investment. The level of cash flow or net income required for the asset to be financially viable (that is, make money) is a lot lower. Maybe those warehoused obsolete oil lamps are retrofitted as camping lanterns to be sold at a fraction of their original market price. But since the guy who acquired them paid pennies on the dollar, he can sell them for cheap... and still make money. BEWARE OF BEING STRANDED It’s not just energy companies – or oil lamps, or taxi medallions, or theaters and restaurants, commercial real estate – that run the risk of holding stranded assets. Disruption and innovation can strand even the most seemingly robust assets... Cattle. Producing one pound of beef requires 1,800 gallons of water (corn: 108 gallons), 10 pounds of grain, and 108,000 Btu (that’s enough energy to light a 60-watt light bulb for 22 days). Cattle do violence to the environment like spray paint on a 1970s New York City subway car. Today, even your local Burger King offers tasty – and price- competitive – plant-based meat substitutes for beef. How long, under the pressure of the same folks who brought us the Paris Agreement, before the market for cattle (and the land they graze on) starts to disappear? Gold. What if the world’s oldest store of value is supplanted by cryptocurrencies? Unlikely. But weakness in the price of gold in recent months – despite the biggest infusion of liquidity by central banks (which should be good for the price of gold) – is due at
least in part to cryptocurrencies entering the mainstream. Gold miners could be sitting on a lot of worthless shiny metal. Stranded assets are always eventually resolved. The snow on the Denver airport runways will melt... The stranded boat on the ex-Aral Sea will, with time, deteriorate into dust... And energy companies’ fossil fuel assets will be written off. Your professional skills. The history of labor is speckled with examples of once- hot skill sets (building a car, typing a memo, managing a portfolio, depositing a check) rendered obsolete by technological innovation. Artificial intelligence is pushing up the professional ladder, tackling white- collar tasks that until recently were beyond the reach of computers. (Even the world of investment research isn’t untouched... Investment research firmMorningstar recently announced that robots will be writing fund reports.) Best to prepare – maybe via a rebranding like BP’s, only better – if it looks like your skill set is set to become a stranded asset. Stranded assets are always eventually resolved. The snow on the Denver airport runways will melt... The stranded boat on the ex-Aral Sea will, with time, deteriorate into dust... And energy companies’ fossil fuel assets will be written off. The key is to not be the person who’s left holding them at the end.
American Consequences
American Co s quences
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