The last few years have vomited a lot.
Lockdowns, new variants, vaccination efforts, supply chain issues, soaring energy prices, rising inflation.
Amid the tumult, how should investors approach 2022? What should they pay attention to? What themes are likely to influence the stock market this year?
Below, we discuss some of the top investing trends and themes that we at Fat Tail Investment Research believe are likely to shape 2022 and beyond.
In this series, we’ll cover our top 9 trends:
1. The Great Lithium Disconnect
2. Decarbonization — green switch on
3. The future of payments
4. Quantum Computing and Moore’s Law on Steroids
5. Connected devices and memory
6. Decentralized finance—an “Amazon in 1994” moment
7. Influential “I’s”
8. Watch out for gold
9. Equities – Watch out for high valuations
If you want to download all 9 trends in one document to read at your leisure, simply subscribe below and have them delivered straight to your inbox.
Trend #1 The Great Lithium Disconnect
Lithium Wars: All It Takes
In December 2021, giant automaker Volkswagen announced that it would invest an additional €17 billion to expand its fleet of electric vehicles (EVs).
Volkswagen’s total expenditure on electric vehicles has now reached a substantial 52 billion euros, the largest such investment ever by a traditional manufacturer.
Money rarely lies. And following the traditional automaker financial trail leads to electric vehicles.
And an EV world is a lithium-hungry world.
In 2020, 10 million electric vehicles were sold worldwide.
But the International Energy Agency recently set a target for ‘at least 200 million electric vehicles by 2030‘.
The next decade will be busy!
In the long run, the world where most of its cars are electric will use far more lithium than the world we’re leaving behind – the diminishing age of the internal combustion engine.
Source: Wood MacKenzie
And the demand for electric vehicles – and the corresponding rush to stock up on lithium and other necessary elements like cobalt, copper and nickel – could increase as early as next year.
BloombergNEF predicts that the cost of an EV lithium-ion battery will drop below the magic $100 per kilowatt-hour threshold by 2023, if not sooner.
Why is this the magic number?
If EV batteries fell below that, EVs would reach price parity with traditional cars by the mid-2020s.
You can imagine the impact on demand.
Faced with two equally priced cars, more people are likely to be convinced to go with the one that is
When the World Electric Vehicle Journal conducted a survey in Australia in 2019, it found affordable prices to be the biggest factor driving the adoption of electric vehicles.
And in 2021, Energy Networks Australia published a consumer review, finding ‘there is clear evidence of latent demand for electric vehicles conditional on price cuts in Australia and around the world.’
Source: Financial Times (electric vehicle brands expected to compete with Tesla)
But affordability isn’t the only factor.
The adoption of electric vehicles is also driven by regulation and the proactive positioning of governments for a greener future.
In November, Biden signed a US$1.2 trillion infrastructure bill that allocated US$7.5 billion to equip the United States with 500,000 electric vehicle charging stations.
At the same time, the European Union has proposed legislation to reduce CO2 emissions from cars by 55% by 2030.
What’s a great way to reduce car emissions?
Encourage citizens to go electric.
Source: European Environment Agency
As the FinancialTimes Noted:
‘There was a direct correlation between when new European emissions rules came into force and when electric car sales really took off across the continent. What you expect over the next few years is that whenever the rules get tighter, those are the years in which you’re likely to see a very big increase in EV sales.‘
The EV Switch is not forward-looking but firmly in the present, albeit uneven.
In 2020, the share of electric vehicles was 75% in Norway, 46% in Iceland, 33% in Sweden and 28% in the Netherlands.
But the rush to electrify our fleet has left supply behind in 2021.
Lithium carbonate prices, for example, soared more than 300% in the 12 months to December 2021, according to the oft-cited Benchmark Mineral Intelligence.
The market intelligence company’s CEO, Simon Moores, called the market situation a big lithium disconnect.
‘Currently, lithium demand is growing three times faster than lithium supply. This is a big problem that needs to be solved.‘
Now, if you’re interested in lithium stocks and the broader topic of clean energy but don’t want to sift through feasibility studies and ore readings, we have a dedicated post here at Fat Tail Investment Research that may be useful.
New energy investor shows how you can seize your part of the great energy shift as the world shifts from fossil fuels to cleaner, greener, renewable energy.
Lead by james allen in London and Selva Freigedo in Melbourne, New energy investor seeks out the best and brightest clean energy prospects in the market – often before many Australian investors hear about it.
As Selva recently wrote:
‘This is not the first time that lithium prices have increased, they did the same in 2015-2018. But that rally died down as more producers entered the market and prices crashed.
‘This time things look a little different, however.
‘Although there are more lithium mines coming in, it takes a while for this supply to hit the market.
‘Rising prices are also prompting manufacturers of batteries and electric vehicles to enter into longer-term contracts to secure their supplies.
‘And, of course, in 2015, there weren’t as many automakers investing in electric vehicles as governments were setting targets to phase out gas-powered cars. The demand will only increase…
‘The Australian Department of Industry, Science, Energy and Resources (DISER) predicts that global lithium demand will increase from 305,000 in 2020 to 486,000 tonnes of lithium carbonate equivalent (LCE) this year… and that it will increase to 724,000 tonnes by 2023.‘
A little about us — Fat Tail Investment Research
While themes and trends may come and go, one thing that never goes out of fashion in the investment world is insightful analysis.
Information is the crucial ingredient of markets.
But information alone is not enough.
It’s the rational analysis of information that separates a healthy idea from a weak idea.
At Fat Tail, our editors pride themselves on providing valuable insight by applying their industry experience and knowledge.
At Fat Tail, we value differences.
Disagreement is not censored but encouraged.
And we find that our readers appreciate the range of thoughts and ideas of our editors.
At Fat Tail, we have bulls, we have bears, we have crypto advocates and gold bugs.
At the heart of it, however, we have a team dedicated to the free exchange of ideas. Reason trumps agenda here.