Sunday, November 23, 2008

Banking on Energy

With all the speculation this weekend about the Government using our money to rescue some or all of the banks here's a thought: why not put the money into the energy sector instead? My sense of the purported bank rescue is that it would be better if one or two of the banks were allowed to fail. Yes: protect the savings of deposit holders - but not the stocks of shareholders nor the jobs of directors.

The result will be a rush of new account openings for those left standing: equivalent to - or more than - any mooted investment by the government. It will also put manners on those that survive to ensure they don't confuse property-backed pawnbroking with real banking again. Perhaps.

As for the energy sector, it has never been cheaper to get into. The chart - from the BBC news site - shows that the price of oil is now a third of its peak just a few months ago. The knock on effect on shares of energy companies has been severe. But there's the thing: the upside from an investment in energy companies - and those supplying specialist services and equipment to them - will be a better long term bet in terms of shareholder value. As argued in Fortune recently, the IEA's report World Energy Outlook 2008 is a 578 page recommendation to buy oil stock.

The work of the folk at Energy Scenarios Ireland shows that the current price falls are but a temporary aberration on the way to a far more expensive energy future. As I've said before - it's a window of opportunity for our country: and ultimately more important than the fate of a few developers and their bankers.

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