Tuesday, December 15, 2009

Victory Declared Over Recession

Andrew Gordon Reporting: Delray Beach, FL. Tuesday December 15, 2009

A $13 trillion "Government Global Giveaway" is guaranteeing profits to three sectors. Banks were first in line to receive the massive handouts. They got the Treasury to loan them hundreds of billions of dollars. They then got the Fed to load a big chunk of their most toxic debt onto its balance sheet while lowering interest rates to next to nothing.

The big banks made out. No surprise there.

They're back in the black and reporting bigger profits than analysts expected.

The other two sectors, though – infrastructure and clean energy – are just getting started...

Infrastructure got off to the fastest start in China, where $586 billion was given away by the government to fund its pet projects. In other countries, including the U.S., infrastructure has taken flight more gradually.

The big winners in this sector will be the giant manufacturers. They have the size and political pull with both state and federal agencies to grab the dollars being handed out like cotton candy.

Meanwhile, clean energy got a critical second wind from the Government Global Giveaway.

The initial euphoria over wind, solar, and thermal energy rescuing the world from greenhouse gas emissions had been fading right along with government subsidies in key countries like Spain and Germany. And without those subsidies, these alt energies couldn't compete with much cheaper fossil fuels.

Then the big banks gifted them with a global financial crisis. Governments all over the world rushed in with emergency spending programs they couldn't afford. And, sure enough, they went back to giving grants and loans to their favorite alt-energy producers.

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Scams Galore

It was just what the sector needed. It was almost too good to be true. In fact, it was too good to be true.

With big government handouts making the rounds once again, could corruption be far behind?

Not according to John Etherington, a former professor of ecology at the University of Wales and author of The Wind Farm Scam. He says that because the industry is so dependent on subsidies, it is highly vulnerable.

You can see how important subsidies are in Germany, for example. It costs about $4.50 million to build a standard 2 megawatt turbine. And that turbine will bring in about $450,000 a year from the sale of electricity at the market rate. But with special state-mandated incentives, that revenue could almost double to about $820,000.

In Europe, more than $10 billion in structural and agricultural subsidies has been allocated for renewable energy over a 13-year period (ending in 2013). This is a big sum for a relatively new industry.

In America, the Department of Energy is handing out grants covering 30 percent of the cost of renewable-energy projects. About 30 states have renewable standards, and the DOE has already announced more than $1 billion in aid to develop wind farms.

The New York Times quotes authorities as saying that it's impossible to quantify the level of fraud in public spending on wind energy "because investigations are scattered across different countries among the regional and fiscal police."

"This is a gold rush, and everyone wants a wind park at whatever price," said Jesus Bethencourt Rosillo, a lawyer who represents a whistle-blower accused of possible fraud in wind-farm development on the Canary Islands.

And the Winner Is...

Vestas is the biggest manufacturer of wind turbines in the world. But it's based in the Netherlands. And it doesn't trade on a major American exchange.

GE is a good alternative for investors. It has some 4,000 employees in its wind business, which now brings in about $6 billion a year. That sounds like a lot, but GE's company-wide revenues come to $182.5 billion a year. That's only 3.3% of the company's total yearly revenue.

I like FPL Group better. It was added to our INCOME portfolio last April, and subscribers have already bagged a 40% gain.

FPL is the biggest generator of renewable energy in the country – by far. It has over 6,000 acres of wind farms. It owns more than $45 billion worth of assets and operates in 25 states and Canada. It also generates solar electricity.

Plus, it owns Horse Hollow Farm. When I originally recommended FPL, this was the biggest wind farm in America. Now it ranks third.

Two-thirds of FPL's revenue comes from its utility operations. And a full one-third comes from the renewable energy side of its business. A stimulus-related tax and other incentives will be giving FPL a huge boost that will add to its bottom line for years to come.

To learn more about my alternative-energy recommendations, click here.

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Victory Declared Over Recession

Three countries have declared victory over the global recession. And it's not just cheap talk. They've dared to do the one thing that other countries won't or can't do: They've raised their basic interest rates.

Back in August, Israel was the first to do it. Australia raised theirs just before Thanksgiving, and Norway raised theirs soon after.

And they all had good reasons.

Australia is a big commodity exporter, and commodity prices have been going up. Norway is a big oil exporter, and oil prices have more than doubled from their lows. And Israel? Its economy grew by 2.2% in the third quarter, faster than it's grown in over a year.

Raising interest rates is a bullish sign. It says that...

  • The government is willing to take its economy off meds.
  • Demand is picking up enough to make inflation a threat.
  • The government expects economic growth to continue despite less attractive rates on loans for businesses and individuals.

The next countries in line for a rate hike? India, Korea, and New Zealand.

Here in the U.S., the Fed is in no rush to raise rates. That would quash inflation. And as my colleague Bob Irish said yesterday, the government will probably be inflating its way out of debt.

But that's down the road. Inflation – and the end of our recession – isn't yet knocking at our door.

Invest Safely,

Andrew Gordon

Investor's Daily Edge

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Bob Irish - Investment Director
Andy Gordon - Editor
Jon Herring - Editorial Contributor
Ted Peroulakis - Editorial Contributor
Christian Hill - Managing Editor
Dr. Russell McDougal - Editorial Contributor
Steve McDonald - Editorial Contributor
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