39. When Dementia Replaces Meritocracy – De-Globalization is Adult Swim Only
In a recent presentation, an investment analyst commented that for the last 25 years “This time is different” was used as a justification for actions that proved expensive to investors that followed the advice that followed. But to avoid a catastrophic impact on their investments, will require investors to acknowledge that major new forces like de-globalization and a labor shortage that is causing “Quitting in Place” make this economic cycle different.
Perhaps sitting in the dark, cold and hungry, will bring reality into focus about the value of economic advice from an 11-year-old girl and adults with her mental capacity. With the nonsensical Environmental, Social, and Governance (ESG) standards currently the driving force in corporate boardrooms, many horrible decisions are being made that negatively impact our economy and wellbeing. Add to this toxic mix an administration and a Congress both full of mentally ill folks lacking any significant experience in founding and running a business. The
result since January 2021 has beenan orgy where anyone could swim, quite a party. ALL the bills are now coming due but there is a shortage of adults.
Last week I attended a meeting of industrial market participants, and the constant themes were:
1. China Plus 1 – American corporations now realize the risks from depending on China and want to diversity their manufacturing with a preference that the “1” be in North America.
2. Just in Case has replaced Just in Time throughout our economy, not just manufacturers.
3. Logistics is now a critical key driver of corporate strategies and business decisions.
4. Inflation will be around longer than The Fed acknowledges currently – because items 1 to 3 above will increase the cost of products.
Ignored by children and the mentally ill, modern civilization creates a massive growing need for energy but solar/wind are unreliable sources. While in Europe the “greens” have now redefined “green energy” to include nuclear, it will be decades before any new nuclear electricity generators can come online and produce electricity.
The current administration is attempting to destroy our fossil fuel industry. Uniquely in the world, America has enough fossil fuel to power us for 200 years. But the ESG cult has caused an under investment in the production of fossil fuel sources. I am told if we changed course today it would take a decade to return to the 2019 “Norm”. But in 10 years our energy needs will be extremely higher than today.
An energy shortage crisis is not just the most likely outcome from this administration’s destructive decisions …the crisis is here. The current implosion of the Chinese economy is the only reason oil prices are back around $80 per barrel. This winter we will get to watch the Europeans as they experience the impact of swallowing the ESG pill and thus sit in the dark, cold
and hungry. Will it be enough to get America’s attention? Only if adults appear.
Here is one facet of the many coming ripple effects of the existing energy crisis which became apparent from the meetings I attended last week. One of the key drivers of the location of data centers is the availability of electricity because they consume enormous amounts of electricity to run the computers and the HVAC. A shortage of electricity and the resulting increase in costs will impact data centers operators (one has already filed bankruptcy) would cripple that country’s use of the internet. That is simply one slice of this energy crisis pie, but it is huge.
With the Chinese economy imploding and the European economy crashing, it appears the only two questions are how serious a recession/depression will this one be and how long will it last. Since economic recovery will occur only after The Fed begins to reduce interest rates, the only ones that know when recovery will occur is The Fed.
Economic recovery would be hastened if we enjoyed knowledgeable and capable adults in our federal administration and congress. Platitudes and comic relief are the only benefit of the current crop. They have done an historic job of creating geopolitical instability.
While you are waiting to see what The Feb breaks, here is a way to keep score:
1. The strength of the Dollar will cause companies with substantial foreign earnings to report lower earnings thus reducing the value of their stock.
2. Higher interst rates has slowed new home construction which will generate layoffs in the construction trades and ripple through their suppliers.
3. Things in the economy will break.
4. There will be a stock market capitulation.
5. Economic recovery does not start until The Fed begins to reduce interest rates.
Values in the different land market segments will depend on supply versus demand. I expect some short-term declines in land values because of increased interest rates. Environmental regulations will continue to drive up the cost of development as illustrated by the new regulations regarding two bat species and Wood Turtles. I am glad that the dinosaurs have already passed away or we would be preserving them also.
Self-delusion is rampant in the current administration, congress, the media talking heads, as well as many of the participants and financial analysts on Wall Street. Their self-aggrandizement is quite entertaining to watch tempered by the reality of the pain they are causing others.
Let me share with you the facts – God is real, Jesus was resurrected, the Holy Spirit is active, and God is in control, but He expects us to be his hands and voice.
“For all who exalt themselves will be humbled, and those who humble themselves will be exalted.”
(Luke 14:11) New Revised Standard Version, Oxford University Press)
Stay healthy,
Ned
September 28, 2022
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