I was talking to my 12-year-old daughter last night about politics. She had asked me a few questions.
‘Unfortunately darling, good people don’t go into politics anymore. And the ones that do eventually leave after realising how dirty and corrupt it is.
‘Politicians tell you what you want to hear when they want your vote, but when they get into power, they do what they want. Don’t trust anything they say.’
Too cynical for a 12-year-old to hear?
I don’t think so. The sooner kids realise that politicians put their interests before the nation they are meant to serve, the better.
And the sooner they realise that the ‘important people in suits’ that decide how the world works are equally as corrupt, the better.
Trying to teach a kid how a corrupt world works without taking away their joy and eagerness for life is no easy task. But these people will try and pick her pocket sooner or later, so better that she learns how things work now.
I’m not just talking about the handling of COVID here. The frenzied zeal to make everyone take an experimental vaccine while banning the use of proven treatments is admittedly pretty bad. Corruption or incompetence, take your pick.
And NSW health minister Brad Hazzard is attempting to suppress documents behind NSW health’s decision-making process during this long lockdown. Us plebs are too dumb to handle the truth, so it seems.
‘Soft’ corruption is everywhere, not just politics. Two Federal Reserve board members announced their retirements this week, after allegations that they engaged in insider trading.
Robert Kaplan, for example, was president of the Dallas Fed. His net worth is in the hundreds of millions of dollars. But enough is never enough for these people. During his time at the Fed, he was trading S&P 500 futures for personal gain…
These people aren’t investigated though, they are given honorable send-offs and protected by their ‘club’.
Then there’s plain old incompetence. Take what’s happening in the UK, for example. The Spectator reports:
‘Wholesale gas prices have risen sixfold, winter heating bills are set to be the highest on record. Millions of people across the country are wondering what they might have to forgo to pay for heat. Supermarkets are warning of food shortages. There are 100,000 missing HGV drivers. The army has been called in to help, but has only 150 tanker drivers available. Queues for petrol jam the roads, and medics can’t get to work.’
If British politicians were as focused on making sure the country had plenty of gas reserves as they were on making sure the economy gets to ‘net zero’, perhaps the Brits wouldn’t be in this situation. Apparently, the country has secured four days of gas reserves…four days…
That’s why this headlong rush into renewables is madness. The global economy is nowhere near ready to transition.
It’s going to be fun to watch the virtue signalers at the COP26 conference in Glasgow in a few weeks. ‘How to get to net zero without, ahem, having an energy crisis.’
The problem in the UK, or one of them at least, is that the government introduced price caps on energy bills a few years ago. When prices surge and companies can’t pass the cost on, they go bust.
This has happened to at least six energy retailers in the UK.
But the bigger question is why have prices increased so much?
There are a lot of factors at play. Surging demand post-COVID reopenings combined with a lack of long-term investment in bringing new supply to market are the main issues. Huge investment in renewables isn’t matched by the grid’s ability to store the energy and use it when really needed.
This scenario has been years in the making.
It’s been years in the making in Australia too. The ‘east coast gas shortage’ has been a thing for years. Victoria is probably most at risk from the looming supply/demand imbalance. If we’re talking about political incompetence, there are no surprises there.
The epicentre of the current energy crisis rocking the globe appears to be China. The Wall Street Journal reports:
‘China’s latest efforts to improve conditions in its dangerous, fragmented coal mining industry have contributed to weak supply growth and skyrocketing coal prices. This has also spilled over into the liquefied natural gas market.’
China is the world’s largest coal producer (and consumer). From March to August, domestic coal production declined 1.5% compared to the same period last year. At the same time, electricity output growth averaged nearly 9%.
With China having banned Aussie coal last year, it’s scrambling to find imports to fill the gap. As a result, coal prices have surged to record highs. China’s coal plants are rebuilding inventories ahead of the Northern Hemisphere winter.
With coal prices so high, the market looks to alternatives like gas. This is why gas prices have gone nuts too.
In the short term, you should expect prices to fall back to more reasonable levels. Parabolic price moves are always fleeting. But this whole scenario tells you something important. That is, we have overinvested in renewables and underinvested in traditional fossil fuels.
I get that everyone wants a clean energy future. But we have to balance this desire with rational expectations and ensure we maintain energy security. Without reliable energy, an economy cannot function.
This underinvestment in traditional energy means we’re likely entering into a secular bull market for oil and gas prices. If that is the case, Australia’s oil and gas companies are massively undervalued.
Do yourself a favour and take a look at the sector.
I recommended a number of energy plays in my advisory early this year. The best performer so far is Whitehaven Coal Ltd [ASX:WHC], up nearly 120% since the February recommendation. It’s stretched in the short term. But if coal prices trade structurally higher in the years to come, it’s still good long-term value.
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Editor, The Rum Rebellion
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