Blain’s Morning Porridge – June 3rd 2020 – Time for Creative Chaos ?
“Do not lick your fingers and stick them in the electrical socket.”
If the proverbial Martian trader was visiting planet Earth Today, his tentacles would be frantically signalling Risk Off. Yet global Stock Markets remain utterly unfazed by the madness around them – it was yet another up day! Maybe they know something we don’t? It’s not all bad out there; Cafes are reopening in Paris, UK MPs had to queue for hours on the blazing sun to vote themselves back to work (an utterly pointless gesture, but hey-ho), China recovering faster than hoped, and … er, Central Banks will keep juicing the pot!
If you are glued to your twitter-feed (and for your piece of mind, I suggest you just put your phone down), then its end-of-the-world out there. The footage and escalation out the US is beyond belief, and Trump’s bible waving at the Cathedral beyond comment. I kind of feel sorry for Mark Z at Facebook – staff are mutinying because he won’t blackout Trump, but how can Facebook decide who does and does not comment – who guards the guards?
Is there anything to be positive about? Absolutely..
Even in the worst crisis our fears of how bad it might get always over-exaggerate the true reality – its bad, but never as bad as we fear.
In fact, I’d go even further. Regular readers will know I like to write at least one Porridge a week about the real world and real assets, the viable alternatives to the absolutely twisted and distorted imaginary prices we slavishly follow every day on listed bond and stock markets – financial assets.
I’m actually positive about the mid-long-term outlook. Why?
The Coronavirus, tragic as it has been, may have a positive effect on the global economy. It is already acting as an extraordinary catalyst for change. Crisis tends to generate its own solutions – triggering periods of extraordinary innovation, creative destruction and reinvention. Maybe it’s time the world changes.
We are in the midst of multiple urgent crises – and as history shows, periods of threat and uncertainty tend to generate the giant leaps in technology and paradigm shifts that change the world.
Coronavirus is unlikely to solve the Trump issue. That’s entirely up to US voters in November. Otherwise, I’ve been impressed by the political swiftness to react to the crisis. Who would have thought fuddy-duddy bureaucratic Whitehall officials in the UK would enable a Right-Wing government to enact the most Left-leaning nationalisation of payrolls and bailouts? Who would have imagined the US could put together a swift new deal to support the economy. Even Europe has responded with something slightly better than dead stop (although I see Merkel’s attempts to boost the German economy have run into a political roadblock.)
Some businesses and sectors are going to vanish, change utterly and be subsumed in new industries. Good luck to anyone that bought the Carnival Cruise issue – my guess is you are secured on lumps of scrap metal currently rusting on moorings. Some say customers will get back on board as soon as possible – but I doubt it without a vaccine. If you are a holder, you are betting on a return to normal I think may not happen.
In the real world, many of the large and small technological shifts that have caused economic growth to step up have occurred almost overnight. Others have taken decades to achieve breakthrough, requiring a “nudge” enabling new technologies to become fully established.
Yesterday I commented how we have the opportunity to completely reinvent health care and reform health bureaucracies by embracing Artificial Intelligence: Imagine a world where all your health data is encrypted on your watch, smartphone and PC. Where your Doctor AI system is constantly monitoring changes, and referring you for blood samples or other tests when it thinks they are required. It could a real game changer when the next pandemic shows up – because it will.
Not everyone agrees that’s a good thing. I got a series of emails (mostly from US) telling me that would be an Orwellian nightmare as governments would use the tech to cull the unwanted. Really? Your call. If you want to wait to get sick, queue at an underfunded state hospital, waiting for harassed doctors and nurses to give you a battery of tests that will bankrupt your savings while they figure out symptoms and search for the needle in the haystack that’s making you sick – be my guest.
Or how about Virtual Reality? At the moment is everyone thinks Zoom is the next new new thing, while I can’t even get Microsoft Teams to work. But what if the real solution to working from home is VR offices where we can properly inter-react with each other again? True virtual offices. Or VR learning?
My bet is that we are about to see the combination of the Virus, the Recession and the ongoing Climate Emergency combine to drive a whole new series of nudges and paradigm shifts. Power and transport are a good examples.
Within a few years of demonstrating the potential of steam engines at the Rainhill trials in 1829, railways were criss-crossing the UK, making the canals all but obsolete. The era of mass travel began and the rapid industrialisation possible. Coal ruled supreme powering ships and trains, lighting cities and warming homes for the next 80 years. Power was dirty and smelly, but it changed the world. UK GDP per Capita doubled from £2300 in 1830 to £5000 in 1900 (2013 prices).
The next big shift was the internal combustion engine, ushering in the era of the automobile, making aircraft possible, and spurring the modern age as oil superseded coal, and modern oil-based plastics became the material of choice. The two world wars triggered spectacular innovation – without them aircraft would still be string and brown paper – but the great depression and subsequent “new deal” built infrastructure, and the space race and nuclear power were products of the competitive cold war. UK Capital rose 5X to £25k over 100 years.
The new threats of the Virus and Global warming will generate new innovation. I see it every day from my desk in Alternative Assets – new approaches to power and global clean up. The next revolution in power is underway as renewables become increasingly important to mitigate the effects of two centuries of carbon fuels.
Are we going to get another fundamental paradigm shift – a perpetual motion machine that throws off unlimited free energy? As they say; nuclear fusion is always 20 years down the road. But we could well see some very significant nudges.
Tesla fascinates me. It’s successfully shifted the narrative across the Auto sector. Its stock price is at such stratospheric levels because it “owns” the EV space – say its fans. I agree it’s created a revolution in EV demand, and I like the cars, but not Elon Musk; he’s a governance nightmare.
Tesla has successfully created a new EV market, but the tech is not new. Tesla’s are simply cars that depend on thousands of Lithium batteries rather than a tank of gas. Lithium is a 50 year old technology which relies on very scare materials. The batteries create power from an electrochemical reaction which means they deteriorate over some 10,000 charging cycles. Moreover, they are (as yet) impossible to recycle, and if the mineral components get into the environment, they are serious trouble.
Part of my issue with Tesla is obsolescence. What if hydrogen fuel cells are a better solution? After reading about fuel cell technology I thought that might be the case, but the difficulties transporting and making hydrogen mean it will likely prove over-expensive.
Great news for Tesla? Well, maybe not. I’ve always though solving the capacitance issue will be the thing that truly creates wealth. What if someone invents a better battery? One that lasts for ever, and is recyclable? Tesla would have to go back to the drawing board. Their lead in EVs would evaporate…
Imagine how new lighter batteries could actually become part of a car rather than big hefty batteries on the floor. Imagine if batteries powering engines were the wings and structure of an airplane? Imagine if you could charge the battery in moments – which you can’t do with lithium. What if all the renewable power generated by wind and solar when it’s not needed could be effectively stored in efficient and environmentally friendly batteries? (That could solve the Grid problem – the real reason Solar and Wind won’t replace gas.)
There will be massive resistance to new batteries – over the last few years billions has been invested in trying to improve Lithium Technology. Giga factories have been built to produce Li-ion batteries by the quintillion… It should be a goal of the Green movement to make sure vested interests don’t try to kill new cleaner tech.
(If you are interested in renewable tidal energy, waste energy, and want to know what I know about new battery tech… you know my number.)
Five Things To Read This Morning
Torygraph – Why are so many people from BAME backgrounds dying from coronavirus?
FT – US yield curve steepens as 30-year Treasury falls from favour
WSJ – Trump-Biden Fight Takes Off in Six Battleground States
BBerg – ECB Seen with only one choice tomorrow to avoid market backlash
FT – Are we heading into another Depression?
Out of time and back to the day job…
Bill Blain
Shard Capital