Pricking the climate bubble
Posted on February 27, 2007 by Richard Beddard
Filed Under Investing |
Investors are pulling out of alternative energy stocks and short-sellers are targetting them, according to Bloomberg. The article quotes Ken Fisher:
“As an investment play,” global warming is “a bubble” and “social short-term craze.”
Mr Fisher is an eminent figure in global investing and the author of a book*1 and a column, both of which I admire. I emailed him asking whether his was a view questioning the scientific case for climate change, or our ability to profit from it. This is a lightly edited version of his reply:
Well, first, little is really known about climate change. There are only three possibilities:
- Global warming is real and caused by man made factors (like greenhouse gases)
- Global warming is real and caused outside of humanity (like the solar variation theory that about 10% of scientists buy into)
- Global warming is not real. Instead you have volatility, like stocks when there is no real trend, but the time periods are much longer.
When we look at scientists, we see the biggest group believing the first possibility. The second biggest group believe that no one really knows, and the science is too primitive to know. The smallest group, about 10%, believe there is no real global warming. Normally in science when even a small group disagree, it is considered indeterminate. Many disagree about global warming but it is seen as very determinate, which shows it is a social bubble and not actual science. Among the group that believes we don’t know, most won’t articulate that in public because of the social bubble. So we now have massive censorship and career destruction at universities - hence the recent censorship in Delaware, Oregon and Virginia*2.
If either of the other possibilities is real, the economic bubble is obvious. What is less obvious to people is that if global warming is true, it is still a market bubble. We have a frenzy of faith, yet at most the progression of climate change is so slow that there is no triggering economics. The craze is ahead of any reality. Hence, while not necessarily now, or even in the next 12 months, in the next two years or so the investment bubble peaks and bursts.
This has all the classic conditions of a bubble. Few question it, and doing so gets you ridiculed. It is seen as a new paradigm and very fundamental. It hasn’t yet been called a bubble. I believe I’m the first that has so called it.
When I interviewed Liz Reason and Dave Hampton in 2005, both investors in companies and funds that mitigate climate change, and wrote Green investments mean real growth, I tried hard to find sceptics of the investment case for climate change.
It looks as though I didn’t try hard enough, or perhaps the time wasn’t right.
Footnotes:
- For example see this article: State distances itself from climatologist
- See: Why investors are their own worst enemies.
Comments
8 Responses to “Pricking the climate bubble”
Leave a Reply
heck. I’m in on GTL and have been at a loss to figure out why the share price has collapsed since opening their plant and starting to produce ethanol.
Guess we know now. People like Mr Fisher are shorting the entire alternative energy sector. What to do now, bail out and take the loss, or wait forever to see if it isn’t a bubble?
Whether you believe that climate change is real or not, there’s money to be made from companies involved in ‘green energy’, at least in the short term. The more hype there is about climate change, the greater the opportunities there are to ride the wave - just make sure that you get off before reality srikes.
I follow Biofuels Corporation and was a share holder until a year ago. After the shares were listed in June 2004 the company began construction of a plant to make biodiesel. The hype around climate change and green energy was a significant factor in pushing the share price from 75p to over £3 in less than a year, and the plant wasn’t even complete, let alone producing anything (echoes of dot.com valuations). Construction problems, delays in production, a disastrous hedge strategy and adverse movements in oil and raw material prices has left the company burdened with huge debts and a product that is only on the margins of being profitable. The shares are now under 30p.
It is clear to me that the best way of judging whether the world actually believes that climate change is a serious problem that must be tackled is to look at what people do rather than what the politicians and activists with their own agendas say they should do. Many people like the idea of reducing their carbon footprint, but do they like it enough to give up some aspects of their current lifestyle? Those who are only too happy to tell others that they need to do something, but don’t want to change their own behaviour, can always buy absolution through carbon offsetting . There may well be investment opportunities in that area as well, but I don’t think I’d be investing for the long term.
Hi Dave, envirosceptic.
I think the market’s a pretty good indicator of uncertainty, and you only need to look at the price charts of alternative energy stocks to see they’re volatile. Since prices have been rising fast and I can’t value many of the companies by conventional means because they’re not profitable, I don’t have the confidence to invest. Though I’m not as sceptical as ‘envirosceptic’ about the climate change story it’s not enough on it’s own, and I find myself agreeing with him/her and Mr Fisher that for the long-term it’s pretty much uninvestable at the moment. That’s just a personal view though. I’d love to hear from investors who disagree - it takes all sorts to make a market!
Also don’t forget that the fate of alternative energy stocks are wrapped up with the oil price too. In some ways that’s a different story.
Not sure what his point is.
Global warming and energy availability are not the same thing. This commentator appears to conflate the two.
Climate change is almost certainly happening. Its timescale is at least decades, and probably centuries, maybe even millenia. The companies who will exploit the changing climate will be those that specialise in areas like flood defense, air conditioning etc - technologies that help people cope with the early stages of a changing climate.
Alternative energy technologies are a new industry which aim to gradually replace our civilisation’s dependance on fossil fuels as they run out. The timescale here is almost certainly within two generations. (50 years).
See what I mean - not even remotely the same thing.
Whether the stock market, which is of course, a stupid mass mind, can see the difference is something else.
Not sure what Mr Fisher’s point is.
Global warming and energy availability are not the same thing. This commentator appears to conflate the two.
Climate change is almost certainly happening. Its timescale is at least decades, and probably centuries, maybe even millenia. The companies who will exploit the changing climate will be those that specialise in areas like flood defense, air conditioning etc - technologies that help people cope with the early stages of a changing climate.
Alternative energy technologies are a new industry which aim to gradually replace our civilisation’s dependance on fossil fuels as they run out. The timescale here is almost certainly within two generations. (50 years).
Not even remotely the same thing.
The stock market is clearly of the opinion that the safest way to treat alternative energy is as a kind of oil. The oil market will not crash because investors dont believe in global warming.
Hi Angela, lovely to hear from you again
Looking back at my blog post and the Bloomberg article that kicked it off, I don’t think it’s Ken Fisher that conflates the two (though he might). It’s the Bloomberg journalist, repeated by me.
I didn’t specifically ask Ken which stocks he felt were caught up in the ‘investment bubble’ but I’m meeting him later in the month so I’ll ask him then.
Although peak oil and climate change are two separate issues, they are connected though aren’t they. For example; mechanisms like the Emissions Trading Scheme are designed to counter climate change but, by putting a price on fossil fuel usage will accelerate the shift to alternative energy. Surely that’s one of the drivers behind the dash to alternative energy.
I wish global warming were slow. What convinced me about it was the graph of data from the Vostok ice core which shows that CO2 emissions in the atmosphere have risen to levels unprecedented in the history that it documents, and that rise occurred in just the last 100 years. Suddenly I felt part of a huge experiment with unforeseeable consequences.
As to the market and renewable technology stocks, there are various reasons for the problems we see. The energy industry is used to having big solutions, so people are leaping on new technologies, which often don’t work and are also difficult to make big immediately. The real investment opportunities are to be made from reducing demand - switching lights off and wearing additional layers of clothing - and who can make money out of that? Energy efficiency is all about lots of small investments by millions of humans.
Plus we need to change human behaviour by getting them to make different choices. I think I’m saying that none of this lends itself to the usual stock market practices and expectations.
It will be interesting to see how the new energy labelling scheme for buildings changes the value of buildings. The British Property Federation is already taking this very seriously.
Don’t forget that globally, 50% of CO2 emissions are from buildings.
Hi Liz, thanks for your comment. Every comment adds a perspective and a layer of understanding, I think. Regarding climate change I hope that technology will provide the solution but accept the need to conserve energy too. The problem is we’re scared of the most viable technology - nuclear. If we’d carried on developing it in the 80’s and 90’s who knows how safe, clean and affordable it would have been by now?