Energy and GDP: March Issue of

Slide1Each issue of contains: a Main Essay, a Model Portfolio, a Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

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Listen now to this month’s podcast for free, at SoundCloud: Energy and GDP: March 2014.

The theme of this month’s publication, Energy and GDP, is that followers of the energy sector have probably been offered at least once or twice the idea that modern, industrial economies will eventually de-couple from natural resource inputs, and begin to fund growth using a declining quantity of energy. While it’s certainly true that industrial economies can become more efficient (in fact that’s a story that’s been taking place for decades) the dream of de-coupling remains a thesis without evidence. In this month’s issue we take a look at three economies, the US, Japan, and California to probe more deeply into this question:

The reason we are going into some length and detail here is that Japan is the proxy for the expected value that all industrial economies will eventually achieve. That will take time, admittedly, and the rest of populated Asia may not reach its expected value until mid-century. What seems likely is that Japan is on its way to becoming the first post-industrial economy, and is fated to decline in industrial terms, in population, and in wealth from now on. Even the most heroic buildout of solar and wind power, which we very much expect Japan to undertake, will only put a brake on Japan’s long and gentle decline. Yes, there is always some uncertainty in such a forecast: breakthrough technology in nuclear power could occur sometime in the next decade or two. But aside from the above-trend growth we are forecasting globally, from 2015-2020 as energy transition begins to resolve, it is unlikely that Japan will be able to capture much of that cycle. Let us recall that at least 2-4 significant global growth cycles have already passed Japan by, in the last 20 years. Japan is even less likely, now, to “de-couple” from a world of expensive energy and start a new phase of secular growth.

The Model Portfolio, which began April 1, 2013, is also anticipating the coming shoulder season in the energy complex, and is looking to secure a strong first year performance as we head into April and May.

After 11 months, the model portfolio is currently up a little over 11%, and as we head towards the portfolio’s first year mark in April, it does seem likely that the first sales will take place this Spring. The oil and gas complex is set up right here to experience a classic shoulder season. In other words, natural gas and oil prices and especially oil and gas equities have been very strong, right as we are about to roll into Spring. Indeed, natural gas in the past five trading days has given us a preview of what’s likely to unfold as we head towards the month of May. Overall, the performance of the model portfolio has been excellent in the first year, with just about the best mix of exposure to fossil fuels, the powergrid, and renewables.

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“ eBook – Energy and GDP – March 2014” by Gregor Macdonald – Editor on Ganxy