Japan

Actually, vote on the political emergency

No surprise to see The Guardian parrot on about a climate emergency. The editorial completely misses out on the political emergency we face. The economic climate is a massive issue facing Australia. When Bill Shorten tells us that he “will change the nation forever” we shouldn’t view that positively. It is probably the honest thing he has said. Labor’s policy suite is the worst possible collection one could assemble to tackle what economic headwinds lie ahead. Our complacency is deeply disconcerting.

First let’s debunk the climate noise in The Guardian.

The math on the climate emergency is simple. Australia contributes 0.0000156% of global carbon emissions. No matter what we do our impact is zip. If we sell it as 560 million tonnes it sounds huge but the percentage term is all that is relevant. Even Dr Finkel, our climate science guru, agrees. What that number means is that Australia could emit 65,000x what it does now in order to get to a 1% global impact. So even if our emissions rise at a diminishing rate with the population, they remain minuscule.

Bill Shorten often tells us the cost of doing nothing on climate change is immeasurable. He’s right, only in that “it is too insignificant” should be the words he’s searching for.

Perhaps the saddest part of the Guardian editorial was to say that the Green New Deal proposed by Alexandria Ocasio Cortez was gaining traction in the US. It has been such a catastrophic failure that she lost an unsolicited vote on the Senate floor 57-0 because Democrats were too embarrassed to show up and support it. Nancy Pelosi dismissed it as a “green dream.” At $97 trillion to implement, no wonder AOC says feelings are more important than facts.

With the 12-year time limit to act before we reach the moving feast known as the tipping point, it gets confusing for climate sceptics. Extinction Rebellion wants things done in only 6 years. The UK House of Commons still can’t get a Brexit deal done inside 3 years but can act instantaneously to call a “climate emergency” after meeting a brainwashed teenager from Sweden. It speaks volumes of the desperation and lack of execution to have to search for political distractions like this.

The ultimate irony in the recent celebration of no coal-fired power in the UK for one week was fossil fuel power substituted all of it – 93% to be exact. Despite the energy market operator telling Brits that zero carbon emissions were possible by 2025 (40% of the current generation capacity is fossil fuel), it forgot that 85% of British homes heat with gas. Presumably, they’d need to pop on down to Dixon’s or Curry’s to buy new electric heaters which would then rely on a grid which will junk 40% of its reliable power…good luck sorting that out without sending prices sky high. Why become beholden to other countries to provide the back-up? It is irrational.

Are people aware that the German electricity regulator noted that 330,000 households (not people) were living in energy poverty? At 2 people per household, that is 1% of the population having their electricity supply cut off because they can’t afford to pay it. That’s what expensive renewables do. If the 330,000 could elect cheap electricity to warm their homes or go without for the sake of the climate, which would they choose? 100% cheap, reliable power. Yet Shorten’s plan can only push more into climate poverty which currently stands at 42,000 homes. This is before the economy has started to tank!

If one looks across Europe, it is no surprise to see the countries with the highest level of fossil fuel power generation (Hungary, Lithuania & Bulgaria) have the lowest electricity prices. Those with more renewables (Denmark, Germany & Belgium), the highest. That is Australia’s experience too. South Australia and Victoria have already revealed their awful track record with going renewable. Why did Coca-Cola and other industries move out of SA after decades? They couldn’t make money with such an unreliable

Ahh, but we must protect our children and grandchildren’s futures. So low have the left’s tactics sunk that using kids as human shields in the fight for climate change wards off conservatives calling out the truth because it is not cool to bully brainwashed kids. We should close all our universities. As the father of two teenagers, CM knows they know everything already so there is little requirement for tertiary education!

The Guardian mentioned, “But in Australia, the Coalition appears deaf to the rising clamour from the electorate [on climate change].” Really?

CM has often held that human consumption patterns dictate true feelings about climate change. Climate alarmist Independent candidate Zali Steggall drives a large SUV and has no solar panels on her roof! Her battleground in the wealthy seat of Warringah is probably 70%+ SUV so slapping a Zali bumper sticker does nothing but add to the hypocrisy.

Why do we ignore IATA forecasts that project air travel will double by 2030? Qantas has the largest carbon offset program in the world yet only 2% elect to pay the self-imposed tax. Isn’t that telling? That is the problem. So many climate alarmists expect others to do the heavy lifting.

SUVs make up 43% of all new car sales in Australia. In 2007 it was 19%. Hardly the activity of a population fretting about rising sea levels. In Warringah, waterfront property sales remain buoyant and any bank that feared waves lapping the rooves of Burran Avenue would not take such portfolio risk, much less an insurance company.

Shorten’s EV plan is such a dud that there is a reason he can’t cost it. Following Norway is great in theory but the costs of installing EV infrastructure is prohibitively expensive. It will be NBN Mark II. Will we spend millions to trench 480V connectors along the Stuart Highway?

Norway state enterprise, Enova, said it would install fast chargers every 50km of 7,500km worth of main road/highway. Australia has 234,820km of highways/main roads. Fast chargers at every 50km like the Norwegians would require a minimum of 4,700 charging stations across Australia. Norway commits to a minimum of 2 fast chargers and 2 standard chargers per station.

The problem is our plan for 570,000 cars per annum is 10x the number of EVs sold in Norway, requiring 10x the infrastructure. That would cost closer to $14bn, or the equivalent of half the education budget.

The Guardian griped that “Scott Morrison’s dismissive response to a UN report finding that the world is sleepwalking towards an extinction crisis, and his parliamentary stunt of fondling a lump of coal”

Well, he might doubt the UN which has been embroiled in more scandals related to climate change than can be counted. Most won’t be aware that an internal UN survey revealed the dismay of unqualified people being asked for input for the sake of diversity and inclusion as opposed to choosing those with proper scientific qualifications. The UN has climbed down from most of its alarmist predictions, often citing no or little confidence of the original scare.

Yet this election is truly about the cost of living, not climate or immigration. The biggest emergency is to prepare for the numbers we can properly set policy against.

We have household debt at a record 180% of GDP. We have had 27 years of untrammelled economic growth. Unfortunately, we have traded ourselves into a position of too much complacency. Our major 4 banks are headed for a lot of trouble. Forget meaningless stress tests. APRA is too busy twiddling its thumbs over climate change compliance. While the Royal Commission may reign in loose lending, a slowing global economy with multiple asset bubbles including houses will come crumbling down. These banks rely 40% on wholesale markets to fund growth. A sharp slowdown will mean a weaker dollar which will only exacerbate the problem.

We have yet to see bond markets price risk correctly. Our banks are horribly exposed. They have too little equity and a mortgage debt problem that dwarfs Japan in the late 1980s. Part/whole nationalization is a reality. The leverage is worse than US banks at the time of the Lehman collapse.

We have yet to see 10% unemployment rates. We managed to escape GFC with a peak of 6% but this time we don’t have a buoyant China to rescue us. Consumers are tapped out and any upward pressure on rates (to account for risk) will pop the housing bubble. Not to worry, Shadow Treasurer Chris Bowen assures people not to panic if their home falls into negative equity! This is the level of economic nous on the catastrophe that awaits. It is insanely out of touch.

Are our politicians aware that the US has to refinance US$8.4 trillion in US Treasuries in the next 3 years? That amount of money will crowd out a corporate bond market which has more than 50% of companies rated BBB or less. This will be compounded by the sharp rise in inventories we are witnessing on top of the sharp slowdown in trade (that isn’t just related to the trade war) which is at GFC lows. The 3.2% US economic growth last quarter was dominated by “intellectual property”, not consumption or durable goods.

China car sales have been on a steep double-digit decline trajectory for the last 9 months. China smartphone shipments dwindle at 6 year lows. In just the first four months of 2019, Chinese companies defaulted on $5.8 billion of domestic bonds, c.3.4x the total for the same period of 2018. The pace is over triple that of 2016.

Europe is in the dumps. Germany has had some of the worst industrial production numbers since 2008. German GDP is set to hit 0.5% for 2019. France 1.25% and Italy 0.25%. Note that in 2007, there were 78mn Europeans living in poverty. In the following decade, it hit 118mn or 23.5% of the population.

Global bellwether Parker Hannifin, which is one of the best lead indicators of global industrial growth, reported weaker orders and a soft outlook which suggests the outlook for global growth is not promising.

This election on Saturday is a choice between the lesser of two evils. The LNP has hardly made a strong case for reelection given the shambolic leadership changes. Take it to the bank that neither will be able to achieve surpluses with the backdrop we are headed into. Yet when it comes to economic stewardship, it is clear Labor are out of their depth in this election. Costings are wildly inaccurate but they are based on optimistic growth scenarios that simply don’t exist. We cannot tax our way to prosperity when global growth dives.

Hiking taxes, robbing self-managed super fund retirees and slamming the property market might play well with the classes of envy but they will be the biggest victims of any slowdown. Australia has run out of runway to keep economic growth on a positive footing.

We will do well to learn from our arrogance which has spurned foreign investment like Adani. We miscalculate the damage done to the national brand. Adani has been 8 years in the making. We have tied the deal up in so much onerous red tape, that we have done nothing more than treating our foreign investors with contempt. Those memories will not be forgotten.

There will come a point in years to come where we end up begging for foreigners to invest at home but we will only have ourselves to blame.

The editorial closes with,

However you choose to exercise your democratic decision-making on Saturday, please consider your candidate’s position on climate and the rapidly shrinking timeframe for action. We have endured mindless scare campaigns and half-baked policy for too many decades. We don’t have three more years to waste.

This is the only sensible quote in the entire article. The time for action is rapidly shrinking. However, that only applies to the political and economic climate. One can be absolutely sure that when the slowdown hits, saving the planet will be furthest removed from Aussie voters’ minds.

Japan lets in 42 refugees in 2018

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Japan is often criticised for its ‘heartless’ stance on refugees. Last year, the country let in only 42 refugees or 0.4% of those that applied for asylum. In 2009, 1,389 applications were made with 30 refugees granted status. In 2017, 20 positions were granted despite applications peaking at 19,629. Last year 10,493 applications had been made. Japan is not a signatory to the UN Global Compact on Migration.

Japan is probably one of the most successful monocultures around. 98% of the population is Japanese. It has low crime, next to no religious-based terrorism and takes a stance that all foreigners should assimilate with the culture or they will be sent home for non-compliance that breaks local laws. Japan is not interested in virtue signaling. Social justice warriors who hurl insults ignore the importance Japan places on protecting its societal values.

CM wrote last week how Germany is suffering from growing civil disruption for not protecting the culture. Japan has similar demographical challenges as Germany but the former is looking for solutions that point to more robotics and highly selective screening.

Japan still has issues with crime but the government understands that the citizens do not want a disruption to the status quo. Having lived there for 20 years it is patently obvious why they have no interest in an open doors policy.

To learn more about crime in Japan refer to:

Pensioner Crime

Breakdown in the nuclear family

Yakuza

Terrorism in Japan

Was Tesla/Maxwell deal smart?

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Tesla (TSLA) has bought Maxwell (MXWL) for an all-stock transaction at US$288m notional value. The question is why any company would accept an all share transaction from a chronic loss-making company to buy its supposedly “amazing” futuristic dry capacitor technology? Are shareholders of MXWL as hooked into the EV cult as those at Tesla? Clearly not all of them. A group of MXWL investors launched a class action to block the deal. Sadly they failed.

If the management of Maxwell truly believed this deal was a winner and the technology was game-changing, why not demand cash? Why didn’t Tesla invite Panasonic’s battery boffins to assess whether the technology had merit? One must question how good is Maxwell’s IP to only find one buyer and for an all share deal? Where were the private equity (PE) vultures circling? How little confidence in one’s product or how much faith in Musk’s cult-like status to fall for such terms?

Maxwell at the 9 month FY2018 stage reported US$91.6mn (-8%YoY) in revenue and a net loss of $30.2mn. Cash halved from $50.122m in 9M 2017 to $23.561mn 9M 2018. The company did sell its high voltage product line to Renaissance Investment Foundation for $55mn with a 2-year $15mn earn out. That involved an upfront payment of $48m making pro-forma cash as at Sep 30, 2018, total $69mn. The company has an accumulated deficit of $277mn.

While the two companies had been in conversation for several years, Musk seemed to get serious in December 2018.

Forget the technological merits of Maxwell. It is easy to work out the quality of the deal based on the structure and the lack of appetite from the mega battery makers or PE firms to validate it. There is no way that MXWL didn’t show its wares to the majors. Given the deal was announced in February 2019, the EV battery and PE world would have at the very least done some back of the envelope calculations to value the business.

All that Musk has done has absorbed another loss-making business into the same cult and give himself another “dream” to add to the smoke and mirrors story.

Maxwell’s management must have channeled Don Adams, “good thinking, 99” but will undoubtedly end up saying, “sorry about that, Chief!”

Japan has the best drink driving laws – socialized punishment

NSW Police will take away one’s license for breaking drink-driving laws (even at low end) after May 20.

Japan has the best method of all. The driver is fined up to ¥1,000,000 ($14,000) and up to 5 years jail. Passengers are fined up to ¥500,000 ($7,000) and up to 5 years each for allowing the same person to drive while intoxicated. Socialized responsibility!

In 1993 Japan had 1,480 excess alcohol related road fatalities. In 2017 it was 213 (-85%). Against total road deaths of 10,650 and 3,904 respectively. Therefore drink driving fell from 14% to 5.5% of all road deaths in Japan.

In 1993 there were around 80 fatalities in NSW. In 2017 it was 42. Perhaps a socialized drink driving fine schedule would cut it further than just losing one’s license. Against total road deaths NSW had 581 and 405 respectively. Or 14% to 10% of all road mortalities over the same period.

Return of the State-Owned Enterprise

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A new investor to Japan once asked CM how to categorise corporate behaviour in the land of the rising sun. CM replied, “Japan is not capitalism with warts, but socialism with beauty spots.

Latest reports confirm the Bank of Japan (BoJ) has now become a top 10 shareholder in almost 50% of listed stocks. In a sense, we have a trend which threatens to turn Japan’s largest businesses into quasi-state-owned enterprises (SoE) by the back door. The BoJ now owns $250bn of listed Japanese equities. It is the top shareholder in household Japanese brands such as Omron, Nidec and Fanuc. At current investment rates, the BoJ is set to own $400bn worth of the market by 2020-end.

The original reason for this move was to boost the ETF market and hope that Mrs Watanabe would pocket her winnings and splurge them at Mitsukoshi Department Store to increase consumption. Sadly all she has done is stuff it under the futon.

Although the government has been very public about the drive for good corporate governance, a stewardship code that drives to unwind cross-shareholdings, improve liquidity and lift returns, sadly the BoJ essentially reverses free-float and confounds the ability of companies to be attractive investments. What will happen if one day the BoJ announces it needs to pare its balance sheet back or that its holdings become too noticeable? These stocks will crater and Mrs Watanabe will become even more gun shy.

We shouldn’t forget that behind the walls of the BoJ, there is discussion to buy all $10 trillion of outstanding Japanese Government Bonds (JGBs) and convert them into zero-coupon perpetual bonds with a mild administration fee to legitimise the asset. Global markets won’t take nicely to wiping out 2 years worth of GDP with a printing press. Such a reckless experiment has yet to hit the Japanese Diet for discussion because such a move will require legislation to approve it. If it happens, the inflation the BoJ has now given up on will turn into a tsunami.

That sinking feeling?

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We are often told how robust the world economy is. Global trade tends to be a good indicator. Looking at the latest Clarkson’s December 2018 annual review, we can see that the number of shipyards that make the vessels (20,000dwt+) that look after global trade has slid from a peak of 306 in 2009 to 127. Newbuild orders have slid from 2,909 vessels to 708. Wärtsilä is anticipating a gradual recovery in contract new builds as high as 1,200 ships by 2022. Wishful thinking?

According to Clarksons, the global fleet of all types of commercial shipping is 50% larger than it was before the GFC despite the World Trade Organization saying growth in global trade for 2019 is expected to fall 2.9%. The WTO has fingers crossed for 2020. The charts in this WTO report show the sharp slowdown in freight in Q4 2018 and Jan 2019.

Germany’s five leading ship financiers reported outstanding ship-related loans of 59 billion euros at the end of 2016 with an average problem loan ratio of 37%. In recent years they have been busy reducing or selling off shipping portfolios. HSH Nordbank required a 10 billion euro bailout by its 85% owners, federal states Hamburg and Schleswig-Holstein. It ended up being swallowed by private equity and renamed Hamburg Commercial Bank. Nord LB was looking to bail in Bremer LB beyond the 54.8% it already owns. Bremer LB had to write off  €400m of its shipping portfolio.

China has been aggressive, filling the void left by the Germans with high leverage financing to support the longer-term objectives of the Belt & Road Initiative. One wonders whether China plans to spoil the market by squeezing a damaged sector further. It wasn’t so long ago that South Korea’s  Hanjin Shipping went bust.

BTIG reported that ship scrapping in Q1 2019 was up 35% to 107,000dwt. Ship owners tend to scrap ships if the cost of idling or operating them exceeds this. Note Capesize shipping rates have fallen to around $9,000/day well below the $25,000 breakeven rate. The bellwether Baltic Dry Index is 27% down year on year and 85% below the peak levels seen in 2009.

The shipping industry has been sick for a decade. The majors have been busy merging, cutting debt and right sizing. Unfortunately it is  still in a pickle. A global slowdown will only exacerbate the issues in the industry.

The one area that looks interesting is the scrubber makers (eg Alfa Laval, Valmet, Fuji Electric). There has been a sharp uptick in growth for retro-fitting pollution equipment to existing ships instead of buying new equipment. Sometimes the best investments come when industries that require massive consolidation hit breaking point.

Panasonic pulls the plug on further Tesla capex

What a surprise? Panasonic is the main supplier of Tesla batteries. The Japanese tech giant is pulling the plug on further investment as it cites “financial problems” according to the Nikkei.

Panasonic had planned to ramp up production to 54GW by 2020 but it seems likely to stick to 35GW.

CM made the stance clear in the 30 reasons why Tesla will be a bug on a windshield report with respect to growth being at the mercy of suppliers willingness to co-invest.

Japanese suppliers are among some of the most tolerant around. For them to get pangs of concern should speak volumes about the real underlying conditions at Tesla. So much for a vote of confidence.