Cumberland Advisors Market Commentary – Amazon Fires – More Irrefutable Evidence

We thank the many readers who responded positively to our recent report on Brazil and deforestation in the Amazon. For a researcher and a writer, it is affirming to get some positive feedback.

Market Commentary - Cumberland Advisors - Brazil & Amazon Fires

Not all readers’ responses were favorable. One broker called it the “the dumbest thing I have read.” Another person said, “The world has been heating and cooling for 4 billion years, so what’s the big deal?” And there were a few other naysayers. All fall into the denier/skeptic camp. One said that this is Brazil’s issue, so why are we making it our business in the US? That same reader said that the Alaskan wilderness is Alaska’s issue and the rest of the United States should keep its hands off. Two people were inappropriately nasty and have therefore been removed from our listserv and permanently blocked.

A few people contributed thoughtful responses which argued that the political system is not fixable and that only a massive catastrophe will be enough to change behavior.

Still others said that technological innovations can help mitigate climate issues.

We appreciated nearly all of the responses.

Now here is a link to a study by NASA’s Jet Propulsion Laboratory (JPL) that analyzed decades of ground and satellite data to track the amount of moisture in the atmosphere over the Amazon rainforest and to assess how much moisture is needed to maintain the ecosystem. The map compiled from the data dramatically demonstrates the decline of moisture in the air over South America from 1987 to 2016. We thank David Kruschwitz for directing us to this site.

https://earthobservatory.nasa.gov/images/145834/human-activities-are-drying-out-the-amazon

We recommend that deniers and skeptics study this and other climate-change data carefully. If you’re truly a skeptic, this may be what tilts you into the science-based consensus that an anthropogenic thumb is on the scale accelerating climate change beyond natural causation alone. After all, the world is no longer seen as flat – except by the few who remain deniers.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – Rome (Earth) Burns: Guess Who Fiddles?

Climate change is real. For the sake of our children and grandchildren, we must be talking about it seriously and thoughtfully.

The 25th UN Climate Summit anniversary meeting is in Madrid in a few weeks. Massively updated data are forthcoming as 200 countries participate. Only the US is in denial and withdrawal. (See “Madrid to host UN Climate Summit after Chile pulls out,” https://www.theguardian.com/environment/2019/nov/01/madrid-to-host-un-climate-summit-after-chile-pulls-out and the UN’s webpage for the meeting: https://unfccc.int/cop25.)

Today’s commentary focuses on the continuing destruction of our “Earth’s lungs,” as the Amazon rainforest continues to burn. We could also target Indonesia (“A Season of Fire Tests Indonesia’s Efforts to Curb Deforestation,” https://www.nytimes.com/2019/10/11/climate/indonesia-wildfires-season.html) or California or Australia, where 100 fires are wreaking destruction in New South Wales (NSW) and Queensland (“Australian bushfires: Three dead and thousands forced from homes,” https://www.bbc.com/news/world-australia-50357103). But this time our focus will be a follow-up on the continuing and depressing story in Brazil.

The California fires have been in the headlines in the US recently (“California Fires Update: Many Fires Fully Contained, While Risk Continues,” https://www.newsweek.com/california-fires-update-many-contained-new-fires-1470797), including a commentary by our own Patricia Healy, CFA (https://www.cumber.com/cumberland-advisors-market-commentary-fire-and-water/) and rightly so; but that story masks from American scrutiny the ongoing massive damage in Brazil from fires, logging, and mining. As an Oct. 23, 2019, piece on the Mongabay website explains, while many of the Brazilian fires are now under control, the destruction proceeds unabated:

“The fires are only a symptom of a far greater problem: rampant and rising deforestation. Altogether, 7,604 square kilometers (2,970 square miles) of rainforest were felled during the first nine months of this year, an 85 percent increase over the same period last year.

“Unscrupulous land speculators are growing rich, say experts, as they mine, log and clear rainforest — operations often conducted illegally on protected lands. Typically, the speculators cut valuable trees, burn the remainder, and sell the cleared land at a heavily marked up price to cattle ranchers or agribusiness.

“So far, Bolsonaro has done little to inhibit these activities, while doing and saying much to encourage deforestation, mining and agribusiness. The government has de-toothed the nation’s environmental agencies and slashed their budgets, while hampering officials from enforcing environmental laws.”

(“As 2019 Amazon fires die down, Brazilian deforestation roars ahead,” https://news.mongabay.com/2019/10/as-2019-amazon-fires-die-down-brazilian-deforestation-roars-ahead/)

President Bolsonaro attended the Future Investment Initiative forum in Riyadh, Saudi Arabia, in late October and delivered a speech in which he fiercely disputed international criticism of his management of the Amazon. Bolsonaro repeatedly described the criticism leveled at him by French President Emmanuel Macron and others as “fake news,” while praising Donald Trump. (“Right-wing Brazil president blasts Amazon critics in Saudi speech,” https://www.nbcnews.com/news/world/right-wing-brazil-president-blasts-amazon-critics-saudi-speech-n1073806)

The following article in The New York Times focuses on an agreement that was reached 10 years ago between the environmental group Greenpeace and the three largest Brazilian meatpacking companies. The companies agreed not to buy cattle from ranchers who raised the animals in newly deforested areas. According to the Yale School of Forestry and Environmental Studies, Brazil’s cattle industry is responsible for up to 80 percent of the forest clearing in recent years. However, prosecutors, environmentalists, and academics who study the industry say the agreement was only partially kept. According to University of Wisconsin researchers, cattle ranching has been responsible for 18,000 square miles of additional deforestation since the 2009 agreement; and so, in 2017, Greenpeace withdrew from the agreement. (“Why Amazon Fires Keep Raging 10 Years After a Deal to End Them,” https://www.nytimes.com/2019/10/10/world/americas/amazon-fires-brazil-cattle.html)

Mining, much of it illegal, also has a large impact on the Amazon and its indigenous people. The following article, by Jon Lee Anderson in The New Yorker, tells the story of the Kayapo tribe of the northern Amazon and their struggle to preserve the rainforest where they live. The Kayapo number some 9000 people today (though their numbers had fallen to just 1300 by the late 1970s, following the construction of the Trans-Amazon Highway). They are the stewards of a 26-million-acre preserve to which they have full legal title. Anderson details the often-destructive, internally divisive concessions the Kayapo have made to gold-mining and logging interests. (“Blood Gold in the Brazilian Rain Forest,” https://www.newyorker.com/magazine/2019/11/11/blood-gold-in-the-brazilian-rain-forest) 

This article in National Geographic also focuses on the Kayapo people and their challenges: “Kayapo Courage,” https://www.nationalgeographic.com/magazine/2014/01/kayapo-courage/.

Forest-destroying Brazilian fires are not confined to the Amazon; they are also endemic in the Cerrado, the vast central savannah region of Brazil. (It’s about half the size of the Amazon, with the federal capital, Brasilia, at its center.)

A hugely biodiverse area (about 40% of the plant and animal species living there don’t occur anywhere else on Earth), the Cerrado is being burned and deforested at a far higher rate than the Amazon is. Fires in the Cerrado were not banned late last summer as they were in the Amazon; so, in August and September, the number of fires there increased by 78%. (“Amazon fires: What’s the latest in Brazil?” https://www.bbc.com/news/world-latin-america-49971563)

The tropical Pantanal wetlands of western Brazil are also being ravaged by fire: “Massive wildfires hit southern Brazil’s Pantanal wetlands,” https://www.aljazeera.com/news/2019/11/massive-wildfires-hit-southern-brazil-pantanal-wetlands-191101052452347.html.

Ironically, the fires being set to expand agriculture in Brazil and many other places in the world are contributing to climate warming and may actually end up harming the farms for which the forest is being decimated. In the following article, Scientific American reports on a paper published in August 2019 in Environmental Research Letters. The researchers analyzed satellite data and weather station records from more than 2,000 sites in the Amazon and Cerrado regions and determined that deforestation caused an overall increase of 0.5 degrees Celsius (0.9°F) between 1985 and 2017. Of course, there has been additional warming from greenhouse gases accumulating in the atmosphere; and so, overall, the region has warmed more than one degree C and in some places by as much as two degrees C. (“Deforestation Intensifies Warming in the Amazon Rain Forest,” https://www.scientificamerican.com/article/deforestation-intensifies-warming-in-the-amazon-rain-forest1/)

A policy brief published by Monica de Bolle, economist and senior fellow at the Peterson Institute for International Economics in Washington DC, warns that deforestation, made worse by the Bolsonaro administration’s policies, could bring the Amazon rainforest to an irreversible “tipping point” in as little as two years. According to a report in The Guardian (https://www.theguardian.com/environment/2019/oct/23/amazon-rainforest-close-to-irreversible-tipping-point),

“After this point the rainforest would stop producing enough rain to sustain itself and start slowly degrading into a drier savannah, releasing billions of tonnes of carbon into the atmosphere, which would exacerbate global heating and disrupt weather across South America.”

The following two articles report on the role the World Bank and its private investment arm, the International Finance Corporation (IFC), have played in Amazon deforestation and other environmental and social catastrophes:

And lest we become too self-righteous in exposing Brazil’s depredations of the environment and indigenous society, we may also wish to consider the likely effects of the Trump administration’s proposal to open Alaska’s Tongass National Forest to logging and road development. Says Scientific American, “At stake is the country’s largest forest. The Tongass is among the world’s best carbon sinks, and it’s one of the largest unfragmented ecosystems in North America. Its trees hold about 650 million tons of carbon, which roughly converts to half of U.S. carbon dioxide emissions in 2017.” (“Experts Dispute Trump Administration’s Rationale for Alaska Logging,” https://www.scientificamerican.com/article/experts-dispute-trump-administrations-rationale-for-alaska-logging/)

Meanwhile, Americans witness Trump’s climate denier behavior. Here’s an excerpt about Paris Accord withdrawal and a link to the full article.

”The president held a campaign rally last night in Lexington, Kentucky, a state with thousands of coal jobs. Yet while Trump could once rhapsodize for 27 minutes straight about the alleged unfairness of Paris, he barely mentioned the agreement last night, referring only twice in passing to the “horrible, costly, one-sided Paris Climate Accord.” Secretary of State Mike Pompeo was left to fill the void with a brief press release. There are rumors that the Trump 2020 campaign will try to convince voters of its environmental record, which most Americans disapprove of. Perhaps last night was a preview of that strategy.” (“Trump Isn’t a Climate Denier. He’s Worse.” https://www.theatlantic.com/science/archive/2019/11/ideology-behind-donald-trumps-paris-withdrawal/601462/)

By way of juxtaposition, readers might choose to watch Britain’s Margaret Thatcher speak about climate change to the UN Global Assembly thirty years ago, in November of 1989. Here’s a taste of what she had to say (and in part with her own grandson’s future in mind):

  • -“While the conventional, political dangers – the threat of global annihilation, the fact of regional war – appear to be receding, we have all recently become aware of another insidious danger.
  • -“It is as menacing in its way as those more accustomed perils with which international diplomacy has concerned itself for centuries.
  • -“It is the prospect of irretrievable damage to the atmosphere, to the oceans, to earth itself….
  • -“What we are now doing to the world, by degrading the land surfaces, by polluting the waters and by adding greenhouse gases to the air at an unprecedented rate – all this is new in the experience of the earth. It is mankind and his activities which are changing the environment of our planet in damaging and dangerous ways….”

You can watch Thatcher’s speech on YouTube (https://www.youtube.com/watch?v=VnAzoDtwCBg) or read the transcript (https://www.margaretthatcher.org/document/107817).



As we soon gather around our Thanksgiving tables, we might wisely consider and talk about what gratitude for a livable planet (coupled with sheer prudence and good sense on the part of Homo sapiens) actually looks like as we confront the climate crisis.

PS.  A little closer to home here in Florida, there is a developing story about skin cancer versus coral reefs. Even as melanoma rates reach record highs in this state, a drop of sunscreen containing two particular chemicals can wipe out living coral for miles around. Note that an alternative product is in development but that politics, as usual, is the destructive force. Florida has its own battles pitting human needs against the needs of the environment; and this one could, with some sense applied, be resolved with a win-win. No doubt readers across the US and beyond see other analogous issues playing out wherever they live. (https://www.theguardian.com/us-news/2019/nov/09/key-west-sunscreen-coral-reef-backlash-skin-cancer)

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – Fire and Water

The fires engulfing parts of California are feared to become the nation’s worst fire disaster, possibly surpassing 2017 and 2018 fire events. Spurred on by wind gusts of up to 80 mph, this disaster harkens back to Superstorm Sandy, which occurred seven years ago, in October 2012.

Market Commentary - Cumberland Advisors - California - A Note on the Fires
Superstorm Sandy soaked the Northeast, and its 80-mph winds caused almost $70 billion in damages per Wikipedia. It was one of the most costly natural disasters ever to hit the United States. The extent of the damage was also a function of the storm’s hitting many densely populated areas that were centers of economic activity. No one yet knows, and it will likely take some time to determine the full cost of the 2019 fires in terms of damages to homes and businesses, lives lost, and the cost of the herculean response by CalFire, municipal fire departments, and others. It is only October, while the deadly Camp fire of 2018 occurred in November, and dry conditions continue to persist. The fires this year, like Superstorm Sandy, have occurred in or near some densely populated areas with high real estate values, many businesses, and intense economic activity.

The state has experienced numerous deadly and damaging fires – think of the devastating 1906 San Francisco earthquake and fire, for instance. The reality of fires, earthquakes, and mudslides are juxtaposed with the draw of the great weather, diverse topography, access to ocean and mountains, headquarters of many industries, fertile land producing the vast majority of the country’s produce, and a long independent history. The “California dream” of finding fame and fortune continues to be an allure for many.

As the world’s fifth largest economy in terms of GDP, California has tremendous resources, as David Kotok noted in his heartfelt video on the California fires (link included in his recent commentary: https://www.cumber.com/cumberland-advisors-market-commentary-markets-the-deficit/ or directly at this YouTube link: https://youtu.be/yW1lbdkxbAw).


California’s population is wealthy. According to data released by the US Census Bureau median household income is 122% of the US national average (notwithstanding large disparities in income). So as long as the state, municipalities, and residents continue to have the resources to protect citizens and rebuild, folks will live in California. However, California does have a high cost of living and taxation, while the state and some local governments are placing ever-growing regulatory burdens on the citizenry. This, combined with increasingly severe and costly climate-related events, may cause outmigration.

Over the weekend California Governor Gavin Newsom declared a statewide emergency, which led the way for securing Fire Management Assistance Grants from FEMA. This program allows municipalities to receive reimbursement of up to 75% of fire-suppression costs. There may also be other assistance forthcoming for individuals, businesses, and municipalities, as well as insurance monies to repair and rebuild, though some may choose to relocate.

In my search for information, I came across interactive maps provided by the LA Times (https://www.latimes.com/wildfires-map/?fire=easy) and CalFire (https://www.fire.ca.gov/). They show the locations and other data for all the fires in the state, and you can drill down to individual properties. I noticed that my good friend’s home was smack dab between the Getty and Palisades fires.

On Wednesday Governor Newsom announced the establishment of the “Power Outage and Fire Response Resources” website (https://response.ca.gov/). It is hoped to be a one-stop portal for resources available to those affected by the fires and loss of power. The site also has a link to a donations page for those who would like to help Californians affected by the latest incidents.

Like the rest of the nation, we watch as fire after fire erupts and stories emerge of lives disrupted as well as heroes. Our thoughts are with those affected, which, as of last night, include 26 million folks under extreme red flag alerts in California and Arizona.

The state’s credit quality is strong, and financial management and budgeting have improved, albeit over a period of sustained economic growth. The wildfire risk may affect tourism and induce some to leave the state. However, rebuilding generally has some positive economic benefit with the inflow of aid and insurance proceeds. At Cumberland Advisors we invest predominantly in AA-rated bonds issued by government entities with strong economies and demographic trends as well as secure financial operations, management, and liquidity; and we avoid bonds that do not exhibit these characteristics. Events like fires and storms can drain resources, but over time they can be restored.

Patricia Healy, CFA
Senior Vice President of Research and Portfolio Manager
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – Brazil & Amazon Fires Part 2

Many wrote in response to our discussion of the Amazon fires and Brazilian policy. In our original piece, http://www.cumber.com/cumberland-advisors-market-commentary-brazil-amazon-fires/, we were careful to cite sources. We thank all those who sent references and facts and thoughtful answers. A few readers lashed back at us.

Market Commentary - Cumberland Advisors - Brazil & Amazon Fires Part 2

What I care about in this instance and in others is how we search for truth and how we deal with complex issues. In my view, exposure and disclosure are the key elements along with citation of sources. At Cumberland Advisors we attempt to cite everything we can when we publish. If we miss a citation, that omission is inadvertent. And if we give an opinion, we say so.

Let’s get to the issues as a follow-up to Brazil and the Amazon fires.

1.   There is an absolute business and investment issue underway. Worldwide, businesses are reacting to the policies of Jair Bolsonaro and the damage they are causing. There are regional and global environmental concerns. All those who responded, with a single exception, recognize that the increase in fires will have an impact on the global supply of oxygen. (For a succinct explanation as to why fewer trees would mean less oxygen, see https://indianapublicmedia.org/amomentofscience/sleeping-with-plants/.) The debate is over how much or how little impact the fires will have, not over whether there will be an impact.

2.    Brazil’s president is under political attack now that the damage has been revealed and the smoke from the fires has impacted heavy population centers like Sao Paulo. For striking images and reports, see “Amazon fires created a smoke eclipse in the skies above Brazil’s largest city, 2000 miles away” (https://www.businessinsider.com/amazon-fires-eclipse-sun-above-sao-paulo-brazil-2019-8) and “Smoke from Amazon rainforest fires causes blackout in Sao Paulo” (https://santiagotimes.cl/2019/08/21/brazil-smoke-from-amazon-rainforest-fires-cause-blackout-in-sao-paulo/).

3.    Here is a recent (September 6) Reuters story on the fires and the results through end of August: https://www.reuters.com/article/us-brazil-environment/brazil-deforestation-rises-in-august-adding-to-amazon-fire-worries-idUSKCN1VR1R8. I will excerpt this one factual item (bolding the text for emphasis): “In the eight months through August, Amazon deforestation rose 92% to 6,404.8 square kilometers (2,472.91 square miles), an area larger than the U.S. state of Delaware, according to preliminary data from the National Institute for Space Research (INPE). In August alone, deforestation more than tripled to 1,700.8 square kilometers (657 square miles).” Readers are advised to study the entire Reuters story. It is full of citations and references and attempts to report with scrupulous accuracy.

4.    Bolsonaro was scheduled to receive a “person of the year” award on May 14 in New York. After his social views were revealed, major sponsors dropped the support, and an enraged Bolsonaro then canceled. The list of American and global business backlash to Bolsonaro grows, and the fires have accelerated that rejection. Here is a report by The Guardian, dated August 30, which describes how “asset managers, pension funds and companies” are halting business with Brazil: https://www.theguardian.com/world/2019/aug/30/corporations-pile-pressure-on-brazil-over-amazon-fires-crisis.

5.    Focus is also sharpening on Blackstone and what it does, given the newest revelations. A Blackstone investment list includes a stake in Hidrovias do Brasil SA made through the Pátria fund. Here is the September 29, 2010,  press release by Blackstone announcing that partnership: https://www.blackstone.com/media/press-releases/article/blackstone-and-patria-announce-partnership-in-brazil. Here is the official information citation about Hidrovias: http://hbsa.com.br/en/logistics-projects, along with a short Reuters report about Hidrovias do Brasil’s vision for expansion in the Amazon basin and beyond: https://www.reuters.com/article/us-hidrovias-do-brasil-outlook/after-1-2-billion-outlay-brazils-hidrovias-exploring-expansion-options-executive-idUSKCN1VH2DG. Here is the official information link to Pátria Investments: https://www.patria.com/. Note that there are mountains of documents filed, and a meticulous investigative journalist will have a challenge to sort through them and unravel the ownership links. I will leave that to others. For us, the simple investment policy is to avoid trouble when controversial developments like this start heating up, generating backlash.

6.    We can quickly see how the tension intensifies as the economics of agricultural expansion in Brazil play out in the building of roads and bridges, threatening the rainforest itself, those who call it home, and even regional and global climates. This YouTube link shows what trucking is like in Brazil in the Amazon along BR-163: https://www.youtube.com/watch?v=gKaPuQcmM3U.

Road conditions along unpaved sections of the road have sometimes stymied efforts to get soybeans to the port at Miritituba (https://www.reuters.com/article/brazil-grains-idUSL1N20U1XF). According to a report published by Reuters in January, however, remaining unpaved portions of BR-163 are to be paved by the end of the year (https://www.reuters.com/article/brazil-agriculture-infrastructure/brazil-to-pave-key-agriculture-br-163-road-this-year-minister-idUSL1N1ZU0NI).

7.    The issues raised by Brazil’s replacing the United States as a soybean supplier to China are very complex. We know what the trade war and soybean impacts are in the United States, though China is now prepared to buy more US pork and soybeans with US tariffs postponed, in hopes of an interim trade agreement (https://www.scmp.com/economy/china-economy/article/3027163/china-exempt-us-pork-and-soybeans-additional-trade-war). How much of China’s appetite for soybeans (largely for animal feed) has increased the demand for Brazilian soybean production remains to be determined. We know there is some increase (https://www.bloomberg.com/news/articles/2019-08-16/china-ramps-up-brazil-soy-imports-as-u-s-trade-war-worsens). We know there are capital flows as China replaces sourcing in the US with sourcing in other countries. Many economists believe this is a permanent shift and a predictable response to the Navarro-Trump Trade War policy. I believe that is so. But proof will be years away and after the evidence is measurable. We do know that the US was one of the most cost-efficient suppliers of agricultural output and that we are now seeing rising bankruptcy rates and economic stress in US agriculture. We are also seeing the Trump administration redirect taxpayer money to subsidize farmers who were negatively impacted by the Trump Trade War policy. All this makes no sense to us. Using the national security argument about soybeans is a flawed policy in our view. Linking that policy to the reduction of the world’s oxygen supply because Brazilians are burning the Amazon so as to plant more soybeans is a much harder case to make. And until the smoke was visible, and chokingly so, in Sao Paulo, the world ignored the events.

There is much more evidence to consider, but we hope we have provided sufficient citations so that readers may now do the rest of their homework on their own. The issues are complex. They include agricultural business growth in the Amazon, who is funding it, and what the conflicting economic interests are. What is the policy of the country? What will the Bolsonaro regime now do since it has been threatened by business interests who are responding to the fires and rain forest destruction? What will major investors like Blackstone and their global clients do?

From an investment professional’s perch, the issues surrounding the Amazon fires become a question of where to allocate funds. We don’t like the risk profile when this type of controversy erupts. We don’t trust the Bolsonaro government. And we see some global environmental risk that we cannot measure yet. We don’t know how much or how little damage the fires are doing to the planet. We do know that they are doing damage.

Lastly, there is the matter of speaking out as a concerned citizen and as a professional. Many criticize us for straying away from earnings and interest rates and taxes and deficits as we touch on social and political issues. Well, that stance in itself becomes another issue. Many of my professional colleagues privately say they wish they could be more forceful, but they are restrained by their business organizations. Thus they remain silent.

At Cumberland, we allow voices to discuss serious issues. We ask all writers to attempt accuracy and to offer citations. We invite opinions on policy and provoke discussion. The result is a 45-person firm that is better informed and more thoughtful. Sometimes the exchanges in our private morning meetings and investment discussion are intense. We ask that all views to be aired when we are working internally. No idea is unworthy and dismissed. All views must be defended and can be criticized by peers within the firm.

In my personal view the climate change debate and the subtexts of melting ice or human-caused fires or rising sea levels or more Cat 5 hurricanes are major longer-term economic issues that we face. Climate change impacts rival war and rampant disease as a global threat. Who caused what is not the issue, although it seems that the finger-pointing gets more political attention than corrective action or preventive strategy does. For us, what to do now and tomorrow and how to accomplish the task is paramount. In the case of burning the Amazon rainforest, there is a possible business response. It requires each business participant to make a decision.

We saw that a result is possible when the gala sponsors pulled out of the Bolsonaro award event. We are seeing a business response regarding the fires. Will a series of responses translate into change in Brazilian politics? We cannot say. But, for me, the use of an economic lever is an option that each market agent can determine for him or herself.

We again thank all readers for their thoughtful replies. We try to answer them or at least say thank you for taking the moment to respond. Meanwhile, we will continue to speak out as best we can and to do so with researched and cited sources as best we can.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – Brazil & Amazon Fires

Brazil is poisoning the planet and now posing a growing existential risk. The country’s elected leader, Jair Bolsonaro, has suspended or rescinded environmental protection rules and favored his cronies in the agricultural and logging industries, who are exploiting the country’s resources with government approval or malign neglect. “This is your government,” Bolsonaro has promised lawmakers from the agriculture caucus (source: Bloomberg.com<http://Bloomberg.com>, Aug. 19, 2019; https://www.bloomberg.com/news/articles/2019-08-19/bees-are-dropping-dead-in-brazil-and-sending-a-message-to-humans). Today we will focus on just one aspect of the environmental crisis in Brazil: deliberately set rainforest fires in the Amazon rainforest.

The Amazon fires are now a worldwide threat. The Amazon is the largest rainforest in the world and has often been called “the lungs of the planet” for its role in absorbing carbon dioxide and producing oxygen – the Amazon holds vast amounts of CO2 and produces 20% of the oxygen in the our atmosphere (ScienceAlert.com<http://ScienceAlert.com>, Aug. 22, 2019; https://www.sciencealert.com/the-amazon-is-burning-at-a-record-rate-and-parts-were-intentionally-set-alight). Thus this great watershed plays a major role in moderating the global climate. It also plays a key role in generating rain to water South American crops and is home to a million people (representing some 400 indigenous groups) and a tremendous diversity of plants and animals.

Fires in the Amazon (and across Brazil) have made headlines around the world in recent days. Brazil has had more than 72,000 fire outbreaks so far this year, an 84% increase over the same period in 2018, according to data from the country’s National Institute for Space Research (INPE) (The Guardian, Aug. 23, 2019; https://www.theguardian.com/environment/2019/aug/23/amazon-fires-global-leaders-urged-divert-brazil-suicide-path). Of those fires, more than 40,000, or 56%, have occurred in the Amazon (New York Times, Aug. 23, 2019; https://www.nytimes.com/2019/08/23/world/americas/brazil-military-amazon-fire.html).

So far this year, the equivalent of 228 megatons of carbon dioxide has been released by Amazon burning, according to the Copernicus Atmosphere Monitoring Service. This is the highest level since 2010 (BBC, Aug. 23, 2019; https://www.bbc.com/news/world-latin-america-49450925).

In July record Amazon deforestation was recorded, and the graph below depicts the severity of the problem:


The Brazilian Amazon lost more than 1,330 square miles of forest cover during the first seven months of this year, a 39% increase over the same period last year (New York Times, Aug. 23, 2019; https://www.nytimes.com/2019/08/23/world/americas/brazil-military-amazon-fire.html).

The spread of the fires, which are burning during the dry season, accelerated after farmers reportedly announced a coordinated ”Day of Fire” on August 10, with the intention signaling their support of the Bolsonaro government’s policies (The Independent, Aug. 22, 2019; https://www.independent.co.uk/news/world/americas/amazon-rainforest-fires-jair-bolsonaro-ngo-san-paolo-a9075071.html).

In response to the dramatic increase in fires, in early August Bolsonaro fired the head of the space agency, INPE (Space.comhttps://www.space.com/brazil-space-agency-leader-dismissed.html). Bolsonaro has further placed suspicion for setting the fires “mostly on the NGOs” that oppose his policies for the Amazon, though he has admitted that farmers and loggers may also be suspects. In any case, he says, Brazil lacks the resources to fight the blazes. “We are in chaos,” he said, as he took questions from journalists – whom he then blamed for a lack of responsibility in reporting (The Independent, Aug. 22, 2019; https://www.independent.co.uk/news/world/americas/amazon-rainforest-fires-jair-bolsonaro-ngo-san-paolo-a9075071.html).

Then on Friday, Aug. 23, under mounting international pressure, Bolsonaro did an about-face, promising to deploy the army to fight the fires and enforce environmental regulations. His pledge was met with suspicion by NGOs that protect the Amazon, which pointed out that the Bolsonaro government has worked concertedly to weaken those regulations and open the Amazon to wider development (New York Times, Aug. 23, 2019; https://www.nytimes.com/2019/08/23/world/americas/brazil-military-amazon-fire.html).

On Monday, Aug. 26, President Macron of France announced that the Group of 7 had agreed on a $22 million aid package to help Brazil and its neighbors fight the Amazon fires. Then on Tuesday, Brazil rejected the aid package. Government ministers said the money was not needed and accused foreign powers of wanting control of the Amazon. There was another about-face on Wednesday, Aug. 28, when the money was accepted again. In any case, Greenpeace France had described the G7’s response to the crisis as “inadequate given the urgency and magnitude of this environmental disaster” (BBC, Aug. 27, 2019; https://www.bbc.com/news/world-latin-america-49479470).

Effective Wednesday, August 28, responding to pressures, Bolsonaro banned the use of fire to clear land in the Amazon basin for 60 days (CNN, Aug. 29; https://www.cnn.com/2019/08/29/americas/brazil-amazon-bolsonaro-fire-ban-intl/index.html). That said, Bolsonaro had already significantly weakened the agency that enforces Brazil’s environmental regulations (Reuters, Aug. 28, 2019;  https://www.reuters.com/article/us-brazil-environment-ibama-exclusive/exclusive-as-fires-race-through-amazon-brazils-bolsonaro-weakens-environment-agency-idUSKCN1VI14I). The world will have to wait and see whether the ban actually makes a difference in the rate at which the Amazon is burning. Sixty days is hardly time enough for the air to clear.

For the Amazon, for humanity, and for life on earth generally, the stakes are high. Robinson Meyer, writing for The Atlantic, sums up:

“The Amazon rainforest does, in some sense, belong to Brazilians and the indigenous people who live there. But as a store of carbon, it is fundamental to the survival of every person. If destroyed or degraded, the Amazon, as a system, is simply beyond humanity’s ability to get back: Even if people were to replant half a continent’s worth of trees, the diversity of creatures across Amazonia, once lost, will not be replenished for roughly 10 million years. And that is 33 times longer than Homo sapiens, as a species, has existed.” (The Atlantic, Aug. 24, 2019; https://www.theatlantic.com/science/archive/2019/08/amazon-fires-are-political/596776/)

Kaushik Basu, who is a nonresident senior fellow writing about the global economy and development for the Brookings Institution, concludes, “The crisis in the Amazon is a stark example of the damage that can be done when governments bow unequivocally to business interests. It also highlights an increasingly common phenomenon: the cynical manipulation of anti-corruption efforts to undermine democracy and advance an authoritarian political agenda.” (Project Syndicate, Aug. 28, 2019; https://www.project-syndicate.org/commentary/how-fighting-corruption-can-serve-authoritarianism-by-kaushik-basu-2019-08)

Jair Bolsonaro’s willingness to develop the Amazon is, however, not the only factor in play in the rainforest. To understand another driver of the crisis, we have to following a trail of beans – specifically soybeans. US exports of soybeans to China and US farmers who grow soybeans have both fallen victim to the Trump-Navarro trade war with China. China is looking elsewhere for its soybeans and increasingly to Brazil. (See https://www.bloomberg.com/news/articles/2019-08-16/china-ramps-up-brazil-soy-imports-as-u-s-trade-war-worsens.) Brazilian exports of soybeans to China are up 30%, while American exports of soybeans to China are down 49%. (South China Morning Post, May 17, 2019; https://www.scmp.com/business/companies/article/3010480/us-china-trade-war-has-been-boon-brazils-soybean-farmers-can). In 2019, despite a dip in Chinese demand occasioned by an outbreak of swine fever (soybeans are heavily used in animal feed), China has still accounted for 72.9% of Brazil’s soybean exports (Reuters, May 15, 2019; https://www.reuters.com/article/brazil-soybeans/brazil-soy-exports-to-china-fall-13-in-2019-report-idUSL5N22R87Y).

As the trade war with China has escalated, dominoes have fallen, both in the American heartland where farmers struggle for survival (CNBC, July 20, 2019; https://www.cnbc.com/video/2018/07/20/soybean-farmer-we-may-not-survive-trade-tensions-with-china.html) and in the Amazon rainforest, where forests are burning so that Brazil can supply China. Had soybeans never been touched in a trade war, we would see far fewer fires now in the Amazon. Soybeans and Trump tariffs were invoked under a national security law when there was no real national security threat. There is a real one now. Trump-Navarro trade policies have created a global and national security issue.

Other drivers of deforestation include cattle ranching. Brazil is the largest exporter of beef in the world, to the tune of $6.7 billion, so its own demand for animal feed is immense. While clearing the Amazon is enabling profits now, however, continued deforestation may tip the region into a much drier savanna, driving losses in the longer term. Longer-term concerns both in Brazil and worldwide outweigh the short-term benefits of opening new land for agriculture in the Amazon basin. (Vox, Aug 30, 2019; https://www.vox.com/energy-and-environment/2019/8/30/20835091/amazon-rainforest-fire-wildfire-bolsonaro).

While our focus here is on the fate of the Amazon rainforest and its implications for our collective fate, we will be wise to remember that what is true of the Amazon rainforest is also true of Alaska’s Tongass National Forest and other places. A clearcut replanted is no forest ecosystem restored, not for many, many years. Not only does wildlife find itself homeless; the soil life that helped to sustain the forest dies off with the trees. It doesn’t magically reappear. Mature trees sequester far more carbon than young trees do; so replanting takes a long, long time to replace a mature forest’s carbon-sequestering capacity. Cut the trees and less rain falls across the land as weather systems move inland, and heat and cold are more extreme on the ground. The forest’s accumulation of topsoil ends, and erosion carries what the forest has slowly created away. (Loss of topsoil globally is another mounting concern.) In short, Brazil’s crisis can provide us an example of what not to do.

As citizens and investors, we can pressure corporations doing business with or investing in Brazilian agriculture or the destruction of the Amazon to clean up their supply chains or divest. Shareholders have some power although it may be limited. Commercial boycotting of Brazil is another limited option. US Government sanctions now used routinely with foreign governments and individuals will require US government decisions that politics may inhibit. The US has sanctioned a lot of folks and countries. Would we be willing to extend that policy to the Amazon fires?

The Bolsonaro regime is keenly aware of its reliance on global governments, corporations, and other financial actors to prop up Brazil’s economy. Thus we have a significant opportunity to affect the outcome of this crisis if economic penalties are used. But the history of economic sanctions is mixed at best. Maduro is an example. He is still in power. Kim is another example.

One thing Americans can do is seek information on US investment in the Amazon and publicize who is investing and where. At least disclosure has a stigma effect.

Query: Does the Bolsonaro-approved Amazon burning equate with Kim’s missile tests? Some would argue it is a more serious threat.

Bottom line: The world is injured, and planetary risk has risen. We can only speculate about how much the trade war has inspired Chinese capital to a Brazilian replacement of America’s soybeans. Remember the economics teaching about the unintended consequences of government policies. Maybe we are seeing that lesson play out now in the Amazon.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


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Cumberland Advisors Guest Commentary – Outlook for the 2019 Hurricane Season

Bob Bunting brings his established credentials, including being a Director of the University Corporation for Atmospheric Research and a Lead Forecast for NOAA, to this guest commentary. He also mentions the Climate Adaptation Center (CAC), of which he is the CEO and which I personally support with money and effort.

Bob Bunting & David Kotok

We thought it timely to share Bob’s views as we in Florida start the summer red tide season and hurricane season with very warm water, even as we digest the newly released FEMA updates on disaster and contingency planning.

We thank Bob for this guest submission and also for agreeing to speak on July 16 at the joint GIC-Keystone Policy Center meeting in Keystone, Colorado. See: www.interdependence.org for details.

Editor’s Update: Bob’s July 16, 2019 presentation is available here – https://www.interdependence.org/resources/adapting-to-a-warmer-climate/


Bob Bunting


And his July 17, 2019 interview in Sarasota, FL can be viewed here:

 



 

Now here’s Bob Bunting. -David


The Hurricane Season 2019 Outlook

By Bob Bunting

Hurricane forecasting has become more a science than an art over my multi-decade career, and that is a good thing! The last few years have not been kind to the US mainland and territories. In 2017, hurricanes Harvey, Irma, and Maria, all Category 4’s at landfall, caused massive flooding or wind damage; and last year, a slightly above-normal season in the Atlantic, was devastating, with two major hurricanes, Florence and Michael, setting records for wind and rain. These five storms traveled over very warm seas and had explosive development (ED) cycles, and Michael struck the panhandle of Florida as a Category 5, the first ever in the region.

As I look at sea-surface temperature anomalies at present, I do not like what I see! In mid-June there are several areas where sea-surface temperatures (SSTs) are 3°C higher than normal, as you can see in the depiction below.

Bob Bunting Hurricane Image

The coolest water, shown in shades of blue, is off the coast of western Mexico and in the northern mid-Atlantic. Warm water is abundant in the South Atlantic and along the East Coast of the US, as well as in the Gulf of Mexico along the Texas and Mexico coasts. The dashed ovals show SSTs that average 1 to 3 degrees C above normal. An area of very warm water, averaging 5°C above normal, lies along the Mid-Atlantic coastline from Cape Cod to North Carolina.

 

Three of the four areas of warmer than normal SSTs are therefore close to the US mainland and densely populated areas of our country. After the last several years, when we have seen hurricanes develop rapidly from the tropical storm stage all the way to Category 4 and 5 superstorms in just a day or two, we should be concerned!  Incidentally, I have coined a term for such rapid development cycles: explosive development (ED).

During the 2017 Atlantic hurricane season, Hurricane Harvey struck the Greater Houston area with peak winds of 130 mph and 60+ inches of rain in places. Then there was Hurricane Irma, which terrorized the Caribbean islands and Florida as it gained and maintained Category 4 and 5 status for days and proved to be the strongest Atlantic hurricane ever recorded. Finally, Hurricane Maria rapidly developed and whacked Puerto Rico with upper-Category 4 winds, leveling much of the island.

The 2018 hurricane season was active but with only two major hurricanes. Unfortunately, both of them hit the US. Hurricane Florence struck the Carolinas as just a Category 1 but drowned the area with 30+ inches of rain, a record for that region. Please note that the color-coding of the 2018 hurricanes is slightly different, but you will get the idea.

This is Florence:

Later in the season, Hurricane Michael ripped through the panhandle of Florida as a Category 5 storm.

Together, these five storms did an amazing $295 billion in damage, $265 billion in 2017 and $30 billion in 2018 and killed about 4700 people! Fortunately, last year the two major hurricanes hit the US in relatively sparely populated areas.

What is unusual about the last two seasons is that hurricanes experienced ED cycles where they intensified to Category 5 within a day or two. All these storms except Harvey had pinpoint eyes that were 20 miles or less in diameter.  Take a close look at Michael’s amazing pinhole eye as it came ashore. When storms have this extremely compact eye formation, the winds around the eye are like large tornadoes that wipe the landmass clean. Hurricane Michael showed its fury as it leveled the area around Mexico Beach, Florida, and also mowed down more than a million acres of trees in North Florida and South Georgia. Inland Georgia experienced Category 3 winds for the first time in recorded history.

Two of the five storms, Harvey and Florence, dumped record rains as they stalled on the coastline. This, too, is unusual.

What we know is that SSTs are now much warmer than normal on average. When expansive water bodies like oceans and gulfs are warm, they also tend to warm to a greater depth than usual. When tropical systems move over expansive, warm water bodies they intensify more rapidly than they would over cooler water, all other things being equal. They also gather more moisture in the process and can become very heavy rainmakers, especially if they stall or move slowly as they approach land.
Since 1880, millions of verified observations have shown that the Earth’s average air temperature has risen by almost 2°F. That does not seem like much, but in effect it is! Warmer air holds more moisture. We also know that the poles are heating much faster than the equator is, which means the temperature gradient between the equator and poles is diminishing. When that happens, the jet streams weaken and move poleward. The result can be that hurricanes approaching the mid-latitudes can stall or slow down and dump those record rainfalls.

We also know that since 1880 sea level rise has averaged about 9 inches around the globe. When strong storms hit the coasts, storm surges are not only higher now because storms are stronger but also because the surges come on top of already higher sea levels.

So where do these considerations leave us as we consider the 2019 hurricane season? Thankfully, a weak El Niño event is ongoing in the Pacific. El Niño conditions in the Pacific correlate with stronger wind shear in the Atlantic. When the wind speed increases with increasing height, shear is created. Such conditions inhibit hurricane development by disrupting the vertical organization of storms.

Because we know SSTs are warmer than normal overall and wind shear may be somewhat higher than normal, the forecast is for a near-normal hurricane season this year. Normal is defined as about 12 storms total, with two or three major hurricanes. A major hurricane is considered a Category 3, 4, or 5 storm.

Given the normal season expected, why am I more than a little concerned? Because – and you may already see where I’m going here! – the warm SSTs are close to US shorelines, where tens of millions of people live. Thus, hurricanes approaching the US may spin up more rapidly than normal, as has been the case in recent years. Take Florida, for example. Since the 2000 census, Florida’s population has from grown from 15.3 million to 21.6 million today. Should a hurricane rapidly intensify just off the coast of a heavily populated area and then strike within 24 hours, there would not be time for an orderly evacuation. This is a nightmare scenario for planners and a potential catastrophe when it becomes reality.

With very warm water along the eastern seaboard well north of usual warm water anomalies of the past, this may be the year when a storm moving up the East Coast becomes much stronger faster and then maintains super-hurricane status for much longer than usual.

Why is this potential developing? We cannot say with absolute certainty that any particular storm is a result of climate warming. But what we can say is that much warmer sea surface temperatures create increasing probabilities of bad outcomes.

Climate warming impacts are here now Isn’t it time that we begin to plan, adjust, and mitigate the worst impacts of climate-induced changes like sea level rise and the changing characteristics of hurricanes? We know a lot about how to mitigate, plan, and adjust; but thus far our response has been too slow for the level of threat we now face. This just isn’t smart!

USF Climate Change Event Jan 2019 - Bob Bunting

These are among the threats that have led to the creation of the Climate Adaptation Center (CAC). While the initial center will focus on local and regional climate-related issues in Florida, we hope the first CAC will be a prototype for other CACs worldwide to deal with local impacts. Adaptation and mitigation actions can help us to successfully deal with the worst impacts of a warming climate. While a global solution to the warming climate may evolve in the decades ahead, we now have little choice but to adapt in ways that protect our way of life. Climate warming is not only a problem for future generations; it is a problem for us! For more information about the CAC, please contact me at bobbunting@comcast.net. We need your help now!

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio

Bob Bunting
Atmospheric Scientist, Author, Educator, and Entrepreneur
Email | Bio


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Fed and Climate Change

My note today puzzles over the Fed’s sitting on the sidelines while other central bankers act together to mitigate a growing risk to national economies and the global financial system. As context for this discussion, please take a minute to read this report about the accelerated melting of ice in Antarctica: https://www.theguardian.com/environment/2019/may/16/thinning-of-antarctic-ice-sheets-spreading-inland-rapidly-study.
Fed & Climate Change
Now to the issue. Can you imagine a meeting of most of the world’s largest central banks plus BIS and the World Bank, without a nominal and publicly identified presence of the Federal Reserve? Well here it is.

In December 2017, responding to climate-related risks to the world financial system, the Banque de France, along with eight other central banks and banking supervisors, established the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) at the Paris “One Planet Summit.” Since then, the NGFS has grown to 34 members and five observers from all over the globe. The list continues to grow.

On April 17, 2019, the Banque de France convened a one-day conference, with all NGFS members and observers in attendance, to present its first comprehensive report, titled “A call for action: Climate change as a source of financial risk.” The United States was not represented at that meeting.

Now we know the Fed is aware of the subject of climate change and has connections to many of the institutions and individuals who were in attendance at this gathering. We know that numerous studies are estimating the financial cost and credit risk exposure of the United States as the sea level rises. And we know that financial risk runs to our banking system and to many financial intermediaries connected to or of interest to the Federal Reserve.

So the real question is, why no Federal Reserve public profile when the conversation is about climate change-related financial risk? Is there some edict by the Trump administration that prevents the Fed from attending? We know of Trump’s withdrawal from the Paris Accord, and we know something about his political position.

“I’m not denying climate change,” Trump told interviewer Lesley Stahl in an interview on CBS’ 60 minutes (Oct 15, 2018).

At the same time, though, Trump suggested that climate change might not be caused by humans; that he did not want to take any action that would harm the American economy; and that the warming of the planet by industrial emissions would reverse of its own accord.

“I think something’s happening. Something’s changing and it’ll change back again,” said Trump. “I don’t think it’s a hoax. I think there’s probably a difference. But I don’t know that it’s manmade. I will say this: I don’t want to give trillions and trillions of dollars. I don’t want to lose millions and millions of jobs.”

Trillions of dollars?  Shouldn’t this be of interest to the Fed. But we also know that financial risk is intensifying, and we know that the sea level is rising. So where is the Fed?

Readers are invited to look at the report and conclude viewpoints for themselves. The full report is available here: https://www.banque-france.fr/sites/default/files/media/2019/04/17/ngfs_first_comprehensive_report_-_17042019_0.pdf.

Some excerpts from the report follow:

“We collectively face the effects of climate change, as it reaches beyond economies, borders, cultures, and languages. In 2017, air pollution was a cause of almost 5 million deaths worldwide while 62 million people in 2018 were affected by natural hazards, with 2 million needing to move elsewhere due to climate events. A transition to a green and low-carbon economy is not a niche nor is it a “nice to have” for the happy few. It is crucial for our own survival. There is no alternative. Therefore, we need to come together and take action to create a bright, sustainable future….

“Climate-related risks are a source of financial risk and it therefore falls squarely within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.”

– From the foreword to the report, by Frank Elderson, board member, De Nederlandsche Bank, and chair of the NGFS

“The legal mandates of central banks and financial supervisors vary throughout the NGFS membership, but they typically include responsibility for price stability, financial stability, and the safety and soundness of financial institutions. Even though the prime responsibility for ensuring the success of the Paris Agreement [on climate change] rests with governments, it is up to central banks and supervisors to shape and deliver on their substantial role in addressing climate-related risks within the remit of their mandates. Understanding how structural changes affect the financial system and the economy is core to fulfilling these responsibilities.

“Climate change is one of many sources of structural change affecting the financial system. However, it has distinctive characteristics that mean it needs to be considered and managed differently. These include:

• Far-reaching impact in breadth and magnitude…
• Irreversibility…
• Dependency on short-term actions….

“While today’s macroeconomic models may not be able to accurately predict the economic and financial impact of climate change, climate science leaves little doubt: action to mitigate and adapt to climate change is needed now. The NGFS recognises that there is a strong risk that climate-related financial risks are not fully reflected in asset valuations. There is a need for collective leadership and globally coordinated action and, therefore, the role of international organisations and platforms is critical….

“The NGFS, as a coalition of the willing and a voluntary, consensus-based forum provides six recommendations for central banks, supervisors, policymakers and financial institutions to enhance their role in the greening of the financial system and the managing of environment and climate-related risks….

Recommendation 1: Integrating climate-related risks into financial stability monitoring and micro-supervision…
Recommendation 2: Integrating sustainability factors into own-portfolio management…
Recommendation 3: Bridging the data gaps…
Recommendation 4: Building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing…
Recommendation 5: Achieving robust and internationally consistent climate and environment-related disclosure…
Recommendation 6: Supporting the development of a taxonomy of economic activities….

“There is still a significant amount of analytical work to be done in order to equip central banks and supervisors with appropriate tools and methodologies to identify, quantify and mitigate climate risks in the financial system. This calls for a close and specific dialogue with academia and for further technical work to translate the NGFS recommendations or observations into operational policies and processes.

“More precisely, the NGFS is planning to develop: (i) a handbook on climate and environment-related risk management for supervisory authorities and financial institutions; (ii) voluntary guidelines on scenario-based risk analysis; (iii) best practices for incorporating sustainability criteria into central banks’ portfolio management (particularly with regard to climate-friendly investments).”

It is unimaginable that the US would not opt to have a seat at this table and that our central bank would not be preparing with the rest of the world for climate-related impacts to the global financial system and the global and national economy. And yet our public seat at the table remains empty, and our nation is apt to be left behind.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Watch Livestream of Climate Change Summit at University South Florida Sarasota-Manatee

Cumberland Advisors’ Patty Healy is participating in the Climate Change Summit held at USF Sarasota-Manatee today, January 25, 2019. She’ll be speaking to the audience about municipal bond ratings relating to how prepared these entities are for severe weather events, the impacts of climate change, and other factors that may affect credit ratings. I’ll be helping out with introductions, interviews, and as an emcee. Bob Bunting, an accomplished entrepreneur and scientist, will lead the conference through many important topics and panel discussions.

If you’re unable to attend in person, the University has provided this “Livestream Link” as a way to watch: https://buff.ly/2WgFkWU

Livestream - Climate Change Summit at University South Florida Sarasota-Manatee 

More details about the Climate Change Summit at the University South Florida Sarasota-Manatee can be found here: www.usfsm.edu/climate

Thank you,
David

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio




Climate change, a rising tide affecting the muni market

Excerpt from…

Climate change, a rising tide affecting the muni market

By Sarah Wynn
Published January 08 2019, 12:45pm EST

WASHINGTON — Portfolio managers are feeling the heat when it comes to investing in bonds that could potentially be affected by climate change.

Climate change has long been a point of political and social contention, and investors are throwing caution to the wind when making important bond transactions, while using a green thumb to do their part.

With his clients, Mousseau said he discusses climate and infrastructure, especially when it comes to residential developments along the coast.

“Just as a matter of policy, we generally try to avoid credits that are particularly vulnerable along any coasts,” Mousseau said.

Instead, he believes in diversifying by owning county bonds or multiple types of utility bonds, as opposed to smaller general obligation bonds that could get wiped out by a hurricane.

Mousseau said there will be an increase in green bonds — bonds used specifically for climate and environmental projects —and more institutional clients are starting to ask for them.

“I think there’s a heightened sense of people wanting to be involved in investments that benefit the environment and I think that grows every year,” Mousseau said.

Millennials, in particular, have shown interest in green bonds, which could cause a rise in issuance.

Development has increased in energy market countries and Mousseau believes green bond initiatives will become more important.

“All I’m saying is that the idea of green bond initiatives is certainly not stopping here,” he said.

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Zika, Climate Change & January 25

On December 30, as 2018 drew to an end, NBC’s Meet the Press aired an entire program on the climate change crisis, well worth watching (https://www.nbc.com/meet-the-press/video/meet-the-press-1230/3850857). Host Chuck Todd gave no air time to climate change denialism. Instead, the episode plunged into analyzing the crisis at hand, what might be done, what impediments slow our time-critical response, and how to overcome those impediments. Florida Republican Representative Carlos Curbelo, among other program guests, called for constructive action. “We need to stop covering the debate and start covering the story, so that people see that this is real, and so that politicians take a more-pragmatic approach and find solutions that are actually achievable,” Curbelo said. The day after Thanksgiving, despite Mr. Trump’s personal dismissal of climate change, the Trump administration released Volume II of the Fourth National Climate Assessment (https://www.globalchange.gov/nca4), and we’ve been digesting its deeply concerning contents in the week since.

The impacts of climate change are myriad, affecting our world, our communities, our health, our food supply, and our investments. We will be taking a look at a number of climate-change-related issues impacting Florida and beyond, from sea level rise to red tide to hurricanes to fruitful adaptive strategies and the economic opportunities they present, when we convene on Friday, January 25, at the University of South Florida Sarasota-Manatee for our one-day event, “Adapting to a Changing Climate: Challenges & Opportunities.” See the full roster of speakers, including our own Patricia Healy, here: http://sar.usfsm.edu/event/adapting-to-a-changing-climate/. We hope to see you there.

In today’s commentary, however, I would like to zero in on the impact of climate change on vector-borne diseases, including Zika. Chapter 14 of the Fourth National Climate Assessment (https://www.globalchange.gov/nca4) addresses the adverse effects of climate change on human health, noting that “Climate change affects human health by altering exposures to heat waves, floods, droughts, and other extreme events; vector-, food- and waterborne infectious diseases; changes in the quality and safety of air, food, and water; and stresses to mental health and well-being” (p. 545 in the full report PDF). We have no trouble grasping the threats posed by heat waves, fires, floods, and storms that claim lives as well as property, along with droughts that parch crops and threaten water supplies, but we should not miss the implications of climate change for increased vector-borne disease risks. As the report points out, “Climate change is expected to alter the geographic range, seasonal distribution, and abundance of disease vectors, exposing more people in North America to ticks that carry Lyme disease or other bacterial and viral agents, and to mosquitoes that transmit West Nile, chikungunya, dengue, and Zika viruses” (p. 545).

The range of the Aedes aegypti mosquito, for example, a primary vector for dengue, chikungunya, Zika, and yellow fever, is expected to expand considerably worldwide, exposing far larger populations, particularly in Australia, Europe, and North America, to those viruses. According to one recent study, well before the end of the 21st century, 68%–80% of human populations may share their environments with Aedes aegypti and thus be vulnerable to the diseases that mosquito can carry, with the percentages depending on the climate change scenario that actually unfolds, (https://link.springer.com/article/10.1007%2Fs10584-016-1679-0). In general, lower greenhouse gas emissions translate to less risk for human health.

Risk of mosquito-borne diseases in general is to be understood not just in terms of the range of a particular mosquito species but also in terms of mosquito “disease danger days.” As an August 2018 report published at Climate Central points out, “there’s an elevated risk of disease transmission [assuming disease is present] when temperatures are between 61 degrees and 93 degrees Fahrenheit.” The report notes the circumstances required for disease transmission: “In addition to needing the proper climatological factors for the mosquito to survive and transmit disease, there needs to be the establishment of the disease in the first place — having the proper climatic conditions, a critical density of mosquitoes, and the conditions for the sustained cycle of disease transmission itself. And, in order to transmit disease, a mosquito must bite twice — once to acquire the disease [itself], and a second time to pass it on. The largest number of these twice-biting mosquitoes were produced at 75 degrees Fahrenheit.” (http://www.climatecentral.org/news/us-faces-a-rise-in-mosquito-disease-danger-days-21903)

Climate Central analyzed weather data for 244 US cities to determine the number of disease danger days each city faces now as the climate warms. They found that 94%, or 229, of the cities they studied are already seeing an increase in the number of days when average temperatures fall within the optimal range for mosquito-borne disease transmission. Some areas, however, may become too hot for the mosquitoes themselves. Phoenix, for example, actually has fewer disease transmission danger days than it did previously because of the number of extremely hot days the city must contend with. All in all, only 12 cities are experiencing a decrease in disease danger days. As the climate warms, the report concludes, Americans face heightened risks for dengue, Zika, chikungunya, and West Nile (http://www.climatecentral.org/news/us-faces-a-rise-in-mosquito-disease-danger-days-21903).

The 2015–2016 Zika outbreak drove home the hazards of mosquito-borne diseases, as Zika took a terrible toll on the development of one in seven unborn children whose mothers were exposed to the otherwise generally mild virus (https://www.contagionlive.com/publications/contagion/2018/october/zika-where-are-we-now). Babies were born with microcephaly and/or other birth defects such as vision problems, deafness, and epilepsy. Their lives and their family’s lives were forever changed from what might have been.

In 2018, Zika has not made many headlines in the US, and the case count is down. As of December 4, 2018, the provisional case count for US States is 58 for the year, all travelers returning from affected areas. US territories have reported 116 Zika cases, with the virus presumably transmitted through local populations of infected mosquitoes (https://www.cdc.gov/zika/reporting/2018-case-counts.html). Case counts aside, the virus remains a threat – nothing has changed about its intrinsic potential to wreak havoc. It is still active throughout the South and Southeast Asia region, and some districts in India saw worrisome outbreaks in 2018 (https://www.hindustantimes.com/health/healthwise-new-outbreaks-need-better-disease-surveillance/story-2bSekn9rGCIbWADtk9p2TK.html).

While some experts hypothesize that “herd immunity” has been achieved in areas hardest hit in 2016, Carmen Zorilla, professor of obstetrics and gynecology at the University of Puerto Rico School of Medicine in San Juan, disagrees. She estimates that about 10.5% of pregnant women in Puerto Rico tested positive for Zika during the outbreak – an infection rate not nearly high enough to confer herd immunity. She observes that such viral outbreaks tend to happen in 3–5-year cycles. (https://www.contagionlive.com/publications/contagion/2018/october/zika-where-are-we-now).

Problematically, some 60–80% of Zika cases are asymptomatic, so Zika can readily go undetected and gain a foothold before it is identified in a particular area. Fewer than half of those infected actually seek medical care (https://www.contagionlive.com/publications/contagion/2018/october/zika-where-are-we-now). Most of the time, symptoms, when people do have them, are relatively mild and somewhat flu-like: fever, rash, headache, achy joints and muscles, and conjunctivitis, though in rare instances a Zika infection can lead to Guillain-Barré syndrome. Currently, the CDC recommends Zika testing for pregnant women with possible Zika exposure and for those who experience Zika symptoms after traveling to areas where they might have been exposed to the virus (https://www.cdc.gov/zika/hc-providers/testing-guidance.html).

Is there room in that surveillance net for a Zika outbreak to fire up before it is detected? Definitely so. In 2016, a research team led by Northeastern University professor Alessandro Vespignani and overseen by the Center for Inference and Dynamics of Infectious Diseases, projected the discrepancy between the number of reported Zika cases and the likely number of actual cases. The team’s models projected that the actual number of infections in July 2016 was likely 25 times the number of confirmed cases (https://www.sciencedaily.com/releases/2016/08/160802133703.htm).

Dr. Vespignani notes that major outbreaks are associated not only with the right air temperature but also with areas of standing water. In many instances, people educated to understand the risks can manage those, emptying the birdbath or flower pot saucers and the like at least once a week; but after major precipitation events magnified by climate change, when there is standing water everywhere, mosquito populations can spike. The sopping US Southeast, where rainfall records were handily broken in 2018, can testify that there is sometimes “water, water everywhere,” to borrow a phrase from Samuel Taylor Coleridge (https://www.accuweather.com/en/weather-news/2018-leaves-its-mark-in-the-rainfall-record-books-across-eastern-southern-us/70007024).

Furthermore, densely populated areas face elevated risk. Juanita Constible, a climate expert at the Natural Resources Defense Council, explains that, for mosquitoes, “extension of habitat is a combination of climate change and human behavior. Urbanization can expand habitats for some species of mosquito that prefer cities [Aedes egypti among them], so as people expand into natural areas, those species will go with them. Not only do urban settings have plenty of habitat and food, but in cities, mosquitoes lack natural predators.” (https://www.citylab.com/environment/2018/10/hurricane-florence-mosquitoes-north-carolina/571912/)

Kate Fowlie, spokesperson for the US CDC, warns, “Mosquito-borne disease outbreaks are difficult to predict. There will be future outbreaks, including large ones, as well as years with reduced transmission, but it is impossible to know when or where these transmission patterns will occur” (https://www.contagionlive.com/publications/contagion/2018/october/zika-where-are-we-now).

It seems obvious that surveillance is key to preventing outbreaks both in the present and in a warming future, but the CDC’s funding for expanded infectious disease surveillance is due to run out in 2019. The CDC is already planning to scale back its participation in the Global Health Security Agenda (GHSA), an early-warning system for infectious disease outbreaks, in 39 of 49 countries (http://www.ghtcoalition.org/blog/global-health-and-medical-research-saved-from-the-chopping-block-in-2018-spending-bill).

While the US will be assisting with infectious disease surveillance in 10 countries, the map of Zika-affected areas around the globe, courtesy of the CDC, is expansive (https://wwwnc.cdc.gov/travel/files/zika-areas-of-risk.pdf).

There is a lot of purple on this map, but these are not all the places Zika can go; they are merely places where infection is already a risk. Infected travelers can fly all over the world, and disease-bearing mosquitoes know no borders other than inhospitable habitats. Climate change, as we have seen, will widen the range of vector-borne diseases, sharply increasing the percentage of the global population at risk. Viruses themselves, of course, are moving targets, as they mutate regularly – Zika posed no known risk to the unborn until this century, when a mutation changed what had been a mild pathogen (https://www.washingtonpost.com/news/speaking-of-science/wp/2017/09/28/zika-was-a-mild-bug-a-new-discovery-shows-how-it-turned-monstrous/?utm_term=.af60fd526a41). Scientists also warn us that we may soon be contending with disease-causing bacteria and viruses that have lain dormant for centuries or even millennia, frozen in permafrost that is now melting as the Arctic warms (www.bbc.com/earth/story/20170504-there-are-diseases-hidden-in-ice-and-they-are-waking-up).

As we look ahead, addressing climate change will clearly entail grappling with expanded threats to human health, and one of those threats will be elevated vector-borne disease risks, perhaps coupled with diseases modern medicine has yet to encounter. Climate change mitigation and adaptation, combined with vigilant surveillance, vaccine development, and mosquito population control strategies will all be keys to managing vector-borne disease risks posed by certain species of mosquitoes and ticks.

This commentary has been a deepish dive into just one of the secondary challenges climate change will pose to nations, states, cities, municipalities, and the well-being of Americans. In the instance of Zika, we know that the lifetime cost of caring for one child whose life is profoundly impacted by prenatal exposure to the Zika virus, beyond heartbreak, is likely to reach one to ten million dollars (https://wwwnc.cdc.gov/eid/article/23/1/16-1322_article). Human health is just one area in which proactively addressing climate change and adaptation makes both imminent sense and dollars and cents. Again, if you are in the Sarasota area on January 25, we hope you will join us at the University of South Florida Sarasota-Manatee for “Adapting to a Changing Climate: Challenges & Opportunities.” Find more information about this one-day event and register here: http://sar.usfsm.edu/event/adapting-to-a-changing-climate/.