Blain’s Morning Porridge – Aug 24th 2020: Wokery and Batteries

Blain’s Morning Porridge – Aug 24th 2020: Wokery and Batteries

“If a goal is worth achieving, you can bet there will not be a straight path to get there.”

Sorry for delayed Porridge this morning, but we’ve had a series of power-cuts this morning which has rather delayed the day. Using the last few electrons on my lap-top.. here are some thoughts for this morning.

Last week I presented my expectation that economies hammered by the Coronavirus are likely to see a swifter than expected recovery. The UK is widely expected to post record Q3 growth. It will be nothing like a V-shape, but still a recovery around 90-95% of pre-Covid economic activity, for which GDP is the most obvious proxy. After that the last 5-10% is going to be “sticky” – as growth held back by renewed local lockdowns and sectors that will remain shuttered; including hospitality, aerospace and tourism. Slowing consumption as unemployment replaces furloughs will further drag down the recovery.

Is the concept of “sticky” recovery likely to be embraced by the market? Smart money gets it, but the rest? Probably not. There is still a high degree of FOMO out there – with “dumb” cash still pouring into stocks, partially driven by the relative expensiveness of corporate debt to equity. Interesting articles highlighting how dividends have crashed in Europe, but not in US, highlight divergences in markets.

That moment when the smart money steps back and its dumb money driving the market is when we’re past the peak. Does that mean a crash is imminent? Maybe not.. central banks will keep juicing the market, but it does feel the smart money is now on the side-lines.

Over the past few months the smart money has been playing the rise of Tech. The five biggest tech stocks account for 25% of the market – and if you called it right, then you’ve done very well. The question is – how long can it last? A while yet. The no-so-smart money is still chasing the market, particularly tech, piling into Apple, Amazon and the rest. They are also chasing Tesla and all the other miracle cures to the global economy. It’s euphoric.

What drove Tech to new record levels was the expectation they stood to benefit from the Pandemic and lockdowns, and central bank liquidity. Smart money knows the narrative is constantly changing. Not-so-smart money follows. Often blindly.

Let me give you one example of how it goes wrong, leading me to the BBC.

I am not going to criticise their plans to ditch Rule Britannia and Land of Hope and Glory from the Last Night of the Proms, or their retiring DG calling for billions of state investment to make the BBC’s Britain’s global post Brexit voice. Instead, let me comment on an innocuous report on the BBC’s Countryfile last night.

Countryfile is a curious programme the BBC has crafted into its flagship of Sunday-evening Wokery. Its properly diverse, nice and stereotypically perfect presenters go around the country being very nice and enthusing about socially nice things like canal clean-ups, butterfly numbers or how tough it is for city kids from poor backgrounds to experience the joys of country living. The is even a very nice farmer, not screaming “get orff my land” at viewers as he guides us round his pretty and nice Cotswold farm and herds of rare-breed cattle and sheep. It’s a very nice programme. I enjoy it.

Broadly-speaking, its bland and lightweight in the extreme, and is background Sunday evening noise. I am sure it fills the hearts of BBC executives with joy that this flagship programme also allows them to fulfil their self-determined objectives in terms of woke. (The only cloud over its history was one presenter who sued the BBC when she was pushed out for the unforgivable crime of being a middle-aged white woman deemed not nice or ethnically diverse enough for the programme.)

But last night the programme was talking about electric vehicles.

I missed the start of the report, but the presenter was arguing the need for the UK to invest around £12 bln to build 7-8 giga-factories over the next few years to meet anticipated demand for lithium car batteries. Really? It also looked at reopening Cornish tin mines which are apparently full of lithium. The programme strongly suggested that if the UK doesn’t make this investment then our whole Island shall collapse into industrial insignificance.

I was kind of surprised.

Here is the BBC’s flagship “mindfulness” programme uncritically advocating industrial policy about which it clearly knows little about. All around the country this morning, Countryfile’s nice middle-class viewers will be under the impression government is stupid for not financing Lithium batteries, because they are obviously a good thing – because that nice chap on Countryfile says they are.

Smart money knows better. Smart money knows Lithium batteries are not the only option.  Lithium batteries are a good source of power for electric vehicles today. They are a solution for an immediate problem; how to replace petrol. But that solution creates its own problems – like how to charge EVs without busting the Grid. As I’ve written before the power pack on a Tesla is basically 5,000 AA torch linked up to power the car. It’s worked well and demonstrated an alternative to the Internal Combustion Engine (ICE) that works. Excellent.

But. Lithium is old tech. Lithium batteries have been around 50 years. The element is scarce, pricey, dirty to mine, its ethically, environmentally and socially questionable, and it’s proving very difficult to recycle. Smart money knows Lithium EVs are part of an evolution – but it’s unlikely they are the final stage in the development of new clear EV transport networks.

The Countryfile presenter glossed over the recycling issue by asking a Lithium battery salesman if there was a recycling problem. “No” he said, “we recycle everything.” And that was that. Its bollchocks. Lithium is nasty horrible stuff that will kill us all if it leaks into the ground water.

Smart-money knows there are alternatives to Lithium, although it would rather not discuss these opportunities until they are fully invested. Carbon-ion battery technology is advancing rapidly.  At the moment C-ION doesn’t have the range of Lithium, but they can be charged in seconds and because there is not a chemical reaction while they provide power, there is zero battery degradation and they are simple, clean and easy to recycle.

There is also the rise of the Hydrogen-economy concept – where green hydrogen (produced from renewable power) will provide the power supply for EV vehicles, including the likelihood of hydrogen powered vehicles.

New emerging technologies offer better solutions that the current Lithium battery. I suspect last night’s call by Countryfile to build giga-factories across England’s Green and Pleasant land was probably based on some Tesla driving BBC producer thinking along the lines of how important it is for the BBC to be leading the move towards green vehicles because it ticks all the Woke boxes. Lithium is just one step on the evolving EV tech story. There was no understanding that Lithium may already be obsolescent technology.

It’s a problem of bureaucracy. The BBC is like every other bureaucracy: determined to protect its relevance driven by goals that aren’t about economic or business success. Last night’s report presented half-a-story as irrefutable fact. How many times is that happening across the whole economy?

No time for 5 stories to Read This Morning…

Out of time, and back to the day job!

Bill Blain

Shard Capital