11/27/2012 7:00 PM ET|
Profit from climate catastrophe
The man who predicted the dot-com and housing busts has a new warning out. Here's how investors can act on it.
If you believe climate change is real, and you want to profit from the possible end of the world, you should go out now and buy big energy stocks.
This is the remorseless conclusion of the latest quarterly letter from Boston-based money management guru Jeremy, aka Jeremiah, Grantham.
More on that in a moment.
Grantham's quarterly missives are required reading in the financial world. (They are available for free at the GMO website, though you have to register.) He warned against both the dot-com and housing bubbles before they burst, and on both occasions was among the few voices crying in the wilderness. In recent years he has been warning about the impending disaster of climate change or global warming, with similar success.
Grantham's latest letter, contains astonishing and alarming news. The U.S. economic growth rate is collapsing, he says, and this is not a temporary thing. "The U.S. GDP growth rate that we have become accustomed to for over a hundred years -- in excess of 3% a year -- is not just hiding behind temporary setbacks," he warns. "It is gone forever. Yet most business people (and the Fed) assume that economic growth will recover to its old rates." He says this is a trend that has been developing for several decades. It was masked by the dot-com and housing bubbles, and by a wave of women entering the workforce from 1970 to 2000.
He expects future growth to be about 1% a year after inflation, and warns that rising costs of scarce raw materials -- energy, metals and foodstuffs -- may strangle even that. Grantham fears growth might turn negative, and stay there, within about one to three decades. We will enter a very different world -- one in which effectively everything is recycled.
We forget that productivity growth is a new thing: It was virtually nonexistent in human history until about 1850. It may get back there again.
But what about oil stocks?
Grantham notes that the evidence of global warming is now inescapable. We've had three bad harvests in a row. Of the 10 extreme floods to have hit New York City since 1920, three have occurred in the last two and a half years. Arctic ice has lost 75% of its volume in thirty years. It may all be gone within a decade, Grantham notes.
And now for that math.
Manmade emissions of greenhouse gases since 1850 have raised global temperatures by about 0.8 degrees Celsius, notes Grantham. Once that number hits 2 degrees, we're in deep trouble on global warming.
How much greenhouse gas would we have to emit to hit 2 degrees? Grantham says science allows us to calculate the figure at 565 gigatons.
Yet the proven underground energy reserves of the oil, gas and coal industries, if used up, would emit 2,800 gigatons, or five times that level.
So if the oil, gas and coal industries use up more than one fifth of their proven energy reserves -- even ignoring further discoveries -- we're into the red zone.
And here's the kicker. "We know that to be even a little safe we need 80% of these proven reserves to be left in the ground," writes Grantham. Yet "the market value of oil companies is about equal to the perceived value of their reserves."
The chance these companies would ever willingly agree to keep 80% of their reserves underground, as Grantham notes, is minimal.
No one is likely to force them to, either. According to the Center for Responsive Politics, oil and gas companies alone gave $59 million in campaign contributions in the last year, and spent an additional $149 million on lobbying. They employ 795 lobbyists. (Who says all the good jobs have gone to China?) And that doesn't count propaganda. Just think of those commercials on TV, funded by coal companies, in favor of "clean coal" -- an oxymoron and a phrase Grantham says is worthy of Hitler's minister of propaganda, Joseph Goebbels.
Grantham's conclusion, to summarize a little, is that we are all in deep trouble because the energy companies would never agree to rein in their profits for the good of the planet.
The cynical might add: People are most in trouble if they (a) have children and (b) don't own energy stocks to cover their own rears. After all, those companies will own a valuable, vanishing resource in a world they dominate politically.
The simplest way to buy them is through the iShares S&P Global Energy (IXC) exchange-traded fund, which owns a basket of top U.S. and foreign energy stocks.
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I think the take away from the article is that energy is going to get more expensive. That's not big stretch. Invest accordingly.
The world is getting warmer. It has done so in the past before we were here and will probably do it again. Pumping carbon into the air doesn't help but it isn't the only cause.
Oil companies are "energy" companies and they want you to use their brand of energy the same way fritos wants you to eat their brand of chips. When they start cornering the market on solar panels, you'll know the end is near.
The oil companies sell a product that is slowly disappearing so they want to meter it out at the most profitable rate they can without inducing you to switch to alternatives. At some point, alternative energy will make economic sense and the oil companies will simply not be able to compete.. They want that to happen later rather than sooner.
Who cares? Is anyone actually going to change the way they live drastically enough to change anything? No. I think they should quit with fossil fuels too, no one needs cheap medication, shoes, food, anything electronic, etc.
Earth is much bigger and older than 100 years of climate data can show. Humans may cause the climate to hiccup but it it doesn't really matter because climate is not static. Read a historical geology book. One day humans will be gone, just like the large ice-age mammals before us and nothing on this planet will care. Worry about yourself and quit crying about what others are doing. I would be surprised if even the greenest of greenies is without something derived from the use of fossil fuels.
I think the Democrats in Washington and elsewhere want to have their cake and eat it too. You brought out the gist of the problem that this President is all for. Shut down all oil, gas and coal production and in the meantime, give all those out of jobs free stuff.
That is how you control people without firing a shot.
I agree with the author saying that the oil companies will use up as much hydro carbons as they can for profits and the amounts of hydro carbons are getting limited.
That is what they are in business for and if we are really concerned about global warming, why would he come out and tell us to buy stock in oil companies if they will not sequester or reserve their sources? He is telling us the oil companies are bad for not doing this, but we are good if we buy their stocks. Seems a little off to me.
Only eleven (11) thousand years ago, the northern Hemisphere was under a 2 mile high glacier down to around mid US latitudes. Mankind may be polluters, but this global warming has been occurring since the last ice age. This may continue for another 11,000 years or so until the ice age cycle is repeated.
Like being the coldest just before dawn, it is warm well past night fall. We are in the just getting to the night fall stage of the last ice age on Earth. So we can expect a warming spell for many more centuries to flourish. One good thing about it is, we may not need heat to keep us warm at night even in the higher latitudes. So much for carbon fuels.
All this could go away in a matter of days if a few mega volcanoes erupted. It only takes mother Earth a few minutes to fill the sky with enough shade to turn us all into meat popsicles.
If they leave 80% of the reserves in the ground the price of gas will skyrocket and that will slow the economy.
Oil and coal provide a lot of our electricity, how much more would it cost if we leave the coal and gas where they are?
We do not have the no emission nuclear plants on line to provide for electricity, so we can either have power generated by gas and coal or we can have no power, what do you think people will choose?
As humans we have a few very dangerous tools; limited intelligence and arrogance. Erring on the side of caution is as wise as adopting a society based on sustainability rather than perpetual growth. At present, we have all the air, water, and dirt we ever will, but population and pollution are growing at an ever increasing pace. It simply can't go on like this forever without consequences.
Mostly BS. Remember that "Prior returns do not guarantee future results."
The biggest part of that calculation is all about coal. The best way to keep the coal in the ground and reduce its use, until renewables can be properly developed, is to use abundant natural gas. Already low natural gas prices are reducing the use of coal for electricity production, and could reduce oil usage too if we get fleet trucks and buses off diesel and onto natural gas.
Disclosure: I don't own any of these stocks, nor do I work in this industry.
The real answer id to cut consumption by 75%, use clean homemade energy in small energy efficient homes. And stop your freaking shopping for useless crap. You need what you need to live on and be comfortable and thats all anyone needs....PERIOD.
Getting a little warmer and water levels and a few storms here and there are just the tip of the iceberg.
Granthum needs get with current lingo - Global Warming has been proved to be a fraud & so now liberal/environmentalist have switched to "Climate Change". The real Profit motive in all this is Clean Energy companies going broke even with subsidys because they arent ready yet & cannot compete against cheap fossil fuels. The real push here is for another round of Koyota Treaty renewal 2012 - the most failed enviromental effor in history! None 18 signature countries made any of their easy goals thru 2012 & by excluding "developing countries" - China/India/Russia are now our #1/#4/#6 global pollution emitters - dumb stuff.
FIrst CO2 is not a pollutant - its one 5 gases we need sustain life on Earth - the 12 active volcanoes (and sea rift) emit more greernhouse gases that all man made & animal life combined ........ and least we forget the 2 iceland volcanoes that went off last year (sort once 40,000 yr event) spiked the last "little ice age" in US before/during revolution.
Normal state of Earth is frozen iceball with 100,000 year ice ages broken only by 10-20,000 year warm periods & we are end of current one - recent discovery of true meanings of tree rings suggest we been cooling state since Romans nearly 2000 years ago! Better worry about eating ice & getting Mexico visa not Global warming stupidity
However, that being said, the hardest thing for me to understand about humans is that those with young children and/or grandchildren, those who will try to survive through the hardest times the world has ever known, are among those who carelessly squander resources and fossil fuels without regard to the eventual suffering of their own blood! That is the pitiful state where our short term emphasis on the most comfort and pleasure in life has gotten us............collective insanity..
We won't know one single "energy" pariah in business today- in 10 years. We have no choice but to crush them and their lobbies and push as hard as we can to refit America with self-sustaining and self-reliant aspects. The 20th Century will be remembered for it's "sugar product" addictions, not for commonsense predictions.
So what if the sea levels rise. Buildings have a life span about as long as people. Rebuild inland when the time comes. Start now by denying permitting for Sandy's repairs in flood zones and new construction in flood zones. We can permit permitting for beach projects if the builder pays for all costs and flood insurance is priced correctly at private market rates. This seams to be less expensive than Carbon Credits. Let the oceans naturally rise instead of my taxes rising, paying for every problem associated with people who live next to oceans.
At least this would do away with the "no parking except residents" signs and the private arrogant beach association security guards and allow us poor people access to the beaches.
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