Carbon Bubble
A
research came out of the London School of Economics and Carbon Tracker
Initiative that forecasts that if governments are to keep their promises about
the agreements on carbon emission and seriously start curbing their carbon
emission, many carbon based investments traded publicly might implode (causing
market bubble)
It is
said that governments plan to keep their national carbon emission below in line
with the global carbon emission limit of2c.
This Suggests that around 60 to 80
% of coal, oil and gas reserves held by 200 main oil gas and mining companies
will be unusable and therefore assets of these companies will be less valuable.
A carbon budget of 900 gigatons of
CO2 in the atmosphere from now to mid-century
would give an 80 percent chance of 2-degree warming. And this, its use will not
cause the planet’s carbon budget to change significantly.
According to a former World Bank researcher, the 200 major
oil companies spent over 600 billion dollars in developing oil reserves and
related projects. If nations such as China and U.S are to commit to reducing
carbon emission by 2015, only 4% or 2/3rd of the current reserves
can be used as it will have to remain underground if the world is to achieve
the internationally agreed target. This study
is supported by HSBC, Citi, Standard and Poor's and the International Energy Agency. The London
Bank also confirms that the World might be heading to another major financial
crisis as a result of overvalued oil and gas market. Another researcher from
carbon tracer also suggests that short termism is the main reason for the upcoming
carbon bubble. "Analysts say you should ride the train until just before
it goes off the cliff. Each thinks they are smart enough to get off in time,
but not everyone can get out of the door at the same time. That is why you get
bubbles and crashes." Another oil and gas market analyst at HSBC claims
that "The scale of 'listed' unburnable carbon revealed in this report is
astonishing. This report makes it clear that 'business as usual' is not a
viable option for the fossil fuel industry in the long term. [The market] is
assuming it will get early warning, but my worry is that things often happen
suddenly in the oil and gas sector." HSBC also argues that 40 to 60% of
the market capitalization over oil industry is at risk out of which just the
200 top companies have around $4 tn and $1 tn debt. According to a report from Commons Treasury
select committee the “ The world's currently indicated fossil fuel reserves
equate to 2,860bn tons of carbon dioxide, but that just 31% could be burned for
an 80% chance of keeping below a 2C temperature rise. For a 50% chance of 2C or
less, just 38% could be burned”(The Guardian”. Carbon capture and storage
technologies also promise to save only 4% of this unburable carbon. Similarly,
sesearcher in the London School of Economics also confirms this saying that “The
financial crisis has shown
what happens when risks accumulate unnoticed”. Jens Peers, who manages Mirova,
a £3bn asset suggests that the risk is massive than investors think. He claims
that investors cannot be waiting for 2015, when countries commit to the global
carbon emission limit. Accordingly, wise
investors are advised to pull out their investments on time before the already ballooning
market starts to crumble.
Jcp
JCP is a mid-range department
stores based in Plano,
Texas. The company
operates 1,107 department stores in all 50 U.S.
states and Puerto Rico, and previously operated a catalog
business and several discount outlets.[3In addition, JCPenney
stores often house several leased departments such as Sephora,
Seattle's Best Coffee, optical
centers, portrait studios, and jewelry repair.(taken from
–Wikipedia )Lately the company has not been doing so well. At the end of 2012
the company had just$930 million in cash remaining, down from $3 billion at the
end of 2009. The free cash flow in 2013 was -$830 million, and if this doesn't
improve the cash balance will be almost completely depleted by the end of 2013.
The company is $3 billion in debt, on which it pays
$226 million in interest annually.
On April 6th 2013 JCP won the right to sell Martha Stewart
products – as long as they’re unbranded.
Macy's Inc. sued Plano, Texas-based J.C. Penney Co.
over J.C. Penney's new deal to start selling some of Martha Stewart Living's
products.
The J.C. Penney
arrangement was to supply certain Martha Stewart Living items, after J.C.
Penney acquired a 17 percent stake in the household goods company in December
2011, and made plans for mini-stores dedicated to Martha Stewart Living and
other brands
As a
measure of transforming the company's image, JCP brought Ron Jonson as the
CEO on November 2011.
Ron
Jonson was a senior vice president of
merchandising for Target and Apple’s
Senior Vice President of Retail Operations since January 2000.
He (Ron Jonson)came to JCP hoping
to turn the company back to its feet He came up with new strategies such as: opening up new shops with in old
stores , removing big sales and replacing it with constant low/fair prices, replacing
employees from former department, restructuring stores etc.He also scrapped
salespeople’s commissions in favor of fixed hourly wages.
However
2/3rd of customers did not understand the new
scheme, and fled away from JCP.
Even
online sales dropped during Mr Johnson’s tenure
It had
one of the worst retail quarter , a 32% drop of same store sales, lost another $552 million for the fourth
quarter. it lost almost a billion $ for the whole year. Which made almost 28% of loss from the year before.
Macy’s
had already filed an appeal towards the court’s decision.
Jonson
had to go..
Earlier this month, JCP had to
remove Jonson from his chair.
Former CEO Mike Ullman was called
back for urgent recovery.
Early investor reaction to the
shake-up was negative. J.C. Penney shares (JCP) by 9% in early trading to $14.43.
Investors hope Mike Ullman will
bring back JCP core costumers and some of JCP’s signature marketing strategies
including sales discounts.
The question remains : Is JCP going
to go bankrupt ??
Should investors start dissolving
their assets??
Speculators suggests that privet equity firms will not
be interested in JCP as it has market capital that’s barely larger than its
long term debt.(3.12$ vs 2.28$)
The retailer's bonds are trading at around 70 cents on
the dollar, suggesting investors think it could be headed for bankruptcy.
York Capital's James Dinan recently said at a
conference that the $15 billion hedge fund had shorted the bonds, according to press reports.
Many are looking forward for JCP to go bankrupt by the
end of 2013, as it is a company with weak sales performance, high debt and confused
sales strategy. Compared to its main competitors.
Work Cited
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