Climate Change: How to Invest for the Possibility

Why is it that we don’t trust the TV weather man to accurately predict the weather tomorrow or next week, yet we are willing to swallow hook, line and sinker that we “know” that, 50 years from now, the earth’s coastal cities are all going to be under water? Because someone who plays a climatologist on TV told us so?

I am not a climatologist – just a rational man who respects the empirical process. Before I accept opinion as fact, no matter how many eminent scientists like Penelope Cruz, Tim Robbins, and Harry Hamlin present it, I need to see the facts. Then I can make an informed investment decision and be able to intelligently guide my portfolio.

Fact 1: The earth is getting warmer. Or at least it has been. Climatologists disagree on whether it is still warming or whether (as the data now suggest) that it has been warming but may have reached a zenith and is now declining. Let’s say it is still warming. As the ice core and sedimentary rock samples going back, respectively, some 400 thousand and 400 million years clearly show, “Inconvenient” as this Truth may be, there is little evidence this trend of warming and cooling is unique to this century, or the previous one, or the Industrial Age.

Fact 2: From 400 million years ago to the present: Paleoclimatologists study indicators from not hundreds, or thousands, of years ago, but from millions or hundreds of millions of years ago. In the graph below (click to enlarge), they studied sedimentary rock to determine CO2 levels for the past 500 million years. This may be inexact, but it’s considerably more rigorous than listening to someone with a vested interest in biomass companies screeching about what-ifs in sound bites on the evening news. These paleoclimatologists have concluded that this is one of the coolest periods in the last 500 million years.

Fact 3: From 400,000 years ago to the present: Below are the results from climatologists and paleoclimatologists who have studied ice core samples for trapped gases that correlate with atmospheric CO2. These clearly show the cyclic changes caused by who knows what – the Pacific vent, cloud formation, tilt of the earth’s axis toward the sun, periodic solar radiation, etc. – but certainly long before cavemen were ever on the scene (click to enlarge).

Fact 4, :Today. Man’s puny contribution to earth’s atmospheric greenhouse gases (and CO2) is “a drop in the bucket.” Dropping it 25% is unlikely to measurably affect the global climate (click to enlarge).

Just as with investing, I doubt anyone can predict the future of the world’s climate in a particular time frame.

Like investing, however, the past may offer clues to future performance.

Like investing, climate, like the market, seems to offer proof of cyclical, not linear, patterns. Temperatures move up a couple degrees from the mean, they move down a couple degrees from the mean. And they seem to do so based upon forces so much more powerful than mankind – one could note they are planetary and universal in nature.

With that in mind, we could invest in land that is 20 feet above current sea levels, as some have recommended. Or we could invest in cap and trade, as some have recommended. Or we could short fossil fuel companies like coal, oil and natural gas, as others have recommended.

Or we could apply a dollop of common sense and calm to the current shrillness. We could review the facts of the last 400 million years (via sedimentary rock), the last 400,000 years (via ice core samples), and our own short history on this earth showing variations in climate that span a couple of decades. And we could, based upon that empirical evidence, toss in a pinch of geopolitical insight that food, energy and health care are basic Maslovian needs that the part of the world that doesn’t get to dilly-dally in junk science cannot overlook.

So even if “global warming” were man-caused – and the empirical evidence does not support that opinion – will anyone outside Western Europe, Canada, Japan and the US actually do anything about it? My answer is no, absolutely not. It is nowhere near the top of their list. If the US, Canada, Japan and Western Europe spend upwards of $500 trillion over the next century (UN estimate for following the Gore prescription is $553 trillion) we may affect nothing and the rest of the world will use our folly to their advantage and our disadvantage.

Food, energy and health care will override all other considerations in that part of the world still growing dramatically. So that’s where I am investing.

To feed the world, grains, crops, livestock, fertilizer, and efficient irrigation all top my list. Deere (DE), Israel Chemicals (ISCHY.PK), Yara Intl (YARIY.PK), Nestle (NSRGY.PK) and Lindsay Mfg (LNN) are among my favorites.

For energy, I choose natural gas first, nuclear next, and then solar, wind, biomass, oil and coal – every single one of them. In the developing world, coal and natural gas are most abundant and cheapest and will therefore be the first choice of most users. While these have been well-covered in previous articles I will mention just a few representative issues: Exxon Mobil (XOM), BP, Conoco Phillips (COP), Royal Dutch Shell (RDS.B), Williams Partners (WPZ), Magellan Holdings (MGG), Boardwalk (BWP), OneOK (OKS), Chesapeake (CHK), EnCana (ECA), Imperial Oil (IMO), Natural Resource Partners (NRP), Penn Virginia (PVR), and Cameco (CCJ.)

In health care, the revolution in the West has come from ethical drugs, non-invasive technology, prevention and early interventions. That’s the way to invest. I like the biggies here: Roche (RHHBY.PK), Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) come to mind.

Avoiding overpopulation, illiteracy, disease, and hunger never go out of fashion. Global cooling did. I imagine global warming will, as well.

Full Disclosure: Long DE, ISCHF, YARIY, XOM, BP, RDS.B, WPZ, MGG, BWP, OKS, CHK, ECA, IMO, NRP, PVR, JNJ and PFE.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – especially so you are not over-impressed by the fact that our Investors Edge ® Growth and Value Portfolio has beaten the S&P 500 for 10 years running. What if this is the year we under-perform it?

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

Comments

[bartpr]

i can only comment on my own experiences with using carbon dioxide as a gas used in the welding industry. carbon steel welding uses a shielded gas process where the electrode is bathed in a mix of argon and C02 gas. the argon is inert and prevents the buring of the impurities in the weld process. burning these impurities causes
oxides to form and reduced the seld strength.

the c02 acts a heat absorber, resulting in a deeper penetration of heat into the weld. if C02 is used in this manner as a heat absorber, it too acts as a heat absorber in the atmosphere.
end of story on global heating from C02.

2009 Sep 25 08:04 AM

[a. palmer jr.]

Who made Al Gore an expert on global warming? I thought he was a politician. You should know how often politicians get things right!

2009 Sep 25 08:27 AM

[Ferdinand E. Banks]

Natural gas first and then nuclear. Hmm. And natural gas is the most abundant. I wonder where this goofy idea came from.

2009 Sep 25 08:42 AM

[Ferdinand E. Banks]

Let me polish up my previous remark. Natural gas is NOT as abundant as some persons in this forum want other persons to believe. There is no genuine evidence that gas is as plentiful as is often believed, although I can understand why that fiction has suddenly become so widespread.

2009 Sep 25 08:48 AM

[toobad41]

Like oil, natural gas is not found everywhere. And as Ferdinand E mentions it is not as abundant as people think. Most of the natural gas that has every been found is gone. It was vented or burned as a by-product. Even today it is burned or vented to the atmospher because there is no market or pipeline needed for transporting. Even exploration today is aimed at non-conventional resources because conventional sources are depleted. With that said, you can bet your bottom dollar that gas will also become a rare commondity and sooner than you think.

2009 Sep 25 09:10 AM

[Tony Petroski]

Solid article Mr. Schaefer.

A few nits to pick.

The author: "Fact 1: The earth is getting warmer. Or at least it has been. Climatologists disagree on whether it is still warming or whether (as the data now suggest) that it has been warming but may have reached a zenith and is now declining. Let’s say it is still warming."

Why should we say "it's still warming?" Because the establishment media portrays anybody saying otherwise as an idiot? It's either a fact or it isn't. The thrust of your article is that it is not a fact and that the climate fluctuates much like the stock market does. That is a fact. I agree however with your investment advice.

You end with: "Avoiding overpopulation, illiteracy, disease, and hunger never go out of fashion. Global cooling did. I imagine global warming will, as well."

Global cooling went out of fashion. I imagine global warming will as well. I recall global cooling and nuclear winter scares along with the killer bees, and you are right on the mark. "Global warming" is already giving way to "climate change." That way you are hedged whether the trend is cooling or warming.

Your "avoiding overpopulation" is a new one. I doubt there have been but a few nations in the history of mankind that have been devoted to that one. Still, avoiding overpopulation looks to be a soluble problem. The Japanese are experimenting with the benefits of a declining population, so far not so successfully, and the Europeans are following in their footsteps.

Your general thrust is correct. People will want to eat, global warming or not. They'll want to be healthy and clothed (except if they appear on TV or the movies). I would add that they want to have a house to live in, and despite the current woes in the real estate sector, only so many people will be willing to live in the basement of their in-laws or in caves.

2009 Sep 25 10:01 AM

[biomedlives]

My understanding is that there a number of people who have concluded that global warming is a real possibility have scientific credentials that are considerably more substantial than those of Penelope Cruz, Tim Robbins, and Harry Hamlin (or Rush Limbaugh).

2009 Sep 25 10:02 AM

[John Petersen]

The ultimate silliness of the AGW debate is that regardless of what nanny decides for the US and Europe, other parts of the world will simply rub their hands together and say "Oh goodie, more for us." The hard reality is that total global consumption of carbon will be a flatline in either event.

2009 Sep 25 10:08 AM

[experienced]

To argue that the earth has been cooling over the last 500 million years or so is irrelevant. What counts more is the trend over the last 15,000 years (warming), and whether that trend is "natural," as the climate warming skeptics would have us believe, or manmade.

There is no longer any scientific basis to argue that recent warming trends have no relationship to increased burning of carbon, particularly from coal and oil. Meanwhile, those who spend a lot of time trying to minimize the problem are the last to advocate doing anything. Better conservation practices, particularly in home insulation and design of communities to minimize the use of cars to get around would do more in the next 10 years to reduce CO2 than any other policy. The coal burning advocates should get their act together and promote conservation instead of trying to argue that nothing should be done to interfere with smoky coal plants.

2009 Sep 25 10:34 AM

[longoil]

Joseph,

I would NOT take Al Gore opinions very seriously. His record speaks for itself. I have to question Al Gore's real motives.

His global warming crusade is making a lot of green for him. He gets a minimum of $100,000 for every 90 minute talk his gives on global warming. No wonder he did not want to run again for president in 2004 nor in 2008 and get only a measly $200,000 / year salary.

thesmokinggun.com/...

You would think someone worth $100 million would do these talks for free, especially if he really believes in climate change.

A report by the Nashville Electric Service that showed Gore used an average 16,000 kilowatt hours a month for an average monthly bill of $1,206 in 2006. The typical Nashville home uses about 1,300 kilowatt hours. So much for leading by example !

Furthermore, look at Gore’s accomplishments with Clinton from 1993-2001. The CAFE standard was in good hands with Ford, Carter, Reagan and Bush 41. It rose from 15 to 27 mpg during 1975-1992. Clinton and Gore (Mr. "Earth in the Balance") were pandering for UAW votes in the 1990's and they expanded the light truck exemption to include Hummers, SUV, Jeep and Minivans and that essentially killed CAFE and it is now been flat at 27 mpg.

The real motive for Gore’s climate change crusade is to make more green for himself. He stands to gain the most from cap-n-trade and may become the first carbon billionaire, if the legislation goes through.

network.nationalpost.c...

2009 Sep 25 10:41 AM

[Jimbo]

Biomedives: there are also a large number of trained scientists who are skeptics about AGW. Astronomers at a well known observatory (Lowell in Northern Arizona) told me several years ago that they believe the main driver of global temperature, and much long term wet/dry cycles, are due to solar activity. My fear is that the Utopian movement has emerged from the ashes of the Soviet Union, the People's Republic of China, Cambodia, etc. to seek to seize control of all human activity, in the name of "science" of course. There has always been a delay effect in the seasons: Summer warmth persists into the Fall and Winter cold persists into the Spring. The recently reported melting of glaciers could be reversed by the now observed significant drop in sunspot activity. We need more data and not breathless speculation. To access the scientists who are AGW skeptics, see the Heartland Institute.

2009 Sep 25 10:44 AM

[look closer]

It seems to me that reducing global CO2 emissions would be a prudent course of action, for more than a few reasons, none of which are mentioned here. However, to overlook the possible outcomes of excess emissions in favor of the more immediate profit venue is exactly the route many idiots have taken in our economic venue over the last 40 years. As this writer has stated, he is not interested in possibilities of 'what if' as much as he is in what have I got in my pocket. This is the problem we, the caretakers of the earth our children will inherit, must work with and change the attitude -- that things will get better on their own, regardless of how poorly we treat our environment.
Sure, invest to make a profit but do so with an understanding and knowledge of what those companies do and how they do it.

2009 Sep 25 10:46 AM

[Jimbo]

Experienced: Doubtless you will dismiss my comments ,above, as the ravings of a coal burning fanatic. Please note that I rode a bicycle to and from work most days of the week for the last 19 years before retiring. We have composted our household garbage for more than 30 years, we installed a very efficient solar water heater several years ago. We "farm" our back yard with 15 fruit trees, a large garden, and about 100 pineapple plants.All our appliances are energy certified and we use a clothes line for most drying. I could go on but I not only talk the talk, but I walk the walk.

2009 Sep 25 10:52 AM

[erewhonman]

So why don't we trust Shaefer to tell us about global warming? Why? Because his is just one more political rant from the epicentre of hillbilly politics.

There is great risk from the effects of GHG and global warming. It is an overwhelmingly credible threat. There is no quality peer-reviewed discrediting science. Nearly every country in the world formally acknowledges the threat. Nearly every credible big energy company acknowledges the threat, even those adverse in interest acknowledge it. The only good thing about Shaefer's piece is he dresses the pig up real pretty.

2009 Sep 25 01:36 PM

[realold]

There are others that have concluded that it is not. So, ruin the standard of living and maybe life itself for millions because you choose to believe one argument?


On Sep 25 10:02 AM biomedlives wrote:

> My understanding is that there a number of people who have concluded
> that global warming is a real possibility have scientific credentials
> that are considerably more substantial than those of Penelope Cruz,
> Tim Robbins, and Harry Hamlin (or Rush Limbaugh).

2009 Sep 25 02:08 PM

[tedster98]

Please stop this nonsense. Made made global warming is junk science. You have lost ALL credibility.

2009 Sep 25 03:01 PM

[john s. gordon]

whether man-made global climate change is real or not real will probably be proven one way or the other within the next 100 yrs. in the meantime is is probably prudent to limit the rate of increase of global CO2 emissions. this will have to include china & india; are they willing to belly up to the bar?
while we are at it let's have regulations limiting cowfarts; CH4 is a potent greenhouse gas.
a more urgent problem right now is preventing nuclear war between iran & israel. that could lead to global cooling in addition to a whole lot of human suffering.
> jack

2009 Sep 26 08:53 AM

[Chad Brown]

"I am not a climatologist – just a rational man who respects the empirical process.

You say your are not a climatologist but that does not seem to stop you from knowing the answers to the questions that climatologists study. Can you do that also with medical problems? (Perhaps I could save on my medical bills with you.) How about foreign policy issues? Can you translate ancient languages? I guess scientific questions would be a breeze for you given your respect for the empirical process? Are there any areas where you don't have all the answers? Also, do you need to know the questions first, or is that just a waste of you time?

2009 Sep 26 04:28 PM

[Bob55]

When doctors tell you today that smoking is bad for your health, people listen without contesting the empirical evidence. Likewise, when the majority of the world's scientists say there will be very imminent consequences if we don't cut CO2 emissions drastically in our immediate future, we should listen seriously. This conclusion if from the vast majority of those who are climatologists who know their business far better than you or I.

Now getting back to my cigarette example, for decades cigarette companies try dismissing the validity of the health claims against them in fear of it cutting into their profitability and it wasn't till decades later that it can be accepted without a doubt that smoking cigarettes will kill you. The consequences of Global Warming may well be vastly more devastating. If the world could be at risk, I ask you why would you even risk it? Sure, there's the possibility decades from now that just maybe, just maybe, Global Warming may not be caused by humans, but I'm surely not going to wait decades as was done with cigarettes that it is, without a doubt, a danger. By then, it will be too late.


On Sep 26 04:28 PM Chad Brown wrote:

> "I am not a climatologist – just a rational man who respects the
> empirical process.
>
> You say your are not a climatologist but that does not seem to stop
> you from knowing the answers to the questions that climatologists
> study. Can you do that also with medical problems? (Perhaps I could
> save on my medical bills with you.) How about foreign policy issues?
> Can you translate ancient languages? I guess scientific questions
> would be a breeze for you given your respect for the empirical process?
> Are there any areas where you don't have all the answers? Also,
> do you need to know the questions first, or is that just a waste
> of you time?

2009 Sep 27 02:34 PM

[DmPerignon]

It's a joke, right? Your column cannot be for real, can it? You are not really as stupid as you publicly make yourself out to be, are you? Remember one thing, Mr. Shaefer - Nature bats last. And it will take no special pleasure when it terminates the current man-made world. Which is a shame, really - SOMEONE should gloat that you are gone!

2009 Sep 27 10:04 PM