Blain’s Morning Porridge – Jan 5th 2023, Climate Change: Threat, Opportunity, Ukraine and Growth!
“So where are the choirs of flower throwing schoolchildren now Comrade?”
This morning: The UK’s Met Office says it was warmest year on record – what does that mean in terms of climate change opportunities in the long-run, and how the geopolitical threat mellows now that General Winter has abandoned Putin?
Yesterday was Perihelion – the moment the Earth’s orbit is closest to the Sun at 147 mm kilometers. Come July 4th we can celebrate Aphelion when the Sun will be 152 mm miles away. At Perihelion the Sun is 7% stronger beating down on the Southern Hemisphere, and imperceptibly larger in the Sky.
Recent research into the Earth’s axial tilt, sea temperatures, wind speeds and direction, and orbital precession (yep, I had to look it up), has shown that the Earth’s orbit around the sun does have measurable climate effects, including influencing the “Pacific cold tongue” of chillier sea temperatures that drives El Nino/La Nina weather events. It also partly powers the winds behind the East-West Monsoon that dominates the Indian subcontinent.
None of the above means climate change is not real. The Earth’s elliptical orbit is a given, and shifts on a 22,000 year cycle. What the research highlights and confirms is just how complex and inter-connected the Earth’s weather mechanisms are. Tweak something and it has consequences.
What we do know is the warmer the atmosphere, the more water vapour it can carry, and the more powerful storms become when fuelled by warmer oceans. This year we’ve seen stronger and more frequent storms, and considerable global flooding. Put 1+1 together. It’s the cumulative consequences of small changes that begets a cycle where the normally fluctuating climate suddenly becomes chaotic.
What we also know is 2022 was officially the warmest year on record, according to the UK Met Office. They know their stuff. Founded by Captain Robert Fitzroy in 1854 – he also skippered Darwin’s Beagle – the Met office has been measuring the weather longer than anyone else. (Here in the UK we know the weather – it’s all we really do; blether about the weather.)
Other folk say global warming is still within norms. Try telling the palms in my back garden slaughtered by the cold snap in Dec it was a warm year.. But it was. Temps hit 40.2F for the first time ever in Blighty. Given current global warming models, that wasn’t expected to happen for another decade or so. This morning in my seaside village on the south coast of England, the bulbs are already shooting up, some trees are budding, and yesterday I spotted a bee – on Jan 4th!
Weather matters across the global economy – and weather events are increasingly less predictable and more volatile.
- Across the Alps there is a serious dearth of snow. Ski resorts are (literally) in meltdown. (I am seriously considering a trip to Whistler or Colorado rather than the Aosta Valley in Feb.)
- Drought, heat waves, landslides, firestorms, storm surges and floods are becoming more frequent and more damaging across the USA, Asia, South America, Africa and Europe.
- Permafrost is melting across Siberia and Canada.
- The amplitude of weather events is increasing – faster than the science predicts. Pakistan was devastated by monsoon floods – its notionally a desert – proof of just how more water is in the atmosphere!
There are two immediate issues with the weather.
The first is the mounting evidence of global climate change and the imperative to act to mitigate it. If you are a climate change denier, or you want further evidence – your call, but you could miss the biggest investment gold rush in financial history.
In the Medium/Long Term climate change mitigation and prevention will become the most important long-term driver of economic invention and innovation ever, spawning multiple investment opportunities. It will drive the creation of a whole new environmental sector to create carbon offsets; including areas like environmental restitution and rewilding. I sincerely believe our capacity for finding solutions will create a sustainable, better future as new renewable energy sources and environmental improvements become political imperatives rather than mere fads consumers will actively demand!
It’s an example of the millennial effect of changed political objectives. Here in the UK the established conservative party is finding it simply doesn’t appeal to younger voters who are not switching to them as they age. The old adage about a person who is not a socialist in their youth having no heart, and one who is still a socialist in middle age has no head, is no longer true. They are staying radicalised – see CapX in this morning’s Five Things.
The second effect of climate is the immediate Short-Term.. weather has become a critical component of the current geopolitical picture.
There is a pub in Musselburgh, near Edinburgh, called Stagg’s. Superb beer, and I know it rather well as my mate lives around the corner. The Stagg family has run the pub since the 1850s. Their most famous son was Group Captain James Stagg of the RAF. He was the meteorologist who advised General Eisenhower on the timing of the D-Day Landings in 1944, perhaps the most critical weather call of modern times. Stagg held back D-Day, demanding a one day delay till June 6th to catch a fleeting weather break.
Stagg called it absolutely right.
Vladmir Putin has called it wrong. His strategy to sieze Ukraine was based on Europe backing down from confrontation on the expectation a gas squeeze would crush the European economy, backed up by the implicit threat a cold winter would cause unacceptable power outages and misery across the EU and UK. It hasn’t happened. For once the cold has not favoured the bally Ruskies. With every warm day Europe is less likely to collapse this winter.
- Warmer temperature mean Gas prices are in free fall, “cooling” the energy inflation spike since Russia invaded Ukraine.
- Germany successfully opened its first floating LNG import terminal just before Christmas – cutting its future reliance on Russia. The consensus it would take years for Germany to replace its overreliance on NordStream 1&2 gas infrastructure. Wrong. It took 10 months.
- Russia’s handling of the war has gone from bad to worse. It looks increasingly ineffectual and disorganised – even panicked as they blame troops using mobile phones for the missile strike that took out a whole battalion of Samarkand conscripts.
- Long-term demographics show Russia will run out of eligible soldiers long before Europe. It’s increasingly exposed as an ageing, busted, kleptocracy.
The last time I wrote about how Russia was losing the war, I was trolled by Putin’s legions of Trumptards and Ivans telling me how it’s the Biden supporters who are lying, that Russia is winning, and every Ukrainian is a Nazi. The trolls’ position is untenable. Even if Ukraine was fighting a proxy war foisted on them by the West, its clear they are fighting willingly for their freedom and unity with skill, dedication and as patriots.
Cynically, one could argue the West is fighting a very successful economic war against Putin – spending a few billion dollars to have the Ukrainian forces do the heavy smashing of Russian combat arms. It’s a hell of a lot cheaper than the trillions a real war would cost, with the advantage Nato troops are not the ones doing the dying. No wonder the West sits back and applauds Zelenskyy as Russia squanders its manpower. I’m sorry for Russian mothers, and angry for the Ukrainian dead.
All war is tragic, but Putin looks to have lost his only real ally – General Winter.
How will the war play out? I’ve read all kinds of nonsense about the imminent nuclear threat meaning the West should pull out. We can’t discount the possibility of escalation, but to pull out would be appeasement. The West’s support for Kiev should be unconditional, but will not be. The West lacks the required political will-power, and will conveniently hide behind the threat of potential nuclear escalation to hold back on unlimited support for Ukraine.
How does it end? Both sides need a victory before they agree to a peace. Ukraine needs to push Russia back. Russia needs to hold the provinces it illegally absorbed. These are mutually exclusive. That means either the West intervenes to push out Putin – which is highly unlikely, or it continues on till Putin is replaced, although his likely successors are expected to be even more hostile to the West.
Long term… Putin’s Russia has already lost. It may have resources in abundance, but the West will never accept it back, leaving it a poor, aging bullying state. Good luck having China as your best “friend”.
For 2023, Europe’s priority will be energy security, building on the success of new LNG infrastructure to secure more non-Russian energy, and for the West to mount a diplomatic offensive to rebuild a global consensus against Russia.
Five Things To Read This Morning
CapX Why older millennials don’t vote Tory and how to win them back
FT The UK’s dream of becoming a “science superpower”
BBerg No Fed Cut? Markets Think its More Than a Matter of Minutes
WSJ Meta Fined Over $400 Million in EU for Serving Ads Based on Online Activity
Torygraph BlackRock keeps £3.5 bln property fund shut in face of Pensions fire sale
Out of time, and back to the day job..
As usual – spot one. Cheers!
How will it end? Henry Kissinger is holding out a kind of north-south Korean parallel line solution. Ukraine will be formally brought into the Nato embrace as something Putin will simply have to accept. Thereafter the future of Crimea will have to be the subject of a diplomatic negotiation, taking years if necessary.
My wife and I often joke that if we could harness the energy from our dogs’ tail wagging, we’d have an abundant source of reliable, and mostly clean, energy. In all seriousness, though, I would love to get your thoughts in a future Morning Porridge about where future opportunities in climate mitigation may be for the average retail investor.
I dislike voicing opposing points of view here, as I hold you in the highest esteem, but I think you’re quite mistaken on the relative dangers of ‘climate change’ and Ukraine.
In short, climate change dangers are greatly overstated, are readily managed and nothing like the apocalyptic crisis doomsayers suppose. Virtually nothing presented in the media, e.g., the ‘hottest year on record’ can possibly be measured with the precision its presenters suggest, nor are these temperatures very much higher than those of the recent past. I’m also old enough to remember when ‘scientists’ predicted an impending new Ice Age, which, after all, is the much more common climate on planet Earth, and certainly a much more difficult problem to manage than 1.5-3 C temperature increase. Does anyone even know what the optimal ‘average’ global temperature is, or if the greening of Greenland once again would be bad or good, or what the optimal level of CO2 is for plants, animals or the global biosphere is?
On the other hand, it does appear that the Ukrainians are fighting better than expected, though dying in large numbers, and the risk of incremental escalation a la WWI is disturbingly more likely than we’re being led to believe.
We here in the US have this longstanding policy known as the ‘Monroe Doctrine’ which posits that the USA will be the sole military power in our hemisphere and will go to war with any power who challenges us here. The US/NATO reneged on our commitments to Russia not to expand into Warsaw Pact nations, et al., but have done exactly that, right up to Russia’s doorstep. Russia was unwise to invade and almost certainly regrets becoming so embroiled rather than using indirect, non-military options to squeeze Ukraine and its supporters. Now we’re faced with an unwell, increasingly desperate leader with an extensive missile and nuclear capability.
The ‘Five Eyes’ nations are disturbingly sanguine about affecting a ‘regime change’ in Russia, despite our recent track record of unmitigated failure in 2nd & 3rd world regimes that had no nukes and very limited military capabilities.
I am actually unconcerned on whether climate change and biodiversity loss are real or not. Climate Change offers a fantastic opportunity for new clear, environmentally clean power and a chance to drive growth, while biodivserity is a real plus. They are both wins – so lets do them and embrace new energy. THats what the Middle East is doing – and why shouldn’t we? (And I happen to accept the science.)
Russia is a different case. Our economies are based on free markets, capitalism and the whiff of democracy. If we want to let autocrats dictate to us – our economies will fall. That simple.
A conflict between Western and Eastern European was inevitable once NATO expanded into the buffer zone between East and West. It suites Russia for this conflict to be fought in Ukraine.
Energy and resources are king. Russia can produce all its own stuff in the long term or to buy this stuff from China or India in exchange for these said energy and resources in the short term. It will be just fine.
Climate change is real but there is nothing we can do to stop it. All fossil fuels, that can be extracted at an energy profit, will be extracted and burnt till they run out – some time this century.
I’m banking on a rush to Nuclear in the near and medium future and investing accordingly.
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