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The industry the recession will destroy

Today's Financial News - Posted December 10, 2008

As the markets start to shape up, the winners and the losers are becoming quite apparent. One industry in particular stands out above a crowd of losers as the ultimate path to trouble. Steer clear of this trendy industry and save yourself a lot of money.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): If I had to pick just one sector to steer clear of, what would it be?  That question was thrown my way last night as I chatted with an old friend about his investment choices. I did not even have to think about the answer. It has been on the tip of my tongue since this financial crisis first made front-page headlines.

So-called “green” investors are treading in extremely dangerous territories. It may be the healthy thing to do for the environment and it may be the smartest thing we can do for our grandchildren. But when we get to the core of investing, dollars and cents do not care about the environment or our grandchildren.

When the economy was booming, as recently as 18 months ago, handfuls of the nation’s most prominent and well-positioned companies decided to try out the “green” world. Wal-Mart (NYSE:WMT) led the charge with several experimental stores and green improvements throughout its market.

But did the retailing giant make the move to expand its profit margins or was it merely a marketing-department creation? We all know the answer. Going green usually costs more money than its saves. That is why the industry is filled with subsidies and tax incentives.

Now that the economy has plummeted into the depths of a painful recession, corporate finance executives are going to pull the plug on any green initiative without a positive net present value. Frankly, that is just about all of them. When money is tight, the public-relations fluff is the first item on the chopping block.

I guess we need more coal

Do not believe me? Just look around your hometown. I am sure you are reading and hearing about cutbacks and cancelled plans. One of the most poignant examples is T. Boone Pickens. The oil-industry guru cancelled just about all of his plans to boost his highly publicized wind farm spending anytime in the near future. He knows there is no profit potential.

I do not have to look far from my house to see the “de-greening” impacts of the recession. The local power plant, owned by PPL (NYSE:PPL) just announced it has cancelled its plans to add an extra turbine to its hydroelectric operations.

The community was planning on the $440-million project to reduce demand at the coal-fired plant located just a few miles upstream. But now that the economy is in shambles, the power plant is not willing to risk its bottom line in a muted attempt to save the environment.

For investors, the only way the green-energy industry is going to be a strong investment is if the Obama administration unleashes an unprecedented wave of spending. The $500 billion package he promised over the weekend will not come close.

Unless something drastic changes in the nation’s fossil-fuel based supply/demand equilibrium (if we see $150 oil again), the green initiative will remain a risky, speculative investment.

When the economy is contracting, the last place you want to be is the energy industry, especially the expensive-energy industry. You can make better money selling Senate seats on eBay.


Next Article: Race to the bottom: Welcome to the dumping economy of 2009

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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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