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Surviving Trump Part 10: Impacts and Opportunities for IRAs and 401ks in Energy and Utility Sectors [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2025-01-18
Some components of America’s energy sector have dramatically diverged after Trump’s win. His “promise” to lower energy costs “that affect everything else” has driven the fossil fuels part of the energy market to new highs, even after a year of strong recovery. Many listed gas and oil and pipeline firms are far above their usual P:E ratios and well under their normal dividend yields. At the same time renewable energy utilities have dropped well under their normal P:E ratios. Their yields have soared well above the average of the past five years.
One reason for the divergence: The lowest cost energy production means available in specific sites—wind power—is exactly the type of power Trump promises to stop dead in its tracks. Otherwise solar across the US, another renewable Trump hates, comes in lower in cost.
Killing wind power and crippling solar adoption won’t lower energy costs, buddy. It does the opposite. It’s the equivalent of deporting a big chunk of agricultural workers and expecting food prices to go down. Reality doesn’t work that way.
And that’s what investors need to stay focused on: Reality.
Speaking of facing reality, the other articles in this series aimed at helping investors prepare for the Second Coming of Trump are here: one, two, three, four, five, six, seven, eight and nine.
Reality Bites
Hope is not a plan. Neither is fantasy. MAGAs seem filled with hope that Trump will magically transform their embittered lives. And they fantasize that like they did under Trump the First.
Actually, that little deflationary fantasy just might come true. But only at the cost of another nightmare.
For example, that price plummet may happen if bird flu becomes contagious among humans. Another pandemic is one way prices come down substantially, particularly for gasoline. In May 2020, as Trump shut down the US economy after refusing to take timely action on the spread of COVID, raw oil and gas prices fell below zero. That’s right, oil and gas producers had to literally pay storage and refinery facilities to take their products.
Storage tanks were bursting at the seams. Gas at the pump was cheaper than bottled water.
The only problem: Nothing was open and nowhere was safe to go.
So MAGAs got the low prices they crave again at the cost of both a pandemic and a global depression. That’s a hell of a price to pay for cheap gas. And by the way, egg prices aren’t coming back down until bird flu stops killing birds, and their handlers. We already know Trump sucks at handling such threats. With Robert Kennedy Jr. in charge of US health, we can “put your hearts at ease” like the people in Hong Kong were promised they could after China took over from Britain.
In case you don’t know, Hong Kong succumbed to dictatorship during Trump’s watch. And now, China is overtly preparing to invade Taiwan. That will definitely hit America’s economy and prices will really rise if Trump blows that too.
But I digress.
Energy investors in 2020 were stunned as stock prices fell, dividends were slashed or stopped altogether and companies considered safe bets for decades like Occidental Petroleum suddenly hit unprecedented turbulence. Over the last decade the traditional energy sector became moribund and shrank as a part of the stock market far below its once dominant position. Exxon used to top the charts as America’s leader in market capitalization as recently as 2011. Now it’s Microsoft, Apple, Amazon and the like. (Visualization of US largest companies by capitalization, 2001-2024:
https://www.youtube.com/watch?v=Vy7kB2MxX9I )
Exxon fell completely out of the top 10, for the first time in a generation, in 2018.
That was during Donald “oil companies give me a billion dollars and you can do anything” Trump’s first administration. He’s unlikely in his second administration to get Exxon back on the top 10 list, no matter what he does.
But he’s going to try.
Stranded Assets and the Trump Coalition Yelling at the Future: STOP!
My memory works even if that of MAGA fantasists do not. So does that of the managers running the fossil fuel business. Trump may want to drill baby drill in the infantile expectation that will drive prices way down, but today’s fossil fuel titans know they are running on borrowed time. They do not want massive investments that take a generation or more to pay back stranded with no hope of financial return.
If you simply type “stranded assets” into Google or Duck Duck Go, nearly every reference refers to stranded fossil fuel assets. “Stranded fossil-fuel assets translate to major losses for investors in advanced economies”, a major open access article published by Nature Climate Change painstakingly details how pension systems and private investors are exposed to loss.
We trace the equity risk ownership from 43,439 oil and gas production assets through a global equity network of 1.8 million companies to their ultimate owners. Most of the market risk falls on private investors, overwhelmingly in OECD countries, including substantial exposure through pension funds and financial markets. The ownership distribution reveals an international net transfer of more than 15% of global stranded asset risk to OECD-based investors. Rich country stakeholders therefore have a major stake in how the transition in oil and gas production is managed, as ongoing supporters of the fossil-fuel economy and potentially exposed owners of stranded assets.
How significant is the danger of stranded assets?
“In the first three quarters of 2024, 90% of new electrical generating capacity came from renewables.”
That same article reported solar power alone accounted for 78% of all new electricity generating capacity, massively outperforming even wind power in 2024. By the end of 2024 renewables reportedly accounted for up to 96% of all new generating capacity, so their advantage over fossil fuels only increased.
But oil interests, of course, are fighting back with their usual go-to tool: lies in the right wing media. When The Wall Street Journal and the right wing Koch mouthpiece Fraser Institute in Canada put out propaganda arguing renewable energy has a high cost covered only by subsidies (and ignoring the much larger subsidies given to fossil fuels) and destabilize the grid if they compose too large a portion of power generation, Steve Hanley investigated. Hanley debunked the claims, citing detailed research by Professor Mark Jacobson of Stanford. Renewables don’t destabilize the grid and with battery tech improving by leaps and bounds, they increasingly don’t need supplementation by fossil fueled power generation.
Lies, of course, are not the only tactic embedded fossil fuel interests use.
The FED (led by a Trump appointee) recently refused to go along with an international negotiation over new rules requiring banks and other financial institutions to report climate risk to their reserves and investments. But many investment firms carry warnings about the impact of climate change on fossil fuels and related assets that currently heavily use fossil fuels, like steel, cement, and chemical (including fertilizer) producers. KPMG also points out risks to the banks that heavily lend to this sector and which lend to borrowers investing in real estate that may be exposed to the consequences of climate change.
Almost any Florida, Louisiana or Texas bank springs to mind. Anyone for investing in The Bank of Miami in (soon to be underwater) Coral Gables, Florida?
Actually, don’t bother, it failed already in 2019, while Trump was President. But the FirstBank of Miami is still available, located opposite Dodge Island (interesting name).
Miami and area face as much risk of catastrophic destruction by hurricane winds driving water as Pacific Palisades faced in burning by flames whipped by hurricane force winds. There are areas of Mississippi hit by Katrina in 2005 that are still not rebuilt, and likely will never be. Yet one hears not a peep from MAGAs and Republicans about declaring martial law in Mississippi to ensure “recovery” from that disaster like they are parroting about California.
Why Utilities Displease
I treat both energy and utilities as one sector because technology is transforming these sectors and both sectors increasingly compete with one another for the same markets. At one time energy as a sector of the market dominantly referred to fossil fuels. King Coal, Black Gold, and Natural Gas powered all transport, most industry and nearly every utility providing electricity. Only a few utilities were able to take advantage of hydropower, and they generated much less costly electricity—one reason why aluminum smelters are almost exclusively located in such regions.
Nuclear power made the promise of electric power “too cheap to meter” but that NEVER came true, or even close.
Increasingly, the transport sector depends on electricity. As more and more electric vehicles hit the road, demand for electrical power rises and the market for refined oil products softens. GM reported huge increases in EV sales on all models in 2024. For the first time, Ford’s Mustang EV outsold its ICE version. Chevrolet’s Silverado EV, a direct competitor with Musk’s Cybertruck, saw sales jump from 461 sold in 2023 to 7,428 in 2024. Report
I bought one of those EV Silverado’s sold in 2024, trading in a RAM EcoDiesel.
After driving it over the past month or so, I’ll never go back to an ICE truck for the farm. As soon as the GM Home Energy System gets installed, I’ll report back on how it handles our increasingly frequent energy outages—outages which directly affect our business which requires refrigeration of just picked produce, particularly strawberries. We’ll be storing power needed for backup and EV charging directly from our solar array, and hopefully, using power in the EV and battery system to power us overnight throughout most of the year.
Coal has been more and more displaced as a power source, despite DJT promising the people of West Virginia and Kentucky to restore coal to its former glory. Today, if a steel mill or aluminum smelter wants to open, investors would look to the west central plains where wind power is abundant and cheap or to the Southwest where both solar and wind are available.
Coal is not coming back as a major employer and source of wealth, particularly to the hills and hollers of Appalachia. Joe Manchin and Jim Justice are the last of their breeds (Coal kings.) And, by the way, the new Senator for Coal Jim Justice is being widely reported as bankrupt.
But the fossil fuel interests won’t go down without a fight, and they have some very peculiar allies. Much of Elon Musk’s real wealth comes from his holdings in Tesla, an exclusively EV car maker and seller of battery backup systems and solar panels. But Musk put more money in the pockets of climate deniers in Congress and the White House than any other single person. Talk about voting against your interests—he takes the cake. But Toyota, another major car maker, and renowned for building the popular Prius hybrid, is the top automaking firm putting money in climate denier’s pockets. Toyota is particularly responsible for doing all it can to slow the transition to fully electric vehicles.
Despite strong resistance in the US, the increased demand for electricity globally can be seen in this report from the IEA: Global EV Outlook 2024 The IEA sees massive increases due to EV adoption by 2035, rising from 0.5% today to between 6 and 8% of total electricity demand. The report also predicts that oil demand for road transport “is set to peak around 2025 and displace 12 million barrels a day of production by 2035.”
Folks, that’s about the daily production of oil by the US, which is currently the world’s largest producer of oil and gas.
Again, the IEA sees a drop in global demand for oil over the coming decade equivalent to the output of the entire US oil industry.
This is one reason Forbes reports little interest among fossil fuel producers to “drill baby drill” as Republicans so fondly urge them to.
So that will have considerable impact, stranding a lot of assets. It’s why oil and gas interests have bankrolled Trump and are desperate for him to slow the tide of change as much as he can, so they can squeeze a few more dollars out of their assets before the end. But those interests extend far beyond the fossil fuel sectors of the economy. The other implication the report examines, as it states: “Tax reforms will be needed to ensure government revenues can be sustained as EV adoption grows.”
Combine greedy fossil fuel billionaires with state politicians swilling revenue at the gas pumps, and you get a colossus of resistance to necessary change.
States like Texas, Oklahoma, S. Dakota, New Mexico, Wyoming, Alaska and others that depend heavily on oil related tax revenue, and all states with road systems sustained by fuel taxes, face major adjustments with these changes. And we all know Republicans hate change about as much as they hate taxes. That’s why the Trump coalition has been desperate to extend the 2017 tax cuts favorable to the entrenched fossil fuel interests as far into the future as they can. We need tax reform, especially for transport infrastructure since so much of its maintenance and extension relies on fuel taxes.
But it’s easier to try to slow or stop electrification of road and rail transport than to change how we fund it.
And another report on the IEA website explains why reducing oil demand is both so important, and why it is a global effort that the US can’t stop all by itself. The report, available here: Global EV Outlook 2024. It indicates that globally, “government electrification ambitions would avoid 2 gigatons of CO2 emissions on a well-to-wheels basis.”
This means, if there is any hope at all of slowing down the disastrously fast pace of devastating climate change, electrification of the transport system is an absolute must. Add to this great increase in demand the increases discussed last week here (nine) from data centers, A.I. and crypto “mining” and transactions, and you have strong indications that investing in electrical power generation and distribution will grow enormously, just as investments in fossil fuels, including their distribution systems which includes a gas station on many corners all across America, are bound to shrink. See Today in Energy and Energy flows.
Caveat Emptor
If your pension manager or 401k or IRA holds fossil fuel investments over about 10% or so, you should re-examine the ETF or mutual fund or other fund you’re invested in. SCHD, an ETF offered by Schwab, one of the biggest fund managers, has about 12% in the Energy sector. Vanguard’s equivalent, VYM has less than 10%, iShares DGRO has about 5%, SDY about 3%. But one also has to look closely at the utility holdings among these ETFs since many utilities are heavily into using and distributing fossil fuels (like natural gas) as part of their business. SDY, light on Energy, is heavy in Utilities (nearly 16%).
So you have to do your due diligence on these funds. Managing your own individual company investments over funds lets you control how much risk you have of holding stranded assets. Given the methodologies employed by these funds to select stocks, the fossil fuel sector will decrease in all of them. But in the meanwhile, the decline of that sector will tend to lower returns among these funds on a marginal basis.
But, while the renewable energy sector is currently attractive in investment terms, remember that the next four years, at least, are likely to be hostile to the renewable sector, but only in the US. Investments by company, and diversified globally, is in my opinion the best approach to investing in the renewable energy sector over the next several years. Also, investigating utility companies for their own mix of electrical generation by source—coal, gas, renewables—is also strongly recommended.
Particularly be on the lookout for the type of new investments in new sources of power generation these utilities invest in. That will tell you more about management’s assessment of whether or not a utility will be stuck with stranded assets within the timeframe of expected payoff of the investment. Do you agree with their assessment? And remember, as regulated utilities, if a listed utility misjudges, it may not necessarily be allowed to recoup losses due to stranded assets. Those losses may be forced onto shareholders by taxpayers angry at what they see as obvious mismanagement.
That has happened more than once to utilities that over invested in nuclear power when it was the thing to do.
And do not expect political events to relieve you of the need to closely examine your investments in your retirement accounts. Even if Democrats retake the House in 2026, they are unlikely to regain the Senate until at best 2028, unless we have a major disaster that disrupts current voting patterns. Retaking the House might stop Trump’s damage from getting worse; but it will not repair it unless and until Republicans lose control of all branches of government, including the judicial sector.
And that also depends on whether Democrats can do a better job of communicating their policies and exactly what it is that the party stands for. So, good luck with that since the party seems determined to stick with its geriatric “leadership”.
Protecting your investments is up to you, and no one else, especially over the next four years.
But perhaps we can all work together to revive our party, and with it, our hopes for getting the federal government to face reality like we are having to do ourselves, on our own, right now, especially if you are in a red state.
Next Week: Insurance, disaster, property, life and healthcare insurance. With two $100 billion plus disasters in the US alone in the last 12 months, we may not be at the point government and the private sector are simply unable to repair damage from climate change, but we can see that point approaching. Estimated losses from climate change disasters in the US alone since 1980 now total more than $3 trillion dollars in 2024 dollar terms. This website publishes updates on global disaster costs under the term “Impact Forecasting”.
The time is approaching where the private insurance model starts to fall apart unless there is drastic reform to the way government and insurance interact. Restricting rate rises solve nothing; it only drives companies out of the state and then the state loads the risk onto tax payers via its “last resort” type “insurance” schemes. Zoning, building codes, and realistic adaptation to climate-changed threats from fire, floods, hurricanes and ocean level rise are the only real answer. There are houses that survived the Palisades fires though all else burnt around them, so fire proofing can be done with proper building codes and site hardening against fire. Private insurance is increasingly sending price signals that failure to adapt to climate change has costs too high for any private market entity to bear. Fossil fuel-bought politicians, media and voters who refuse to face reality want to blame insurance firms, Democrats and anyone and anything else, but the fault rests on those who prefer comfortable lies over discomforting truths.
Disclaimer and disclosures:
I am not a CFA (chartered financial analyst). This article and comments are not investment advice from a fiduciary. They are discussions among investors with varying levels of experience. For over 30 years I taught state-market interactions at under-graduate and graduate level, focusing mainly on economic history and thought as well as specialized classes on international trade structures (WTO) and dynamics, and public administration as it relates to economic policy making, taxation and regulation, mainly in China. I was an area political-economic risk analyst for a decade for an internationally known risk assessment firm. I have technical degrees (and experience) as well as academic degrees, including a certification in Military History from West Point which would have let me teach ROTC classes if I had not gone overseas. I also started two small businesses (one a B-corporation type) and currently farm (organically and sustainably) in WA state. I have managed my own investment portfolios for at least 25 years. All advice is offered freely and from this context.
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