Eureka Correspondence

Members ask about the Cooper Basin, household savings and climate change.

Cooper basin

Tim Treadgold’s article on gas in the Cooper Basin, Gas price rises, share prices rocket, missed one little star: Energy World Corp (EWC). It’s a company I’m still trying to work out but seems involved out there.

Name withheld

Tim’s response: Thanks for your letter. Energy World is mainly involved in electricity generation and seems to be a successor to the failed Energy Equity Corporation, which built the Sengkang power plant on the Indonesian island of Sulawesi. It also owns a power station in Alice Springs, and has a small exposure to the re-emerging Cooper Basin.

At this stage the company is more of a utility than an oil and gas stock. For a bit of fun research Energy Equity to see what happens when you mess up your currencies. From memory EEC sold electricity to customers in rupiah and bought the gas it needed in U.S. dollar. When the rupiah crashed during the Asian financial crisis of 1997 it was goodnight nurse!

Saving Rates and GDP Boost

I enjoy Adam Carr's articles and ideas. However, I am seeking clarification regarding the precise definition of "household savings" on which the premise of his recent article, A GDP Booster?, is based.

My understanding of "household savings" is that it includes compulsory super. This being the case there is little slack for a general increase in spending right now (other than by the "well-off").

Name withheld

Regarding Adam Carr's article, A GDP booster?, I have read elsewhere that the household savings ratio includes compulsory superannuation that was introduced in 1992 by Paul Keating.  If so, how much of the savings rate of about 10% is actually discretionary and available for expenditure by households? 

Name withheld

Adam’s response: Thank you for your letters. Savings does indeed include superannuation and in absolute dollar terms you get roughly 60% of each quarter’s savings being super related. That leaves roughly $10 billion as purely discretionary savings, although that is a back-of-the-envelope calculation. For instance, you could argue that voluntary super contributions were indeed discretionary. 

In terms of the actual savings rate, and if you wanted to exclude super, the rate itself would probably be between 4-6% from its current 10% rate. More broadly though, my note didn't take into account the vast stock of savings of Australian households (I was only talking flows). Excluding super and property this amounts to about $1.5-$2 trillion or 1.5 to 2 times disposable income.

Ethical investing

Cliona O'Dowd's article on ethical investing, It's not easy being green... but it is popular, has once again got me thinking about an investment strategy to avoid the economic consequences of a significant or panicked shift away from carbon fuels. I know many scientists – that I trust – and they all say the evidence on climate change is sound. As a sceptic of climate change, I decided to spend a year doing my own research including some university units. My conclusions were that the warnings have a sound scientific base, so other than investing in solar panel manufacturers and property on high ground it is very difficult to judge which companies are most and least exposed because pretty much everything relies on oil. Although it could be complex and probably very defensive, a climate change investing article would be interesting. 

MU

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