Among the reactions to my earlier diary "Beware the coming of the Green Bubble" was the feeling that "surely that's not all alternative energy is." Of course, alternative energy is a great, great idea. But the fact remains, the global economy, and our part of it in particular, runs on bubbles. Hm, sounds like some kind of hydrogen application.
But this article in Harper's fleshes out the idea in an excellent way, and explains the bubble phenomenon with an analysis of the two most recent: dot bomb and finance/real estate. But like me, the author sees alternative energy as the most likely next bubble in the froth. So I'd like to take it a bit further, and see how it might play out.
Luckily, Al Gore will be making principled venture capital investments on our behalf.
The next bubble must be large enough to recover the losses from the housing bubble collapse. How bad will it be? Some rough calculations: the gross market value of all enterprises needed to develop hydroelectric power, geothermal energy, nuclear energy, wind farms, solar power, and hydrogen-powered fuel-cell technology—and the infrastructure to support it—is somewhere between $2 trillion and $4 trillion; assuming the bubble can get started, the hyperinflated fictitious value could add another $12 trillion. In a hyperinflation, infrastructure upgrades will accelerate, with plenty of opportunity for big government contractors fleeing the declining market in Iraq. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver "energy security." When the bubble finally bursts, we will be left to mop up after yet another devastated industry.
First of all, alternative energy gets evaluated as an investment the same way that any other investment gets evaluated: economically, it must perform well on a cost basis with its competitors. And this has always been the Achilles heel of the alternative energy sector. Because historically, oil has been both cheap and heavily subsidized. For example, the ports that fill the tankers with oil are public works, but a basic part of the oil distribution infrastructure. So the public pays separately for that part of the cost of oil, through taxes rather than at the pump.
Secondly, alternative energy is getting a lot of attention as a way to rebuild our economy and wean ourselves off foreign oil. It is an idea whose political time has come. So we have lots and LOTS of cash on hold in the international credit markets and the normal channels of that cash are in freefall. This is money that needs to be invested, pronto. And speaking of restless cash, we have billions in unprecedented profits in the coffers of the major oil companies, and a venture capital orgy happening in Silicon Valley. Money will flow; there will be blood.
If I were an oil company executive, I'd be evil. Just so you know. And my thinking would be: Excellent. We've got this 60% fear premium built into gas prices. Pure profit. Which makes the damned tree-huggers happy because it finally appears to their dope-addled brains that solar is competitive with coal. So they are gonna raise gobs of cash, and Gore is there, it's gonna be a clusterfuck of overinflated assets. Let's buy now.
So they buy into green energy. And ride the silly little bubble up. Then a few years from now (months?), Something Big is going to happen that allows oil prices to drop. We're going to discover that a decrease in global demand has corresponded with a new technology that doubles our existing refinery capacity (thanks to investments in hydrogen research, probably), and the price of gasoline is going to drop like a rock. And the bubble will immediately deflate, because it will be discovered that Big Oil and International Banking have been divesting their Green Energy holdings. They've cashed in, suckers, and if you're still holding Green Stock you're clearly a dirty hippie. And a broke one. So what's new.
So now what. The Green Sector is annihilated for years. But the ideas, the research, the products, and the market are, post-bubble, deemed to be fundamentally sound. Like, real estate. And the Internet. Well, guess what, scumbags, the people who just sold out at the top of the Green bubble have grown rich stealing another generation of retirement funds, and they, the fucking Oil Companies, are going to use the proceeds from the sale of their Green stock to buy up the foreclosed assets of the failed Green companies and their ridiculous X-Gen CEOs.
I keep thinking of it as the Moscow Strategy, in reference to Napoleon's stupid invasion of Russia. Draw out all the Green money into market driven by FAKE oil prices, then let the price drop and freeze the hell of the Green Market.
Big Oil is going to crush, then buy up, Green Energy. Remember: Buy low, sell high.