Investment in a Brave New World

Post recession the United States will likely have a slow economy and persistently higher unemployment than before. Energy demands in the United States will be lower as people buy fuel efficient cars out of necessity, but the price of fossil fuels will go up as Asia, particularly India and China, continue to industrialize. Investment in a brave new world of increased governmental regulation may require some rethinking of what constitutes an expected rate of return. Energy stocks, particularly coal companies, may be a good long term bet.

After last year’s financial meltdown and the need for massive bailouts of financial institutions, continually increased government regulation could well limit the ability of large financial institutions to make the kind of money they made pre-recession. A persistently slow economy and continued high unemployment will reduce investment gains in large numbers of US companies. However, the USA has massive coal deposits. Although the USA’s growth may slow dramatically, India and China still have a long way to go and it’s expected that the world’s demand for coal for energy needs will increase by fifty percent in the next decade and a half.

Those with the expertise to extract coal, those with leases on large coal fields, will be in position to profit over the next century from the world’s increasing energy demands.

High unemployment in a relatively slow economy is likely to keep labor costs down in the United States. The assumption has always been that Asian labor will always be cheaper than US labor. However, that is not necessarily true. As Japan industrialized and prospered wages for skilled workers approached those in the USA. China may never “catch up” but as its society ages the “one couple one child” rule will diminish the numbers of available young workers available to work for sweatshop wages. A combination of lower US labor costs with continued investment in research and development may well be the engine that brings the USA, eventually, out of a slow economy and persistent unemployment.

Genetic engineering and the pharmaceutical business in general will profit from an aging world. A slow economy does not affect a company that sells a cure for a deadly disease as much as one that sells oversized cars. While unemployment may plague ex auto workers it will not be a big a problem for the Genentechs, Glaxos, Mercks, and Roches of the world.

Investment in a brave new world may do better away from Wall Street and closer to the small companies that will use stem cell research to grow cartilage and make knee and hip replacement surgery obsolete. Investment in a world of high US unemployment and a slow economy may do better in the dirty world of extracting coal, for the price of energy is the same throughout the world. Even if energy demands drop in the USA due to a slow economy, better home insulation, more fuel efficient cars and the like, an Asian economic expansion will drive the price of energy.

North America is also an agricultural bread basket. Whether corn is processed for bio fuel for energy, for cattle feed, or for human consumption, its price will be driven by worldwide demand more than demand of the slow economy in the US plagued by unemployment.

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