Blain’s Morning Porridge – June 13th 2019
“The best things in life are dirty – the worst thing in life is being content, without a cent..”
In the headlines this morning: https://morningporridge.com/stuff-im-watching
Sorry for delayed porridge, but other “stuff” had to take precedence this morning! As I was sitting waiting, I was wondering what to write about… The insatiable demand for European government bonds despite them yielding record lows (less than nothing for some), and the ongoing worries about Italy unbalancing the whole house of cards? Or how about the negotiations as to who gets what jobs in Brussels and the ECB? Or maybe the consequences of rising tension in the Gulf? What’s the latest from Boris or Donald?
I did think I’d found something when I heard about a massive Australian coal mine finally getting green lighted. I made me wonder about the number of funds I’ve been talking to about “Alternative Investments” who now check everything against a checklist of “ESG” (Environmental, Social and Governance) conformities. I can offer a perfect project construction and delivery deal, (where the tech, the geology and the infrastructure is all in place and well understood), where there are long-term offtakes are signed at prices ensuring the long-term payback and profitability of the project, but because it’s perceived to be a bit “dirty”, it fails the ESG tick test. When I retire, its going to get a whole chapter in my memoirs..
It’s crazy, but the world has gone generally daft when it comes to ticking boxes.. This morning I got to thinking about launching a new alternatives fund which will only invest in “Bad Things…” I was going to put Tobacco in the fund, till a CIO chum of mine said they are quite happy to put tobacco in their ethical fund because “people make an informed choice to smoke!” I asked about coal, but that’s a “political” no-way!
I think my Bad Stuff Fund could be extremely remunerative.. for instance; I will buy aircraft leased to Russian airlines on the basis dodgy oligarchs are more likely to pay me rents than tax-dodging UK “kings of the high-street”, or I might buy a tar sands project, or invest in that new coal mine… I will absolutely insist on proper environmental controls and compliance on every project, but I expect them still to generate significantly higher returns on the basis most “ESG” compliant investors have disbarred themselves!
I’ll let you know how it goes, but if any readers are already taking an Arbitrage approach to ESG and Green investments, let me know.. I’ve got a wonderfully dirty deal (that is actually very clean). As they say: The Best Things in Life are Dirty!
However, as I finally trudged towards the office, I still hadn’t found a topic for today until I looked out at the leaden skies and realised its Junes and I felt cold. It is nearly mid-summer and the weather is awful. Yesterday was another truly miserable day in London y’day… and its not looking much better today and tomorrow. It set me thinking…
The UK is being swept by howling rain, and cold winds. Central Europe has been baked by extreme heat. Where the two weather patterns meet, the collision of cold wet air and the energy from the hot-zone has spawned violent thunderstorms and torrential rains out of the east. It’s sucked up a number of slow moving depressions up from the south which explains the rain this week.
Readers of the Morning Porridge will be aware my passion is sailing. Knowing what the weather is likely to do is one of the things I check every time I go out on the boat. It feels like our weather is becoming increasingly unpredictable.
Unpredictability is opportunity.
If you know what the weather is likely to do, understand why, and are able to act upon that knowledge for investment purposes, its one of the many issues investors should be considering to generate Alpha returns.
The weather over recent weeks is not what we would normally expect from Flaming June. The weather is all wrong. If it continues its going to be a dismal retail summer. If it was just a bad year, we would be getting a string of depressions from across the Atlantic, but instead a weak Jet-Stream is looped around us, pulling up warm air from the south to hit the cold air sitting over us, and generating the cold North Easterly winds. That’s why it’s so darn wet, cold and miserable!
Why is it happening? Some say this sodden June is further evidence of global warming – the wettest years on record are all in the last 20-years. One suggested reason for the contorted Jet Stream is the Artic Ice melting, pushing cold water down to slow the Atlantic Drift (the Gulf Stream) resulting in colder wetter summers. As sea-ice retreats, the consequences include distorting the “stratospheric polar vortex” which is one of the drivers of the Jet-stream. It’s a circular, complex connected system we are only now coming to understand.
Over the last 20-years the accuracy of weather forecasting has improved immeasurably – making the weather APPs on your phone more accurate and able to mitigate the chances of a surprise soaking. However, the long term future is the advent of “probalistic long-term forecasting” which can analyse a huge number of variables. It’s still in its infancy, but is going to provide vital information. The problem will be interpreting it!
Short-term we could be talking about a miserable summer and weak retail sales impacting the already stressed high street. If this becomes the norm, then forget “staycations” and look to long-term investment in holiday companies – which will get more and more expensive as the price of offsetting carbon rises. Ouch.
Long-term climate change does not necessarily equate to climate warming. Wet, cold, stormy summers may become the norm. Yet, last year June started wet before it morphed into a warm summer! Weather is not simple, but it needs to be addressed. Foul summer weather, flooding and storm damage is costly, but just a fraction of what rising sea levels will do if we don’t reduce C02 emissions urgently – across the globe. One of the investment aspects smart funds should be considering is meteorological advice to understand both the short-term, but importantly long-term weather forecasts.
The problem is readers of the Morning Porridge might know all about financial markets, but when it comes to weather we don’t have a breeze. Those of us who sail have a slight advantage – we have access to weather experts.
Among the top forecasters when it comes to yacht racing is my chum; meteorologist and ocean racer Libby Greenhalgh, (who took a moment to check out my thoughts on the weather to stop me making a fool of myself!) I’d be delighted to put you in touch with her – I suspect what she knows about weather patterns could prove very investible information.
Out of time, and back to the day job!