Energy, credit and big picture change

This statement from hedge fund manager Hamid Hakimzadeh bears serious reflection.

The global financial system is critically predicated on future energy supplies meeting projected demand. The credit pyramid presumes that future expansion is adequate collateral for today’s debt. The emerging reality on energy undermines this assumption, which in turn erodes the valuation of wide variety of financial assets. Since low quality covenants cave in first when confronted with cash flow stresses, it is no surprise that sub-prime assets are the first to register the drain cause by sustained higher energy costs. The sub-prime crisis may be no more than the opening salvo of an energy crisis.

While the logic is not novel, what is important is that the concurrent analysis that resource limits are being reached (as reflected in rising energy prices) makes the reality of this situation more present. The consequence being that global economic dynamics are going to change in fundamental ways that change the philosophy of capitalism. Our holonic perspective suggests that there will be a leveling of the playing field. But in the meantime, energy and credit businesses will become increasingly important as they adapt to changing dynamics.

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