• Charge your car on the move
• Another lost decade for the banks?
• Do we have a ‘liberal bias’?

By Selva Freigedo in Albert Park

1…1…1…3…1…1…

I’m sitting here at the home office keeping score.

I’m not watching a match, or any sort of sporting event. Instead I’m looking out the window and adding up cars during the morning commute.

To be precise, I’m counting how many people are inside the cars that pass by.

The vast majority are carrying a single person.

If you think about it, this is quite inefficient.

It’s quite a waste of energy and resources. You use your vehicle every day to take you to work…but you don’t produce anything. Instead, each car consumes a vast amount of energy and delivers exhaust fumes to take only one person to work.

But, what if you could produce energy as you drive?

Let me explain.

The energy industry is going through a massive change. 

Consumers are increasingly adopting electric vehicles.

Yet, while you may be hearing quite a lot of noise about Tesla and electric vehicles, let me tell you, they are still not that common. 

EV-Volumes  estimate that by the end of 2018 there were about 5.4 million plug-ins on the road, a 64% increase from 2017. Yet that only amounts to a grand total of 0.4% of all the light vehicles on the road.

Most of us aren’t driving electric vehicles…yet.

But that number is set to increase.

There are a lot of incentives for consumers to make the switch. 

Of course, there is the environmental issue. But there are also financial incentives.

Battery costs are dropping…which is making the electric vehicles cheaper.

They are also mechanically simpler, which means they will break down less and they are cheaper to maintain.

And governments are driving the push to change by giving financial incentives, changing legislation and increasing infrastructure.

The US International Energy Agency  expects that the number of electric cars on the roads will reach 125 million by 2030…which presents us with an incredible opportunity to change the way we power our transport. 

But, of course, there are also some hurdles.

While charging a gas guzzler is no problem, charging an electric car is a whole different ball game. It’s not as easy as you may think.

For one, there aren’t that many charging stations yet.

And we will need more in the future. This from Wired :

‘Americans have bought only about a million EVs to date. But many more are coming. The global auto industry is poised to roll more than 100 electrified car, truck, and crossover models onto showroom floors by 2022. Collectively, they’ll sell in the millions. That means the where question—where the electric vehicle owners will live, where they’ll drive, and most of all, where they’ll charge—is about to become much more important.[…]

‘For the public and private entities building out that infrastructure, knowing where to put charging stations is essential. According to the analysis [a report from International Council on Clean Transportation], most locales will need to up the number of plug-in places they build each year by 20 percent to keep up with demand. Even in California metros, where utilities and private companies already have plans to build more than 26,000 new stations by 2025, the analysis finds that the state may come up almost 41,500 chargers short.’

The most usual way to charge an electric vehicle is with a charger at home. Which means that people living in apartments may not have access to this.

And, electric vehicles can take a long time to charge.

According to pod-point , charging an electric car can take anywhere from 30 minutes to up to 12 hours depending on the size of the battery and the charger’s speed. Fast stations will take about 30 minutes to charge, which admittedly is quite long when you compare it to the 5–10 minutes it takes to charge an internal combustion energy (ICE) vehicle.

We will need faster charge times.

But, as we said, what if we could charge as we drive?

Then there is no need to stop to recharge for hours…or even for building recharging stations.

China is already working on something like this.

Qilu transportation is looking at completely transforming a 1km of road in the eastern city of Jinan to an ‘intelligent highway’. 45,000 vehicles pass through that section of road every day.

As Bloomberg  reported:

‘The road to China’s autonomous-driving future is paved with solar panels, mapping sensors and electric-battery rechargers as the nation tests an “intelligent highway” that could speed the transformation of the global transportation industry.[…]

‘Yet Qilu Transportation wants to do more than supply juice to the grid: it wants the road to be just as smart as the vehicles of the future. The government says 10 percent of all cars should be fully self-driving by 2030, and Qilu considers that an opportunity to deliver better traffic updates, more accurate mapping and on-the-go recharging of electric-vehicle batteries—all from the ground up.’

A smart road that powers the highway’s lights, the homes around it and the electric cars that pass through it.

How are they planning on charging the cars as they pass by? Through wireless charging. 

A couple of problems with this.

First, this could be quite an expensive undertaking. Qilu is only looking at applying this to 1km of road so far. It will take a lot of money, materials and wires to apply the changes to the entire current infrastructure. 

Second, wireless charging electric cars don’t exist yet…

But, you get the idea…instead of building more infrastructure to cater both electric and ICE cars as we make the switch, we could use our roads to charge as we drive, which could be much more efficient.

Stay tuned for more…

Best,

Selva Freigedo,
Editor, Markets & Money

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Another Lost Decade for the Banks?
By Matt Hibbard in Melbourne, Australia

Within days of the commissioner’s report, two of the head honchos at National Australia Bank Ltd [ASX:NAB] got to work clearing out their desks.

Though for former Treasurer, and Future Fund Chairman, Peter Costello, one of them wasn’t moving nearly quickly enough. A former champion for NAB’s Chairman, he was blunt in his advice:

‘If the NAB was managing itself well, the chairman would go first and the new chairman or chairwoman would appoint the CEO.’ 

For an ex-pollie, Costello has a rare economy with words. There is no way of misunderstanding that.

While other bank bosses escaped similar treatment, they now wait for any potential criminal action.

As we saw last week, bank shareholders enjoyed a nice bounce after the release of Hayne’s report. The big four gained between 5–7% on the day.

The move provided some respite for long-suffering shareholders. They are only too familiar with their stock prices going nowhere, even when property prices were on the up.

Take out dividends, and bank stocks have barely moved in a decade.

Of course, it hasn’t always been like this. From the early to mid-90s, through to 2007, bank stocks all went on a tear.

Westpac Banking Corp [ASX:WBC] rallied tenfold, from around $3 to $30. And NAB from around $7 to over $42.

Australia and New Zealand Banking Group [ASX:ANZ] also went on a colossal run. It rallied from around $3 to a fraction under $32.

The biggest bank, Commonwealth Bank of Australia [ASX:CBA], didn’t rally quite as hard as the others over that decade. However, it went on a run after the sub-prime disaster, trading from around $24 to $96.

At that time, shareholders not only were able to cheer a rising share price. They also received a regular stream of growing dividends.

Over the last decade, though, it has mainly been these dividends which kept shareholders on the register. Without them, there were plenty of other places to invest for capital gains.

But banks have run into a problem. With the exception of CBA, their dividends have also become stagnant.

The real test for CBA will be if it can increase its final dividend later this year. If not, it will join the ranks of the other banks whose dividends have peaked.

As the biggest bank, CBA offers a gauge as to how the others should perform. And because it reports earlier than the other three, can give an early indication on how the others are travelling.

While there is plenty of talk about mortgage stress, it did not find its way into CBA’s recent interim results. Loans in arrears was slightly down from the previous period.

CBA’s net interest margin — the margin between the interest it pays out and receives — though, was again slightly lower than previous periods. Meaning the cost of funding for Australia’s banks continues to rise.

When the other three report in May, these are the numbers (loan arrears and margin) that will attract the closest analysis.

With a huge 69% of funding coming from its depositor base, CBA is better suited than the others to absorb higher interest costs from bond investors.  Nevertheless, CBA’s margins are in a vice.

So what next for the banks?

One of the first tests was yesterday, when CBA went ex-dividend for $2. Opening $1.58 below the previous day’s close, early buying suggested CBA was back on the march.

But as the day played out, buying soon gave way to selling. By mid-afternoon, CBA stock was down beyond the size of CBA’s dividend, trading around $71.

There is no doubt the royal commission put a cloud over bank stocks. But the selling got under way well before that.

It wasn’t just about the lack of dividend growth. Nor about the market looking to the future and fearing a property correction.

Instead, it was to do with something much more mundane.

While banks appear conservative, they are actually highly leveraged. Their viability depends on their interest margins, and the ability to gauge risk.

Without a suitable capital buffer, banks that are too highly leveraged, can easily fall over. That is why the capital rules (Basel) have changed since 2007. Bank regulators clearly want to avoid another financial meltdown.

That means banks retaining a higher level of capital than before. And while that makes the financial system safer, it has one side effect. That is, with less leverage, banks just can’t generate the type of return on equity (ROE) that they did a decade ago.

In 2011 and 2012, CBA generated an eye-watering 19%-plus ROE. Over the last two years, though, this has fallen to just over 14%. The trend looks to be continuing down from here. 

And this is what will drive bank share prices.

Yes, profit, dividends, interest margins and loan defaults all matter. But ROE, especially a declining one, is what will also keep a lid on bank prices in the future.

Matt Hibbard
Editor, Options Trader

Do We Have a ‘Liberal Bias’?
By Bill Bonner in Paris, France

We begin with kvetches. Complaints. Grumbles.

From dear readers…

‘Anyone who opposes Trump is anti-American.’

G M

‘Listen, you are smart enough to know that if you keep banging the president, a lot of us are leaving. You have to get it through your liberal head that Trump is far better than the other choice and we see that.’

John B

‘You have no faith in President Trump or his desire to make the country greater. You must think that Barack Obama, Bernie Sanders, and AOC are on the right track to make this country great again with their brand of corruption and socialism. Well, I could not possibly disagree with you more. I completely detest what they have done and are trying to do to this country with their ‘dark state’ opposition.’

William H

‘Liberal bias’

Dear Readers took offence. They accused us of having a ‘liberal bias.’

Of course, they may be right.

We thought we had a traditional conservative bias.

One of our earliest careers was at a taxpayer advocacy group. We came within a handful of votes of launching a constitutional convention and forcing the government to add a ‘balanced budget’ amendment to the Constitution.

Since then, we have hardly ceased denouncing Big Government, Washington, the Deep State, Clinton, Bush, Obama…the Empire…the Fed…the fake money…the waste…the deficits…the chicanery, claptrap, and lies that keep ‘the system’ — with all its insipid entertainments and hollow pretensions — in business.

But a bias is not something you buy ‘off the shelf.’ Like a weed at night, it takes root without your consent or knowledge. It is ‘software’ that you don’t build or install; instead, it comes to you as part of your culture and your DNA.

One element of this software, deeply etched, is the idea of ‘bias’ itself. That is what the Dear Reader mail confirms.

If we criticise Mr Trump as a failure and fraud, we are clearly not biased towards him. So…we must be biased against him.

And who is biased against Trump? Liberals! Therefore, we must have a ‘liberal bias.’

Empty suit

This, of course, has been our point: that this ‘us versus them’ software limits our thoughts. There are only two possibilities — for or against, pro or contra. So, if you think Mr Trump is a jackass, that is proof of a bias in favour of the other team.

And there is more proof. Dear Readers say we didn’t criticise Mr Obama so harshly. And yes, it is true. We didn’t.

We saw nothing in Mr Obama to criticise. He never pretended that he would buck the system or turn things around; and he didn’t try. He was an empty suit. Criticising him would be like kicking a lame dog or making fun of a retarded kid. Where was the sport in it? What was there to gain?

Ah…but Mr Trump…the Great Disruptor. Here was an outsider, a man who didn’t mind confronting the elite and mocking their precious codes.

When he slouched into town, a bright star was seen by millions…high above Flyover America. A messiah, they said to one another, is given unto us.

Occasionally, it seemed like Mr Trump might actually be the saviour they sought. He seemed to understand how the insiders had corrupted the system and how they needed to be brought to heel.

He would balance the budget, he said. He would pay down the debt. He would bring home the troops. He would pop the ‘big, fat, ugly bubble’ on Wall Street.

Yes, he said outrageous and moronic things, too, but there was hope: Perhaps he only appeared to be an idiot to get the idiot vote, which is always decisive in American politics.

Act of national stupidity

But now…after two years…you don’t need a ‘liberal bias’ to see that Mr Trump will not ‘make America great again.’ The insiders are still getting richer. The feds are becoming more powerful. And the country is falling further into debt.

And what will happen when the next debt crisis comes?

That’s where Mr Trump and the ‘liberal bias’ element — both ‘us’ and ‘them’ — will come together in a great act of national stupidity.

They will stand before the cameras and fight over walls, shutdowns, trade wars, energy policies — and other irrelevancies. But they will lock arms and march over the fiscal cliff…together.

Here’s former Fed Chief Alan Greenspan, making the same point, at Bloomberg:

While American politicians on both sides of the aisle have been mostly silent as the US deficit swells toward $1 trillion and beyond, former Federal Reserve Chairman Alan Greenspan says the lack of attention won’t last.

‘This is an extremely imbalanced situation,’ Greenspan, who led the Fed from 1987 to 2006, said in a phone interview. ‘Politically, budget deficits really don’t matter. What matters is the consequences.’

Deficits don’t matter to Ms. Pelosi or AOC. They don’t matter to Mr Trump, either. He is, after all, a ‘low interest guy’ and the ‘King of Debt.’ (His words).

But they matter to you, dear reader, because of the consequences — which you will have to suffer, one way or another. And that’s where the ‘us versus them’ won’t help you. The crisis ahead is bipartisan.

The liberals are always in favour of more spending. More taxes on the rich. More debt.

And now, with their new Modern Monetary Theory — a logically correct, but thoroughly idiotic and ultimately disastrous, approach to public finances — they feel liberated to spend, spend, spend.

Once upon a time, you could count on the ‘conservatives’ to oppose them. But they were the ones who just approved a $1.2 trillion deficit — in a booming economy.

And now…all they both need is a crisis. Then, if there is any residual good sense — in either party — it will evaporate quickly.

The next downsweep of the credit cycle will cut stock market prices in half, and set off a recession.

That will get their attention!

And neither a liberal bias nor a conservative bias will prepare you for it or protect you from it. That is why the ‘us vs them’ is so damaging. In foreign policy, it leads to war. In domestic policy, it leads to blindness and bankruptcy.

Red or Blue…?

Forget it.

Regards,

Bill Bonner

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