The Climate Change Trade: Your Portfolio May Never Look the Same

Apr 17th, 2012 | Filed under: Alpha Strategies, Today's Post | By:
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The Negative Alpha of Flies

A lot of problems get solved when you understand natural tendencies.  Everyone has had the experience of a single buzzing fly in the house on a summer night  We used to run around with a newspaper while the fly laughed, until we remembered that flies gravitate towards light. So when a rogue fly appeared in the evening, we would turn off all the lights and open the door to a small lighted room.  The fly would fly into the room, we would close the door, and summary execution soon followed.  It’s easier to get flies or people to move in the directions they’re predisposed to move.

With no disrespect intended toward the flies, just as flies move towards light, so investors move towards the prospect of profits.  And they generally don’t expect to get whacked either.

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Author Bio:
Doug Friedenberg has a knack for taking esoteric financial topics and rendering them merely obscure. He is principal of www.jigsaw-capital.com, which arranges asset-based finance for small and mid-sized businesses.

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  1. [...] The Climate Change Trade (AllAboutAlpha) [...]

  2. As a portfolio manager AND a meteorologist, I find most of this minor and irrelevant. Sure, climate change is happening. Sure, humans are probably the most likely driver of climate change. Sure, the issue is political and that often trumps science. However, the temperature has gone up at most 0.6 deg due to humans over the last 80 years. Computer forecasts of climate change have consistently and dramatically over-stated the warming and sea level rise. There has been no detectable increase in extreme weather events. That’s right. Just because there has been a dramatic increase in 24/7 news hype about weather doesn’t mean that there has been an actual increase in extreme weather. Hurricanes ? No. Floods? No, Heat waves? Cold snaps? No significant change on a worldwide basis. Any scientific paper that has said otherwise is either obviously flawed or regional, not global.

    Also, the various “solutions” to this non-problem generally will have virtually no impact of climate. These “do nothing” solutions will have tremendous costs.

    Plenty of “global warming skeptics” are illogical, in denial, political, and anti-science. However, there is another group of skeptics…scientists. Most scientists being funded by climate change research grants fall into the alarmist camp. But those of us not on the climate change dole tend to be very skeptical of climate change disaster scenarios. The issue is real but just not very scary to me. Far scarier to me to me was a recent scientitifc paper suggesting that solar forces would cool the earth between 2014 and 2050 in much the same way that global cooling led to the “Little Ice Age” (roughly 1550 AD to 1850 AD). Not being competent in astronomy, I can’t adequately evaluate the findings, but solar research is gaining prominence in the debate despite being dismissed by alarmists.

    The issue is complex. Others disagree with me. Read different opinions. Ignore the political debate. Believe nothing you read. Understand that climate science is in it’s infancy and someday, we will look back and realize how little we knew and how stupid our cocksure opinions were.

  3. Are meteorologists the “blondes” of the scientific community?

    Two articles that shed light:

    http://www.nytimes.com/2010/03/30/science/earth/30warming.html

    http://tigger.uic.edu/htbin/cgiwrap/bin/newsbureau/cgi-bin/index.cgi?from=Releases&to=Release&id=2389&frommain=1

    The latter reports on a study of scientists and their attitudes towards climate change, which found ” near-unanimous agreement by climatologists. They’re the ones who study and publish on climate science. So I guess the take-home message is, the more you know about the field of climate science, the more you’re likely to believe in global warming and humankind’s contribution to it.” The same author of the study also noted: “Most members of the public think meteorologists know climate, but most of them actually study very short-term phenomena.” Meteorologists, by the way, were one of the biggest doubters on climate science.

    We asked Gernot Wagner for his thoughts on the Bjerknes comments. He pointed to a couple of other pieces:

    http://www.ipcc-wg2.gov/SREX/images/uploads/IPCC_Press_Release_SREX.pdf

    http://www.forbes.com/sites/mindylubber/2011/11/23/ipcc-report-confirms-what-businesses-already-know-extreme-weather-climate-change-has-economic-impacts/

    The first is a press release from the IPCC, in which you can note how carefully scientists present their conclusions, in contrast to the Bjerknes statement: “There has been no detectable increase in extreme weather events. That’s right. Just because there has been a dramatic increase in 24/7 news hype about weather doesn’t mean that there has been an actual increase in extreme weather. Hurricanes ? No. Floods? No, Heat waves? Cold snaps? No significant change on a worldwide basis. Any scientific paper that has said otherwise is either obviously flawed or regional, not global.” That writer must not have noticed also the DoD remarks to the contrary cited in our article.

    We surmise that a possible insight into the discrepancy between climatologists and meteorologists may be found, fondly enough, in the investment community, where there is a bit of divergence between short-term traders and long-term investors. Short term traders are oft profoundly uncomfortable with the idea of tying up capital for what would seem like eons. Longer term investors may not get why anyone would try to scalp trades over and over again.

    So it’s possible that the requirements of assessing a seven-day forecast obscure the broader issues of climate change, partly because it truly is difficult to “predict” to the degree that meteorologists are accustomed.

    Does that make meteorologists “blondes”?

    We think not. But we could be wrong.

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