Stranded assets

My analogue television is a stranded asset. It has perfect picture and sound, plus it has worked this way for years without a flicker. Only now there is no signal for it because we have moved into the digital age.

I could complain. My investment in that analogue TV still had time to run – I expected to get entertainment returns from reruns of the Simpsons for years to come.

Instead I was forced to purchase another asset, either a set-top box to convert the signal or a new digital TV. I chose the second option in plasma. By doing so I wrote off any returns from my stranded asset and made another investment.

And the world did not end.

In fact I did what the economists, politicians and business owners want; I made another purchase.

It would be interesting to see what would happen to the performance of super funds that have invested in fossil fuel power plants if those assets were also stranded. No doubt returns would take a hit, but again, I doubt that the world would end.

We are always told that superfunds, the investment vehicles that take a proportion of our before tax income that in Australia is a compulsory 9% of salary paid by all employers on behalf of their staff, are risk adverse investors. Surely then, they should have balanced portfolios.

Presumably someone has done the sums, but I would guess that the inherent and irrational volatility of the markets is a far bigger hit that the loss of some power stations. And like the banks that chose to lend to the Greek government, they might not be as sure of their returns as they think and they may not get a bailout.

So the noise and bustle over the loss of these assets to accommodate the necessary change to alternative fuels is really vested interest. It comes across as a rail against a redistribution of returns but in really, it is the fear that they might actually have got the investment wrong. That in following what they claimed was conservative investment management they, in actually, were taking a huge punt.

This reality comes for adherence to growth economics 101.

To keep economic growth happening, funds must be mobilized to generate new assets, goods and services. How else are the GDP numbers expected to grow?

In fact we do it all the time. It’s just that we are so under the thumb of the current set of asset holders we forget that as part of normal economic activity some assets will do well while others fail. It is a normal pattern of economic activity. Consequently there will always be stranded assets; and the world will not end.

More importantly we will have to spend to create new assets to allow us to complete the transition from fossil fuels without seeing the end of the economic world.

 

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