Trading is, by nature, short-term. It involves rapid reaction to news and anticipating what that will mean for whatever you are trading in the next few minutes, hours, days, or sometimes weeks. At times though, it pays to take a step back and consider the bigger picture. That is the case right now, as coal stocks have reacted positively to good short-term news but the long-term negative narrative persists.
The good news that caused the recent strong rally came, as all news these days seems to, came from Donald Trump. Reports circulated earlier this week that he had instructed Energy Secretary Rick Perry to forestall the closure of coal and nuclear powered electric plants by forcing utilities to buy from them, even at uncompetitive rates.
This is the administration’s second attempt to protect the domestic coal industry. The first was a proposal by Perry that compensation should be paid to the ailing plants for the “stability” they give to the power grid. That was unanimously rejected by regulators. The proposed use of an executive order this time around circumvents the need for regulators’ approval but looks just as doomed to failure.
America is a country built on free markets, and government attempts to regulate away reality, no matter how well-intentioned, usually fail as they butt up against unintended consequences. In this case the downside is glaringly obvious. Forcing providers of electricity to buy at inflated prices will force…