Spot on. I was in Toronto at an investment conference this week and there was more than one asset manager who said they screen out energy companies.
The exclusion of energy from the investable universe creates instability for the economy longer term because energy underpins everything. This is a growing risk that will have to be addressed once it develops enough to have obvious, traceable market impacts. I think that point is not very far off.
If inflation settles around 4%, it will be at least partly because of the lack of energy in society.
I am a big fan of JP Morgan in general and their CEO specifically. However, JPM like all major financial institutions are under major pressure to cease financing/capital markets for oil & gas, as we saw in last year's proxies (I did a video pod on this earlier this year). Current management teams across the banks pushed back on the divestment efforts. I think its reasonable to wonder (fear?) what happens when there is inevitable change at the top in future years. Will the next group have the strength and desire to push back on divestment?
Arjun, as you noted, this is totally consistent with the activist playbook. Trying to cut off capital markets access is synonymous with going for the throat. What is surprising, particularly for a German company, is to make a decision like this now, in the face of Europe’s energy crisis. That said, if you think that the world is going to end tomorrow unless we stop using oil immediately, then I guess you can understand their perspective. I don’t.
100% Bruce. This is the go-for-the-throat strategy...and one of the big ones succumbed. Insurance/re-insurance in particular has a non-trivial European-bent to it...its a very real possibility more will follow.
I wouldn’t take the other side of that bet. The number of anti-oil protests taking place is jaw-dropping. Europe already has hyper inflation and a LOT of businesses closing their doors. I guess it’s “a small price to pay”……. This is not going to end well.
And from an investment point of view, oil and gas has been the only “anti-fragile” asset in 2022 other than short equities, interest rate option strategies, etc.
The divestment movement rests on a faulty assumption that energy “transition” is even possible. In the history of energy, each new source is additive to what has been there in the past. So to think that somehow wind and solar (I don’t say “renewables” because that’s mostly burning wood) can “replace” 80+% of our global energy system is on its surface absurd. Not to mention the fact that most aspects of modern life - plastics, chemicals, ammonia, steel, and cement production all rely on fossil fuels. Mitigating the effects of climate change is a far more likely outcome ultimately.
For sure Weston. Even for the most die-hard enviro who will never support fossil fuels, why start with US/Canada/European firms? Start with Russia, Iran, etc.
Germany is at the start of a huge energy problem. Companies start to close, some of them private companies that survived 2 world wars, but not 20 years of left-green energy policy under Merkel and Scholz. Munich Re ignores this and stops out of profitable O&G insurance: pure ideology, ignoring reality.
Spot on. I was in Toronto at an investment conference this week and there was more than one asset manager who said they screen out energy companies.
The exclusion of energy from the investable universe creates instability for the economy longer term because energy underpins everything. This is a growing risk that will have to be addressed once it develops enough to have obvious, traceable market impacts. I think that point is not very far off.
If inflation settles around 4%, it will be at least partly because of the lack of energy in society.
Based on recent statements from JP Morgan’s CEO, JD, he’ll fund the entire O&G sector himself and make out like a bandit :)
I am a big fan of JP Morgan in general and their CEO specifically. However, JPM like all major financial institutions are under major pressure to cease financing/capital markets for oil & gas, as we saw in last year's proxies (I did a video pod on this earlier this year). Current management teams across the banks pushed back on the divestment efforts. I think its reasonable to wonder (fear?) what happens when there is inevitable change at the top in future years. Will the next group have the strength and desire to push back on divestment?
Arjun, as you noted, this is totally consistent with the activist playbook. Trying to cut off capital markets access is synonymous with going for the throat. What is surprising, particularly for a German company, is to make a decision like this now, in the face of Europe’s energy crisis. That said, if you think that the world is going to end tomorrow unless we stop using oil immediately, then I guess you can understand their perspective. I don’t.
100% Bruce. This is the go-for-the-throat strategy...and one of the big ones succumbed. Insurance/re-insurance in particular has a non-trivial European-bent to it...its a very real possibility more will follow.
I wouldn’t take the other side of that bet. The number of anti-oil protests taking place is jaw-dropping. Europe already has hyper inflation and a LOT of businesses closing their doors. I guess it’s “a small price to pay”……. This is not going to end well.
And from an investment point of view, oil and gas has been the only “anti-fragile” asset in 2022 other than short equities, interest rate option strategies, etc.
The divestment movement rests on a faulty assumption that energy “transition” is even possible. In the history of energy, each new source is additive to what has been there in the past. So to think that somehow wind and solar (I don’t say “renewables” because that’s mostly burning wood) can “replace” 80+% of our global energy system is on its surface absurd. Not to mention the fact that most aspects of modern life - plastics, chemicals, ammonia, steel, and cement production all rely on fossil fuels. Mitigating the effects of climate change is a far more likely outcome ultimately.
For sure Weston. Even for the most die-hard enviro who will never support fossil fuels, why start with US/Canada/European firms? Start with Russia, Iran, etc.
Germany is at the start of a huge energy problem. Companies start to close, some of them private companies that survived 2 world wars, but not 20 years of left-green energy policy under Merkel and Scholz. Munich Re ignores this and stops out of profitable O&G insurance: pure ideology, ignoring reality.
Thank you Klaus for your comment.