7 Billion Strong
Later this month humanity will reach another milestone when the global world population will reach 7 billion. It took only 12 years to add a billion! According to the widely respected Worldometers algorithm, which is based on the latest data and rate of change projections from the United Nations’ “World Population Prospects”, it will happen on October 31, 2011.
The other interesting statistic is that most of the population growth is occurring in emerging countries like China, India and Brazil which have seen strong economic development and rapidly growing middle classes. These are screaming demographics for energy consumption which has continued to rise (yet another counter available from Worldometers) despite the global economic downturn.
Population growth and increased energy consumption when combined with shrinking reserves, an increased demand for a cystic acne home remedy, and rising production costs of fossil fuels are fueling the megatrend for alternative energy.
Solar Trade War
When measured by the record numbers of megawatts being shipped the solar industry should be booming, but instead, industry overcapacity has caused panel prices to steadily decline to levels at which only the very best and the very subsidized can survive. Complaints have been growing from European and American manufacturers about various unfair trade practices by Chinese manufacturers, but this week the matter has been formally taken to the Department of Commerce and the International Trade Commission (ITC).
The complaint was filed by a coalition of seven U.S.-based solar manufacturers of which only SolarWorld is named. It is rumored that the companies are seeking anti-dumping tariffs on Chinese imports of up to 100%. While the ITC has 45 days to issue its preliminary determination, such cases typically take 15 months to resolve, but threats of retaliation will not take that long. In the meantime, the bloodbath continues in solar stocks as short sellers pile on.
Markets are nervous, quick to turn on the latest news, good or bad. The most influential news has continued to come from Europe and the sovereign debt crisis. Volatility continues to be high but as the prospects of a solution to the Euro crisis are improving, so has the stock market. Since the new lows set early in October, most markets have rallied past the previous failed breakout attempts and started showing some bullish signs.
The optimists see the sharp rebound from recent lows back above support near 50-day moving averages as a promising development. Pessimists believe that this is just another bear market rally that most likely will fail to break through the overhead resistance presented by 200-day moving averages. The good news is that we won’t have to wait long to find out who is right, as the markets are bound to breakout from their increasingly narrow trading range, be it up or down.
The Portfolio update and recommendations
Since our last update, the stock market has plunged to new intermediate lows only to rebound sharply, with the S&P 500 index essentially flat for the month. The green sector point of reference, the S&P Global Clean Energy Index, lost over 15% for the second month in a row, but we find little joy from The Portfolio shedding “only” 5.48%.
Before moving to more pleasant topics we continue to marvel at the relentless solar selloff which took the six solar positions in the portfolio down an average of 23.59% for the month, with several of them vying to be the worst but failing to beat the 40.41% plunge of First Solar (FSLR) shares. These losses have little to do with the company itself, as it just announced a new efficiency record for thin-film modules in laboratory with changes to be phased into production over the next few quarters. The manufacturing technology advances should increase mass production conversion rates from an 11.7% average earlier this year to some 15.3% in the future. Already the solar industry’s lowest cost producer at 73 cents per watt, the company’s thin-film panels will further decline with the planned 30% efficiency boost. Yet, the company’s share prices are still on a steady downtrend, just as the short interest share of float is at a record 34%.
But not all sectors are as hard hit as solar and the leading gainer this month is involved in a form of alternative energy we seldom mention: geothermal. Ormat Technologies, Inc. (ORA) shares jumped 20.29% during the month and they are now up some 35% since their September low. Prized by utilities for base load, power generated from geothermal has one of the highest capacity factors of any energy source, which means that it can produce over 90% of the continuous full power rating. Unlike solar and wind which are intermittent and highly variable, geothermal produces steadily 24 by 7, with very infrequent downtime. Alas, from an investor’s perspective, geothermal stocks have been battered for the last couple of years and this recent rebound represents the first sign for hope that a lasting bottom has been established.
The point of highlighting the best garden tractor is not so much that something special is occurring in geothermal, but just one example of a solid company in a growing market rebounding from extreme oversold levels. What’s not apparent from alternative energy sector indexes and the monthly return figures is that, with the exception of the most volatile stocks in bleeding edge technologies like solar and LEDs, the rest of The Portfolio stocks have been rallying strongly across many segments. Our wind market holdings are up 24%, 37% and 45% respectively since their recent lows. The strongest group is energy storage, with all stocks rebounding at least 35% and one of them, our lithium miner, more than doubling since its early October low.
Only time will tell if this broad rebound rise manages to reverse the downtrend.