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Renewable investment dropped by largest margin ever

While watching the MotoGP in Sachsenring over the weekend CM couldn’t help but notice the lack of wind power being generated nearby the circuit. Last week we saw Ontario Premier Doug Ford terminate 758 renewables projects on the basis of their inability to provide sustainable and affordable energy. Last week South Australian consumers were hit with spot prices of $1,200/kWh because of the lack of baseload. Former Premier Jay Weatherill was turfed in the recent election because voters were growing tired of facing the highest electricity prices, slowest growth and highest unemployment rates. Despite all the jaw boning about the big renewable energy job machine, the Australian Bureau of Statistics noted, “by state, South Australia has seen a 65% fall in green jobs since the peak in 2011/12. Victoria down 46%, Queensland down 49%, NSW down 32% & WA down 55%.”

The FT noted today that “Investment in renewable power declined last year by its largest amount ever and is likely to keep falling this year, threatening global climate goals…”

Should we be surprised to see the Turnbull Government in Australia look to keep open the very power stations they were seeking to close to meet Paris targets? Isn’t the 7% fall in global renewables investment last year yet more evidence of the waning popularity of saving the planet? IATA forecasts aircraft passenger travel to double by 2030. Gas guzzling SUVs are also toward the top of the sales charts. Consumers expect others to save the planet for them. Consumption patterns reveal one’s true care for climate change i.e. not much.

South Australia has been the biggest red flag when it comes to failed renewable policy in action. The irony is the state dynamited the old coal fired plants as a virtue signaling exercise. We have even seen some corporations look to take power plants over to become self sufficient because they have no faith in the grid.

Opposition leader Bill Shorten might want to censure coal fired power backers for being “knuckle draggers” but with a risk of repeat $1,200/kWh spot prices thanks to overreliance on renewables, many consumers will gladly wear that as a badge of honour if it means they can afford to heat their homes due to the overly cold winter.

Australia can learn from Ontario’s Doug Ford on energy policy

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Ontario Premier Doug Ford Jr’s Progressive Conservatives are pulling the plug on 758 renewables projects costing $790mn. The plan is to cut hydro rates by 12% which had been inflated by Wynne’s Liberals for 15 years to subsidize these green projects. Energy Minister Greg Rickford announced that none of the cancelled projects have reached “development milestones,” so believes it should be cheaper to scrap them now.

Three things stand out:

A senior Liberal spokesperson said, “Why would firms do business in Ontario if they see this kind of government meddling?

Well 12% lower electricity prices could be a start. The Liberals should look at how higher electricity prices in South Australia are driving businesses out of the state. The Independent Electricity System Operator said yesterday that “there are other means of meeting future energy supply and capacity needs at materially lower costs than long-term contracts that lock in the prices paid for these resources.

The German contractor needs better lawyers if this is a problem:

The CEO of wind turbine contractor WPD in Germany said in an open letter that it stands to lose up to $100mn on the cancellation of the White Pines project (which residents strongly opposed) for 9 wind turbines which commenced in 2009 yet is still not completed. A turbine a year? That’s a jobs creation scheme…stretch it out for as long as possible to fudge the employment numbers (at taxpayers expense). Did WPD just expect that Wynne would win another term hence not needing to lock down contract terms that covered risk of this sort. Where is the “based on clause 7, section 3 we will seek full compensation for your action.”? Why not mention that in the letter?

Fears of renewable job losses:

All this nonsense about green jobs creation is farcical. The Australian Bureau of Statistics (ABS) renewable employment figures which showed all states seeing declines. By state, South Australia has seen a 65% fall in green jobs since the peak in 2011/12. Victoria down 46%, Queensland down 49%, NSW down 32% & WA down 55%. The problem with green jobs is they are not sustainable.

Premier Doug Ford sacked Hydro One CEO Mayo Schmidt (whom he promised to fire at the June 7 election), a man he dubbed “the $6 million dollar man”without the expected $10.7 million severance payment (reduced to $400,000) and is replacing the company’s board of directors.

Let’s not forget Ford annihilated Liberal Kathy Wynne so badly her party can’t even serve in parliament. While liberals were complaining Ford won it for being a white heterosexual male they overlooked that most constituents which gave Liberals 15 years to show something were sick of being taken for mugs. High electricity prices were a major campaign issue.

An IPSOS poll taken before the poll showed that the Liberals polled “zero” for leading on any issues with respect to economy, energy costs, healthcare, taxes, education, minorities or any other issue…The Ontario Progressive Conservatives were polled as having the best policies for economy, energy and taxes. Just goes to show when you listen to the electorate and actually enact on promises they amazingly like it and can win office.

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Power prices hit $1200/kWh in SA

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When the wind doesn’t blow, South Australia’s 40% reliance on renewables gets exposed for it’s Achilles heel – lunatic power prices. At one stage today, power prices hit twelve hundred dollars ($1200) a kWh. Put into layman’s terms, if you accidentally left the porch lights on when you went to work and they were powered by two 100 watt light bulbs, in 10 hours each would rack up 1 kWh of energy. So that little mistake would cost $2,400 at those prices! So much for Elon Musk’s mega battery saving the day for South Australians during power shortages. No wonder Jay Weatherill’s government was turfed.

Why discontinue?

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This is a chart of the change in the US Fed balance sheet, a series that has just been discontinued. Is this because the Fed is about to step up its activity and offering wider disclosure on tapering activity might spook markets? Given that 72% of the growth in S&P earnings has been driven by buybacks since 2012, it stands to reason the market is not exactly providing the type of confidence inducing organic lift the index reflects. Bank of America revealed that “net buying of Tech sector in the 1H was entirely buyback-driven.” 

Kind of reminds CM of the day Bernanke’s Fed announced it would no longer report M3 money supply a year before the financial markets headed into the GFC. CM estimated on p.4 of a report several years ago that M3 money supply by 2018 on constant long-term growth rates would turn into around $35 trillion from the $10 trillion at the time it was discontinued.

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Nothing to see here? Throw a deteriorating fixed income market with fewer buyers and corporates that have binged on cheap credit to fuel buybacks, it doesn’t look like the stuff dreams are made of. The chart below shows that quarterly pre-tax US profitability is struggling since 2011. Earnings (E) are not doing so well. It is by the grace of falling number of traded shares (S) that makes the EPS look flattering.

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We took the liberty of comparing corporate profitability since 1980 and correlating it to what Moody’s Baa rated corporate bond effective 10yr yields. An R-squared of almost 90% was returned.

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Why not use the Aaa spread instead? Well we could do that but looking over the last decade the average corporate debt rating profile looks like this. We have seen a massive deterioration in credit ratings. If we look at the corporate profitability with Baa interest rates over the past decade, correlation climbs even higher.

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We shouldn’t forget that the US Government is also drunk on debt, much of it arriving at a store near you. $1.5 trillion in US Treasuries needs refinancing this year and $8.4tn over the next 3.5 years. Couple that with a Japan & China pulling back on UST purchases and the Fed itself promising to taper (but now hide the results of) its balance sheet. So as an investor, would you prefer the relative safety of government debt or take a punt on paper next to junk heading into a tightening cycle?

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Discontinuation of series always carries a sense of deep cynicism for its true intention. It is not an onerous data set to cull. Sure we can fossick around and try to find it hidden in the archives of the Fed website but the idea is that they probably don’t want to publicise how much more they intend to flog.

Staring at the dictator – redux

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In Feb 2017, CM wrote a piece titled ‘Staring at the Dictator’ which highlighted that winning hearts and minds comes from sensible and reasonable dialogue. Not from widespread activism where the sole purpose is to shut down debate. Hasn’t the left learnt that physically and verbally bullying people senseless and mocking them for their supposed ignorance doesn’t work? Yet they still keep screaming the same hypo-ventilated bile, as Robert Reich has below. Nothing would make CM happier if democracy does its job in any country. If we believe he speaks for the majority, he has absolutely nothing to fear. No need for protests of any kind. Yet he shouldn’t blame the constituents for overthrowing bad governments who believe in divine incumbency. Blame bad policy.

If Democrats hadn’t treated the last election as a coronation then perhaps Hillary Clinton may have got her wish. Things had obviously become so bad at the grass roots level that the establishment was rejected. Even after all of the p*ssy grabbing allegations had been brought to light, Trump still won. His vulgarity was on the ballot. His “no one respects women more than I do” lie after this revelation in the 2nd debate was broadcast to 100s of millions. It was also on the ticket. Despite his supposed racist demagoguery, he got a higher proportion of black and Hispanic voters than either McCain or Romney. Don’t hate the player, hate the game. These are facts, as much as we may not like what they portend.

The #whitelash arguments don’t rub either because the same people voted a black man in twice. Clinton didn’t lose because she was a woman. She lost in part because she ran on the basis she was a woman. Surveys may show that Republican voters don’t want a female president however should Ambassador to the UN Nikki Haley run in 2024 she would win their support on the basis of her strength, not her gender or her Native American/Sikh heritage. Ability should be all that matters. Clinton’s constant griping 18 months after her loss shows just how poor a president she would have made. It is so bad even Rasmussen reports that a majority of Democrats don’t think she would have been any better than Trump. Take that!

If Trump loses legitimately (assuming he runs) in 2020 then so be it. In the last 1.5 years in office, American citizens have had plenty of time to weigh him in their own minds, regardless of the media’s relentless onslaught of over-the-top sensationalist click-baiting. If citizens feel he has delivered in areas that affected them on a personal level, they’re probably on balance willing to vote for the same again unless the alternative offers something better. At the same time they have had plenty of time to weigh the Democrats. They’ve seen first hand the bitterness at the State of the Union plastered on the faces of Pelosi et al. They’ve heard Maxine Waters call to her supporters to gang up on the staff in the current administration. They’ve seen countless Hollywood celebrities chant vile hate from celebrating the decapitation of the President, calling Ivanka a “feckless c*nt” to hoping 12yo Barron is ripped from Melania’s arms and caged with pedophiles. Democrat supporters have gone so far as to shoot GOP politicians. CM is quite sure that however horrid the President may be, these are hardly the types of antics that will sway opinion of the swing voters to join the self-appointed ‘righteous’ like Reich. And no, not all Democrats think like this much like many Republicans don’t endorse stupidity from their own. It lets down both sides.

Republicans or swing voters do not respond well to being called intolerant, cruel, racist, misogynist, xenophobic or climate sceptics without fact or basis. Since when does one consciously vote for others over their own needs? It isn’t selfish. If one is buried under onerous tax legislation, red tape or financial destitution do they vote to put the interests of others above their own? No. As a long term Liberal Party (aka conservatives) voter in Australia, the current party has ‘left’ me. I didn’t leave them. They did not win my vote last election. It must be earned. They don’t represent my values. It didn’t take tribal beltings to force me to a conclusion. Nor negative media to discover it. Yet somehow the activists believe that constant bleating will cause me to change my mind.

What would be nice is to see properly supported factual (not subjective rhetorical) evidence that 63mn Trump supporters are as one when it comes to all the claims they make. I would love to see the arguments in all their gore should they exist. Not a one off event. Happy to see where my own arguments hold deep flaws.  Many Trump voters detest him on a moralistic level yet are happy to champion his achievements if they feel they get a direct benefit from them. So often claims are made to undermine his followers. Every time (and often) these assertions prove to be baseless, the journey to sway the other side to see reason gets thwarted even further. Time magazine issuing a confession over the photo-shopped cover of last week ended up at the bottom of a long article. It just shows just how unapologetic they are. Kathy Griffin was sorry until she wasn’t again. Talk about self serving.

To the comments made by Robert Reich today:

“My friends, this is a dark hour. Intolerance, cruelty, racism, misogyny, xenophobia, and environmental destruction have been let loose across the land.

Trump controls the Republican Party, the Republican Party controls the House and Senate, and the Senate and Trump will soon control the Supreme Court.

Republicans also control both chambers in 32 states (33 if you count Nebraska) and 33 governorships. And in many of these states they are entrenching their power by gerrymandering and arranging to suppress votes.

Yet only 27 percent of Americans are Republican, and the vast majority of Americans disapprove of Trump. The GOP itself is now little more than Trump, Fox News, a handful of billionaire funders, and evangelicals who oppose a woman’s right to choose, gay marriage, and the Constitution’s separation of church and state.

So what are we – the majority — to do?

First and most importantly, do not give up. That’s what they want us to do. Then they’d have no opposition at all.

Second, in the short term, if you are represented by a Republican senator, do whatever you can to get him or her to reject Trump’s Supreme Court nominee, or, at the least, postpone consideration until after the midterm elections. Urge others to join with you. 202-224-3121

Third, make a ruckus. Demonstrate. Engage in non-violent civil disobedience. Fight lies with truth. Join the resistance. Participate in http://www.indivisible.org and https://swingleft.org.

Fourth, vote this November 6 for people who will stand up to all this outrage. Mobilize and organize others to do so. Contact friends and relations in “red” states, and urge them to do the same.

Fifth, help lay the groundwork for the 2020 presidential election, so that even if Trump survives Mueller and impeachment he will not be reelected.

Finally, know that this fight will be long and hard. It will require our patience, our courage, and our resolve. The stakes could not be higher.”

Perhaps what Reich fails to get is that he is almost backhanding his own supporters in his rant. It is more than likely that a majority of Republican (and no doubt many centrist Democrat) voters want the liberal left to give up because it has become nothing but white noise. The more they protest the more tuned out they become. Control of the Supreme Court? I encourage you to read the cake shop transcript where Associate Justice Sotomayor shows without a doubt she is a political activist, not a judge. It is embarrassingly obvious. The Supreme Court is only supposed to apply impartiality around current laws (or those at the time of the legal action), not make a song and dance about wish lists and try to piece a verdict around how nice it would be if things were different. She was trying to argue 2018 laws around a 2012 issue. One doesn’t have to be a lawyer to work that one out.

To the assertion that a handful of billionaire funders lean the GOPs way, he should reflect that most of the billionaires in America reside in blue states. In today’s world, the big corporations win more by backing Democrats because more onerous regulation benefits their ability to squeeze out the smaller competition thanks to red tape. Laissez faire? You’ve got to be kidding.

Perhaps in closing, the most compelling argument Reich makes is the one which stands out above all others – “we, the majority.” If he wants to stop Trump, he just needs the majority to vote on the shared basis of his beliefs – case closed. No need for protests. After all he says that Trump’s base is so small. If almost 3 years of negative spin on the sitting POTUS has failed to convince the majority, nothing will. Screaming in public may seem therapeutic to the masses but should the GOP win the mid-terms then Reich will prove just as out of touch as he was prior to the election.

Silence is golden. Let democracy take its course. Let us see whether the Russians consolidate their pick in the mid-terms…Putin has even more reason to ensure America sees more “red.”

EU tariffs the least of Harley’s worries

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Two weeks ago CM wrote, “Harley-Davidson (HOG) is the classic case of a divine franchise. While still the world’s largest maker of cruiser motorcycles, it is being swamped by new competition. HOG’s EBIT performance has slid for the last 4 years and is even below the level of 2012…Sadly for HOG, 1Q 2018 has revealed even worse numbers. Global unit sales were 7.2% down on the previous year and 12% down at home.  Japan and Australia were soft. Looking at the strategy it looks like throwing spaghetti at a wall and hoping it sticks.

There is a touch of irony in that Harley was starting to do better in EMEA markets in Q1 2018 (+6.8%). Now EU tariffs are likely to sting the maker some $2,200 a unit average on motorcycles sold there. The company is seeking to bypass this in the short term by sucking up the cost of the tariff to help dealers before arranging (one imagines) for final knock down kit assembly outside the USA. A downturn in EMEA is a nightmare that exacerbates the weakness elsewhere around the globe. H-D Japan shifted 16,000 units at the peak. It will be lucky to do 9,500 this year. The business has lost its compass.

At the moment it seems the brand is stuck in an echo chamber. Harley announced at the start of the year it was closing a Kansas City plant for a net loss of 350 jobs. The rot has been in since before the tariffs. Trump lambasted Harley Davidson on Twitter for waving the white flag too soon but it is probably more evidence of the scatterbrain negative spiral approach to dealing with the predicament it finds itself in. Harley may want half of sales to come from overseas markets but it may not come through growth outside of America, rather a decline from within.

In closing Harley’s are a cult. There aren’t many brands where customers are prepared tattoo it to their bodies. Sadly this mentality means that Harley is still committed to conduct $700mn in buybacks which smacks of denial for a company seeing EBIT dwindle at 40% below peak. Then again, we shouldn’t be surprised when buybacks have made up 72% of all S&P500 earnings growth since 2012!! A recent survey that showed 75% of asset managers have not experienced the tech bubble collapse in 2000. Sure it is nothing to be worried about! Experience is a hard teacher. You get the test first and the lesson afterwards!

Oi vey Australia! Time to develop innovation

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While the Australian school system seems obsessed dealing with LGBT awareness, gender fluidity and social causes, a day in the most up to date Israeli cyber park in the Negev Desert shows just how seriously the small nation deals with the real world and preparing future generations for it.

It should come as no surprise that Israel lives under constant threat. The Jewish State is happy to leave LBGT 20yr celebrations to rainbow flags on the beachfront in Tel Aviv. When it comes to education it is all about working kids hard to be competitive, hungry and innovative. Primary school students learn computer coding and mathematics. They don’t hold cross dressing presentations or participate in Family Day as a replacement for Mothers Day to show inclusiveness for minorities. Survival matters.

Those same primary schoolers learn even more skills when they hit high school. The government monitors 13yo kids for their cyber acumen to screen the best possible assets for the future. By 16yo the weeding out process is all but done.

The notorious IDF cyber unit 8200 is relocating to this cyber centre in Negev where over a dozen buildings are being erected to gather the finest innovators in the world. It’s a $50bn investment. Even the Israeli Defence Force standard cyber units will relocate there. As Israelis have compulsory military service from 18 years of age, the best and brightest get automatically assigned to these cyber teams.

The universities are collaborating with corporates and government. They work on real solutions that matter rather than shoot for research on questions nobody is asking. Companies like Intel are setting up R&D centres in Israel because the talent is there.

Australia may have a Department if Innovation & Science which has a billion dollar budget. The Israeli tech infrastructure organizers in places like the Negev encourage start ups. They award grants thru competitive processes based purely on merit. Instead of cutting grant cheques to all for participating in the Aussie “everyone wins a prize” mentality, the idea is that only the “best” idea out of 500 wins. The rest are forced to make more compelling arguments and work to secure alternative funding. That weeds out waste. If Australia just divvies out with fairness in mind, resources are misallocated and it is more likely the capital allocators are clueless.

The system is impressive beyond words. Listening to a dozen presenttions ranging across medical, cyber and agricultural fields, one cannot be thoroughly in awe of an early-thirties doctor from the neighboring university who has racked up 20+ patents for his inventions.

Then there is the tale of a 17yo intern who was given an asssignment to hack the vulnerability of a mobile phone manufacturer whose PR department lied through its back teeth to cover up a flaw in the system they boasted was secure. They cited the original hack wasn’t done over a secure VPN. In 3 days the 17yo kid hacked that too. Take about a face plant.

The same group told a large American corporate that it’s video streaming had a bug. Instead of admitting the lapse, the tech giant hunkered down and dug in its heels. They put a bandaid on it and were hacked again. They have managed to make a computer that is next to another but not connected in anyway, even via WiFi to make functions purely based on heat.

The answer is simple though. There are many cultural reasons why this type of education system works in Israel. While Australia has no hope of holding a candle to the Israelis there are huge lessons to be learnt about fostering a culture of individual excellence rather than move down the slippery slope that fails to prepare our kids for the future. It maybe too late.