8/22/23
–
An
8/22/23 NYT headline: “The massive central U.S. heat wave is expanding
and could set hundreds of records.”
There
are two aspects of equity investing. The quantitative, where relevant are
future cash flows and therefore equity valuation, and the qualitative - the
context of things - about management and now increasing about Nature and global
heating. A really useful 8/17/23 Financial Times article
is titled, “How investors are underpricing climate risks”
“In
a world that is rapidly becoming more vulnerable to extreme weather events,
outdated assumptions about asset values also need recalibrating. The big danger
is of a ‘climate Minsky moment’, the term for a sudden correction in asset
values as investors simultaneously realise these
values are unsustainable. So far, businesses and investors have paid less
attention to the physical effects of climate change and more to the costs and
risks of decarbonising, as the world tries to limit
the rise in average global temperatures….
Equities
have not priced in climate change risks, research by the IMF and others has
repeatedly shown…(So does our 6/29/23 post)…Cambridge
Econometrics…recently crunched numbers for Singapore’s GIC. The sovereign
wealth fund’s long-term investment horizon - and the city-state’s vulnerability
to flooding - make it unusually mindful of climate risks. It wanted to know how
a portfolio composed of 60 percent global equities and 40 per cent bonds would
fare under varying climate policies.”
Here
are the general results:
Net
Zero Scenario -
cumulative returns over 40 years were 10 percent lower than a
baseline that assumed no climate change.
Pessimistic
Scenario - cumulative returns were 40 percent lower than the baseline. “…though
some feel that the outcome could be much worse than that given the unknowable
levels of disruption (also climate feedback loops) that such a rise might
trigger.”
So given the above uncertainties – both
analytical and political – what’s an investor to do? Equity investment requires
a rather optimistic mindset. But all things considered, 1) We will not overpay
for stocks already optimistically valued 2) Since stocks are long duration
(payback) investments, we would decrease the duration of our portfolio by
holding around 10% in cash.
__
The
best action for portfolio owners is to make sure that the political will exists
to tackle global heating, requiring a sustained effort and investment.
__
Is
climate change all a plot to reduce American freedoms? Here’s a disproof from
the bottom-line. The 9/3/23 Washington Post contains an article
headlined, “Home insurers cut natural disasters from policies as climate
risks grow”.
“In
the aftermath of extreme weather events, major insurers are increasingly no
longer offering coverage that homeowners in areas vulnerable to those disasters
need most.
“At
least five large U.S. property insurers – including Allstate, American Family,
Nationwide, Erie Insurance Group and Berkshire Hathaway – have told regulators
that extreme weather patterns caused by climate change have led then to stop
writing coverages in some regions, exclude protections from various weather
events and raise monthly premiums and deductibles. Major insurers say they will
cut out damage caused by hurricanes, wind and hail from policies underwriting
property along coastlines and in wildfire country…
“The
variability in weather patterns means insurance companies can no longer rely on
the previous risk projections that helped them make decisions. As insurers
leave certain markets or cut certain perils out of policies, some homeowners
are going without insurance. State governments have erected insurance policies
of last resort.
“But
even state-backed policies must face climate risks. ‘When you see the insurance
companies pulling out en masse because the cost of
rebuilding homes in Florida is bankrupting them,’ said Ben Jealous, executive
director of the Sierra Club, ‘its either hubris or
folly to think the state wouldn’t be bankrupted stepping in to help.’”
Climate change is getting more real every
day. Both Democrats and Republicans need to start bailing the lifeboat.
9/30/23 –
Without the help of some
recalcitrant Republicans, the House finally passed a 45-day stopgap government funding
measure, that omitted aid to Ukraine. How can the congressional House govern a
nation, when they can’t even govern themselves. And how can former president
Donald Trump again govern a nation, when he obviously can’t even govern
himself. America needs a moderate-right Republican party to help solve the real
problems we have in common: climate change, lack of an immigration policy,
social problems of distribution, and increasing government deficits.
The humane U.S. rule of law (an external standard applicable to
all) also requires citizen self-governance, in order to preserve
true freedom for society and to preserve liberal society’s ability to parallel
process (do more than one thing at once). Polarization and gridlock don’t solve
problems. A stark alternative to MAGA manufactured social chaos is
authoritarian rule, which is the likely goal of some in Congress.
Is that what you really want?
__
The U.S. stock market is just waking up to the fact that r,
the cost of capital, is high and rising.
__
We voted our proxy in favor of
the merger between Newmont Corporation and Newcrest Mining Limited.
GO TO EARLIER 2023, 2022 POSTINGS
(suggested)