Is Europe Running out of Energy?
Governments took for granted the presence of cheap energy, but 10 years of underinvestment in large energy infrastructure and the war in Ukraine changed the equation
“Your standard of living is defined by how much energy you get to waste.”
Doomberg
With the price of natural gas in Europe above the equivalent of $320 per barrel of oil, the European economy is suffering. The German industrial complex was built on the assumption that it would always have access to cheap energy. But after shutting down its nuclear power plants and handing over its energy security to Russia—its main natural gas supplier—Germany is now being forced to reopened coal-fired power stations that had been mothballed. Climate targets will have to wait.
The situation is so serious that Germany is preparing itself to have to ration hot water and conserve energy to avoid gas shortages this winter.
Germany had been warned a few years ago about this risk. They laughed and they doubled down on Russian dependence.
In France, the situation is also difficult. The government is re-nationalizing my former employer and Europe’s largest electricity producer: EDF.
One of the consequences of the collapse of the German trade balance is the depreciation of the euro. It has been crashing hard. And the reluctance of the European Central Bank to raise interest rates is not helping.
But the euro is far from being the only currency in trouble. Inflation is running hot everywhere, with emerging markets being hit the hardest. Debasement of fiat currencies hits the poor the hardest because they are the ones without hard assets or investments that benefit from inflation.
Inflation is payback for all the money printing that happened during Covid. One of the generally accepted definitions of inflation is "too much money chasing too few goods." It says it all. You can print money, but you can’t print wealth, and you certainly can’t print energy.
While the crypto market has been stabilizing and trying to break its downward spiral, one positive development is that investors heard one message loud and clear after the failure of so many crypto-related companies (see previous newsletters): Not your keys, not your coins.
The number of bitcoins withdrawn from cryptocurrency exchanges last month was the highest on record. This is the whole point of crypto assets: You don’t have to trust a third party with your coins, you can take self-custody of them and not be subject to any counterparty risk. I wrote an article about the importance of self-custody back in November 2017. You can read it here.
Interviews of the Week
Doomberg Interview by Mark Moss
I am a big fan of the Doomberg team. So much so that I have a paid subscription to their substack newsletter! This interview is a must watch for anyone either working in anything related to energy, or wanting to understand global dynamics in the energy sector. It covers the impact of the war in Ukraine, the sanctions imposed on Russia, why these sanctions end up benefiting Russia and hurting mostly Europe, and the risk on food supply that may materialize over the next six months.
The Tim Ferriss Show | #606: Balaji S. Srinivasan — The Network State and How to Start a New Country
The Tim Ferris Show is one of the most downloaded podcasts in the US, with hundreds of millions of episodes downloaded every year. The #1 and #2 most downloaded episodes last year: The two interviews of Balaji S. Srinivasan. His interviews are the only ones I don’t listen to at 1.75x or 2x speed, because it takes focus to follow his train of thoughts. A lot is covered in this interview, so I won’t even try and summarize it. Enjoy this great 3:20-hour interview!
Balaji S. Srinivasan is an angel investor and entrepreneur. Formerly the CTO of Coinbase and general partner at Andreessen Horowitz, he was also the co-founder of Earn.com (acquired by Coinbase), Counsyl (acquired by Myriad), Teleport (acquired by Topia), and Coin Center.
Macro Corner
We Study Billionaires | The Next Investing Revolution with Jim O’Shaughnessy
Great interview of Jim O’Shaughnessy on investing. A lot of wisdom and useful advice for anyone with a portfolio of investments or looking to get started. He is the author of multiple books, including “What Works on Wall Street.” Jim has also put out multiple research papers predicting the bursting of the tech bubble as well as the bottom of the 2009 bear market. Jim holds multiple patents for his investing strategies that he implements as CIO of O’Shaughnessy Asset Management, which was recently sold to Franklin Templeton. Jim also hosts his own podcast called Infinite Loops.
On the Margin | Which Assets Win When Inflation Hits? with Jim Bianco
Jim Bianco of Bianco Research discusses inflation and how to position yourself in this environment. He argues that we are "entering an era of persistent inflation" and that work from home has changed what people spend their money on and that there is no going back. After correctly predicting the Fed's hawkish stance ahead of most analysts, Jim shares his thoughts on the bond market pricing in a pivot throughout 2023.