by Archie M. Richards, Jr., CFP^®
July 21, 2003

Kitty asks about an investment vehicle to exploit the shortage and anticipated price surge of natural gas. She also asks about wind and solar power.

The best way to ruin your long-term investment results, Kitty, is to jump on whatever the investment experts consider a hot idea. It didn't work with technology three years ago. It probably won't work with the natural gas shortage now.

Every financial trade has both a buyer and a seller. If a price is certain to rise, why would anyone sell at the current price? No, potential sellers would delay their orders until after the price rises?

If everybody knows for sure that the price should be higher, there would be no delay. The price would jump to the higher level immediately - to where the pressure to sell is equal to the pressure to buy.

The reason you anticipate a price surge in natural gas, Kitty, is because the experts who think the price will rise talk to the business press. But the experts who are selling keep their mouths shut.

As to this expert, I don't have the faintest. Oh, there are good arguments on both sides. As the western economies recover, they'll need more oil and gas. And, Lordy, as the two billion people in China and India achieve the living standards of western nations, their demand for oil and gas will double over and over!

But the world contains ample supplies of oil and gas. Iraq and Russia each have more hydro-carbons than Saudi Arabia. The failed political regimes of these nations prevented them from taking advantage. But Russia has already begun its political and economic recovery, and Iraq will begin doing so soon. We'll see tremendous new supplies from both nations. Oh yes, and 38 billion barrels of oil were recently discovered in Iran.

In the Gulf of Mexico and off the coast of California, the United States has all of the oil and gas it can use. These sources haven't been taken advantage of because of environmental nutcakes. But liberal nutcakes of all sorts are becoming increasingly marginalized. Americans have too much common sense to allow them to prevail indefinitely.

I happen to believe that the earth's crust is stuffed with natural gas (also called methane). Methane was part of the earth when the earth was formed five billion years ago. No matter where you drill, you'll find plenty of it if you go deep enough. (Why I believe this requires a longer explanation than this column permits.)

Technology helps to lower oil and gas prices. Improved drilling techniques enable oil companies to find more and more hydro-carbon per dollar of investment. Technology also reduces the need for oil and gas. Machines, for example, are getting smaller and smaller, cutting energy use. Automotive systems such as brakes, shocks, cooling systems, carburators, and exhaust will soon be controlled electronically, rather than mechanically, improving mileage per gallon.

Wind power is great until people turn their air conditioning to high on July and August afternoons, and the wind dies. No energy source is worthwhile unless it can be relied upon when it's needed most. Besides, those gargantuan wind turbines kill birds.

Solar powers costs more than oil and gas. Prices rise when government gets involved. Government makes economics go haywire.

Ethanol? What a laugh! That junk requires more energy to make than it supplies when used.

Coal is dangerous. People get killed mining it. Others are harmed by the arsenic, lead, mercury, and other toxins it contains. Coal's toxic wastes spoil groundwater and rivers and fill innumerable landfills. Due to Senator Robert Byrd, we use too much dirty coal from the Appalachians and too little relatively clean coal from the West. Thanks, Bob.

The cleanest, safest, and most efficient power source is nuclear. Except for Soviet Russia, not a single life has been lost to nuclear power plants. (The Soviet plant used a miserable graphite-based technology that American companies wouldn't think of adopting.)

Today's investment rage is natural gas. Tomorrow, it'll be something else. To enhance your long-term investment results, disregard them all.