So the G20 has worked out we need to stop pumping money in and start repairing the fiscal balances of governments. A good move. Even Strauss Kahn, who has been frankly a bit overly French on this, is on board with the change. Surprisingly, it seems to have been the Americans who have been dragging their feet the most.
Still waiting for the Hungarian shoe to drop properly. Maybe that is containable since they are not in the Eurozone, but when the spokesman for the Premier says that talk of sovereign default is ‘not exaggerated’ you know things are serious.
The G20 also dropped the idea of a global bank levy, saying rather disingenuously that it would be up to individual countries to take their own steps. That’s disingenuous because the whole point is that you can’t do something like that unilaterally because it won’t be effective and it will be counterproductive.
Merkel’s ban on naked shorts (should be policy also for German holidaymakers) was a brilliant move if you were seriously interested in relocating three desks worth of traders from Frankfurt to London for a short period. If that wasn’t high on your policy agenda, then…not sure what you get.
Populist driven economic policy is generally even worse than the democratic outcomes elsewhere because people are actually actively bad at economics as opposed to merely being poorly informed and generally uninterested as in other spheres.
So what does this mean? Markets seem to have been spooked more by poor NFP numbers out of the US than anything else yesterday, but in any case not enough may have been known during opening hours – the G20 communique is reported as of lunch time today. So we’ll see on Monday. And also whether this top cap thing in the Gulf is going to work.
So the next question is where can I avoid getting killed since the whole world is blowing up? People keep asking me this. Also there is some kind of idea that because not all currencies can go down together (true) it doesn’t matter where you are (false).
In the US and the UK, there are totally unsustainable borrowing profiles which are politically extremely hard to shift in a democracy. Much of the US budget is entitlement spending; an operational leverage effect that results from that means that any serious cuts have disproportionate effects on the remaining programmes. I still like the US in general because it has the world’s most dynamic economy and the politicians may be smarter than the population and understand that cutting back on immigration is rather bad demographic economics. But you can’t really park there.
In the UK, we have bizarrely just lost the Chief Secretary of the Treasury to a rental payment scandal in which one cannot be sure that his treatment would have been identical had he been heterosexual. He was looking very credible at cutting sufficiently to retain the Aaa rating – which is essential if this borrowing profile of a rather insane £156bn p.a. can come off with some kind of glide path down rather than a hard stop – but we now have the former Press Officer for the Cairngorms who will presumably be just as effective at putting The Fear into Work and Pensions and their £230bn annual spend.
So no GBP and no USD. EUR? Well, there’s Greece. And Spain. And now Hungary. So forget it. It might make holidays cheaper again, but that’s the only benefit.
All three of these problems have a long way to go before being resolved.
So nothing is left, right? No – there is Norway. Seriously. Why?
They have no government debt and so they do not pay interest on it – cf. UK annual debt service £43bn.
Even more amazingly, they have saved their oil revenue in a big pension fund worth about $443bn. They own about 2% of equity in Europe.
The NOK has a number of great things going for it, including the huge pension pot, but also: it isn’t the EUR, the GBP or the USD.
So what should you do? Well, you could just buy the NOK and sit still waiting for the rest of the world to crater. You would probably make out in local CCY terms. But there are proper companies there doing serious things you could look at. These two have NYSE listings:
NYSE Technologies Global Market Data | as of 17:08 ET 03 Jun 2010 | Market data delayed
Name Symbol Listing Last Trade Date/Time Volume Change % Change
Seadrill Limited SDRL NYSE $ 21.20 03Jun10 16:48 ET 1,262,094 $ 0.41 1.97
Statoil ASA STO NYSE $ 20.96 03Jun10 16:02 ET 2,038,401 $ 0.35 1.69
You can guess what they do.
So you could even sit there and gain from any NOKUSD strength without lifting a finger or going to Oslo.
Current excitement in the Gulf of Mexico demonstrates one of the reasons why we need new angles in energy. That didn’t stop me buying BP shares at the weekend – after a price decline from 647p to 517p I put in a limit order with an upper limit of 500p, just to see if it would get that low. I got filled, which I thought was great until the top kill/junk shot tanked later on. So right now we are off 13% to 430p. My response to that was to buy some more – call me psycho. Anyway, in a year either I will have been wiped out or made out like a bandit, and those are the only two options I am interested in. Life choices are the same as trade choices. In case you were wondering.
But anyway, to the point. Nuclear power is better than carbon-based energy generation. It’s greener – and you can’t defeat that argument by pointing to the waste problem – because we already have that problem. So we may as well have it in spades, right? In any case, the Finns are going to sort it out by sticking it deep underground in a sort of fairly stable rock chamber. And isn’t it about time the Finns contributed something? Where have they been lately? There’s been lots going on and we never hear from them. Finland buries its nuclear past. But does that look like good press? Is there a different answer?
Yes – there’s even a better option: thorium. For three major reasons.
Thorium-based reactors produce waste products which have a half life much shorter than the 100s of thousands of years involved with uranium reactors.
The uranium is going to run out. And quicker than you think if you note that we have maybe 60 years worth. That is at current rates of use but you might want to assume greater energy use in the future and a higher nuclear component.
It’s not weaponisable
You can’t make nuclear weapons from thorium. So if one state, say the US, wanted to persuade another state, say Iran, to act consistently with the latter’s stated intentions only in the realm of power generation, it could offer them thorium based reactor technology and then be intensely relaxed about the consequences. Because there wouldn’t be any.
This is a Bill in the US Senate which notes that the energy dependence of the US is a national security issue for that country. There’s another Bill in committee which observes that the US nuclear submarine fleet would be grounded (I know that’s wrong – but what happens to non-flying vessels when they can’t go anywhere…?) without uranium fuel. And mandates the Secretary of the Navy to look at thorium as a replacement.
So this is a US national security issue and a convincing picture in general. But the former element means one thing: lots and lots of money. Where’s the thorium? Virginia, for example. Not so much dealing with difficult people for essential products.
So what should you do if you believe the story? These are the two stocks to buy. Firstly you want exposure to the design story. And secondly you want some thorium. There’s the usual triple lock on investment decisions: compelling story, pure exposure, acceptable risk. The first box I already ticked. Secondly you can buy two stocks as listed below. The first one is a consultancy specialising in thorium reactor design. The second one is basically a very speculative outfit with at least three men and a dog in Canada. They have a licence to dig in a hill next to one where some people before found some thorium. [Actually it’s better than that – today they announced the hiring of a new experienced exec and they gave him “incentive stock options for 150,000 shares exercisable over 5 years at $0.14 each, subject to vesting provisions”. So this guy believes they are going north of there.]
It will be apparent that option two is slightly more risky. Option one isn’t safe because nothing is, but it is NASDAQ listed so you have some better transparency and reporting. Though you should never forget that Enron was main board listed. Rockbridge are listed on the Vancouver startup board but you can get the exposure through a pink sheet OTC trade in NY. This is a pass-through derivative. So the recommended division should be something like 90/10. Which was what I was going for when I did this trade on behalf of myself and Mark L – except I got confused by the factor of two and ended up with 80/20. When you try to hold 20 numbers in your head at the same time, you always forget one, or mix up GBPUSD with USDGBP or something. But again, trades are like life and serendipity can be the new name for chaos.