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This month’s publication, China’s Quiet Period, examines the false framing used over the past decade which attempts to choose between China’s very high rate of growth, and, an outright China crash. As China slows down, however, two important trends are coming to light. First, China is now consuming natural resources at a slower rate, but, from a very high level. Second, China is actually now consuming its own environment and a tipping point approaches in this regard, unless the country takes fairly drastic action.
This is worth repeating: even if China were able to hold fossil fuel consumption at current levels—which most would agree to be a heroic accomplishment without sacrificing growth—the quantity of waterborne and airborne pollution would carry onward at very dangerous levels. In other words, for China, to employ a method other than the slow passage of time to halt the growth of waste production (WP) would require that all new energy demand was satisfied by new deployment of renewables(R). Furthermore, to actually begin the process of CO2 reductions, China would have to deploy waste control (WC) on existing energy consumption. Accordingly, China needs R+WC > WP in order to make progress in absolute terms, for the sake of its environment.
The November issue also discusses the performance of the Model Portfolio, which is up +4.86% to date.
The stock market has taken oil and gas equities to very high levels in the past six months. This demonstrates, once again, that energy equities derive part of their valuation from the underlying commodity but just as important is the overall environment for stock market valuation(s). This is why, in previous issues of TerraJoule.us, it’s been explained that the optimal entry points to build positions in the model portfolio are a function of rhythms in both stock prices, and, commodity prices.
Accordingly we have now reached a moment of very high risk for oil and gas equities as oil and natural gas prices weaken while the overall stock market is at new all time highs (in nominal terms, of course). The price of oil is presently declining in typical, seasonal fashion. So, there is nothing out of the ordinary as we descend from the highs. As pointed out recently at TerraJoule.us, oil tends to make a low in late November or early December. From those levels, it tends to skid along a bottom until February, when it starts a new advance.
However, you will have noticed of late that the momentum-charged solar ETF, TAN, and also the higher beta oil and gas ETF, XOP, have pulled back sharply in the past two weeks. Meanwhile, more stable ETFs like JXI and IXC continue to do well. Surely, this is in part due to the retreat of interest rates on the back of weak economic data, as investment flows return to dividend paying securities. Notably, JXI has now returned over 9% for the model portfolio, and the ETF which covers the plodding and slow oil and gas supermajors, IXC, has returned 11% for the model portfolio.
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