Investment

What could possibly go wrong?

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From Jo Nova

“SA Government has just agreed to run itself for 20 years off a plant that is a copy of Crescent Dunes in the US. It’s paying twice the price of wholesale coal power, the US plant took 5 years to build and worked for 1 year and 1 month before breaking down for 8 months.

Crescent Dunes only works at a 16% capacity factor which means a 150MW version would average only 24MW. Winter generation is a mere one third of summer (though there is only one year of data to go on!) SA may well be better off if Parliament has to shut down for winter, but how do you run hospitals and schools on one-third of the power?

What could possibly go wrong?”

80,000 litres of diesel an hour to save renewable energy failure

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You have to laugh at the irony. In order to make up for South Australia’s misguided renewable energy policy which has been the cause of numerous blackouts, 9 diesel generators costing $111mn will use 80,000 litres of diesel per hour to keep the lights on during power shortages. Had the Port Augusta coal fired plant not been ceremoniously dynamited as a virtue signaling exercise, South Australian tax payers would be $100mn better off as a start. Energy Plan Implementation ED Sam Crafter said after the initial 13-month period, there was an option to extend the lease for a further 12 months. There also was an option to walk away at the end of 25 months. So if South Australia chooses to extend the lease of the generators for another 12 months the cost won’t be included in the $111m. It is hard not to laugh at the irony of governments who make such appalling choices and cover up their mistakes by stealing more from taxpayers who they never properly showed costings to in the first place. Is it any wonder South Australia has the highest energy costs in the world, the highest unemployment rate in the country and the slowest growth. Don’t be surprised if Premier Jay Weatherill sees this as a fair price to pay to save the planet, even if South Australia is crushed in the process.

When scientists expose the obvious

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Below is a resignation letter written by a scientist who pretty much proved what I’ve often thought of the climate alarmists. It is a money game. Look no further than the hypocrites like Al Gore warning of disaster yet using more 21x more electricity than the average home or Leo DiCaprio flying in private jets all around the globe. No doubt there will be replies to this post that seek to discredit Hal Lewis as often the case when climate alarmists want to shut down a debate. One of the best books I read on the climate change hoax was ‘The Delinquent Teenager’ written by Donna Laframboise which exposes just how shameful the climate game is, exposing that internal studies conducted by the UNIPCC proved how it is all about politics, not science. Yet here we have a scientist who had a conscience and made his feelings thought

From: Hal Lewis, University of California, Santa Barbara
To: Curtis G. Callan, Jr., Princeton University, President of the American Physical Society
6 October 2010

Dear Curt:

When I first joined the American Physical Society sixty-seven years ago it was much smaller, much gentler, and as yet uncorrupted by the money flood (a threat against which Dwight Eisenhower warned a half-century ago).

Indeed, the choice of physics as a profession was then a guarantor of a life of poverty and abstinence – it was World War II that changed all that. The prospect of worldly gain drove few physicists. As recently as thirty-five years ago, when I chaired the first APS study of a contentious social/scientific issue, The Reactor Safety Study, though there were zealots aplenty on the outside there was no hint of inordinate pressure on us as physicists. We were therefore able to produce what I believe was and is an honest appraisal of the situation at that time. We were further enabled by the presence of an oversight committee consisting of Pief Panofsky, Vicki Weisskopf, and Hans Bethe, all towering physicists beyond reproach. I was proud of what we did in a charged atmosphere. In the end the oversight committee, in its report to the APS President, noted the complete independence in which we did the job, and predicted that the report would be attacked from both sides. What greater tribute could there be?

How different it is now. The giants no longer walk the earth, and the money flood has become the raison d’être of much physics research, the vital sustenance of much more, and it provides the support for untold numbers of professional jobs. For reasons that will soon become clear my former pride at being an APS Fellow all these years has been turned into shame, and I am forced, with no pleasure at all, to offer you my resignation from the Society.

It is of course, the global warming scam, with the (literally) trillions of dollars driving it, that has corrupted so many scientists, and has carried APS before it like a rogue wave. It is the greatest and most successful pseudoscientific fraud I have seen in my long life as a physicist. Anyone who has the faintest doubt that this is so should force himself to read the ClimateGate documents, which lay it bare. (Montford’s book organizes the facts very well.) I don’t believe that any real physicist, nay scientist, can read that stuff without revulsion. I would almost make that revulsion a definition of the word scientist.

So what has the APS, as an organization, done in the face of this challenge? It has accepted the corruption as the norm, and gone along with it…

I do feel the need to add one note, and this is conjecture, since it is always risky to discuss other people’s motives. This scheming at APS HQ is so bizarre that there cannot be a simple explanation for it. Some have held that the physicists of today are not as smart as they used to be, but I don’t think that is an issue. I think it is the money, exactly what Eisenhower warned about a half-century ago. There are indeed trillions of dollars involved, to say nothing of the fame and glory (and frequent trips to exotic islands) that go with being a member of the club.

Warned to be mild

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Steppenwolf coined the “born to be wild” moniker which became synonymous with Harley-Davidson. Harley is all about conspicuous consumption. It has generally been a good indicator of discretionary income. Harley is not so much about transport but lifestyle. Harley-Davidson’s sales fell 9.3% in the U.S. and 6.7% globally in Q2 2017, ending June 25th. Harley also stated it had lost ground in the big-bike market (601cc and above), dropping from 49.5% market share to 48.5%. Matt Levatich, President and CEO, Harley-Davidson. “Given U.S. industry challenges in the second quarter and the importance of the supply and demand balance for our premium brand, we are lowering our full-year shipment and margin guidance.” Q3 shipments are expected to be down c.20% (39,000-44,000 units).

Harley-Davidson sold 262,221 motorcycles last year and forecast a flat market this year but has downgraded those numbers to a forecast of 241,000 to 246,000 units (-7~8%). US shipments were well below expectations in the US.

Harley-Davidson is suffering from divine franchise syndrome. It has failed to modernize its line up until very recently. While it has plans to put 2mn new bikers on the road over the next 10 years, its competitors do not seem to be suffering with BMW, KTM and Triumph hitting new shipment records. The European makes have much broader product line-ups which adds to the rumours that Harley may wish to bid for Italian sportsbike maker Ducati from Audi to plug the segment gaps in its line up. Harley has had a failed attempt in the sports category via Buell but the Italian maker brings a proper platform to the party vs an in-house employee wanting to rev up Harley products out of a barn.

 

The sorry state of public pensions that are about to explode

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Perhaps the most disturbing fact that so many are choosing to overlook is the level of pension underfunding. Promises upon promises have been made and the nest eggs so many were expecting to retire on are likely to disappear or in the best case scenario be a mere fraction of what was originally thought. What a nightmare to wake up to. Decades of hard work gone up in smoke due to pension administrators sticking to unrealistic returns. Last year I wrote, ” US Pension Tracker assumes that public pension funds have a market based unfunded pension deficit of $4.833 trillion. The actuarial base (using a discount rate of 7.5%) of the pension deficit is approximately $1.041 trillion. This assumes an unfunded portion of $3.8 trillion. Using the 2016 20-year US Treasury bond yield of 1.71% the market based pension deficit explodes to over $8.8 trillion or a $7.5 trillion unfunded portion equating to around $74,000 per American household. For California alone this would push the pension debt per person above $135,000.”

Zero Hedge provides an interesting update on the coming crisis:

“We’ve written quite a bit over the past couple of months about the pending financial crisis in Illinois which will inevitability result in the state’s debt being downgraded to “junk” at some point in the near future (here is our latest from just this morning: “From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss).

Unfortunately, the state of Illinois doesn’t have a monopoly on ignorant politicians…they’re everywhere. And, since the end of World War II, those ignorant politicians have been promising American Baby Boomers more and more entitlements while never collecting nearly enough money to cover them all…it’s all been a massive state-sponsored scam.

As we’ve noted frequently before, some of the largest of the many entitlement ‘scams’ in this country are America’s public pension funds. Up until now, these public pension have been covered by stealing money set aside for future generations to cover current claims…it’s a ponzi scheme of epic proportions…$5-$8 trillion to be exact.

Of course, the problem with ponzi schemes is that eventually you get to the point where the ponzi is so large that you can’t possibly steal enough money from new entrants to cover redemptions from those trying to exit…and, with a tidal wave of baby boomers about to pass into their retirement years, we suspect that America’s epic ponzi is on the verge of being exposed for the world to see.

And when the ponzi dominoes start to fall, Bloomberg has provided this helpful map to illustrate who will succumb first…”

Try being an agent of change not a victim of it

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It is hard to feel sympathy for these news organizations that forget the golden rules of commerce – if you stop adding value your audience will consume elsewhere, Someone told me the other week that NYT subscriptions had soared. If indeed that was the case then why is the paper looking to junk half its editorial staff? Running the idea that free media is hurting advertising revenues and that shame on the paper for having to make rational business decisions. Free media might be part of the equation but had the NY Times stopped congratulating its self appraised excellence in bus shelters and billboards  realized that its journalism was the problem perhaps they might be expanding the kind of readership its advertisers would pay up for. Has the NYT not realized that the exposure of media outlets like CNN droning endlessly on about Russia-gate being a total fabrication for ratings is why trust in mainstream media is lower that the President?

The actions of the NY Times staff smacks of the same stupidity of the Sydney Morning Herald which has had to take two massive rounds of lay-offs inside a year because the product isn’t reaching. The SMH staff took a vote to strike at their evil overlords who put profit ahead of people. Welcome to the free market. When one journalist at the SMH became a scab (because he admitted the problem) he was vilified by his fellow workers. Biased in and biased out. Think of Channel 10 in Australia which is now under administration. Could it be the product that is not reaching? Could it be a lack of creativity or diversity in content (as opposed to diversity of background).

The NY Times does deserve credit though for trying to introduce balance to its columns with the introduction of a ‘climate sceptic’ (Bret Stevens) whose first article created such ructions that social media lit up like a Christmas tree – calling for his sacking and how the NY Times betrayed its loyal readers. Instead of praising the NY Times for trying to bring balance and diversity of thought into the mix, the group thinkers could only try to shut him down. It is exactly that type of reaction that will precipitate the demise of the paper. To be honest, when you read articles, journals, books or watch TV don’t you wish to learn other perspectives. Or do you want to listen to the same noise reverberating inside your own echo chamber?

It is natural to feel fear in the face of difficult times but staging protests only has the reverse effect. It is doubtful that management relishes having to retrench so many. However these people should live in the knowledge that management’s failure to turn around this wayward ship will result in their bosses’ necks. Instead of solutions, proposals and most importantly recognition of a failing product, they’ve chosen to be victims not agents.  Ironically at the moment NYT’s shareholders are behind management with the stock price up 50% YTD.

Illinois Police Pension can’t protect or serve – it is going bust

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Sadly the Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy. Local Government Information Services (LGIS) writes, “At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following year…Fund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”

The public pension black hole in America is an alarming issue.  In the piece, “The Public Pension Black Hole” it was plain to see the problems of unfunded state pensions is rife across America. Take California- “The US Federal Reserve (Fed) reported in 2013 that the State of California had an official unfunded pension liability status equivalent to 43% of state revenue. However, if marked-to- market with realistic discount rates we estimate that it is equivalent to 300% of state revenue or 7x greater. Going back to 2000, California had an unfunded liability less than 11% of tax collections. As a percent of GDP it has grown from 2% to 9.7% based on official figures. If our estimate is correct, the mark-to market reality is that California’s unfunded state pension (i.e. for public servants only) is around 18% of state GDP!”

The problem for Illinois is that a taxpayer funded bailout is all but impossible. The State of Illinois ranked worst in the Fed study on unfunded liabilities.  The unfunded pension liability is around 24% of state GDP. In 2000 the unfunded gap to state revenue was 30% and in 2013 was 124% in 2013. Chicago City Wire adds that the police fund isn’t the only one in trouble.

“Chicago’s Teachers Union Pension Fund is $10.1 billion in debt. Its two municipal worker funds owe $11.2 billion and its fire department fund owes $3.5 billion…All will require taxpayer bailouts if they are going to pay retirees going into the next decade…Put in perspective, the City of Chicago’s property tax levy was $1.36 billion in 2017…Paying for retirees “as we go,” which will prove the only option once funds run dry, will require almost quadrupling city property tax bills…Last year, it would have required more than $4 billion in revenue– including $1 billion for City of Chicago workers, $1.5 billion for teachers, and $1.5 billion for retired police officers and fire fighters.”

This problem is going to get catastrophically worse with the state of bloated asset markets with puny returns. Looking at how it has been handled in the past Detroit, Michigan gives some flavor. It declared bankruptcy around this time three years ago. Its pension and healthcare obligations total north of US$10bn or 4x its annual budget. Accumulated deficits are 7x larger than collections. Dr. Wayne Winegarden of George Mason University wrote that in 2011 half of those occupying the city’s 305,000 properties didn’t pay tax. Almost 80,000 were unoccupied meaning no revenue in the door. Over the three years post the GFC Detroit’s population plunged from 1.8mn to 700,000 putting even more pressure on the shrinking tax base.

In order for states and local municipalities to overcome such gaps, they must reorganise the terms. It could be a simple task of telling retiree John Smith that his $75,000 annuity promised decades ago is now $25,000 as the alternative could be even worse if the terms are not accepted. Think of all the consumption knock on effects of this. I doubt many Americans will accept that hands down, leading to class actions and even more turmoil.