Helping you navigate the new normal
Unfortunately, the problems look set to get worse rather than better. And the oil price rise caused by the Israel/Gaza crisis adds to the problems caused by the Ukraine invasion. A difficult winter, and 2024, lie ahead.
300+ years of Bank of England data shows that interest rates are typically inflation plus 2.5%. At today’s level, this would imply – US rates would be 3.7% + 2.5% = 6.2%: Japan would be 3.2% + 2.5% = 5.7%: Eurozone rates would be 5.3% + 2.5% = 7.8%; UK rates would be 6.7% + 2.5% = 9.2%
It’s too soon to talk of an actual energy crisis. But as the charts showing Brent oil and European natural gas prices confirm, it is certainly time to start planning for the possibility. Oil prices have recently risen 25%. And Europe risks gas shortages if there is a cold winter
The Ukraine war highlights how the real world can often be a very messy place. Issues such as geopolitics and demographics aren’t easy to understand. It can be hard to understand the detail of how key industries and markets are operating.
So it’s no surprise that most policymakers have preferred to stay in the world of theory.
The good news for consumers is that the move to renewables is already set to save European consumers €100bn in 2021-23. The technologies needed in terms of wind, water, solar and storage can successfully deliver the cheaper and more reliable energy supply needed to support the global economy.
Companies and investors need to invest time now on having a genuine debate about the risks ahead. The regulatory failures of the past few days highlight what can quickly go wrong, if one hasn’t war-gamed out potential risks. As the saying goes, “Failing to plan, equals planning to fail”.
Portugal is showing the way. Despite 6 months of drought last year, 57% of its electricity came from renewables. And its clean energy focus means it is becoming “one of the cheapest markets in Europe”. CO2 emissions will also have reduced by 75% in 2030 versus 2021.
As the photos from New York in 1900 and 1913 remind us, transitions happen very quickly once they get underway. One day, we are saying “it will never happen”. The next, we are telling our friends “I can’t understand why it took so long”. So it seems safe to assume that the auto industry will see major change in the next few years.
‘Business as usual’ has been a great strategy for the past 40 years. But nothing lasts forever. It has now – like the central banks’ stimulus policies – hit the inevitable brick wall.
US inflation was last at 8.3% in January 1982. And then, the 10-year yield was 14.6%. History may not be a perfect guide, but it is the best we have. So it might be worth planning for rates to go much higher than most “experts” expect, now that they have broken out of their downtrend.
As the head of Germany’s Employers’ Associations warned last month: “We are facing the biggest crisis the post-war Federal Republic has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years”.
The US is moving into recession as the Atlanta Fed chart confirms. Chemicals have been warning of this for some time. But policymakers and commentators remain in Denial about the economy. They prefer to focus on their computer models, and ignore the real world outside their window.
Consumer sentiment is already at all-time lows. Rising energy, transport and food prices will likely soon push inflation above 10%, and interest/mortgage rates to 5%+, adding to the risk of a major and long-lasting downturn.
Energy and financial markets are exacerbating the risks ahead. Oil prices at current levels – as the chart confirms, they now account for more than 3% of global GDP – have historically led to recession as the chart shows. The reason is that consumers have to cut back on their discretionary spending, which drives economic growth, in order to heat their homes and travel to work and school. Today’s high levels of natural gas prices add to this risk.
We are facing a K-shaped recession. Companies and investors have a difficult time ahead. They not only have to navigate a potentially major downturn. But they also have to completely reposition their portfolios for the New Normal world that will follow.
These are difficult times, and there is no guarantee that they may not get worse. But they also remind us of the critical need to move beyond the Age of Oil, and develop more sustainable energy resources for the future.
Automakers are ahead of the game in terms of strategic planning. They soon realised the move to EVs meant their traditional business model, based on proprietary engine technology, would inevitably become obsolete. And so they quickly realised they need to pivot to focus on AVs and become software-driven. The rest of us need to catch up.
The issue is simply that investors are in a state of Denial. And so there is a growing risk of a financial crisis as reality finally dawns on them.
Our pH Report Sentiment Index has been a very reliable guide to the S&P 500 in recent years. Now it is suggesting a major downturn may be underway as the US and Chinese stimulus programmes come to an end.
Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
The plastics industry as we know it today, may well start to move into an endgame as it is squeezed from both ends of the value chain.
The implications of the rise in EV sales go well beyond the auto and oil markets, with petrochemicals likely to be next in line for disruption. This is why the surge in EV sales up the S-curve of adoption has to be my Chart of the Year.
We can expect to see electricity prices fall along with CO2 emissions. And consumers will no longer be held to ransom by geopolitical events
COP26 confirmed that the world is moving away from fossil fuels. OPEC’s high prices have made this move easier to afford by causing artificial shortages.
The new business models, based on using locally-produced recycled plastic feedstocks, are a ‘once=-in-a-lifetime’ opportunity to create growth for decades to come.
Recession may also burst today’s asset price bubbles in stock markets and housing prices – and even in more obscure assets such as art markets.
Now we need companies to step up to the plate, in alliance with their value chain and financial partners. Time is limited, and the industry must be able to demonstrate real progress before COP26 in November.
Autos are going through a genuine transformation, just as a caterpillar transforms via the chrysalis stage into a butterfly
Flooding in China and Europe, record temperatures in the USA, wild fires – all these are signs that climate change is accelerating. After all, the world has gone from 2.5bn people in 1950 to 7.9bn today. That must have an …
Auto industry provides a model for the transition to Net Zero Read More
Governments have failed to properly protect their populations from the pandemic. Some have actively encouraged it, the rest have simply been incompetent. Today, their failure to vaccinate the world means poorer countries are now acting as a petri-dish – enabling …
The blog has now been running for 14 years since the first post was written from Thailand at the end of June 2007. And quite a lot has happened since then: There was the 2008 financial crisis, one of the …
The blog’s 14th birthday – and the New Normal world it predicted has arrived Read More
My Dutch colleague, Daniël de Blocq van Scheltinga, is a graduate of Leiden University in the Netherlands, with a Master of Law degree and a specialty in International law. Here he gives his expert view on the Dutch court’s decision to order Shell to reduce its CO2 emissions by at least 45% , relative to
The post Friends of the Earth v Royal Dutch Shell – what did the Dutch Court rule, and what does it mean for Shell’s business? appeared first on Chemicals and the Economy.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
*Limited availability. First come, first served.
Volatility has begun to rise in oil and bond markets, as we expected. China’s upcoming ‘Vision 2035’ seems likely to prove a major game-changer for its economic model over time.
Wall Street is focused on central banks’ response to the pandemic, whilst Main Street focuses on its actual impact.
The Hertz rental car bankruptcy in the US highlights the risks to the economy
Financial markets are treading water as they wait to see what happens next
Financial markets have sharply diverged from events in the real world
A month ago, we forecast that oil prices would go negative in Q2
