Investing in the State of the Union

What Next Economy cues can we glean from President Obama's State of the Union speech? 

Regular readers may recall that, although I believe the US has been ceding leadership in the green economy to China, I nevertheless have faith in America's ability to reclaim the lead, or at least to become competitive. And so, apparently, does Barack Obama.  From a Next Economy point of view, what I heard Tuesday sounded like a halftime locker room speech, with the coach challenging us to get off our asses, make some key changes, bring our best game, and get something done.  How pro-Next Economy was it?  Well, the man said "instead of subsidizing yesterday's energy, let's invest in tomorrow's." That might as well be our energy slogan here at Green Alpha.  Because our rhetoric is very similar, and we are forever citing the same three macroeconomic reasons why the Next Economy must thrive: because it "will strengthen our security, protect our planet and create countless new jobs for our people." And, if we come anywhere near reaching his green economy goals, folks invested in America's best Next Economy companies stand to do very well indeed. 

For example, Obama called for "a million electric vehicles on the road by 2015." This is meaningful for a few reasons.  First, the president said "electric vehicles" and not hybrids.  We too believe that hybrids are not the ideal solution to passenger transportation and that pure EVs are the only way to get to a zero-emissions future for cars.  This bodes well for pure play EV makers such as Tesla Motors (TSLA, a Green Alpha holding), and to a lesser extent for companies like GM (GM, not a holding), who have a toe in the EV pond.  It also means that, even as demand for gasoline goes down, demand for electricity will go up.  This should provide some upside for solar, wind, and other renewable electricity providers, especially because coal and other fossil fuel-fired plants are becoming increasingly less practical for utilities to build. 

But what will really grow the renewable energy industry is this goal: "by 2035 80 percent of America's electricity will come from clean energy sources."  Now, I believe that this one's coming without any help from Uncle Sam.  Between increasing public awareness of the potential environmental and economic disasters threatened by global warming, peak oil, and decreasing costs of renewables, simple demand may get renewables to 80% by 2025, a decade early.  Considering that renewables currently provide only 11% of American electricity (and since electricity demand is projected to double by 2035, only 5.5% of future demand), imagine the growth potential for the best companies addressing this need. 

On infrastructure, Obama wants to "give 80 percent of Americans access to high speed rail," and wants 98 percent of Americans to have access to the latest high speed internet within five years.  These are both critical to Next Economy development.  The president showed that he understands what every economist knows: that "innovation, education, [and] infrastructure" are the mandatory foundations of a powerful economy.  If we don't greatly improve these things here at home (we've really slipped to 9th in proportion of college graduates?), someone else will, because "at stake is whether new jobs and industries take root in this country or somewhere else."  At Green Alpha, we want to see these improvements not only because they're required to grow the economy, but also because the companies providing them will make strong stock picks.  Obama's other infrastructure-related comments ("we need to out innovate, out educate and out build the rest of the world;"  "We also have to win the race to educate our kids")  were in general indicative of growing the Next Economy.  Education and entrepreneurship are of course the sparks of innovation, and, again, any economist will tell you that innovation has always been and will forever be the greatest source of jobs and wealth, so it's good to hear a president acknowledge this by saying "innovation doesn't just change our lives; it's how we make our living."  Yep, especially in a world where green technology has to be the next industrial revolution.

The president didn't say much about what his administration has already accomplished, but he did say that "we've begun to reinvent our energy policy."  This sounds good to us, considering we just left a world wherein an administration literally let oil and coal companies write energy policy with no other goals than to maximize their own profits.  Any change from that policy, no matter how moderate, is an improvement for renewables and other Next Economy enterprises.  Obama's call to "eliminate the billions in taxpayer dollars we currently give to oil companies" is a good start. 

The central theme -- in fact the title -- of the address was "Win the Future."  "To win the future, we'll have to take on challenges that have been decades in the making."  This may sound trite and even a bit sci-fi, but it's true.  The fact is that renewable energy (and other cleantech) is humanity's future and to fail to compete hard in this space would be, frankly, idiocy.

Obama acknowledged America's need to get its game on and compete with the rest of the world, mentioning that China is the home of the world's fastest supercomputer and largest solar technology lab.  And a lot of jokes have been made about him following up his call-to-arms "Sputnik moment" comment with seemingly modest goals, delivered like a calm economics lecture. But in reality his goals are anything but modest.  Regaining the lead in the green economy as well as in education and infrastructure will in fact be a much broader, more capital intensive, and more physically and politically difficult achievement than was the moon shot. And it will require the efforts of almost every American. But, again, if we can achieve anything like his rather specific and aggressive benchmarks, it really would set the stage for American competitiveness for decades in many economic sectors, "and especially [in] clean energy technology." 

Now, it is true I believe and often repeat that "we can't count on policy makers for much, and as businesses and individuals we will have to reinvent the economy ourselves." And I also think that the massive macroeconomic tailwinds behind the Next Economy (energy/national security, economic growth, and the dangerous, destabilizing threats of global warming) will spur the transition with or without governments' direct support.  But that shouldn't suggest that a government, especially the US government, can't catalyze the process to a significant degree.  It can.  Do we build our portfolios to depend on governmental support to build the Next Economy? Absolutely not. But would we and our shareholders welcome additional growth as a result of government policy?  Of course.  So, cynicism aside, it's refreshing to hear a president lay out a plan that may have some effect. 

Overall, the president presented an agenda and a vision that a green economist and stock picker can get behind.  Do I wish he had mentioned climate change/global warming and cited truths such as record floods on six continents in 2010 as evidence?  Yes. Do I wish he'd left out the fantasy of clean coal? Yes. But considering the folks he's trying to bring inside the tent, I understand why he didn't feel those points would be productive. 

Now, whether Congress and other policy makers will pick up the president's gauntlet is complicated at best and remains to be seen.  But at least the chief executive is leading us in the right direction.  "What comes of this moment is up to us."  Okay, Coach. 

Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.

Comments

[Elena Storino]

I am so happy we are finally beginning to take care of our home, the earth.

[Kay Cole]

I find it discouraging that your fund is only available to those with a large amount to invest. You are discouraging a large block of your supporters by setting such a high investment level. Those of us who are not well-off would like to invest in green technologies also - yet another road block!

[John McLuckie, Ph.D.]

The truth is that the movement to green energy will be very, very slow until you education the public. This is a vital task but simple to implement through public education! Low dollars, teacher training, equipment samples, and a mandate from the Dept of Education that all students must pass a test for High School graduation on green energy. That is more important than all the direct grants to purchase systems.

Need some help - call me. I talk for free. Please send me an email address and I will send you a couple items.

John McLuckie, Ph.D. 760-207-9653
Fort Collins, CO 80526