2024 Biggest Risks
As January washes up and the old, “as January goes so does the year” rolls out, let’s see if we can share some themes we think worth following for 2024.
Starting with a World Economic Forum (WEF) Davos version of risk, courtesy of the WEF annual survey, based on a survey of 1,490 “leaders” – leaders that flew into the Swiss retreat of Davos on energy efficient private aircraft. It’s fair to say that many investors will find some of the risks at the bottom of the list below to be the ones that matter most once in 2024 and all of them may rank well after inflation (cost of living crisis).
Since climate made the top of the list, we’ll say straight up we’d never deny ourselves the dream of a greener future for the planet but, seriously, a little reality check on policy performance now and again wouldn’t hurt at these major international economic events. It’s fair to say that many investors have formed the view that nothing better represents policies set by virtue signalling “leaders” than the failure of green “policy” boondoggles, so far. It has been obvious for some time now that many “green” policies have had the opposite effect of their intention, such is the case with most .gov policies, with bigger bureaucracy and governments the end result, only.
World renowned energy market expert, Dr Anas Alhaji, had some fuel to add to this fire in his most recent interview with ever reliable team at Macro Voices. He first points out that oil/hydrocarbon demand has now not only returned to “normal” (post covid), but maintains an upward trajectory in lock step with emerging country economic growth. This is not news to industry players and investors with even half an interest. Hydrocarbon demand has not been touched by “renewables”, making oil and gas companies an attractive investment prospect for the non woke.
Dr Alhaji goes on to point to something very unusual he’s noticed in the numbers recently, something never seen before. Demand for Petroleum naphtha (refining oil for petroleum products) as well as LNG is through the roof. The LNG part is easy to understand. The petroleum/petrochemical story is one not well understood outside the industry. So much so that Aramco, the world’s largest integrated Energy and Chemical company, has continued to sign massive bi lateral deals with Chinese petrochemical players over the past 12 months. One of Dr Alhaji’s hypothesis as to the reasons for this happening is most interesting.
In 2023 China produced a massive 9.5m mostly coal fired/electric cars. Anas’s research concludes the reduction in gasoline usage by the production of 9.5m “electric” vehicles is around 270,000 barrels per day. But here’s the thing, the shock rise in petrochemical usage in the production of electric vehicles is the reason for massive local contracts with Saudi Arabia’s Aramco. We’re not talking about the batteries here, its everything else in the car.
Bottom line, Dr Alhaji’s research puts petrochemical and gas inputs at equal to 600,000 barrels per day of oil consumption. So, in the net, the manufacturing of coal fired EV’s has led to a massive increase in crude oil demand. And so you’re not confused by the coal situation, electricity production from coal is at an all-time high, globally – mainly because of China and India. They each account for around 66% of their electricity generation from coal.
We’re not suggesting that petrochemical production burns the same levels of CO2 as combustion engines, these notes focus on investment themes and, as stated above, we’re ok with our “fossil” fuel allocation. But the woke need not be too despondent with the economics of wind, solar, hydrogen and pedal power. The green dream is still alive, and not just for those with hands out for boondoggle largesse. The hope for green is nuclear energy, and fortunately, it seems to be catching on as the most recent private plane gabfest COP28 taught us.
Uranium is back in a big way. So much so that our inbox is filling with dusted off uranium project “opportunities” for perusal. Our investment thesis in this space is quite simple – Stick to high quality Uranium producers in Tier 1 jurisdictions, with good management and access to capital. Over 2023, as well as investing in couple of local (Australian) producers we’ve taken positions in the Sprott Physical Uranium Trust and the Uranium Royalty Corp in the US (NASDAQ:UROY) and strongly suggest you do your own homework before you invest a dollar or Yen in anything.
On the topic of Yen, we recently increased our holdings to Yen based assets, through stocks and cash, on the back of the BOJ continuing to strongly signal it will use any chance it has to reverse the many years of negative interest rates. We did not make a large % allocation but coming from a AUD/JPY of 0.97, we like the diversification. From an Aussie investors perspective international diversification makes even more sense when one re-realises the shear leverage that exists in the Australian property market and the potential knock on effects of any looming recession.
Yes, we understand the .gov.au will continue to do “whatever it takes” to keep the show on the road but in the end the numbers, on a global scale are enormous, and a serious threat to the banking system.
Some people are really feeling it.
Whilst we’re on the theme of property, one cannot speak of 2024 risks without acknowledging the dark clouds moving over commercial property right now. Particularly in the US. Such violent rises in interest rates, coupled with low occupancy rates courtesy of covid “revelations” will manifest in pretty short order during 2024.
It’s already started.
Source: Grant Williams TTMYGHhttps://www.grant-williams.com/
We’re dealing with a big number here folks, the chart below, also courtesy of Grant Williams TTMYGM, maybe US centric but to think it doesn’t spill over as it did in 2008, is just naïve.
How about all those years of close to 0 interest rates eh?
Unfortunately, most investors do not have the capacity to “short” a stock but if you did, which one of the companies in yellow below would you choose?
Let’s check back on this in six months time.
Finally, and possibly the most important allocation one can make to a well-structured portfolio in 2024 are assets that store value outside FIAT money. To be reminded of the buying opportunity in gold stocks and the precious metals just go back to here https://aurumecho.com/goldilocks-pivots/
As economic numbers start to confirm a recession reality in the US and Australia we need to remember one very, very important event for 2024, the US election. If the US election weren’t to have such a profound effect on geopolitics and economics, it might be quite entertaining to watch. What the next Obama incumbent does to rescue the current situation and what Trump will do to the FBI and other 3 letter acronymic .orgs if he can stay live in 2024 is prime time viewing.
For investors, the guarantee of the Democratic incumbent having the full support of grandma and grandpa at the US Treasury and Fed respectively will provide an enormous tail wind for inflation and stores of value. Non G7 central banks seem to understand that continuing their gold buying spree whilst G7 try to use all tools at their disposal to prevent any such drain in confidence is a winning strategy.
Place your bets. Oh, and we bought a bit more Bitcoin recently. It’s never going to be an allocation that makes or breaks a portfolio but has handy characteristics to trade. For the cautious, there is a strong possibility of a decent (up to 20%) correction in Gold and BTC before the liquidity floodgates are open.
Make no mistake for 2024, the liquidity monetary floodgates will be re-opened, if not already open on a fiscal basis. Rather than summarise our investment themes for 2024, you can test yourself by counting how many you see above!
Peace!
