Investing in Energy: The China Factor and a Shocking Prediction
Earlier this week Bruce Williamson, CEO of Dynegy (NYSE:DYN), has made a shocking prediction about the future of energy prices.
Williamson says:
Accelerating economic growth in China will increase prices for oil, coal and electricity in the U.S.
You’re going to see rebound in the demand for oil, for coal. From there, with coal being higher, gas being higher, derivatively power will be higher.
Really going out on a limb there eh?
China’s surging growth, its insatiable thirst for energy, and a resulting rise in energy prices around the world. It’s 2005 all over again.
But what’s really going on with China?
A lot of pundits have pegged China’s economy to continue to deteriorate. Its role as manufacturer to the world was very successfully during the boom years. Since the boom turned to bust, however, China’s economy has been one of the hardest hit in the world.
Our investment research at Q1 Publishing has concluded China’s banks have issued $800 billion in new loans (about 30% of the economy – equivalent of U.S. banks loaning an additional $4 trillion). That’s a lot of new money and we’re sure it all went into good loans.
The end result is, in the short-term at least, a new bubble has been created. Handing out money to anyone asking for it is only a short-term solution. It will end. And it will end quickly.
The medium- and long-term are a bit different though. Most say it’s going to get worse before it gets better in China.
It may – and you can certainly make a case for that - but there’s one thing most of them fail to realize: China has the money to command $6%+ GDP growth. China has a massive savings and it can buy whatever it wants whenever it wants. China is a command economy that can command growth for years to come.
That’s why I wouldn’t bet on a big decline in energy commodities right now. There will be swings, but China will be forced to grow. There will be a high long-term cost, but that cost won’t have to be paid for another year or two, at least.
For now, it’s onward and upward. Buy the dips. A new bull market…whatever you want to call it, some stock market sectors have a very bright future ahead. And it will be very profitable for those investors who can look past the day-to-day stock market volatility and focus on the long-term investment opportunity.
Bruce Williamson’s “shocking” prediction provides the perfect example of the solid long-term opportunities that most investors will simply run away from when the market starts to dip.
Successful contrarian investing involves buying when no one else wants it then selling it when someone really wants it. It’s the epitome of buying low and selling high. And that’s why we’ll be looking at China soon and waiting for a pullback in energy prices for readers of Q1 Publishing’s investment newsletter, the Prosperity Dispatch.
