Kolanovic Flags Multiplying Risks For Markets ‘Priced To Perfection’
Rate cuts from the Fed could extend the cycle, further delaying the inevitable, but the cost may be high.
That was one message from JPMorgan analysts including Marko Kolanovic, who suggested that easier monetary policy now -- against a backdrop of low volatility, high equity valuations and upside risks to inflation -- could result in "'higher for longer' reasserting itself" later in the event the disinflation process stalls.
"The equity rally of the past couple of months was driven by the emer
I also have (fossil) energy positions. In addition to a hedge, many are cheap. For example, doing a reverse DCF on [one of the US majors] using consensus FCF to 2028 suggests that current price implies terminal growth 2029+ of (negative) -5%. True, oil and NG will eventually go away, but I think it will take a lot longer than the health of the planet “needs” it to take. Plug in term gro 2029+ 0% (equivalent to +5% 2029-2033 then terminal gro -5% 2034+) and you get +40% upside.
Also, green energy has been a “widow maker” group . . . maybe that can turn around with valuations popped and rates peaked, I guess its time to review.
I love green energy, but oil isn’t going away.
Battery range anxiety, charge time prevents any mass adoption at this point. People buying gas cars over the next, I don’t know, five years aren’t going to be swapping for an EV in the next 10-15.
I believe Ms. Yellen and Mr. Powell are well aware of the risks outlined here, particularly since they double golden goosed all weather investment holdings with their end of year brilliant (imho) tag teaming of reduced bond supply and beyond surprisingly extra dovish final fed meeting…I believe they are well aware of how rapidly and forcefully the pendulum has swung into financial easing mode, and as such, I expect more hawkishness to allow for a settling of such conditions before engaging in rate cuts…and…since it’s twice mentioned…I too have increased and diversified my energy holdings recently feeling the oil price bottom is in or near…
Rather than hide behind platitudes, I’ll admit I don’t care a whole lot about the climate or my carbon foot print. Regardless of deniers and their ilk, we have deeply wounded ourselves since long before the industrial revolution. It’s not just about fossil fuels. We have over-fished our seas, killed our fellow humans, out cousins the whales and porpoises, nearly killed all the buffalo, the elephants, tigers and other big cats for reasons that mostly make no sense economically. Humanity is the animal too stupid to manage itself properly. We have made our bed and we are now forced to lie in it. There are 200 sovereign nations on earth all of whom have the absolute right (one we, too, profess to have) to live as they please within their borders. Not really our business? The US alone annually uses up 20-25% of the world’s resources to satisfy the selfish needs of only 4% of the world’s population. That is outrageous and any thinking person with a conscience knows that. Zero carbon by 2050 for the small part of the world that might actually achieve it, is an essentially worthless idea. First, by 2050 the great curtain of gas wrecking our climate will have surely increased, exponentially, making our collective plight far worse. Anyway, zero carbon is not zero total, it only represents a zero addition to the total which is already beyond redemption. Add the total amounts from half the world who can’t or won’t comply, and it’s already too late for the users and takers of the human race. We can’t stop others from enjoying their brief moment of a better life. However, that moment will be inevitably brief and the poor half the world will still suffer and starve because they have no resources to stop what’s happening. I don’t own energy stocks, too much volatility for me. Instead, I rely on midstream assets of various types. They send me tax advantages and you can’t use oil and gas without transport. Besides I’m 80 and my DNA and the stats tell me I only have to worry for 4-10 more years.
The earth and all its living things is a large-scale “adaptive system” which is characterized, among other things, by its goal seeking behavior which drives to constantly attempt to reach and maintain a suitable steady state. However, to achieve that state the earth and all of its subsystems must adapt to all changes from the various environments to which they are subject and that need requires resources. Adaptive systems are all subject to extinction when they no longer possess access to the resources that will continuously maintain their necessary steady states. This is known as “Law of Requisite Variety.” Humans are adaptive systems with limits on their conditions. If one gets too warm, probably over 108F, or too cold, under 90 or so, we die. When we have insufficient food or water, we die. When civilization no longer has the wherewithal to repair itself, it will perish, and for me, the sooner the better while the earth and the rest of its other species still in balance. IMO, one of the very best “children’s'” books ever written was “The Wump World” (available on Amazon for about $8) We should all read it … really. As H tells us, we can’t really forecast anything precisely and that is absolutely true — a statistical law. But as I told my students for 40 years we can fake it. The future is totally controlled by two kinds of inevitabilities: 1) the inevitability that certain things can’t happen — the world’s population can no longer double, for example — and 2) the inevitability that certain things that must happen. All living things must have necessary amounts of food and water to survive. All of us will inevitably sense hunger every day. Those things that can’t/won’t change are real, and because humans have the biggest resource needs we will be the first large-scale system on earth to go. The “Wumps” show us what happens next.
Our only hope is nuclear energy, available to all.