This year, the Kentucky Coal Mining Museum switched to solar power, the big three German automakers announced they don’t intend to build internal combustion engines after 2030, and the Saudi Arabia government set the stage for an initial public offering for the national oil company.
To Peter Ricchiuti, those three developments represent everything you need to know about the future of energy.
“Alternative fuel: It’s real, and it’s coming,” he says.
The Tulane University business professor offers an offbeat and colorful assessment of many key economic drivers, placing significant emphasis on energy.
Saudi Arabia lowered prices several years ago in an attempt to crush the U.S. oil industry, according to Ricchiuti. That has affected some operations; offshore drilling has nearly slowed to a halt, he says.
But fracking has held its own against that threat, enabling the U.S. to become the swing producer and affect prices based on production levels.
Further, American consumers and companies have benefited mightily from low oil prices.
“The economic impact of low oil prices is equivalent to a $200 billion tax cut, which really helps the middle class,” Ricchiuti says. “That’s good news for retailers and manufacturers, as well as the airlines.”
Transportation represents 70% of oil consumption, so the adoption of electric vehicles will dramatically cut into overall demand, Ricchiuti says. Royal Dutch Shell CEO Ben van Beurden recently forecast that oil production could peak in 10 years.
Natural gas now produces more electricity in the U.S. than any other source, according to Ricchiuti, who noted the growing market for liquefied natural gas, which can be shipped to foreign markets that provide higher margins.
“Oil is going to get a smaller and smaller piece of the pie,” he says.
Ricchiuti, who since 1993 has overseen Burkenroad Reports, an investment research program at Tulane University, offers his insights on:
Tax breaks for the middle class. The economy is 70% consumer driven, and what counts is the middle class. “If you want to stimulate the economy, you don’t give it to the rich or to corporations—you give a tax cut to the middle class, because they spend everything,” he says.
The S&P is bloated. “People are excited about the stock market again, and that’s got me worried,” Ricchiuti says. Downplay index funds and make smart investments designed for the long haul; investors who traded the least outperformed the most by 6.8 percentage points annually. “Buy good stocks and hang on to them,” he adds.
Seek out small caps in your area and invest in companies you believe in. “You’ll know about these opportunities way ahead of Wall Street, because they’re in your backyard,” he says. “They’ll have faster growth and higher returns. Management often owns stock, which is a good sign. They’re more likely to get bought out. And individual catalysts can move the needle” on success."
Corporate decisions are slowing the economy. Corporate earnings have been phenomenal since 2009, but almost every penny has gone to stockpiling cash, mergers and acquisition, and share buyback. “Earnings per share drives the stick—the rest of it is noise,” he says. “Without taking on any risk, you can drive up the price of stock.”
Demographics portend success for the U.S. Over next 30 years, the population of working-age people will steadily increase in the U.S., primarily due to immigration. Meantime, Europe and Asia face population declines. “It’s the single-most important metric to determine the economy going forward,” he says. Notably, immigrants or their children started 40% of Fortune 500 companies.
Ricchiuti addressed the CUNA Lending Council Conference in Nashville.
►Read more conference coverage from CUNA News, and get live updates on Twitter via @CUNAJennifer, @AdamMertzCUNA, @cumagazine, @CUNACouncils, and by using the #LendingCouncil hashtag. Learn more about the CUNA Lending Council, a member-led professional society for credit union executives, by visiting cunacouncils.org.