# The stock market never goes down anymore



## TheBigShort (13 Jan 2018)

From bloomberg;

https://www.bloomberg.com/news/arti...etting-historic-on-eve-of-big-earnings-season

"_We've completely run out of ideas to explain what is happening.We get asked a lot, are you seeing anything that could explain the rally? The answer is, no".
_
Between stocks, bonds, cryptos, property etc...its fairytale stuff, isnt it?


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## Brendan Burgess (13 Jan 2018)

TheBigShort said:


> stocks, bonds, cryptos, property etc...its fairytale stuff, isnt it?



Stocks, bonds and property may well be overvalued. But they are worth something. They produce income. 

Cryptos are completely different. They are not an asset. They are worth nothing despite people being prepared to pay $14,000 for them. 

Brendan


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## odyssey06 (13 Jan 2018)

Let's hope so, maybe I can retire early!

I don't plan to rely on Bitcoin, but it might pay for some nice holidays


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## TheBigShort (13 Jan 2018)

If it transpires that everything is overvalued, what then? Is the global financial system caught in a deflationary trap?


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## cremeegg (13 Jan 2018)

TheBigShort said:


> Between stocks, bonds, cryptos, property etc...its fairytale stuff, isnt it?



Bonds are highly valued for a number of perfectly understandable reasons. Most emanating from the 2008 crash. At that time there was a fear that counterparts would default. This has left a legacy of seeking safety over return with some investors. Legislation inspired by the crash tightened capital requirements for banks and insurance companies, pushing them towards bonds. Further legislation required pension companies to more closely match their assets with their liabilities, again pushing them toward bonds.

Stocks are highly valued because interest rates are so low. Because profits are rising. Because politicians are in tax cutting mode.

Property is highly valued, in Ireland at least, because we aren't building much of it. Because over 50% of the cost is going to the government. Because the Irish planning system, does not so much plan as say no. Because the construction industry is undercapitalised. Because the construction labour force has shrunk. Because banks are unable or unwilling to lend.



TheBigShort said:


> If it transpires that everything is overvalued, what then? Is the global financial system caught in a deflationary trap?



I dont think so. I believe that we may be at the beginning of an resurgence of inflation. Not this year or next but after the present period of prosperity winds down.

Money is becoming more plentiful, labour markets everywhere are tight. Politically many tensions would be dissolved by a dose of inflation.


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## TheBigShort (13 Jan 2018)

cremeegg said:


> This has left a legacy of seeking safety over return with some investors. Legislation inspired by the crash tightened capital requirements for banks and insurance companies, pushing them towards bonds.



Ok that explains why bond prices have risen and yields are next to zero. It doesnt explain why stock markets are rising. If some investors (a significant enough proportion to drive yields to near zero)  are seeking safety over returns, where is the money for stock markets coming from?



cremeegg said:


> Stocks are highly valued because interest rates are so low. Because profits are rising. Because politicians are in tax cutting mode.



I agree profits are rising, economic activity is increasing. But it hardly correlates with the record prices in US stock markets? At least I wouldnt have thought so. 




cremeegg said:


> Property is highly valued, in Ireland at least,



Try London, Manchester, New York, Toronto, Vancouver, Sydney, Melbourne, Hong Kong, Tokyo, Shanghai etc.



cremeegg said:


> Because the construction industry is undercapitalised. Because the construction labour force has shrunk. Because banks are unable or unwilling to lend.



If banks are unable or unwilling to lend then that implies low or little increase in activity. If they are not lending to build, why are they lending to buy property?


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## joe sod (13 Jan 2018)

TheBigShort said:


> I agree profits are rising, economic activity is increasing. But it hardly correlates with the record prices in US stock markets? At least I wouldnt have thought so.



Well the US dollar has fallen from a high of 1 euro = $1.05 a year ago to 1 euro = $1.22 now so that is one asset that has fallen in value. If you convert the gains in US stock market back to euros its not so great. Also gold has not risen very much only recently heating up a bit. Maybe a good strategy is to to buy half gold and half US dollars, I know they are generally opposite assets


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## TheBigShort (13 Jan 2018)

Thats a fair re dollar to euro but I would have thought it also implied that there is no significant appetite from euro investors in US stocks? 
Not an insignificant factor in subduing prices I would have thought?


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## RedOnion (13 Jan 2018)

Hi TBS,

You mentioned quantative easing on another thread last week. One of the expected side effects of QE is that it should create consumer demand, and kickstart price inflation. We haven't really seen that, but instead because QE is buying up all the bonds, the extra supply of money is being pushed elsewhere and driving asset price inflation instead.

There's also a school of thought that a move to passive investment is leading to stock price inflation - funds have to invest in the whole index, and therefore there is less thought going into investment decisions.


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## TheBigShort (13 Jan 2018)

RedOnion said:


> One of the expected side effects of QE is that it should create consumer demand, and kickstart price inflation. We haven't really seen that, but instead because QE is buying up all the bonds, the extra supply of money is being pushed elsewhere and driving asset price inflation instead.



I dont disagree. That means either bonds are overvalued or stocks are overvalued. Or perhaps both are overvalued?


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## Jim2007 (13 Jan 2018)

RedOnion said:


> There's also a school of thought that a move to passive investment is leading to stock price inflation - funds have to invest in the whole index, and therefore there is less thought going into investment decisions.



But the majority trackers do not in fact invest in the whole index.  Be very careful what you invest in, read all the documentation not just the factsheet and the KIID... you often find in there that they are allowed to use all kinds of synthetics as substitutes.


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## joe sod (26 Mar 2018)

the heading of this post "the stock market never goes down anymore", well we have had fairly hefty sell offs in the mean time. The ftse 100 is now back to where it was at end of 2016. Its true that we have had very little volatility since january 2016 until february this year. I think all the volatility now gets compressed into shorter time periods, therefore when there is volatility like now its fairly large swings down and smaller ones back up. Its times like now to paraphrase alex ferguson when "its squeeky bum time" for amateur investors


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## Gordon Gekko (26 Mar 2018)

The FTSE 100 isn’t a great barometer though...too much exposure to commodities, financials, and the UK domestic economy with its Brexit-related woes.


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## joe sod (25 May 2022)

The ftse did not perform well up to recently but it's commodities and financials exposure is definitely helping it now as it is not fallen at all this year even though the nasdaq and s&p indexes are down heavily. 

Just shows you how wrong it was to be chasing the US tech stocks and even S&P500 during the covid years, the old world has returned with a bang again


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## PGF2016 (25 May 2022)

joe sod said:


> The ftse did not perform well up to recently but it's commodities and financials exposure is definitely helping it now as it is not fallen at all this year even though the nasdaq and s&p indexes are down heavily.
> 
> Just shows you how wrong it was to be chasing the US tech stocks and even S&P500 during the covid years, the old world has returned with a bang again


A dip in the market shows "how wrong it was..."? 

If you're retiring in 20/30 years surely the performance over a very short time frame is irrelevant?


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## Steven Barrett (25 May 2022)

joe sod said:


> The ftse did not perform well up to recently but it's commodities and financials exposure is definitely helping it now as it is not fallen at all this year even though the nasdaq and s&p indexes are down heavily.
> 
> *Just shows you how wrong it was to be chasing the US tech stocks and even S&P500 during the covid years, the old world has returned with a bang again*


Very short term view of things Joe. If you had invested €100 in the FTSE 100 10 years ago, you'd have €190 today. Meanwhile, I would have €402, more than double the return. 

I would happily take the short term pain for the long term gain.


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## Steven Barrett (25 May 2022)




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## joe sod (25 May 2022)

Steven Barrett said:


> Very short term view of things Joe. If you had invested €100 in the FTSE 100 10 years ago, you'd have €190 today. Meanwhile, I would have €402, more than double the return.
> 
> I would happily take the short term pain for the long term gain.


I wasn't saying that though was I ? I was saying that people should have been moving money into ftse 100 stocks during the pandemic not a decade ago. There is a big sell off in tech and growth stocks due to inflation and rising interest rates now, they seem to be now blowing off all the pandemic related excesses . It looks like a very similar theme to what happened after the dot com collapse and the big shift out of technology and growth back to old world stocks like energy and financials that make money today. Because of high inflation rates companies that make money today are being revalued upwards and vica versa


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## Steven Barrett (26 May 2022)

joe sod said:


> I wasn't saying that though was I ? I was saying that people should have been moving money into ftse 100 stocks during the pandemic not a decade ago. There is a big sell off in tech and growth stocks due to inflation and rising interest rates now, they seem to be now blowing off all the pandemic related excesses . It looks like a very similar theme to what happened after the dot com collapse and the big shift out of technology and growth back to old world stocks like energy and financials that make money today. Because of high inflation rates companies that make money today are being revalued upwards and vica versa


I understand your point. It wasn't clear from your original post. 

That is why we advise clients to have a diversified portfolio and invest in quality companies. The S&P 500 (I know it is just US companies, so not diversified geographically), only allows profitable companies on its index. While still heavily weighted towards tech stocks, they have lots of other sectors included in the index. 

I wouldn't be worried about not being heavily invested in energy either. It is a very volatile industry. It was only two years ago that the price of oil went negative. Trying to predict the future of energy prices is like trying to catching a falling knife. 

Steven
www.bluewaterfp.ie


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## DublinHead54 (26 May 2022)

Based on the FTSE 100 and S&P500 here it would suggest the S&P is riskier than its British counterpart (greater volatility).

Generally it's said that investing in broad based multi sector indices is lower risk but I assume in the case of the S&P the dominance of tech companies is making it riskier.


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## PGF2016 (26 May 2022)

Dublinbay12 said:


> Based on the FTSE 100 and S&P500 here it would suggest the S&P is riskier than its British counterpart (greater volatility).
> 
> Generally it's said that investing in broad based multi sector indices is lower risk but I assume in the case of the S&P the dominance of tech companies is making it riskier.


Why does tech make it riskier?


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## DublinHead54 (26 May 2022)

PGF2016 said:


> Why does tech make it riskier?



The index is weighted by market cap, so Amazon, Google, Apple, Facebook, Tesla account for ~25% of the index. So buying the S&P500 gives a concentration to tech stocks. 

Tech stocks are generally considered high growth and thus riskier than say a Proctor & Gamble.


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## Paul O Mahoney (26 May 2022)

Steven Barrett said:


> I wouldn't be worried about not being heavily invested in energy either. It is a very volatile industry. It was only two years ago that the price of oil went negative. Trying to predict the future of energy prices is like trying to catching a falling knife.
> 
> Steven
> www.bluewaterfp.ie


Absolutely ,I worked over 10 years in this industry and I can always remember in the early 90s some of those from Houston saying that the price of oil,  and by extension gas, would stay uneconomic for decades ahead,  cost of finding and exploiting. In those days a 30 day drill off our south cost was about $15m off the west coast $60m ,today I believe its 4/5 times those. Costs have gone up and will continue to go up and as we see today windfall taxes can be applied at any time.

As for price its ,as you say impossible to predict and the price is influenced by so many unknowns. 

I have never held energy/oil stocks except for the ones we got as part of a Revenue scheme.


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## Steven Barrett (26 May 2022)

Over the last 10 years, the S&P 500 and the FTSE 100 have had similar volatility but the S&P 500 have vastly outperformed.


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## Steven Barrett (26 May 2022)

But over one year...


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## galway_blow_in (30 May 2022)

Dublinbay12 said:


> Based on the FTSE 100 and S&P500 here it would suggest the S&P is riskier than its British counterpart (greater volatility).
> 
> Generally it's said that investing in broad based multi sector indices is lower risk but I assume in the case of the S&P the dominance of tech companies is making it riskier.


absolutely not , the UK market is very badly diversified for the current age , its top heavy with dinasaur industries like banking and energy which have not had decent growth in years which explains why the FTSE has delivered so poorly this past two decades , its Tech constituent is very small , Tech is going to be the most important sector for years to come

the FTSE is known as "Jurasic Park" in the financial industry


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## joe sod (1 Jun 2022)

galway_blow_in said:


> Tech constituent is very small , Tech is going to be the most important sector for years to come


Yes it's smaller than the S&P 500 but so are all the eurozone indexes, you could say same about Germany and France.  
Technology will always be important but different technologies now not the same ones that have dominated since the financial crash focused on  communications and social media . Energy and food are now the critical areas that are not the focus of today's tech behemoths. Therefore there will be rebalancing in world financial markets back to these "old world " stocks that are now very important again and still undervalued and away from pandemic era tech stocks.  Although new technology stocks will come to the fore just like after the dot com bust.


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## DazedInPontoon (1 Jun 2022)

Old world industries will never scale like software does and physical systems will never be as practical as the digital systems that replace them. You might have a real tech breakthrough in energy with something like fusion that gives orders of magnitude improvements over existing energy sources, but I expect that's very unlikely with food.

In the long run I expect the best gains to continue as they already have in the tech revolution era with software/big-data/AI continuing to disrupt other industries and create new ones.

Tech had it too easy lately though, too many bad/unprofitable startups with effectively infinite runway and now the wheat is being separated from the chaff.


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## galway_blow_in (1 Jun 2022)

joe sod said:


> Yes it's smaller than the S&P 500 but so are all the eurozone indexes, you could say same about Germany and France.
> Technology will always be important but different technologies now not the same ones that have dominated since the financial crash focused on  communications and social media . Energy and food are now the critical areas that are not the focus of today's tech behemoths. Therefore there will be rebalancing in world financial markets back to these "old world " stocks that are now very important again and still undervalued and away from pandemic era tech stocks.  Although new technology stocks will come to the fore just like after the dot com bust.



Germanys DAX has been far and away the strongest performing European index this century , obviously not as strong as the U.S market but unlike the UK market , its not heavily weighted by banks or energy companies , the rest of the european markets have done horribly as well with Spain and Italy about half the level they were in 2007 , Italian market all time high was way back in 2000

buying the U.S market and nothing else is more or less fool proof over the long term


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## joe sod (2 Jun 2022)

galway_blow_in said:


> buying the U.S market and nothing else is more or less fool proof over the long term


But that has been a very crowded place to be investing especially since the pandemic  , the US market is simply overvalued and the European ones uncluding the ftse are undervalued precisely because they are heavy in these old world stocks. Investors were simply over optimistic about the prospects for these tech stocks facilitated by zero interest rates and QE.
The opposite happened with old world stocks like energy and financials that make money today not in the future   ,look how ridiculous lly they were priced as recenly as 2020, these stocks are now being revalued as they are more valuable in the era of high inflation and rising interest rates.
Aswell as that technology has barely made any inroads in alot of areas that are now critical like energy.  Another poster mentioned nuclear fusion as a new tech  , but this stuff is still way too difficult and far off into the future    ,the Googles and Facebooks will have zero inroads into any of this stuff


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## galway_blow_in (2 Jun 2022)

joe sod said:


> But that has been a very crowded place to be investing especially since the pandemic  , the US market is simply overvalued and the European ones uncluding the ftse are undervalued precisely because they are heavy in these old world stocks. Investors were simply over optimistic about the prospects for these tech stocks facilitated by zero interest rates and QE.
> The opposite happened with old world stocks like energy and financials that make money today not in the future   ,look how ridiculous lly they were priced as recenly as 2020, these stocks are now being revalued as they are more valuable in the era of high inflation and rising interest rates.
> Aswell as that technology has barely made any inroads in alot of areas that are now critical like energy.  Another poster mentioned nuclear fusion as a new tech  , but this stuff is still way too difficult and far off into the future    ,the Googles and Facebooks will have zero inroads into any of this stuff



energy is a long term dead duck , the climate agenda guarantees this , right now is just a blip though obviously could last a few years

thats not to say people wont still use oil , they will of course but the investment community will lighten up on energy just as they have lightened up on tobacco stocks etc despite people globally still buying cigarettes


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## joe sod (3 Jun 2022)

DazedInPontoon said:


> In the long run I expect the best gains to continue as they already have in the tech revolution era with software/big-data/AI continuing to disrupt other industries and create new ones.


But tech hasn't disrupted in energy, food , and commodities . Yes there has been technological developments in these sectors but only within those industries not from outside.  
Many are saying that Tesla is a disrupter but the jury is still out on that given that it is only maybe disrupting on the consumption of energy but not in the generation of energy . Also electric car production and other high tech products are seriously restricted by access to crucial commodities that are controlled by the old dinasour mining companies and totalitarian countries like Russia


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## Gordon Gekko (6 Jun 2022)

Big call to say the US market is overvalued now.

Google, for example, is trading at 18 times 2022 earnings.

Not “Spoof.com” or “WorldOfFruit.com”…Google.


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## fistophobia (4 Jul 2022)

Only one subset of the S&P 500 index is in positive territory, year to date.


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## joe sod (4 Jul 2022)

S &P 500 is down by 20% whereas DOW down by only 10%, S&P has become very tech heavy over the last decade which explains why it is down more.

There were alot of people on this only looking to invest exclusively in the S&P over the last few years because of its performance driven largely by tech, that looks to have been a mistake if you weren't already on board before the pandemic .

There could be a bit of a short term tech rally but I doubt it changes the long term trend. Investment now needs to go to areas which have been under invested for decades as the West looks to re industrialise to reduce dependence on Russia and China


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## DazedInPontoon (4 Jul 2022)

joe sod said:


> But tech hasn't disrupted in energy, food , and commodities . Yes there has been technological developments in these sectors but only within those industries not from outside.


The disruptions started with the low hanging fruit which is things that can be dematerialised. Previously physical things such as snail mail, media, money, books, photos being replaced by digital counterparts which were more efficient. You can even generalise that to say they're all different forms of data that have a large global user base. Maybe most of this wave is already over.

When all the data is digital, the next wave of disruption relates to analysing that data and providing services based on it. Your physical map got replaced by a sat nav in your car, that was the data part. Now you can ask it contextual questions like where the nearest petrol station is, or use an even more advanced service such as corrberating data from other peoples cars to know real time traffic situations, and an even more advanced service calculate your optimal route in real time based on that traffic data.

I think there is lot disruption left to happen in this regard in areas from education to health care. We are gathering a lot of data in all aspects of life now that we were not before but are probably not using it as much as possible yet.

Energy, food and commodities can generally not be dematerialised, they are not data. So while you might see disruption in them it's not exactly the same kind, but it can still be big and from the outside. It's not farmers that came up with lab grown meat for example, and it wasn't one of the leading legacy car companies that really kick-started the EV revolution.

I'm more interested in software disruption, as nothing scales like software.



joe sod said:


> Many are saying that Tesla is a disrupter but the jury is still out on that given that it is only maybe disrupting on the consumption of energy but not in the generation of energy . Also electric car production and other high tech products are seriously restricted by access to crucial commodities that are controlled by the old dinasour mining companies and totalitarian countries like Russia


You might be underestimating the changes that are caused by the EV revolution that Tesla started. For example, one side effect is that way more R&D effort has gone into battery tech, I wouldn't be surprised if we end up with batteries that no longer need lithium or other scarce resources. I heard something interesting related to this recently, but I can't find the source I'm afraid.


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## joe sod (4 Jul 2022)

DazedInPontoon said:


> Energy, food and commodities can generally not be dematerialised, they are not data. So while you might see disruption in them it's not exactly the same kind, but it can still be big and from the outside. It's not farmers that came up with lab grown meat for example, and it wasn't one of the leading legacy car companies that really kick-started the EV revolution.


That goes without saying,  people need to eat real food you can't "dematerialise" food and satisfy people with virtual food.
There was a technological revolution in agriculture after WW2 but nothing much in the last few decades.  The Googles and Facebooks will have little encroachment and little interest aswell in agriculture.

Lab grown meat is ridiculously expensive and very difficult to scale up, even if it did become possible it would require a huge industrial complex to produce . Surely if it is to be a runner it would need to replicate what cows do to convert vegetation like grass to meat. Therefore that would entail harvesting of that vegetation and transporting it to the "meat factory ". That would in itself be an enormous task

If I see the tech companies investing 100s of billions of dollars in electricity generation technology, agriculture and mining I will change my mind. As of now the technology companies are not really interested as you said yourself
They are only interested in picking the low hanging fruit


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## DazedInPontoon (4 Jul 2022)

Yes things that must remain physical such as food are much more difficult to disrupt and will never scale up like software does...so I'd prefer to invest in disruptive software companies who are picking low hanging fruit.


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## fistophobia (4 Jul 2022)

I am not going to say what subset of the index is in positive territory.
Because I was roundly criticised and ridiculed on this website for following this investment strategy.
It is my core holding.


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## Daithi7 (5 Jul 2022)

DazedInPontoon said:


> The disruptions started with the low hanging fruit which is things that can be dematerialised. Previously physical things such as snail mail, media, money, books, photos being replaced by digital counterparts which were more efficient. You can even generalise that to say they're all different forms of data that have a large global user base. Maybe most of this wave is already over.
> 
> When all the data is digital, the next wave of disruption relates to analysing that data and providing services based on it. Your physical map got replaced by a sat nav in your car, that was the data part. Now you can ask it contextual questions like where the nearest petrol station is, or use an even more advanced service such as corrberating data from other peoples cars to know real time traffic situations, and an even more advanced service calculate your optimal route in real time based on that traffic data.
> 
> ...



I think the battery technology you may be referring to are solid state batteries.  These may very well be the next frontier in energy storage.  The economist did a very good feature on this area earlier this year/ maybe late last year,  with the pros & cons of existing & emerging technologies,  and the likely time when they are likely to go mainstream .  Ss battery technologies not quite there yet as a battery replacement iirc, (manufacturing & preservation issues,  etc), so current lithium ion battery technology will be with us for a good while yet. (Again iirc)









						Japanese companies want to win back their battery-making edge
					

They think that solid-state technology will help them do so




					www.economist.com


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## joe sod (5 Jul 2022)

As regards battery technology,  no batteries whether now or in the next decade will be able to absorb the huge amounts of power necessary to replicate a constant load power stations.

The ESB battery banks can at most provide 1 hour power at full load, they are there just to smooth out the variations in wind generation but cannot replace a conventional power station.  That's the enormous technological leap that still needs to be crossed. 

The institute of engineers called for realism on irelands energy security and dependence on imported gas especially since brexit uncertainty and ukraine war. They said of the 5000 MW of installed wind energy  , last week there periods when only 10MW was available the rest had to come from gas . They said we will still be dependant on gas generation for at least the next 2 decades. 

The technological transformation in energy is not the same as data as you come against the fundamental physical laws


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