The EV revolution has just met a reality check
Long time readers will know I have been a major sceptic of the plan to electrify everything on the misguided mission to outlaw fossil fuels. In fact, it has the potential to bring down economies – and many governments. My stance is not because of any luddite leanings – please! We all know what happened to them – they were swept aside by the sheer logic of the faster and more efficient new-fangled steam/coal-powered looms making our fabrics, rather than by human toil. Their introduction was a no-brainer.
But there is no such logic to the Net Zero revolution. There is no rational case to be made for banning fossil in favour of ‘renewables’. Its basis is an emotional belief that fossil-spewing CO2 is heating the planet to ‘boiling point’ and we must throw everything at the effort to save it. There is no evidence that is happening, despite ever-climbing CO2 atmospheric levels.
And with energy prices still high and climbing again, more believers are throwing in the towel on the Net Zero fantasy, especially when they see the cost alone of upgrading the US grid is projected to be $30 Trillion (US GDP is $23 Trillion). And more politicians see which see which way the wind blows and are reversing their hard line eco stance.
And when the inevitable conclusion is reached as it dawns on the public that ‘renewables’ are not cheap as has been advertised, and the ‘climate emergency’ is a mirage, the brown stuff hits the fan politically and economically. That point is getting closer if it has not already arrived.
I believe the plunging Nasdaq, as the major index holding many of the ‘renewables’ companies, is a sure sign the tide has turned.
And now following the offshore wind sector collapse, I see the solar sector is in deep trouble with major projects being cancelled because the electricity price offered does not stack up against the ballooning operating and construction costs.
Latest headline on a leading solar company: SolarEdge Slashes Its Guidance as Demand in Europe Slows, and Shares Plunge
With both ‘renewable’ sectors in deep trouble as we head into a weakening economy, it seems all of those ‘green’ jobs we have been promised will not after all materialise.
All of the ‘investment’ (aka our taxes) in EV battery production will be wasted (outside of China which controls most of the raw materials).
In fact, governments of all kinds have been destroying taxpayer’s money on a grand scale. Local councils are taking massive hits on their gamble into shopping centres right at the top of the market (sound familiar?) and many are officially bankrupt and will need bailing out – by the very same taxpayers of course.
One day, the public will see how they have been propping up ludicrous schemes and may well take to the streets in rebellion.
So we have a double whammy – no ‘green’ jobs and higher energy prices. Oh, and many more bankruptcies on the back of that.
If our politicians had really put their minds to destroying their economy in an all-out effort, they could not have done a better job with their eco-fanaticism. They will pay a heavy price.
With UK and US national elections in a few months, politics is sure to become even more divisive and heated. Third parties will arise and may have a look-in which has been denied them as the two-party duopoly has dominated almost forever.
We are in a major transition (see recent blogs) and almost everything is up for grabs in this increasingly tumultuous phase. The Israel- Hamas war is just the start of a period of conflicts that will erupt.
Because we are about to enter a global depression, some of these conflicts may become major and the nuclear deterrent MAD status quo will be tested – hopefully not to destruction.
Because Russia and China control much of our essential raw materials and are nuclear powers, they have a few trump cards against us. And relations with them are not looking too rosy, are they?
And arriving right on cue last week was the blow to the all-conquering Tesla’s ambitions to maintain its considerable EV leadership with a reported huge earnings slump last quarter. And with much cheaper Chinese rivals snapping at its heels, it is downhill for Tesla now:
It has now broken below the trendline drawn off the ‘b’ wave low of last April. It is now starting a major Elliott wave 3 of 3 of 3 down. This will be hugely destructive.
And profit margins have halved since early 2022
That is another headwind as it tries to roll out the troubled and much delayed Cybertruck which will be a loss maker for a few years at least.
With bond yields at 5% and climbing, corporate bond payments are suddenly a considerable drag on profits for the most indebted. although Tesla is relatively debt-free. Tesla customers have seen price reductions but interest repayments remain high.
And here in the UK, EVs have another headwind: “Electric cars risk becoming uninsurable” with premiums climbing and some companies refusing to insure them altogether. It’s the very real fire risk (see photo) and the potential damage to the expensive battery in a collision.
All of this negative publicity follows the familiar path that when a market turns down from a considerable height (Tesla), bad news follows. The news follows the market! Most people believe the opposite.
And another of the generals leading the stock index charge is the AI star Nvidia, which does have much debt. The shares are on a cliff edge:
The shares made the Elliott wave 5 of 5 ATH top at $520 in August. I have a potential H&S reversal pattern that will be confirmed on a break of the neckline at the $410 region. It reached that point at yesterday’s close.
We are already short Nvidia and Tesla for my Pro Shares service.
Gold is on a rocket in a flight to safety – now on to the moon?
Gold has advanced a mammoth $120 over the past ten trading days in a near-vertical move.
When it made its Elliott wave ‘c’ low at the start of the month, the Dow was in a steep decline. But the Israel invasion two weeks ago radically changed the picture for gold – but not for the Dow, amazingly, which climbed to its high only on Tuesday but is now in freefall. Meanwhile, gold has been rocketing up with thirteen daily up closes out of the last fourteen.
Gold is the ultimate ‘sentiment’ market. The normal supply/demand checks and balances that apply to all other markets (including silver) hardly apply to gold. The most important factor that impacts the gold market outside of the inherent state of market sentiment always has been interest rates.
But with rates high and climbing, the latest surge is certainly going against type! That means something else is going on – and that something else is of course the flight to safety and away from risk assets. Fear stalks the markets.
And to overcome the bearish impact of rising interest rates is some achievement and is a testament to how powerful this flight is and gives us a strong clue as to its likely progress. I see new highs well above the ATH of $2,070 soon as stocks enter a crash phase.
We are long gold for my VIP Traders Club.
US Small Caps lead the charge lower
The less-traded Russell 2000 index comprises US-based small cap companies. It is far less traded than the Dow or the Nasdaq. But it should be! Why? Because when interest rates started up from the pandemic era zero bound, small cap (non tech) companies became the most sensitive to those rising rates immediately. Their supplies became more expensive and their customers pulled back as demand slipped.
That put a double squeeze on their margins that was quickly picked up by investors who piled into the Magnificent Seven.
Meanwhile, Big Tech shares were still supported by investor hope of a bright ‘green’ future of cheap ‘renewable’ energy and the AI revolution that would boost their profit margins.
But last week’s slide in the Nasdaq (see Tesla and Nvidia above) has scotched that idea and it is joining the small caps as they ride the Slope of Hope lower.
The index is about to puncture below the support in an Elliott wave 3 and break out of its massive consolidation zone. When it does, the decline will be frantic as the head of supply built up in the zone will turn into a tsunami of selling.
So far there has been little signs of selling panic as trading has been orderly. But as fear spreads and gold advances, I expect to see selling panics soon with large gaps.
We are short all stock indexes for my VIP Traders Club.
So will we see a Santa Rally this year? It looks very unlikely.