2008 In Review - Part IV

With the looming inflation and the subsequent devaluation of the dollar, what investment strategies can one undertake to use that as leverage to gain Alpha over American markets?

Politicians recite two phrases: "Energy Independence" and "Decreased reliance on natural resources / increased reliance on alternative energy". Those two statements contradict themselves. There is no way we can have energy independence and not use coal. Technically we can never really have energy independence (a point to be addressed in a separate article), but let's play devil’s advocate.

50% of electricity is derived from coal. Nuclear energy, while an ideal source of electricity for those with 'green' intentions, due to 0 carbon emissions, has been prevented from coming to prominence due to political/environmental reasons. That leaves alternative energy, but even if there is a mass increase of alternative energy (solar, wind, etc.) there is no way it can come to meeting the demands of energy production, all the while overcoming obstacles such as lack of predictability, difficult and expensive to store, and nascent infrastructure for delivering this energy amongst others. The bottom line is that coal isn't going anywhere.

Nevertheless, there will likely be increased taxes and regulations that will increase the costs for coal producers, either on the front end such as emission requirements, or the back end through carbon fines and increased taxes, which in the end will reduce profits. However, even if that were to happen materially, America is by far the leading reserve of the world's coal deposits.

Even if we're to buy into the notion that America will no longer rely on coal to the extent we do now, other countries will continue to consume and increase their consumption of coal to facilitate growth. When the dollar devalues against other currencies, it will create a global market for cheap energy (coal), most of whcih is located in North America. Inevitably coal exports will offset reduction of usage or increased cost of local consumption associated with coal powered plants.

Other great safe havens for investors include buying other commodities, like oil, or precious metals like Gold, Silver, and Platinum, and generally any dividend paying international company with a strong balance sheet that will either not be affected by weakening dollar, or will be affected positively.