2023-01-03

ATMs

Read this. It’s about how ATMs work, by Patrick McKenzie. It’s fascinating, in that it explains, in a highly readable way, how one boring, mundane, piece of our financial infrastructure works. But set aside a bit of time, because it is insanely complicated.

If you think you know about money, read Patrick’s blog to discover how little you really know.

What is to be done with commodities?

• Demand
  • China
  • Covid
  • Demographics
  • War
  • Net Zero
  • ESG
  • Technology (e.g. fusion)
• Supply
  • Financing of dirty tech
  • Africa, lithium, cobalt
  • Stranded by cancelling of pipelines
  • Mining tech. Everyone agrees we’re running into a recession. Currently, pundits say a mild one, but economic forecasters are put on earth to make astrologers look good. Nobody knows what will happen to China, but it doesn’t look too good at the moment. It is on the way to becoming another USSR, or a Maoist state, which doesn’t auger well for internal demand. Eventually, the West will find someone else to make its plastic toys, but the short-run demand trend will surely be down if things go down for Xi. Covid in China has been a disaster, which at the very least might impede growth for a few quarters.

Even without these political problems, China has terrible demographics, like the rest of the world. Old people don’t spend their time on jets circling the world. This is another headwind. War, currently in Ukraine, but probably soon in Taiwan will be yet another.

The West seems hell-bent on killing demand for hydrocarbons, in the form of Net Zero promises. I am extremely sceptical that they can be delivered, but the current generation of leaders won’t want to lose face by admitting this, so will double down on locking us into ‘15 minute neighbourhoods.’ All businesses will want to burnish their ESG credentials by using less carbon.

Although it’s a long-shot, this maybe the decade when we finally get nuclear fusion to work viably. This has the potential to make a big difference to the demand for oil and gas.

On the supply side, things are also looking down: - public (and private) markets are increasingly unwilling to finance dirty technologies, - eventually, the West will stop the evil things that are happening in cobalt mining in DRC, and will ban it, - Biden and successors will keep banning pipelines to Canada.

Well, what will be the net effect on prices? It is as clear as mud to me, but I think the big effect, the rising wealth of the world, and especially EM countries will be the decisive factor and that demand will increase ahead of supply with a net effect of pushing prices up. I could well be wrong, and a deep recession could push this trend out by a year or two, but ultimately, I think oil will get more expensive.