Former President Bill Clinton says energy will produce the next 10-year U.S. economic up-cycle. The tech industry produced the dramatic investment returns of the 1990s, and dollars chasing the next big thing produced the residential real estate boom and its tremendous wealth and profit-taking in this decade.
Next up for the flow of investment capital: energy.
Clinton delivered an opening keynote address to attendees Monday morning at the Rodman & Renshaw annual global investment conference in New York. The I-banking and financial advisory firm practices across healthcare (pharmaceuticals and biotech) and natural resources, including alternative energy.
The firm purchased energy-focused I-banker and advisor COSCO Capital Management LLC earlier this year, gaining an energy practice, which is now known as The Rodman Energy Group. In the financial-markets fall-out, Rodman & Renshaw has become the 11th-largest North American I-banker.
“Transforming our energy pattern” will result in the greatest economic growth during the next 10 years, Clinton said. Investment capital and jobs will be borne from converting the country from a largely hydrocarbon-consuming economy to one of a mixture of hydrocarbons; alternative energy, including solar and wind; and improved energy efficiency, involving both energy choice per application and reduced wastefulness.
Clinton cited a New York City public-housing initiative in which a contractor estimated the reduced energy consumption in public housing upon installation of power-saving and other measures and technology. The contractor makes a commitment to the conservative estimate, and the city finances installation and implementation of the power-saving programs based on that security. The public-housing power bill is $500 million a year; it is to be reduced to $350 million, Clinton said.
He calls for modernizing the U.S. electricity grid, making it more efficient, plus using more solar, wind and geothermal resources.
-- He added that world oil prices will settle at about $100 a barrel, and trend up from there because there is finite supply going forward. “Just like oil was not going to stay at $140 a barrel, it won’t stay at $70 either.”
-- Future U.S. energy demand would also be affected by a bail-out of the U.S. automotive industry. The terms of the transaction could include requiring U.S. car-makers to make more fuel-efficient vehicles. If Americans help, automakers need to commit to fleet modernization.
The automotive industry’s troubles have been long in coming, he added. Congress has not wanted to “rock the boat” and have let the U.S. auto industry have its way, such as the failure of a strict CAFE act and the proliferation of gas-guzzling vehicles, such as Hummers and other SUVs. “And, now, nobody wants one,” he added.
It’s an indigenous problem. “People in the auto industry are making money, but not the Big 3.” He adds that part of it is not of the manufacturers’ making—“their legacy costs.” Their revenues are strong, and worker healthcare costs are not obtuse; instead, the weight of annual feeds to worker pension funds is the greatest source of unprofitability.
Here are his comments on other topics:
-- It is better for the economy to keep individuals in their mortgages. “We have to do this…The average foreclosure costs the economy $225,000 to $250,000.” And, there are an estimated 2 million mortgages that could be exposed. “It’s better for the economy than losing 2 million times $250,000.”
Nevada is “ground zero” for mortgage failures, he added. It has the greatest concentration—1 in 75—of home loans that have been foreclosed on or are in foreclosure. His sidebar note: Kirk Kerkorian took his investments out of the auto industry and has a plan to build a multibillion-dollar “city inside a city” in Las Vegas. The status of that is unknown. (Kerkorian’s Tracinda Corp. is invested in upstream energy—Delta Petroleum Corp. and its Rockies unconventional gas potential.)
-- The U.S. can work out of its financial gridlock faster than Japan did in the 1990s because the U.S. system works out bad deals. (The Japanese system does not have mechanisms for failure.)
-- The current financial troubles are no surprise. “(Since 2000), we had an underlying economy that was in trouble.” Median family income since 2000 has declined an average $2,000, and healthcare costs have grown.
-- The up-cycle in U.S. economic growth that follows this coming energy up-cycle will be biotechnology.
He adds, “If I were you, I would be optimistic in the midst of all of this mess.” It isn’t the first time financial markets have been in great distress. “None of us is immune to greed, stupidity and old-fashioned error.”
The week that Congress was ticking down the clock to a financial-services industry bail-out plan, he received two telemarketing calls at home offering new credit cards. He quipped, “Somebody has not gotten the message.”
Look at the track record, dating back to the American Revolution when wagering was against the nascent country’s success. “People have always predicted the demise of America…Everyone who has invested against America has lost…We keep stumbling the right direction.”
Decisions made in this correction can bring great opportunity. If done right, the U.S. economy will bring a different and more broadly shared prosperity. His word to President-Elect Obama: “He’ll really have to watch the capacity of the system to absorb change and the meaning of it.”