Monday, May 27, 2019

Uncommon Thoughts On Global Warming

Despite all the scare stories about global warming, we are actually in an Ice Age. We are in a relatively warm period within a much larger incredibly cold period says geologist Dan Britt. In his lecture Orbits and Ice Ages: The History of Climate, he says “reading the rocks” gives us a really good record of climate for the past 500,000 years. And the climate for the latitude of Pensacola, for example, is about the same now as it was in the Mid-Cretaceous period a half billion years ago.

Since then, the average temperature of the earth has been much warmer than today. There were only four periods that were as cold as the present. In short, we are in one of those rare periods in which the earth is about has cold as it ever gets, at least in a half billion years--so why are we worried about global warming? During those four warm periods, each lasting 3,000 to 4,000 years, nowhere on earth, including the poles, was the average temperature below freezing. Temperate climate extended all the way to the Arctic Circle. Today in the Arctic Circle, fossils can be found of crocodiles, turtles, and breadfruit trees. The temperature must have been quite warm for those species to survive there. The climate where New York city would someday rise was comparable to that of Key West today. But during the extreme cold of the Ice Ages, the ice was a mile thick at the New York city location, and also at the sites of London, Berlin, and Minneapolis.

Carbon dioxide is a natural part of the atmosphere, and it can increase or decrease from natural processes having nothing to do with burning fossil fuels. We have been warned that 400 parts per million (ppm) CO2 is a “tipping point” for an unavoidable worldwide environmental disaster from global warming due to burning fossil fuels. But pre-industrial CO2 reached 1,700 ppm—six times the pre-industrial level—when there were no factories or automobiles; and the high CO2 couldn't even melt the glaciers, much less overheat the earth.

What is the “normal” level for CO2? The earth has seen both higher and lower levels of CO2. Can anyone say today's level is the optimum or that a higher or lower level would be better? Glaciers are rising. What is the “normal” level for glaciers. Sea level is rising. During the last glacial maximum, sea level was 150 to 200 meters higher than today. Would the average sea level of the past half billion years be the standard for which we should strive? That standard would eliminate Florida; Miami would be under 80 meters of water. There is no “normal” level for CO2 or for sea level.

What about Antarctica? Is it threatened? Should we be worried? There is no such thing as a “normal” level of glaciation for Antarctica. There was no Antarctic ice until 35 million years ago. Glaciers are triggered by changes in the earth's orbit. Antarctica glaciated, but that did not last. Then 12 million years ago Antarctica re-glaciated, which brought a sharp drop in the earth's temperature, which increased rock weathering. More important, when India collided with China creating the Himalayan plateau, it greatly increased rock weathering, which sucked out 80 percent of the carbon that was in the Cretaceous atmosphere.

Carbon is essential to all animals and plants. If the CO2 level in the atmosphere is too low, they will be will be unable to reproduce, and the earth will become a barren planet. That fate was avoided by the invention of agriculture, variously estimated at 8,000 to 10,000 years ago. To expand farmland for food, people were cutting and burning bushes and trees—thus putting carbon dioxide back into the atmosphere. About 5,000 years ago they also began cultivating rice, and rice paddies also put carbon dioxide (and methane, another greenhouse gas) into the atmosphere.

Volcanoes represent the largest natural input of carbon dioxide into the atmosphere. Other natural sources include sunspots, ENSO (the southern oscillation of the El Nino ocean current) and CO2 already in the atmosphere. Britt thinks all of these may have some limited effect but too minor to be more than just “noise” in the background.

Wednesday, March 27, 2019

Gold and Cryptocurrencies

The CHICAGO BOARD OPTIONS EXCHANGE was the first exchange (in December 2017) to provide futures trading in bitcoin. When a few days ago it announced it was terminating this service with the expiration of the June contract, severe selling of those still holding positions was expected to drive prices lower. That didn't happen. Trading was orderly with little changes in prices, which hovered just below the $1400 level that the market had been unable to surmount for several weeks. The next day the price sailed through $1400 and added another $29 before settling back below $1400. The fear of a debacle had vanished with optimism of higher prices, with $1500 cited by some as the next price target. That target was quickly hit on April 3, when the price shot up $1,000 in one hour and reached $1525 before settling back.

What happened? Attention was focused on the CBOE, but across town the Chicago Mercantile Exchange, which also had been dealing in bitcoin futures since December 2017, presented a different picture. On March 14, the day before CBOE announcement, almost $90 million worth of CME's bitcoin trading changed hands, compared to only around $8 million of CBOE's trading. But the CBOE story made the headlines, not the CME with more than ten times the trading volume and no problem.

Large swings in price are characteristics of not only Bitcoin but other cryptocurrencies. During part of 2011, the Bitcoin price dropped about 95%. It also dropped 85% between December 2013 and January 2015. The total market value of all cryptos is down about 85% from its peak in January2018. But Bitcoin has always bounced back from these huge declines and risen to new highs.

Despite discontinuing Bitcoin futures next June, CBOE expects to be involved in cryptos in some way. A spokesman said it is “assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading.” CBOE is owned by Intercontinental Exchange (ICE), which envisioned its participation here in crypto futures as a building block in a broader platform for trading and storing digital currencies and delivering metallic coins in the settlement of accounts. CBOE owns 18 existing exchanges, including the New York Stock Exchange. It planned to offer its crypto—called Bakkt—on the same exchange where it lists natural gas, cotton and coffee futures. The delay in launching Bakkt arose from disagreement with the regulator (CFTC) over how Bakkt should be regulated. Negotiations are continuing, including “warehousing” discussions related to Bakkt's responsibility for customer funds. But at least a dozen other companies are working on plans to launch futures trading backed by gold. So gold appears in the process of establishing an increasing presence in the cryptocurrencies.

If Bakkt or any other crypto is backed by gold, an interesting parallel arises with what happened on the Shanghai Gold Exchange. When the Shanghai exchange opened some years ago, it provided an opportunity for central banks to acquire gold without upsetting trading on the gold exchanges in New York and London, which deal mainly in trading futures contracts rather than physical gold. The banks didn't want to buy gold by dumping large amounts of dollars on the market since that would diminish the value of their remaining dollars. The SGE made it easy for banks to trade dollars for physical gold. If a gold-backed crypto can be bought with dollars, that will make it easy for millions of people to move dollars into gold. And in the long run, that could create pressure for making the dollar once again officially convertible into gold. In that case we will have come full circle back to a gold-backed currency.