Reader Mail: Climate Change, Coal Gasification and Interest Rates

How about some reader mail?

“Have youse b@stards ever stopped to think about global warming and whether your leg is being pulled instead of being led around like a ballerina on a dance floor? – Tom”

Yes. Yes. And no. We’re not sure what this letter refers to. Are we climate change sceptics? Yes, but only because we disbelieve things that are widely believed or repeated by politicians. And even though we dance, we are rarely led around by a ballerina on a dance floor, or anywhere, especially in tutu.

“Dear Sir,
Google: Burning Mountain.
Best regards,

Ah yes. A underground coal seam has been on-fire for over 5,000 years in Australia at Burning Mountain in NSW. This is exactly the kind of unregulated oxygen supply reaching a coal seam face that we are against. It is similar to the fire burning out of control since 1961 in the coal seam under Centralia, Pennsylvania.

If gasifying coal underground to produce a feedstock for a turbine or for liquid fuel seems daunting and surreal, it is. But so are most of the ways we get the energy we use every day. All of them are worth a look, and some are better-economically and for the environment-than others.

And by the way, why is it so many people seem gleeful about the prospects for a massive die-off on planet earth? It’s as if some people actually prefer a Malthusian argamageddon than coming up with solutions or substitutions for the problems we encounter when we grow as a species.

Frankly, we don’t know what the physical limits are to the planet’s population. All ecosystems have a carrying capacity beyond which the available resources cannot support life. Has our little planet reached those limits and are we all about to die?

Maybe. But human beings adapt very well. We flourish in complex adaptive systems that produce a large variety of experiments (through the market) that solve the problems of scarcity. Not always, but usually pretty well.

Nature rewards successful mutation and variation by amplifying. Winners reproduce. Losers die. The same is true in the business in world, except in systems where losers are subsidized for political reasons. We can’t do much about the world’s dwindling supply of cheap energy.

But in the meantime, we think that if the market does have a solution, it will come from innovative smaller companies offering a variety of incremental solutions or adaptations. The future won’t look exactly like the past. But we’ll get there anyhow, and hopefully, as investors, we’ll own some of the next century’s best species.

And our now for our last piece of reader mail:

“Why will A slow-motion subprime meltdown in the States will raise global bond yields and could take the pressure off the Reserve Bank to raise rates?

Aren’t bond yields simply a future idea of where people think rates are going?

Wouldn’t the sub prime meltdown cause bond yields to drop as expectations mount that the fed will lower rates to bail out slump?

Are you saying perhaps that they go up in order to ‘re-price’ the risk involved with lending?

Sorry I am still try to work this all out. Cheers. – R.G.”

Yes! The repricing of risk across the globe means dramatically higher interest rates. Central Banks will be passengers in this process, happy to let a healthy spike wring out the credit excess. Later, they will socialise the remaining risks in a bailout, much like the Resolution Trust Corporation assumed responsibility for S&L crisis in the 1980s. This means taxpayers ultimately pay for loans gone bad.

But taxpayers seem happy to do this, since many of them are also borrowers gone bad.

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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