Mark’s Insight

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Thursday, August 7, 2008
Friday, June 27, 2008
Thursday, June 26, 2008

Science and Pseudoscience

I like to think that we are all at least somewhat environmentalist. Whether it is recycling the newspapers and beverage containers to actively calling for environmental bans on pesticides and CFC's, we should all be concerned with how we affect the planet we live on. I do however think that we need to believe in our ability to adapt, explore and prosper and also to take environmentalists predictions with at least a grain of salt.

Let's review some of the environmentalists predictions over the last 100 or so years.

In 1885 the US Geological Survey announced there was “little or no chance” of oil being discovered in California, Kansa or Texas. In 1939 the US Department of the Interior said American oil supplies would only last another 13 years.

In 1968, Professor Paul Ehrlich, former Vice President of the US and Al Gore's hero and mentor predicted that there would be a major food shortage in the US and that in the 1970's hundreds of millions of people would starve to death and that England would not exist in the year 2000.

In 1969, on the first Earth Day celebration, CC Wallen of the World Meteorological Organization said “The cooling since 1940 has been large enough and consistent enough that it will not soon be reversed” and environmentalist Nigel Calder stated “The threat of a new ice age must now stand alongside nuclear war as a likely source of wholesale death and misery for mankind”

In 1972 a report was written for the Club of Rome (a global think tank), warning that the world would run out of gold by 1981, mercury and silver by 1985, tin by 1987 and petroleum, copper, lead and natural gas by 1992.

Finally, in 1975, the Environmental Fund took out full page ads warning “The world as we know it will likely be ruined by the year 2000”.

There are many, many more like the few here, but the crux of it is that none of the above predictions came true. Why is that?

With oil, we developed new techniques to find and produce it. The American Gas Association states there is currently a 1000 to 2500 year supply of natural gas.

With agriculture we now use the same amount of land we did in the 60's to grow substantially larger volumes. Although our population has increased, food supplies have managed to keep up. People are now in fact paying only 10 percent of what people paid in 1850 for their food, the basics of life.

And finally, it now looks like with global cooling, the science was simply inaccurate. S cientists, even well meaning ones, don't know as much as they think they do.

It is important for us to understand that human beings are not simply more clever herds of animals. When animals run out of their sustenance, they die. When human beings begin to run out, they turn their brains and their social institutions to producing more. We are very good at adapting.

Finally, it should be clear that environmentalist advocates keep making the same mistake over and over. They constantly underestimate the power of technology and science, and underestimate the power of markets to solve emerging problems.

The Price of Oil

During my wifes recent visit to the US she was very surprised to see the change from a year ago in the stresses of daily life. With the hunt for the gas station with the lowest price and more conscious food shopping via flier, the financial meltdown is causing quite a change of lifestyle. When the price of a box of cereal can vary by $2 from a Target to an Albertsons (Rice Crispies at approx. $2.49 vs $4.49), consumers are certainly doing the extra running around necessary to save a few dollars. This is not to say that the Canadian consumer is less conscious of prices, but the impact of high oil prices combined with our stronger individual housing situation and national economic health has us slowly adjusting certain spending but not pressing the panic button to the same extent as the US.

The topic of the year and one big reason why individuals around the world are beginning to adjust habits and daily functioning, is of course oil. There has been much talk recently that speculators are responsible for the meteoric rise in the price of oil over the past several months. While there may be some truth to the investment hedging that goes on, the facts point to the fact that the world is using more oil on a daily basis than it is producing. The US government is considering placing curbs on oil speculation which could bring the price per barrel rapidly back to US$65. But tighter regulation is not only another US government intervention in the free markets of the world, but a very short-term and short-sighted move to try to essentially help the American consumer resume its spending then to boost the US economy.

While speculators and hedgers do impact oil prices to some extent, regulating this activity could have serious long-term negative impact on global oil. A quote from Phil Flynn, VP Energies and General Market Analysis at Chicago's Alaron Trading (G&M, June 24, 2008):

"...limits to using oil as a hedge against inflation and the declining US dollar would only have a temporary impact on the market and would likely cause countries and sovereign wealth funds to hoard oil supplies. Intervention in the free market could do a lot more harm than good, and possibly create oil shortages. Limits would likely fulfil bearish predictions of US$65-a-barrel oil, but such prices would only last a few days as large market players found new ways to hedge their investments. Oil is the hottest game in town, and it's because the fundamentals are sound."

Oil is not a limitless resource. At some point, change to how the world derives its energy will be necessary. We may as well be conscious of this now and begin the process of finding solutions before the resource becomes too expensive for daily use and, finally, gone. From an investment standpoint, oil continues to be an appealing investment - along with much of the energy, resource and of course metals sectors.

A little about Mark

Mark Hewett attained his Bachelor of Applied Science (Civil Engineering) at UBC, working in the energy sector and municipal consulting within BC. He maintains his Professional Engineer status with APEGBC. An entrepreneur at heart, Mark moved into the investment arena over 10 years ago and built a top tier clientele with assets under management exceeding $160 million. He has numerous securities licenses and designations, including the Partners, Directors and Senior Officers (PDO) designation. In fiscal 2006 and 2007, he and his partner achieved Chairman's Club status at Canaccord, ranking amongst the top 20 advisors in Canada. 

Mark Hewett is a partner of Canadian Nexus Ventures Ltd. based in Vancouver, B.C., Canada. Canadian Nexus Ventures is a team of financial and market experts whose combined skill sets, experience and international contacts provide a unique advantage in identifying, building and sustaining risk capital and business development opportunities. It is a privately held company that develops projects for both the private and public markets. For more information, click here to http://www.canadiannexus.com/