Disconnected
It’s been sufficiently demonstrated over the last few weeks that markets don’t like Central Banks raising rates as economies move into recessionary conditions thanks to soaring prices and falling growth.
Recession seems a base case for the US, Europe and Japan. Now Bloomberg Economics models indicate odds of a recession by 2023 have jumped to at least 72%
At least Australia’s second wealthiest person, Dr Andrew “Twiggy” Green Forrest disagrees with this recessionary view. Dr Forrest was quoted in the AFR over the weekend, “there is not a snowflakes chance I hell” of a global recession this year. An interesting assessment considering the state of central bank tightening liquidity along with rising debt and energy costs.
Perhaps Dr Green Twig did not notice the avgas price rise when he last filled the Bombie 75 before continuing his global quest to sell the Fortescue Green story. A $1b + iron ore divi cheque once in a while can certainly help cushion some inflationary pressures!
Dr Forrest’s comments and commitment to saving the planet tackling “climate change” seem indicative of the fact that the strongest proponents of clean energy transition ASAP are also the ones (or the sons and daughters of) that can most afford the ill effects of such ill prepared energy policies.
As energy prices really start to bite those that can least afford it, one can expect more verbal nonsense from our political elite, like, lets continue to shutdown current forms of power provision without a proven viable alternative because it’s what the “people want”. We’ll see what the people want when they start experiencing rolling blackouts, heating shortages and general power rationing.
Like, how about this little exchange below between an MSM journo at CNN and the US Biden administration Energy Secretary Jan Granholm from a couple of days ago.
“Are you telling me you want them drilling for more oil?” asked CNN host John Berman of Secretary Granholm yesterday. “You want the refineries putting out more gasoline in five or ten years?
“What we’re saying is today we need that supply increased,” she said.
“Of course, in five or ten years — actually in the immediate — we are also pressing on the accelerator, if you will, to move toward clean energy, so that we don’t have to be under the thumb of petro-dictators like Putin, or at the whim of the volatility of fossil fuels. Ultimately America will be most secure when we can rely on our own clean domestic production of energy through solar, through wind —”
“But that’s the problem for these companies,” interrupted Berman.
“These companies are saying, ‘You’re asking me to do more now, invest more now, when, in fact 5 or 10 years from now, we don’t think that demand will be there, and the administration doesn’t even necessarily want it to be there.’”
Aren’t higher prices are exactly what these politicians wanted to cure fossil fuel demand? Now they want more fossil fuels in the short term whilst choking capital through outrageous ESG mandates?
One thinks virtue signallers hit a hard wall of reality over the next few months. Anyone that needs to be told politicians current energy policies are insane is insane.
Make no mistake, we do acknowledge the climate changes and humans need to do more to manage the transition from fossil fuels but is there any chance of challenging the current narrative with sensible, balanced discussion?
The polarizing nature of challenging any current established mainstream narrative prevents most sensible discussion. It will be very interesting to see how populations of “the West” remain so virtuous toward “climate change” in the face of rising energy prices as global capital markets choke off all fossil fuel development without having the storage capacity to manage transition.
While we’re at it, let’s have a quick look at some other narratives one may have been exposed to if one happened to switch to a CNBC type business “news” network from time to time.
- Inflation transitionary
- Inflation peaked
- US economy and consumer strong
- Russia weak
- Ukraine winning
- Euro Land stable
- Central Banks omniscient
- Bitcoin/Crypto great (digital gold)
- Kathy Wood Ark innovation fund smart
- Stocks closer to bottom that top
- Government debt manageable
- Private debt more manageable
- Recession not imminent
- Gold bad
- Ivermectin bad
It may have been philosopher Bertrand Russell who observed:
“The problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts”.
Back to matters of economics and portfolio reality. Where to invest?
Well, we can say for sure that those with a traditional 60/40 “balanced” portfolio will have not experienced returns like the last 3 months in 40 years. We’re talking down, that is. As to where we are at now? There is this below, we’ve been writing about it for some time. Falling growth, rising inflation. Its real!!
So, where has money been made in previous stagflations?
As we’ve previously stated, whilst investors currently believe that central banks will actually fight inflation Gold will remain soft, although it has held up better than expected in this first wave if selling. Producers are offering the most compelling buying.
Hopefully, investors reading these pages have been increasing their cash positions in readiness for what is now happening.
Have your shopping lists ready for the high value, stable, dividend paying business you want to own for the long term. You may well get the entry point you’ve been waiting for over the next few months.
In the meantime, the positions we’ve developed in energy and commodities over the last couple of years have certainly served their purpose this year! Remember that when central banks reverse their current anti-inflation rhetoric in coming months the rip in equity markets will be a sight to behold. Hence, the overweight cash position only, one has to remain invested, unfortunately.
Probably exclude Aussie banks from your shopping lists!!
Peace!
