Energy-hungry consumers around the globe will be demanding fossil fuels. So be overweight in energy stocks--at least 12% of your equity.Rich Karlgaard's recent column on energy and the Waxman-Markey carbon trading bill should be required reading for every high school and college kid. They should have to read it three times. Adults should have to prove they've read it before being allowed to vote. The column outlined the harsh reality of renewable energy. In this country 89% of electricity comes from three fuel sources: coal, natural gas and nuclear fission. That fraction won't change dramatically in the next decade. If you want your air conditioner to work in 2014, you'd better hope that more fossil fuel plants get built.
I'm riding down the road in a friend's electric Tesla Roadster. Sounds clean, doesn't it? But we are burning 49% coal, 21% natural gas, 20% nuclear and little else. Wind power? Zip! How will we run Teslas without fossil fuel? We won't. How will emerging markets, with a combined gdp already bigger than America's, grow without more fossil fuel? They won't.Nuclear power might provide for our needs (and, if you believe in the global warming theory, protect our atmosphere). If the French can get 70% of their electric energy from nuclear safely and cleanly, then we can. But will we? Politically, it will be difficult. Many of the same people screaming that fossil fuel creates global warming are also adamantly against adding clean nuclear power. There are a lot of nuclear reactor applications pending in the U.S., but the permits will be few, and slow in coming.That situation, and the fact that other energy-hungry countries will also be demanding fossil fuels, tells me you should be overweight in energy stocks. That means at least 12% of your equity in energy companies, and most of that in companies with a fossil fuel emphasis.