Climate

What could possibly go wrong?

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From Jo Nova

“SA Government has just agreed to run itself for 20 years off a plant that is a copy of Crescent Dunes in the US. It’s paying twice the price of wholesale coal power, the US plant took 5 years to build and worked for 1 year and 1 month before breaking down for 8 months.

Crescent Dunes only works at a 16% capacity factor which means a 150MW version would average only 24MW. Winter generation is a mere one third of summer (though there is only one year of data to go on!) SA may well be better off if Parliament has to shut down for winter, but how do you run hospitals and schools on one-third of the power?

What could possibly go wrong?”

Oh Canada!

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Canadian Conservative MP Candice Bergen wrote today,

Earlier this year, I sent a letter to every household in my riding asking them to share their thoughts with me about the Liberal’s Carbon Tax. I received over 2,300 responses back, 96% saying they disagree. A carbon tax would do virtually nothing to help the environment, and would only make life more difficult for everyday Canadian families.”

This smells so familiar. People clearly seeing these taxes for what they are. All pain for no gain. We need not go back very far when Canadian Conservative politician Pierre Poilievre said that Canadian tomato farmers were already feeling the pinch of uncompetitive regulation with regards environmental taxation. It was revealed that the increase in Mexican tomato exports to Canada were having a bigger impact on CO2 emissions than Trudeau’s proposals to halt them.

Honey, can we shrink the kids?

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Andrew Bolt has posted an interesting video which highlights a loony who thinks that climate change can be abated by growth stunting hormones and other chemical cocktails which would allow mental conformity to more climate change friendly activity. The article states,

People unwilling to act on the climate-crisis narrative should be assisted with drugs that improve and promote conformity, according to eminent bio-ethicist Professor Matthew Liao, of New York University, who also wants to see parents dosing their children with hormones and diets to keep them shorter and less of a burden on the planet.”

It would be funny if it was a joke. Sadly it isn’t.

2040? Watch auto lobbyists water down the EV legislation

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It isn’t a big surprise. The UK is following French plans to ban the sale of petrol/diesel cars from 2040. However let’s get real. Why is it that SUVs remain one of the most popular vehicle classes around? Could it be that the guy who likes to sail needs a V8 Land Cruiser to haul his 7000lb boat that a Tesla 22” rim Tesla can’t manage even half that? Could it be that a mother with 3 kids who often takes her parents on trips to the beach needs a minivan? Have they considered the single bachelor who wants a BMW sports car? Or the DINKs who want a Range Rover because they love to ski in the winter.

What about emergency services vehicles? Have these governments considered the impact of having reliable heat exchangers (from combustion engines) to power life saving equipment in ambulances? From one of my high school mates who works as a paramedic tells me, “We have Webasto heaters in our cars in the colder areas. Running off the diesel they can run 24/7 if needed. If we don’t have them some of our equipment doesn’t work like our tympanic thermometers, the blood glucose reader and then there is the problem of having cold fluids in the car. This is a problem if we are giving these IV because we can make a patient hypothermic if it’s cold. Then there’s just the general environment inside the cab. It needs to be warm in winter.”

What about LCVs? Will light commercial vehicles be exempt? Just watch the auto makers classify their SUVs as LCVs and dodge the rules! The Hummer is a perfect example of this. It was so heavy that it managed to be excluded from the passenger vehicle qualifications on fuel economy.

Let’s not forget the actions of VW (and all of its sub brands) who use the same technology blatantly lied about emissions and found a way to cheat the system. That isn’t to condone their behaviour for corporate malfeasance but certainly shows their true colours on what they feel about climate change. Now they will be forced to sell plenty of brands to pay for the penalties imposed on it.

Take California’s new $3bn plan to support EV sales – effectively a deeply Democrat state fritting away tax dollars to subsidise the wealthy. The poor guy who has to drive a 20-yo petrol pick-up truck because he can’t afford a new one is probably paying taxes to subsidise the guy who pays him to mow his lawn to buy a Tesla.

Have these governments consulted the auto industry? It wouldn’t seem so. Automakers are dead against full EV because it ruins the most fundamental part of their DNA – the drivetrain. When you read all the blurb on the pamphlets what is the one area car makers can milk consumers for? Power and performance. Mercedes can sell you a C180 for a little bit of profit and absolutely gouge out your eyeballs for the high performance C63 and basically vaporize your wallet with the options. Auto makers don’t want to go full EV.

What is it with these governments getting involved in every aspect of our lives? Have they considered the huge hole in the budget to come from a reduction in petrol excise taxes? Fuel duties in the UK are expected to fetch around $35bn in 2017 or c.4% of total tax receipts.

Have they considered that consumers are already clearly showing their belief in ‘climate change abatement’ by the cars they buy? When the subsidies were torn from Tesla in HK, sales went to ZERO while in Denmark Tesla registrations fell 94%. Isn’t that evidence enough of how these vehicles are only tax avoidance devices, not the action of deep seated ecologists?

So before running for more mad green schemes to save the planet perhaps they should look at the evidence and listen to their constituents. Moreover when governments get heavily involved in subsidizing industries it generally results in disaster by creating massive oversupply like we saw in solar and wind industries. Spain perhaps provides the strongest evidence of this. Around 2004 it wanted to get 1GW of solar under its feed in tariff over 4 years. Instead it got 4GW in 1 year meaning its budget exploded 16x and it had $100bn in tax liabilities over the course of the promise. In the end the government reneged. So much for the assurance of government programs.

The German authorities went big for bio-fuels in 2008 forcing gas stands to install E-10 pumps to cut CO2. However as many as 3 million cars at the time weren’t equipped to run on it and as a result consumers abandoned it leaving many gas stands with shortages of the petrol and gluts of E-10 which left the petrol companies liable to huge fines (around $630mn) for not hitting government targets. Claude Termes, a member of European Parliament from the Green Party in Luxembourg said in 2008 that “legally mandated biofuels were a dead end…the sooner It disappears, the better…my preference is zero…policymakers cannot close their eyes in front of the facts. The European Parliament is increasingly skeptical of biofuels.” Even ADAC told German drivers to avoid using E10 when traveling in other parts of continental Europe.

So for all of the grandstanding of governments this push for mandated EVs will not be a plus, much less achievable. I remember as an auto analyst in Europe in 2000 when law makers were saying EVs would be 10% of the market by 2010. It is 2017 and they’re 1%. Once again governments are clueless as ever. They’ve achieved only 10% of their goal in effectively twice the time. Then again what do we expect of governments who do their math on the back of an envelope and never let we, the tax payer, properly evaluate how they got there? Then when targets aren’t reached and costs associated with their incompetence end up a double whammy for taxpayers. Anyway by 2040 most of the current crop of politicians won’t be there in parliament to defend their legacy, or what is left of it.

The reality is that the automakers will skillfully lobby these bureaucrats to water down the laws which will allow hybrids and all other types of loopholes to exist making the “ban” more like a “request”. Appeal to industry wide job losses and technical hurdles (which are immense by the way) and it will be bumped. Even in the US, Corporate Average Fuel Economy laws continually got pushed out, reclassified and adjusted to suit the industry.

China data leaves warmists in the cold

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As far as curioisity on any subject goes if 19 out of 20 agreed and one dissented wouldn’t you wish to work out why the lone body thought that way? Is he or she mad? On what grounds? Do we simply suck up the consensus and accept it? That’s worked well over time. Well the Chinese Meteorogical Administration has dropped a bombshell on the warmists confirming there has been no statistically significant warming since 1998. The CMA put forward the following analysis,

“In preparing the new database…the CMA say they addressed a number of problems with other surface temperature databases, in particular the relatively poor coverage of stations across Antarctica, Africa, South America, and Asia. They note that the IPCC AR5 report concluded that the warming trends in these regions are associated with a lower confidence level. They also improved the absence of early period stations, especially before 1940….The researchers find very clear evidence for the recent warming hiatus. Their results show linear trends of 0.104 °C per decade, 0.247 °C per decade and 0.098 °C per decade for the three periods, respectively. The trends were statistically significant except for the period 1998–2014, the period that is also known as the ‘‘warming hiatus”.

I would imagine Premier Xi will listen to his internal CMA over others when setting climate abatement policy. Maybe 2030 becomes 2040 or later…so why are so many governments engaged in group think where they clearly fail to heed reality? Perhaps they are so knee deep in their own poor policy decision making that they don’t want to admit they’ve acted in haste. South Australia and Tesla anyone?

It only takes one to prove me wrong

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“No amount of experimentation can ever prove me right; a single experiment can prove me wrong.” – Einstein

Einstein meant that all the consensus in the world won’t mean he’s correct. It only takes one person to prove him wrong. It wasn’t surprising to see social media share Stephen Hawking’s prognosis on Trump leaving the Paris Climate Accord. More tellingly most overlooked the zany assumptions made in Hawking’s comments (250 degrees C temps and climate like Venus) and focused on who he was attacking. Seriously do you honestly believe that the earth’s temperatures will reach that if you relied on your own logic on this planet?As the coldest temperature in 110 years was recorded in rural NSW Australia overnight no one said boo. Had it been the hottest temperature in 110 years the media would be spewing global warming stories all week.

Last week we had former UN climate chief Christiana Figueres warn that the next three years will be crucial to stopping the worst effects of global warming. Let’s not forget that climate change is so critical to Figueres that she thinks gender inequality should be tackled at the same time and she openly discussed discrimination against males when it came to hiring in her department. Still talking of the climate alarmist letter she co-signed warning of catastrophe why don’t they analyze the “ground breaking” Paris Climate Accord they all laud when those responsible for 75% of the world’s CO2 emissions aren’t taking urgent action? China won’t peak out on CO2 until 2030, India has dozens of coal fired power on the drawing board over coming decades and Russia’s 4-page commitment is worthless. “Ah yes but they are signatories!” I heard many chant in response to the Paris Climate Accord. They might as well have signed a whiteboard in a non marking pen for what it is truly worth.

The Paris Climate Accord is essentially a system which makes as much sense as you quitting smoking on my behalf. How do I benefit exactly? Paying for air I can’t breathe. The Paris Climate Accord is nothing but a mechanism for wealth distribution controlled by a bloated UN which wishes to add more to its ridiculous budget and offices despite claims it is slimming down!

“The latest U.N. regular budget, while superficially smaller than the previous budget, made no fundamental programmatic or structural adjustments—e.g., reducing permanent staff, freezing or reducing salaries and other benefits, and permanently eliminating a significant number of mandates, programs, or other activities—that would lower the baseline for future U.N. budget negotiations.[10] Despite the Secretary-General’s proposal to eliminate 44 permanent posts, the 2012–2013 budget actually increased the number of permanent posts by more than a score compared with the previous budget. The failure to arrest growth in U.N. employment, salaries, and benefits is especially problematic because personnel costs account for 74 percent of U.N. spending according to the U.N.’s Advisory Committee on Administrative and Budgetary Questions (ACABQ).[11] Without a significant reduction in the number of permanent U.N. posts or a significant reduction in staff compensation and related costs, real and lasting reductions in the U.N. regular budget will remain out of reach.”

However what did Hawking say that makes his words credible? That is like saying Fed Chair Janet Yellen should be believed for saying we won’t see another financial crisis in our lifetimes. Let’s just accept it because many don’t know better. I haven’t seen the most rabid climate alarmists make a 250 degree claim. 98% of climate models to date have drastically over-predicted the extent of warming. The UNIPCC has been embroiled in so many scandals, climb downs and corrections that it can’t be relied on as a credible body. Many of the lead authors in the UN Climate bible have little experience in their fields and an investigation showed that  gender and minority status were given priority over ability in the investigative teams on each chapter. This is openly admitted by the UNIPCC as Donna La Framboise’s Delinquent Teenager’ highlighted,

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So if an internal survey that has been written up by the IPCC itself criticizing the process how can anyone put any validity in the argument?

Ahh but NOAA has told us that warming is getting worse. How could NASA lie? Oh the same NOAA that was subpoenaed after refusing to turn over emails related to an internal whistleblower who claimed the data had been homogenized (aka manipulated).

As argued many times before, human consumption patterns do not reflect the fear. SUV sales continue to grow as a % of sales, air travel is predicted to double by 2030 and sales of Tesla’s in HK or Norway fall off a cliff if generous tax incentives aren’t given to the wealthy to subsidize their virtue signaling.  This isn’t to doubt Hawking’s intelligence but Yellen, Greenspan, Bernanke, Kuroda and Draghi aren’t dummies either but it doesn’t preclude them from making mistakes and being wrong.

Oh, and for those that believe Hawking’s claims of rising sea levels the price of beachfront properties in a Sydney is preposterously high and even in Mauritius homes prices are still buoyant. Actions not words. Then we can always believe the immortal words of Australia’s former Climate Commissioner Tim Flannery who warned us that the waves would lap the 8th story of apartment blocks on the coast. He lives in a waterfront property himself. Actions not words.

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From Sesame to Elm Street

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ETF markets continue to surge in popularity. With low fees and basic packaging of the ETF product even Big Bird can understand what The Count is going on about. No wonder investors are snapping up these products faster than the Cookie Monster. However there is something chilling about the ETF market. In the lead up to and eventual crash of Lehmans et al CDOs, CDSs and other synthetic products were seen as the root of all evil. They were so complex that even Fields Medal winners in mathematics couldn’t make head nor tail of them. The ETF became the opposite – being too simplistic – and with that the product has brought huge complacency. To that end Sesame Street could well switch to Elm Street.

Today assets invested in ETF/Ps comprise over $3 trillion globally. Put simply the new funds flowing into ETFs vs. traditional mutual funds is at a 100:1 ratio and in terms of AUM is on par with total hedge fund assets which have been in existence for 3 times as long.

However ETFs, despite increasing levels of sophistication, have brought about higher levels of market volatility. Studies have shown that a one standard deviation move of S&P500 ETF ownership carries 21% excess intraday volatility. Regulators are also realising that limit up/down rules are exacerbating risk pricing and are seeking to revise as early as October 2015. In less liquid markets excess volatility has proved to be 54% higher with ETFs than the actual underlying indices. A full report can be seen here.

With the continuation of asset bubbles in a TINA (there is no alternative) world, ETFs in my view will lead to massive disappointments down the line. Their downfall could well invite the revival of the research driven fund manager model again as robots show they’re not as infallible as first thought in managing the volatility. Don’t forget humans designed the algorithms.

There is also the added risk of whether some ETFs actually hold the physical of the indices or commodities they mimic. A gold ETF is a wonderfully good way to store wealth without resorting to one’s own bank vault but how many ETF owners have inspected the subterranean cage that supposedly holds the physical the ETF is backed by? Has it been lent out? Does it own a fraction of stated holdings? It could be any other commodity too. Of course the ETF providers bang on about the safety of the products but how many times have we gasped when fraud reared it’s ugly head right in front of us. Bernie Maddoff ring any bells?

Given the implied volatility on the downside we need to bear in mind the actions of central banks. The Bank of Japan (BoJ) is the proud owner of 60% of the ¥20 trillion+ domestic ETF market. While the BoJ says it isn’t finished expanding its world’s largest central bank balance sheet (now 100% of GDP), the US Fed is looking to reduce its balance sheet by over 40% in order to normalize. While one can applaud some level of common sense pervading sadly the consequences of defusing the timer on the bomb they created at a period when the US economy is showing signs of recession will only be an overhang on asset markets. Should the US market be put through the grinder, global markets will follow.

It is one thing for the Fed to be prudent. It is another for it to be trying to cover its tracks through higher interest rates in a market that looks optically pretty but hides serious life threatening illnesses. The Fed isn’t ahead of the curve at all. It is so far behind the 8-ball that its actions are more likely to accelerate rather than alleviate a crisis. Point to low unemployment or household asset appreciation as reasons to talk of a robust economy but things couldn’t be further from the truth. Wage growth is not the stuff of dreams and the faltering signs in auto, consumer and residential markets should give reason for concern.

Since GFC we have witnessed the worst global economic revival in history. The weakest growth despite record pump priming and balance sheet expansion. Money velocity is continually falling and the day Greenspan dispensed with M3 reporting one knew that things were bad and “nothing to see here” was the order of the day.

Record levels of debt (just shy of $220 trillion or 300% of GDP when adding private, corporate and government), slow growth, paltry interest rates and coordinated asset buying have not done anything other than blown more air into a bubble that should have been burst. GFC didn’t hit the reset button. Central banks just hit print to avoid the pain. We’ve doubled up on stupidity, forgot the idea of prudent and sensible growth through savings and just partied on. Ask any of your friends in finance what they “really” think and I can assure you that after a few drinks they’ll tell you they’re waiting for the exit trade. They know Armageddon is coming but just don’t know when

Whether we like it or not, the reset button will be hit. I often argue people should not worry about the return ON their money but the return OF it. Global markets can’t be bailed out again with massive cash infusion. That has been a recipe for disaster, only widening the gap between haves and have nots. Debt must be allowed to go bad, banks must be allowed to go bust and free markets must be freed from the shackles of state sponsored manipulation to set prices. It will be ugly but more of the same can kicking won’t work.

ETFs are a sign of the times. They represent the slapdash approach to life these days. Time saving apps if you will. However nothing beats hard nosed analysis to understand what awaits us. Poor old Big Bird will be the canary in the coal mine and Sesame Street will be renamed Elm Street as the Kruger’s move in to give us nightmares Janet Yellen assures us aren’t possible.

Perhaps that is the ultimate question. As you go to work each day do you honestly feel that things are peachy as the management town hall meetings would have you believe? Are your friends or colleagues all bulled up about the future? Perhaps that is easier to answer than an ETF.