Has the stock market priced in the prospect of a peak in global oil production? No, says money manager and CFA Robert Rodriguez in a paper called “Absence of Fear”. We took his paper and fired off a series of questions to our US-based colleagues. What would the market look like if Peak Oil was priced in? Dan Amoss, the editor of Strategic Investment, chimed in.
“Peak Oil is most certainly not reflected in equity values. The few hundred billion in capital controlled by those in the room isn’t managed as if oil/oil services are in a once-in-a-generation bull market. If the market immediately acknowledged the investment implications of Peak Oil, the majors would trade for 25x earnings rather than 7-10x earnings.”
All energy stocks – including coal and uranium – would be revalued. Dan continues: “And Schlumberger/NOV/Baker Hughes/Weatherford would be priced somewhere between and Microsoft and Google. And retailers with 6,000-mile supply chains would all trade below book.”
Some economies are better prepared to deal with structurally higher energy costs than others. None are totally prepared. The ones that will do best fit into a model that’s been described as “digital feudalism”. Huh?
Small city-states like Singapore, Dubai, and Hong Kong are much more suited to the challenge of a peak oil world than large nation states. City-states operate on a scale where problems are more solvable. They are dealing with millions, not tens or hundreds of millions.
Economically, city-states focus on trade, tourism, and finance. And because they are not usually endowed with immense natural resource wealth, they have to find other ways to stay open for business and attract capital.
These new city states will be different from medieval city-states. The moats will be digital firewalls that protect secure cross-border transactions. Those who get past the drawbridge will have to bring capital with them, or some other useful talent. But inside the walls will probably be a lot safer – financially and physically – than outside the walls.
Markets and Money