Juggling Dynamite

A new BP report confirms that global energy consumption growth slowed markedly last year to the lowest level since the late 1990s other than the Great Recession of 2008-09. See: Global energy consumption at new low in 2014-BP  At the same time, global energy production in all its many forms, has never been higher.

The trend is driven by gains in energy efficiency (which is getting better by the day) as well as slowing global demand led by China where, as shown below, momentum indicators for April suggest GDP growth below 3% annualized, less than half the officially quoted rate.

Global primary energy demand growth slowed to 0.9% with Chinese growth at its lowest level since 1998 as its economy was rebalanced away from energy intensive sectors, BP said. China remained, however, the world’s largest market for energy.

Global oil consumption growth was slower last year at 0.8m bbl/day compared with 1.4m bbl/day in 2013. BP said that countries outside the OECD accounted for all oil consumption growth even though China consumption growth was below average.

Natural gas consumption growth was just 0.4%, well below the 10-year average of 2.4%, the review shows. EU natural gas consumption was down 11.6% mainly due, it is thought, to mild winter weather.

Boomers had a really good run early in their working and saving careers from the early 80’s up to 2000 when the leading age of the cohort began turning 54. Since then a series of asset bubbles and busts, falling income, falling interest rates and crippling debt burdens have made financial stability more challenging for all age groups. Boomers are having to work longer, while delaying and downsizing their previous retirement expectations. But, now age 51-69, Boomers still hold most of the real estate, financial assets, highest paying jobs and positions of influence in governments and corporations today.

The workers coming directly behind the Boomers are not so fortuitous. Life spans are finite, and solid earning and savings years must happen early enough in one’s life time to gain a foothold that can then support future consumption. For Gen Xers the timing of current headwinds, is not good.

Gen Xers are learning that reality really does bite. Now aged 35 to 49, Gen Xers are less confident about their current and future finances and their ability to ever retire than either older baby boomers or younger millennials. Here is a direct video link.

Since May highs, North American stock indices have weakened modestly, with the Dow down over 3%, the S&P down 2.6% and the Canadian TSX 4.4%. In reality however, broad indices mask the impact on individual sectors. As shown below, the percentage of stocks in the S&P 500 closing above their 200 day moving average is falling, and suggests more weakness may lie ahead.

Since January, interest sensitive sectors have fared much worse with Dow Utilities -14.8%, Dow Transports -10.5%, Telecom index -10.6% and REITs -13.7% so far.  See:  Trendless market showing weak spots.

Unfortunately it is dividend paying sectors–the one’s most widely held by retirees and others looking for “conservative” income investments–that are some of the most outrageously overvalued in today’s low interest rate environment. They are also the assets into which brokers, mutual funds and long always advisers have herded clients the most.

This is why the next bear market, will be so brutally hard on individuals following conventional investment advice.

As a reminder, the below chart is what dividend stock out-performance looked like (in blue) versus the broad market (in red) during the 2007-09 bear market:  the S&P lost 45%, and dividend stocks ‘only’ 36%.  ‘Solid investments’ for whom?