Feb 7th 2020

Cramer: “We’re in the Death Knell Phase” of Big Oil, as 44% of Norway New Autos are Electric

by Juan Cole

Juan Cole is the Richard P. Mitchell Professor of History and the director of the Center for South Asian Studies at the University of Michigan. His latest book, Engaging the Muslim World, is just out in a revised paperback edition from Palgrave Macmillan. He runs the Informed Commentwebsite.

Ann Arbor (Informed Comment) – CNBC stock picker Jim Cramer startled his conservative fan base this week by refusing to push ExxonMobil and other petroleum stocks. He solemnly informed his audience that he is “done” with fossil fuel securities. He pointed out that pension funds all over the world are divesting from them because of pressure from a younger generation of investors who do not believe you can ever make a fossil fuel company sustainable. (This is true, you cannot. Their business model is to have us burn the fossil fuels, which releases billions of tons of heat-trapping carbon dioxide, which is wrecking the planet.)

We are, he said, “in the death knell phase.” He adds, “It is actually happening pretty quickly. You’re seeing divestiture by a lot of funds. It is going to be a parade that says, ‘These are tobacco, and we’re not going to own them . . . We’re in a new world.”

CNBC: “Jim Cramer: ‘I’m done with fossil fuel’ stocks”

Jim Cramer is not a liberal. He isn’t saying these things to be politically correct. He is being hard-nosed and realistic. Most people under 40 don’t want those stocks.

In comparing petroleum securities to tobacco, Cramer is admitting that a large segment of the public now sees them as injurious to public health. This conclusion is correct. Sixty percent of Americans want to reduce dependence on fossil fuels.

Such attitudes are changing rapidly. The Australian establishment was wedded tightly to climate denialism until it was shaken by having the whole continent go up in flames this winter (their summer). The likelihood is that the Australian public will begin finally to turn against coal in the aftermath. As countries are badly hit by climate crisis effects, the public will start voting to outlaw fossil fuels.

There is, however, another reason to get out of petroleum stocks right now, besides environmental consciousness.

Petroleum isn’t going to be needed much longer. The world over the next few years will rapidly experience a technological disruption, as millions of families buy electric vehicles and fuel them from the sun and wind. Petroleum will still have some minor uses. Petrochemicals are useful as soil fertilizers, but the demand isn’t such as to drive a high price for it. Oil is used to make plastics, but we probably should outlaw that, too. Petroleum securities will likely soon be a penny stock.

Investing in them is like investing in zeppelins just before the Hindenburg disaster, or like investing in Blockbuster video stores just before video streaming came along.

China is causing jitters with its goal of having 25% of new car sales be electric in only 5 years. Not only would that development vastly reduce China petroleum demand, but some analysts worry that the Chinese manufacturers will be driven by government directives and incentives to over-produce EVs. In that case, inexpensive Chinese electric vehicles would flood the world market, as well. The government has reduced consumer incentives to go electric since last summer, causing a dip in EV sales. But if the Communist Party really wants 25% of new cars to be electric, it probably can make it happen.

In Norway in January, 44 percent of new car sales were electric. This is up from a 2019 average of 42 percent. Admittedly, Norway has high tariffs on imported cars, but exempts electric cars from those taxes, so it is actually cheaper to get a really nice electric car than a gas guzzler. But the fact is that governments will increasingly use taxes and other policy tools to get rid of gasoline vehicles, as with China. What we’re seeing in Norway is not artificial, it is just the future.

Even the erratic Tory Prime Minister of Britain, Boris Johnson, announced Tuesday that his government would bring forward the date on which it would ban new gasoline vehicles to 2035. Nor is that likely the last word. I’d personally be surprised if anyone was buying vehicles powered by fossil fuels in 2035.

In fall of 2020, a whole raft of new electric vehicles will be on sale, and preference for them will begin ticking up. Volvo’s relatively affordable new all-electric SUV, the XC40 Recharge, is in my view likely to be a star. And lots of sedans are coming.

The “electrifying” stock surge for Tesla recently demonstrates that the Market knows where the world is going, though obviously this process will have its ups and downs. (Caveat: I own a little Tesla stock.)

Electric cars are just on the verge of being a technological disruption for societies. I wrote a few years ago,

  • Rapid falls in price of materials and installation because of mass production will produce a technological disruption, as Tony Seba of Stanford calls it. There are tipping points in technology adoption such that sometimes old technologies are superseded with lightning speed. Seba shows a photo of the Easter Day parade down Fifth Avenue in New York City in 1900, and it is almost all horse and carriages with one automobile.

     

    Screen Shot 2015-08-04 at 4.08.56 AM

    He shows another slide, of the same parade in 1913 after the Model T came out. It is all automobiles.

    Screen Shot 2015-08-04 at 4.11.23 AM

So all that is why Cramer is talking about the death knell of petroleum stocks. We probably agree on almost nothing else, but when people are right, you have to give them credit. He is right.

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More Current Affairs

Feb 27th 2020
EXTRACT: "The EU must ask itself if it is prepared to do what is necessary to remain an independent player, united in the common interest of all Europeans. Otherwise, Europe’s viability as a democratic, sovereign entity in control of its own destiny will be called into question – and therefore tested by adversaries – like never before."
Feb 25th 2020
EXTRACT: "The world economy has clearly caught a cold. The outbreak of COVID-19 came at a particularly vulnerable point in the global business cycle. ...........This matters little to the optimistic consensus of investors. After all, by definition shocks are merely temporary disruptions of an underlying trend. While it is tempting to dismiss this shock for that very reason, the key is to heed the implications of the underlying trend. The world economy was weak, and getting weaker, when COVID-19 struck. The V-shaped recovery trajectory of a SARS-like episode will thus be much tougher to replicate – especially with monetary and fiscal authorities in the US, Japan, and Europe having such little ammunition at their disposal. That, of course, was the big risk all along. In these days of dip-buying froth, China’s sneeze may prove to be especially vexing for long-complacent financial markets."
Feb 25th 2020
EXTRACT: "It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than SARS. Not only has COVID-19 already caused more deaths than its predecessor; its economic consequences are likely to be compounded by unfavorable conditions – beginning with China’s increased economic vulnerability.................So far, US investors seem unconcerned about these risks. But they may be taking too much comfort from the US Federal Reserve’s three interest-rate cuts last year. Should the US economy falter, there is nowhere near enough room for the Fed to cut interest rates by 500 basis points, as it has in past recessions."
Feb 18th 2020
EXTRACT: "Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political, and geopolitical disturbances unlike anything since the 2008 crisis."
Feb 18th 2020
Extract: "In late 2019, Zogby Research Services (ZRS) once again had the opportunity to poll public opinion across the Middle East and North Africa about many of these issues that are of such critical concern to the region and its peoples..............One of the more intriguing results in our 2019 survey were the changes in Arab views toward the Israeli-Palestinian conflict. Most Arabs still blame the US and Israel for the absence of peace and have little confidence that the conflict can be resolved in the near future. Maybe as a result of this despair, this issue now ranks low as an Arab priority. Also noteworthy is the fact that majorities in most Arab countries now say that normalization with Israel, which they acknowledge is already happening, may be a good thing. This development shouldn’t be overstated, however, since there is still no love for Israel. It appears, from our survey, to be born of frustration, weariness with Palestinians being victims of war, and the possibility that normalization might bring some economic benefits and could give Arabs leverage to press Israel to make concessions to the Palestinians."
Feb 15th 2020
EXTRACT: "Global dissatisfaction with democracy has increased over the past 25 years, according to our recent report. Drawing upon the HUMAN Surveys project, the report covered 154 countries, with 77 countries covered continuously for the period from 1995 to 2020. These samples were possible thanks to the combination of data from over 25 sources, 3,500 national surveys, and 4 million respondents. Not surprisingly, the gloomy headline finding – rising democratic dissatisfaction – attracted the most attention. Less widely discussed, however, is the “good news” – that a small sample of countries has bucked the trend, and have record high levels of satisfaction with their democracies."
Feb 14th 2020
EXTRACT: "This is how dictatorships begin. As the US prepares for its next presidential election in November, it is every citizen’s responsibility rationally to examine Trump’s dictatorial impulses, which reelection would only reinforce. It is not safe to assume that he won’t go too far, or that he is too much of a “mediocrity” – as Leon Trotsky called Stalin (an assessment with which many Bolsheviks agreed) – to transform his country......Vladimir Lenin, himself a ruthless Bolshevik, wrote in 1922 that, “Stalin concentrated in his hands enormous power, which he won’t be able to use responsibly,” owing to traits like rudeness, intolerance, and capriciousness. Trump has all of them in spades. The more power he concentrates in his own hands, the dimmer the long-term outlook for American democracy becomes. His reelection could mean lights out."
Feb 9th 2020
EXTRACT: "Does this mean that the dream of European unity is over? Does the exodus of a member state obliterate the vision of Victor Hugo and Václav Havel? Does Europe now fit the description of what the great American president Abraham Lincoln called a house divided against itself? Not necessarily. History is more imaginative than we are. The EU still has the option of keeping Britain close in heart and mind. We can still benefit from our absent partner, by resurrecting the partnership through our actions."
Feb 7th 2020
EXTRACT: "There, no formal change from a republican system to an autocratic system ever occurred. Rather, there was an erosion of the republican institutions, a steady creep over decades of authoritarian decision-making, and the consolidation of power within one individual – all with the name “Republic” preserved.........Will the GOP-led Senate’s endorsement of this defense clear a path for more of the manifestations – and consequences – of authoritarianism? The case of the Roman Republic’s rapid slippage into an autocratic regime masquerading as a republic shows how easily that transformation can occur."
Feb 7th 2020
EXTRACT: "So all that is why Cramer is talking about the death knell of petroleum stocks. We probably agree on almost nothing else, but when people are right, you have to give them credit. He is right."
Feb 3rd 2020
EXTRACT: "........as the citizens of the remaining 27 states have observed the destabilising impact that the referendum decision has had on British politics, they have been inoculated against the desire to secede from the EU. Outside the UK, national-populist parties have moderated their anti-EU rhetoric and nowadays profess to want to change the EU from within instead of destroying it."
Feb 2nd 2020
EXTRACT: "Senators will soon decide whether to dismiss the articles of impeachment against President Donald Trump without hearing any witnesses. In making this decision, I believe they should consider words spoken at the Constitutional Convention, when the Founders decided that an impeachment process was needed to provide a “regular examination,” to quote Benjamin Franklin. A critical debate took place on July 20, 1787, which resulted in adding the impeachment clause to the U.S. Constitution. Franklin, the oldest and probably wisest delegate at the Constitutional Convention, said that when the president falls under suspicion, a “regular and peaceable inquiry” is needed."
Feb 1st 2020
EXTRACT: "Britain will be celebrating its glorious independence from the complications of international cooperation at a time when the intellectual, political, and economic hostility between China’s communist leadership and liberal democracies is becoming ever clearer. If liberal democracy is to survive, it must stand up for itself. And we should be under no illusion: open societies under the rule of law, from the Americas to Europe, Africa, and Asia, are in China’s hostile sights. The West should not aim to encircle or pen in China. But liberal democracies cannot allow it to distort international norms in its own favor."
Jan 29th 2020
EXTRACT: "Switzerland and Denmark have gone furthest into negative territory, both offering unprecedentedly low rates of -0.75%. The Swiss National Bank, which has kept its rate at this level since 2015, signalled recently that it intends to stick with this experiment and is not ruling out going even more negative. It has said that negative rates were boosting the economy and that the country’s fundamentals were not being significantly affected."
Jan 28th 2020
EXTRACT: "Electricity will dominate the future global energy system. Currently, it accounts for only 20% of final energy demand,......Without assuming any fundamental technological breakthroughs, we could certainly build by 2050 a global economy in which electricity met 65-70% of final energy demand,....."
Jan 27th 2020
EXTRACT: "With the world economy operating dangerously close to stall speed, the confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects."
Jan 26th 2020
EXTRACT: "Gibson’s diagnosis is supported by international attitude surveys. One found that most Americans rarely think about the future and only a few think about the distant future. When they are forced to think about it, they don’t like what they see. Another poll by the Pew Research Centre found that 44% of Americans were pessimistic about what lies ahead. But pessimism about the future isn’t just limited to the US. One international poll of over 400,000 people from 26 countries found that people in developed countries tended to think that the lives of today’s children will be worse than their own. And a 2015 international survey by YouGov found that people in developed countries were particularly pessimistic. For instance, only 4% of people in Britain thought things were improving. This contrasted with 41% of Chinese people who thought things were getting better."
Jan 24th 2020
EXTRACT: "........while over 80% of the ECB scheme buys government and other public sector bonds, a huge chunk still goes into corporate bonds and other assets. At the time of writing, the ECB holds €263 billion worth of corporate bonds – a very significant amount in relation to individual firms and the sectors in question. According to the ECB, 29% of these bonds were issued by French firms, 25% by German firms and 11% each by Spanish and Italian firms. As at September 2017, the sectors they came from included utilities (16%), infrastructure (12%), automotive (10%) and energy (7%)."
Jan 17th 2020
EXTRACT: "Thanks to cutting-edge digital technology, cars are increasingly like “smartphones on wheels”, so manufacturers need to have access to the latest patented 4G and 5G technologies essential to navigation and communications. But often the companies that hold the patents are reluctant to license them because manufacturers will not accept the high fees involved, which leads to patent disputes and licensing rows."