Juggling Dynamite

Danielle was a guest with Jim Goddard on Talk Digital Network, discussing recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

Also, see Copper rally driven by speculation, not fundamentals:

Spec­u­lat­ors are play­ing more of a role than phys­ical demand and sup­ply. In the US, the Com­mod­ity Futures Trad­ing Com­mis­sion tracks data on non-com­mer­cial trad­ing (long pos­i­tions versus short) of cer­tain com­mod­it­ies. For cop­per the net long pos­i­tion has surged since Feb­ru­ary, near the top of the 10-year range. Investors have been buy­ing cop­per for months rather than simply clos­ing out short pos­i­tions. This is where the mar­ginal cop­per buyer is com­ing from.

Danielle was a return guest on Thoughtful Money with Adam Taggart. You can watch a video clip of the segment here.

If you haven’t seen the 2022 film Dumb Money, it’s worth a look. Here’s the trailer link. Evidently, the capital wipeout from 2021 through 2023 was not enough to kill the gambling fever, see Is the Meme Stock Craze Back?

Below are a few charts touched on in the TM discussion…

A record 52% of financial assets are allocated to equities today, surpassing prior manic peaks in 2021 and 2000, while allocations to cash and bonds (“debt”) hover near all-time lows. While there are reasonable alternatives today (“TARA”), Boomers hold most of the equities at age 61 to 78 and are 24 years older than at the 2000 tech bubble top. Unlike in 2000, boomers are net withdrawers from their savings today, needing cash to fund retirement. In other words, their time horizons have never been shorter, and their capital has never been more risk-exposed. #badcombo.Within a plethora of products, equity holdings are concentrated in US stock markets that are dominated by the top ten most expensive companies, mainly in the tech sector. In the process, the market capitalization of the US stock market has been pushed to 187% of GDP, a record extreme only seen briefly in 2021 and above the 150% peak in March of 2000 (dark blue below since 1973). In the rest of the world, equity markets at 61% of GDP are not as optimistic and have not recovered the 2021 price peak (light blue).In typical trend-chasing groupthink, global fund managers are the most bullish since the 2021 top (shown below since 2001), just before the average portfolio lost 35% of its value. The trouble with buying and holding with the masses is that corrections inevitably arrive and evaporate years of apparent “performance” in weeks and months. From cyclical highs, it is common to see a decade-plus of capital returns disappear and take years to grow back.

The chart below, courtesy of my partner Cory Venable, shows the price performance of Canada’s TSX since 2006 (mentioned in the discussion with Adam). Even though Canada’s economy was much less indebted than the US at the 2008 top (and Canada today), the TSX fell 50% with US stocks to March 2009. It then took a decade to 2019 before the TSX durably broke above its 2008 cycle high. This was short-lived before the stock market plunged back to its 2006 price level in 2020–14 years of zero returns. While the TSX recently recovered its 2022 high, it is poised for another setback as the economy struggles and central banks respond to rising unemployment with another easing cycle. Savings are much harder to hold on to than the ever-bullish investment business lets on. For individuals, the best chance of durable success requires risk aversion when the masses are jubilant and risk-seeking with cash at the ready when the masses are liquidating in losses.

Everyone gets a turn in market cycles, but benefiting from that turn requires pre-work, personal discipline, and keeping our wits about us when others are losing theirs.

Despite naysayers who continually miss forests for trees, energy technology is rapidly evolving globally and “S” curve adoption is proceeding apace.

With a shrinking population and rising unemployment, China sees the imperative of improving efficiency and lowering operating costs through technology. To this end, the country is leading the world in the production of electric vehicles, renewable energy installations, and storage.

China recently put the first large-scale sodium-ion battery storage station into operation, marking the beginning of the adoption of the new, lower-cost battery for large-scale use.  See China’s 1st large-scale sodium battery energy storage station put into operation:

Compared with lithium-ion batteries, raw material reserves of sodium-ion batteries are abundant, easy to extract, low cost, better performance at low temperatures, and have obvious advantages in large-scale energy storage, China Southern Power Grid Energy Storage said.

When sodium-ion battery energy storage enters the stage of large-scale application, the cost can be reduced by 20 percent to 30 percent, and the cost per kWh of electricity can be reduced to RMB 0.2 ($0.0276), which is an important technical direction to promote the application of new energy storage, said Chen Man, a technical expert of China Southern Power Grid.

The 10-MWh sodium-ion battery energy storage station uses 210 Ah sodium-ion battery cells that can be charged to 90 percent in 12 minutes, according to the statement.

Battery recycling is another global preoccupation for efficiency and economic reasons. Components are too valuable to throw away so a new industry of recyclers is busy snatching them up. See Battery Recycling Shatters the Myth of Electric Vehicle Waste:

Traditional methods of ripping materials out of the ground and refining them for battery packs requires enormous amounts of energy. As a result, the initial carbon footprint of an EV is higher than a comparable internal combustion engine vehicle. Those upfront emissions are paid back over time with the superior efficiency of electric motors, leading to a 70% reduction in total emissions over the average life of the vehicle.

In the US, it takes about 25,500 miles (41,000 kilometers) of driving for an EV to break even, according to a BloombergNEF analysis. That payback figure, however, assumes that every EV is made with newly mined lithium, nickel and cobalt — as if all the materials will end up in a landfill at the end of a vehicle’s life.

Though still in its infancy, EV recycling is already profitable and capable of recovering more than 95% of the key minerals. A new analysis by Stanford University researchers, which is still under peer review, found that Redwood Materials’ recycling process produces up to 80% fewer emissions than the traditional supply chain using CO2 belching refineries. That’s enough to shorten an average EV’s environmental breakeven time with an internal combustion vehicle to less than 15,000 miles. Every mile thereafter is a carbon win against the internal combustion engine.