Juggling Dynamite

Free from the politics of nations, cities are showing the way in smart energy solutions from the ground up.

The mayor of Bristol, England is pretty frank about the pitfalls of trying to talk his people out of driving their cars to work.
“I’ve learned a lot of new swear words in this job,” says George Ferguson.

…Despite the detractors, Ferguson’s lead-by-example approach, coupled with other carrot-and-stick measures undertaken by the city, appear to be resonating. More people are cycling. Carbon emissions are dropping.

Although it is still the most congested city in the UK, Bristol was named Europe’s Green Capital for 2015, based as much on its potential as its initiatives to become greener.

See: Bristol, England shows what cities can do and Bus fueled by biomethane from human waste.  Here is a direct video link.

Also see A new way of looking at waste.

China is driving global demand alright…but not in the direction so widely predicted.

“It puts global commodities producers in a bad situation as China struggles with excess supplies of base metals, steel and oil products,” Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co., said by phone from Seoul. “The surplus of commodities is becoming a real pain for China and to ease the glut, it’s increasing its shipments overseas.”  See: When it rains it pours, China unleashes commodity torrent

With Western Canadian crude trading in the mid-20’s this morning, the Canadian dollar and economy are continuing to weaken on vaporized revenues over the past year. The broad stock market has ‘given’ the technically significant 13000 level (see lower beige band at point 6 below) as highlighted in my partner Cory Venable’s chart from the end of November.

And it is not just oil and commodity companies that are plunging, financials and dividend paying blue chips are also down over 3% on the week so far; REITS are down over 2%. It is important to remember that these last three ‘defensive’ sectors have been the final leg propping up the Canadian stock market over the past couple of years while real economy sectors retraced to their 2009 bear market lows (marked with purple arrow next chart).

Once the ‘defensives’ break, belief in the bear market goes mainstream and there is little to stop the broad market from also retesting its prior cycle lows. A return to the 2009 bottom would be entirely consistent in the secular bear environment that has been dominating equity markets since late 1999.

Meanwhile it is critical to understand that mutual funds and traditional money managers are always talking in terms of ‘relative’ rather than absolute performance. They are mandated by their constating documents to remain near fully invested in equities at all points in the market cycle. Holding stocks that drop less than the overall market, is what they consider to be ‘out-performance’.  In real life losing 45% rather than 55% of one’s savings, is no meaningful benefit for clients.  But the money business lives in a dream world of its own marketing.

The next chart of Suncor versus the energy sector index (XEG) offers some perspective.  As a mature, dominant company in the space, Suncor is considered a ‘blue chip, dividend paying, defensive’ core holding for most portfolio managers.

But as shown above since 2006, the fact is that Suncor shares tend to lag, but not decouple broad market downturns. As more junior companies fall, captive, long-always capital rotates out of them and into larger names. This later cycle buying pressure levitates the majors for a while in relative ‘out-performance’. But when the retail crowd and levered speculators finally panic in mass, the selling waves hit everything at once.

The same buyers that were price indiscriminate as valuations became extreme during the up cycle become just as indiscriminate in their selling during the down cycle.  This is how remarkable opportunity finally presents for patient capital.  But only for those who are wise enough to protect and prepare in advance.