Musings

Here’s one of my blogs where I quote points of interest from my various readings. Hope you get something out of them.

Inflation & strikes

I saw this quote the other day, lining up with the US teamsters (auto workers) mumbling about a strike. As you read the quote, remember:

  • Labor Shutdowns = <Goods & Service supply.
  • Print & spend policies (see my last blog here) = >Money supply.
  • >Money supply chasing <Goods = >Inflation pressures.

“More than 650,000 American workers are threatening to go on strike this summer – or have already done so – in an avalanche of union support not seen in the US in decades. ‘This will be the biggest moment of striking, really, since the 1970s’.” Bloomberg, July 2023. 

Inflation waves

I found this interesting – the concept of inflation moving in waves – from Crescat Capital trading desk:

” While the macro environment today differs from that of the 1970s or 1940s, a lesson from history remains: inflation tends to develop through waves. We have recently witnessed the conclusion of the first wave and are likely in the process of reaching a bottom in the recent deceleration period, with a new upward trajectory underway. The primary reason for this is the persistence of underlying issues that continue to drive inflation rates higher:

  • Irresponsible levels of government spending;
  • Escalating deglobalization trends, which necessitate the revitalization of manufacturing capabilities in economies;
  • Wage-price spiral, particularly driven by low-income segments of the society;
  • Ongoing supply constraints due to chronic underinvestment in natural resource industries;

 

CPI likely to reach a bottom in the near future.” —  Crescat Capital trading desk

 

The need for oil, and nuclear, and the reality of EV’s

The height of EV hypocrisy – Climate Change Minister Steven Guilbeault after exiting a meeting with the Alberta government last week, hopped into his white, gas-guzzling SUV.

I’ve long been stating that the so-called green energy move has been more political virtue signaling than reality. Perhaps Mr. Guilbeault is aware of some environmental realities surrounding EV’s.

Production: To make a 450 kg battery (typical for EV), you need to dig 200,000 kg of material. That will involve 100+ barrels of oil (mining equipment). Each ton of lithium apparently needs 100 tons of water, along with hydrochloric acid, to separate it from the bulk material. This in turn affects fish, wildlife and livestock for up to 150 miles from the mine.

From RepairSmith: “The mining process for every raw material can lead to soil, air, and water pollution. For example, lithium extraction can result in significant water supply disruptions for local communities in Australia and Chile. The EV battery production process also emits high carbon dioxide (CO2) levels. For example, producing one battery with a range of 40 kWh (e.g., Nissan Leaf) emits 2920 kg of CO2, while a 100 kWh (e.g., Tesla) emits 7300 kg of CO2.  EV batteries are expensive and heavy to ship. The lithium in EV batteries makes them highly flammable. As a result, they need to be stored and transported correctly. Not doing so can lead to fire risks, fatalities, profit losses, and more.”

Click here and here and here for more on the above.

After the EV is equipped with the battery, you have to charge it. Generating the electricity used to charge EVs may create carbon pollution. The amount varies widely based on how local power is generated, e.g., using coal or natural gas, which emit carbon pollution, versus renewable resources like wind or solar, which do not. This is the one area where the EV is superior in environmental impact to combustion engines. Even accounting for these electricity emissions, research shows that an EV is typically responsible for lower levels of greenhouse gases (GHGs) than an average new gasoline car. Still, there is an environmental impact.

However, now we come to the disposal problem: “The costs of recycling batteries are high, so many scrap yards and recycling companies avoid doing it. EV batteries come in various shapes and sizes, making the disassembling and recycling process time-consuming. Unfortunately, this also raises the cost of the battery material to the point where battery manufacturing companies prefer buying new battery materials over recycled material. The recycling process for lithium ion batteries leaves behind a ton of leftover material (manganese, nickel, and lithium) that’ll eventually end up in landfills.  Additionally, both pyrometallurgy and hydrometallurgy require a lot of energy and create hazardous waste, further polluting the environment.” 

The practicality issue: EV battery range often do not perform as well as the literature suggests. For example, extreme temperatures obliterate their mileage claims. As does using heat, air conditioning, and an increased speed average over the prescribed testing limits. Witness the pre-Christmas winter storm of 2022, where traffic was ground to a standstill through much of Ontario and lower New York. EV’s were running out of juice on major highways – an intimidating event for the the drivers no doubt. The batteries decline in range as they age. Some vehicle models follow a fairly linear  range decline of 1.5-2.0% per year, while most others drop 2-3% in the first couple of years before leveling to losing 1% per year. How practical is this for individuals planning extended trips after the first few years of ownership? Read this for more insights on this topic.

Investment Conclusion: Its clear that oil and gas are still essential for a clean environment, and the practicality of meeting our energy needs. As noted in the past, the AEI has predicted increased usage of fossil fuels going into 2040. So too is nuclear energy- the cleanest source of reliably and realistically meeting our electrical power needs.  For this reason, I continue to endorse investors consider adding uranium (used in nuclear power) and related producer stocks to ones diversified portfolio. I’ve also been slowly legging back into oil. I’ve covered that on a recent blog here.

Coming soon!

  • I recently conducted an interview with Seasonal Expert Brooke Thackray – and hope to have the video published early next week. We discussed the broad markets, gold, sentiment (the VIX), and some seasonal patterns to keep an eye on for the fall. I think you’ll like the more conversational format of that interview. We had a few laughs during the taping.
  • I also conducted an interview with Matt Montemurro, Director and PM with BMO Global Asset Mgmt. He’s bullish on bonds. Find out why! The video should be published late next week.
  • I’m on BNN MarketCall Tuesday August 1st, 12:00 noon. Remember, if you call in with a question during the show I try to give you guys priority. Mark your calendar.

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