Talk to the Invisible Hand: "On Climate Change, the Market Has Spoken"

Stephen Colbert likes to say, for example, that movie X must be better than movie Y because "the market has spoken." All good satire is grounded in truth, however, and Mr. Market is speaking up on the issue of climate change. This week's issue of Businessweek (Sept. 5-11) has an editorial subtitled, "Where GOP naysayers err on climate change." In sharp contrast to the drivel that appears on the editorial pages of the Wall Street Journal, it takes a non-ideological view:

On at least one subject, the free market and its traditional political supporters have been thrust into conflict. That subject just happens to be the most important one facing the planet. A number of Republican Presidential candidates have made questioning the legitimacy of climate change a significant part of their campaign strategy. Rick Perry and Michele Bachmann dispute whether global warming is man-made. Perry suggests that climate is affected by many variables, which scientists can manipulate “so that they will have dollars rolling into their projects.” Mitt Romney is on the fence. Only Jon Huntsman Jr. has declared definitively that he “trust[s] scientists on global warming.”

Politicians have been known to dissemble about risk because voters don’t generally like to hear bad news. The insurance industry makes its money telling it to you straight—how long you’ll likely live, what price your home will fetch, whether to repair or trade in your car. For this reason it’s worth noting that insurers already factor climate change into their models for measuring, pricing, and distributing risk. Insurers have no incentive to lie. If they are more scared than they should be in pricing risk, shareholders will punish them. If they aren’t scared enough, nature will do the job.

Follow the link to see the full text.

Irene's Impact: Costs Estimated $7 Billion, $3 Billion Insured

CNBC this afternoon reported that Hurricane Irene's economic impacts are likely to reach $7 billion, of which only $3 billion are covered by insurance. Out of 10 extreme weather events this year each costing a billion dollars or more, Irene ranks second or third.

Worldwide, the first 6 months of 2011 have already broken the record for natural disaster losses.

Munich Re: 2011 Breaks Annual Catastrophe Loss Record

The Munich Re insurance company announced today that the first 6 months of 2011 have already broken the record for annual catastrophe losses worldwide:

An exceptional accumulation of very severe natural catastrophes makes 2011 the highest-ever loss year on record, even after the first half-year. Already, the approx. US$ 265bn in economic losses up to the end of June easily exceeds the total figure for 2005, previously the costliest year to date (US$ 220bn for the year as a whole). Most of the losses were caused by the earthquake in Japan on 11 March.

Altogether, the loss amount was more than five times higher than the first-half average for the past ten years. The insured losses, around US$ 60bn, were also nearly five times greater than the average since 2001. First-half losses are generally lower than second-half losses, which are often affected by hurricanes in the North Atlantic and typhoons in the Northwest Pacific. The total number of loss-relevant natural events in the first six months of 2011 was 355, somewhat below the average for the previous ten years (390).

The Japanese earthquake losses were estimated at $210 billion.

Economy Explained in 2:09

Former Labor Secretary Robert Reich lays it all out:

Climate Consequences: Heat 'N' Wheat Russian Roasting Propels Prices

Aug. 5 Update: The Russian government announced today that it would implement a total ban on grain exports starting August 15. As wheat prices continued rising to a 22-month high, CNBC had a discussion this morning of the implications for the commodity markets. Here's a piece of good news for consumers: Packaging and advertising account for so much of the cost of cereal production that the prices of the finished product won't go up nearly as much as the raw materials. Here's a piece of good news for investors: The food companies will use the increase in ingredient prices to raise prices anyway.



Original post:
Climate has consequences. The unprecedented heat wave and accompanying drought and wildfires in Russia have seriously impacted agriculture; the world's largest supplier of wheat has seen its crop reduced by 15-20%. Russian exports are expected to be slashed by 30% or more. Meanwhile, heavy rain in Canada's wheat-producing areas has also impacted that country's crop. The shortage in production is driving up wheat prices at the highest rate since the 1950s, rising 40% in the past month. In an interview with CNBC, hedge fund founder and commodities investor Jim Rogers predicts that food prices will be rising "much higher" in the near future.

Other commodities are also affected. Excessive heat in the northeastern U.S. has reduced milk production, leading to higher prices for liquid milk and cheese. Milk Class III (hard cheese) has risen in price by 50% in the past year.

CNBC this morning reviewed the current situation and future prospects with a wheat trader and milk trader: