The Best Debate of the Year
Doomberg, Marco Papic and Luke Gromen discuss the Europe Energy Crisis today on Twitter Space
I am travelling today - from New Orleans back to Dublin if you must know - and will be publishing this week’s Pitchfork Papers tomorrow instead of today.
However I didn’t want to let the opportunity pass to point you to what I believe is going to be one of the most important and insightful online panel discussions of the year hosted on a Twitter Space this evening between Doomberg of Green Chicken fame, Marco Papic, geopolitical strategist for the Clocktower Group and author of the highly useful book “Geopolitical Alpha” and the ever perspicacious investment specialist Luke Gromen (Forest From The Trees), moderated - almost inevitably given his willingness, some might say enthusiastic relish - for wading into any investment / macro controversy by Grant Williams.
The debate between the two on the short and medium term outlook for energy and energy politics will start at 3pm ET (8pm BST) on the Twitter Space below.
My suspicion is that the debate was prompted by Marco’s dismissal in a recent Tweet thread of what he referred to as FinTwit’s conviction (and unmistakeable bloodlust) that the recent asymptotic spike in German forward energy prices (we’ve all seen the chart) was signalling the imminent collapse of the German economy was frankly misplaced. He argued that Germany has and will continue to have ample reserves of natural gas as evidenced by their current reserves quota and that the futures price was being determined by short term speculative behaviour bearing little relation to the spot price being paid by Germany.
Doomberg on the other hand has been a vocal and highly specific critic of German energy politics and believes the current path will have disastrous consequences for the country, its productive capacity and its standard of living with far reaching consequences for Europe as a whole. Those of you who are not already keen followers of Doomberg on Substack can take a quick MBA in energy politics and production by reading some of their outstanding essays from the last two years to bone up for this afternoon/evening’s conversation.
The conversation between the four strategists will undoubtedly be a masterclass in the most significant geopolitical topic of the day. My own conviction is that the globalist obsession with climate change and the capture of this fundamental economic topic by what Lord Christopher Monckton refers to as the Climate Communists since the late 1960s is coming to a head after half a century of relentless propaganda and anti-science. Winning the debate and allowing the political classes to return to sound energy policies free from self-destructive hysteria and malthusian catastrophizing - effectively a renaissance of nuclear - is unavoidable if we wish to continue our standard of living, prosperity and way of life. Definitely a topic worth getting your pitchfork out for. Monckton’s recent interview with Tom Nelson (well, monologue would be more accurate, but given his Lordship’s erudition and depth of experience and knowledge, we will let it pass) is well worth a listen as a warm up for this evening’s conversation. It is going to be a fun debate.
My understanding is that Doomberg at least absolutely understands that dilemma. And I concur. A factory I am intimately involved with faced a €200k increase in energy costs after their supplier entered insolvency last November, requiring them to write off their supply contract and set up another one. They have locked in a two year contract at last November’s prices, which seems OK until you realise that their energy supplier - a medium sized “Stadtwerke” in Bavaria is probably buying in short and selling long which means they too will be in grave danger of insolvency. If this factory were to have to price in energy costs only double what they were last November (and double would be a blessing given where prices really are) then they would have to shut down operations immediately - no question. Energy costs are somewhere in the region of 4-6% of Revenue in a normal metal-bashing business (more for primary metal production of course). Doubling takes that to 10% which is mostly not pass-onable and wipes out profit assuming a “normal” 4-6% operating margin. The last three years have decimated equity and working capital so that loss is having to be absorbed by a very thin equity base. Anything over and above a doubling is ruinous.
If your friend’s experience is anywhere close to representative then we are facing the mass extinction of Mittelstand manufacturing businesses in Germany. I have no reasom to be believe it is not. Gute Nacht Marie, as the Germans say...
None of these people seem to actually be manufacturers that deal with the reality of the gas crisis in Germany as it is today.
I was speaking with a friend yesterday who runs a plant in Bavaria making specialist textile and fiber products. A year ago, his core products sold for €2,200/tonne and his energy costs were about €200 per tonne of production. On Monday his energy costs were €3,000 per tonne of production. Even if he had been able to raise prices by 50% in the past year, he still wouldn't be breaking even.
By comparison, his competitors in China have energy costs of about $150 to $175 per tonne of production; up from $100 a year ago. However, changes in the dollar/Euro/RMB exchange rates are nowhere near enough to address the fundamental disaster of German energy policies.
My friend will be laying off 95% of his 400 employees on Monday. If some of your panellists don't understand that this is a disaster for German industry, they need to get out more.