Europe is at the center of an unfolding energy crisis.
The scale of this impending catastrophe is staggering.
And I really feel like this could be a pivotal moment in history. One of those rare moments that sets winners and losers apart for decades to come.
One thing is certain…
Winter is going to be cold in Europe.
Let me explain more…
Prison for energy “thieves”
As Goldman Sachs wrote on Friday:
‘Samantha Dart, senior energy strategist at Goldman Sachs, expects the real effects of the shutdown are yet to come, especially for ordinary citizens.
‘“It’s a very painful process and it impacts the European population in different ways,” she says. “Ordinary people haven’t even felt the full weight of this situation.”‘
But they are about to…
Germany has imposed 10% energy consumption reductions and wants all other EU countries to do the same.
How are they going to do this?
Well there is great clip here from a German finance minister explaining how some small businesses (i.e. bakeries, cleaning companies, etc.) might just go out of business for a while until energy prices come back down!
Believe it or not – although I’m sure you will – this guy studied poetry and has no prior business or economic experience.
If these are the kind of “leaders” Europe has at the helm right now…
Even Switzerland, long considered a nation of smart, logical thinkers, seems a bit radical.
They suggest making one criminality to heat your home to over 19 degrees!
I’m talking real jail time here.
Imagine the scenes in 2023…
‘What are you doing?’
‘Armed robbery. You?’
These Northern Brexiters aren’t in much better shape…
As you can see here, UK energy bills are also expected to go parabolic:
Social unrest builds.
And a grassroots movement called “Don’t Pay” is trying to get a million signatures from people pledging not to pay their next energy bill on October 1.
They have 170,000 subscribers so far.
So it’s no surprise that new UK Prime Minister Liz Truss has just announced an energy price cap of £2,500 this year for households.
It will cost the UK £130bn, plus another £40m for small business support.
That’s £170 billion in all.
Good for short-term votes, maybe, but terrible for the long-term economy…
From the energy crisis to the financial crisis
Here’s the thing…
This figure represents a whopping 5% of the UK economy (or the entire healthcare budget) to close a gap of just one year’s heating bill.
And the year after?
Or the one after?
The EU is in an even worse financial situation…
It was reported late last week that European trading desks are facing at least US$1.5 trillion in margin calls.
A margin call occurs when you need to accumulate more money on a leveraged trade (using debt) than you cheated.
Right now, due to the extreme volatility in energy prices, a number of large companies are stuck on the wrong side of deals they can’t get out of.
It seems inevitable that the European Central Bank will step in to save them at some point.
And that could turn the energy crisis into another GFC (Great Financial Crisis).
As TFTC’s Marty Bent recently wrote:
‘At some point, the liquidity problem will soon reach a point where the hand of the European Central Bank will be forced and it will turn on the money printer to bail out the energy sector. This could mark a turning point on the road to Weimar 2.0 on a global scale.‘
It refers to the Weimar Republic era between 1921 and 1923, when Germany went through a period of extreme inflation, as you can see here:
Don’t get me wrong, the euro as a currency could start collapsing very quickly if the ECB goes down this road…
You cannot print energy
The fantasized economy of counterfeit money finally collided with the real economy of energy. And it was a rude awakening.
The cold hard truth is that you can print all the money you want.
But you can’t print energy!
And savings ultimately run on energy, not counterfeit money.
There is a deeper topic here of how the 50-year-old fiat currency experiment – currencies backed by nothing and created at will – is in agony.
But I’ll save that for another day…
The immediate problem is simply to have enough energy to live.
And countries that have left themselves vulnerable to this are about to face the consequences of that fact.
Not just the first-order consequences of bankruptcies, layoffs, winter deaths, etc., serious as they are.
But also the second and third order consequences of an inflated currency, unsustainable debts, destroyed currencies and even perhaps the break-up of the EU.
Unfortunately, too many people in Europe have let ideology and wishful thinking trump realities on the ground when it comes to energy policy.
But that has now changed almost overnight.
Let’s be clear…
Security and the provision of reliable base load power are now the most important priority for every country in the world.
As new British Prime Minister Liz Truss said:
‘We will address the root causes of high prices to ensure we are never in the same situation again and end our short-term approach once and for all.‘
She said North Sea oil and gas would increase immediately with a view to securing energy sovereignty by 2040.
Most other countries will seek to do the same.
For some, that means going back to nuclear.
Germany reversed its position and said it would keep at least two nuclear power plants online. Japan has indicated it will restart a number of its plants in a post-Fukushima shift. And China and India are also moving forward with big plans.
The renewable energy industry will also experience a surge.
For example, Tesla just announced a lithium hydroxide plant in Texas last week. Elon Musk called it ‘like minting money…‘
Everyone is now mobilizing to react.
And as an investor, a world of opportunities awaits you in the field of energy.
The hardest part will be deciding how you want to play it.
Editor, silver morning
PS: I came through this fantastic Twitter thread last week. This explains why the EU is also going to have huge problems managing its electricity grid in the future.
If you’re interested in energy or energy policy, I highly recommend reading it because it lays out a number of facts that your average commentator won’t be aware of.
But as I wrote above, with energy, understanding the truth matters!