"Same Old, But Not Old Same"
Comment of the Day

July 19 2021

Commentary by Eoin Treacy

"Same Old, But Not Old Same"

Thanks to Iain Little for this edition of his Global Thematic Investor’s Diary which may be of interest to subscribers. Here is a section:

The trouble about this reasoning –convincing as it might be on the numbers- is that it is backward looking. The high inflation years of the 1970s (inflation averaged 7% during the decade) were caused by reckless monetary policy (much as now) allied to other unforeseen factors, the most powerful of which were the OPEC energy shocks, estimated to have been about 3.5%, or half of the 7%. This shock was totally unforeseen. It was what economists like to call an “externality”. An asteroid and Covid are of the same sort. Today we risk another shock, another externality. The global “Climate Emergency” will entail higher carbon prices (an additional cost of production), higher carbon taxes (all governments need them), massive infrastructure spending (to placate populist outrage against inequality), a burgeoning usage of copper, cobalt, lithium and iron ore (the essential components of the energy transition), as well as mandatory and voluntary conversion of households to the Energy Transition economy.

I very much doubt that 1.3% yield on the 10-year bond will compensate investors for this external shock. Watch this closely. It’s not in the chart.

Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area.

The big difference between the oil shock and the increasingly powerful climate agenda is the former was a true externality. The oil embargos were an example of one group who were willing to ensure domestic pain in order to impose their will on the global economy, so they could get a better price for their exports.

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