Predicting the next financial crisis when markets are at record highs
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Hot, hot, hot: Extremely dangerous heat persists from the Midwest to the East Coast this week, says the National Weather Service. Some relief is forecast for the weekend. Several cities in the Northeast experienced their hottest June temperatures on record. As of midweek, heat advisories were in effect for over 150 million Americans from Texas to Maine.
One of the oldest mantras in the financial markets is that any potential crisis that can be forecast will not end up a market-shaking debacle. Black swan events are by their very nature surprises.
The Financial Times took its best shot anyway this week at a tick-tock narrative on how climate change will cause the next financial crisis, and it’s worth a read. It starts in the insurance markets, which are already eroding in many areas hit by global warming (see California, Florida). Then it spreads to the property markets, leading to a rise in mortgage defaults and a collapse in mortgage derivatives, much like we saw with the Great Financial Crisis of 2008.
Plenty of climate writers, including Callaway Climate Insights, have explored this scenario, but this specific piece takes a crack at tying the potential unpreparedness of financial markets to the White House unraveling of any and all attempts to create a transition to renewable energy from fossil fuels. By disrupting the transition, indeed halting it in some cases, the markets will be even more unprepared when physical changes in the environment someday mandate a quick transition. So the theory goes.
The feature gamely notes that the transition is continuing apace in many other parts of the world. But with the U.S. out of the picture, and the largest financial markets in the U.S., nobody would be surprised at the contagion of a U.S. crisis spreading to Europe and Asia. Just like last time.
It’s a good discussion piece for the weekend and timely coming out right in the middle of London Climate Action Week. But again, if we can see it so clearly happening, then it is unlikely to be a huge surprise and sudden crisis.
Perhaps next time, with global warming only getting more dangerous and some governments simply turning their heads, a global resetting of markets will indeed be something we all saw coming in advance. And just didn’t do anything about.
Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.
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Investors might be measuring climate risk at some companies all wrong
. . . . Ready for today’s climate finance riddle? How can a company with a zero net carbon footprint nevertheless have huge climate-related investment risk? The answer: If the company’s largest customers are oil companies, writes Mark Hulbert. A new climate risk tool from Boston investment firm GMO, called the “Indirect Emissions Model,” seeks to go beyond the traditional risk measurement practices that take into account a company’s direct emissions and those from its supply chains. The new model also accounts for a company’s customers. So if a software company whose customer base is mostly fossil fuel companies, then it has real risk tied to the health of its customers, which can be affected by climate regulations. It’s a valuable new tool for investors still hoping to wipe climate risk from their portfolios but likely will call far more companies into the risk spectrum than previous tools. . . .
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Pay no attention to those peak oil reports behind the curtain, White House says
. . . . Not content with blacklisting investment fund giants and banks from new business opportunities because of accusations they are hurting investors with environmental and social practices, the anti-climate brigade is now claiming the International Energy Agency is biased against oil for its reports that demand will soon start waning.
This time the efforts are led by the White House itself, with Energy Secretary Chris Wright calling the IEA’s projections that oil demand will peak this decade “non-sensical” in a recent interview. Wright is reflecting a rising belief among some Conservative lawmakers that the IEA’s focus on renewable energy gains has become somewhat political.
The attention is important because the U.S. funds about a seventh of the IEA’s annual budget of between $30 million and $35 million, and the White House could easily open its trusted playbook of withholding funding to certain institutions it finds untowardly political, meaning at odds with White House proclamations.
We suppose it was inevitable that the White House, after threatening other international bodies such as NATO and the United Nations, would at some point direct its ire at international energy organizations. But Wright’s statements make it clear the Paris-based IEA is now in the firing line.
In a battle of factual research on energy usage, we’ll take the IEA over the current White House every time. There is a reason that oil prices didn’t surge after the Iran bombings this past weekend, and it goes beyond what’s happening in the Strait of Hormuz. Despite the White House claims to the contrary, energy market trends lay out a clear future for oil demand. No amount of bullying can change that.
Editor’s picks: Moving toward danger; plus, flaming EV freighter sinks in the north Pacific
Watch the video: Some of the fastest-growing metros in the U.S. are also the riskiest when it comes to climate change. And we’ve long puzzled: Why? In this episode from PBS Terra, Maiya May explores how the Great Recession, liberal housing policy and well-intentioned community decision-making have fueled our nationwide housing crisis and helped drive people to move into harm’s way.
Ship carrying cars – including EVs – burns, sinks in the North Pacific
A cargo ship carrying more than 3,000 vehicles — many of them hybrids or EVs — sank in international waters in the North Pacific this week. The Morning Midas, operated by the London-based company Zodiac Maritime, caught fire June 3 en route from China to Mexico, officials said. When efforts to put out the fire were unsuccessful, the crew was evacuated, according to the U.S. Coast Guard. On Monday, the ship capsized and sank about 500 miles southwest of Adak, Alaska. USA Today reported Zodiac Maritime said in a statement on Wednesday that the fire damage "compounded by heavy weather and subsequent water ingress" caused the 600-foot vessel to sink. The Coast Guard stated that there have been no visible indications of pollution, but it is working with the company to monitor the situation. Two salvage vessels, Garth Foss and Salvage Worker, remain on scene and are conducting continuous assessments of the area with pollution response equipment onboard to respond to any potential signs of pollution, the Coast Guard said.
Latest findings: New research, studies and projects
Buying into climate finance
Human alteration of the Earth's climate is inexorably connected to industrial production, writes the author of Products Liability and Climate Change, part of the forthcoming Oxford Handbook of Climate Change and Private Law (Oxford University Press 2026). Douglas A. Kysar, of Yale University Law School, writes in the abstract that this work “examines whether products liability law offers a potential source of legal accountability for the causes and consequences of the climate change crisis. It then turns the analysis around to ask how products liability law itself might be impacted by the dramatic effects of humanity's climate experiment. The Chapter concludes by arguing that, despite offering low likelihood of imposing significant near-term accountability for climate-related harms, products liability law contains important intellectual resources for thinking about climate accountability more broadly.”
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Words to live by . . . .
“Do unto those downstream as you would have those upstream do unto you.” — Wendell Berry, American novelist and poet.
Thanks Ellen.....I will
Okay, I resent the discussion about people moving out of blue states to red states. Why are we still supporting them with our federal tax dollars? I don't see our immigrants moving away. They waste not, want not, and make do. Homeless? Please. In Berkeley, every homeless person has been offered a place to live. They don't want them. They are mentally ill; they want to be able to smoke in their apartments (I hate to tell them that they can't smoke in workplaces in California either); the ones who actually want real places to live have gotten them. Almost every time we drive by the encampment three blocks from us, there's a social worker asking if anyone would like to live in a building... Okay, and I live in Berkeley, not a cheap place to live, but we bought a foreclosure in 1992, paid 9 3/4% interest at first, refinanced, refinanced again, and changed to a 15 year mortgage, paid off the house in 2018, have solar on the roof, and a newly installed storage battery, all paid for, two EVs (one is our son's, he hasn't paid for gas since 2016) and we live on our social security. You can do it, but you need to understand consequences and how to control your spending. If you don't/can't, you should go live in a red state, where California can support you and you don't have to be responsible.
Finally, I hear you're going to be on Andelman in two weeks! I can't wait! I guess I should try to read your book...