Buying the Global Warming Index

Includes: ADM, DE, DOW, GWO, WM
by: Michael Bryant

There is debate on if global warming is real, what is the cause, and what should we do about it? Scientifically it is proven that the Earth is warming. And we know to a near-certain extent that carbon dioxide in a major factor of global warming, as shown by the Keeling Curve shown below.

(Click to enlarge) Source

What we should do about it is more of a rhetorical question. The naysayers say that global warming is a cycle. And certainly, ice cores show us that the earth had periods of very high temperatures like that of today coupled with similarly high carbon dioxide concentrations. These periods were often followed by an ice age. One of these mini ice ages happened 13,000 years ago when a large North American lake dumped massive amounts of fresh water into the ocean, shutting down the Gulf Stream. That is happening now, too, as ice caps and glaciers melt. I am not saying that we will have an ice age anytime soon. In the meantime, global temperatures continue to rise, causing ice caps and glaciers to melt, raising the sea level. Statistics say that if sea level rise continues at the same rate, New York City will be underwater in 30 years. Further, every coastal city in the world is threatened of being submerged in the next 100 years. This article claims that London will be underwater by 2100.

So what do we do about it? President Bush said adapt. Well, that is not a very good solution. We could cut carbon dioxide emissions, hoping it will show or stop the rate of temperature increase. The easiest way would be to cut energy use and gasoline driving. This also has an economical standpoint as oil prices hit $108 a barrel on ongoing conflict in Libya and concerns about Syria. How far will it spread? I don’t know. But $140 a barrel, which I predict here, seems very probably, especially as oil recently went over $120 a barrel. My $220 a barrel analysis seems a long shot, but is also possible.

We could also put our money into this cause, buying the ELEMENTS CS Global Warming ETN (NYSEARCA:GWO). The fund mimics the Credit Suisse Global Warming Index (^GWIY). The idea is that companies fighting global warming will see increased sales.

(Click to enlarge) Source: Yahoo Finance

The technicals show that the shares seem overbought (black lines) and due for a pullback, but the last time the technicals were at similar levels (as indicated by the purple lines), the shares did not pullback.

And the long term chart compared to the S&P 500 looks impressive.

(Click to enlarge) Source

Or we can invest in some of the index components, which include Dow Chemical (NYSE:DOW), Archer Daniels Midland (NYSE:ADM), Deere (NYSE:DE), and Waste Management (NYSE:WM). All seem great investments. Deere is the largest farm machinery maker in the world and should benefit from and agriculture boom. Archer Daniels Midland makes ethanol, an alternative fuel which should do well if oil stays high. Dow Chemical makes farm chemicals along with other chemicals. Waste Management recycles wastes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.