Global Market Comments
September 10, 2021
Fiat Lux
Featured Trade:
(SEPTEMBER 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (PLTR), (TSLA), (FCX), (PYPL), (TAN), (FSLR), (SPWR), (GBTC),
(ETHE), (BRKB), (USO), (UNG), (HD), (IBM), (SQ), (AA), (UBER), (UROY)
Below please find subscribers’ Q&A for the September 8 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: Do you think we’ll see the under $130 in the United States Treasury Bond Fund (TLT) before January 2022?
A: I don’t think so; I think we could go below $140, maybe below $135. But $130 would be a brand new low in the move and would be a stretch. We basically lost 4 months on this trade due to the countertrend rally, which just ended. I would come out of your (TLT) $130-$135 vertical bear put spreads right here while they still have time value, but keep the $135-$ 140s, the $140-$145’s, and especially the $150-$155’s. The idea was that you just keep averaging up and up until the market turns, and then you make back any loss. We move into accelerated time decay on those deep out of the money put spreads in December, so I would take the money and then offset it with the gains you made in those positions.
Q: Does Palantir (PLTR) look like it’ll hit $100 by year-end?
A: No, the stock has been dead, and management has not been doing anything to promote it. We did get a move up to $45 but it failed. It’s still a great long-term idea as they are growing at 50% a year. Also, they did buy $50 million worth of gold bars as a hedge. But as a short-term trader, Palantir isn’t working. If you have an options position on that I would probably get out of it or roll it forward to 2023.
Q: PayPal (PYPL) is fluctuating up and down with Bitcoin. Do you like PayPal?
A: Absolutely, but it obviously is being dragged down by Bitcoin. It is a temporary down move caused by a one-time-only event in El Salvador. Buy the dip in PayPal. It is a leader in the whole move into a digital financial system.
Q: When is Freeport McMoRan (FCX) likely to move up?
A: As soon as we shift out of the tech trade into the domestic recovery trade, which could be in weeks or months at the latest. We’ll switch from one side of the barbell to the other.
Q: Where do you see Tesla (TSLA)?
A: It keeps going up, so my guess is we top $800 by the end of the year, and maybe $850. The big news here is that Tesla has gone into the chip business, making its own chips in-house which is easy for them to do in Silicon Valley. But it does make them the first global car maker that is also a chip maker, and therefore the stock deserves a higher premium. The stock went up $30 on the news and is great for all Tesla holders. I hope you have the 2023 LEAPS.
Q: Too late to buy Tesla LEAPS?
A: Unless you’re really deep in the money, with something like a $600-$650; but the return on that will only be about 50% in 2 years.
Q: The Biden administration just set a goal of 45% solar by the end of 2050. Which solar stock should I buy here?
A: The problem with solar is as soon as Biden started winning primaries, every solar stock took off like a rocket, figuring he’d win, which he did. All of them went up 6-fold or more as a result of that, then gave up one-third of their gains and are now moving sideways. So if you look at the charts, the classic one to buy here is the Invesco Solar ETF (TAN), a basked of the top solar companies. All of these peaked in February and have been doing sideways “time” corrections since then, which means they eventually want to go higher. The other two that have charts that look like they’re finally starting to break out to the upside are First Solar (FSLR) and SunPower (SPWR) after 8 months of consolidation.
Q: Why is the second half of September almost always bad? Is it due to institutional repositioning?
A: Not really, the cash comes into the market at certain times of the year, like end of the year, beginning of the year, and end of each quarter. September seems like the month where they kind of just run out of money. But there's actually also a historical reason for that. For most of American history, we had an agricultural economy. Farmers were more than half the population, and the period of maximum distress for farmers is September, where they put all the money into seed and fertilizer and labor into the field, but they haven't harvested it yet. So, traditionally, they always did a lot of borrowing in September, which caused a cash squeeze and interest rate spike, and a stock market panic as a result. So that's the history behind weak Septembers and Octobers. Once the farmers get the crops in and sell them, that resolves the cash squeeze, interest rates fall, and it’s straight up for stocks for the rest of the year most of the time.
Q: SPACs (Special Purpose Acquisition Companies) seem to be losing interest. Do you recommend any or stay away?
A: Stay away—they’re all rip-offs and are simply a means by which managers can increase their fees from 2% to 20%. That's what they did with virtually all of them. This will end in tears.
Q: What's your feeling about satellite internet phone service replacing current internet cell service in the future?
A: It’s in the future, but it may be 10 years off in the future. If it happens sooner, it’s because Elon Musk was able to deliver cheap rocket service. He already has 20,000 satellites in the sky for his own Starlink global cell phone service for internet access.
Q: How does one buy a Bitcoin stock?
A: Well first of all, I highly recommend you buy the Mad Hedge Bitcoin Letter, which you can get in our store. But there's also the Greyscale Bitcoin Trust (GBTC) which allows you to buy a Bitcoin proxy very easily. I’ll even honor the discounted $995 price for my Bitcoin Letter for another day by clicking here.
Q: Is Warren Buffet and his value philosophy something I should be following, or is he outdated?
A: I have to say, buying stocks cheap with high cash flow will never go out of style. Currently, Warren’s big holdings are domestic industrials, banks, and Apple. All of those look like they will do well moving forward. Buffet’s Berkshire Hathaway (BRKB) has a built-in barbell element to it and is the subject of one of our LEAPS recommendations which has already been hugely successful.
Q: Is Home Depot (HD) at $330 a bargain?
A: Well, we just had a selloff and it bounced hard, and now we’re waiting for the domestic post delta recovery. It's hard to imagine both Home Depot and Lowes not doing well in this scenario.
Q: What will happen to tech when interest rates rise?
A: My bet is they go sideways to down small until you get another peak in interest rates (the next peak will be at 1.76% in the ten year US Treasury bond, the 2021 high) and once you hit that, then tech will take off like a rocket again, and in the meantime, you play the domestics while interest rates are rising. That is the game and will continue to be the game for a couple of years.
Q: Should I buy IBM (IBM) on a turnaround story?
A: No, I've been waiting for IBM to turn around for 10 years. They just don’t seem to get it. What they do is whenever a division starts to make money, they sell it and get cash like they did with the PC division and this year with its infrastructure business called Kyndryl. So, they’re not leaving any growth for the actual IBM holders.
Q: Do you like Square (SQ) at $256?
A: Yes, and that would be a great 2023 LEAPS candidate. All of the digital settlement payment systems are going to do well in the Bitcoin future. They also own quite a lot of Bitcoin. They are leading the charge into a digitized financial system.
Q: What’s a good Ethereum ETF?
A: The Greyscale Ethereum Trust (ETHE) is just the ticket.
Q: So you avoid energy, meaning oil and gas?
A: Yes, alternative energy we like, but it’s had an enormous run already so after a 7-month time correction it’s probably safe to get into solar. Traditional oil and gas (USO) is in a long-term secular bear market that started 13 years ago and will eventually go to zero. Last year’s visit to negative futures prices is just a start. Since 2020, the energy market weighting has gone from 15% to 2%.
Q: Is Natural Gas the only rational core fuel for the grid?
A: No, natural gas (UNG) still produces carbon even though it’s only half the amount of oil. This all gets replaced by solar in the next ten years. That’s why I tell people to stay away from energy like the plague. Would you rather buy natural gas at $4.50/btu or get solar electricity for free? Those are basically going to be the choices in ten years.
Q: Who is the biggest Aluminum producer?
A: Alcoa (AA) which we are a buyer on dips. By the way, if we do have to build 200,000 miles of long-distance transmission lines to cover the electrification of the US energy supply, all of that has to be made of aluminum. You don't use copper for long distances, you use aluminum (aluminum for you Brits).
Q: Would you buy Uber (UBER) at $40 today?
A: Probably, yes; it had a nice 40% correction. However, you are buying into the battle over gig workers—whether they should be treated as full-time or part-time workers. That is going to be a continuing drag on the stock until they win.
Q: What do you think of meme stocks?
A: You're better off buying a lottery ticket. Even with a low payoff, you get a 1:10 chance of winning on a $1 lottery ticket. Meme stocks could double or go to zero with no warning whatsoever—there’s no logic to this market at all.
Q: What do you think of Uranium?
A: Three words come to mind: Chernobyl, Fukushima, and Three Mile Island. I think uranium's time has passed, even though China is building a hundred nuclear power plants. It’s just too expensive to compete against solar on a large scale and impossible to insure. If you still like Uranium though, the Uranium Royalty Corp. (UROY) has had a nice pop recently. But the issue is that nuclear technologies can’t keep up with solar and digital. And they blow up.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 19, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE DELTA CORRECTION IS HERE)
(AMZN), (AAPL), (FB), (MSFT), (TAN), (FSLR)
Right now, the fate of your investment portfolio, and indeed your life, is in the hands of a minority of anti vaxers in the Midwest.
If the surge in the delta variant burns out in weeks or a month, the current market correction won’t extend any more than 5% and you should be loading the boat with big tech stocks like (AMZN), (AAPL), (FB), and (MSFT).
The delta variant is becoming a big deal, with unvaccinated states like Arkansas (35% vaccination rate) and Missouri (40% rate) driving the resurgence. It is essentially an epidemic of the unvaccinated.
Unless checked, it could lead to a broader stock market selloff in August. Los Angeles brought back the indoor mask mandate on Saturday, although compliance is near zero. San Francisco may be close behind.
Everyone in my company worldwide is now vaccinated, with Australia last to get one. I’ll be first in line for the Pfizer booster out in the fall. Delta is twice as contagious, more fatal, with more permanent side effects than earlier variants. And it’s killing more kids.
But it’s not the delta you have to worry about. If a future epsilon or zeta variant emerges, that can overcome our current vaccines, bred in the Midwest, the economy would shut down again and you can kiss your bull market goodbye. That would lead to a 1918 style finish to this pandemic, the fatality rate would go up to 50%, and millions more would die.
I’ll stick to the optimistic case….for now.
Even if we get a new variant, we now have the infrastructure in place to sequence the DNA of a new strain in a day and have 100 million doses in the freezer in two months. But it could be a close-run thing.
If you want to stick with your long portfolio in the face of millions dying here is the argument.
The Fed is unable to stimulate the economy any further through interest rate cuts or more QE. It is like pushing on a string. Companies can’t hire the labor they need to increase production or obtain the parts to make things.
This ends in August when workers get their free childcare back in the form of the public school system. The ending of Covid benefits will also light a fire under them. This will lead to a collapse in the unemployment rate and a further rise in GDP from the current ballistic 7.0% rate. This will allow the Fed to raise rates, but not enough to hurt stocks, especially techs.
This is your Goldilocks scenario for H2.
Driving down from Lake Tahoe to Long Beach to pick up my kids from Scout Camp, I passed two huge wildfires. Half the vehicles on the road (US 395) were fire trucks and crews moving in from other states. It’s like being at war.
So, you might ask the question of when will Climate Change affect the stock market? The answer is that Climate Change is actually great for stocks. Money gets spent to put fires out, then trillions of dollars get spent to rebuild with insurance claims.
The biggest impact of climate change is the decarbonization of our energy infrastructure, out of fossil fuels and into alternatives. Solar will soar from 20% to 70% of total electric power output in a decade while nuclear stays at 20% and hydroelectric at 10%. Coal and oil completely disappear. This will enable a large cut in our total energy bill.
Yes, I know oil has rallied lately. I’m sure American Leather had rallied on the way to zero, the only Dow stock to ever completely disappear. It was wiped out by the transition from horses to cars, eliminating 97% of the demand for leather. (The horse population went from 120 million to only 3.8 million today).
There are ways to play this today. Solar growth will be massive, so you have to look at the Invesco Solar ETF (TAN) and First Solar (FSLR).
Here is the next market top, at least for the short term. That’s because, for the last year, stocks have a nasty habit of selling off after quarterly earnings reports, which are just around the corner. Announcement dates for the FANGS are below. For the short term, you want to sell days before the reports. For the long term, you want to keep them, as I expect all to double or more in the next three years.
Facebook (FB) is July 28, 2021
Alphabet (GOOGL) - Jul 25, 2021
Apple (AAPL) Jul 27, 2021
Amazon (AMZN) Jul 26, 2021
Netflix (NFLX) Jul 20, 2021
Microsoft (MSFT) - Jul 28, 2021
China’s economy is slowing, with the post-Covid bounce over. It just provided $154 billion in stimulus for its economy and cut bank reserve requirements by 50 basis points. If they slow there, we could slow here, especially for big exporters to China in the ags.
Core CPI jumps to 5.4%, the biggest gain in 13 years. Excluding food and energy, it’s the biggest print since 1991. The Fed is holding its breath that these large numbers are temporary. Used car and truck prices accounted for a third of the gain for the second month in a row. That is certainly not sustainable, or I’m going into the used car business. Tech took off like a rocket on the news.
Producer prices show biggest gain since 2008, the is index up a hot 1.0% in June against 0.8% in May. PPI is up 7.3% YOY. Higher commodity and labor costs against shrinking inventories were the big issues. Inflationary pressures are here, but for how long?
Senate agrees to $3.5 trillion spending plan, providing great news for stocks and terrible news for bonds. No Republican support is required. This is in addition to the $579 billion infrastructure deal reach with opposition support. It’s enough dosh to keep this stock market percolating for years. Buy FANGS on dips.
Any tightening is a ways off, says Fed governor Jerome Powell in his congressional testimony, sending bonds soaring. The comment was in response to the superheated 5.4% CPI print on Tuesday. The $120 billion a month in Fed bond buying continues. Big tech loved it and continued with its non-stop rally. The rocket fuel for share prices continues unabated.
The four biggest US banks deliver spectacular earnings, posting a combined $33 billion in profits, triggering the predictable selloff. That is $9 billion above analyst forecasts, which seem to be a permanent lagging indicator. Consumer spending is exceeding pre-pandemic levels, credit quality is soaring, and credit card spending is through the roof. Buy (JPM), (BAC), and (V) on dips.
US retail sales come rocketing back, with customers spending those stimulus checks hand over fist. The 0.6% gain in June came on the heels of a 1.7% drop in May. Vaccinations are driving buyers back into the stores. Electronics stores, clothing, and restaurants saw the biggest increases.
Bank of America lowers US GDP from 7.0% to 6.5%, still the whitest hot numbers in history. 2022 is looking like 5.5%, still double the pre-pandemic rate. Personally, I think these numbers are low, and the stock market thinks so too. Keep buying dips in the good names.
Investors pouring out of bonds and into stocks, according to a survey of mutual fund flows last week. I couldn’t agree more. The Fed can’t keep holding on to zero rates forever, and when their turn comes, its will be brutal.
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch profit reached a 1.84% gain so far in July. My 2021 year-to-date performance appreciated to 70.44%. The Dow Average is up 13.35% so far in 2021.
I spent the week running my two last positions, a long in (JPM) and a short in the (TLT) into the July 16 options expiration. Both expired at max profit. I then immediately strapped on a new short in the (SPY), my first since the pandemic began. That leaves me 90% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 11-year total return to 492.99%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.56%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 108.94%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 34.1 million and deaths topping 609,000, which you can find here.
The coming week will be a weak one on the data front.
On Monday, July 19 at 11:00 AM, the NAHB Housing Market Index for July is out. Johnson & Johnson (JNJ) and Verizon (VZ) report.
On Tuesday, July 20, at 8:30 AM, Housing Starts for June are printed. Haliburton (HAL) and United Airlines (UAL) report.
On Wednesday, July 21 at 11:30 AM, EIA Crude Oil Stocks are announced. Netgear (NTGR) reports.
On Thursday, July 22 at 8:30 AM, we learn the latest Weekly Jobless Claims. At 11:00 AM, we get Existing Home Sales for June. American Airlines (AAL) and Biogen (BIIB) report.
On Friday, July 23 at 2:00 PM, we learn the Baker-Hughes Rig Count. American Express (AXP) reports.
As for me, we all had to rearrange our budgets in the last year, dumping old spending habits and adopting new ones.
As for me, my electric scooter bill with Lime (click here for the site) has gone through the roof. They neatly fill the gap between walking and Uber in major tourist areas like Long Beach.
It’s a lot of fun, provided you don’t kill yourself on your first ride. The scooters go fast, some 20 miles an hour. Each one has a 13-mile range. When you’re done, you just drop it, take its picture, and then Lime picks it up and recharges it overnight.
I think I broke all seven of their mandatory rules (no driving on sidewalks, driving without a helmet, drinking while driving….). Hey, the great thing about being my age is that there are no long-term consequences to anything.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Check Out My New Wheels
Here is the Problem
Global Market Comments
May 14, 2021
Fiat Lux
Featured Trade:
(MAY 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (QQQ), (JWN), (DAL), (MSFT), (PLTR), (V), (MA), (AXP), (UUP), (FXA), (SPWR), (FSLR), (TSLA), (ARKK), (CLX), (NIO), (EPEV), (SOX), (VIX), (USO), (XLE)
Global Market Comments
January 8, 2020
Fiat Lux
Featured Trade:
(WEDNESDAY FEBRUARY 4 SYDNEY STRATEGY LUNCHEON)
(CALIFORNIA GOES WHOLE HOG ON SOLAR),
(FSLR), (SPWR), (TAN)
As of January 1, 2020, it is illegal to build a home in California without solar panels.
Furthermore, dozens of cities have gone as far as banning natural gas appliances like ovens, heaters, and burners.
It is the most ambitious solar initiative anywhere in the world today. Those who invest in backup storage batteries like the Tesla Powerwall, will receive additional cash incentives.
It’s not like solar is new in the Golden State. It boasts over one million homes with installed panels out of a total housing stock of 16 million. It is all part of a grand plan for the state to obtain 100% of its electric power from alternative sources by 2030.
The new measures are expected to add $9,500 to the cost of new home construction. Builders are expected to eat most of it.
However, it will cut utility bills by $19,000 over the 30-year life of a solar system. And that is at today’s prices. California homeowners have already suffered two back-to-back 15% price increases over the past two years. With northern California’s utility PG&E (PGE) in bankruptcy, more stiff price hikes are expected.
You would think that the news would set the share prices of American solar companies, like First Solar (FSLR) and SunPower (SPWR), on fire.
They haven’t.
That's because solar prices are joined at the hip with conventional energy sources.
When oil is cheap, solar share prices die a horrible death. When oil is dear, everybody and his brother wants to pile into everything alternative, be it solar panels, storage batteries, windmills, electric cars, and high mileage hybrid cars like the Prius.
The sole exception has been the Invesco Solar ETF (TAN). It has a globally diversified portfolio that invests in countries with much higher electricity prices than hours, thanks to local regulation and taxes. Only 53% of its investments are in the US, with a hefty 19% in Hong Kong alone, of all places.
The last two years have produced a new reason to go off the grid. Ferocious wildfires in the Golden State that have killed hundreds have led to total statewide blackouts from PG&E whenever wind speeds exceed 40 miles an hour.
Unless you want to keep throwing out all your frozen food every few weeks, the only way to move forward is with a solar-powered battery backup system. It’s just a matter of time before high-end homes can only be sold with 48 hours of backup power. The same logic applies to the hurricane-ravaged east and Gulf coasts. It’s especially an issue today with up to 25% of Bay Area residents working from home.
No juice, no job.
As for me, I am in the process of doubling up my own solar system, taking it up to a gargantuan 23,114 kWh, with three Tesla Powerwalls thrown in for good measure.
But then I have a Tesla P110D Model X that eats up 1,000 kWh a month. All of my appliances are electric except the gas burner because my traditional chef can’t cook without it and the water heater, because I want to have 200 gallons of water at all times in case an earthquake hits. I am turning into my own mini electric power utility, and I am not alone.
I have been encouraged by my experience with my first solar system, which I installed five years ago. It has worked flawlessly, since it has no moving parts. The installer promised me a six-year breakeven against my $500 a month power bill. I covered my cost in four years, thanks to soaring power prices.
And who has the highest electricity prices in the United States? That would be Hawaii, where all fuels have to be imported from great distances. Hawaiians have to pay a massive 66 cents a kilowatt. California only has to pay a peak rate of 55 cents a kilowatt, also among the highest in the country. Drive along Honolulu Interstate H1 today and all you see are solar panels.
Aloha!
What we are seeing now is nothing less than the complete remaking of the American energy supply.
It is a metamorphosis, just as, if not more, dramatic than the initial electrification of the United States launched by Thomas Edison in 1876.
Think of it as a disruptive technology with a turbocharger.
Eventually, the cost of energy will drop to near zero in today?s terms, possibly as soon as 2035. The consequences for your trading and investment portfolio will be tectonic.
This is what people don?t get about solar.
Traditional forms of energy production and consumption, such as for oil, coal, natural gas, and hydroelectric, are subject to only linear improvements. Solar ones benefit from exponential growth.
There is, in effect, a solar Moore?s Law that sees efficiencies per dollar spent doubling every four years, such as we have already seen with the faster growth of microprocessor efficiencies since the 1960?s. Exponential growth of efficiencies will bring exponential growth of profits.
I am old enough to have lived through several solar booms in the past, only to see them crash and burn.
In 1979, President Jimmy Carter installed panels on the White House roof to provide leadership during the Iran oil crisis, only to see them torn down by President Ronald Reagan three years later.
Solar is now growing far faster than any other power source in the US, some 50% a year for the past six years.
Annual installations of photovoltaic panels have soared from a token 0.3 gigawatts in 2000 to an impressive 7.286 gigawatts in 2015, more than enough to fuel 8.5 million American homes.
California alone now has 500,000 homes running on solar, about 4% of the total. Installation trucks from a myriad of different local companies are seen everywhere.
This is all happening because of the simultaneous maturing and cross-pollination of technology, regulation, financing, and venture capital.
A key development was Chinese entry into mass production of solar panels, which led to a near immediate 80% collapse in prices. They now control 70% of the global market.
But this also led to the bankruptcy of a large number of US producers, including the ill-fated Solyndra, which I drive by every time I visit Tesla.
Chinese exports of panels to the US are now subject to anti dumping duties. This was all a windfall for the installation business.
Also helping has been the 90% collapse in the price of polysilicon, a key manufacturing component. Silicone (Si) is, in fact, one of the most common elements on the planet.
Still, the soft costs of sales, design, permitting, and labor, account for two thirds of a new installation today. By the way, solar has also proven a prolific new job creator. I can assure you, the cost of labor is never going to zero.
Some 15 years ago, I tried to install solar on my home and sell peak power to the grid. PG&E told me this was ?illegal? because I would crash the grid, something I knew was patently false.
This time around, my city permits sailed through effortlessly, and I received a polite email from PG&E instructing me how to read my new ?net metering bill?. I wish renewing my driver?s license was so easy (that damn vision test).
For the first time in history, solar power is now cheaper than grid power on a non-subsidized basis. Costs are set to still fall dramatically from here. Fossil fuels are about to become, well, fossils.
The Paris based International Energy Agency, no slouch when it comes to analyzing power data, predicts that solar will account for 27% of the global power supply by 2050, and will become the biggest single source.
But futurologist friends of mine, like Tesla?s (TSLA) Elon Musk, Google?s head of engineering, Ray Kurzweil, and cosmologist Dr. Stephen Hawking, believe there is no reason why it shouldn?t be at 100% by 2030-35. To quote Kurzweil, ?we are only six more doublings away.?
Google (GOOG), by the way, is already one of the world?s largest generators and distributors of solar power, while Musk is the preeminent installer through his participation in Solar City (SCTY).
Governments have been pouring fuel on the solar fire. Germany took an early lead, installing a massive 35 gigawatts over the past decade. It has since decided to shutter its entire nuclear industry, and offset its production with alternatives. But many of its subsidy programs were deep sixed by the crash.
President Obama made a 30% investment tax credit a central plank of his 2009 supplementary budget, which led to the current American solar renaissance.
That incentive expires in 2021, after getting a five year extension in a rare bipartisan deal in congress.
President Obama also upped the ante by using the Environmental Protection Agency to force power utilities to cut carbon emissions by 32% from 2005 levels. That involves setting a target of 28% alternative energy power generation by 2030.
The whole idea of using natural gas as a low carbon stepping stone has been abandoned.
Hillary Clinton has recently weighed in with her own plans to shift the country from a carbon to a solar energy based economy, if elected president.
She wants nothing less than to eliminate all oil and gas subsidies worth $100?s of billions, and shift the money to alternatives.
That is a radical move. Her goal is to increase the solar share of American power generation to 33% by 2027.
Individual states have weighed in with their own measures. California has mandated that its residents obtain 30% of their power from alternatives by 2020.
More than two dozen other states have followed with similar measures, including several red ones. Solar is starting to transcend the political spectrum; the numbers are so compelling.
This isn?t just a US phenomenon, but a global one. Saudi Arabia has two of the world?s largest solar plants on the drawing board, to produce some 2 megawatts.
After all, why burn $5 oil when you can sell it to foreigners (mostly the Chinese) at an extravagant $50 a barrel. They are also major investors in the San Francisco alternative energy scene.
China is building far and away the biggest solar infrastructure, and wants to build 70 gigawatts over the next two years.
Japan has a 20% solar target, thanks to the Fukushima nuclear disaster. India plans to provide cheap electricity via solar to 100,000 villages for the first time.
Improving solar cell efficiencies promises to take us further and faster into this brave new world.
My own SunPower (SPWR) X-335 panels, with their patented Maxeon solar cells, convert 20.3% of the sunlight they receive into electricity, the highest in the industry. Cheap imported Chinese panels offer efficiencies as low as 16% and don't last nearly as long.
University labs have perfected cells with 45% efficiencies using advanced silicon compounds. I happen to know that the military has a 65% efficient cell. All that remains are the economies of mass production to bring them to the public market.
This is crucial for the solarization of the global economy. Every 1% improvement in efficiencies cuts that total cost of a new installed system by 5%.
With the trends already in place, it is safe to assume that solar energy costs will fall by at least 10% a year for the foreseeable future. First Solar (FSLR), which specializes in large scale, thin film, industrial facilities, expects solar costs to plunge from 63 cents per kilowatt in 2014 to only 40 cents by 2017.
Storage is another key part of the equation, as panels alone can only produce electricity during daylight. The cost of home storage batteries, which are charged by day and can run a home at night, have dropped by 70% over the
past five years.
They could drop another 70%, once Solar City completes its Nevada Gigafactory in 2017. That will double the planet?s lithium ion battery capacity in one shot. A second plant is planned.
For a more detailed explanation of that technology and the investment opportunities therein, please click here for Solar Energy?s Missing Link.
What are the investment implications of all this? Clearly all of the companies mentioned in this piece are about to see their market size increase 30 fold.
But, what about everyone else?
The elimination of energy as a cost has enormous consequences for all companies. You can start with the energy intensive ones in transportation, steel, and aluminum, and work your way down the list.
The profitability and efficiency of the entire economy will take a great leap forward, much like we saw with the mass industrialization that was first made possible by electricity during the 1920?s. Share prices of all kinds will go ballistic.
Dow 200,000 anyone?
Since energy costs will eventually fall effectively to zero, that wipes out the present business model of the entire electric power industry. It will be the same as trying to sell something that is free, like air.
That will force them to morph from energy producers to power distributors. Watch this space for a future piece on this issue.
So when readers ask me for the names of shares of companies that have the potential to rise tenfold in ten years, this is one industry I always steer them towards.
To save yourself months of research on how to install your own solar system, please click here for How to Buy a Solar System.
Joining the Brave, New World
I have seen the future, and it works.
In my never-ending search for my readers for ?ten-baggers,? or investments that will rise in value tenfold over the foreseeable future, I keep circling back to the solar industry.
Tesla founder Elon Musk never does anything small.
Last year he announced the first ever, economical home battery electrical storage system, which he calls the Powerwall.
The device will enable your roof-mounted solar panels to supply power to your home 24 hours a day, not just when the sun is shining.
It is an innovation on the scale of Thomas Edison?s invention of the light bulb in 1879, or the launch of the Internet in 1969, in terms of the long-term impact on our economy.
Shifting the source of a third of our power supply is a big deal.
You may recall that the early investors in these earlier transitions made fortunes, General Electric (GE) in Edison?s case, and Netscape that spun out of the early Internet days.
Today, General Electric is the only company that has remained in the Dow Average for the past 100 years. So, investors take note.
During the day, the panels will charge up the battery mounted on your garage wall, which is about the size of a big screen TV. At night, you can then run your home off battery power.
Alternatively, you can engage in what is known in the industry as ?load shifting.? Charge your battery at night when you can buy electricity for as little as 4 cents a kilowatt hour, and sell it back to your local utility during a power demand surge the next afternoon for as much as 50 cents a kWh.
Buy low, sell high, it works for me!
And what is the cost of the miracle technology?
Only $3,000 for a 7 kWh battery or $3,500 for the 10 kWh version for energy hogs, like me, who has to charge a Tesla Model S-1 every day, soon to be two.
You can also include as immediate customers for this new product sports addicts, who watch multiple games on ESPN 24/7, paranoids who keep the lights on all night and indoor pot farmers, whose energy needs are said to be prodigious. Of course, the military will be another big consumer.
I ran some numbers on the possibilities for the Powerwall and they are mind-boggling.
The average home in the US has 2,500 square feet, which uses 7,000 kWh per year, or 19 kWh per day. The current cost for this power will be around $2,000 a year, depending where you live, more in California, and less in Texas, Oklahoma, and North Carolina.
A solar/ battery combination for such a home should cost about $14,000, including installation, the panels, the inverter, and all the gizmos. Net out the alternative energy investment tax credit of 30% (IRS Form 5695 http://www.irs.gov/pub/irs-pdf/f5695.pdf ), and your cost falls to only $10,500.
That means your power savings will cover the cost of your solar investment in a mere 5 years, compared to the present 7 or 8 years. After that, your home will have free electricity for another 20 years, as the life of these systems is usually 25 years.
Make the investment, and the value of your home rises, by $2 for every dollar spent, or so local real estate agents tell me.
You also will be guaranteed against any future power rate increases, an absolute certainty. America?s power grid is currently in a woeful state of disrepair, with much of the hardware 50 years old, or more.
The demands on the power industry are also about to take a quantum leap forward, as millions of consumers buy electric cars. Tesla plans to ramp up production of vehicles from 40,000 units last year to 500,000 by 2020, when the $35,000, 300 mile range Tesla 3 achieves mass production.
Some of my over-the-horizon-thinking hedge fund friends believe that figure could hit 15 million by 2030.
Add to that new, competing electric models produced by every other major carmaker, and that?s a lot of juice that will be needed. As a result, electric power utilities will probably have to endure more structural changes to their business model than any other industry.
Trillions of dollars are needed to modernize it, and all of that is going to come out of your pocket, but only if you remain an existing power customer.
Indeed, I have already been notified by my own utility, Pacific Gas and Electric Company (PGE), that I am due for two consecutive 7% price increases over the next two years.
The battery will also provide a backup power supply for home for when the grid crashes. Twice in the last two decades I have lost a freezer full of venison, pheasants, quail, trout, and salmon that I hunted and fished when storms knocked out power, for a week each time.
The Powerwall prices are so low that they beat the cost of a conventional backup diesel or gasoline generator.
They will also wipe out most of the existing back up battery industry, as Tesla?s advantages gained through massive economies of scale are enormous. Musk is talking about producing billions of batteries.
The Powerwall is a game changer for the solar industry, which has long been hobbled by the limitation that it could only supply power for 12 hours a day, and less in the winter, depending on your latitude.
It certainly gives a shot in the arm for the solar industry, which I have been banging the table about for years. My favorite is Solar City (SCTY). Other names to look at are First Solar (FSLR) and SunPower (SPWR), which manufactures my own solar panels.
It also casts Musk?s own Tesla (TSLA) in a new light. It is no longer just a car company, but a comprehensive energy solution. Musk has already made one of the largest capital investments in history to build a $5 billion ?Giga? factory near Reno, Nevada.
Much of that plant?s production has already been pre sold, and I understand that the decision has already been made to build a second one. Wow!
Consumers are able to purchase the new batteries from the Texas based retailer, TreeHouse, (their link https://treehouse.co/treehouse-is-first-retailer-to-sell-tesla-home-battery/ ).
Musk explains that the world consumes 20 trillion kWh per year of electricity.
In the US, 1/3 of our fossil fuel consumption goes to transportation, and another 1/3 generates electric power, which is the equivalent to consuming 225 billion gallons of gasoline per year (or 8 billion barrels of oil per year, or 22 million barrels a day).
His goal is nothing less than to largely substitute those fossil fuel uses with solar energy, cutting our fossil fuel consumption by 2/3.
I guess there is no point in setting the bar low.
Meet the Next Light Bulb
With great fanfare, congress passed a blockbuster $1.8 trillion spending bill in December. President Obama hastily signed the bill into law the next day.
Barley noticed was a measure included in the bill, which extends the 30% investment tax credit for alternative energy investments by five more years, until the end of 2021.
Barely, that is, unless you owned solar stocks.
Since the intention to include this pet democratic program started leaking out in November, shares of the entire industry doubled in value.
Solar City (SCTY) rocketed by 136%. First Solar (FSLR) soared by 81%. Even the normally quiescent Guggenheim Solar ETF (TAN) gained an impressive 28%.
Since then, these shares have given up a big chunk of their gains, thanks to the ongoing stock market correction. Better look hard at this group. They could become one of the top performers this year.
In exchange for the solar extension, the president agreed to permit oil exports for the first time in 40 years. The fact that the country has run out of storage and already has 50 filled takers sitting offshore in the Gulf of Mexico makes this an easy move.
House Minority leader, Nancy Pelosi, my local congressperson, told me the republicans were willing to ?Give away the store? to get the export measure through.
It seems that the Koch Brothers, the republican party?s largest donors and funders of global warming deniers, wanted to use the oil export measure as the means to offshore the entire US petrochemical industry.
It is headed for emerging nations, where labor is cheaper, taxes are lower, and regulation nil. That means the loss of tens of thousands of US jobs, many in California, over which Pelosi complained.
Pelosi complaining about the loss of petrochemical jobs? It?s proof that if you live long enough, you see everything.
Whatever jobs the Golden State loses here, it will make back with solar, big time. Industry analysts estimate that the five-year extension is worth a STAGGERING $125 BILLION IN ADDITIONAL SALES!
That is a multiple of the entire solar industry?s current total annual sales.
What?s more, this is five years during which the solar industry can dramatically improve panel output efficiencies, inverters, designs, and cut costs (remember that the cost of labor and regulation, about half the cost of a solar installation, is still rising).
Solar is already close to grid parity on costs now. It is even competitive in Texas. It will be substantially cheaper in five years.
During the same time, the cost of grid power will keep rising continuously, thanks to rising capital cost of replacing aging infrastructure.
I?m not saying you should rush out and buy solar today. But when the bull market resumes later this year, this group should be at the top of your list.
As for me, I am already getting estimates for a doubling of my existing solar roof system to accommodate the charging of my second Tesla, the Model X.
To learn all the ins and outs of buying and installing a solar roof system for you self, please read ?How to Buy a Solar System? by clicking here.
Better Bring Some More Panels