ENERGY AS HEDGE
Energy investments based on the Energy as ROI concept deliver a free hedge against currency value decline to its investors. In the USA the FED already bought US treasuries with Quantitative Easing originated money since China stop doing that. In EU the ECB has started to buy european national treasuries on May 10, 2010 as response on the Greek Debt Crisis. In two major market in the world the currency is watered down in value to curb the disinterest of the market for buying treasuries. In this US they try to hide this by discontinuation of publication of the M3 money creation figures on March 23, 2006 (making the USD a complete virtual currency), see http://www.federalreserve.gov/releases/h6/discM3.htm for the official statement of the FED on this. It's safe to say that governments are over credited and that the markets lost their trust in these debt piling, political unable to balance income/spending, they have no other option than ask the Central Banks to create money to buy the treasuries, otherwise they will run out of money within 14 days. It's also safe to say that market capital is turning its back on treasuries reasuries has lost their name as 100% sure asset. Buying treasuries is equals buying assets that are actively watered down in real/actual value by the vendor after the sale (regardless the interest premium on it) something not many investors likes. Market capital is searching for new investment targets that are safe, can keep up with the coming hyper inflation and give a ROI. This why energy investments will make up a significant part of the asset portfolio of any financial in the next years. Not only for new investments, but also to hedge existing exposure in currency attached assets that can not be 'unloaded'. Unloading treasuries to the market in these market situations for treasuries is not realistic. To prevent market dumping of treasuries, they can be used as full nominal valued collateral by both the FED and the ECB. If they also need to disappear of the balance sheets than for this SIVs (Special Investment Vehicles) are created. This cash will not be used to buy new treasuries: financials will use the by this arrangements delivered cash for other products and/or in other markets. Governments have to save themselves and the financials have to save themselves. The best governments can demand is that financials that they unload of (yet toxic or still clean) treasuries sign a contract that they will not take short positions on (as in: bets on decline of) both treasuries and currencies. But this could be bypassed by funding this for relations of by joint SIVs where everybody has a minor stake (so they are legal off-balance). New energy investments have so much upside in comparison to treasuries. Much more certainty, build-in by it characteristics a free currency decline insurance and better ROIs. This is why financials will abandon treasuries and move to energy facilities. The same reason is valid if one can chose between investing in the East (delivering an asset risk and also a currency attached value decline) and energy investments in own or nearby nations. But energy investments will not only be used for much more certainty, build-in by it characteristics a free currency decline insurance and better ROIs. Energy investments with the Energy as ROI model will also be used as counterweight (hedge) for currency based assets that could not be unloaded by the market nor by the current Central Bank operations. As currency values decline financials can make a huge extra own profit on these on the Energy as ROI model based hedges. They put money in and get kWh out that can be sold against tomorrows power value in tomorrows currency value. The Energy as ROI model will deliver 50% of all the earnings financials make. The Energy as Hedge model is very attractive for the results and balance sheets of financials. They can make it these extra profits on third party currency assets (acquired against an interest fee in currencies, by the regular currency attached interest rate model), or even on interbanking loan created liquidities (as they could do before the Credit Crunch). Energy as Hedge is a concept capable of generating a massive energy transition investment wave.
Author: Gijs Graafland
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