JP Morgan - A Brave New World: The De-Carbonization of Electricity Grids > 15min

A critical part of any analysis of high-renewable systems is the cost of backup thermal power and/or storage needed to meet demand during periods of low renewable generation. These costs are substantial; as a result, levelized costs of wind and solar are not the right tools to use in assessing the total cost of a high-renewable system ... High-renewable grids reduce CO2 emissions by 65%-70% in Germany and 55%-60% in California vs. the current grid. Reason: backup thermal capacity is idle for much of the year ... High-renewable grid costs per MWh are 1.9x the current system in Germany, and 1.5x in California. Costs fall to 1.6x in Germany and 1.2x in California assuming long-run “learning curve” declines in wind, solar and storage costs, higher nuclear plant costs and higher natural gas fuel costs ... The cost of time-shifting surplus renewable generation via storage has fallen, but its cost, intermittent utilization and energy loss result in higher per MWh system costs when it is added ... Balanced systems with nuclear power have lower estimated costs and CO2 emissions than high-renewable systems. However, there’s enormous uncertainty regarding the actual cost of nuclear power in the US and Europe, rendering balanced system assessments less reliable. Nuclear power is growing in Asia where plant costs are 20%-30% lower, but political, historical, economic, regulatory and cultural issues prevent these observations from being easily applied outside of Asia ... National/cross-border grid expansion, storing electricity in electric car batteries, demand management and renewable energy overbuilding are often mentioned as ways of reducing the cost of high-renewable systems. However, each relies to some extent on conjecture, insufficient empirical support and/or incomplete assessments of related costs

JP Morgan - Planet of the Aches > 15min

Some aches and pains are constraining the global economy, with more severe strains occurring in the emerging world. We believe contagion to the US and Europe will be limited in 2016, and expect their consumer revivals to continue, courtesy of low inflation, low commodity prices, central bank intervention and reduced fiscal austerity. However, above-average equity valuations, peaking corporate earnings momentum and stagnant productivity growth will likely result in a year of modest single- digit returns on diversified portfolios. ... This year’s cover art transforms some well-known aches and pains: exhaustion, tinnitus, periodontitis, bronchitis, acid reflux, hangovers, restless leg syndrome, appendicitis, conjunctivitis, anemia, mononucleosis, E. coli infections, iron deficiency, narcolepsy, macular degeneration and altitude sickness. These aggravating but generally not life- threatening conditions are meant to convey a slow growth world, but not one on the precipice of collapse or recession. Competitive devaluations are unlikely to alleviate these aches and pains; successive rounds of currency depreciation in Europe and Asia mostly redistribute income across countries, rather than boost aggregate demand. ... Most of these conditions are homegrown: Latin American and Australian overexposure to commodity prices, weak consumer activity in Japan, economic dissonance across countries in the Eurozone, a surge in dollar-borrowing emerging economies and slowing corporate profits growth in the US. However, some conditions are the result of contagion: “ECBotulism” refers to the impact of ECB policy on countries like Sweden that are forced to engage in destabilizing quantitative easing, or lose export market share (see page 15 for more details). As for Canada, there was no need to transform the name of an illness for our cover: “Dutch Disease” refers to an economic condition in which one sector of the economy (in this case, oil and gas) drives the currency to such a high level that it causes medium-term damage to the rest of the country’s export sectors.

JP Morgan - Eye on the Market Outlook 2017: True Believers 70min

Two groups of true believers are driving changes in the developed world. The first: single-minded central bankers who spent trillions of dollars pushing government bond yields close to zero (and below). While this unprecedented monetary experiment helped owners of stocks and real estate, its regressive nature did little to satisfy the second group: voters who are disenfranchised by globalization and automation, and who are on the march. What next? The fiscal experiments now begin (again). ... why do we see 2017 as another year of modest portfolio gains despite the length of the current global expansion, one of the longest in history? As 2016 came to a close, global business surveys improved to levels consistent with 3% global GDP growth, suggesting that corporate profits will start growing at around 10% again after a weak 2016. More positive news: a rise in industrial metals prices, which is helpful in spotting turns in the business cycle ... Furthermore (and I understand that there’s plenty of disagreement on the benefits of this), many developed countries are transitioning from “monetary stimulus only” to expansionary fiscal policy as well. Political establishments are aware of mortal threats to their existence, and are looking to fiscal stimulus (or at least, less austerity) as a means of getting people back to work. The problem: given low productivity growth and low growth in labor supply, many countries are closer to full capacity than you might think. If so, too much fiscal stimulus could result in wage inflation and higher interest rates faster than you might think as well. That is certainly one of the bigger risks for the US.

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