Parachute-300x238What are the scenarios about what impact Congress and the fiscal cliff may have on markets? I could talk you through all of them, but there is one central reality embedded within each scenario: cutbacks on government programs.

Be they wasteful or useful, it is inescapable: Government programs will be cut and some of the more wasteful ones are gong to get hit hard.

While pundits have given up talking many issues – such as Greece, the debates, life on Mars and so on — they continue to talk up the upside and the downside of the approaching fiscal cliff.

In case you have just arrived from Mars, here is the rundown: The fiscal cliff is a combination of tax hikes and budget cuts that automatically take effect on Jan. 1 if Congress, in a lame-duck session after Thanksgiving, the equivalent of trying to pass legislation on Mars, does not do something. Tradition, history and even the most sanguine view of this Congress says the odds are fairly long in the favor of something not being done or being done for 90 or 180 days.

What happened to solar

Last week I wrote about those great legal scamsters, the for-profit colleges. Well, they call themselves colleges. They should be called “for-profit, take-your-money, throw-some-words-at-you, a-handful-of you-will-matriculate-and-graduate institutions.”

Today, let’s look at solar. The big run in solar came about with initiatives in the U.S., Europe and China to boost use of solar energy and wind. All the subsidies and the hope and the hype looked to the sky for sunshine and a stiff breeze. They did not look down into the ground — the shale formations in the ground — and look at fracking. Fracking has increased U.S. oil production 20% in a couple of years, cut the price of natural gas from north of $8 to well below $4 and promises to supply the U.S. (and eventually the world as it catches up) with oil at $80 or less and natural gas at $4 or less for a generation or more.

Goodbye sunshine, goodbye wind. Wait, wait, we have an election. President Obama is talking about renewables, as usual, despite their cost. Mitt Romney is talking about renewables; someone stuck them in his debate notes. It’s election talk. Budget reality and marketplace reality will catch up, and down, down they go. Into oblivion, and for most, bankruptcy.

The market pretty much agrees with this assessment and has crushed many of these stocks. Take a look at some names:

LDK Solar (LDK):  Obama inaugural, $13.56. Today,88 cents. Interim high: $15 and change.

Suntech Power (STP): Obama inaugural, $9.31. Today, 83 cents. Interim high: $24 and change.

Yingli Green Energy (YGE): Obama inaugural, $5.02. Today, $1.75. Interim high: $18 and change.

Trina Solar (TSL): Obama inaugural, $8.01. Today, $4.43. Interim high: $30

First Solar (FSLR): Obama inaugural, $137.76. Today, $23.02. Interim high: north of $210.

Room to short with puts

If you had ignored the campaign rhetoric and tracked the price of fossil fuels and the advance of fracking, well, I made my point about solar. There is still room to short these names with puts . . . the stock with the most room to fall is FSLR.

The hope and the hype now is more muted – but any actually believe some of the campaign and debate nonsense and see Obama saving renewables in some form and Romney increasing defense spending. Ain’t gonna happen, my friends. Renewable energy as a mass-market product and service is done, due to fracking.

What about defense spending? If Romney wins, you can bet the traders will pump up ship-building outfits. A pure play is Huntington Ingalls (HII). They will pop, and then when it becomes apparent the Navy cannot afford to pay for the ships it already has, the stock will fall. Do I exaggerate? In the past month since the first rumblings of the debates and campaign promises got sharper, the stock is up and down, up and down, the market is down, most defense stocks are down. General Dynamics (GD) also has a lot of exposure but is so diversified it would be hard to say how the market reacts if Romney wins and then finds he does not have the money for the new toys he wants to buy.

 

 

 

 

 

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