Headlines touting driverless cars, the death of the combustible engine and other various forms of industry killing technology, reveal the difficulty in discerning what is simply an overly zealous capital market and a real paradigm shift. While the distinction may not appear overly important at first glance, we would argue that the distinction between investments in innovative concepts and ideas born of “free”access to capital often are divorced from long-term permanent shifts in structural paradigms. We can again look to the oil market as a current example of the blurred lines between the structural/secular and the cyclical.
While the concept of peak oil is not new to the investment nomenclature, the excitement surrounding alternative vehicles has given birth to the concept of peak demand. The current line of reasoning shows oil demand slowing drastically going forward as alternative vehicles make aggressive inroads into the combustible engine vehicle markets. This kind of simplistic forecasting fails however to take into account a whole host of real-life practical considerations. It is no great surprise that Governments, at both the local and National level, have latched unto this Muskmania with Governments in Europe calling for the end of combustible engine sales by the mid-century. What we did not hear from any of this rhetoric was a well thought out, well designed plan to deal with any of the aforementioned real-life practical issues. But, that is what you get in periods of capital mis-allocation, the cost of capital is not the only thing that is being suppressed; reality is as well.