The Rude Awakening
Wall Street, New York
Thursday, November 9, 2006

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• A fresh new look at fresh new energy sources and the
  motivations for using them,
  
  
• Old bums vs. new bums – Is there such thing as a
  clean politician?
  
  
• Expensive ex girlfriends, incentives to clean your
  room, all the market data and plenty more...

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Eric Fry, reporting from Laguna Beach, CA...

"The old bums are out and the new bums are in," our
colleague, Dan Denning, cynically portrays the results of
Tuesday's elections.

We would assume, therefore, that the current crop of
moronic legislative initiatives will yield to a fresh crop
of moronic legislative initiatives. But here at Rude
Awakening headquarters, we refuse to embrace our reflexive
cynicism. Instead, we hold out hope for a few constructive
changes in certain national policies and/or certain
industry sectors. We have no idea what those constructive
changes might be; we merely hope that they would
materialize.

From the very narrow perspective of investment opportunity,
it occurs to us that a resurgent Democratic party might
impart a benefit to the alternative energy industries.
While it's true that both political parties spew toxic
emissions into the atmosphere, the Democrats seem far more
troubled by adverse environmental consequences.

The Republicans, it is no secret, enjoy an intimate
relationship with the oil industry. The Democrats, for
their part, enjoy an intimate relationship with losing
causes – causes like cleaning up the earth.

But the world is changing very rapidly. Democrats are now
winning, and they are doing so on the strength of a few
winning causes. Cleaning up the earth is now a winning
cause, which also happens to be a winning investment
opportunity. Or, more accurately, cleaning up the earth is
BECOMING a winning investment opportunity.

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Cleaning Up
By Eric J. Fry

"Dirty, insecure and expensive" are not merely the
adjectives that describe most of your California editor's
past girlfriends; they are also the adjectives that the
International Energy Agency (IEA) uses to describe the
current state of the world energy market. "The energy
future we are facing today is doomed to failure," warns
Claude Mandil, head of the IEA.

All hope is not lost, however, the IEA assures, provided
that renewable energy sources furnish a growing share of
the world's energy needs.

Earlier this week, the IEA released its World Energy
Outlook 2006, a highly regarded publication that provides a
forward-looking analysis of the global energy markets. "You
don't have to read all 596 pages to understand the
Outlook's basic proposition," explains Dan Denning, editor
of the Australian Daily Reckoning . "Demand for energy is
growing. Supply is not."

 "Consider the facts," Denning continues. "The IEA suggests
that total world energy demand – driven largely by
developing countries like India and China – will grow by
53% between now and 2030. How it arrives at this figure
(why not 52%...or 54%?) we have no idea.

"The IEA projects crude oil demand to grow from the current
85 million barrels per day to 116 million barrels per day
by 2030. Break out your slide rule and your pencil and
you'll quickly come to the conclusion that world oil
production will have to increase by 37% between now and
then to meet projected demand. Or, in absolute terms, the
world will have to produce 32 million barrels per day more
than it is currently producing."

Even if such a dramatic increase in crude production were
geologically feasible, the IEA's Outlook implies that it
would not be environmentally desirable.

"The energy future we are facing today, based on
projections of current trends, is dirty, insecure and
expensive," the IEA's Mandil asserts. "[But] government
policies can create an alternative energy future which is
clean, clever and competitive."

Most members of the Democrat-controlled House of
Representatives would agree. Indeed, the Republican
governor of California would also agree. Gov.
Schwarzenegger's Environmental Action Plan intends to
reduce California's greenhouse gas emissions in 2020 to
less than the levels produced in 1990.

Clearly, the imperative to develop alternative energy
sources transcends political affiliations. It also
transcends issues of national interest. The quest for
viable alternatives to fossil fuels has become an issue of
immediate INTERNATIONAL interest.

And yet, alternative energy stocks attract almost no
interest whatsoever. While the XOI Index of oil stocks has
doubled since mid-2004, the Wilderhill Clean Energy Index
has gone nowhere. Perhaps, therefore, alternative energy
shares deserve a fresh look. We would hasten to mention
that alternative energy stocks are not statistically cheap,
generally speaking. But their revenues and earnings are
growing rapidly...generally speaking.

Even before Tuesday' election, alternative energy companies
enjoyed a very promising future. The world's heavy reliance
on fossil fuels is already colliding with rigid planetary
limitations. The planet cannot easily yield, for example,
116 millions barrels of oil per day. And even if it could,
the planet cannot continue to absorb the ever-increasing
amounts of greenhouse gas emissions that fossil fuel
consumption produces.

"On current trends," the IEA's Mandil warns, "we are on
course for an expensive and dirty energy system that will
go from crisis to crisis. It can mean more supply
disruptions, meteorological disasters or both. This energy
future is not only unsustainable, but it is doomed to
failure."

We have often observed that the things that cannot
continue, do not continue – bad marriages being the sole
exception in the universe. The world's current energy path
is one of those things that simply cannot continue.
Inevitably, therefore, alternative energy sources will
provide a growing share of the world's energy requirement,
as the World Energy Outlook makes very clear.

According to the Outlook's "Reference Scenario" – a
baseline vision of how energy markets are likely to evolve
without altering underlying energy trends, global carbon-
dioxide (CO2) emissions would jump 55% by 2030. However,
under the Outlook's "Alternative Policy Scenario," global
carbon-dioxide emissions would fall about 16% by 2030. This
scenario relies upon increased use of nuclear power and
"renewables" to reduce fossil-fuel demand and emissions.

Unfortunately, scenarios are merely scenarios – not certain
investment opportunities. Almost everyone would agree that
a clean earth is better than a dirty earth. (My son would
readily agree that a clean room is better than a dirty
room). But that doesn't mean that the earth – or my son's
bedroom – ever becomes any cleaner. Cleaning requires
effort and effort requires an incentive.

The incentives have arrived.

$60 oil provides a major incentive to develop alternative
energy sources. So does the fact that Chinese citizens are
choking – literally – on the effluent of their own success.
A Democrat-controlled Congress does not add any additional
incentive, but it might add a catalyst to the mix.

All of these phenomena will drive interest and investment
toward alternative energies...And all of these phenomena
will continue to create long-term investment opportunities.
The days of dirty, insecure and expensive energy are
drawing to a close. Get ready for the new era.

[Joel's Note: From the perspective of a politically-lay
foreigner living here in the United States, the U.S. mid-
term elections offer about as much anxiety relief as a East
River wind swell...while it may remind us that we live too
far away from surfable waves, it doesn't provide them. We
have no idea if the newly elected politicians will provide
any relief for our anxious planet and it's choking rivers
and airways, but we know it can't get much worse.

If, at the very least, a new balance of power brings new
perspective to the table on which matters such as the
environment are debated, it will be a perspective welcomed
by your junior editor.

While the red states continue to exhibit purple hues and
the final votes are counted, we would take the opportunity
to remind you that, at least for now, we are still a planet
deriving the majority of it's energy from the dreaded
fossil fuels methods. And if the following four men have
anything to say about it, we are going to start paying a
lot more for them. We've offered this report a couple of
times this week and the reactions have been mixed. It is
not for the timid and may shock but it's on the table for
debate. Read on here and see what you think:

Dirty Energy's Dirty Players
http://www.isecureonline.com/Reports/OST/EOSTGB09

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And the Markets...