Investment fads keep dying before I can profit from them

Back in April last year, I recommended investing in a subsea cable manufacturing company. It was set to profit handsomely from the impossibly large electricity grid rollout. The one set to cover the face of the earth like a skin disease.

You see, renewables only look viable if they are connected to a vast grid. So big that it offsets weather patterns. Which is immensely ironic once you think about it. But the idea sounds good. It’s always windy and sunny somewhere. You just need to be able to move the power around.

And so subsidy-preneurs want to connect soggy Singapore and solar Australia with a power cable. And think-tankers reckon a cable connecting the US and UK has a ‘compelling case’.

You might think such projects are a bad idea. But In May 2024 I accused renewable energy fanatics of forgetting to build the grid they’d need to make their pet renewables projects viable. That’s since proven correct in dramatic fashion around the world.

Countless renewables projects are unable to get going or link up because the grid can’t handle them. A failure many countries share.

My investment case for the subsea cable company in April 2024 was that the boom in renewables investing would shift into electricity infrastructure next. Governments would have to play catch up for the grid. Their buddies and spouses working in the renewables industry needed a bailout in the form of high voltage power lines.

It seemed like a slam-dunk investment. But the stock was a dud. Governments and companies are winding back support for renewable energy instead of rolling out the grid they need.

The International Energy Agency is now forecasting that solar and wind will cover just 12-16% of global energy by 2050…

The new Norwegian government ran on constraining cable links to the rest of Europe. For good reason. The continent sucked the Norwegians dry of both power and the water used to generate their hydropower. The country is now worried about water shortages.

These days, subsea cables are considered rather vulnerable to sabotage too. Russian ships have been busy mapping them. And whoever has been cutting them is getting away with it.

So, subsea cables are proving unpopular. And subsea cable stocks fell.

One disappointment does not a story make. But this is only the latest example of an investment fad evaporating before it ever got going…

Remember ESG?

Environmental, Social and Governance was an ultra-dominant buzzword in finance. Until it wasn’t.

The Association of Investment Companies (AIC)’s annual ESG tracker found a 48% decline in ESG consideration for investment decisions. That’s the third consecutive year ESG considerations fell.

ESG investing returns have been poor too. Yahoo Finance:

If you want high returns in the stock market, you may want to stay away from ESG stocks. The Kiplinger ESG 20 returned an average of 4.3% over the past year. That’s less than one-third of the S&P 500’s 15.9% return over the same stretch.

That wasn’t an exception either. Financial research firm Morningstar reported that the year before was the worst calendar year ever for ESG stocks.

In Sweden, the government was dumb enough to believe its own ESG delusions. Swedish state pension money was invested in green energy scams. Now it’s facing astonishing losses as green posterchild investments go bust.

A leading party’s economic spokesman put it bluntly: ‘It’s so clear that they just wanted to fool around with the pension funds to propagate their own party policies with no regard to pensioners’ futures.’

The California Public Employees’ Retirement System fund lost 71% of its $468 million investment in a clean energy and technology private equity fund…

Politicians can hide their mistakes. But the private sector can’t bear this sort of a reckoning for long. Board rooms and CEOs are responding.

BP is pivoting Back to Petroleum. Energy companies are dumping renewable projects. Renewables companies are abandoning manufacturing. Wind farm projects are falling into the sea. Wind power supply contracts are going no bid. Gas projects are going gangbusters.

Norway’s parliament recently voted to suspend its sovereign wealth fund ESG guidelines.

ESG evaporated as fast as it became dominant. It was just another fad.

The same thing happened to Small Modular Reactors (SMRs)…

SMRs relied on the
energy transition’s flaws

Subscribers at Strategic Intelligence Australia just banked a 401% gain in a SMR stock.

Which isn’t bad. But at one point we were up over 800%. Even better than our other SMR trade, which surged 676% in less than 3 years when we closed the trade.

What went wrong?

Simple. I presumed the energy transition delusion would last far longer than it did.

SMRs are only viable if the grid is failing. People buy them to opt-out of the circus that is our electricity system under the green energy transition.

Why build your own SMR if the grid is stable and can handle your power demand?

Why build SMRs for the grid itself when large scale nuclear is far superior?

As soon as governments woke up to just how badly the grid is wobbling, the investment case for SMRs fell apart.

A few AI data centres supplied with reliable clean power from their own SMRs is hardly enough. And even then, I bet the hordes of diesel generators found out the back of AI data centres will remain.

SMRs are now a future solution in search of a problem. And so SMR stocks have faltered.

Nuclear outside of SMRs is doing well, by the way.

But it’s time to reflect on what all this really says about me, rather than coming up with profitable investment opportunities on the back of it.

What’s wrong with me?

Long-time readers will be in fits of giggles. Every article I write is criticised for its devout cynicism about government initiatives.

I believe everything governments do fails and backfires eventually. Yes, everything. Because government initiatives are inherently flawed.

This is less silly than it sounds. Economists have long had explanations for why it is the case. The Cobra Effect and Broken Window Fallacy are good examples. As the film star Ronald Reagan explained, the ‘nine most terrifying words in the English language’ are ‘I’m from the government, and I’m here to help.’

But there seems to be something in human nature that demands governments fix problems. No matter how many times it goes disastrously wrong in entirely predictable ways.

Having written articles about this for 15 years, it’s an extraordinary surprise that my investment recommendations should fall short of expectations because I had too much faith in government initiatives. I thought they’d last more than just a few years.

I believed governments were serious when they said the science is settled and we need to end fossil fuels to save the planet. I mean, what delusion could be more conclusive?

But Germany felled wind farms to get at the coal underneath. And blew up nuclear plants while announcing new gas power plants.

I thought artificial hydrogen demand would at least be met by real supply given the subsidies on both ends. But projects on both ends lie abandoned.

I thought sustainable aviation fuel would save me thousands by making flights too expensive. But without commitments to burn cooking oil, and with dodgy carbon offsets galore, flying is affordable.

I thought governments would ignore blackouts and double-down. But the Iberian Peninsula woke them up.

So it was all just smoke and mirrors.

We never got a chance to clean up

The failure of the green bubble was foreseeable. No environmental campaigner or politician can handle the Amazon climate without enough air conditioning to cause climate change. It had to fall apart eventually.

I just thought it’d last another ten years. And so we’d have plenty of opportunities to profit from the mess. SMRs would be needed and a vast grid would get built to support more renewables.

Of all the people to fall for the delusion that politicians would stick to their windmills, I should’ve been the last.

There were signs. Most glaring of all, nobody bothered with converting global commercial shipping from bunker fuel to nuclear. Navies have been using the technology for decades.

It was the dead-set giveaway that the whole thing was a sham that could evaporate into a cloud of higher energy bills.

But I fell for it.

I should never have had faith in governments to sustain the delusion for half as long as they did.

The good news is that the fix is in. Governments are pivoting back to fossil fuels so fast that even the International Energy Agency now expects them to grow to 2050.

All this will need vast amounts resources to fuel an energy transition back to reliables. Here’s how to profit.