Sections:
1. Trends
Work is evil
There is an old mathematical joke about money which goes something like the following:
Proposition: Work is evil.
Proof: Work = Power x Time by definition.
Time is Money, Money is Power, so Work = Money x Money.
Money is the root of evil, so Work is evil.
The part that we're interested in is Money = Power.
Back in June, we discussed the topic of greenwashing, with the conclusion being that there would be more investment in carbon capture systems.
Carbon capture systems fall under the more general category of abatement, which was arguably the operative word in the COP28 agreement.
With regards to coal it said:
"Accelerating efforts towards the phase-down of unabated coal power"
and carbon capture and hydrogen fuels were mentioned by name:
"Accelerating zero- and low-emission technologies, including, inter alia,
renewables, nuclear, abatement and removal technologies such as carbon capture and utilization and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production"
The agreement has little in the way of accountability in the near term, with the only significant numerical target being to reach net-zero by 2050.
What it all means is that everyone is free to invest in whatever project best suits themselves. The projects that receive the most new capital will therefore be the ones that suit the countries with the most new capital available to spend on long term projects.
This probably won't be the US.
As you might expect, there is a relationship between the size of the budget deficit and the amount of spending that goes to infrastructure.
The budget surpluses of the late 1990s triggered an increase in infrastructure spending, but it has been downhill all the way from there.
To clarify, this is as a percentage of total spending, which has also ballooned, so in dollar terms spending has increased. This should still mean that companies dependent on infrastructure spending are disadvantaged relative to other parts of the market.
In any case, with Republicans in charge of the house, it is unlikely that any additional spending on green energy projects will be coming in 2024.
In recent years, some of the most public investments have been coming from Arab nations. Indeed the term 'sportswashing' has been invented to suggest that the hosting of major sporting events and investments in sports teams are being used to deflect attention from human rights and environmental issues.
Regardless of the motivation, the fact is that Arab nations have large sums of money available for investment, and this is giving them the power to dictate things such as the text of climate agreements.
Does this mean that carbon capture projects are set for significant new investment?
Possibly, but not from Saudi Arabia.
Saudi Arabia doesn't have much interest in coal, and prefers to invest in projects that diversify itself from oil. The recent investment in Heathrow Airport and other travel businesses are two such examples, as both should benefit from lower oil prices.
Their future plans appear to be centred on Africa. They are willing to invest in mines for battery materials at a time when other miners are pulling back. Again diversification is a key benefit. In this instance, it may also allow them to claim that they are doing their part with regards to climate change.
It has been alleged that the engagement with Africa is intended to increase demand for oil. This sounds quite believable, as it is in their interest to do so. Whether this is sufficient to offset increased US production is unclear.
The bigger problem for Saudi Arabia is that they too now have a budget deficit, and so may not be able to increase investment as much as they might like.
The real investment power in the region probably lies with the Emirates. This week they lanched yet another investment fund, that will take positions both domestically and internationally.
Despite this apparent influx of capital, Emirates stocks look cheap relative to Saudi stocks (at least as measured by the ETFs UAE and KSA).
The main difference between the two is that UAE has a concentration in real estate, particularly commercial real estate.
If the Fed is going to start being a tail wind for that sector, then this dip in UAE might be one worth buying.
The main downside of UAE is that it doesn't hold many companies, and is highly illiquid as a result. We'll probably want to wait for a sell-off so that volumes pick up and we can transact more easily.
Model Portfolios
1. On the screen: BAC, JETS
We're taking profit in our positions in BAC and JETS this week, but they remain on our screen to buy if and when we get a correction.
In the case of BAC, the key level where the trend changed is around 30.50, where trend line resistance was broken.
As such we'll look to buy a correction below 31.00.
For JETS we'd expect to see some profit taking down to around 17.50.
Our level to rebuy is therefore below 18.00.
2. Portfolio positions
As discussed on Beat The Market, we're moving to cash in the Unbound Absolute Return portfolio heading into year end.
In our equity portfolio we will sell 5% XLP and buy 4% XLE. This portfolio should outperform when rates go higher, which means that risk/reward looks highly attractive at present. Our positioning models support our macro view, with XLP trading as if buyers are starting to disappear.
In the Global Asset Allocation Portfolio, we are underweight US and international equities, underweight US and international bonds, and overweight the Dollar.
Talking Stocks
Talking stocks is now taking place at our daily discussion category on the forum. https://www.davidwoounbound.com/forum/daily-discussion
We have irreverent but insightful commentary on stocks in the news, updates on trades we have on, and new trades throughout the week.
Make sure to follow the category if you want email notifications when there are new posts.
Epilogue
Wearing a towel on his head doesn't exactly make BabyTron look like a Sheikh, but perhaps its a subtle message about power.
The final statement on transitioning from fossil fuels was: "Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, ..." 'Just, orderly and equitable', or JOE. I'm sure that's just a coincidence.
I don't see any investment from Saudi Arabia in Ice Hockey, where the term power play comes from. This makes sense since there's not a lot of ice in the desert. On the other hand, they play on mushy ice in Dallas and Las Vegas so why not.