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While the direction of the Great Energy Transition seems more certain than ever, the pace will surely be affected by the events of March 2023. It’s too early to know if the current banking crisis will be as bad as 2008, worse, or merely a confidence blip that can be managed. That said, the global credit bubble is much larger than it was in 2008 and central bankers have fewer options today.
Since 2012, The Economist has been publishing an online global government debt clock. It looks a lot like the analog odometer in a 1970s automobile — one travelling at over a million kilometers a second. A driver looking down would see six blurred digits on the right spinning far too quickly for their eye to discern. While on the left, the digits sit deceptively motionless, presently at $61 trillion (USD). Any driver inspecting such an odometer would realize the car is getting old and that it’s travelling far too quickly. Worse still, The Economist tool does not include private debt which some believe exceeds $300 trillion — three times global GDP.
Sadly, the world has received poor value for all these accumulated borrowings, which have been used primarily to supercharge consumption. We now exist in a perpetual state of financial insecurity — one that encourages rent taking and/or bets on security price movement, rather than investing in long-term value creation.
Decades of inadequate CAPEX spending on infrastructure and basic materials production has left our economy short the electrons and molecules needed to support, let alone grow, our $100 trillion global economy. Eight billion people now face inflationary conditions that central bankers will struggle, and perhaps fail, to control. It’s a complicated argument, but low interest rates don’t solve, but instead exacerbate, this dynamic…and our environmental challenges.
What happened in equity markets on March 10 (the day that Silicon Valley Bank failed) demonstrated that investors remain blasé about our predicament. Facing the potential start of another serious banking crisis, they sold down important industrial sectors, and fled to US Mega Tech as a perceived island of financial safety. Greenchip witnessed a few of our most attractively priced and well-managed businesses depreciate by as much as 10% on the same day the NASDAQ 100 soared. Admittedly, many tech leaders have strong balance sheets and market positions, but: their stock prices are generally overvalued; most do not need, or know what to do with, more capital; and few produce anything to solve our greatest challenges. If they are doing so well, why are they laying off record numbers of supposedly “hard to attract” employees?
The second half of March was an opportunity for us to invest some of our accumulated cash into existing holdings. Other than rebalancing, we did little. The portfolio went into March with a 10% weighted average discount to our calculation of intrinsic value. By the end of the month the discount had improved to 14%. It’s not just about value though, we’re confident that the management teams we’ve backed are using shareholder capital prudently to produce more of what the world needs most. Sadly, we see a lot of the opposite in the market.
Banking crises expose how poor our capital decisions have been. Let’s hope with this one we’re getting a little closer to a less wasteful time.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.
This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of March 31, 2023. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.