We've created a real dilemma for ourselves. Governments of the G8 are clamoring for the oil producing nations to increase production to alleviate the negative economic impact of the current record prices. Many officials are blaming speculators for driving up the price of oil. We're not convinced. The cost of oil has been very low since the late 1980s up until the beginning of the 21st century. Due to the low price, investment in additional capacity has lagged. It is high prices that encourage oil exploration and investment in additional capacity. Additionally, the low prices of the last 20 years encouraged consumption and eliminated attempts for conservation. Consider that the average new car in 1987 achieved a MPG of 22 and by 2007 that number decreased to an MPG of 20. American consumers have demanded performance rather than efficiency. Why not, gas is cheap. Certainly oil was too cheap to justify developing alternatives.

We believe that there is a fundamental shift in the market for oil and selected other commodities. With the rapid industrialization of India, China and other emerging markets, demand has outstripped supply. Permanently.  In the case of oil, production can be increased in the near-term, but new sources have become more difficult to find. To be sure, the price of oil may be ahead of itself today, but we are convinced that the long-term trend will remain and cheap oil is a thing of the past. Even worse, we suspect that peak production of oil, the date when global production begins a slow but permanent decline may be in the not too distant future. Demand will continue to grow faster than Saudi Arabia can extract their reserves and too fast for drilling in the Alaskan Wildlife Refuge to make a meaningful long-term difference. What we should be doing, what the Saudis and other oil producers fear, is investing in alternatives. Our goal now should be centered on the development and production of real alternatives rather than short-sighted demands to produce more oil, reduce oil company profits, or develop conspiracies of speculators.

Investors should be focused on stocks that will benefit from the increased costs of energy, commodities and infrastructure necessities, particularly as emerging markets continue to grow. Global demand for energy and infrastructure will continue to increase and investors should be acutely aware of the inverse correlation between commodities and equities. With slow economic growth, increased manufacturing costs can't be passed on to customers effectively reducing profits and subsequently equity valuations.

Over the last year we have taken a careful look at the state of the global energy markets. We recently published on our website an extensive investment primer on the topic, Investing Green. The report is an analysis of our current energy consumption with a look to what is feasible for the future and how investors may benefit. We hope you enjoy it.