Blain’s Morning Porridge – October 17th 2019
“The industrial age was dominated by the right to make a dollar at whatever cost, and to never question that cost.“
Blain’s Financial Porridge Podcast on Website (Subscribe to Audioboom podcast or go via Spotify or iTunes (Other channels available from Audioboom)
Book: The Fifth Horseman – How to Destroy the Global Economy, is on Amazon in Kindle or book format.
The whole of Europe waits but still no puff of white smoke over Brussels. Someone has to be thrown under the proverbial bus to close a deal, but, surprisingly the Norn Iron DUP don’t like the unlikeable deal nor their ascribed role as Brexit roadkill. Does it matter we still don’t have a Brexit deal? Even if we did, it would likely be ambushed in Parliament over the weekend. Move on.. nothing to see here folks…
The trade deal that was never a trade deal continues to unravel as the US puts restrictions in place on Chines spiesacademics going to US universities. That’s hardly likely to build an atmosphere of trust ahead of a Trump/Xi meeting in Chile next month. Markets? They don’t particularly care.
Netflix stock rose in the aftermarket on what looked to be a Q3 Beat in terms of US and foreign subscribers, but already the vultures are circling and questioning the growing competition. The jury remains out on Netflix: Content is king – its most popular programme used to be the old US version of the Office. They’ve now lost that back to Warner who will stream it themselves. They are replacing it with Seinfield, a funny, but 30 year old comedy – and it apparently costing them $500MM! How much would the BBC get for Dad’s Army I wonder?
Climate Change Part II – The biggest economic opportunity ever!
I had some great responses to yesterday’s porridge about how Tech and Markets could be “Nudged” to create growth friendly, sustainable solutions to climate change. Some really great ideas about tax and incentive schemes – which I will put in future Porridges. (And it will be in this week’s Podcast.)
However, I also got a couple of strongly negative comments – there are still many people out there who sincerely believe Climate Change is a communist plot to destabilise market economies and impose impossible constraints on capitalism. They cite the proof of it in the fake news that Greta Thunberg’s father being a deep-cover KGB officer (Not True), that Greenpeace was an East German plot to break West Germany (Not True), while distinguished economists say it’s a bureaucratic power play to control economic growth (Delusional).
I really can’t understand why anyone would bother to deny the possibility of climate change. It doesn’t actually matter.
I happen to believe – the evidence I see and read suggests it’s happening. But that’s not important. The climate is either changing or it is not. The fact it worries so many people, including most scientists, is not irrefutable proof all these people who demand action are communists. It’s is proof they are concerned. And that creates economic opportunity. It creates possibly the biggest opportunity of all time. Miss it at your peril.
Climate change does not need to mean the end of growth. In fact, I predict the 2020s will be an exciting decade as rich in real technological investment opportunities as the 2010s were about monetising the disruptive power of the internet. Market economies should be embracing climate change as an opportunity – and if we get extras, including a better environment, cleaner oceans, and the learn about stewardship of the planet.. What’s not to like?
The next few years are going to be “interesting”. We will make economic adjustments, and see CO2 taxed and axed, but will see enormous invention, innovation and implementation of new technologies and solutions. It will be market driven.
There is a significant risk an intolerant Green/Climate lobby gets carried away and stymies growth to the extend innovation struggles, or successfully bans potential solutions like clean nuclear power, hydrogen, fusion and other technological pathways.
But….
We have to get real about it. There is an awful lot of green claptrap about growth, and an enormous amount of self-indulgent and patronising nonsense coming out of markets. We have to be pragmatic – forget being righteous!
Despite the fact I’m a believer climate change is the biggest threat, there is a clear place and role for old industries in our future. It takes a lot of steel to plant a wind-turbine in the ocean. We need foundations, machinery and transport to get it there. More to the point we need 250 tonnes of coal to make the steel in the turbine. Not the nasty dirty stuff, but clean Met Coal. But its hideously expensive because no one will fund coal because they might get attacked by Green protests so lazy investors use ESG to avoid it.
Smart investors see the opportunity – to fund coal because it is needed, and is cheap because it’s a fad to criticise it! We’re going to have to learn how to be embrace fossil fuels as part of our ongoing future.
I am utterly convinced the future will work. I’m planning a Fund to invest in real climate recovery investments from frontier pre-venture start-ups right thru to IPO. (If you want to talk about it – you know my number.) We’ll do due diligence with scientists and engineers rather than accountants, and fund the best in class environmental improvement schemes on the basis of what they can achieve, rather than focus strictly on the returns they produce.
There is a crying need for such a fund. I spend a large part of my day looking at new proposals. I keep coming across start-ups with tech that could change the world, for instance a waste-mining product that absorbs CO2 but can’t get funding because it’s too early, too unproven and there aren’t government grants to do so. Frontier Venture Capital is risky – but I’m damn sure there are millions of frustrated investors out their fed up with the value of their pensions which have been invested in massively inflated financial assets, who want to invest in the Green future.
What do they get if they buy Green investments today? A couple of established stocks the fund manager thinks worthy because the CEO ticked the boxes in his last investor day conference? Or a couple of Green bonds? When I look at what passes for Green investment today – it’s pretty shocking and limited.
The investment banks have already hi-jacked it. HSBC is in the headlines for being top of the “Green Bond” league table and predicts a $1 trillion market by 2021. One of its syndicate directors – a very pleasant chap whom I know – is quoted talking about how Green bonds are changing the “internal wiring” of issuers.
Really? Does issuing a green, social or sustainable bond change the issue (I haven’t checked but if HSBC has launched a green bond, then it hasn’t worked because it’s still the same useless, faceless, could-care-less-ness about customers bank it’s been for years.)
In what way does labelling a bond “Green” change the issuer? They scribble a few platitudes about sustainability in the prospectus, and say it will get used for green purposes. Please… Green bonds are an investment bank gimmick – designed to sell more bonds to more investors who’ve been told they have to look like the invest in accordance with ESG (Environmental, Social and Governance) guidelines.
A very good chum of mine is the very senior head of issuance at a top 10 debt issuer. The issuer wants to shoot the New Issue teams trying to convince them to pay up a few basis points to get Green investors. They countered – if demand is so high to be green, you can pay us to issue, meaning the Green bond should yield less. The investment banks shut up – pretty much confirming in the issuers mind that banks have innovated Green bonds as a marketing trick.
In the future, I do hope this Green bond nonsense disappears. Why should investors need labels? If they care about being green, saving the planet, and making environmentally sound investments, then do the homework and buy stuff because its green… not because some bank is marketing it as Greener than Green.. It’s probably not.
Embrace the opportunities, but do it well.
Out of time, and back to the day job…
Bill Blain
Shard Capital