We’re at the London Value Investor Conference, where stock pickers try to persuade their peers to pick the stocks they have in their pocket. Self described pessimist Charles Heenan of Kennox is pitching a cyclical Hong Kong based manufacturer, Fujikon Industrial Holdings, a family controlled maker of acoustic headphones. His approach is to ask pessimistic questions: is it a flash in a pan, is it overvalued, is this the peak of the cycle? (Should I get that pain looked at? Is global warming real? Will anyone fix the baggage retrieval system at Heathrow?)
According to BP’s Energy Outlook, which was released this week, global energy demand will continue to grow until 2013, but that growth is set to slow, driven by emerging economies — mainly China and India. To wit, the following chart from the presentation booklet:
FT markets round-up:“Efforts by global central bankers to reassure markets that there would be no rush away from accommodative policies helped fuel fresh gains for equities and a rally in US government bonds, although gold sank to its lowest level in nearly three years. Indeed, the gold price tumbled $53, or 4.3 per cent, to $1,224 an ounce, while silver fell 5.5 per cent to $18.56 amid further fretting over Fed chairman Ben Bernanke’s comments last week about “tapering” the central bank’s quantitative easing programme. The dollar, meanwhile, maintained its firmer tone, rising 0.4 per cent against a basket of currencies, with the euro below the $1.30 mark for most of the day after Mario Draghi, ECB president, said the eurozone economic outlook still warranted accommodative settings. His remarks echoed similar comments from David Miles and Sir Mervyn King of the Bank of England.” (Financial Times) Sluggish growth data give Fed cause for caution on tapering: “The US economy grew at an annualised pace of 1.8 per cent in the first quarter, significantly slower than previously thought, which could give the Federal Reserve some reason for pause as it weighs slowing its support for the recovery. The surprisingly sharp downward revision – from an earlier projection of 2.4 per cent first-quarter gross domestic product growth – offers evidence that US growth remained quite sluggish even as the Federal Reserve began contemplating tapering the tempo of $85bn in monthly bond buys.” (Financial Times)
So writes the FT’s Martin Wolf in his column today, which starts out noting that atmospheric carbon dioxide concentrations exceeded 400 parts per million last week, the highest level in 4.5m years. As he says, if we take a prudential view of public finances, then surely a similar approach to something irreversible and much costlier” is warranted.<
Since 2009 the stark contrast between oil prices (high) and natural gas prices (low) in the US has prompted questions, and visions of a new future of transport fuels. There was some excitement that this might be gathering steam when Warren Buffett’s freight train network BNSF revealed it would trial LNG powered trains. This is the sort of thing that T. Boone Pickens has been pushing for years: use domestic natural gas as transport fuel to reduce costs, reduce emissions and diminish US dependence on oil imports, while providing a ‘bridge’ to renewables-based infrastructure.
If you submit to theoretical physicist Geoffrey West’s urban development theories, then you’ve probably aware of the idea that humanity is set to face a critical crunch point soon enough (if not already). And by crunch point, we mean — either humanity throws everything it’s got at speeding up technology to ensure its resource consumption-to-population footprint becomes manageable, or we wither away. (The Roman Empire, by the way, is perhaps the best example of a civilisation which failed to make the next great technologically leap to the carbon age and did actually wither.)
Asian stocks rebound after earlier falls || Aso says G20 okay with Japan easing || Osborne vs IMF || Italian centre-left in disarray after failure to agree President || Blackstone pulls out of bidding for Dell || IBM misses expectations || Google beats on profits, misses on revenue || Ireland picks through debtors’ lifestyles
The operation was a complete success; the patient died. Who thought we’d see a need for that joke again in relation to the EU, so soon after Cyprus? This time it’s the carbon emissions trading scheme, or EU ETS, and the consensus is it’s been dealt a near-mortal blow by a vote in the European parliament.
Big news for the European Union Allowances market. From the FT’s Pilita Clark and Joshua Chaffin: The European Parliament has voted against propping up the EU’s emissions trading scheme in a move that sent prices plunging to new lows in the world’s biggest carbon market.
Today should have been the day when ex-BP chief Tony Hayward and a raft of other energy and security luminaries got to their feet at a conference hosted by the UK’s biggest green power trade body. But the Renewable Energy Association’s “Symposium 2013” at the historic Mayfair headquarters of the Royal Institution has been cancelled due to lack of interest. The programme’s here if you can be bothered to click.
China’s energy consumption is legendary (okay, its everything consumption is legendary). More coal, oil, hydro, solar, and wind power than… than just about anyone. The coal numbers in particular are mind-boggling. By 2011 China was consuming almost as much coal (3.8bn tonnes) as the rest of the world combined (4.3bn tonnes). The figures on oil consumption are almost as striking. They consume about 10m barrels a day; more than 10 per cent of world production.
How much of the oil and gas sector’s asset valuations could be at risk from climate mitigation policy? The International Energy Agency’s latest annual World Energy Outlook, released in November, followed the popular practice in long-term forecasts of using several scenarios. One involves global policymakers moving to limit atmospheric CO2 concentration to 450 parts per million, in order to limit to 50 per cent the probability of average temperatures rising 2 degrees or more. The problem for fossil fuel companies is that could limit their ability to utilise all their reserves.
When the International Energy Agency’s big annual report came out last week there was a big top line story picked up nearly everywhere: that US oil production will overtake Saudi Arabia by about 2020. This is due to projected rises in oil being wrung from the sort of shale formations that have been the source of vast new supplies of natural gas in the past few years.
The ECB has voiced support for imposing losses on the senior bondholders of Spain’s most damaged banks — a significant change of sentiment for the central bank, albeit one that was rejected by Eurozone finance ministers. The WSJ cites people familiar with the discussions who said ECB president Mario Draghi made the position clear at the eurogroup meeting last week. The ECB had previously opposed such bondholder haircuts during the 2010 bail-out of Ireland’s banks. The chief reason ministers rejected such a move was the Irish precedent, in which taxpayers bore the burden of repaying bondholders in the country’s failed banks. (Wall Street Journal) The 9% “temporary buffer” capital ratio for European banks will become permanent, says the European Banking Authority chairman. Andrea Enria told the FT “We want the banks maintaining this capital level and gradually moving to the Basel III full implementation. We will be asking the banks to develop capital plans to get there.” (Financial Times)
Some highlights from Monday’s FTfm. Brussels targets big bonusesExisting pay policies create incentives for fund managers to take excessive risks and must be revamped to protect investors, according to the European Commission. It says bonuses should be “considerably contracted” if a fund or fund manager underperforms, via both reductions in current pay and also through clawbacks of previous payouts.
Gregor MacDonald, energy journalist and renewables guru, flagged up a really interesting piece of data from the latest BP Statistical Review this weekend. It comes in the shape of the following chart (mocked up by MacDonald) showing an exponential growth in global solar consumption since 2001:
European officials are insisting that Chinese airlines will have to pay for their carbon emissions, rebuffing an attempt by Beijing on Monday to shield them from a controversial emissions trading scheme, reports the FT. While Chinese airlines had previously said they would not pay the EU carbon tax, the Civil Aviation Administration of China formally instructed them not to join the EU emissions trading scheme without government approval. “China hopes that Europe will address our concerns in light of the overall situation of global climate change, the sustainable development of international aviation and Chinese-European relations,” the Chinese aviation authority said, adding it “will consider additional measures to protect the interests of our citizens and companies”. The EU countered that it remains determined to include all airlines that take off or land in the 27-member bloc in the scheme, which other nations complain is a violation of their sovereignty and has stoked warnings of a trade war.
Every government needs a thick slice of luck, and this week’s has come as Chris Huhne slid off the political road into the ditch. Ed Davey has a golden chance to drive away from an energy policy which might have been designed to make energy expensive and electricity unreliable. This deadly combination might be called the Windmill Solution to oil and coal dependency, and the former Energy Secretary spent his last months flailing around like a demented turbine trying to make the numbers add up. While Huhne was tilting at windmills, the energy game has been changed utterly by the emergence of shale gas. This rapidly emerging technology promises relatively cheap and abundant natural gas for at least the next two decades. It has already broken the link between oil and gas prices. It promises to turn the US into an energy exporter, and remove the dependency on Russian gas for the states on its borders.
The US overtook China to regain top position as the world’s leading investor in “clean” energy last year, according to Bloomberg New Energy Finance, the FT reports. It was the first year since 2008 that the US has been ahead of China as the world’s largest market for investment in renewable energy, biofuels and energy efficiency. However, it may drop back again this year after the end of two key subsidy programmes introduced as part of the 2009 economic stimulus package: grants for renewable energy projects and government loan guarantees to encourage private sector investment.
Weekend headlines from the FT and other UK media:* From The FT,- Global bank regulators have overwhelmingly sided with Britain and poured cold water on a French effort to dilute the new rules requiring banks to hold more capital against unexpected losses- Anthony Bolton, Fidelity’s star fund manager, has hired five external research firms to spot Chinese companies that are overstating their sales growth, in a bid to turn round the performance of his China Special Situations fund- UBS’s ‘mega-client’ comes under scrutiny- George Osborne will on Monday throw his weight behind measures aimed at introducing more competition to UK high-street banking and buttressing taxpayers against a future financial crisis
Exporters and technology shares led gains after European Union countries agreed on tougher fiscal rules at a summit in Brussels late last week. In Tokyo, Toshiba rose 2.4 per cent, Fujitsu advanced 2.2 per cent and Sony added 1.8 per cent. Chipmaker Elpida Memory rallied 3.2 per cent while TDK Corp, an electronics parts maker, gained 2.8 per cent. In Seoul, Samsung Electronics rose 1.2 per cent and LG Electronics was ahead by 1.7 per cent. Japanese shippers were also notable gainers after cargo rates for large vessels rose to a high for the year. Mitsui O.S.K., Japan’s second-largest shipper by sales, jumped 3.9 per cent after Credit Suisse kept its “overweight” investment rating on Japanese shippers. Market leader Nippon Yusen K.K. gained 3.7 per cent while Kawasaki Kisen Kaisha added 2.2 per cent.
A global climate deal to extend the life of the Kyoto treaty and establish the parameters for negotiating a new pact by 2015 will provide a fresh stimulus to the world’s floundering carbon markets, according to bankers and analysts, reports the FT. Carbon prices have plunged to record lows in recent weeks as Europe’s emissions trading scheme, the world’s largest, has been hit by eurozone uncertainties and fears of an oversupply of carbon credits. Other carbon market analysts welcomed the salvaging of the Kyoto treaty, noting that some countries in Durban had threatened to try to kill off the carbon offset market created under the treaty if the conference rejected its extension. Negotiators agreed to new market mechanisms to put a price on carbon, though many details were left undecided, and it is far from certain the agreement to agree will amount to anything, explains the Guardian.
Comment, analysis and other offerings from Friday’s FT, Philip Stephens: Now the Franco-German questionGermany will have to learn leadership, and France followship. Both will find it a wrenching experience. The rules of the European game changed for ever with the reunification of Germany, says the FT’s Stephens. It has taken the euro crisis to spell out the brutal implications. One has to feel some sympathy for Angela Merkel. Germany’s chancellor has been excoriated in turn for absent and for oppressive leadership. At one moment she is said to be standing idly by while the euro burns, and at the next of issuing teutonic diktats about the terms of its survival. Germany, the rest of us have been reminded, has always been too big for Europe. The new German question asks whether Europe – whether it is the European Union or a more closely integrated eurozone – can find a new equilibrium now that Germany is so visibly the preponderant power.