The big, as in “it don’t get much bigger than this”, picture

by admin on April 15, 2013

About 10 years ago, I read James Lovelock’s book Gaia. At the time, I decided he was clearly wrong, because his blaringly clear argument (i.e. we’re all screwed) was inconsistent with reality. However, becoming a long-term investor makes you dwell upon what it means to be wrong and to be right. Almost every stock I buy immediately falls after I do so, and yet I have been able to make money over the years – I daresay that this is the same for every value investor. Therefore, whether you are in fact right or wrong depends on whether you have selected the correct timeframe to assess your hypothesis, which itself is a function of your conviction.

This all got me thinking about an event long ago called the Permian-Triassic extinction. Unless you are a palaeontologist, or spend hours reading about obscure events, I suspect it will come as news to you that approximately 252,280,000 years ago, in other words at the end of the Permian, a truly jolly bad thing happened, and no one saw it coming.

Specifically, a stupendously large bulge appeared in the Earth around about Siberia (although all the continents were stuck together at the time, so you would have a pretty hard time of finding it on a map), and, after doing a fine job of covering over 2,000,000 square km with lava (slightly smaller area than Australia), it spewed out enough sulphur dioxide to rapidly cool down the Earth, causing many nuclear winters featuring heavy sulfuric acid rain, and killing off lots of organisms.

But that was not the end of it, not by a long shot – the climate was as persistently bad, if not worse, than the bear market in Japanese shares. And we know that because all the carbon dioxide it gave out heated up the earth 1.5 – 4.5 degrees C.

What was so bad about that?

Well, you see, as James Lovelock points out in his book, when you start heating up the planet, you also heat up the oceans, and that causes positive feedback effects. [Btw – It’s good to know about feedback loops when trying to understand things in markets, too.]

One of the unfortunate effects of the apparently moderate heating was to gasify the methane hydrates on the seabed. Methane hydrates are basically methane gas trapped in cold conditions. Once you heat them up, the gas escapes, bubbles up through the water, and hits the atmosphere. Now, methane is 20 times better at warming up the earth than is carbon dioxide; so when that happened, it heated up the planet by up to another 10 degrees, killing off almost all the life in the seas, because hydrogen sulphide bacteria basically took over the show (the poo of this bacteria essentially finishes everything off), and the surface of the seas were too hot for life anyway (except for at the poles).

The loss of life itself created another few positive feedback loops, as the death of plants led to less carbon dioxide being converted to oxygen, and the death of life in the seas stopped them from acting as carbon-sinks.

On land, things were not so rosy either, as carbon dioxide levels soared. Certain plants were doing ok, particularly at high altitude, but fungi were booming. We were just lucky that there was a precursor of mammals, basically a nasty-looking rat-like burrowing creature, which survived because it liked to live underground. Incidentally, the recovery was dominated by dinosaurs, leaving the ancestors of mammals up in the trees, probably scared for their very lives, which is believed helped in making us more clever.

Japan triasic dinosaur - don't make sushi like that no mo' Japan triasic dinosaur – don’t make sushi like that no mo’

The global warming part took about 1 million years to reach a peak, and then another 2 million years to normalize, and the biodiversity took about 80 to 100 years to come back to pre-catastrophe levels.

So why worry?

The problem is that we are currently on track to produce the same amount of carbon dioxide as that big bulging volcano within the next 200 years. Sure, we have more plants and we might be able to do something about this in the future, but it’s not looking very good right now.

And, that 200 years estimate could end up being very wrong if those feedback loops have anything to say about it.

We’re up over 40% in terms of bodies on the planet since just 1987, and each of them wants, if not an iPad, then at least a Samsung Galaxy. And, there is going to be a lot of gas developed and burnt in the coming years, if not, so help us God, methane hydrate by the resource-strapped Japanese.

So the scene is set for complete and utter mayhem, and, putting the investment hat back on, I think this means:

a. If buying property as a multi-generational investment, consider mountain areas

b. Know that you cannot sufficiently gauge the effects of +40% population in 26 years to date (and more to come), but be braced for big things

c. Step away from the computer, take a deep breath, and enjoy life a bit, man. I mean, you realize how silly how all this worrying about a basis point looks like from a bigger perspective, right?

d. Don’t forget about the feedback loops

{ 1 comment… read it below or add one }

reader April 24, 2013 at 8:43 am

great stuff.


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