Norwegians Are Different..

[Monday, December 11, 2023]


In November, equity and bond markets strongly rallied, as it appears that the Federal Reserve had finally started pivoting after the prior six occasions when hopes were dashed. The projection of a recession in six months has been extended again to 2H 2024, with the Fed forecast to reduce rates 3 to 6 times in response. We suspect that the January effect, when stocks rally in the New Year after tax loss selling in December, may have also been pulled forward to late November, like Black Friday sales that began on November 1st.  We will only know in retrospect if dips in the CPI and commodity prices are a return to low inflation, or a temporary pause, given a significant US Federal deficit and stimulus with full employment. 

In recent blog posts, we have addressed the value of NAVs and Price. The third information factor is Oslo vs. US equity markets.  Norwegian shipping investors tend to be momentum driven and focus on the news flow.  US investors for the most are part value and income oriented.  The most marked difference is the higher valuation the same companies receive in America.  In the US a taxable investor who trades short-term and lives in New York City has a combined Federal, State and City marginal tax rate of up to 54.2%.  So not only do you need to buy right, sell right, and then buy right again, but the majority of the gains are lost to the government(s). Taxable American investors are rewarded for buying and holding, which may explain why US valuations skew higher.

Europe is discovering that decarbonization brings deindustrialization. The last time European petrochemical plants processed so little naphtha to make plastics, it was 1975.  It’s not that the Europeans are using less plastics, rather they are being imported from Texas and Asia.  In 2024, the European Commission is introducing their emission trading scheme.  Under plans to tax shipping emissions, they will require shipowners to buy credits for every ton of CO2 emissions they produce on journeys between two EU ports, as well as half their emissions on shipments between an EU port and a non-EU port.  The rules will be introduced incrementally with all emissions covered by 2026.  It will make imports and exports of everything more expensive.  Outside of the EU, we envision the UK becoming significantly poorer, as its energy policies are accelerating its economic decline. Petrolineos, the owner of Grangemouth Refinery in Scotland, has decided to convert the refinery to a fuel import-and-export terminal in 2025, with a significant loss of high paying jobs.  Grangemouth represents 4% of Scotland’s GDP today. Once what was an advantaged location no longer is competitive due to UK North Sea energy policy. European politicians and EU bureaucrats have successfully created a number of high-paying green jobs.  Unfortunately, very few are on the continent and in the UK, with the vast majority in China and elsewhere in Asia.