In today’s Exponential Investor

  • Climate change on the rise; heat domes
  • How rising oil prices may lead to a faster transition to EVs
  • What sort of inflation are we currently seeing?

Last week the UK went into full meltdown.

Not figuratively. Literally. It was so hot in the UK that there were roads melting due to the “extreme heat”.

As an Australian, a week of 30-degree days is not exactly what I would call “extreme”. However, it’s hot. And for a country not conditioned for such heat, it did cause a few hiccups.

But the UK hasn’t been the only unusually hot country of late.

Over the last couple of weeks, parts of Canada have also been baking.

The country has experienced a catastrophic heatwave, which has seen temperatures rise as high as 49.6 degrees Celsius. Now that is hot!

Before this, Canada had never experienced temperatures above 45 degrees Celsius.

The heatwave wasn’t the typical sort of heatwave that we normally see around the world, though.

Something far more sinister was at work. A heat dome.

A heat dome forms when masses of warm air accumulates in still and dry conditions. As it rises, high pressure in the atmosphere pushes down on it.

The warm air gets compressed, and gets even hotter. It creates a dome-like oven, which traps heat, and those unfortunate people beneath it.

The searing temperatures contributed to 130 deaths.

Mice plagues in Australia, extreme heat and then flooding in the UK, ravaging floods in Germany and China and now … a heat-dome in Canada.

Believer or sceptic, you’ve got to admit, these wild natural events do tend to suggest climate change is causing a bit of havoc in our world.

Another major heat wave is predicted to hit Canada and western parts of the United States imminently.

As well as causing loss of life, heat waves accelerate the rate at which glaciers melt. This causes sea levels to rise, and can impact habituality, particularly in low-lying areas.

With climate change posing such threats to the world, there is an urgent need to nip it in the bud.

World leaders have begun to take the action required. The virtual Climate Summit meeting, which took place between 22-23 April this year, saw global leaders meet to discuss, and indeed set, strict carbon emissions targets.

Of course, one way that governments are looking to reach these targets, is through the deployment of electric vehicles (EVs).

This aims to cut emissions from road traffic to zero.

And for every wild weather phenomenon, the case for EVs on the road only grows stronger and stronger.

How that plays into an investor’s portfolio should be pretty clear…

Oil, electric or both?

Since October 2020 the price of crude oil has doubled. While EVs may be the obvious play, it’s pretty clear that the better investment for the last eight months has been “liquid gold”.

With many economies around the world breaking free from the shackles of the pandemic, demand for oil looks to be set to outstrip supply.

This of course, could be reflected in higher prices. The Bank of America is predicting a rise into triple-digit figures in 2022. We’re also on record suggesting that perhaps $100 or even $300 oil may be on the horizon.

While a play on this oil price may be an interesting short-term move, such price rises may only serve to benefit the EV industry.

With high oil prices already filtering through to the pumps, EVs may seem a cheaper, more attractive option to motorists.

This is due to cheaper running costs, in comparison to combustion-engine vehicles.

Gasoline prices reached an all-time high in the United States on 12 July 2021, with the price per gallon reaching $3.14.

And I can attest that where it cost me just under £90 to fill my car about a year ago, just recently that cost to fill tipped over £100.

My wife has even said that when it’s time to upgrade her car, she’ll only drive an EV.

Note: I told her I’d help us to achieve family net-zero by getting a twin-turbo V8 petrol…

But the shift to EVs regardless of short-term oil moves is undoubtable.

The UK government has plans to end the sale of new petrol and diesel vehicles by 2030.

This is to reduce greenhouse gas emissions, and help the UK reach its target of cutting 78% of its greenhouse gas emissions by 2035 (compared to 1990 levels).

It’s a similar story across the Atlantic.

On 31 March 2021, US President Joe Biden announced plans to invest $174 billion in the EV industry over the next decade. The nation is looking to reach its own emissions targets; a 50-52% reduction in greenhouse gas emissions, compared to 2005 levels.

There is an interesting point to consider here too.

The current average retail price of a medium-sized EV is £28,914. By comparison, a similar petrol car has an average price of £15,900.

Being around £13,000 cheaper, you may expect demand for petrol vehicles to be rising, and demand for EVs to be falling.

According to the Society of Motor Manufacturers and Traders comparing June 2020 to 2021,

  • There was a fall of 34.7% in new diesel car registrations
  • A fall of 1.7% in new petrol car registrations
  • A rise of 122.9% in battery electric vehicles
  • A rise of 145% in plug-in hybrid vehicles.

But the interesting stats are around the surge in petrol and diesel MHEV registrations.

MHEVs (mild hybrid electric vehicles) are those that use both petrol or diesel combined with electric powertrains.

Petrol MHEVs rose 286.7% and diesel MHEVs rose 192.6%.

In other terms, the combination of existing fuels with the potential of battery power (hybrids) is massively outstripping the pace of pure EVs.

Perhaps there’s still life left in the oil story long term yet.

What it does tell us is that ongoing costs are a concern for people as much as the evident doubt about the pure-play future of EVs that many envisage.

Maybe the real investment story here is a diversification of the old energy world and the new energy world.

That means, in other words, that oil isn’t dead, and electric power isn’t necessarily the only future.

However, whichever way this does play out one thing is for certain…

The cost of all goods, good to make the cars, the cars themselves and the cost of ongoing costs is set to rise… perhaps even faster than the adoption of these “green” cars…

Inflationary protection in the New Money Order

It’s not only the cost of filling the car that’s on the rise.

Our weekly shop seems to be creeping up in cost too. Have you noticed the same to yours?

Inflation is here in a big way. Perhaps you’ve noticed it and want to share how inflation is creeping into your life?

We’d love to hear from you if that’s the case. Let me know your inflation story by sending us some mail here.

Not that we haven’t been warning you about it though…

In May we wrote to you about expensive beers, expensive homes and expensive tastes.

We said, “Runaway prices are no good for anyone. At least not while people aren’t earning more.”

And posed the question, “How do you fix it? How do you survive it?”

Consider this…

The UK inflation rate hit 2.5% in the year to June. It was 2.1% in the year to May.

As such, the rate of inflation was higher than the Bank of England’s 2% target for consecutive months.

When inflation rises, a raise in interest rates you‘d expect to follow. In short this helps to discourage borrowing, tightening the economy, pulling in growth and easing off those price rises.

But that’s not happening.

No way can the Bank of England – or other central banks – raise rates in this economic environment. They desperately need growth, not to stifle it.

What it all means is that stimulus money is going to still flow.

Economic “stimulation” shall continue.

The money printer will continue to go “brrrrrrrrrrr”.

[The metaphorical money printer that is: in fact, the money is really created by a few clicks on a computer keyboard…]

People often hear about inflation but what does it really mean for you?

A jar of jam worth £1 in June, can rise to £1.02 thanks to a 2% rate of inflation.

That might not seem like too much, does it?

Except what happens when that’s on 100 little items… and your fuel… and your energy bills… and your train tickets.

And what about when its 2% inflation on a jar of jam, but 20% inflation on a bunch of bananas?

Inflation is uneven, it hits multiple parts of your wallet. It can be found in different places at different rates in different parts of the economy.

It can also be found erasing the value of the cash you keep in the bank.

But it doesn’t have to erode your wealth.

It’s possible to save and invest to counter inflation.

Utilising the levers and pulleys of a new financial machine you can be your own bank (of sorts).

You see a shift is taking place, a reset to some, that is going to change how you interact with the economy, other people and your wealth.

It will also be free from the manipulation of the central bank and the government’s nepotistic ways. It the beginning of a “New Money Order” of which they aren’t invited.

But you are. All you need to do to see it, is just open your eyes.

Until next time…

Sam Volkering
Editor, Exponential Investor