You have two choices when it comes to investing. You can own currency. Or you can own energy.
If you don’t trust the currency, you better own energy. But how you choose to own that energy is what will determine your success or failure in the markets.
This old-world wisdom comes from an investing legend. I chatted with this gentleman at an investment mastermind back in the summer… and I think we arrived at a fundamental truth.
Energy is the master economic resource.
Think about it… nothing happens without energy. Everything we see in our modern world today – and everything we use on a daily basis – is only possible because of energy.
It’s a simple thing. But if we truly ponder it, it changes our perspective.
My investment philosophy is this: I want to own energy in the most advantageous way I can. If we start there, all we need to do is figure out what form that energy should take.
The ESG Revolution
Of course, the Environmental, Social, and Governance (ESG) movement would have us believe that we should own energy in the form of solar and windmills.
They told us that we’re rapidly moving towards a “carbon-neutral”, “net-zero emission” world. And in that world, we would reduce our dependance on fossil fuels—namely oil, natural gas, and coal.
Countless “clean energy” exchange traded funds (ETFs) popped up in recent years to support this theme. ESG investing became a hot trend.
And Larry Fink, CEO of investment management giant BlackRock, paraded around in media appearances proclaiming the gospel of ESG.
But then reality set in.
When it comes to energy production, energy density is everything. Energy density simply measures the amount of energy stored in a given fuel source per unit volume or mass.
Uranium (for nuclear power), oil, natural gas, and coal are incredibly dense fuel sources. I listed them in order of most dense to least dense.
When it comes to solar and wind power – we can’t measure their energy density. Because they aren’t fuels. Their power output depends on whether the sun is shining and the wind is blowing.
That means their power production is intermittent. It’s not constant. And even at peak production solar and wind produce far less power than our traditional fuel sources.
So it’s no surprise what happened when countries transitioned a portion of their power production to solar and wind. Energy production plummeted… which caused electricity prices to skyrocket.
In Germany, electricity costs hit an all-time high in August of last year. At the peak, electricity costs had risen by a factor of 10.
And it’s not just Germany. Denmark, Spain, Australia, California, and the United Kingdom (UK) have each seen power costs rise as a result of the ESG push.
The evidence is in.
We just can’t run our economy on solar and wind power. And people don’t like it when their power bill blows through the roof. That’s why we’re finally seeing a backlash against ESG.
The Energy Renaissance Has Begun
This summer Larry Fink had to go on television and walk back his position. He said he was ashamed of being part of the ESG conversation. And now he doesn’t want to use the term anymore.
At the same time, JP Morgan CEO Jamie Dimon is actively calling for greater investment in oil & gas. And we’re seeing a renewed focus on nuclear power as well.
If we’re serious about owning energy in the most advantageous way possible, we need to be paying attention here.
We are at the beginning of an energy renaissance in the western world. And it’s going to be big.
We’ve shifted so much investment towards solar and wind in recent years, and that’s curtailed the production and thus supply of traditional energy sources.
And that’s not an exaggeration.
According to Bloomberg, nearly $2.2 trillion has poured into the development of renewable energy since 2016, with solar and wind power receiving the bulk of that investment.
A large portion of those investment dollars will flood back into traditional energy development in the years ahead. But only after the world realizes that ESG has been a false promise, and the price of oil, natural gas, and uranium each spike.
That’s the renaissance. We need to get ahead of it by building exposure to both the oil & gas industry as well as uranium for nuclear power production.
I’ll share with you the best ways to do so next week.
-Joe Withrow
P.S. For a more detailed look at the geopolitical side of the battle between ESG and traditional energy, check out my new book Beyond the Nest Egg. You can find it on Amazon right here.