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Here as article from Greg Canavan, I have quoted him previously. Please read it as it explains quiet sensibly and undramatically the economic ignorance of the Greens and the Climate alarmists. Many of the people on here see the financial benefits they think are coming with Climate activity, rather than letting the economies of scale make a much more gradual evolution of change. Don't worry we will feel so much better about the climate as we starve to death, take note this article is a continuation of previous discussions on "alarmism" and is not a climate change scientic discussion, just a warning of the economic consequences of "fucking this up bigtime".

Most people on here have got superannuation and savings through asset accumulation etc..... be careful who you empower to make your next big financial decision....my recommendation is anyone other than the GREENS the most dangerous group on the planet.

Inflation talk is all the rage lately.

And for a stock market that is heavily, massively and dangerously dependent on the price of money, it’s a pretty important discussion.

My view is that most of the inflationary pressures you’re seeing now are the result of temporary supply and demand issues. They will take some time to resolve, but they will get resolved.

For example, the main contributors to last week’s multidecade high core inflation reading in the US were rents and auto prices.

But after collapsing earlier this year, rental units under construction are now at 45-year highs. There is a lot of US housing supply due to hit next year.

And the auto market is the victim of the well-known semiconductor shortage. Again, this will resolve itself as supply responds. It’s just a matter of timing.

Some carmakers are dealing with the problem in their own ‘unique’ way. 

‘Tesla is shipping electric vehicles with defective USB ports from its Shanghai Gigafactory, as the global shortage of semiconductor chips has also affected the bellwether maker of smart cars in the world's largest vehicle market.

‘Starting from November 6, the USB ports in the front-row central consoles of the Model 3 sedans and Model Y sports utility vehicles (SUVs) can only be used for charging, not for data transfer, Tesla said in response to customers' queries.

‘Numerous Tesla owners in the United States reported last week that they had been caught by surprise when their Models 3 or Y electric vehicles were delivered with missing USB ports, in some cases gaping holes where the universal service bus should have been.’

Not bad for a company trading on 233 times expected earnings in calendar 2021!

That’s right…Tesla has a forward P/E multiple of 233 times…

Talk about inflation!

But you’ve known about asset price inflation for a while now, haven’t you?

That’s what 10 years of useless central bank QE gets you.

It certainly didn’t produce a blowout in consumer price inflation.

But thanks to the massive fiscal response related to the pandemic, which juiced demand at the same time as supply chains became constrained, inflation talk is everywhere.

As I said, I think this type of inflation is fleeting. But there is a larger, more sustainable source of inflation brewing. This is something you should be far more concerned about as an investor.

The Chanticleer column in the Australian Financial Review yesterday hit the nail on the head:

‘If you want to know where inflation is going next, don’t look at port bottlenecks or used-car prices or computer chip shortages. Instead, look at the resolutions that came out of COP26, which has effectively baked in an energy transition that is as expensive as it is urgent.

‘That’s the message from veteran US investor Larry Jeddeloh, founder of The Institutional Strategist, and economist Julien Garran, partner at British group MacroStrategy Partnership,who argue that the desire of governments to tackle climate change and inequality has ushered in the start of a new, inflationary cycle that will last long after the current supply chain squeeze eases.’

‘Lifting renewable energy usage (supported by gas peaking plants) is likely to double the price of electricity to customers over the next decade, Garran says — and that’s before you consider the rising costs of fuels like gas and oil, where output is being constrained.’

The price of energy is THE key cost base for every economy. Every bit of economic output requires some form of energy input. If the cost base rises, prices will have to rise to compensate for it. If the price of electricity is on the way to doubling in 10 years, the global economy will go into recession well before that.

But the climate fanatics cannot see the huge costs involved in this energy transition. Nor do they acknowledge the huge potential destruction of emerging economies who need cheaper forms of energy to grow.

And it always seems to be when there is plenty of money splashing around the world that calls (mostly from the wealthy elites and economically illiterate greens) for a more urgent and costly transition grow loudest.

The 2007 election saw John Howard lose to Kevin Rudd, who ran largely on a climate change agenda.

Then 2008 hit…

I’m not suggesting another credit crisis lies on our doorstep. But the stupendous ‘wealth’ created by the massive fiscal and monetary policy response to COVID-19 is under threat from rising sustainable inflation.

That will surely come in the years ahead as the renewable revolution continues. Part of this revolution is to cut fossil fuels out of the supply equation. From the Chanticleer article:

‘Jeddeloh is particularly concerned about oil, which he says is a key input in about 7000 products across the economy, including the fertilisers vital to food supply.

‘He claims that under the Biden administration, US banks are being told by the government to restrict lending to energy companies, which will force oil and gas firms to borrow from hedge funds and private equity at a higher cost of capital. And as ESG (environment, social and governance) strategies come to dominate markets, the pressure on energy company boards to prioritise capital returns to shareholders over new production capacity is growing.’

In other words, supply will be highly constrained in the years to come. Don’t be surprised to see oil prices over US$100 a barrel in 2022.

In which case, traditional oil and gas companies look to be a good long-term bet here. As you can see in the chart below, the ASX 200 Energy Index remains at multidecade lows relative to the broader market.

But in a world of sure things and record-high valuations across many sectors, stocks priced as a dud bet could just be the best investment you can make.Investors clearly think the sector is a dud bet.

Cheers,

Greg Canavan,
Editor, The Insider