The Cost of Distraction

The Cost of Distraction. I had a great opportunity to talk with investors today in Atlanta where I spoke to several hundred financial advisors. They told me one of the big problems they face is clients that are still scared to invest in the equity markets.

Who can blame them. For weeks now, all we hear on the television is about death and destruction. It’s like having the four horsemen of the apocalypse for roommates.

The hurricanes were a big human story. A lot of people were hurt. But they are not a big economic story. Our economy in the US produces about $13 trillion worth of goods and services this year. Private citizens in America own more than $105 trillion dollars of assets and have a net worth of over $50 trillion. It would take more than a hurricane to knock it over.

My main point today, both at the investor meeting and while taping Bulls & Bears on Fox News later this afternoon, is that we can’t afford to spend any more time talking about hurricanes. The one thing we know about storms is they do end. Instead, we have to focus on problem number 1. Unless we change course, the US and China are going to knock heads over energy supplies in the not too distant future. Both countries need to take steps to avoid that.

In China last week I learned a disturbing fact from my friend Peter Schwartz at SRI. At current levels of oil per dollar of GDP and projected growth rates, China will consume more oil in twenty years than total global oil production today. It is paramount that both countries find ways of reducing oil and energy consumption per unit of GDP and do what we can to increase supplies of oil, gas, coal, nuclear, and renewable energy.

One reason why is the Arabian Gulf. It will cost more than $750 billion in capital spending there over the next decade to capacity growing fast enough to match demand. Investors won’t put up the money unless they believe political risks are under control. That means continued troops in the region.

Another reason is what’s happening in China. China is fast privatizing their oil industry, which is going to give rise to massive capital spending in the next few years for new refineries, new LNG facilities, and new exploration. To the extent China can discover new energy sources it will allow them to relieve pressure on global markets. It will also help China burn less coal and improve air quality.

It is going to take a lot of capital to do all this, which makes me b elieve we will see high returns and attractive equity markets for a long time to come. No matter how many hurricanes we see.

JR