The economy turns into energy.

The diligent reader will have noticed that I often use the formula “the economy is transformed energy” to obliterate my truths about the march of the world to come.

But I just realized I never did tried which was obvious to me.

And so, in this week’s article, I will try to demonstrate the relationships that unite economy, financial markets and energy, which is not going to be easy. The reader will have to resist.

As usual I will use the graphics, of which here is the first.


The red line (left scale) is the ratio of the US stock market index (S&P) to the price of a barrel of West Texas Intermediary or WTI base 100 oil in 1940, when the present world began.

  • If the red line goes up, it means that the value created by listed American companies is higher than the cost of the energy used (oil). For once and to speak as an economist, in these times the marginal value created by US companies is greater than the marginal energy expenditure they have had to incur to produce these goods or services and therefore the share price is rising faster than the price of oil.
  • If the red line goes down, it means that the new values ​​created do not cover their energy cost, which seems to indicate that the economy will do badly. And this reality is reinforced by the fact that almost every time the red line goes down we have a recession in the US, marked by a vertical gray hatch.

Let’s go a little further.

The red line tends to rise structurally as the graph indicates.

The drops in the red line can therefore be temporary, in an upward trend (from 1980 to 2000 for example) or, alternatively, manifest themselves in a structurally downward trend (from 1970 to 1980) and, in the second case, this would mean that I am lacking in energy structurally deficient.

And the difference is huge for the financial markets, which brings me to the black line which is nothing more than the multiple of the profit price for the US market (right-hand scale).

Explanations (again) on what the PE ratio is. It is “financial” practice to divide the stock price of a share in a company by the profits made by that company to determine whether this price is high or not. The higher the multiple, the more expensive the security and vice versa. This calculation has appeared for the entire American market since 1940 and is the black line.

Some remarks are needed

  1. This ratio is very volatile, ranging from 10 to 20, then it drops to … 4 before rising to 43, to return to 14 before rising to 38 …
  2. So the question is: why is this relatively stable multiple so volatile?

And the answer is given … by the red line, and here it is: the price of profits goes up.

When they can’t take it anymore, the red line goes down, the growth rate of the economy also goes down with future earnings, and the stock market goes down and with the fall in future growth, the multiple of the earnings price goes down.

And to speak with the sound of the great economists of the past: for about three centuries we have had a continuous struggle between Schumpeter’s invention and what I call Malthusian constraint. When Schumpeter wins, the multiples go up and the opposite happens when the Malthusian constraint reappears.

We live in a world where, at time “t”, there is a finite amount of energy to use.

What Malthus said was simple: as the population grows in geometric progression and agricultural production in arithmetic progression, sooner or later there will be scarcity and then famines and these famines will bring things back into balance.

This is exactly the reasoning of the greens today. And their solution is always the same: the disappearance of the human species, the ration card administered (by them of course), waiting for this happy ending, and the concentration camp for the reluctant.

It is not that they love nature, the reality is that they hate humanity, which is not the same.

Fortunately Schumpeter, like Zorro, arrived and explained to us that the scarcity and high prices of energy or food stimulated the invention and that salvation would come from the invention, which happened every time.

My thesis, as the reader knows, is that we have entered a Malthusian period again, where energy has such a high price that it is almost certain that the red line will continue to go down and the black line will follow, and so it is. difficult to make money in the future from energy consumers, but perhaps not that difficult to make money from energy producers if we leave them alone.

Let’s take some examples by accepting the dictate not to emit CO2

  • The coal; There is coal that gives a shit in the world. Perhaps it is possible to build coal-fired power plants that use some of the energy they would produce to bury the carbon? Technically, we should get there if we can get to Mars.
  • Nuclear. We have a lot of nuclear waste buried in eastern France. Apparently there is already a technology that would transform this waste into another form of uranium that could be used in new nuclear power plants (to be built, but we know how to do it) and this waste would give us twenty centuries of energy autonomy.
  • Until then, maybe the merger will work?

In any case, we will have to find something because we have entered a period of energy shortage again, as the second graph shows.

The black line is the S & P / WTI point ratio. I subtracted the long-term trend to “flatten it”.

As the reader can see, every thirty years or so we have an energy crisis: 1920, 1950, 1980, 2010 and perhaps 2040?

Each time, we have managed to get away with new discoveries.

As for the red line, it is simply the black line that I advanced fifteen years (half of the cycle) and inversion to show what awaits us in the future, if the thirty-year cycle continues.

The next maximum for energy consumers and the minimum for energy consumers are therefore expected to be reached around 2040.

At that time, I will be 97 and will no doubt let you know when the time comes. But the reader can customize his portfolio if he remembers that in 1980, listed energy stocks made up 30% of the S&P while in 2020 they were only 3% of the S&P itself.

The best way to do better than stock market indices was therefore, from 1970 to 1980, to have only energy stocks or only stocks representative of companies capable of making money even if energy was expensive, to then move on, from 1985 (collapse of prices of oil) in companies that have benefited from low-cost energy such as airlines or international tourism, and from which it was necessary to leave in 2020.

As I continue to write, we are back in the 70s, which makes me quite young. It is therefore necessary to have energy values.

We now come to the painful topic: will “green” energies be the solution?

This is not what the markets believe, as shown by my latest graph which shows the evolution in the world of the two energy sectors, the fossil sector and the green sector (source: MSCI Indices, Macrobond).

Green values ​​have done so since 2009 twice as good compared to fossil stocks, even if they are monstrously subsidized and institutions are forced to buy them (ESG).

This is what happens when you let the Malthusians rise to power.

Their actions create the famines and famines they have announced, which will surprise only those who think that ideologues are capable of making decisions for the common good.

We are in the full triumph of Malthusian ideology.


The class currently in power in Western countries, but only in Western countrieshe wants to reach a world government and for this he needs create scarcity of distributing ration cards to the most obedient.

Other countries don’t see very well why they should obey the ruling elites in Western countries, which herald many conflicts in the future.

Between the globalized elites and the “scientific” socialists of my youth, there are hardly any differences. Scratch a green and red appears.

Hubris, the temptation to take oneself for God, always leads to disaster and those who come out of it are never politicians but inventors and individuals who deploy their talents in systems free and on a human scale.

We have moved away from it, but reality will bring us back to it.

And this won’t be bad news, but good, very good news.

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