Blain’s Morning Porridge July 2nd 2024: Beryl and Potatoes – Canaries in a coal mine.
“First to fall over when the atmosphere is less than perfect…”
Beryl is the fastest, strongest and earliest hurricane to hit the Caribbean. The price of the humble potato will see substantial inflation as miserable harvests come in. What do these two apparently unconnected events tell us about inflation and risk?
ESG investing has become somewhat unfashionable in recent years. Ever since the invasion of Ukraine slapped the west with a massive energy shock, the priority switched from saving the planet long-term to sustaining economies in the short-term. Would that we could do both. The current noise and signals from the global climate should make us take note of the importance and threats from climate change.
Last week I was on the radio talking about the timing of central bank interest rate cuts. I took a very strong line on inflation remaining stubbornly sticky while any cuts in interest rates were unlikely to boost economic activity, but would likely only fuel further market speculation by triggering some sort of Pavlovian response in Nvidia traders to spend, spend, spend. (There was a time when I would have said stock market traders, but since only Nvidia matters – apparently – writing Nvidia just makes the market easier to describe.)
My arguments on stickflation are simple – global supply chains remain in turmoil, wages are inevitably set to rise, and watch the price of potatoes. Supply chains are obvious. On wages its simple: an economy without good coffee shops simply can’t function, therefore we need to pay baristas a London Living Wage – which is probably around £75,000 to keep up with rents.
Consider the Potato. The humble spud? What has the price of a potato got to do with anything? Potatoes matter. They are a signal, a warning… the Canary in the proverbial Coalmine.
UK Potato prices rose 11% in 2023. This year has been dire as storms and wet weather across the UK and Ireland spiked prices in March by 23% as waterlogged fields drowned. Because of the weather and sodden fields, planting is down 10%. Anyone who has taken the time to watch the excellent Clarkson’s Farm will know drought and floods conspired to wreck the 2022 and ‘23 harvests. Things look unlikely to get better.
There seems little need to panic – yet. It won’t quite be a repeat of the Irish potato famine – the supermarkets will simply import more foods from abroad, which will be a minor inconvenience to the dauphinoise munching classes. Food prices will continue to rise across the board as we import more fruit and veg as the succession of storms driven across the Atlantic by rising ocean temperatures smash into the UK, making for a miserable summer.
And don’t bother heading off to the Med to recover your suntan – its baking hot and burning early this year. 2023 was the hottest year in recorded history, 1.5C warmer than the pre-industrial era. This year is shaping up to be even warmer. The El Nino – La Nina fluctuations in the Pacific are intensifying – hinting at changes in the underlying movements of cold water around the deeps (a factor that terrifies some climate scientists.) We’re into the second phase of an El Nino event – which the scientists suggest means higher temperatures still to come.
While the chattering classes will bemoan higher fruit and veg prices, and may even consider the airmiles, pretending they give a toss where their avocados come from, (the ones in our avocado ripening dish are Mexican since you ask – what do you mean you don’t have an avocado ripening dish??), climate induced food inflation is a clear and present danger for the over 50% of UK families currently experiencing financial pressure as a result of higher taxes, higher council taxes, ongoing inflation and energy price instability.
In the US, the lowest income families have seen food spending rise from 8% of their income to nearly 30%. In the UK, a Channel 4 programme revealed some 40% of three child family units are already in a state of food-poverty! Food banks in Knightsbridge? Indeed, they have become a reality. It’s no secret the current populist political turmoil across the West is driven by fear – of being “left behind” by poverty, immigration and famine.
Stop worrying about the price of potatoes and look out the window.
The headlines this morning are about Hurricane Beryl. It’s the strongest, fastest, and – this is scary part – earliest Caribbean Hurricane. Normally the Hurricane season doesn’t kick off until late August. Beryl accelerated from 70 knot winds to 160 knots in less than 24 hours, the most “rapid intensification” seen yet on an Atlantic Hurricane. Because it’s taken a Southerly track through Barbados and the Windwards towards Mexico it’s not getting the kind of headlines a threat to Florida or the Gulf Coast gets, but it hints at potentially massive problems to come.
As the water gets warmer into the autumn, then the intensity of storms increases. What does it mean when storms come 2 months early?
The problem is the temperature of the ocean. The Atlantic, as I have commented many times in the Morning Porridge, increasingly looks like a badly chilled Gazpacho left on a warm hob. It is getting warmer and warm water releases more water vapour to create rain, and greater energy into storm systems, creating the circular depressions that escalate into hurricanes. According to the Centre for Climate and Energy Solutions, “the intensity and severity of hurricanes will continue to increase” and will impact littoral coastal zones more intensely.
Rapid intensification is a signal of how damaging a storm may become, an indicator of how much warmer oceans are fuelling and intensifying storm systems. Large storms – like Beryl – are now the norm and more frequent. Smaller storms as seen as less relevant, even though they ultimately do as much damage in terms of land degradation, insurance claims, and crop damage. The storm surge from a Cat 5 Hurricane like Beryl may be as much as 4 meters, but a succession of 1meter floods is equally damaging in the long-term as it impacts the resilience and sustainability of coastal economies.
Meanwhile, the fluctuations in the El Nino/La Nina cycle suggest the previously observed relationships like El Nino bringing drought to East Asia, and the Amazon basin may start to change. Already in the Med we’re seeing the wildfire season, caused by drought, start early. Here in the UK, the wet weather, (fuelled by warmer water) promises another wet bad summer – exacerbated by melting sea ice changing the Jet Stream, and effectively pointing it straight over Northern Europe with the British Isles as its target!
What might happen to the global economy if any or all of the current rises in ocean temperatures, the fluctuations in Pacific deep currents, polar ice melt, the jet stream, or hurricane bands were to suddenly turn Chaotic? Dah, dah, dah… crashing minor chords….
We pride our ability to look at charts and the lines on them to predict where the lines go next. However, once the amplitude of change breaks out of observed and established ranges – as climate numbers appear to threaten – they can quickly turn chaotic, unpredictable and the consequences and effects become not only difficult to predict, but improbable to recover from.
At this point I have probably lost a significant number of Morning Porridge readers who stopped reading, in denial that such a thing as climate change is possible, and dismiss utterly the climate science with shows/suggests (take your pick – they both mean we have to acknowledge it) that climate change is man-made.… I know some very sensible traders and investors who believe we should lock up any climate protestor as a lacky of a deep-state conspiracy to destroy society through the imagined threat of self-inflicted climate instability.
I am not going to waste time arguing the evidence of climate change. Although I have something of a reputation for being sceptical of ESG investing – yes, I believe there has been a load of greenwashing by banks looking to make profits from climate fear – I go with the scientists. I also go with a proper global transition plan to clean energy. It will have Nuclear power at its core, renewable energy technologies supporting, and decarbonisation as a factor in all economic activity from shipping to property, but with fossil fuels as part of the solution. Don’t simply close down oil and gas until we are ready – that would create a massive global energy shock which would simply crush ESH ambitions. Instead, plan for Gas and Oil as part of the transition.
Watch the weather…
Out of time, and back to the day job…
Bill Blain
Author of the Morning Porridge
Wind Shift Capital
www.windshift.capital
6 Comments
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It would seem that a Martian looking down at our spinning ball, might observe the planets climate is in constant flux, i.e. changing. Climate Change proponents, solely attributing man made only input considerations are putting too much weight on the man made input variable. Using two variables only equates to an output, with “correlation does not imply causation.” characteristics. Difficult (impossible?) to model, as in reality infinite input variables. Man made inputs likely have some causation. Or not. Truly an unknown unknown. Guessing is only for those certain of the outcome, a club I not be a member of.
Rod
I am never going to make a call on whether the changing weather patterns are man-made or not, but the evidence would suggest it is. THerefore, the sensible choice is to prepare for it and make the assumption rising Greenhouse Gas Emissions are responsible, or at least partly responible alongside cylces observed in nature and ice cores. If it can be done in a way that does not kill growth and makes the world a better place, which decarbonisation could do – then what’s to object to? The transition to carbon zero could be a growth multiplier – it does not need to kill growth.
Bill, the higher seawater temperature does indeed release more water vapour into the atmosphere to produce more rain, but there is another effect which has as important an effect as more rain. This is due to the molecular weight of the water vapour; were it heavier than air then it would accumulate at the surface and there would in effect be no “weather” as such at all. But with air having a mole weight of 29 and water at just 18, some 38% less, each molecule that evaporates makes the air above the surface rise faster. It is the air being pulled in to replace the rising moist air that produces the wind, Once the moisture reaches 60,000 ft, the it freezes out producing clouds and the now drier air drops back to continue the cycle; thus producing a self sustaining weather system.
As someone who sat out Hurricane Charlie in Holyhead Harbour and had to stay on watch for 36 hours in case the mooring gave, all I can say is that I am sort of glad that I no longer have that responsibility.
theoretically something like 8% per degree C.
Wow… that’s actually a very clear description of what happens.. living here in a sailing village I am surrounded by “experts” – each with wildly different ideas ranging from “the Chinese” to unicorn farts.. fortunately we also have some of the top meteorologists.. and recently pub talk has been dominated by discussion of weather conditions on the race track (aka ocean)..
I did the Fastnet in 2007 direct into a gale.. it was miserable.. and half the crew were dead on their bunks with mal-de-mer.. we retired exhausted not realising we were leading our fleet!
Seasonality, it’s a real thing. Ask a decent CMT.
That last line referring to “8% per degree C” was cut out of the draft early on & should have been put back in at an appropriate point.
With the vapour above the sea surface increasing by 8% per degree C it demonstrates why hurricanes have tended to develop late on in the summer as the Atlantic warms up. The fact that a high category storm has been able to develop at the end of June shows that the ocean hasn’t cooled down far enough after last years hot summer, and we can expect more of the same or much worse come August.
If anyone doubts that global warming is linked to CO2, it shouldn’t be difficult to explain to them that because the sun is so hot the solar output is predominantly in the form of ultra-violate light. Also that CO2 and other gases such as methane are totally opaque to this ultra violate light, which means that the individual molecules absorb the energy making them bounce around, thus passing it on to the O2 and N2 molecules around them effectively in the form of heat. This isn’t a matter of a faith system in which one can choose to believe or not, it is 2nd or 3rd form physics which can be clearly demonstrated in the classroom.