This is one record Australia can do without

Monday, 9 October 2017
Melbourne, Australia
By Bernd Struben

  • This raised a few eyebrows
  • Blockchain to the rescue?

As a kid, one of my favourite annual reads was the Guinness Book of World Records.

That was well before the internet. Meaning people across the world had an entire year to try to break the records set in previous years. And aside from a few headline grabbing spectacles, you had no idea what the new records were…until you opened the book.

Now, there were good records…and bad.

World’s fastest sprinter was inarguably, a good record to hold.

World’s heaviest person (back in 1980 you could still say ‘fattest’) was obviously not a record you’d be thrilled to hear your child was pursuing.

I bring records to your attention today, because both the US and Australia have been setting new ones.

Over in the US, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ indices all reached new record highs last week. In fact, the S&P 500’s close on Thursday, marked its sixth consecutive record close. As Bloomberg notes, the last time this happened was in 1997.

Not only that, but the VIX — the US stock market’s volatility index — set a record all-time low on Thursday, as you can see in the chart below:



chart image

Source: Bloomberg
Click to enlarge

The blue line is the soaring S&P 500 Index. And the white line is the falling VIX. If you subscribe to Warren Buffett’s mantra ‘be fearful when others are greedy’, this might well alarm you. Although the market has continued to climb in the face of general greed for years now.

This is obviously a good record. Especially if you’ve invested some of your capital outside of the ASX and into US stocks. ‘Congratulations capitalism’ indeed.

In Australia on the other hand, some of the records we’re setting decidedly fall into the ‘not good’ camp.

More after the markets.

Markets

Over the weekend, the Dow Jones Industrial Average nudged down 1.72 points, or 0.01%.

The S&P 500 fell 2.74 points, or 0.11%.

In Europe, the Euro Stoxx 50 index finished down 10.22 points, or 0.28%. Meanwhile, the FTSE 100 gained 0.20% and Germany’s DAX index lost 12.11 points, or 0.09%.

In Asian markets, Japan’s Nikkei 225 index is up 62.16 points, or 0.30%. China’s CSI 300 is up 1.85% following the Mid-Autumn Festival and National Day holidays.

In Australia, the S&P/ASX 200 is up 32.52 points, or 0.57%.

On the commodities markets, West Texas Intermediate crude oil is US$49.45 per barrel. Brent crude is US$55.72 per barrel.

Gold is trading for US$1,275.73 (AU$1,640.60) per troy ounce. Silver is US$16.81 (AU$21.62) per troy ounce.

One bitcoin is worth US$4,584.54.

The Aussie dollar is worth 77.76 US cents.

This raised a few eyebrows

Well petrol’s a fair bit pricier. And a slab of beer costs at least double. But at least electricity is cheap here.’

This is, more or less, what I told our South Australian neighbours in 2010 when asked to compare the cost of living there with the US. We’d only just met and they let this go with no more than a raised eyebrow and puzzled look.

My wife and I wondered about that puzzled look for the next eight months.

You see, we’d recently moved to Australia and taken up residence in a big ranch house in the Adelaide Hills. And our first electric bill amounted to a grand total of $33!

Over the next few months the bills were similar. Electricity was so cheap — we thought — we didn’t even bother turning down the air conditioning.

Eventually the local electric company sorted out their stuff up.

It turns out we had two electricity metres. The one we’d been paying for only monitored the pump for our bore water. The other monitored all our other electric usage. When the revised bill came, we finally understood our neighbours’ puzzled looks.

You won’t be surprised to learn that electricity in SA wasn’t cheap…at all. Not even in 2010.

Since then government indecision and a premature push into renewable sources has only seen the story get worse.

How much worse?

South Australia now holds the record for the world’s highest power bills in Aussie dollars per kilowatt hour. About as desirable a record as being the world’s heaviest person.

According to Bloomberg, only Denmark and Germany (number two and three on the list) beat out New South Wales, Queensland and Victoria. These states hold the dubious honour of coming in fourth, fifth and sixth, for the most expensive power on the planet.

Little surprise then that businesses now rate energy prices as their top risk. According to the World Economic Forum Global Risks 2018 report, energy costs were only businesses’ fifth biggest concern last year.

It’s also not unexpected that major energy consumers, such as Newcrest Mining, are looking off grid for their electricity needs.

From The Australian Financial Review (AFR):

Newcrest Mining chief executive Sandeep Biswas says the gold miner is examining whether a solar farm could be installed at its flagship Cadia mine in NSW to help insulate the operation from soaring electricity prices.

The company revealed in April it had signed a power supply contract for Cadia for the 2018 financial year with a base price 90 per cent higher than what it paid in 2017.

Newcrest said while the impact on Cadia’s cost of production would depend on the mine’s output and energy consumption, if it were operating at full capacity the hit would be as much as $US45 per ounce [of gold].’

Yes, you read that right. Newcrest’s new power contract has a base price 90% higher than in 2017.

With these kinds of statistics in mind, the government looks to be backing out of plans for a clean energy target (CET). Ostensibly because the cost of renewables is coming down enough that the sector can stand on its own.

Also from the AFR:

In the keynote address to The Australian Financial Review National Energy Summit, federal Energy Minister Josh Frydenberg will highlight the falling costs of wind and solar energy, including battery storage capacity, as he stresses emissions reduction cannot come at the expense of reliability and affordability…

The speech will signal a possible shift away from plans to design and implement a CET from 2020 onwards, in the belief emissions reduction can be achieved without such a scheme.’

Implementing a CET would involve further subsidies for clean sources at the expense of coal and other fossil fuel powered generators.

As Australia already claims the unsavoury honour of providing the world’s most expensive power, this sounds like one more regulation best tossed in the bin.

Blockchain to the rescue?

I’m no expert on blockchain technology. In fact, two years ago I didn’t have a clue what it was all about.

Thanks in large part to crypto-guru Sam Volkering’s extensive research, that’s changed. I’m still no expert. But I do understand that blockchain has the ability to offer a secure ledger of transactions.

It’s what bitcoin is based on. But the potential of blockchain is far greater than bitcoin.

Blockchain technology looks to be a major disruptor in the world of finance. Not just by forming the basis of new cryptocurrencies. But by enabling secure interbank transactions across the globe in a matter of minutes, rather than days.

So how does it relate to energy?

Well one pioneering company, Power Ledger, is using blockchain to enable peer-to-peer energy trading. According to the AFR:

The platform allows households, businesses, schools and community organisations to trade surplus solar or battery power with each other at a price exceeding grid feed-in-tariffs but below regular tariffs for grid supply.

That won’t solve Australia’s energy woes. But it’s a neat little niche.

Last week, Perth based Power Ledger also became the first local company to carry out an Initial Coin Offering (ICO) for an equity raising.

The novel raising was a great success. As the AFR reports:

Power Ledger, the blockchain peer-to-peer energy trading company, has scooped up $34 million from its Australian-first IPO using virtual currencies such as Bitcoin and Ethereum.

The runaway success of the Bitcoin IP — also known as an “initial coin offering” or ICO — has given the Perth-based company an unexpected windfall with which to expand its novel blockchain-based trading system in Australia and around the world

Power Ledger had raised about $US13.2 million ($16.9 million) from its public offer of 190 million “tokens” or “POWRs”. Two earlier “presales” raised just over $17 million from members of the company’s community and investors and partner utilities. Chairman Jemma Green said 15,000 individual buyers had bought POWRs in the Powerledger ICO…

The Australian Securities and Investments Commission is less enthusiastic about ICOs. The corporate regulator said last week that ICOs can be conducted anonymously with little or no protection for investors.’

The $34 million raising should place Power Ledger in a strong position, for now. As for the investors in its ICO…there are no guarantees.

As ASIC notes, ICOs ‘can be conducted anonymously with little or no protection for investors’.

Some tank within weeks and see investors lose everything. Others can gain 10, 20, even 50 times or more, in value in a matter of weeks.

Many ICOs offer new coins for as little as one cent. Meaning, the value needs to move up by only two cents to see you triple your money.

Of course, as with any speculative and highly risky investments, the key is knowing which ones are most likely to succeed. And which ones will flop.

We’ll take this up here tomorrow. Stay tuned…

Cheers,
Bernd