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Technology Stocks : The *NEW* Frank Coluccio Technology Forum -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (28622)	11/22/2008 9:57:07 AM
From: axial	Read Replies (1) \| Respond to of 46821

Frank, some guesses about why. The article notes surprising decline in "stable" domestic use. I think people are looking at the writing on the wall: impending hardship. Leave the room, turn out the lights. Sunny day? Hang out the washing. Don't turn up the heat, wear a sweater. I know that sounds extreme, but if others are reading about the same impending future as I, they're cutting back, big-time. They've even started saving. [To digress for a moment, there appear to be 2 streams of thought on the economic future for the US: one bad (protracted recession, zero-growth, Japan-like) the other worse (USD crisis, depression).] When whole neighbourhoods are foreclosed and empty, we enter a different regime for utilities. So on the domestic front, we'll see a cultural 180: away from bling and conspicuous consumption to frugality. At a guess, conservation can decrease use by 30%. --- On the commercial/industrial front, it's more difficult. When GM shuts a factory for 2 months, when people aren't buying pizzas, when demand is low and dropping, how exactly do the effects ripple to utilities? Difficult to quantify. The economists call it "contraction" and it can get pretty bad. Here on Vancouver Island, we're a long way from New York and Chicago, and already seeing the effects of US demand decline: mills and plants closing, equipment auctions, growing unemployment. A year ago, utilities were straining under the burden of maximum demand and rising input costs. --- The overlay on current economic/financial crises is an aging population, with changing lifestyles. Their high-spending days are behind them. --- Overall, I believe we'll see demand destruction on a scale we've never witnessed before in our lifetimes: worse than the early 80's, worse than the post-Y2K bust. Meanwhile, capital is costly - if you can get it. In the face of declining demand, it's a hard sell. I'm reading about rates 6% to 10% above Libor, and rising. Governments cut interest rates, but central banks won't open the taps. So how do utilities plan for the future? Recently I read projections on capital expenditures for the oil industry, with a forecast. The thesis was that current prices won't support continued exploration or expanded production sufficient to meet eventual demand. Even though no one expects a return to growth rates of the last 50 years, eventually there will be reversion to higher demand - and the boom-bust cycle will work against us. For now, it's the worst of worlds - demand declines, high capital costs, with no end in sight. Eventually, there'll be a rebound and probably a shortfall in supply, with the inevitable catch-up process and price spikes. There are workarounds, but in a capital-constrained environment that's a whole 'nother subject. Jim