Concerns of rising prices? You are not alone. Aegon poll this week showed that 64 percent of people are worried about “the effects of rising inflation on their economy”.
Businesses are also (black) also: a a recent quarterly report from the British Chambers of Commerce indicated 59 per cent of companies expect prices to increase in the next three months; 66 percent said rising prices were “worrying”. Both figures are very high.
What is a driver? 30% of companies said that the pay was part of it (we might think this is a good price!)
This is very important for electricity prices: the price of natural gas everywhere has gone up – in the UK they are five times higher than they were last year, something that will hurt the income of every household.
Bank of America predicts that central European homes will lose about € 1,200 on electricity and gas by 2020, a figure that, based on recent prices, will rise to € 1,850 by the end of 2022 – up 55 percent.
Next year may not be so good. Electricity prices continue to rise. Why? Because so many governments have jumped on the bandwagon over and over again – thinking we can do it removing burning fat in favor of unreliable power to be renewed faster than we can – if we can.
This is a deterrent to decarbonisation – where a fund manager tells me it could cause as much pain as OPEC-run oil boom in the 1970s. .
There is relief in the future, for example, in the EU’s late arrival than in acknowledging that gas and nuclear power should be part of the transition. But, in the meantime, prices will continue to rise. It is, says experts at JPMorgan, a simple story to find and value – as ever. . .
There has been a financial collapse in oil and gas production – the money spent on new projects is 75 percent from a peak. But at the same time the global demand for oil has “diminished” – and the demand for oil is growing.
JPM expects global demand for oil to grow by 3.5m barrels per day by 2022, ending the year above the 2019 levels and beyond. There will be a new record in 2023 – there are many modern records – unnecessary price increases and fears. Various JPMorgan research groups predict oil prices in 2022 from $ 80 to $ 125 barrels. The country’s efforts to change power are obviously well-intentioned. But good intentions often come at an unexpected cost. There is no exception here.
However, even though it is easy to get hung up gas money and pop prices – All UK politicians have forgotten Covid in their quest to talk about this – rising electricity prices could affect your long-term economy more than they do in the short term.
Why? Because energy, and the transformation of that energy into goods and services, is the basis of many economic activities. This affects how much it costs and how we can turn it into a major change when it comes to market calculations.
As much as you can, says Charles Gave of Gavekal, use the relationship that exists between oil prices and the S&P 500 to predict markets for cattle and bears. “All bear markets in the US began when the S&P 500 rose sharply compared to strength,” Gave said.
This was the case in 1912, 1929, 1968 and 2000. Throughout the years the census showed investors disregarding the future value of energy and thus increasing the profits of the listed companies.
Those who are not fearful enough can also note that all bear markets, which were 1929-34, were driven by inflation and “took a long time for inflation to continue”.
This is understandable if you think about rising electricity prices raising prices by companies then they will not be able to raise the price or make a quick fix to take the money without raising prices or suffering a sharp fall in profits.
The first one causes inflation and leads to a decline in demand – which gains profits anyway – so in any case stocks with low electricity prices that burn on models start to look more expensive.
This is an additional point. For the past few decades, one of the main distractions of the West has been China’s low-cost products. The goods were cheaper among other things because they were made with cheaper works – now more expensive – and because they were made with the cheapest available oil – coal.
It’s something that’s changing again. China, determined to reduce pollution and possibly even decarbonise, wants to reduce coal to 20 percent of its energy mix by 2026. This is uncertain, given the political and economic crisis, but you can see a way forward. things are moving.
The important point here is that electricity prices are more important than you think. Cattle markets begin when energy is plentiful and cheap (1922, 1949, 1982, 2010 says Gave). Beer markets start when they are not. Times like this.
The financial consequences are understandable. Electric stocks performed very well last year. Maybe he will do the same this year. But their strengths can be reflected in any major weakness.
You need to tie in the first and last. The easiest way to identify oil and gas in the UK is through a fund that sells, such as iShares S&P Commodity Producers Oil and Gas ETF. Otherwise, there is the TB Guinness Global Energy Fund, which is related to past energy, or if you want to hide your little bets of the BlackRock Energy and Resources Income Trust, which is about 33 percent invested in past energy, or a variation of Temple Bar Investment Trust with 15 percent (which I own).
Merryn Somerset Webb is the executive editor of MoneyWeek. Suggestions provided by self; merryn@ft.com; Twitter: @MerrynSW
