Just Stop Not Reading The Supplement

Apr 22, 2023

“Listen, global warming is a real problem, but it’s not the end of the world. A 30-centimetre sea level rise is just not going to bring the world to a standstill, just like it didn’t over the last 150 years.” – Bjorn Lomborg, probably the best informed person on global warming worldwide (my emphasis and opinion).


Welcome to the Supplement and fasten your belts on this one, because today I’m taking on the massive (and controversial) topic of global warming. Before we get into it, however, there’s plenty from this week that needs discussing!


FIrstly, you know by now where I will be starting; inflation. Figures for March were released this week and they were, as predicted, still very high and above consensus forecasts. The 2.8% end-of-year UK inflation forecast from the Office of the Bed of Roses looks a distant memory at this stage, even though that was less than 2 months ago. We are still in double digits – down to 10.1%, the right direction, but slower than expected by the vast majority.


There’s still a bad misunderstanding of how inflation truly works. This is secularity, displaying itself, right now. It is sticky. That’s why the trimmed mean, or the core inflation number, is so important and is taking all the attention right now. In the UK ours is stuck at 6.2%. This number removes the volatile food and energy price changes, and represents a very accurate “minimum” that people need to achieve in terms of pay rises etc. so as not to badly lose a foothold in affordability terms.


The horse has absolutely bolted, ultimately. The gate isn’t even closed yet – as it goes – but the horse has bolted. This number will keep inflation very sticky at around the same mark – so in the 5-7% region – once the base year effects have finally dropped off. Oil is falling again, after the OPEC+ cut in output – primarily because a US recession is looking more and more likely. For core inflation to truly fall through the floor, a recession of really significant proportions – the sort of one that the Bank of England predicted last November and then rowed back on. Consensus still suggests no recession in the UK this year, but consensus will shift after this week.

What does this week’s inflation news mean in a nutshell? Base rate best guess is now 4.75%+ – 5% is definitely on the table. Expect 0.25% on 11th May to go to 4.5% and another 0.25% on 22nd June, just in case either of those put you in particular trouble.


The stronger inflation underpins affordability for rents, but also means that rates are more likely to go up, which has a negative impact on prices. Resi rates (including fees) at about 5% look fairly likely as a midpoint, BTL vanilla rates at 6%, specialist at 7%+; that seems as good a forecast as any for the next 6 months. It will continue to be volatile though.


On balance it will put more downward pressure on house prices, but the supply problem remains horrible of all types; new build, rentals, and social. This year looks now more likely to end at say 2-3% down, to me, whereas I was at roughly even. 2-3% down in nominal terms with an average of at least 7.5% inflation this year will put things at 10% more affordable in real terms – which is not bad. The affordability problem was getting significant at the end of 2022, although not as significant as some commentators and press had us believing.


5-year bond around 3.75% feels about right, with 4% looming as it swings upwards, but likewise – the long term trend (how long are we talking – realistically another 3 years at least) is to push this downwards, because we are stuck in a productivity vacuum with everything getting so much more expensive but efficiencies not being driven. Vacancies are down but still historically insane; unemployment is up but employment is up more (how is this possible you ask – because there are 3 “columns” if you like – unemployed, employed, economically inactive – the inactive is down 0.4% (interpret as long-term sick coming back to work, maybe some retirees throwing in the towel on retirement) and, of that, 0.3% has gone to “employed” with 0.1% to unemployed. Overall that drives the economy forwards rather than backwards – which is why relying on one metric is always bad!


Expect this to soften the market further – on the disposal side of things from a landlord perspective of course. There are some that will have been hoping 4-4.25 would be the end of it, but all of this stickiness in inflation means duration is longer, as well as peak going upwards. The average base we can expect in 2024 has now gone up a lot as well, recession notwithstanding. The higher base goes and drags all of the debt yield prices upwards, the more we expect a recession (all else being equal). Into the economic theoretical vacuum – on the street, the reality is that the wounded beast is still limping forwards and right now, any recession looks like a shallow one as 50% of people or thereabouts are not struggling (according to yougov latest efforts, 23% rate themselves as “financially struggling” which feels low, but perhaps some would claim that those who are struggling don’t have time to be filling in yougov surveys, or have access to them – and there’s a fair argument there). The music goes on for the moment in the absence of something really blowing up, and although there have been a couple of bond-yield-related close calls, we still may well in the UK have already touched the highs and walked through the minefield, if you will.


So – you know where I am on all of that. Keep calm and carry on. We are finding solace in strong cashflow and high yield and will continue to do so. This is a shift because buying for income in this environment rarely involves a vanilla BTL. We can hold what we’ve got – and sell some for strategic reasons e.g. the Welsh Government is really going in the wrong direction and there are quality issues with the housing stock which don’t exist in equivalent houses in England – and add blocks to the portfolio which are harder to resell but can still trade very well (the sales process is just a lot longer and more complex) and squeeze an extra 2-3% gross yield on these without upping costs. 


Many of those are more likely to be held on commercial style loans, some of which are “SONIA + 5” or “Base rate + 4.5” if they have been refinanced in the past 10 years or so – that’s quite a lot of opportunity. We continue to build the portfolio, changing the product mix to what works at a 6% cost of funds on the debt side.


So – onto the meat, or the soapbox, for today. I was involved in a provocative conversation and lively debate this week, which certainly got the juices flowing. I’m sure everyone saw – a protester got themselves onto a snooker table and dumped orange powder – very “on brand” – onto the table, causing quite a visual scene. Another fellow protestor failed to glue themselves to the other table, causing play to be abandoned. Last week’s Grand National also saw significant activity from a different pressure group, who by all accounts took a bit of a kicking from the people of Liverpool, to whom the Grand National is very important.


Where we really need to start on the specific situations is exactly where we started last week in terms of the logic of anything out of the ordinary or unusual. Cui bono? Who benefits? There was surprise last year (in many camps) when US Philanthropist Aileen Getty was revealed as one of the major funders behind the “Just Stop Oil” group, from the famous Getty Oil Dynasty. Aileen hasn’t profited from oil directly, herself, in her lifetime – apparently this is OK, although this is the reverse of the argument for reparations in the slave trade which has been in the press more recently as a £100k donation was made by the Trevelyan family, which is very clearly inconsistent although many who identify as “with the left” would support both, as I understand it. But who benefits? Some believe that this is deliberate obfuscation to avoid discussing more pertinent issues, mostly because the cause is so very well-intentioned but simultaneously so very wrong-headed. I’ll elaborate!


Please note – you could well note that this is similar to the Trevelyan situation – the dirty money being used to rectify the situation – however, those on the other side of that debate believe that by putting forward baseless yet passionate ideological arguments, it will instead slow down the support for the movement away from fossil fuels rather than advance it. It’s not yet clear I believe exactly what that £100k will be spent on, as I understand it, but we will know in future I’m sure as that attracted a lot of attention too.


From stage left, I have to introduce to you, Dr Bjorn Lomborg. The GOAT on this lot, in my view. By no means do I take all my cues from Dr L (one source is never good – even when it is the supplement!) but the man deserves some serious attention. It’s worth bearing in mind that Dr L was in Greenpeace in his time, so he is not likely to be typically anti-climate or particularly right-wing, in my view.


Lomborg has a lot in common with Dr Jordan Peterson, who has been discussed before (more extensively on our 9am live Sunday broadcasts than in the supplement, but I do enjoy a hat-tip to that particularly troublesome individual) – he has upset an awful lot of fellow academics, but never hidden or shied away from those situations even when he could have done – instead he’s faced them head on, and indeed, defeated them. Someone quite so reasoned and quite so difficult is usually worth celebrating, because these people make the world go around, and challenge groupthink which is gigantically prevalent when we discuss global warming.


Dr L is not a denier. He’s a self-appointed skeptic, and skeptical he is. He’s awkward. He uses data. He talks about value for money. Some will stop reading there, because there won’t BE a value on the planet, of course. Such emotional statements are not helpful – after all, we got a flavour of what happens when money is not at the centre of policy in September 2022 – bond yields go through the roof, and the economy wobbles. When the economy contracts, mortality rates go upwards in a significant way – particularly in children. Let that statement sink in the next time someone tells you that we need the end of growth.


Lomborg talks about the poor value achieved thus far in renewables. There’s some solid numbers behind this. There is an argument around subsidy on both sides of the fence – renewable and non-renewable. The Guardian would have you believe that fossil fuels get more subsidy than renewables (this does depend on what you count – for example there’s been a 5p reduction in excise duty on fuel in the past 18 months or so, with gigantic impact on the exchequer but in an attempt to keep fuel prices down – is this a subsidy or not? It isn’t that clear). UK parliament records the government line as follows: “The UK does not give any subsidies to fossil fuels, and follows the approach of the International Energy Agency, which defines fossil fuel subsidies as measures that reduce the effective price of fossil fuels below world market prices.” This is difficult, because both sides are cherrypicking facts – as Lomborg is often accused of doing but in reality, is something that goes on on the skeptical and the anti-skeptic side.


As I say, Lomborg is not the only fruit, but often mentioned as a key figure in the debate. The Guardian had him in the top 50 people most likely to save the world back in 2008. They frame Lomborg’s position quite nicely: “(he made his name) by arguing that many claims about global warming, overpopulation, energy resources, deforestation, species loss and water shortages are not supported by analysis. He was accused of scientific dishonesty, but cleared his name.”


That’s enough crushing on Bjorn. As I always say – one source is just one source. The best way to frame the entire debate is by examining just how much energy is needed in order to feed the world’s population and allow them the (sometimes very limited) freedoms that they have to this day.


I’d highly recommend investing the time in understanding the energy situation, if it interests you. If you haven’t got several hundred hours to spare – let me summarise what I’ve learned from reading around the subject. 

We are only a couple of hundred years out of the fields, from a lifestyle and purpose perspective, as human beings. The driver in the industrial revolution was cheap energy. This enabled us to move from a world which used and sacrificed human lives to build major projects to one which could convert one type of energy into another in order to power machines to move things, do things, and aid in building things. We’ve moved forward at a pace that our ancestors pre-1800 would really struggle to believe or understand.


One gallon of petrol is the equivalent to nearly 500 days of human work, in old money. This is one of the classic lies involved in the whole argument – we start from a place that badly understates just how much we rely on cheap and abundant fuel, which only comes from fossil fuel at this time (due to the cost of renewables). 


The last year there is full published data for, in terms of energy usage, is 2021. In that year, of the 159,000 Terawatt-Hours of energy used worldwide, the spread is shown in today’s chart. I also prepared a little table, to put things into context, and support what I’ve said above:


Biofuels (TWh, direct energy)1139.92110.72%
Other renewables (TWh, direct energy)762.782650.48%
Solar (TWh, direct energy)1032.50120.65%
Wind (TWh, direct energy)1861.93981.17%
Hydropower (TWh, direct energy)4273.82762.69%
Nuclear (TWh, direct energy)2800.26781.76%
Gas (TWh, direct energy)40374.60525.39%
Oil (TWh, direct energy)51170.47332.18%
Coal (TWh, direct energy)44473.19527.97%
Traditional biomass (TWh, direct energy)111116.99%


Really, this table should be enough alone to tell you why we can’t “just stop oil”. Even though I was (rightly) pulled up this week for not even looking at said pressure group’s website, when I went there, expecting a manifesto or similar neo-marxist document, after a frustrating 5 minutes I left with the only thing that I learned being that they are only targeting NEW oil exploration and development.


That’s where we need to stop. That sounds nice, doesn’t it? It feels right? We c lian’t even argue that, can we? Well, I guess we should just stop building houses too then. It takes about 250 years of use to get fair value from the carbon footprint of a concrete-based building, and of course produces further emissions from when it is occupied (unless, of course, it is a Wunderhaus or similar which is carbon-negative in use – amazing stuff!). Oil needs new exploration and new development otherwise prices will rise dramatically as existing fields, shale developments and wells run dry. There’s no more effective route to recession than jacking up the price of oil (and just remember where all that revenue goes – not to the very most conscious regimes in the world). 


You simply wouldn’t believe the chart above if you listened to politicians, saying whatever they feel they need to to win votes from (largely well-meaning) liberals (and – to be clear – if I pin my colours to the mast here, they would largely be liberal) about renewable energy solutions. Even nuclear is a complete failure given how effective, clean and safe that it can be. Coal kills around 25 people in related accidents per terawatt-hour – nuclear kills 0.03 people. That includes everyone who died at Chernobyl and Fukushima. Hydro kills 1.3 people per terawatt-hour for comparison. Another decision made by politics and pandering to the patheticness of opinion and not wanting to get down to the facts.


There is an absolute raft of facts and data to support all of this. What does it mean – even with an incredible allowance for solar and wind tech moving forward at a rate of knots (and we all hope it does), the very most bullish forecasts would see it move from 1.82% combined of world energy demand to 33% of world energy demand in 2050. There’s zero chance of zero fossil by then. 


So what? That’s the best (only) pushback the zealots have got. I’ve heard some really sensible and normally well-informed people say “this needs to happen at all or any cost”. Just unpack that statement for the moment. A famine that kills half the world’s population – something that would have a meaningful probability of occurring if we “Just Stop Oil” or even if we “Just Stop New Oil” – is that price OK? A quote from Scientific American, the oldest and one of the most respected publications in the United States, is useful here:

“Stoking panic and fear creates a false narrative that can overwhelm readers, leading to inaction and hopelessness”. And is THAT why the Getty dynasty funds “Just Stop Oil”? Or is it just guilt money, to redress the balance, but badly misguided? Cui bono, folks, cui bono?


Remember, despite comparisons to Hitler, Lomborg himself as the big bad wolf to many, but the rational economist to others, says the following:


“The main environmental challenge of the 21st century is poverty. When you don’t know where your next meal is coming from, it’s hard to consider the environment 100 years down the line.”


“We need to invest dramatically in green energy, making solar panels so cheap that everybody wants them. Nobody wanted to buy a computer in 1950, but once they got cheap, everyone bought them.”


“The obvious issue is providing clean drinking water and sanitation to every single human being on earth at the cost of little more than one year of the Kyoto treaty.”


“I think Al Gore has done a great service in making global warming cool. He’s basically taken it from a nerdy, almost ignored issue to making it what it is – namely, a problem.”


“The saddest fact of climate change – and the chief reason we should be concerned about finding a proper response – is that the countries it will hit hardest are already among the poorest and most long-suffering.”


“On average, global warming is not going to harm the developing world.”


“In the rich world, the environmental situation has improved dramatically. In the United States, the most important environmental indicator, particulate air pollution, has been cut by more than half since 1955, rivers and coastal waters have dramatically improved, and forests are increasing.”


If that lot put together doesn’t convince you that Just Stop Oil belong in the history books, and these pressure groups need to stop trying to influence Joe Public in the UK – nothing is likely to. The inconvenient truth here – ironically – is that Lomborg > Gore in terms of incidence, fact and solution. 


Rant over. Well, paused, anyway. What does this have to do with property? In a way, everything. 


If the problem was as framed by Just Stop Oil, you wouldn’t see a bank issuing a mortgage on a property less than a certain amount above sea level, or in a certain area. It wouldn’t be viable long-term security. The thought – and I think Lomborg is the only person brave enough to say it – that some parts of the world will benefit from warming is scary, but not even considered by the zealot side of the argument. I’ve said it before – economics is brutal. It counts 100k deaths versus 1m deaths and has no doubt that the 100k deaths outcome is “better” or “preferable” or “superior”. Some, mistakenly, take that to mean that economists don’t care about people. These people live in beautiful bubbles – suburban paradise usually, pontificating within higher educational environments – often tenured for life, comfortably placed at the teat of the public purse, or on the dime of the endowment funds – and live that life because they can’t face reality, or cope with real world problems. Idealistic ones are rarely, if ever, viable. You just can’t go about solving problems with ideology, or because something “sounds good” or makes you feel good inside. 


Will there be parts of the world that become uninhabitable, or more inhospitable than they already are? Yes, there will. What’s the timescale? Goodness knows – it depends on what and where. Has that been happening for nearly 14 billion years? Yes. Are humans having an impact – YES, absolutely. Do we help by throwing dust on a snooker table in one of the richest nations in the world? Unequivocally NO. Can we expect to do much more than we are already doing, i.e. negotiating with the developing nations who hold all the cards in the future of the climate change issue, and what fuels are used (you know, those nations who are doing more to proliferate nuclear and solar power already than we are, because of terribly misguided policies and superior manufacturing?) – no, I’m afraid I don’t think we can. “COP is a talking shop” is a non-sequitur. Of course it is – because the UK can’t do anything meaningful on their own. We are already going in the right direction. Lead the world – perhaps – at great expense sending us into a more debt-ridden fiscal drag of an environment – at the cost of the lives of our own citizens with oncoming recessions because we “Just Stop Oil”? Let’s not do that, eh? Doesn’t seem in any way viable, and in fact, when we do get to the “balance of lives” – it stacks up very badly indeed.


In reality, we need to get on with the multitude of problems we face on a day to day basis. Poverty. Inequality. Productivity. Be environmentally conscious – sure. Change everything, within 5 or 10 years, at all costs? Take drastic action today? It would be utter lunacy. 


For the second time today……and in perpetuity……keep calm, and carry on, folks!