The Tariff Trade - An Alternative Perspective Worth Considering
Trump is trying to negotiate with other countries in order to reduce trade deficits.
In most cases (other than China for the time being) countries seem willing to negotiate.
Now consider that there are only two ways that a trade deficit is reduced: (1) the US stops buying as much from the other country - which is largely counter productive and inefficient as it works against specialization of labour and is generally a lose/lose scenario; (2) require the other country to buy more from the US - a better option for all stakeholders as it could create a win/win scenario.
But what goods could the US sell to other nations at a price that is competitive with the rest of the world? Remember that Trump is conveniently ignoring services in his calculations. So it would need to be a commoditized product - coal is a great example.
When the dust settles, US coal may be in high demand.
If the world decided to unite in action to avert the consequences of climate change and so abandon coal entirely, then that would be impactful. Is it likely? In my opinion no, particularly with Trump coming to power.
Some industries like steel require the calorific value of coal to generate the heat that they need.
I will also be publishing an article soon on how industries such as coal die on an upward trajectory. As the commodity is being phased out, less investment goes into the industry which means a contraction in supply, pushing prices up. If you think that coal will be phased out by 2050 (just a random number I have chosen), then you have 25 years of coal price rises as an investor. If the coal companies are not reinvesting in growth due to the decline in the industry, then the free cash flow finds its way back to shareholders.
The tobacco industry has seen this happening for many years also.
If you are looking for income generating stocks, this could be something to consider. (This is not investment advice - please formulate your own decisions).
Thanks. Yeah, I don't think coal will disappear anytime soon. It's easy to store, abundant, and cheap. It's just too hard to replace in emerging countries.
A real threat to coal is natural gas if it becomes much cheaper than coal for a long period, which would drain capex from the coal industry. I don't think that it is likely, at least not globally. Any turn-around however would lead to an insane rally in the coal market
I don't think hydrogen is a good comparison to coal as it is not an energy source. Hydrogen is an energy storage/carrier medium and competes with batteries more than with fossil fuels. This is basic thermodynamics. You are converting nat gas/electricity-> hydrogen->electricity. The initial electricity can't be powered by hydrogen as there is no abundant source of green hydrogen in nature. Initial electricity must be powered from somewhere else. The efficiency losses in the conversion process (electricity → hydrogen → electricity) are also significant. I would like to see proof that this will theoretically (in our timeline) be more carbon neutral than just generating electricity directly from nat gas.
Also, there needs to be a base-load electricity generation for the stability of the grid. The only true net-zero option we have today is nuclear. It is either that or some combination of coal natural gas or diesel. Wind & solar at a large scale doesn't work due to the instability it introduces to the grid. More renewable consumption leads to more non-renewable consumption. Germany is a good example of this.
The Tariff Trade - An Alternative Perspective Worth Considering
Trump is trying to negotiate with other countries in order to reduce trade deficits.
In most cases (other than China for the time being) countries seem willing to negotiate.
Now consider that there are only two ways that a trade deficit is reduced: (1) the US stops buying as much from the other country - which is largely counter productive and inefficient as it works against specialization of labour and is generally a lose/lose scenario; (2) require the other country to buy more from the US - a better option for all stakeholders as it could create a win/win scenario.
But what goods could the US sell to other nations at a price that is competitive with the rest of the world? Remember that Trump is conveniently ignoring services in his calculations. So it would need to be a commoditized product - coal is a great example.
When the dust settles, US coal may be in high demand.
Thoughts?
In your opinion, what would it take to kill the thesis, and what would be the downside on e.g. AMR if that where to happen?
If the world decided to unite in action to avert the consequences of climate change and so abandon coal entirely, then that would be impactful. Is it likely? In my opinion no, particularly with Trump coming to power.
Some industries like steel require the calorific value of coal to generate the heat that they need.
I will also be publishing an article soon on how industries such as coal die on an upward trajectory. As the commodity is being phased out, less investment goes into the industry which means a contraction in supply, pushing prices up. If you think that coal will be phased out by 2050 (just a random number I have chosen), then you have 25 years of coal price rises as an investor. If the coal companies are not reinvesting in growth due to the decline in the industry, then the free cash flow finds its way back to shareholders.
The tobacco industry has seen this happening for many years also.
If you are looking for income generating stocks, this could be something to consider. (This is not investment advice - please formulate your own decisions).
Thanks. Yeah, I don't think coal will disappear anytime soon. It's easy to store, abundant, and cheap. It's just too hard to replace in emerging countries.
A real threat to coal is natural gas if it becomes much cheaper than coal for a long period, which would drain capex from the coal industry. I don't think that it is likely, at least not globally. Any turn-around however would lead to an insane rally in the coal market
I don't think hydrogen is a good comparison to coal as it is not an energy source. Hydrogen is an energy storage/carrier medium and competes with batteries more than with fossil fuels. This is basic thermodynamics. You are converting nat gas/electricity-> hydrogen->electricity. The initial electricity can't be powered by hydrogen as there is no abundant source of green hydrogen in nature. Initial electricity must be powered from somewhere else. The efficiency losses in the conversion process (electricity → hydrogen → electricity) are also significant. I would like to see proof that this will theoretically (in our timeline) be more carbon neutral than just generating electricity directly from nat gas.
Also, there needs to be a base-load electricity generation for the stability of the grid. The only true net-zero option we have today is nuclear. It is either that or some combination of coal natural gas or diesel. Wind & solar at a large scale doesn't work due to the instability it introduces to the grid. More renewable consumption leads to more non-renewable consumption. Germany is a good example of this.
Cheers