INVESTMENT PERSPECTIVE

By J Mulraj

May 15-21, 2022

Technology provides solutions to energy and food but after we pass the hump of conflicts

Technology is providing the solutions to the problems created by the politicians!

The invasion of Ukraine by Russia was, largely, an attempt by the latter to extract the maximum value from its fossil fuel assets, before its main buyer, Europe, transitions away from fossil fuels and towards renewables. Putin timed it well. Several European countries, led by the largest, Germany, are not prepared for supply of oil and gas to be cut off, and are acceding to Russian demands to buy them in rubles. This negates the power of the sanctions against the ruble, which has bounced completely back from an initial 50% drop.

Besides disrupting the supply of oil/gas, the Ukrainian conflict has disrupted supply of a lot of other commodities, in particular of wheat and fertilisers, which the two warring nations are major global suppliers of. The price of oil/gas, as well as of wheat, fertilisers and other things, have shot up significantly, stoking inflation. Add to that is the Chinese lockdown policy of ‘zero tolerance’ to Covid, one driven more by an unwillingness to admit its not working (ego) than by scientific evidence. Even WHO head Tedros now says so. China has locked down some 45 cities, which has disrupted global supply chains and manufacture, worsening the inflation scenario.

US inflation is running at over 8% annually, far above the limit of 2% set by the Fed. There is no sign of its abating; the full impact of shortage of wheat and other farm produce (because of rising fertiliser prices) is yet to be felt. The central banks of USA, UK, EU, Japan and others are battling inflation by hikes in interest rates. But China cuts mortgage lending rates as the lockdowns hurt the economy. The result of such opposite pulls would be, alas, as displayed in the visual above.

China cut mortgage lending rates to boost its realty sector, which had been allowed to grow unsustainably, till it accounted for 31% of China’s GDP, backed by huge debt (Evergrande, one of the largest firms in the world, had $ 305 b of debt). The boom resulted in the creation of ghost towns, empty apartments that could house the entire population of Italy, and funded by debt and customer advances. The Government realised the folly of such debt financed excess supply and introduced a policy of 3 red lines, to curb over leverage. That’s when something smelly hit the fan. So now mortgage interest rates are being lowered. It seems akin to spraying a room freshner to conceal the stench of the something smelly.

Will global inflation be controlled if there are opposing pulls? One must remember that inflation has not been  caused not only by demand pull (thanks to Biden’s insane build up of debt via money printing to fund all things, unmindful of the need to  repay it) but also by supply constraints due to lockdowns.

But technology has provided solutions!

Tony Seba is an author and an expert on technology disruptions which he, and his team at think tank RethinkX, have studied, especially in the fields of energy, food, and transportation. In this study on energy he believes that the entire US energy system can be replaced with 100% SWB (Solar, Wind, Batteries) at a cost of $ 2 trillion to generate electricity at 3 cents/kilowatt hour (slide 13). Seba studies cost curves and finds that cost of solar power has dropped 20X, of wind 3X and of battery storage 45X, and it will be feasible (and necessary) to set up surplus SWB capacity and generate surplus clean energy which he calls super power. This near zero cost super power will drive different uses for it for a lot of things like desalination, electrification of road transport, cloud computing, carbon removal, and others.

Seba also believes that two technologies in food, viz precision fermentation and cellular agriculture, (acronymed PFCA) can, together, replace animal farming in the provision of proteins. PF can provide the proteins from dairy products and CA from meat. This would obviate the need for animal farming, which uses an inordinately large amount of land and water resource for grazing and feed. As per this post, PFCA will be 100 times more land efficient than animal farming, 10-25 times more feedstock efficient, 20 times more time efficient and 10 times more water efficient.

Why are countries not looking at this?

Why is India, which reveres the cow, not looking at PFCA? It can be used to grow meat, in a petri dish, using a small sample, enough to dispense with the need for animal farming? This lab grown meat tastes the same, provides the protein, and doesn’t require the slaughter of animals.

Last week the sensex added 1532 points to close at 54326. Retail investors, worldwide, continue to invest in equity markets, with unattractive alternative options.

India’s GDP is expected to grow the most amongst large economies, as per IMF. It, too, will be hit by the shortage, and rising costs of agricultural produce. Sadly, African countries would suffer the most, due to the inability of poorer nations to ward off famine caused by high prices and unavailability.

In India the plight of the individual investor is abysmal. The judicial system does not provide speedy redress. The regulatory system, whose mission is investor protection, is woefully wanting. See this video by Sucheta Dalal on the inability of SEBI to help victims of fraud by Karvy, who illegally transferred shares of customers lying with it in depository accounts, to itself, and misused it. SEBI has been remiss in investor protection in other cases too and needs to introspect.

The Ukrainian war has thrown up a lot of problems, and rising food prices will lead to civic unrest, as they always do. If the polity can manage to get us over this hump, and if policy makers seriously consider the various solutions provided by technology, to problems of energy shortage, food, transportation, medical solutions and other areas, t,he future is indeed, bright. Pray that the polity stops focusing on hatred, conflict, the arms race and starts focusing on humankind.

Picture source:  https://www.istockphoto.com/vector/tug-of-war-gm1090317776-292488593