Is this the end of Net Zero – and the EV revolution?
I headed last week’s blog “My most important blog is here” and I am standing by that bold/crazy label. Since November 8 when the Dow made its ATH at 36,570, I have been warning shares were reversing and were entering a major bear market (the Nasdaq’s ATH came a little later on 22 November) . My assessment was based on the likely completion of fifth waves of many degrees (EWT) and the extreme bullish sentiment – a lethal combination. Since then, the Dow has lost 2,600 points (7%) – but crucially, in the process has traced out a compelling impulsive five waves down (the usual textbook kick-off to a major trend change).
In my two or three previous blogs I have pointed to the cliff-edge status of several prime indicators of the Great Asset Mania (it may be worth re-reading these from my website):
1 Junk Bonds were poised to crash (along with shares). They have now broken below a key support.
2 The ARKK Innovation ETF has now broken major support (see here) – bearish signal for the new tech
3 The Nasdaq hit on major tramline resistance on 22 November in a major fifth wave
4 The yawning gap between US Consumer Confidence (low) and stocks (high)
5 The record new 52-week lows in Nasdaq while the index was making new ATHs.
6 New highs in Tesla and Bitcoin (my leaders of the Great Asset Mania) and poised to decline sharply
STOP PRESS SATURDAY 10 AM As I write, Tesla has crashed below the critical $50k on a huge gap to confirm my Double Top thesis I posed last month
How’s that for stop loss panic selling? Bitcoin is now down 30% and Tesla down 25% off ATHs. To some, that is an automatic bear market. I expect more downside mayhem next week in many markets – and the dollar will decline.
7 China Junk Bonds crashing – first Evergrande and now Kaisa (see last week’s blog)
8 And now we can add omicron…
The bottom line: We have started a massive bear trend in financial assets that will very likely last months and possibly years. The scale of the collapse will shock (for a taster, see Bitcoin Stop Press above). Economic, political and social news will now get much darker. The dark side of the omicron surge – and the ongoing delta variant – will be revealed and will be devastating for the travel and hospitality sectors.
Some will view government’s reaction with lockdowns as over-reacting to what is likely a mild threat. But politicians are trapped into a perennial zero-risk strategy. They see it as insurance against being wrong if the are too lax – and a subsequent ejection from power (that is what drives them). That is why organisations that start as small operations taking risks grow into take-no-risk behemoths that are there only to perpetuate themselves with little regard for the public. The NHS is a prime example. First Rule of employment – Thou Shalt Cover Thine Backside.
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Is the EV Revolution over before it has really started? And is the Net Zero fantasy dead in the water?
While fossil fuels are suddenly a lot cheaper (US Crude down 27% in a month) – and consumer electricity costs escalating – the perils of owning an EV has been highlighted by the black-outs in northern UK (and parts of Scandinavia) caused by storm Arwen. It is now over a week with no electricity – and the Teslas are going nowhere fast. I do hope everyone with an EV has a diesel generator for back-up! And some forecasters are predicting more stormy weather to come this winter.
These localised black-outs have also put into focus the vulnerability of our power grids (US and UK especially). If widespread adoption of EVs is on the cards, it would put a massive extra load onto it which would likely collapse it in its current state. Only a multi-trillion dollar/pound upgrade would likely prevent that. But it would take years to upgrade the grid even if the funds were found (unlikely).
And even with vast subsidies for wind and solar, it only accounts for less than 40% of UK’s energy consumption. With quiet and dark winter days reducing output from renewables, reliance on fossil will grow.
As I said at the time, the forced decision of Musk to sell 10% of his enormous holdings was very likely marking a major top – and I have no reason to amend my view. The shares are currently down 25% off the ATH set on 8 November at $1240. As I pointed out at the time, the Dow was also making a new ATH which would very likely mark its major top. So far, that forecast was spot on.
Another headwind for EVs is the booming cost of making the batteries (lithium prices are melting up). Already EVs sticker prices are much higher than comparable conventional vehicles – and can only get wider (unless government subsidies are boosted).
So here is my very contrarian suggestion – the economic reality of the huge consumer – and taxation – cost implications of Net Zero is dawning on the public. Already we have a budding move for a national Switzerland-style referendum on Net Zero in the UK and I believe this can only move up the political agenda as public mood darkens.
And perhaps a little cheekily, anything widely promoted by governments is bound to fail (I’m looking at you Boris) – they are always fighting the last war. That is where the money is. And even more cheekily, I suggest we need more CO2, not less. It is an essential plant food we need to spur crop yields to feed a massively growing world population (mainly in Africa).
It is no coincidence that since the much-referenced fossil-fuelled Industrial Revolution in the mid-1800s, living standards have vastly improved and food production has kept pace with increased populations partly thanks to the added CO2 from burning coal and liquid and gas fossil fuels.
I frequently walk my dog around the fields around a shuttered coal mine (there are many in my area) with its winding towers preserved intact. At one time, it would have been a hive of activity before all UK mines were closed down in the 1980s. I sometimes gaze over at the buildings and wonder if one day in my lifetime, it would ever be re-opened. Hmm.
One further thought – Tesla has been reaping the enormous gains from selling its carbon credits which have been in a strong melt-up phase. Here is the European carbon chart
What a melt-up, especially in the final phase! I believe this market will decline now along with most or all financial assets. Mr Musk has been selling the US equivalent credits to steel, cement and oil companies and making out like a bandit. But if this market declines sharply as I expect, his income will be slashed – and so will the share values of EC companies.
On the plus side, energy companies will benefit which could aid their share prices. We could see energy shares move higher while tech shares fall hard. I believe going into defensive shares such as energy and tobacco should protect against major declines. But most formerly hot shares will be clobbered. Father Christmas with his goodies may not make an appearance this year for the bulls.