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Summary

  • 2014 looks like it may be the year that El Nino returns.
  • El Nino can have serious economic consequences, and greatly impact the earnings of some companies.
  • El Nino will likely drive "extreme weather," which is certain to play into election year politics.
  • Public support for climate change legislation is critical for the survival of many "green economy" companies.

Scientific Background:

2014 looks like it may be the year El Nino makes its return to the Pacific to wreak havoc on the earth's climate. Anyone who doubts that the earth's climate is changing will be given irrefutable evidence if the El Nino Southern Oscillation, or ELSO, does in fact make a return. How the ELSO and its close cousin the Pacific Decadal Oscillation, or PDO, are related to man made atmospheric CO2 is way beyond me, but you can be 1,000% sure politicians will use the ELSO warming as evidence for greater environmental regulations. The ELSO and PDO are natural phenomena that have been going on since long before the first oil well was drilled or coal burning power plant was built, and their behavior is infinitely more correlated with atmospheric temperatures than CO2.

PDO regimes prevailed from 1890-1924 and again from 1947-1976, while "warm" PDO regimes dominated from 1925-1946 and from 1977 through (at least) the mid-1990's. Shoshiro Minobe has shown that 20th century PDO fluctuations were most energetic in two general periodicities, one from 15-to-25 years, and the other from 50-to-70 years

The following is the temperature map of the Northern and Southern Hemispheres over the past 100 years. The first thing readers should note is that the N Hemi and S Hemi have widely different temperature patterns. Atmospheric CO2 is 400 parts per million or PPM in both hemispheres, so either the laws of physics and chemistry cease to exist when applied to atmospheric CO2, or something other than CO2 is causing the warming. Scientists use "differential" equations to explain changes in dependent variables, and it is hard to explain a difference with a constant. I'm pretty sure there isn't any difference between the atmospheric CO2 in the N Hemi and S Hemi, so something else must be causing the warming. That something else in the oceans, ENSO and the PDO.

(click to enlarge)

The second thing readers should note is that the N Hemi correlates extremely well with the Northern PDO. In this graphic, I connect the peaks and troughs, and they match the periods outlined above almost exactly. What is amazing to me is that this relationship seems to have been overlooked by the "scientists" that work for the Intergovernmental Panel on Climate Change or IPCC. Give me the muiti-billion dollars that the IPCC "scientists" get and I'm pretty sure my ocean drives atmospheric temperatures model will have infinitely higher "explanatory" power than the CO2 drive temperature models.

In real fields of science, the above observation would clearly play a dominant role in explaining atmospheric warming. One of the most widely understood concepts in thermodynamics is that heat rises. If the atmosphere is warming, one would have thought that the climate "scientists" would have looked below the atmosphere to see if something other than CO2 could be causing the warming. If I have a burner and turn up the heat, I expect the atmosphere above the burner to warm. Anyone with a gas oven understands that concept.

If we stay with that analogy of a gas burner, the oceans are the gas burners for the earth. Not surprisingly, the ocean temperatures track the atmospheric temperatures almost exactly. Imagine that, as the oceans warmed, so did the atmosphere above the oceans.

(click to enlarge)

However, the problem that theory creates for the climate "scientists" is that CO2 and the greenhouse gas effect don't warm the oceans. Infrared or IR radiation doesn't penetrate the oceans, only shorter wavelength daytime visible light does. The oceans and the earth warm during the day and emit IR as they cool over the night.

The part of the electromagnetic spectrum that penetrates and warms the oceans is far away from the IR associated with the greenhouse gas effect. Visible light has a wavelength less than 1 micron, and the IR related to the earth is 10 microns.

(click to enlarge)

While solar radiation and radiation reaching the earth's oceans and surface are two different variables, and clouds and other factors filter and reflect some of the incoming radiation, there is still a close relationship between solar radiation and surface temperature. Imagine that the sun, that giant nuclear reactor in the sky, may have a role in global warming and climate change.

(click to enlarge)

This winter and today:

If in fact this is an ENSO year, there would/should be some telltale weather events in the N Hemi winter. During an ENSO year, one would expect to see warming in the polar region, with possible ice loss, as well as polar vortexes. One would also expect to find a drought in Brazil, Southeast Africa and maybe Australia, and heavy rains in Argentina. Funny how the climate "scientists" failed to make those connections.

Looking forward:

If this is an ENSO year, we can expect the drought in Australia and Brazil to worsen, and the drought in California to lift. If the ENSO is strong, the US may get extreme storms and flooding. How extreme will determine ENSO's impact on agriculture. The ENSO can be both a blessing or a curse to farming, depending upon severity.

We can also expect global temperatures to spike, causing hysteria among those that believe man is causing global warming. As this satellite global temperature chart demonstrates, the ENSO can cause dramatic temperature increases. Note also that global temperatures peaked over 15 years ago, yet CO2 has continued to climb. 2014 is an election year, so any spike in temperatures can help strengthen or weaken the argument for continued support for climate change legislation. That is critical to the "green economy" companies that rely on government support for survival.

(click to enlarge)

The reason temperatures have been flat while CO2 continues to climb is because IR absorption by CO2 is a logarithmic relationship. Once CO2 passes 350 PPM, the increase in absorption of IR by atmospheric CO2 basically flatlines. Increasing atmospheric CO2 by a factor of 2.5x to 1,000 PPM would have a minimal impact on atmospheric heat absorption. Increasing atmospheric CO2 from 100 PPM to 1,000 PPM only increases atmospheric IR absorption by 7/231 = 0.03, or 3%. Increasing it from 400 PPM to 1,000 PPM it increases by 1.7%. CO2 has increased from around 200 in 1900 to 400 PPM today. Temperatures increased between 0.5 and 1.0 degree C depending on the hemisphere. Increasing CO2 from 400 to 1,000 PPM would result in about an equal increase in IR absorption of about 1.7%. Assuming CO2 was the sole cause of the warming, one would expect a similar amount of warming. At the current rate of CO2 increase, that would take approximately 300 hundred years to get to 1,000 PPM.

Out of all the greenhouse gases, CO2 is an extremely weak one, and it absorbs heat near the -80 degree C/15 micron area of the spectrum, far away from the 15 degree C/10 micron area that the earth emits.

(click to enlarge)

One other odd relationship is that ozone or O3 absorbs IR right in the sweet spot of the earth's black body radiation peak of 10 microns. Ozone is concentrated over the N Pole, and is largely absent over the S Pole. The N Pole is losing ice while the S Pole is gaining ice. That is just another one of those funny coincidences that are overlooked by the climate "scientists." Maybe we shouldn't have banned CFCs after all? The resulting increase in O3 is killing the polar bears? ;) (For those with no sense of humor, that was a joke.)

(click to enlarge)

Is there any good news?

The one positive note is that the 1997/8 ENSO occurred when the PDO was at a peak, so the two forces combined to dramatically boost global temperatures. Al Gore used this period for its dramatic effect in his movie, "An Inconvenient Truth". This year, however, the PDO is in a cooling phase, so hopefully the temperature and climate change won't be as dramatic as 1997/8. If it does, you can count on a sequel to "An Inconvenient Truth".

What does this all have to do with investing?

What does this all have to do with investing? One whole heck of a lot. The droughts this summer are expected to get a lot worse in the S Hemi, and should lift in California. The US imports ethanol and coffee from Brazil. Higher coffee prices should harm Starbucks' (NASDAQ:SBUX) earnings and help ethanol producers like Green Plains Renewable Energy (NASDAQ:GPRE). The ending of the drought in California should result in a bumper US crop this year as long as too many storms don't flood out the fields. Corn, soybean, wheat and other crops' production should all increase. Lower crop prices should help restaurants like McDonald's (NYSE:MCD), food processors like ADM (NYSE:ADM) and farm equipment makers like Deere (NYSE:DE). An increase in storms may harm insurance companies like Travelers (NYSE:TRV). The economic impacts of ENSO are wide reaching.

El Nino impacts important business variables like sales, revenues, and employment in a wide range of climate-sensitive industries and sectors. Overall, total U.S. economic impacts of the 1997-1998 El Nino were estimated to be on the order of $25 billion.

2014 is a critical election year:

The other aspect to consider is that 2014 is an election year, and Democrats are already making climate change a key campaign issue. If 2014 is anything like past El Ninos, Democrats will have plenty of evidence of climate change, bolstering their argument that governments must do something to stop it. That should provide some protection for "green economy" stocks. Democratic success in making the case for climate change legislation will also jeopardize the Keystone XL Pipeline and all the industries related to it.

If, however, the Republicans take control of the Senate and retain control of the House, policies related to the "green economy" are almost certain to fall on the chopping block. President Obama may veto any proposals, but expansion of the climate change agenda doesn't have a snowball's chance in Hades.

Additionally, as I tried to demonstrate in this article, the theory that man is causing climate change only holds as long as the public doesn't look behind the curtain. As long as the public continues to simply outsource their decision making to the "experts," the support for more climate change legislation may hold. The problem is, public support for climate change legislation is already extremely low, and most people have never taken the time to actually study the "science" supporting the manmade global warming/climate change theory. I have, and as I tried to demonstrate, the Republicans won't have any trouble making their case if/once they gain power. As the recent price drop in Fannie and Freddie proves, government dependency by corporations is a double-edged sword, and the extreme risks should not be ignored.

Most damning of all however is that the "experts" don't have evidence that proves they should be considered "experts." Nearly 100% of IPCC/CMIP5 climate models overestimated current temperatures. In any real science, that would prove a systemic bias and pathological level of group-think. Outcomes like this in a real science would result in the conclusions being rejected, not reaffirmed. One sided results like the graphic below demonstrates is clearly evidence of what is called a "mis-specified" model. The IPCC scientists have either overweighted insignificant variables like CO2 that they shouldn't have, tried to explain a curvilinear dependent variable like temperature with a linear independent variable like CO2, left our highly significant variable like the ENSO, PDO, sun and other more significant green house gases like H2O and O3, reversed their dependent and independent variables so X=mY+b instead of Y=mX+b and/or a combination of all the above. Having created multi-variable stock market models for years, I'm pretty sure the errors existing in the current climate models have errors in "all the above." Take the above explanation to any college econometric professor, and I'm pretty sure he/she will agree with what I've written. The important question investors need to ask is, will support for climate change legislation survive a congressional investigation if presented in the manner of this article? A single election can have catastrophic consequences for the "green economy," so investors must understand the economic, financial, political and scientific risks of their investments.

Disclaimer: This article is not an investment recommendation or solicitation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice. Past performance is no guarantee of future results. For my full disclaimer and disclosure, click here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.