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 Economics Vs Ideology

Could it be that the “green tide” is turning?

It was just three years ago when a new CEO was brought in at BP with great fanfare and one mission — to shift the company’s focus to “renewable” energy. He was being hailed as the Messiah of the “great energy reset.”

“We need to reinvent BP,” said new CEO Bernard Looney on Wednesday, as the European energy giant announced a major reorganization and a net-zero target deadline of 2050 or earlier.

“We expect to invest more in low-carbon businesses — and less in oil and gas — over time,” said Looney, who took over from long-time CEO Bob Dudley last week.

And here’s where we are today:

Chief Executive Bernard Looney plans to dial back elements of the oil giant’s high-profile push into renewable energy, according to people familiar with recent discussions.

Mr. Looney has said he is disappointed in the returns from some of the oil giant’s renewable investments and plans to pursue a narrower green-energy strategy, the people said. He has told some people close to the company that BP needs to do more to convince shareholders of its strategy to maximise profits in areas where it has a competitive advantage, including its legacy oil-and-gas operations.

In some of the conversations, Mr. Looney has said he plans to place less emphasis on so-called ESG goals—a catchall term for environmental, social and governance—to help clarify that those aren’t distracting the company from its ability to deliver profits, the people said.

Mr. Looney, the people said, is casting the moves as a modest short-term course correction rather than a major strategic pivot for the 114-year-old company.

Analysts and some investors say pledges by BP to shift away from fossil fuels and into renewable energy risk handicapping the company’s performance. Many companies are struggling to transition to new green technologies while still relying heavily on traditional energy sources.

As we like to say around here at Capitalist Exploits HQ, everyone — including the virtue-signaling energy firms — is a greenie until it hurts their pockets.

We can only wonder what happens when oil trades above $100 for an extended period of time.
 

 New Bull Market Or…?

The whispers that we just might be in a new bull market in the S&P 500 have been growing louder and louder recently.

We feel compelled to remind folks of the multi-year bull market in US equities compared to the rest of the world. Essentially, it has been a one-way street for over ten years, which has led to extremes (and that’s putting it mildly).

Take a look…

(Click on image to enlarge)

It helps explain why we continue to struggle to find value in US markets (save for a few “toxic” sectors like shipping and energy — and we’ll have more to say on that in a second). Buyer beware!
 

 All Things Transitory…

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

This week, news out of the UK prompted a fascinating exchange between members of our Insider community. We thought it would be worth sharing a portion of it with you.

First, the news in question…

To which member Tom provided some fascinating context:

It’s been nearly a decade since I’ve had anything to do with veg but assuming not much has changed. A lot is grown to contract meaning a deal to produce a certain tonnage of certain quality is made before it’s even planted. And given the ridiculous red tape from supermarkets around size and shape a huge amount can very easily be rejected hence why fields look to be going to waste.

I fully agree it’s completely pointless and the vast majority of us here would be quite happy to eat a bent veg but the supermarkets simply reject them. If memory serves me the last place I was on that grew carrots, they budgeted for a measly 40% to be accepted. British ag was heading down pretty steadily even before Brexit finally went through.

One of the questions that pop up, as another member Kathryn pointed out:

Could the farmers not sell “ugly and forgotten” fresh produce directly from the field. A pick your own type of thing or were they prevented by contract from doing that?

And more from Tom:

Yes that’s a possibility and some do. Although sometimes that simply replaces one tower of red tape with another. I’m only a couple of episodes into Clarkson’s second series but the problems he had surrounding the farm shop and then the restaurant are very real. Despite producing quality food and selling direct being the best for everyone involved there are sometimes insurmountable walls put in place to stop it. (Usually like so many things these days in the name of “safety”)

Another example for you was when Covid hit the fan those dairy farmers who had contracts with restaurants and processing plants that supplied things like airlines. Their market vaporized basically overnight and the milk just had to be poured down the drain as it can’t be held for more than a day or two. Some tried to install ways to sell direct but to pivot on a dime like that is pretty hard and the rules surrounding pasteurizing and selling direct are huge, despite being pretty unnecessary. As anyone else that’s had it can probably confirm, there is nothing better than fresh milk straight from the tank. One of the things I looked forward to when back in the Uk and visiting a good friends dairy farm.

Ah, “safety.” What would we do without the pointy shoes that work so tirelessly to keep us safe (and, by the looks of it, hungry)?
 

 Things That Make You Go Hmmm…

We touched on “toxic” sectors such as energy a moment ago…

The following graphic from Tavi Costa (@TaviCosta) caught our eye earlier:

And keep in mind this is after Microsoft lost about a third of its value while energy companies just had the best year on record.

Market participants (still) seem to believe the world no longer needs oil and gas. Fine by us. We’ll gladly take the other side of that view.

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Enjoy the weekend, everyone!

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