Juggling Dynamite

The mainstream financial analysis ignores the last decade of average capacity data trends and has helped to drive over-valuation and malinvestment in traditional energy sources and infrastructure worldwide.  The 18-minute clip below explains the ramifications.

A large and rapidly-expanding global financial bubble now exists around conventional coal, gas, nuclear, and hydropower energy assets. This bubble has in part been created by mainstream energy analyses that have, for the last decade, significantly underestimated the levelized cost of electricity (LCOE) from conventional power plants because they assume these plants will be able to successfully sell the same quantity of electricity each year from now through 2040 and beyond. This assumption has been false for at least ten years. The rates at which conventional power plants are utilized will continue to decrease as competitive pressure from near-zero marginal cost solar photovoltaic and onshore wind power, and battery energy storage continues to grow exponentially worldwide. Since 2010, the LCOE figures published in mainstream analyses and used by policymakers, regulators, civic leaders, utilities, asset owners, and investors have significantly underestimated the actual cost of electricity generated by prospective coal, gas, nuclear, and hydro power plants. This in turn means that conventional energy asset valuations are heavily overstated…

This video is a synopsis of our new research report “The Great Stranding: How Inaccurate Mainstream LCOE Estimates are Creating a Trillion-Dollar Bubble in Conventional Energy Assets” that was published on March 11th, 2021 and is available for download free of charge from our RethinkX website (https://www.rethinkx.com​).  Here is a direct video link.

Twenty-one years ago this month…March 2000, what a time to be in stocks, I remember like it was yesterday.  The world had gotten through Y2K without any issues, technology was changing everything (again), the much-loved NASDAQ had doubled in just the prior 12 months, Greenspan’s Fed was deemed all-powerful, and market optimism felt boundless.  There was nowhere to go but down.  Tech stocks peaked that month.

The CRB commodity index also doubled in less than a year but did not peak until 8 months later in November.  Commodities, banks and Nortel (before it collapsed in fraud) held Canada’s TSX up until July, then gravity overcame it too.

Commodities surging then too: CRB doubled from Jan 1999 to Nov 2000, TSX peaked in July 2000, 4 months after NASDAQ. We’d made it through the dreaded Y2K, optimism was boundless and then… https://t.co/2hcB4dMtb2

— Danielle Park (@kdaniellepark) March 10, 2021

There are many parallels between 2000 and our present cycle.  One big added negative this time:  home prices then were not caught up in the market exuberance in 2000.  Property prices had been pretty flat for a decade after their ’88-’90 decline and homeowners were nowhere near as indebted.  No such luck today.

At this point, the next few months will be breathtaking no matter what happens next.

The argument that raising taxes on the ultra-wealthy will not eliminate government deficits is a red herring.  The primary purpose of tax policy is not to eliminate deficits but to incentivize socially constructive behaviour and dissuade the socially destructive.  Tax collection from the wealthiest individuals and corporations has fallen since WW2 worldwide, while government subsidies, bailouts and support programs favouring the wealthiest constituents have soared.  This chart of US corporate income tax revenue as a portion of GDP since 1934 reflects a trend that has played out across all OECD countries.

In Canada, the general corporate tax rate has fallen from 50% in 1982 to 26% in 2020, while the top marginal personal tax rate has fallen from 80% in 1972 to 60% until 1981, to 33% today.

Tax policy has been a major factor increasing wealth disparity, falling productivity, and destructive asset bubbles for at least the past thirty years, and the pandemic has accelerated the problems.  If history repeats, the policy pendulum will now swing back in the opposite direction for years to come.   This month, the British government got the ball rolling with the announcement of its first corporate tax rate increase since 1974–to 25 percent from 19 percent starting in April 2023– after successive Conservative governments lowered it from 28 percent over the past decade. The government also plans to freeze several personal tax allowances for four years starting in 2022 ( I suspect the freeze will end up being longer than 4 years).

The beneficiaries of the ‘American Rescue Plan’ from the Biden administration are compared below (on the right) with the Trump administration’s tax cuts (on the left)–both ballooned the national deficit and national debt, but different values are evident in each.

Many of the world’s wealthiest individuals and corporations have increasingly used low or no tax zones, trusts and off-shore shelters to help stockpile wealth outside of the tax system and real economy even as they benefit from government-funded infrastructure and services.

The segment below is a worthwhile recap of some recent high-profile examples.

At the WEF in Davos the world’s wealthiest people meet annually to discuss philanthropic solutions for saving the world. But few want to talk about the issue of tax avoidance through philanthropy.  Here is a direct video link.