Tag Archive for Wall Street

‘Stay Angry at the Plutonomists’

begger approaches rich man
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Writing for the New Economic Foundation blog, Josh Ryan-Collins encourages us to “stay angry” at the tiny group of powerful Americans CitiGroup says enjoy the special status of “plutonomy” — you know, the people who matter.

Citigroup believed that we had moved in to a new kind of macro-economy, where growth was primarily driven by the rich and enjoyed by the rich.  Everyone else was fairly irrelevant, as was the global imbalance in trade between the US and everyone else and the strength of the dollar.  The fact that inequality was massively widening was not seen as a big issue – the important thing was to keep the rich and their stocks, getting richer.

Ryan-Collins is referring to the content of two leaked reports that should have been more widely embarrassing for Citigroup. It probably helps that Citi’s brands/subsidiaries advertise widely in American news media, or we might have seen more from the troublingly candid document.

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The Truer Threat of a ‘Carbon Bubble’

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You aren’t an idiot, so you’ve long known many of the impacts of climate change are inevitable at this point. Some are already occurring. You get that. The trajectory is in place, and unless we change it sharply, we’re going to see worse and worse conditions.

But what if financial markets have embedded the trajectory to a great extent by all but guaranteeing dependence on fossil fuels? A new report (PDF) raising fear of a bubble in the fossil fuels market inadvertently suggests this trajectory is precisely what’s underway, although its authors don’t seem particularly concerned about the threat to our habitat. The deck has been stacked; there’s a carbon commitment in place, if you will.

I found the report through a blog entry by Lydia Prieg over at NEF. She summarizes some key points for those of us more interested in humanity and the planet than investors:

This research offered a fresh perspective on investment and tackling climate change, by noting that more fossil fuel reserves are currently listed on stock exchanges than can be burnt if we are to avoid breaching the 2 °C global temperature rise (above pre-industrial levels), beyond which it is believed that climate change will be irreversible. For example, the CTI notes that:

  • “global markets are currently treating as assets [carbon] reserves equivalent to nearly 5 times the carbon budget for the next 40 years.”
  • “the CO2 potential of the reserves listed in London alone account for 18.7% of the remaining global carbon budget.”
  • “If the 2 °C target is rigorously applied, then up to 80% of declared reserves owned by the world’s largest listed coal, oil and gas companies and their investors would be subject to impairment”

Note that the +2°C point is way too high. We want to aim for +1° beyond pre-industrial levels by Century’s end, fully conceding we’ll spend most of the next hundred years cooking well above +1°. (And the prospects for even +2° are more than a little grim.)

Like Prieg’s, my take on this is different from that of the report’s authors. They seem concerned for fossil fuel investors, which is probably their mission. But I’m more worried about the rest of us. If the world’s governments get serious about curbing carbon emissions, it’s unlikely they’ll leave speculators holding the bag. Whoever is holding a hot potato (oil field) if and when steep regulations kick in could get bailed out.

Even if the influence of those invested in dirty energy were to fail in some way, they’d almost certainly succeed in protecting their existing investments in the trade-off. Which in turn means burning that fuel or transferring the burden onto the consumer/citizen, who is of course relatively unprotected by government.

Anyway, as Prieg notes, the industry isn’t particularly worried about the prospect of harsh emissions limits being imposed on fossil fuel reserves already on the market, wagering either that curbs are not impending or that the price spike they’d cause would benefit contract holders.

But Prieg’s personal insights are most important:

Both these arguments, however, demonstrate the lack of interest investment managers have about the role that they themselves may be playing in bringing about irreversible climate change. Apparently, when one is focused on optimizing an investment portfolio’s performance, concerns regarding the state of the planet just don’t feature on the agenda.

Indeed.

Image credit: Carbon Tracker Initiative

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The Coming Second Dip

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I don’t plan to spend a lot of time on this blog writing about acute economic scenarios like our likely double-dip Great Recession, as I have my eyes a good bit further down the road. But I’ve been seeing a lot lately about us being on the verge of that second dip. I don’t do analysis on this level, but I do pay attention to it, so I thought I’d share some. The stock market is beginning to bet on that second dip, which of course doesn’t help us avert one (if that’s remotely possible).

For a light listen, NPR is on the ball with “Double Dip: Is the U.S. Headed for Another Recession”.

So how much does this matter? This report from the Economic Policy Institute suggests the mere slow recovery is having a measurably negative impact:

[T]he last six months have seen an average growth rate of less than 1%, a rate of growth that fully explains why the previously declining unemployment rate reversed course in the past six months.

So imagine what another downturn would do.

For a slightly headier review of the prospects, check out Harvard economist Kenneth Rogoff’s analysis. He notes:

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

Which of those sounds most enticing? (I know my choice, if I can’t have none of the above.)

For true long-game insights, never miss Jack Rasmus. On the impending “dip” (plunge?), and how it relates to the recent debt-ceiling “debate”, Jack’s take is cynical but probably very realistic:

No wonder the stock market shuddered on Monday, notwithstanding all the “good news” about the debt deal. The performance of the real economy was far more important and “real” than all the huff and puff about debt ceilings and defaults by the US government. The alleged “good news” of the debt agreement was overwhelmed by the undisputable “real news” that the real economy was heading for a relapse.

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