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-HW "Skip" Weldon
Columbia, SC

Will Trice wrote:
- quote -

Will

'Bull' isn't a rebuttal.

If you read Nature or Science over the last 5 years, there isn't a
meaningful doubt about what is going on. As best as we can know, we do
know. This is peer-reviewed science at work, which is the best tool we
have for scientific progress (and the one by which we judge all other
science).

A big difference between US media and the media of other countries is
that the latter have accepted this, whereas in the US it is still
paralysed to give 'balance' to fringe groups who have an interest in
preventing action on global warming.

What uncertainty there is is about how much, how far, and how much to
do about it (and how quickly). The nub of the argument is 'what price
to put on carbon emission'? There, you will find a wide range (from
$10/tonne to $300/tonne).

Of which it has been well pointed out that uncertainty *increases* our
bias towards early action, because if we are wrong, and too
conservative on our estimates of global climate change, then we could
do really horrendous damage to the planet and our own civilisation.

- quote -

The 11 hottest recorded years are in the last 15. There's lots of
other evidence that things are as hot now as they have been in the last
8,000 years. We are fast headed for a planetary surface temperature we
haven't seen in over 500,000 years.

- quote -

See Hansen's 'B' Case, 1988. Sufficiently accurate that his critics
saw fit to delete it from their rebuttals. Hansen then correctly
predicted the impact of the Pinatubo eruption on world temperatures
(-0.5 degrees C)-- which was pretty amazing.

The models have moved on a lot in 18 years.

- quote -

There isn't a good other theory about why the temperature changes we
observe are taking place.

- quote -

No I'll stick with what I say. You can't find people in the know, who
are respectable scientists, who doubt that the planet is warming and
that humans are playing a part in that.

(on Richard Lindzen, who *is* a respected climate modeller. He doesn't
deny global warming, he says increased cloud cover will arrest the
process but admits he doesn't know. He's about the only sceptic I have
found with anything like reasonable credentials).

- quote -

The tide is turning. Arguably too little, too late, but the great
thing about this grand experiment in human climate forming is that we
will get to see the outcome. Always nice to see the results of your
experiments ;-).

- quote -

The Prime Minister of the UK (and a number of other global leaders) is
not calling global warming the greatest threat to the 21st century out
of ignorance or political sleight of hand. He is hardly soft on
terrorism, Saddam Hussein or whatever the other threats are out there.
His advisers have told him he ought to be worried, and he is.

Elizabeth Richardson wrote:
- quote -

As I argued in another post, you may not be directly at risk (depending
how far you are above sea level, and your exposure to maritime storm
activity). However your insurance rates may rise, nonetheless.

http://research.cibcwm.com/economic_...ad/mijan07.pdf

is an example of the kind of thinking that I think investors are going
to have to do.

It's interesting how (implicitly) he works in peak oil and global
warming into the same investment thesis.

Elizabeth Richardson wrote:
- quote -

Some forms of science are amenable to double-blind. Astronomy,
geology, biology (evolutionary theory) are not. What we do have is
models that have been predicting, fairly accurately, the rise in
average temperatures that would accompany our observations of rising
CO2.

- quote -

There is no serious scientific disagreement now about the existence of
and causes of global warming. If you read through Nature and Science
the last 5 years or so you can see that. There is still debate about
how much and likely outcomes and what we should do about it.

(a book I would recommend: Sir John Houghton 'Global Warming; the
complete briefing'. Houghton was chief meteorologist in the UK. He
also has an interesting chapter on the ethics of global warming (he is
a practising evangelical Christian), which is unusual in books of this
type.

Uncertainty actually *increases* the societal bias for action- -because
the consequences of getting it wrong are potentially so frightening.
We can't say that global warming will stop at 2 degrees centigrade, or
5-- it could be more.

- quote -

See my other post. To not take decisions, is to default to taking
them. Your exposure is inherent in what is going on.

(rising sea level isn't *likely* to be a concern in your lifetime,
however *storm surges* will be, for those in places vulnerable to
such-- think London, New York, etc.). Hurricanes and typhoons are a
mid latitude phenomenon, I believe (drawing strength from warmer
surface temperatures of the water) and (from memory) you live north of
55 degrees? So less of a worry.

The question in my mind is what can an investor do to hedge? We don't
know the speed at which carbon trading will be brought in to high CO2
emitting industries (cement, transport especially aviation, power
generation, aluminium smelting etc.). Nor do we know the extent to
which those industries will be able to pass on the costs to customers.

My thoughts are that insurance is at a particular risk (particularly
reinsurance) although a 'hard' rates market is a good one for insurance
stocks.

The other thought I had is that uranium is a pretty good global warming
hedge. For better or for worse, the world is headed for more nuclear
power.

Most of the 'alternative energy' stocks seem to me to be hugely
overvalued, with the exception of hydro-electric tilting utilities.

Elizabeth Richardson wrote:
- quote -

The risk you take on is innate. ie by *not* hedging, you are
implicitly taking a financial decision.

Interestingly, I think that you live in Alaska? The best predictions
show that of all US states, Alaska will be one of the most changed by
climate change. In particular, a lot of the oil infrastructure is
built on permafrost, which is now melting. It will have to be
rebuilt-- and some of it will not be able to be rebuilt.

The good news (for Alaska) is longer ice free periods at the key ports,
and probably an open Northwest Passage all year round-- fast shippping
from Europe to Japan.

Zurich in particular has done a lot of modelling of the climate change
issue. The losses to the reinsurance industry are likely to be large
enough to force it to stop covering a lot of risks (ie raise the prices
until risk coverage is not attractive).

Jose Bailen,

Thanks Jose.
Here is a summary submitted by the Joint Economic Committee that is
short and very informative on the issue if anyone cares.

http://www.house.gov/jec/fed/inflat/cpi-2.htm

- quote -

If you take short-term T-bills, then the inflation danger becomes less
relevant. Also, a practical problem of using inflation-adjusted T-bills
is that these instruments are relatively
new. By the way, the average return of short-term T-bills was 3.82
percent between 1926 and 2002, while the inflation rate was 3.14
percent (an average real rate of return of T-bills of 0.68 percent
during that period). The standard deviation of the real rate of return
of T-bills was 4.21 percent. By comparison, the STDEV of the return of
small stocks was 39.30 percent and of large stocks 20.55 percent
(security retunr data from the Center for Research in Security Prices)

- quote -

The Boskin comission concluded in 1996 that the CPI overstated real
inflation by 1.1-1.3 percent
(http://en.wikipedia.org/wiki/Boskin_Commission). After the Boskin
comission report was issued, the BLS changed the methodology to
calculate the CPI -mostly by reducing the substitution bias- and the
bias was reduced to 0.65 percent by 2002 (see
http://faculty-web.at.northwestern.e...gordon/346.pdf).

kastnna wrote:

- quote -

I disagree, a risk-free asset is typically defined as an asset with a
known constant future return, see for example:

http://en.wikipedia.org/wiki/Capital..._pricing_model

Note that the risk-free asset is placed on the graph such that it has
zero standard deviation. Of course, such an asset may not exist and
T-bills may be closest to this definition in absolute terms. But Elle
and I (and others) had two (exceedingly) long discussions about risk on
this newsgroup wherein she pointed out that risk is often defined in
real terms. Once you superimpose inflation on T-bills to get a real
return, their return becomes somewhat volatile (assuming periodic
reinvestment - your point about inflation changes in the short term is
well taken), and TIPS or other inflation-indexed assets become much less
volatile. Of course, long-term inflation-indexed assets throw off
interest that needs to be reinvested, so just holding to maturity and
ignoring price fluctuations during the holding period still does not
lead to zero volatility, but to some it gets closer.

- quote -

Really? I've seen the opposite, i.e. that these effects depress
indicated inflation as measured by the CPI by 1-2%. Maybe it cancels
and is really 100% accurate?!

-Will

- quote -

CPI is widely considered to be 1% - 2% over inflated. There are many
factors it neglects.

1. It only measures a limited bundle of goods. If you don't buy those
particular goods you could experience wildly different inflation of
deflation. Multiple CPIs are developed to try and combat this, but they
have only slightly corrected a large problem (they acknowledge that).
The number of bundles of consumables we buy is almost infinite.

2. Substitution: The CPI assumes that consumer spending on each item in
the index is an unchanged proportion. However, it is undoubted that
when one item increases in price, cheaper subsitute items are purchased
more often and the original item is purchased less. This results in
consumers spending less overall than the CPI assumes we do.

3. Technology: The price of many items drastically rise and fall with
technology. For example, TVs now costs as much as $10k and up. This
looks like massive inflation in the CPI, but it is just the result of a
new quality that cannot even be compared to what we considered a TV in
the 60s. Look at it this way: a TV built today to exactly match a TV of
the 60s (components, quality, technology, everything) would fetch very
little on the open market (low long-term inflation). This is of course
barring the subjective value of "collector's items" or "vintage
quality" which is intangible.

Whew, way of base now.
Sorry guys.

- quote -

Considering how Bush has been ranting against the Social Security
Trust Fund the past six years - even the President suggest US bonds
are worthless.

"kastnna" <kastnna[at]auburnalum.org> wrote
- quote -

Plus, every year I get the feeling that CPI is pretty
worthless as a measure of my personal inflation rate. I
think it's a bit overrated for individual financial
planning. Instead, folks should track their yearly expenses
and look for trends. This approach is likely not perfect;
just superior to the CPI.

- quote -

The risk-free rate is not intended to be steady (nor would it be with
TIPS) thus non-volatility is not a determining factor. Interestingly
enough, in our current system volatility is small because the risk-free
rate is adjusted SO REGULARLY that there is little time for a major
shift in rates.

A risk-free rate this year MAY not be the risk free rate next year (or
1 minute from now). Its a benchmark for comparison. The 3-month T-bill
is the common benchmark because that allows for frequent adjustment to
minimize interest/inflation rate risk. TIPS pay interest, which is
adjusted for inflation, every 6 months. They have an adjustment lag
that is potentially twice that of 3-month t-bills.

Lastly, TIPS are not used because the intest rate is fixed for the
entire term of the bond, it is the principal that is adjusted. This
makes calculating the risk-free interest rate more difficult (and still
potentially not as accurate). A 20 year TIP purchased today will have
the same interest rate 20 years from now, the principal will have
adjusted accordingly.

On a small tangent, we also use CPI to adjust for inflation. CPI is the
best single indicator we have, but not entirely accurate. That's like
saying a 70% accurate is good enough because our next best measure is
only 65% accurate. Economists have argued for some time that
substitution and techonological effects make the CPI artifically high
and a combination of new measures should be used to measure inflation.

- quote -

I believe the threat of nuclear winter is far greater than that of
global warming. Either occurance would be bad for investments.
JOE

kastnna wrote:
- quote -

This is certainly true. But some argue, I think correctly, that if your
time horizon is long, then a T-bill is no longer risk-free. After all,
you'll have to reinvest in new T-bills each period causing your return
to have some volatility.

-Will

Tad Borek wrote:

- quote -

Companies react incorrectly to data all the time. Look at the utilities
(like CMS Energy and Aquila) that entered the energy trading business
because Enron made it look good. Doesn't make Enron's profits real.
Look at the telecoms that overbuilt because of all the bandwidth demand
that was going to be needed. Didn't make that demand real (until recently).

-Will

darkness39[at]yahoo.com wrote:

- quote -

Bull.

- quote -

Bull.

- quote -

Bull.

- quote -

Bull.

- quote -

This I can agree with.

- quote -

This may be true regardless of whether the climate is actually changing,
and if so, whether humans are causing it.

-Will

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:uFenh.11409$ZT3.5543[at]newssvr19.news.prodigy.com...
- quote -

Tad, we're way off-topic on MIFP, but let me say that Allstate is not making
any decisions based on GW. They are making decisions based on the increased
incidence of hurricanes, which may or may NOT have anything to do with GW.
It's certainly interesting to note the dearth of such storms in 2006, yet
scientists are saying its the warmest year on record. They don't have any
idea of the cause and effect.

Elizabeth Richardson

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:uFenh.11409$ZT3.5543[at]newssvr19.news.prodigy.com...
- quote -

I live 1/4 mile from salt water. I am not making any financial decisions
based on this theory.

Elizabeth Richardson

Elizabeth is right in the fact that we can't prove that global warming
wouldn't occur naturally without our presence because there is no
control to show otherwise. Its Theory not law.

FYI, nickel manufacturers spent more money lobbying for catalytic
converters than environmentalist did (nickel is used in cat.
converters). How will all those scientists justify their grants if
global warming doesn't exist?

We are getting off base though...

I was always taught that "risk-free" investments are not techincally
risk free. That was never the intention, its just a simplified name.
The idea is that "risk-free investments" are a benchmark for comparison
because they carry LESS risk than any other viable alternative.

Historically one year t-bills have been considered risk-free. TIPS are
not necessary because the benchmark is reset annually to the new t-bill
rates and therefore inflation becomes marginal/negligible(sp?).

Because US markets play such a large part in the world economy and so
many other nations are financially bound to our economic success, IF
our gov't bonds ever did go belly up, the "risk-free" status of any
other non-US investment is going to become threatened also.
___

Elizabeth Richardson wrote:
- quote -

People living in coastal areas are being forced to make financial
decisions about global warming, regardless of their opinions about its
causes. On another forum someone pointed out that Allstate recently
cited global warming as the reason for withdrawing from several markets
-- states with coastal areas that may be affected by
more-frequent/intense hurricanes. Here's a brief NPR piece on it with a
statement from an Allstate spokesman about GW being the driver:
http://www.npr.org/templates/story/s...toryId=6607675

Businesses like Allstate have a dollar-and-cent focus on the GW issue
and it's interesting to see them react - unhindered by the political
process. If a few million Floridians can't insure their homes because
insurers think GW is real, then it's real!

Apparently it's becoming a significant financial planning problem in
Florida that is likely to affect home values if things continue the way
they're going. One colleague mentioned a hike to $20,000 annually for
coverage on a home (not sure how pricey a home, but $20k is a heck of a
lot of money). I expect we'll see a lot more talk about this topic, in
the context of any collapse of certain FL real estate markets -- it
might not be the sole trigger for price drops, but it certainly must be
helping to drive them. Arguably more so than interest rate hikes,
because the dollar impact of some of the premium hikes has been greater.

-Tad