“The earth is not getting warmer. It’s getting colder. The climate Nazis at the UN admitted this week that their claim that the Himalayan glaciers are melting away was false. I may as well have said the Great Salt Lake is going to turn to sugar.”

Jim’s put together a “Little Ice Age Portfolio” as a response to the climate change hysteria. But the investment response is secondary to the seriousness of the issue, he says. “There’s very little evidence that rising carbon dioxide levels lead to rising temperatures. It’s more likely — as temperature records show — that changes in climate are correlated to solar activity and sun cycles. Imagine that.”

“If it were true that reducing carbon dioxide emissions into the earth’s atmosphere reduced the earth’s temperature, it would be a bad idea to do it. In the Dark Ages, another period of lower solar activity, the Nile River froze. On the other hand, Rome prospered because agriculture thrived and you could grow grain in Carthage.”

“In a colder world, Canada would be an iceberg and one of the great grain growing regions of the world would disappear. People believe that because farmers plant a crop, it will be harvested and the modern world can live on a diet of high-fructose corn syrup that malnourishes people and makes them fat. But in another Little Ice age, hundreds of thousands of people would die if the world’s grain growing regions marginally declined. Billions would die if the impact was more severe.”

“The Black Death hit Europe in the Little Ice Age, too. Lower crop yields reduced the quality and quantity of nutrition available. This weakened immune systems and made people more exposed to infectious diseases. Why, if you’re a humanitarian, would you pursue a public policy that pushes a billion people who are already on the edge of starvation into outright famine?”

“If winter comes early or stays late, whole crops will be wiped out. Reducing the output of food — something that would result from a colder Earth — is evil. It’s based on non-existent science in which people forecast things that may happen centuries from now based on their ideological resistance to prosperity. They are trying to force down living standards in the Western world based on their own guilt about prosperity and income inequality.”

“Global warming just another phrase for good weather. If it’s true carbon dioxide emissions warm the planet, we should burn more coal. You can tell the science is dubious because you now have a bizarre feedback loop in which warming makes the world cooler. It’s rubbish.”

“The big risk in the discrediting of the global warming crowd is that it could discredit other, more legitimate concerns about the climate, like the huge amount of harmful chemicals in our water supply. The persistence of dangerous chemicals in our recycled water is something to be really worried about. You don’t want the environment to turn into a sink for man-made chemicals.”

There was much more to report. But we’ll have to leave the rest for another day. Jim is hard at work on the January issue of Strategic. He’s analysing the possibility of a fiscal collapse in the United States, and where investors can seek refuge before it happens.

Until then…

Regards,
Dan Denning
The Daily Reckoning Australia

January 22, 2010

Contrarian Climate Change was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Doug: Global warming. People like my fanatical neighbors here in Aspen seem perfectly willing to undo centuries of progress because they are completely delusional about global warming. The People’s Republic of Aspen is an epicenter of political correctness.

L: Don’t hold back, Doug, tell me what you really think.

Doug: [Chuckles] Global warming is the most prominent form of mass hysteria raging across the world today. Kids in school these days are almost afraid to breathe, because it will “increase their carbon footprint.” It’s quite amazing, the way carbon, the element all life is based on, has replaced plutonium as the enemy-element. It’s as if the chattering classes are making war on the periodic table of the elements.

Meanwhile, they’ve been changing the cry from “global warming” to “climate change” because there’s so little evidence there’s actually any warming going on. I believe that as little as a decade from now, global warming will be recognized as one of the greatest swindles in world history. It has so little scientific basis, it can only rationally be considered a political scam.

L: If that’s true, will the scam ever be revealed? There was a silly movie – I believe it was called “The Day After Tomorrow” – in which global warming caused the world to suddenly freeze over. If people are willing to think that’s possible, and the only thing certain is that things will change, and any change can be blamed on people, perhaps the con job can be maintained indefinitely. It could become a perpetual guilt trip aimed at the population, just as useful as the one certain churches used for centuries to control people.

Doug: Yes. I think Roseanne Rosannadanna of Saturday Night Live said it best: If it’s not one thing, it’s another. It’s always something.

There’s a professional class of hysterics in the world. They are the same type of people who were walking around in the Middle Ages in sack-cloth, throwing ashes on themselves, saying that the world was going to come to an end.

The world will come to an end, of course, maybe even before the sun dies in about five billion years. But these people have no perspective at all. They don’t realize that the earth is just an insignificant ball of dirt, in a nothing/nowhere star system, in a nothing/nowhere galaxy – of which there are billions, each containing billions and billions of stars. And that’s just in this universe. There’s reason to believe that there’s an almost infinite number of universes like ours, with new ones being created virtually every second.

And these people are worried about changes in the biosphere of this one, tiny little planet. To me, it makes no sense.
But dropping from the sublime, cosmic scale down to the local level, it’s still completely ridiculous.

L: Okay, let’s talk about that. What are the facts? How ridiculous is fear of climate change?

Doug: Contrary to the blatantly untrue statements these people make about the science being “settled,” if the science indicates anything at all, it indicates that anthropogenic global warming is not significant. Remember, the question is not so much whether there is any warming – which is another question – but whether human activity is a major, or even significant, contributing factor to global warming.

Of course men can have an effect on the planet. We have wiped out numerous species that we know about, just in historic times, like the dodo, the passenger pigeon. And we almost did in the North American bison. Of course we have an impact, and people do make mistakes. It’s unfortunate. And because of the butterfly effect (because of quantum effects, tiny changes can have huge consequences, such as a butterfly flapping its wings on one side of the world resulting in a hurricane on the other side), humans could have a big effect on climate change – but so could everything else. The point is that there are other factors that have orders of magnitude greater impacts on the earth’s climate, things that are tens, hundreds, and thousands of times more important to the climate than anything mankind can do – perhaps even including a major nuclear war.

Fear is being used by the political class as an excuse to accumulate more power and self-importance – and collect a lot more taxes to support their agenda. Instead of being stampeded into the dark fantasy, we should focus on increasing our wealth and our knowledge. Eventually, mankind’s fate will depend on our technological advancement. Nature teaches us – not that many environmentalists listen – that we need to colonize the rest of the solar system, and beyond. Mankind must diversify, so all our eggs aren’t in one planetary basket.

But as an aside, I have to say I’m not sure I care if mankind is going to survive – I’m not sure why anyone should care, since most of us aren’t going to live more than three score and ten years anyway. Perhaps the world ends when we end… Mankind’s future seems beyond any individual’s concern, at least beyond the lifespan of your immediate friends and family. Too much worrying about things beyond your control can turn you into a busybody.

L: You’re speaking as one with no children. Having children, I have a different view on that.

Doug: How about your great-great-grandchildren, whom you’ll probably never meet?

L: I’m not so sure about that. Life is already longer than it has ever been in history, and medical technology keeps advancing. And that’s not even getting into nanotechnology. I believe my generation may live for centuries, aside from violent death and acute, fatal illnesses.

Doug: Well, I’m sympathetic to that view. But the morality of caring for one’s posterity is a philosophical issue we can perhaps discuss another day. For now, I’ll say that I don’t like to think of myself as a survival machine for my genes – so I don’t give a damn what happens to my genes. I have my own plans. The consideration I would have for my children, if I did have any, would be reserved for those who earned it as individuals, not just because they’re my children.

L: I recall your Roman attitude about that, but that’s also a conversation for another day. Back to global warming… it’s been a while since I’ve researched this, but I seem to recall that the latest actual science is that there has, in fact, been some warming recorded in the Northern Hemisphere over the 20th century, but there’s insufficient data on the Southern Hemisphere, and the warming has been less than the global-warming models predicted.

Doug: Well, as I understand it, for the last five years or so, it’s been getting cooler, not warmer, and that’s entirely apart from the fact that back in the 1970s, all the magazines were showing pictures of glaciers toppling over the buildings of New York, because we were going into a new ice age. Even measuring the temperature is problematical, since many historical sites that were once isolated are now surrounded by civilization. It’s impossible to cover all the bases in a brief conversation like this, because there have been volumes and volumes and volumes written on this.

But look, the climate on this planet has been changing since Day One. When the solar system was formed, our best guess is about 4.2 billion years ago, things were very, very cold – as cold as deep space. Then, after the sun ignited, things got very, very hot. And, in essence, things have been cooling ever since.

Remember, there have been numerous ice ages, starting with a first period of glaciation thought to have occurred about 2.3 billion years ago, during the early Proterozoic eon, after the appearance of oxygen in the earth’s atmosphere. There was one that lasted over 200 million years, from about 850 to 630 million years ago, called the Cryogenian period, in which the ice caps may have met at the earth’s equator, covering the planet completely. Geologists actually define the earth as being in an interglacial period of the most recent ice age (the Quaternary glaciation), which started about 2.6 million years ago, during the late Pliocene. Ice sheets have advanced and retreated every 40,000 to 100,000 years or so, with the last glacial period, which covered North America and Europe with glaciers thousands of feet thick, having ended only about 10,000 years ago. So it’s no surprise that the climate has been generally warming since then.

So, the climate has gotten hotter, then cooler, hotter, cooler… And for the last 10,000 years or so, it’s gotten warmer. That’s the fact of the matter – and generally, warmer is better. The whole of the earth’s existence is marked by changes in climate. It happens naturally.

L: Why?

Doug: There are lots of reasons. One is cosmic rays, which is to say, radiation coming from billions of stars, light-years away. Cosmic rays have a huge impact on cloud formation. And cloud formation has a huge impact on the climate.

A second reason is changes in the ocean and its currents. The ocean has vastly greater mass than the atmosphere, so it’s a far greater heat-sink, and its currents have a major influence on climate.

Another is volcanism. Just in historic times we’ve seen major climate impact from volcanism. For example, there was Mt. Tambora, the most powerful volcanic eruption in history, which happened in April of 1815, killing thousands of people directly and tens of thousands indirectly through starvation. The eruption altered global climate so dramatically, 1816 became known as The Year Without a Summer, as crops and livestock around the planet were wiped out. Just one of these big eruptions, by the way, can dump more toxic pollutants into the atmosphere than man has created in the entire industrial age.

L: I happen to have been kicking rocks recently in a caldera in Idaho that was the location of the last eruption of the Yellowstone hot spot, before it blew the current Yellowstone caldera into existence. By way of comparison, Mt. St. Helens blew 0.7 cubic kilometers of rock into the air, covering half of Washington with four inches of ash. The eruption that created the caldera I was standing on blew about 1,000 cubic kilometers of rock into the air. Such an eruption, today, I was told, would kill everything as far away as Chicago.

Doug: Right, and imagine all the gases that would go with that. Sulfur compounds and the like – you want to talk about ecological disasters! And these ninnies are bicycling and recycling to save the planet from our puny little smoke-stacks. When something like the potential volcano under Long Valley caldera at Mammoth Lake in California or the Yellowstone caldera blows – and that could be two years from now, or two thousand years from now, nobody knows – it’s anticipated that these will be among the largest volcanic eruptions ever. And that’s just picking two in North America.

L: I remember a park ranger in Yellowstone telling my family that, in geological terms, the next Yellowstone eruption is overdue.

Doug: Yes, and there are other situations like that. Consider the near statistical certainty of the earth encountering a piece of space debris large enough to have an impact on the earth’s climate. The last one we know of was the Tunguska event in 1908, which is thought to have been caused by a meteor only a few tens of meters across and still leveled almost a thousand square miles of trees.

Worse than sticking their heads in the sand about this, these people are trying to stop science from progressing, ruining everyone’s lives in the here and now in the process. They think they are saving the planet, but in the end, the planet’s fate is out of our hands, and their obstruction could keep people from getting off this planet while they can.

But we haven’t talked about the main thing – and really, ultimately, the only climate change variable that really matters – which is the sun. Relative to the sun, everything else is totally trivial. Which, much as deluded believers in the omnipotence of the state might not believe, is beyond the power of human governments to regulate. To me, this is really the proof that the whole climate change thing is just a scam perpetrated by the ill-informed and ill-intentioned on the ignorant and the credulous.

L: What, specifically, does the sun do that swamps other effects?

Doug: The sun has a number of cycles it goes through, the sunspot cycle, for example, that have a huge impact on the earth’s climate. The sun is essentially all that keeps the earth from being an iceball a few degrees above absolute zero, so any change in it has major consequences for the earth.

The climate change people forget that within this pattern of warming and cooling, modern man only really came on the scene in the warming period after the last period of glaciation ended 10,000 years ago, and civilization has only been around for less than 5,000 years – which has generally been a period of global warming. Interestingly enough, the collapse of the Han Dynasty and the Roman Empire coincide with a period of global cooling, resulting in what’s commonly called the Dark Ages. And then we had the medieval warm period – when wine was grown in England and crops in Greenland – that ended with the Renaissance. Fortunately, technology had enough momentum by then that we kept advancing through the Little Ice Age, which ended only about 150 years ago. Things have been warming up since then.

Global warming hysterics generally have limited scientific knowledge, and of geology and meteorology in particular. Their belief is not science; it’s more akin to religion. The main epicenter of hysteria is not the scientific community but seems to be Hollywood. The charge is being led by actors and celebrities given free access to the pulpit by the talking heads on the various entertainment media – and you’re kidding yourself if you don’t think news shows are primarily entertainment. Through the intellectual lightweights that populate most of our classrooms, their ideas spread to our kids, and they filter up from the kids to their parents, who end up feeling guilty about something they don’t understand.

One of the worst things about all this is that it may in the future discredit science itself in the eyes of the common man. When it becomes clear to everyone that the whole global-warming scare is as silly as the tin-foil hats of the 1970s, people could mistakenly think that science itself is silly, because of all these people claiming science proves that anthropogenic global warming is real.

L: Well, maybe. But people don’t believe the sun revolves around the Earth anymore either. Lots of “scientific” notions change without damaging science itself.

Doug: True enough. But unfortunately, anthropogenic global warming has become the scientific issue. And worse, today most funding for science comes through government. That means that you have to be known to be sympathetic to conclusions that are acceptable to the political classes. It’s a shameful thing, and many scientists will deny it, but a lot of today’s research is politically biased. They like to think they are unbiased, but they all know what’s more and what’s less likely to get funded – and what politically incorrect words at conferences and budget meetings can get funding cut. It’s only human for such opinions to have an effect – which is why scientists use double-blind experiments when the beliefs of the researchers themselves can sway the outcome of experiments.

If you don’t robotically accept and parrot the “fact” of anthropogenic global warming, you’re looked upon as the moral equivalent of a holocaust denier. I’ve heard members of the chattering class actually come out and say things like this.

L: But this is science. In spite of the peer pressure and such, shouldn’t the facts lead to correct conclusions?

Doug: They should, but science is no longer the province of individual researchers. A rich amateur could be, and often was, a scientist back in Ben Franklin’s day, simply because it amused him. That afforded a great degree of independence. Today it seems to take billions of dollars to study almost anything, and the state is the center of big money these days. The result is that science is no longer run by scientists; it’s run by politicians – or to be more precise, by bureaucratic administrators who dispense money according to their own agendas.

L: So, would you say that in this environment, the peer-review process has become counter-productive, and now, instead of assuring standards, it assures desired answers?

Doug: I believe the peer review process has probably been corrupted. People are afraid to say things, to consider hypotheses unbiased research might support, because it’s become such a politically charged atmosphere.

L: They could lose their funding.

Doug: Exactly. So anything and everything you listen to on this subject of climate change – including what I’m saying today – is something you should investigate and analyze for yourself. Draw your own independent conclusions. But if you draw the conclusion that anthropogenic global warming is a fraud, you may find yourself reluctant to say it in public, for fear of being hunted down as a heretic and ridiculed by the hoi polloi.

L: Perish the thought that they might come to the conclusion that a little global warming might be a good thing. Coasts might change a bit, but you’d have longer growing seasons and more food for everyone…

Doug: Right. And – gasp! – people might not need to burn so much fossil fuel to keep warm in the winter, cutting back on pollution. Who knows? Look, no one can predict whether the earth will be cooler or hotter next year, let alone do anything to change it. If you’re afraid of global warming, turn off the lights when you leave the room – but don’t participate in the corruption of science, don’t scare our kids with unproven cataclysmic theories, and don’t try to ban economic energy sources that people living on this planet depend upon today. And don’t try to stop progress; it’s the only hope the earth has of seeing clean industry, short of exterminating mankind.

L: Well, I did ask you to tell us what you really think…

Doug: You know I would have anyway.

December 28, 2009

Climate and the Fate of Humanity was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’ve been warned, incidentally, that any discussion of global warming will elicit complaints from one side or the other, so I would be better off not bringing it up. The notion that climatology is unacceptable in polite conversation is a huge problem. I’ve been following this debate for over 15 years and have worked with some of the important scientists who have advocated openness and more debate in climate research. Real scientists consider this a legitimate scientific issue, not a partisan one.

Moreover, the CRU scandal is enormously relevant to many investor issues. I’d rather lose readers who are offended than fail to keep the rest of you informed. If you’re getting your news from the mainstream media, you may not know yet how damaging this event has been to the credibility of the U.N. and those in the administration who support CO2 controls. (The Canadian press, however, is doing a far better job of covering the story.)

I told subscribers to my newsletter Breakthrough Technology Alert about a year ago, by the way, not to invest in so-called green technologies that rely on subsidies and regulatory interventions. That advice stands now more than ever. Polls show that about three-quarters of Americans consider the scientific theory of anthropogenic global warming false or even fraudulent. Given growing anger over deficits and terrible unemployment statistics, harmful environmental measures passed now are likely to be overturned or blocked after the 2010 election cycle.

I saw this coming for several reasons. One is that the lack of scientific ethics exposed by the CRU whistle-blower is not really news. It has been obvious to those of us who were paying attention for a very long time. The leaked documents make it clear, however, to those who don’t understand the mathematical subtleties of regression analysis or program in Fortran.

For the first time, the general public is learning that the CRU climate model, which the U.N. relies on, purposely hid the Medieval Warm Period (MWP). This obfuscation was necessary because the MWP was not just warmer than it is now; it had a generally positive impact on humans. The University of East Anglia now admits, in fact, that the CRU has no real evidence that the climate is warming and says it will take at least three years to recompile and analyze the data.

The climatological-industrial complex, however, is forging ahead as if nothing has happened. Supporters of an incredibly expensive cap-and-trade scheme, in the middle of the worst economic downturn in modern history, are undeterred. Even without the invention of Enron, cap and trade, the EPA is dead set on treating and regulating carbon dioxide as a pollutant.

You know that stuff you exhale in high concentrations: CO2? The EPA apparently thinks pollution results even with miniscule increases in the 0.038% trace levels of CO2 found in the atmosphere. Obviously, slightly elevated CO2 levels have never resulted in cataclysm before. So why does it say so now?

Its theory is that the planet’s ability to absorb CO2 is maxed out. Additional CO2, it says, will therefore result in skyrocketing CO2 levels. This theory, however, is completely unsupported by evidence. Dr. Wolfgang Knorr at the University of Bristol just published as study in Geophysical Research Letters showing that the portion of the atmospheric CO2 absorbed by plant life, mostly in the oceans, has remained stable since 1850.

In fact, it is the failure of the CRU model to properly address the role of the oceans that convinced me long ago that it’s fundamentally missed the boat. Only about 10% of the Earth’s heat storage is atmospheric. About 90% of the Earth’s energy storage takes place in the waters of the oceans. Water, after all, stores far more energy than air.

Furthermore, ocean temperatures are far easier to measure accurately. Many land-based temperature stations have been compromised due to changes in local conditions, mostly increased urbanization. This is not the case with oceans. NASA has more than 3,000 robotic buoys that dive and surface continually all over the world collecting ocean temperature data at different depths. This information has been transmitted via satellite to NASA since 2003. Compiled, it shows clearly that ocean temperatures are falling.

If the oceans were bleeding heat into the atmosphere, we would see higher air temperatures. The Climategate e-mail leak shows, however, that even CRU knows that atmospheric temperatures have fallen since the late ’90s. This means, I believe, that we are in an extended period of global cooling, not a temporary turnaround. University of Rochester physicists have published recently data showing the historic and central role ocean temperatures play in climate and climate change.

The fact that the U.N.’s climate gurus have destroyed data, hid inconvenient truths and subverted the peer-review process is not, by the way, proof that anthropogenic global warming could not possibly occur. Nor does it prove we are not in a natural period of cooling caused by solar cycles. The only thing it does prove is that models are junk and that the most powerful government-anointed climate scientists have no idea what’s going on — as the leaked e-mails stated over and over again.

This is the big lesson. It isn’t science that has failed. Science isn’t dying, as Daniel Henninger said recently in The Wall Street Journal. Real science is a process of discovering the truth through transparency, experimentation and verification. Look around you. You can see the fruits of real science in the increased length and quality of life that we all enjoy. Science is alive and well in the private sector.

Climategate is a failure of politicians and bureaucrats involving over $90 billion in tax-funded research grants. It is complicated by passionately cheerleading environmentalists who have turned their movement into a kind of religion.

The corruption of scientists by government monies is by no means new. It won’t be the last time, either. Nevertheless, the courage of the CRU whistle-blower demonstrates the robustness of science. The truth has come out.

It remains to be seen if the political drive to control human activities and profit from political wealth transfers will prove more powerful, in the short run, than the truth contained in the leaked e-mails and computer code. In the long run, however, I have no doubt that those who embrace fraud will be outed, if not punished.

My focus is on identifying those transformational technologies with the greatest potential for profit and growth. Those opportunities will not go away even if the fraud inherent in the CRU’s sham models are used to hobble the American economy with destructive cap-and-trade taxation or onerous EPA regulation of CO2. India, Russia, China and many other countries have made it clear they will never adopt such economy-killing measures — especially during a period of economic downturn and high unemployment. They stand more than willing to host the revolutionary disruptive industries that are coming onto the scene today. Many of our top scientists and small caps are already being wooed to relocate elsewhere.

Fortunately, polls show that nearly three-quarters of the American people are extremely angry with the government right now. The old media, which are lobbying for some sort of bailout, will continue trying to cover it up. Having not only endorsed the concept of anthropogenic global warming, but attacked skeptics as subhuman, it is impossible for many to admit they were wrong. Science and technology, though, have already provided alternate avenues of information dissemination. The unwillingness of the old media to report one of the most important stories of this young century is evidence they deserve to fail.

The reversal on cap and trade by Australia, along with a likely change in the government, in large part because of Climategate, ought to act as a warning to the administration. If not, then the people will grow angrier yet and we’ll see another iteration of the revolution next year at the ballot boxes. Science cannot be stopped or even perverted for long.

For transformational profits,
Patrick Cox

December 14, 2009

Science Hasn’t Failed About Climate, Government Has was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What seems to be at stake for the knuckleheads is their identity, their idea of what it means to be an American, which boils down to being an organism so specially blessed and entitled that it is excused from paying attention to reality. There were no doubt plenty of counterparts among the Mayans when the weather changed and their crops failed, and certainly the Romans had their share of identity psychotics who doubted reality even when Alaric the Visigoth was hoisting off their household treasure.

Reality doesn’t care if we are on-board with its mandates or not. The human race has to get with whatever program reality is serving up at a particular time. Are we shocked to learn that scientists fight among themselves and cheat as much as congressmen?  Does that really change the relationships we understand about parts-per-million of carbon dioxide in the earth’s atmosphere and the weather?

What the people of the world can do or will do about a change in climate is something else. My guess is that the undertow of entropy is now too great to provoke any meaningful unified change in behavior.  The collapse of the US economy is too close to the horizon, and the so-called developing nations will have problems equally severe.  In the meantime, it is unlikely that any of the major players will burn less coal and oil, or not cheat on each other even if they pledge to burn less.  People who are not knuckleheads will make the practical arrangements that they can. These will, by definition, be localized, small-scale, and non-global communities, doing what they would have to do anyway.

A parallel identity mania afflicts those who have decided that the Bakken shale oil deposits and the Marcellus gas play will allow the USA to cancel any modifications to our living arrangements. This cohort of knuckleheads wants to believe the public relations of the oil and gas industry, and in particular the bankers who are arranging the financing for these ventures. The facts are irrelevant to their identity-claims (that the USA has limitless energy resources). In fact, the Bakken shale formation is unlikely to produce more than a few hundred thousand barrels of oil a day in a nation used to burning about twenty million.  A few hundred thousand might mean a lot if were only used to light kerosene lamps, but it is unlikely to keep the faithful motoring off to WalMart and Walt Disney World – which is the exact expectation of the knuckleheads.

Shale gas is a similar story. It will be too expensive to get out of the tight rock at a flow that will allow business as usual to continue.  It certainly won’t be produced at under $10 a unit, and the nation’s comprehensive bankruptcy accelerates every day, making it less likely that the public can pay premium prices within the framework of our current living arrangement.

The Green Shoots crowd – a sub-category of identity maniacs, who think the USA is immune to the laws of history and physics – has made common cause with the oil and climate knuckleheads to proclaim that we are returning to normal, back to the “consumer” orgy, the suburban sprawl nexus of McHousing and miracle mortgages, and new frontiers of corporate profit-raking.

They are tragically wrong.  Instead, we’re headed into the wildest king-hell debt workout that the world has ever seen, which will propel a lot of people used to working in air-conditioned cubicles into a world made by hand.  We march day by day into the great holiday season with mortgages going unpaid and the credit cards getting cancelled and money disappearing and the fears and grievances mounting.  Pretty soon, the folks doing “God’s work” at Goldman Sachs (and their tribal kin on Wall Street) will announce their annual bonuses (because they are publicly-held companies, which have to do so).  Won’t that be a galvanizing moment for us all?

Regards,
James Howard Kunstler

December 8, 2009

Climate, Oil, Reality and Delusion was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Linda Traynham, our Whiskey morning glory, had us poking into HR 2454 when she mentioned Texan Rep. John Carter’s amendments to it in her recent shot.

Ron Paul is right on the money in saying this bill will “sell pollution permits to the industry as the Catholic Church used to sell indulgences to sinners.”

But the intrepid Carter was no Martin Luther. Dem House leaders barred his amendments from floor debate on June 25. Carter was bested by the 309-page amendment from California Democrat — and bill sponsor — Henry Waxman. Of course, Waxman’s folly came to a floor vote before House Members had time to read it. HR 2454 squeaked by with seven more yeas than nays.

Harry Reid expects Senate results this fall. But in the meantime, let’s take stock and follow the money trail to the bill’s real supporters.

Behind That Green Machine, Pope Goldman Is Pushing

Project Cap and Tax began with the unholy Enron. That blind Cyclops of Energy pushed hard for cap-and-trade policy before its 2001 demise. But you’ll never believe who wanted in on it next.

Insurance titan AIG. The once-proud member of USCAP.

AIG knew creating exotic “insurance” wasn’t going to stay profitable much longer. But investing in currently worthless carbon credits and tanking alternative energy companies COULD mean big-time money — if Congress wanted it.

Back in 2007, then-CEO Martin Sullivan wanted to jump in feet first, saying that AIG:

“can help shape a broad-based cap-and-trade legislative proposal, bringing to this critical endeavor a unique business perspective on the business opportunities and risks that climate change poses for our industry.”

Note that Sen. Dodd has been AIG’s donation darling since 1990 — netting $284,000 from AIG’s employees, executives and PACs. And right now, Chris Dodd can help make the Senate’s version of the cap and trade. He’s so pro-cap and tax he wants to tack on a carbon tax — above and beyond cap and trade — that he hopes will generate $50 billion annually for renewable energy research..

But in February 2009, Joe Barton (R) led to charge to cut AIG out of USCAP. He cited AIG’s use of taxpayer money to finance lobbying activities. Point for cap-and-trade critic Joe Barton! We bet GM will drop from the USCAP roster if Barton has a hand in it.

But AIG’s single biggest counterparty will pick up the slack. Goldman Sachs spent $3.5 million on climate issues alone last year.

Then on Jan. 12, 2009, former Goldman CEO Hank Paulson offered think tank Resources for the Future (whose chairman of the board is also a Goldman alum) this interview: “How Markets Can Help Address Climate Change and Other Major Environmental Problems.”

We doubt this interest is merely because Hank Paulson is a lifelong bird-watcher.

Paulson confides that he “could see at Goldman” the value of carbon credits: “to come up with a system ultimately that has got credibility or is verifiable, that when someone pays to avoid it, you know, a ton of carbon emissions, they know they’re really getting a ton of carbon emissions avoided.”

When pressed, Paulson pooh-poohed the carbon tax. He said a tax wasn’t transparent, as the cap and trade was — amid crowd hoots and howls of laughter — as he emphasized the words “fair,” “credible,” “efficient” and “transparent.”

Is this the same man who guaranteed an efficient, transparent, and, um, highly credible, unregulated credit default swaps market? Is this the same purveyor of the clarity and transparency of the Moody’s and S&P ratings on bundles of mortgages?

But where Paulson may have stepped down, a new pro-CAP man steps up.

Treasury chief of staff Mark Patterson clocked lots of time across the street from Capitol grounds. From 2005 until April 11, 2008, he lobbied for Goldman as VP of government relations. While you’d think allowing a former lobbyist to work on an issue he has lobbied for within the past two years would besmirch Obaman ethics, we’ve been assured that he “steps out” of such matters at the Treasury, like a judge stepping down from a case. Yeah, sure he does.

Goldman likes cap and trade for one big reason: Its investments depend upon it.

Follow the Money Trail to Mr. Derivative

When you ask who’s the biggest winner if the bill goes through, you’ll find the Chicago Climate Exchange (CCX), co-founded by Hank Paulson and Al Gore. Members include Amtrak, DuPont, Ford, Oakland, Chicago, and the Iowa Farm Bureau.

The whole idea is the brainchild of Richard Sandor — aka “Mr. Derivative.” He’s the guy to thank for interest rate futures, as well as earthquake futures. In the early ’90s, he pioneered the collateralized mortgage obligation(CMO). And while you might not know exactly what a CMO is, you’ve probably heard the name Kidder, Peabody — where Mr. Derivative worked. By the mid-’90s, it held 28% of the total world CMO pie on its own balance sheet. Surprise, surprise, it all blew up in 1994, forcing the 130-year-old firm to the auction block — because of toxic instruments that look an awful lot like the mortgage securities that just blew up on us in 2007.

Do you feel confident?

Goldman sure does. It owns a 10% stake in it. It also owns a 19% share in CCX’s parent: Climate Exchange Plc. It nearly doubled its holdings in January 2009.

The icing on the cake is its stake in Blue Source, a Utah-based purveyor of carbon creds. In 2005, when Paulson drew up the bank’s environmental policy and started Goldman on a stream of energy partnerships, investments and subsidiarys, he offered this comment: “We’re not making those investments to lose money.”

In 2009, Goldman got caught up in a botched IPO of its investment Changing World Technologies, which turned Butterball turkey offal into diesel — at the cost of $80 a barrel — before filing for Chapter 11. You can bet Goldman will ensure this sort of misstep doesn’t happen again.

Government-Guaranteed Price Hikes

The government “cap” is what makes this market a true racket.

As Peak Oilers know, the less and less of a dwindling resource, the higher the price you can get from the people that need it.

Capped carbon follows the same logic. We start with a high cap of carbon pollution and that’s the national limit of how much CO2 can be emitted that year. Each year, that cap shrinks a little more, and the next year even more, until we reach the “no-harm” level — which some environmentalist absurdly place at zero.

Now here’s the catch. The government divvies up the shares of emissions among businesses that produce or consume energy. (This handout may be based on history of consumption.) Say hello to a new breed of lobbyist pimping a whole new tier of Beltway bureaucracy.

The “surplus” credits will trade on exchanges like Chicago Climate Exchange or Blue Source, allowing companies to outbid each other for the leisure of producing more than the government said they could.

Each year, the government will hand out fewer and fewer emissions indulgences. Meaning there will be fewer credits to trade. And we commodity buffs know that the less there is of something, the higher the price rockets.

And the Chicago Climate Exchange will score larger and larger sums from the corporate carbon largesse. Goldman and company have everything to gain from this.

And you’ve got to ask: What exotic new derivatives can come out of this? Will institutional investors bet on futures of how much the government will lower the cap in 2025…2030? Wait, there already is a Chicago Climate Futures Exchange. Of course, it’s the wholly owned subsidiary of the Chicago Climate Exchange.

Could the coal companies purchase carbon default swaps? After all, what happens when they discover the hydropower credits they bought in Brazil didn’t quash emissions as much as anticipated?

That brings us to a big flaw: Does it really work?

Capital Abandons Its Own Carbon Purchase Scheme

The best part of this swindle? It’s hard to tell if it’s a swindle. You see, the credits fund development projects in countries like India or Brazil, for installing things like hydropower plants or rice husk-fired generators. Watchdog group International Rivers concluded that three-quarters of these projects would probably have been funded anyway, since they were already completed at time of approval.

Consider tree planting. How do you measure the carbon offset? It all changes based on soil and climate conditions, not to mention growth rate. Only when a tree has lived 100 years does it become a net carbon absorber.

Mr. Sandor doesn’t care if it works or not. He finds the debate: “quite interesting, but that’s not my business…I’m running a for-profit company.”

So why does the House of Reps think cap and trade will work? Well, it shouldn’t — based on recent experience.

It’s “Green the Capitol” campaign began with compact fluorescents. Then it switched to natgas power to keep the lights on. But the Capitol still wasn’t carbon neutral, so the House bought 24,000 metric tons of carbon offsets on the Chicago Climate Exchange. (Yep, through the same outfit owned 10% by Goldman Sachs.) But in February, after not being able to confirm that it offset any of its carbon, the House dropped all plans to “go green” with offsets.

So we have a classic case of “do as we say, not as we do” from our honorable reps.

We got the above anecdote from Ted Gayer — who worked a single year as deputy assistant secretary of economic policy at the Treasury: 2007-2008. Wonder if the unpopularity of his opinions turned him toward Georgetown professordom?

Lest we leave out another odious option, let’s talk direct carbon tax. The carbon heavies would pay a penalty for the carbon content of their products. The idea is that companies would cut emissions for the sake of avoiding the tax. But they’d probably just tuck the added cost into what you and I will pay.

So that’s our choice: A private tax collection scheme that’s government backed or yet another Fed tax that business will probably loophole its way out of.

Either way, Shooters, we’ll end up with a case of cap and stick it…and you’re holding the bag, as usual. Estimates from various sources say you could pay $175-3,300 per household because of it.

The only way to trump this system? Hope the government will hand us a set of credits for owning — but not using — our clothes dryer…and then, as we hang our clothes to dry in the free sunshine, selling our credits to the highest bidder via the Blue Source Exchange.

Of course, if you feel the need to storm your senator’s home office during the summer recess, we wish you luck.

Regards,
Samantha Buker

July 8, 2009

Cap and Trade Shenanigans with the Chicago Climate Exchange was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

For some, the weather outside has been frightful. For others it has just been bizarre.

Among other things, January brought us 70 degree temperatures in New York City’s Central Park; New England forsythias in joyous springtime bloom; snow in Malibu; more than $700 million worth of freeze damage to California citrus crops; Colorado cattle trapped by 15-foot-high snow drifts; and, last but not least, Midwest ice storms that killed at least 14.

With apologies to Dickens, January was both the warmest of times and the coldest of times. Overall, 2006 was the warmest year in over a century for the continental United States. The mild temperatures enjoyed by the East-even as the West got gob-smacked by Old Man Winter-were enough to send natural gas stockpiles soaring. (No need to heat the house when it’s t-shirt weather outside.)

But now it looks like Old Man Winter could be rolling up his sleeves. Joe Bastardi, Chief Forecaster for AccuWeather.com, believes the whole country is going to get walloped. “Those who think that winter 2006-07 is going to remain mild are in for a shock,” he says. “Winter is likely to come with a vengeance.” Bastardi sees shades of winter 1977-1978, when a warm beginning led to a blizzard-pounding finish.

If Bastardi is right, natural gas storage levels could plummet in short order-reminding Wall Street once again how quickly situations can change. If he is wrong, of course, natural gas will remain mired in negative sentiment for the time being.

Climate change fears suggest a trend of milder winters-a negative for natural gas. But the flip side of that coin is greater temperature volatility and stronger legislative pressure.

Extreme weather patterns (like snow in Malibu, for example) require a larger supply buffer to absorb demand spikes when the outliers hit. Temperature volatility thus lessens the perceived “margin of safety” in existing storage levels. (The more things can swing, the more buffer you need.)

In addition, the more mild and wacky winters we see, the more determined world governments become to “do something” about carbon emissions. This green calculus gives natural gas a leg up on its carbon-spewing rival, coal. While coal is the electricity-generating champ from a financial cost standpoint, natural gas is cleaner and less carbon-intensive, making it the environmentally desirable choice.

Coal will likely remain the electricity king for some time, thanks to its abundance and low cost, but will also cede ground at the margins due to its reputation as a polluter and CO2 spewer. Nuclear power is set to expand its electricity role, but regulatory hurdles and lengthy construction times mean that growth will happen relatively slowly. Solar and wind are ramping up, but starting from a miniscule base. These factors give natural gas a consistent demand edge, in both China and the United States, that will last for quite a while.

All this, too, comes on top of the fact that in terms of depletion rates versus discovery rates, North America is running hard just to stay in place. The new wells are just not keeping up. Elsewhere, industry experts believe the global shortage of liquid natural gas (LNG) could persist until 2011, in part due to the political risk of LNG terminals and the high cost of plant construction. Furthermore Canada’s oil sands expansion plans will suck up a larger portion of that country’s natural gas production over time.

These natural gas musings are the backdrop for the latest Outstanding Investments recommendation.

This drilling company is a rare find: a small-cap growth stock with a beaten-down value profile.

Normally it’s very tough (if not impossible) to find small-cap companies with excellent growth prospects, strong cash flow, and minimal long-term debt trading a mere twenty to thirty percent above book value. (This company is trading just under $16 as of this writing, with a $396 million market cap. Book value is $12.95 per share according to the Wall Street Journal. )

Most of the time, companies trading close to book have an outlook ranging from “blah” to “ugly.” If a business sells for a just few dollars more than what the parts are worth, the natural assumption is that something is very wrong with that business.

If that same business is well run, making solid profits, has the means to retire its long-term debt in a short period of time, and could theoretically generate enough cash to buy back all its own stock in the next few years… now you’ve got a real head scratcher on your hands.

Except in this case, the mystery has already been cracked. We know the problem is the manically gloomy sentiment surrounding natural gas.

This is a small-cap land driller provides contract drilling services-land rigs-to oil and natural gas exploration and production companies, with ongoing contracts in Oklahoma, Texas, Kansas, Colorado, and North Dakota.

Approximately half of their customer base is publicly traded-well-known entities like Devon Energy and Chesapeake Energy. The other half are strong independents. Their customers have at least two things in common: they are committed to the long-term bullish case for natural gas, and they are committed to drilling.

Between December 15, 2006 and January 11, 2007, the shares of this company were pummeled, registering a 30% decline in less than two months. The selloff came during a period of general carnage for the drillers, as oil declined and natural gas fears escalated with the persistence of mild winter weather.

Things were orderly at first, and then Nabors Industries-a large competitor, and one of the biggest land drillers in existence-announced a fourth quarter earnings warning on January 3. Nabors went into freefall at that point, and this company followed.

At the worst point of the decline, the spread between this driller’s share price and book value shrank to about sixty-seven cents…less than the company’s third quarter diluted earnings of 70 cents per share.

When the implied value of the entire business operation is compressed to less than one quarter’s worth of earnings, you know there is some panic in the house.

Legendary value investor Ben Graham liked to talk about “Mr. Market,” analogizing the stock market to a human being subject to fits of optimism and depression. Thanks to the dominance of fast money and short-term time horizons, Mr. Market is a bit of a drug addict these days, downing copious quantities of quaaludes and methamphetamines. When Mr. Market gets exceptionally out of whack, opportunities arise like this one.

The real worry for companies like this and Nabors is what’s happening in the land rig market. Nabors’ cut of fourth-quarter earnings guidance, which it blamed on slowing North American gas markets, led to dire scenarios of collapsing day rates and rigs sitting idle as result of a glut.

In Outstanding Investments’ opinion, these fears are overblown. There is fair reason to have concern, but nothing to justify the crush of pessimism that has weighed down the drillers so heavily. That is, if one understands the basic realities of peak oil and the compelling long-term case for natural gas.

In regard to rigs and day rates, this driller also stands out for the quality of its management and farsightedness of its strategy. It keeps close tabs on market conditions, and is careful not to “compete with itself” by putting out more rigs than the going market can support.

When the market is less conducive to putting out refurbished rigs, the company scales back and uses its cash flow to diversify into other complimentary businesses, like workover rigs-the mobile machines that handle cleaning, service and maintenance for wells already in production. Their recent acquisition of Eagle Well Service is an example of expansion in this direction. Not to mention they are also mulling over the possibility of international expansion as conditions and opportunities warrant.

This driller reports good visibility with its clients; the CEO reported on the third quarter earnings call that there seem to be no issues with drill budgets, and “if anything we’ve seen a push to continue to drill.” Because of their high-tier focus on support, service and safety, they also enjoy stronger relationships with clients than many of its smaller independent competitors. This adds a layer of stability to revenues, as the less established fringe players are the ones to see their rigs idle first in adverse market conditions.

The land rig market is not without risk in the coming months, but the potential reward seems well worth it. While this driller has already bounced off its oversold extremes, it is still trading under its $17 initial public offering price as of this writing-and this comes with excellent management and excellent results.

Book value acts as a floor underneath the stock-if worst comes to worst, a vulture investor could break up the pieces and sell them off for $13 a share or so, if not more under the right circumstances. But that isn’t likely to happen by any stretch of the imagination. What is far more likely, in our opinion, is that day rates and rig utilization will stabilize and resume their upward trend in due time, and they will continue to grow and thrive.

Of course, if Mr. Bastardi of Accuweather is right in his weather predictions, sentiment for the land drillers could turn extremely quickly. At a current price to earnings ratio of less than eight, they could theoretically see 50% or more upside simply by way of removing the cloud of pessimism overhead.

Even if the weather remains mild and the sentiment adjustment a ways off, the natural gas case is solid-and this driller looks worth holding on to for “multi-bagger” upside potential in the years to come.

Till Next Time,
Justice

February 9, 2007

Land Ho was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.