Climate Capitalists to the Rescue?

Record heat has hit the South. On October 1, it was 101 in Montgomery, AL. Record highs were hit in AL, TN, MS and KY. An acute lack of rainfall has dried out the Southeast as well and residents and farmers are hurting. Planet Earth continues to get warmer.

Look at the chart above showing the changes in temperatures from the 1850s until now. Each stripe is one year. Dark blue years are cooler and red stripes are warmer. The period 1971-2000 is the base line. At the same time, extreme events like Dorian are becoming more severe, more glaciers have died and seas and lakes are getting higher. The climate has changed.

The past century has seen major changes in the world. The Industrial Revolution has brought riches to some, higher standards of living to many, and the population has increased from 2 billion to 7 billion in that last century, and carbon dioxide (“CO2”) emissions have skyrocketed. Fossil fuels have been used to produce industrial power, electricity, transportation, heating, fertilizers and plastic. In 1900 about 2 billion tons of CO2 went airborne. For 2019, 40 billion tons per year will be emitted, with the biggest increase in the last 30 years.   Expanding use of fossil fuel and related increasing emissions of CO2 have gone hand in hand with the expansion of world growth. See the chart below.

GDP CO2

We humans also produce CO2, breathing and eating.  Trees and plants absorb CO2 and, with sunlight and water, convert it to food.   Compared to 1900, we have 5 billion more humans, expanded use of fossil fuels and, because of deforestation, we have less flora to absorb the CO2.

The first half of the 20th century scientists believed that almost all of the CO2 given off by industry and humans and not absorbed by plants would be sucked up by the oceans.  By 1965 oceanographers realized that the seas couldn’t keep with the CO2 emissions.   Climate change shouldn’t come as a surprise; we’ve known about it for decades.

There are lots of predictions about the impact of climate change in the future. No one can predict the future. But certainly, as our beloved Yogi Berra always said, “The Future is not what it used to be.”

The Economist recaps it this way: “Climate change is not the end of the world.”  Humankind is not poised teetering on the edge of extinction.  The planet is not in peril.”  However, climate change could be a dire threat to the displacement of tens of millions of people, it will likely dry up wells and water mains, increase flooding as well as producing higher temps and more severe weather.  The Economist concludes that “the longer humanity takes to curb emissions, the greater the dangers and sparser the benefits-and the larger the risk of some truly catastrophic surprises.”

Addressing climate change will also provide substantial business opportunities in the coming years.  Already some countries are abandoning coal to generate electricity. Britain, e.g., has developed a thriving offshore wind farm industry used to generate power. Germany recently announced that it will spend $75 billion to meet its 2030 goals to combat climate change, primarily in the transportation area with electric vehicles.

In addition, “climate capitalists” want to do good for the planet and well for themselves.  Elon Musk has invested billions into batteries and electric vehicles.   Chinese BYD’s Zhenzhen sprawling campus is a major provider of solar cells, electric cars, heavy machinery and other items needing energy storage.  Warren Buffet has invested $232 million into BYD.  American billionaire Philip Anschutz has spent a decade promoting a $3 billion high-voltage electric grid. Bill Joy, a co-founder of Sun Microsystems, is now backing Beyond Meat, a maker of plant-based alternatives to burgers.  Microsoft’s Bill Gates established a $1 billion company to bankroll technologies that “radically cut annual emissions.”  Even Pope Francis is using the Vatican Bank’s $3 billion fund to help fight climate change.

The UN’s one day climate summit last week concluded with a number of new announcements.  65 countries and the EU have committed to reach net-zero carbon by 2050.   Unfortunately 75% of the emissions come from 12 countries and 4 of them, India, American, China and Russia made no commitment.  However, certain businesses such as Nestle, Salesforce and have made commitments to reach net-zero by 2050 or before.

2050 will be here before we know it.  Yet, technological change can be adopted quickly, particularly when people are provided a better alternative.  In America, the shift from horse-drawn carts to engine-driven vehicles took place within a decade, from 1903 to 1913.  Let’s hope climate capitalists all over the world do well for themselves and good for planet as soon as possible and we humans and our countries do our parts as well.

 

Stock Markets in an Election Year

Stock Markets in Election YearsElection years have traditionally been good for the markets. Since 1928, there have been 21 elections and the S&P index has had a negative return during an election year only three times. Of course, 2 of those 3 negative years were 2000 and 2008. Hence, there may not be a pattern and, even if there was, the pattern may not be relevant to the decisions we are about to make.

Business Week had a great series of graphs in December showing how correlation and causation are often erroneously linked. They suggest that creating statistics is easy: all you need is two graphs and a leading question to “prove” whatever you already believe. For example, did you know that babies named Ava caused the U.S. housing bubble? Well, if you graph the number of newborns that were named Ava each year starting in 1991 until now and compared that graph to a graph of the housing price index over the same time, there is a significant correlation. After 2006, Ava, for whatever reason, has become a significantly less used name for newborns. Of course, this significant decline was very close in percentage terms to the decline in the housing market at the same time. Here’s another one: did you know that Facebook is driving the Greek Debt Crisis? Again, if you graph the Facebook stock price since 2005 and compare them with the yield (interest rate) on Greek debt until now, you will find a very strong correlation. There may be a correlation, but there is certainly not causation.

In a similar way, the performance of the stock and other markets has little to do with an election year. Typically, when an incumbent is doing well in the polls it is because the economy is doing well, unemployment is low and companies are generating solid earnings. These causes drive the stock market higher and make Americans feel more secure. Conversely, when economic conditions are weak and unemployment is high, the stock markets don’t perform as well and challengers have a better chance of winning. 

Mr. Market doesn’t get into politics. He’s not a Republican or a Democrat. He’s more like radio and TV detective Sgt. Friday from Dragnet who reportedly wanted “Just the facts…” Current data and expectations concerning consumer spending, unemployment, corporate profits home and abroad, housing, inflation, world events and many other data points cause the markets to move. This information does two things- impact the markets and affect who may be elected.

Election year politics  have become a huge spectacle. Yet, Mr. Market really pays little attention to all the promises, conflicts, hype and media show. He, instead, stays focused on relevant facts and moves accordingly.