I'm an observer. I like to observe other people doing what they do, going where they go and buying what they buy and ask myself, why?
Being an observer is the foundation of fundamental investing so wondering why there are more people buying items from a warehouse than going into a store is essential curiosity. I look at grocery store shelves and wonder why certain items are out of stock while others linger on bottom shelves or why a brand name carries more weight than the quality of a product.
To understand the why's of fundamental investing, you have to understand what's behind motives and behavior. I recently took a trip to Coeur D’Alene, Idaho, that routed me through four airports and airports are great places to observe people. What I saw was that older, larger passengers were missing. I attributed this to fear of COVID-19 so that left me to observe people younger than myself.
I am 64, not exactly in my golden years yet so watching the majority of passengers, faces in their phones, looking at social media posts or monitoring their cryptocurrency wallets was fascinating. First, it told me that they behave differently than I do. I don't care about what my friends ate for breakfast or have a crypto wallet so where were they getting the time and money to spend on FOMO?
I was looking at my phone too but I was reading research reports on global energy shortages which means some of us at the airport might be completely out of touch with reality. I may have a bias here, but I don't think it was me.
In December 2020 an edition of “The Economist” headlined, “Time to make coal history” bottom ticked the coal market, fast forward to now and the world concentrates on combating climate change at the COP 26 summit (what a dumb acronym) to speed up the adoption of green energy. Note that Presidents Xi and Putin were MIA from this conference but why would the biggest emitter of CO2 (China) or major supplier of natural gas and oil (Russia) have any desire to be raked over the literal coals by the Greta crowd in Glasgow?
In ordinary markets, when supply shortages happen, increased prices create imbalances and additional supply is brought in. Profits explode for those delivering the (you name the product) in short supply. Price increases usually bring in more players as they realize there is money to be made but that has not happened in energy markets for years. Instead of investing in greening up existing fossil fuel sources, companies in the energy complex have shut down projects and used capital to buy back shares and increase dividends. This is not just being driven by unhappy Exxon shareholders but by a failure in policies globally and there is no reason to believe that there will be any reversal of these policies to encourage CAPEX in things like natural gas or nuclear energy any time soon. We all saw this past summer how well California's solar panels and wind turbines worked when smoke blots out the sun but full steam ahead on these two inefficient energy sources in spite of growing energy demand globally. Does anyone think India is going to buy green energy over coal and oil? I'm betting on coal and oil even though I agree that these energy sources are polluting the environment.
For some reason the woke crowd in Glasgow think their time is now. How many times have I heard that before but we are in agreement to some extent. I agree that we are looking at an energy boom but not the kind COP 26 wants. Thanks to shortages in fossil fuel supplies, energy costs will soar, so will food prices, transportation and just about everything else.
As the ESG crowd continue to push for no expenditures in anything other than green energy, existing energy sources that the majority of the world actually depends on now (natural gas, oil, coal) will see draw downs of supply and rising prices. Like him or not (I did not like him but did not disagree with all of his policies) President Trump did champion energy independence for the United States but since the Biden administration took over, many projects have been canceled and regulatory roadblocks put in place so that once again we are net energy importers.
So if you don't like $80 per barrel oil, you will be really cranky when it gets to $100, $120, $150 or more. We are already seeing what is happening to our friends in Europe with natural gas shortages and over reliance on green energy.
Don't get me wrong, I am for saving the planet too, I am just a realist that knows that the technology to do this is just not here yet so we will continue to use fossil fuels, we just need to use them wisely. Smart policy rather than woke policy needs to prevail. What are the chances of that happening? From my observations, zero.
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