Social investors and oil company CEOs agree: high oil prices are good.
Jack Robinson, who manages the Winslow Green Growth Fund, tempts fate in the latest CFA Institute Conference Proceedings Quarterly (link to abstract is here), quoting the most dangerous words in investing: "it's different this time."
Robinson focuses particularly on alternative energy, noting that "at times in the past [it] has seen an explosion of [investment] interest only to have it evaporate as oil prices declined. This time, however, unique circumstances may make green investing in general, and the search for alternative sources of energy in particular, a permanent recipient of investment capital."
Calvert seems to agree, and this month launched its own alternative energy fund.
I can't resist also linking to a slightly different view - this Fortune article explains why Exxon Mobil CEO Rex Tillerson has no interest in alternative energy investments.
Maybe everyone is right. High oil prices would be a boon to both alternative energy companies (by making alternative more attractive when compared to oil), and to Exxon Mobil (by allowing the company to continue to earn stellar returns on equity).
The futures markets have been predicting sustained higher oil prices for some time. This interview with Fatih Birol, chief economist of the International Energy Agency, certainly seems to support that view as well.
Two things bother me about all this. First, high oil prices are good for oil companies and alternative energy companies, but bad for consumers - especially poor ones. Birol argues that Africa is being hurt the most by the current high price environment. Second, former Exxon Mobil CEO Lee Raymond, who knows something about oil supply, last year predicted a decline in oil prices over the coming decade as the global industry catches up on the underinvestment of the prior decade.
Whomever is right, oil seems to be running everything right now. Last week Starbucks announced it would be very difficult for the company to hit the high end of earnings guidance. One key culprit: the price of milk. So why are milk prices so high? This article from Monday's Wall Street Journal offers several explanations - a cut in EU subsidies for export, a drought in Australia - and higher corn prices (feed for the cows).
So why are corn prices so high? Well, corn is an important ingredient in ethanol, although some experts had predicted that this would not have a major effect. (This is reminiscent of a headline from The Onion's history book, Our Dumb Century. After the 1929 market crash the headline reads: "Experts Blameless, Say Experts" ...)
As for the Australian drought? It's bad. Really bad. And unlikely to end any time soon.
My favorite part of all this is that today, the Fed Open Market Committee commented that "readings on core inflation have improved modestly in recent months," as they left the Fed Funds rate unchanged. And the core inflation numbers certainly are reassuring.
But the core numbers don't include oil, corn, and milk, three commodities that in recent years have stubbornly refused to regress to the mean.
