Monday, June 19, 2006

Investing in a Hothouse World

I often lament to some friends that I don't understand why a few souls don't seem to get the whole "global warming" thing. For those of us in the great white north (Canada), we are well aware of how dramatically our winters have changed over the past twenty years.

Because of this dramatic change, most folks here don't subscribe to any of the junk science school of thought claiming that global warming is either:
  1. Not occurring, or
  2. Due to naturally occurring phenomena
To most of us Canadians, it's pretty clear what's going on. Recently, asset manager Eric Sprott of Sprott Asset Management, a firm with $3.4 billion under management, weighed in with a 56 page missive, entitled Investment Implications of an Abrupt Climate Change. In that document, Mr. Sprott says it's "shockingly clear" we've caused a spike in greenhouse gases, and further says that ...
"We are now in uncharted territory and may well be on the cusp of a warming of the planet at a rate well beyond what can be predicted using our limited knowledge of history."
Mr. Sprott considers further trends such as the massive industrialization of much of the world's remaining rural populations, and other trends in place as not projecting a bright future for the planet. Water shortages, food shortages, droughts, too much rainfall in places, rising sea levels, ever accelerating weather change, etc. Pretty much the usual bane of stuff that we manage to ignore every day, without too much thought or effort.

In any case, a goodly portion of the paper is directed to current statistics, events, and trends relating to global warming. (But I must tell you I learned something new: the paper suggests that the melting of the permafrost and its' sequestered methane gases as being an absolute tipping point - page 25 is a must read page).

By page 28, Mr. Sprott arrives at the investment risks and opportunities. He suggests the following sectors are at risk, if there is a 20% emissions constraint regulated:
  • Automobile
  • Chemicals
  • Electric utilities
  • Metals and mining
  • Oil and Gas
  • Banks (some banks have high rates of commercial loans, whose clients may be subject to various types of business risk from global warming)
Unfortunately, Mr. Sprott doesn't offer too many investment opportunities. He points to obvious ones, such as nuclear, wind and solar power as being some. He suggests however, that the ethanol craze is just adding to the global warming load (production of ethanol fuels requires more energy inputs than they produce), and that hydrogen as a fuel isn't quite ready for prime time. He suggests that micro power projects may offer some potential as well.

Finally, he suggests a hyper-inflationary environment could ensue at some point, thereby accelerating demand and prices for commodities in general, and gold in particular.

As one sentence in the document points out, a Swiss Re (insurance) executive stated that ...
"Global warming has accelerated from a problem that might affect our grandchildren, to one that could significantly disturb the social and economic conditions of our lifetime."
In light of this, may I suggest one further solution we can provide as investors? Perhaps directly investing a very small portion of our investable assets, towards some source of lowering the warming load. Whether this is in a company that is in nuclear, solar, wind power, or any other investment that lowers or reduces the warming load, it doesn't really matter. By helping to provide more abundant equity available, we'll help spur the advance of technologies to save the life of this planet. Sometimes we have obligations beyond that just of short-term investors - we have obligations as human beings.

May I suggest 1/10 of 1% of your investable assets this year, or a minimum $100, increasing by a similar amount every year for nine more years? Consider it a donation - a donation in an area we have special knowledge and awareness in - the investment field. If we wait too long, the cost may be far, far too high.

The Confused Capitalist


Anonymous said...

Jay, I like you but I think your logic about GW is flawed for 2 reasons. 1. Humans are not that important. 2. Regular fluctuations in global temperatures have been occuring since before humans were created (or evolved, if you prefer). #1 is my opinion. #2 The proof of the second point is embedded in all kinds of scientific literature all around you if you show the willingness to seek it out and read it. Tom in Indy

Jay Walker said...

Thanks for dropping by Tom.

Again, I've had this discussion enough to know that not everyone is going to agree with it. But the scientific community is pretty certain what is occurring - and why - although there are - as with anything - some dissenters.

The Intergovernmental Panel on Climate Chnage (IPCC) - probably the best "blue ribbon" panel of scientists - has looked at this issue and they are becoming stronger and stronger in their language about the effect, and possible outcomes. Not good.

Anyway, not everyone will ever be convinced, and I can live with that.


Anonymous said...

I have read much of the scientific literature to which you speak. My argument is based on perspective. Perspective in time and perspective in what mans place on earth (and in this universe) is. The temperature variations have occured before. This is not a unique event. Mankind, as a species, will be destined to become extinct at some point. Whether this occurs from our own hand thru climactic change or a biological vector or from a wayward body from space only God knows. It is postulated that the Neandrethals were killed by our ancestors. Maybe we (as a species) will all perish at the hands of Homo Superior. How long are your daylight hours? Happy Summer! Tom in Indy

Anonymous said...

Jay, I think you dismiss the dissenters on global warming too readily. Just two weeks ago, a chief argument for global warming (the "hockey stick" graph showing warming from AD 1000 to present) had to be shortened to 1600 to present because of poor data. And contemporary books in the 1600s cite that as the "Little Ice Age."

I read Sprott's report and think there may be some interesting investment ideas, but overall, I am not unconvinced.

Link to article below, replete with links to original sources: