During the last couple of years, I have more or less taken it granted that the future rise in commodity and energy prices will help the companies of alternative energy and raw material sectors. Reading Stephen Leeb‘s book Game Over: How you can prosper in a shattered economy has caused me to re-evaluate my thinking.
Game Over was originally published in 2008 but it has not lost any of its actuality since then. On the contrary, the economic turbulences of the latest years make to book even more interesting than it was a couple of years ago.
Leeb’s argument starts from the supposition that we will soon reach not only the peak oil but the peak of many extremely important commodities. Every reader of this blog is sure to know how the price of energy has been climbing during the last years.
Unfortunately, oil isn’t the only critical commodity that is getting scarcer and more expensive: many minerals and metals that we depend on, are soon reaching the peak production. According to Leeb, we will run out of antimony, indium, lead, silver, tantalum, tin and uranium in the next twenty years. In the next four decades, we will be out of chromium, copper and zinc. Other metals will follow them soon.
Of course, the run-out will not be total. Only the constantly rising price will make the use of these metals impractical for most of today’s uses. In addition, the rising price of energy will worsen the situation as the mining and production of the metals will become even more expensive. Thus we’ll find ourselves in the vicious circle of ever-growing commodity prices.
Moreover, this vicious circle will make widespread use of alternative energy costly. Too often, the economic calculations on the profitability of solar or wind energy do not take the dynamics of price development into account.
For example, using wind energy for creating electricity might well be economically rational decision at today’s metal prices. As we build more and more wind energy the growing demand for metals needed for the construction is yet another factor raising the commodity prices. Furthermore, it is not at all clear if the alternative energy sources are net sources of energy. Thus an investor cannot just bet on the alternative energy trusting any green investment will make money in the long run.
In fact, some of Leeb’s investment suggestions are rather conservative. According to him, gold is the single best bet for an investor facing the future chaotic world. Gold, after all, retains value regardless of the political and economic system which makes it an excellent tool for protecting the savings from inflation. It has been a particularly good investment in difficult periods like during the Great Depression of the 1930. The more turbulent the economy was, the better the performance of gold was.
Thus Leeb is very bullish on gold: “Any way we look at it, the bull market in gold is likely to be one of the most dynamic bull markets ever witnessed in any financial asset. Fold is almost sure to be your best hope for getting through what promises to be the most turbulent economic period our civilization has ever faced.”
According to Leeb, the alternative energy sector is small, confusing, and risky for an investor. Now that his book is already several years old this is even more evident than when the book was published. Still, Leeb’s suggestion to buy the strongest players in the alternative energy sector is as valid as it was in 2008.
Another good and green investing bet would be to invest in freshwater technology. As the energy becomes scarcer and more expensive, so does the water. Even if water technology is energy intensive, the demand for water will be high because of its indispensibility for life. Thus every green investment portfolio should include some of the leading freshwater technology and infrastructure companies. The humans, after all, will continue to drink water even in the most turbulent times.