SunspotsIt is likely that the Sun is entering a cooling period of 20 to 30 years according to some scientists. The current sunspot minimum is the longest and most severe in roughly the last 100 years. The NASA site has more on this.

We hear dire predictions that the Earth's temperature may drop 1 degree C over a certain number of years. The question arises as to whether this is a normal fluctuation in the Earth's temperature or not. Scientists often speak of the Solar Constant. It is the mean energy output of the Sun. In fact it only varies about 1% up or down. This doesn't seem like a large deviation. Based on an average room temperature of something like 20 degrees C this sounds like it would mean an average temperature variation on Earth of about .2 degrees. Clearly the global warming prediction are much larger that this by about a factor of five. Most global warming proponents simply ignore the variation in the Solar Constant as too small to be relevant.

All such thinking as the above is based on a simple numerical fallacy. If the Earth was a rock in the middle of space and not near any star such as our Sun it would have a temperature of about absolute zero which about -273 degrees C. Almost all the heating to about 20 degrees C is due to the Sun's energy hitting us. Thus the Sun generates about 500 (~273 + 20) degrees C of heating on the Earth not just 20 degrees. But when we remember that the Solar Constant can vary by 1% during normal fluctuations we realize that these variations can cause 3 degrees C worth of climate change, having nothing to do with man made causes. Suddenly the dire predictions of 1 degree cooling seem relatively modest compared to the natural cycles of 3 degrees. This calculation is consistent with the fact that the highest temperature on record over all the Earth was 1998 and it has been cooling for the last 11 years.

Then the question for speculators is how to trade these fluctuations. If one believes we are in a cooling cycle then buy land and stocks in Southern areas perhaps even South of the US. Certainly one would consider selling the same in Northern latitudes. If one believes that the warming proponents are right then buy Northern land and Canadian stocks.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Canadian trader George Parkanyi responds:

I've been monitoring the sun-is-cooling chatter as well. Here in Canada, anecdotally it certainly "feels" like cooling. We've barely had to use our air conditioner the past few summers - and Ottawa used to have very hot, muggy summer days in August and July. None this year.

If we have a 3 degree dip in the average temperature of the earth, it's going to get very uncomfortable. That may be mitigated somewhat by warming effects from greenhouse gases. However, the C02 is causing other problems, like raising the acidity of the oceans, killing reefs and plankton etc. Carbon emissions are not just a climate-change issue. They're also a pollution issue.

As to whether this is tradeable? Long-term perhaps, because the changes are slow, but which scenario wins out? And how will you be able to tell which climate effect is temporary, and which part of a long-term trend?

Cooling will pressure agriculture, as might excessive warming (droughts). Agricultural commodities could become an either-way bet. Either scenario would also force significant infrastructure changes/adaptations. Basic materials?

With cooling, energy would be huge - carbon or otherwise. Natural gas will be interesting to watch if we have a colder winter than last year. Alternative energy would be a winner as well, less so biofuels because of weather vulnerability. Nuclear could become quite important again out of necessity.

Certainly a lot of food for thought here.

Tristram Waye replies to George: 

Thanks to global warming you and I get a chance to live and travel this land. Canada was covered by ice some 10-18 thousand years ago. The great mountain valleys and bountiful fresh water are lush nutrient rich plains are a result. I am thankful for global warming myself. Especially when I take that boat cruise across Waterton Lake to Goat's Haunt, Montana. 

I think the problem with the debate on global warming is that it is one-sided, myopic and short-sighted. We live 90 years and therefore we lack the perspective of thousands or millions of years. Where I am sitting was covered with many feet of ice at one time; but its melting seems unrelated to certain large vehicles, cow exhaust and people in general.

The idea that warming is bad is unproven. The idea that more CO2 is dangerous lacks credibility. The belief that men can change the temperature of the earth presumes that we can even get the weather forcast right three days in a row, and five days out. One has to laugh at the concept of climate change, otherwise known as the four seasons. Even Vivaldi knew about that.

The notion of man made global warming sets man apart from the planet he lives on. It presumes that we are not of the earth, but gods of it. Tsunamis destroy villages and lives. Hurricanes can not be predicted, eradicated or steered beyond harm's way. And yet there are those that believe we can change the climate of the whole world when we cannot even predict it five days out? Who should decide the optimal climate for the world? Imagine that debate at the UN. If we are cooling, will we receive subsidies for driving F-250s? I can't wait to hear that answer.

The investment thesis here should be focused on the premise that too many people and governments are on one side of this idea, and have sold their souls to it. There is no turning back for many of these ideologues.

A cooling trend will badly damage many careers, organizations and individual reputations. Perhaps all of the money currently being wasted on a natural process will find better uses elsewhere. Perhaps they will turn water into wine, or get blood from a stone for their next great cause to save humanity.

Craig Humbert remarks:

Sunspots have picked up the last two weeks, so maybe this is the upswing predicted for the last three years. This is a really interesting year with the Arctic cooler than normal due to the volcanic activity in Alaska and Russia. The tropics are warmer than normal because of El Nino and increased sunspots would presumably add to that. Iben Browning talked about this years ago saying the clash of these extremes whips the jet stream up and down like crazy. El Nino years normally are good for our grain belt but this year should provide plenty of excitement.


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