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Market Top In Ideas?

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March 26, 2008 – Comments (17)

One of the classic bits of investing wisdom is that a top in a market happens when there are no new people left to join the trend. This is the bullish version of capitulation, which happens when there is no one left to get off the trend and the price falls one final time as everyone gets out of that asset no matter what the loss.

Going along with that is the curse of Business Week, in that whatever company or CEO is on the cover is heading for a bruising and soon!. This seems to be similar to a market top in that by the time the major media have heard about it and are writing stories on it, the train not only left the station, but it reached the destination and has already started back.

So suppose we take these two thoughts and apply them to the  the realm of ideas. The adoption of an idea seems to follow a rough S curve, with few people adopting it at first, then it reaches the fast adoption phase which is the steep part of the curve and then eventually the rate of adoption trails off because pretty much everyone has already adopted it.

Still with me? So now we get to the point of this screed. I was at the supermarket Monday getting some lunch supplies and as I was checking out, I noticed that Time magazine had a special issue on global warming. Now I've always regarded Time as being the late to the party kid par exellence. By the time they report on something the trendoids are already moving out of it and being replaced by unhip kids from the suburbs. So if Time is all over global warming, it is just about market top in this idea.

One reason I am undecided about AGW (anthropogenic global warming) is that I am the child of two professional earth scientists (they met in grad school) and glaciation, erosion and how the land influences politics was our staple topic of dinner table conversation. In the 70's global cooling was the worry. (To give the brief version, we are in a warm blip inbetween ice ages in a fairly long cold era. As the continents move around, we have long warm and cold eras. We aren't nearly done with the cold era yet.) The consensus on the most pressing threat has changed since the 1970's, but how much is really data driven and how much is looking at a few recent terms in a very noisy data series? (And what happens if melting north polar ice shuts off the gulf stream and Europe gets colder? (That isn't a silly worry by the way.))

If global warming was a market trend I would be going short on it as everyone is now on board, so the selloff will begin soon. But the the marketplace of ideas doesn't have put options being written by a market maker. (At least not yet that I know of, but given the human propensity for gambling, give it time.)

So how do we short global warming? 

17 Comments – Post Your Own

#1) On March 26, 2008 at 11:30 AM, TMFHelical (98.85) wrote:

So how do we short global warming? 

You could open a ski shop near the Southern Appalations. 

Good luck with that.

Zz

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#2) On March 26, 2008 at 12:28 PM, chk999 (99.97) wrote:

You could open a ski shop near the Southern Appalations. (sic)

Having lived in a ski town, ski shops (and most other businesses) are a value trap of the first water. The margins are huge, but the income is extremely lumpy. Your net income for the year is not actually very good. (Same for restaurants and shops that sell candy, except for the salt water taffy place.)

I'm more thinking about polar fleece futures.

 

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#3) On March 26, 2008 at 12:47 PM, FleaBagger (28.92) wrote:

Don't you remember this Fool article?

http://www.fool.com/investing/general/2007/02/21/make-money-from-mother-nature.aspx

I imagine you can short global warming by buying snow futures.

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#4) On March 26, 2008 at 2:19 PM, DemonDoug (73.55) wrote:

Short global warming by going long things that would contribute to it.  Here are some of my favorites:

SU, MRO, VLO, TSO, SSL, ATN, PWE, CNQ, ECA

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#5) On March 26, 2008 at 2:27 PM, Hezakiah (90.48) wrote:

I like your post, but I do not think all ideas are necessarily cyclical like stock markets.  Are there any good examples where a major idea catches on and then loses its ground?

Some quick examples I thought of where even once the idea fully penetrates society, it does not look like it will be waning anytime soon: 

- Racial and gender equality 

- Evolution

- Using advanced technologies

 - Weekends

- Education opportunities for everyone 

- Democracy and Capitalism... at least for now

- Capitalism 

 

I think religion might be cyclical.

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#6) On March 26, 2008 at 4:05 PM, redearth329 (99.83) wrote:

Hez,

     As Aristotle once said, change is the only constant thing. One way to view race and gender equality is as the downturn of racism. This is probably more accurate, since racism had to emerge after the interaction of different peoples. Evolution is nowhere near saturation in the society, but it is easy to see how it could wane out of favor given the resistence it receives today. 'Use of advanced technologies' is not specific enough. Of course, we're always going to be using the most advance technologies, that's what 'advanced' means. But what those technologies actually are is always going to be in flux, as everyone knows. As far as weekends, calendars have changed many times throughout history, and will change again. 'Education opportunities for everyone,' has always been in flux, see 'racism' above. Democracy, capitalism, these concepts, as they are defined, constantly get corrupted... and get redefined. Thus, the words may not change, but the ideas do.

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#7) On March 26, 2008 at 6:04 PM, Lagunis (20.71) wrote:

redearth -

k, I will give you racism, education, democracy, and capitalism.  Though mostly on time frames of longer than we are likely to live to see.  I do not see these ideas disappearing from America anytime soon... at least not in the context of this blogpost where chk999 was talking about major shifts in thinking over just a few decades.  

Calendars have changed either due to the rise and fall of civilizations or for astronomical timekeeping purposes.  We have nailed it down pretty well as of right now and I do not think you will see another major calendar change for a minimum of several thousand years.

Evolution is certainly more widely accepted than is global warming.  Also, since it is scientifically proven (I am not talking about chemical evolution), I think it will be about as likely to wane as are the "ideas" of a heliocentric solar system or a round earth.

My point about technology was simply that we have indeed chosen to use the most advanced technologies.  No one is forcing us to spend 50%+ of our time in front of a computer or television screen.  Is it inconceivable that there could eventually be a major idealogical shift in which mankind shuns technology?  I think so, and that is why I included it.

Anyways, I was just trying to consider the cyclical nature of ideas.  It sounds like maybe most are cyclical on large enough time scales with the exception of science and technology adoption.  In that case, global climate change is only cyclical because our scientific understanding of the process is too immature at this point.

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#8) On March 26, 2008 at 6:06 PM, Lagunis (20.71) wrote:

Quite obvious, but that last post was from Hezakiah...

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#9) On March 26, 2008 at 6:54 PM, abitare (35.58) wrote:

Bear pitch here: AKNS

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#10) On March 26, 2008 at 7:01 PM, redearth329 (99.83) wrote:

Agreed, but one of my concern is about the difference between the cycle of ideas, versus the words we use to describe them.

I do agree that most of the cycles presented are on timescales that exceed the lifespan of those currently living. This will probably include global warming, unfortunately for chk999.

As far as 'evolution'... there are already more advanced concepts on the horizon. They are all that evolution is and more. Usually, they concern autocatalysis and emergence of self-organized complexity in a variety of systems, not just so-called biological systems. This is analogous to the heliocentrism that you refer to, which is already out of favor. Many astrophysicists contend that the sun is not the center of the universe. In fact, centrism is consistently repealed. Oh yeah, and the whole leap year thing implies that the Julian caleandar is far from perfect, so far.

Getting back to global warming...

The difference with global warming, as opposed to most trends, is it is the one thing that moves slower than the media. That is, I don't think "Time" is behind the curve yet. In fact, we will probably die before global warming as a fad is in its decline. I don't think the time is ripe to 'short' global warming until there are industries targeted against it specifically, which will probably not be until the next generation.

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#11) On March 26, 2008 at 7:23 PM, Hezakiah (90.48) wrote:

I will be excited to see if any of these "advanced concepts" of evolution show any promise.  The key will be some type of experimental confirmation... otherwise it will remain in the realm of string theory, parallel universes, etc.  Heliocentric as I used it merely refers to the solar system, not the universe.  I agree that the Julian calendar is far from perfect...  just as most human languages, the English system of measurement (painful to see that the U.S. is only 1 of 3 countries still using this), and the QWERTY keyboard are all extremely inefficient.  I would love it if we started from scratch on all of these things and redesigned them a la the metric system.

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#12) On March 26, 2008 at 8:55 PM, louisbecke (58.91) wrote:

Remember the hole in the ozone layer. Wasn't it in the news as much as global warming? I sure haven't heard about that recently.

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#13) On March 26, 2008 at 9:48 PM, redearth329 (99.83) wrote:

Really? I don't think QWERTY is all that bad...

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#14) On March 26, 2008 at 11:31 PM, bendlund (99.73) wrote:

re the ozone layer, CFCs were effectively banned and the hole's diminished, so it's no longer news.

 

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#15) On March 27, 2008 at 12:57 AM, Davigan100 (< 20) wrote:

You could go long on coal - I see the industry as being doomed by global warming concerns.  Coal spews lots of CO2 and since CO2 sequestration is impractical and expensive, one could argue that in a Global Warming environment, coal stocks would not do well. 

I disagree with your premise by the way.  Yes, magazines miss trends until it is too late to capitalize on them.  They also love to state the bleeding obvious (are we losing the war on drugs?, did we get in Irak for the wrong reasons?, etc). 

Anyway, thanks for the thought-provoking argument.

 D.

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#16) On March 28, 2008 at 10:48 AM, FarelessWorrier (34.32) wrote:

I think the trend of an idea and its monetary corollaries are inseparable. If you think about the dot.com bubble, there was an idea behind that, too. And that idea evolved over time. In the beginning, it was the idea that the internet was a new and rapidly emerging marketplace. Just before the bubble burst, that had evolved into the idea that anythingandeverything.com was a guaranteed success, at least in the stock market. By this time, the smart money was coming off the table, and foolish (lowercase f) money was pouring in at an absurd rate.

I see two problems with trying to short global warming. First, I think the hysteria will be perpetuated long after the hypothesis of AGW is scientifically disproven. Second, I don't see a foolish money trend to capitalize on. I don't see alternative energy as primarily driven by global warming fears; I think it has more to do with fossil fuel costs and general concerns about pollution.

If the notion of dramatic changes to our coastline, as predicted by Al Gore and others, had really caught on, there'd be some nice imbalances in real estate valuation to exploit. Global warming proponents predict large areas of Florida will be underwater in the near future. Is this reflected in the home prices there? Have builders stopped building there (setting aside the overall real estate downturn, of course)? maybe FloridaBuilder can help us out with this one. 

Maybe you should just short Time Warner, instead... 

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#17) On April 25, 2008 at 12:09 PM, EclecticRecluse (79.66) wrote:

Well there's two issues:

1. Public Sentiment: I think you will notice that public concerns over environmental issues are pretty well correlated with changes in commodity prices.  So if you expect environmental concerns to wane, that will be associated with falling commodity prices. Short the CRB.

2. Actual Global Warming: I agree with you that the jury is still out on the cause and siginificance of observations.  We don't have enough understanding of the processes to say with any confidence that the observations are any more than a local variation.  This does not absolve us from a responsibilty to husband our environment, but I wouldn't rely on any projections for a warmer or cooler, wetter or dryer experience.  In the long term view, recent decades and centuries have seen a remarkably steady environment (when compared with earlier periods).  So, I think the best bet is to buy OTM options on relatively extreme events, and pray we survive to enjoy the pickings.

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