From Watts Up With That?

Essay by Eric Worrall

Chris Leithner, Joint Managing Director of Leithner & Company Ltd, on why going with the crowd on climate change violates the basic principles of sound investment.

Why value investors should doubt “climate science”

By nature they’re sceptics, and at key junctures become contrarians. I show why they should disbelieve the orthodoxy – and why it matters.

CHRIS LEITHNER
Leithner & Company Ltd

In this article, I answer these crucial questions. I proceed from four premises: 

1. Value investors are naturally sceptical, and always think for themselves.
2. They don’t let conventional wisdom sway them – whether in the form of crowds, a “consensus” of academic and other “experts” or stampeding mobs led by jet-setting UN Secretaries General, Australian billionaires, etc. 
3. In key respects and at crucial junctures value investors are bold contrarians.
4. They think independently, but they’re also humble. In particular, when necessary they heed competent external views and research.

Applying these principles to an assessment of “climate science,” it’s clear that climate change isn’t a systemic risk: it’s a mass hysteria. Like all manias, it will collapse when people – above all, energy consumers and taxpayers – recover their senses.

“When everybody is on one side of a market,” reckons Jim Rogers, the consensus “has nearly always proven to be wrong. We human beings have not changed in hundreds of years, so we are still guided by the same fears and aspirations.” Howard Marks concurs: “What’s clear to the broad consensus of investors is almost always wrong.” Carl Icahn is less categorical: “The consensus … is generally wrong …”

In conversations over the years, I’ve come to realise that climate zealots, Net Zero nutters, etc. – including those who claim that they’re scientists – fundamentally misunderstand science. The tell-tale sign is their use of the phrase “the science” (note the insertion of the definite article). They falsely regard science as a body of knowledge at a given point in time. Furthermore, they arrogantly believe that today’s “climate science” is 100% correct – and therefore that it always will be. 

So-called “climate science” rests not upon credible theories and valid and reliable data, “but rather political opinions and speculative models that have consistently proven to be wrong.” Moreover, “the Unscientific Method …, relying on consensus, peer review, government opinion, models that do not work, cherry-picking data and omitting voluminous contradictory data, is commonly employed in these studies.” 

Read more: https://www.livewiremarkets.com/wires/why-value-investors-should-doubt-climate-science

It’s difficult to do Chris Leithner’s piece justice in just a few short quoted paragraphs. He has most definitely done his research, with multiple quotes from scientists ranging from William Happer, Steven Koonin, and a star cast of other leading skeptics.

And you don’t have to look far to see companies and individuals who are only just starting to feel the hurt from their rash green investment decisions.

Consider automobile companies: Companies whose CEOs rushed headlong into massive electric vehicle investments, perhaps over-confident that governments would force ordinary people to buy their unwanted product, only to see politicians hesitating in the face of electoral backlash and public anger.

In my opinion we have not seen a proper reckoning yet for what could turn out to be a major automobile industry financial disaster. So long as politicians maintain the fiction that fossil fuel vehicles will definitely be phased out in the near future, automobile companies don’t have to mark down their failing EV investments. Automobile company CEOs can maintain the fiction that multi-billion dollar EV manufacturing outlays are valuable strategic investments in the future. Don’t look at the large unsold inventories piling up, think about how wonderful it will all seem next year.

Or not.

Every major crash is preceded by a handful of investment visionaries pointing out the obvious, shouted down by the outrage of those who have committed their fortunes to folly. Perhaps it is Chris Leithner’s turn to be that visionary.