It may well be the most ridiculous idea since the Childrens Crusade. But the net zero campaign still anticipates creating the biggest economic boom in Australia since the gold rush. Both the attempt to reach net zero and its inevitable failure promise to make select groups of Australian investors very rich.

Indeed, we could not have designed a country better suited to profit from the net zero boom and its subsequent doom. We have the natural resources needed for both the bubble and its bust, the industry needed to get at them, the political stability to make the most of it, and the experience of recent history to guide us.

It all reminds me of the Chinese mining boom of 200312 when Australia provided the resources needed to urbanise and modernise China. That era was so good for Australians that our dollar ended up well above parity with the US dollar. And it wasnt just because I migrated here in 2003 either

What Im suggesting is that net zero offers a repeat of this experience but on a much larger scale. This time, the entire world is trying to transition into a different sort of economy.

Also, instead of a bust following the bursting of the 2012 commodities bubble, Australia will discover that it has an abundance of the resources needed in the subsequent boom too.

Imagine being invested in the tech bubble and the housing bubble. Or the FAANG stocks and meme stocks. Thats whats in store for Australia a double whammy.

Let me explain why my usual doom-mongering is taking part in the Sunshine Coast Councils random public holiday today

The first part is quite simple. The net zero campaign requires eliminating or offsetting our carbon emissions. We planwell, we intend to do this in a variety of ways. This includes building renewable energy to replace fossil fuels, electrification of everything that uses fossil fuels, carbon capture and storage, power storage, and much more.

Unfortunately, all of this requires a lot of resources. An impossible amount according to those who bothered to do the maths. (Which didnt include the governments who committed us to the task.)

Conveniently, Australia is home to a lot of the resources that we need impossible amounts of. Top of the list is copper, the metal of electrification, but its a very long list.

Heres how The International Energy Agency, which may have to be renamed The International Energy and Mining Agency, summed it up, with my emphasis added:

[A] concerted effort to reach the goals of the Paris Agreement (climate stabilisation at well below 2 degrees global temperature rise, as in the [IEA Sustainable Development Scenario] SDS) would mean a quadrupling of mineral requirements for clean energy technologies by 2040. An even faster transition, to hit net zero globally by 2050, would require six times more mineral inputs in 2040 than today.

Whi...

The explanation for this bail-in/bailout distinction takes us back in the time machine to the period from 200814.

SVB is more than a wipeout for stockholders. SVB is the first example of a financial regulatory rule put in place by the G20 in November 2014 in the aftermath of the 2008 crisis. There was a popular outcry against using taxpayer money in 2008 to bail out bank CEOs who were making millions, and whose banks are still around. In response, the G20 agreed that in future financial crises, there would be no more bailouts with taxpayer money. The new approach was to be a bail-in.

This means that in the case of a failed bank, equity would be wiped out first, and then depositor funds would be converted to contingent claims if they were above the insured amount. Bank deposit insurance is US$250,000 per deposit in the US and 100,000 per account in the EU.

More than 95% of the deposits in SVB exceeded the insured amount. This means those deposits were gone, according to the FDICs press release on 10 March 2023. Depositors were to get a receivership certificate from the FDIC, which may or not have been worth anything depending on what the FDIC might collect from asset sales.

It could take months to ascertain the size of the SVB losses and a year or longer to sell assets. Depositors might ultimately get 90 cents on the dollar or 10 cents on the dollar. No one would know until the FDIC computed the size of the hole in the SVB balance sheet. The losses would get worse as the fire sale proceeded and asset values dropped further.

Contagion and systemic risk

The systemic problem is that those lost SVB deposits represent venture capital investments and working capital balances for thousands of tech startups and early-stage tech companies. They would have no cash to spare. This means they would not be able to make payroll, pay the rent, pay vendors, or conduct business. Those tech firms would likely fail, tens of thousands would lose jobs, and the ripple effects would spread from there.

The issue of contagion from SVB is interesting and not well understood. Everyone is worried about other banks failing. Thats a real possibility and is likely to happen. But thats far from the only kind of contagion.

Silicon Valley companies and tech firms around the world held in portfolio by SVB would see their stock prices decline as the FDIC conducted a fire sale of assets to pay creditors. Buyers would lower their bids knowing the FDIC was desperate to raise cash.

Theres an unhealthy tension between how quickly you dump assets and how much you can get for them. Generally, a slower approach gets higher prices, but that slow approach may strangle the startups. Top Venture Capitalist (VC) firms warned startups that if their money was lost in SVB, they would not be getting new funding from the VCs. So they would fail.

Dear reader,

In 1996, legendary investor Philip A Fisher wrote in his classic book Common Stocks and Uncommon Profits and Other Writings that independence of thought was vital for outperformance:

This matter of training oneself not to go with the crowd but to be able to zig when the crowd zags, in my opinion, is one of the most important fundamentals of investment success.

Huge profits are frequently available to those who zig when most of the financial community is zagging, providing they have strong indications that they are right in their zigging.

Zigging when others are zagging is a crucial market skill.

Its also the principle driving Fat Tail Investment Researchs latest podcast featuring Greg Canavan Whats Not Priced In.

Its a podcast that reacts to every news story with, Yeah, yeahbut tell me whats not reflected in the consensus view.

The pod is already a running gag in the office.

Any time someone shares a news item, someone else will quip, Thats already in the price! Whats not priced in?

In its own little way, the podcast is having a cultural impact.

Narrow and greedy tech rally

Sometimes, to figure out whats not priced in, you must identify what already is.

With that in mind, this week Greg and I unpacked the latest Fed decision and surprising moves in the US stock market.

The benchmark S&P 500 is in a technical bull market, up by more than 20% since its October 2022 lows.

But thats largely due to a handful of mega-cap stocks like Apple Inc [NASDAQ:AAPL], Nvidia Corp [NASDAQ:NVDA], and Microsoft Corp [NASDAQ:MSFT].

Source: Financial Times

Apple alone is worth more than the entire Russell 2000 Index of smaller US companies!

This is all highly unusual.

I asked Greg if he was surprised by the moves of the US tech stocks, and he admitted its peculiar.

Especially when you consider the latest readings from CNNs Fear and Greed Index the gauge is screaming extreme greed, hitting its greediest level in a year.

Greg then...

 On Friday morning, power company AGL Energy [ASX:AGL] had its stocks soaring by more than 12% after the group posted a profit guidance upgrade as part of its investor presentation.

By lunchtime, AGLs share price had surged by over 12% to $10.84 a share, taking its monthly metrics up by 23% a 34% gain so far in 2023.

In its sector, the power stock has a 16% advantage and is also 23% higher than the broader markets 12-month average:

Source: TradingView

AGL refines and upgrades profit and earnings guidance

Today, AGL was making headlines with its latest on earnings guidance and business conditions while presenting for its Investor Day talking FY23 and FY24 earnings, profits and dividends.

The power touched on its overall business strategy, growth plan, operations and financial performance. However, perhaps the biggest highlight was the groups decision to upgrade and refine its earnings and profits guidance.

AGL has enhanced earnings guidance for FY2023 to a range of $1.3 billion1.375 billion, from $1.25 billion1.375 billion, as previously provided.

The groups underlying profit guidance was also revised to between $255 million285 million, from a previous forecast of $200 million280 million.

AGL stated that these were changes that reflected on improving conditions which are expected to continue into the second half of the year.

For fiscal 2024, AGL predicts between $1.875 billion2.175 billion in underlying earnings and between $580 million780 million in underlying profit after tax. This sudden upgrade is due to higher electricity prices and an increase in plant production.

AGL has now decided that it will be paying a dividend payout ratio of 5075% of underlying profit after tax to be completely franked instead of a payout ratio of 75%, as was its previous policy....