coming from renewable sources has become a nightmare. Every major manufacturer based in Germany has complained, and several have warned of shifting to lower-cost nations.
* Electricity is 30% cheaper in Asia
* Electricity is 50% cheaper in the United States than in Russia
Currently, due to the spike in prices, 800,000 households in Germany cannot afford their electricity bills.
Policy of Misfortune
Our nation's independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil that it can produce.
Jimmy Carter took to national airwaves on April 18, 1977, to warn of an impending energy crisis in order to lay groundwork for an eventual war on American oil companies. Before leaving office, Carter ushered in the Windfall Profit Tax bill, with the explicit goal of "punishing" oil companies by levying excess taxes on crude at $35 to $40 a barrel.
The new tax hurt royalty owners and small independent suppliers more than the larger oil companies, but wrecked American supply long enough for the nation to be hooked on imported oil.
* US Field Production in Thousand B/D
* 1980: 8,597
* 2008: 5,000
* 2013; 7,443
The United States decided to restrict crude oil exports in the 1970s, and Jimmy Carter went to war with the American oil companies. President Obama has picked up that war and is ignoring the lessons of Carter, and more recently, the lessons of the economic disaster of Germany's determination to be the grand experiment, and is barreling ahead to destroy our fossil fuels.
Interestingly, the one thing that could help Germany and its disastrous shift into renewable alternatives is natural gas; the only energy source capable of heating up quickly enough to mitigate brownouts and blackouts, but the fracking/shale revolution has not arrived there yet. I can only hope today, it is not a setback in America.
Pharaoh of Wall Street, Golf and Gambling
The big story this morning is the investigation into Phil Mickelson, Carl Icahn and Billy Walters over suspicious trading in Clorox three years ago.
There's no doubt somebody knew something was brewing at Clorox which closed at $66.25 on June 27, 2011.
> July 6 closed $68.18 on 1.06 million shares
> July 11 closed $70.05 on 5.6 million shares
> July 15 closed $74.55 on 18.1 million shares - to my knowledge this is the first Icahn's intentions were made public.
By Icahn standards, this was a swift battle that came to an end after Clorox fought back against his proposed slate of directors (including his son, Brett) and the idea of putting itself up for sale on September 23, 2011. It's a compelling story because of the players, but I think something was leaked somewhere judging from the volume. I doubt Phil Mickelson would have knowingly broken the law and Icahn knows better. (I only know of Billy Walters from a 60 Minutes piece I saw on him, so not sure where I stand other than everyone is innocent until proven otherwise.)
There is another part of the story that will not be mentioned in the media today. Yes, shenanigans exist on Wall Street, but that shouldn't dissuade investors from putting money into the stock market. Clorox is a household name and while not sexy, I suspect will be a household name 100 years from now. For those that don't want to trade stocks and can stand occasional dips and broad market crashes buying and holding this name has been huge! The stock is up in a straight line from 2009 lows, but if you bought in January 1985 you'd be up more than 500%.