G2 Weather Intelligence

G2 Weather in the News: "Weather Taking a Toll on Retail Sales?"

Weather Risk Management Discussion: the future of the OTC weather derivative market in a post-crash economy

I started a discussion topic (below) last week on Linkedin regarding the efforts by the Obama administration to impose new regulations on derivatives.  Specifically, the discussion was centered on how the new regulations may impact the OTC weather derivative market.

"Any one have any thoughts on the impact of the proposed Obama plan (below) on the OTC weather derivative markets?"

Obama Proposes a First Overhaul of Finance Rules (NY Times)

WASHINGTON — In its first detailed effort to overhaul financial regulations, the Obama administration on Wednesday sought new authority over the complex financial instruments, known as derivatives, that were a major cause of the financial crisis and have gone largely unregulated for decades. 

Following is a comment posted from Arthur Small, Associate Professor of Applied Economics and Finance, Department of Meteorology, Penn State University regarding his efforts at communicating with senate staffers on the issue.

"Sen. Tom Harkin (D-IA), chair of the Senate Agriculture Committee, has introduced legislation that would require that all derivatives trade as standardized contracts on organized exchanges, e.g., CME. This legislation would effectively end OTC trading of derivative contracts. Harkin's is one of (by my count) four similar proposals that have been introduced in the Senate Agriculture Committee, which has jurisdiction by virtue of its role overseeing the Commodity Futures Trading Commission.

I requested a meeting with several members of the Senate Agriculture Committee staff to discuss Harkin's bill. Graciously, they agreed to meet with me.  I argued, in short, that, "If OTC trading is outlawed, only outlaws will trade OTC." More substantively, I argued that banning OTC trading would both eliminate economically useful risk hedging instruments, and would serve to drive risk-transfer agreements off-shore and "underground," into commercial contracts. I argued that, to understand, monitor and manage systemic risk, the real need was to give regulators better data, and better tools for data analysis. In that vein, I'm working with colleagues on a proposal to establish a National Institute of Finance: more at www.ce-nif.org.

I don't think I necessarily convinced anyone (and in any case, they aren't the final decision-makers). That said, I would tend to agree with James' comment that the conversation in DC on restructuring financial regulation seems not to be focused on banning any particular types of contracts. The Obama plan does not include such bans. Nor did any member of the Senate Banking Committee suggest, during Tim Geithner's testimony, that it should. One should stay vigilant, I suppose, because strange things can always happen. But I expect that when the dust settles OTC trading of Wx derivative contracts will be safe."

-- Arthur Small, Penn State University

A minor correction/clarification on my last comment: the Obama Administration's plan does call for moving all "standardized" contracts to exchanges and clearinghouses. The plan allows for OTC trading of "customized" contracts, however. The plan does not rigorously clarify the distinction between "standardized" and "customized" contracts. This ambiguity is a point of contention for Sen. Harkin.

More to come on this topic. 

Weather risk professionals:  your thoughts?

Photo courtesy of umax46.

Celebrity Weather: George Carlin Classic the "Hippy Dippy Weatherman"

"Tonight's forecast ... dark, followed by continued dark"

Dead Goats and Wind Farms

More on the topic of the unintended consequences of alternative energy solutions and "geo-engineering."

This time, goats are dropping dead.  Seems they can't get a good nights sleep because of noisy wind turbines.  

I posted this on twitter last month and got the following reply (in the form of a retweet) from my friend Leslie Campisi:

lesliecampisiRT @PaulEWalsh: goats in Taiwan may have died of exhaustion b/c of noise from a wind farm. http://bit.ly/wInLv Goats, try living in NYC.

Well played, Leslie!

Following is an excerpt from the BBC story published in late May:

Wind farm 'kills Taiwanese goats'

A large number of goats in Taiwan may have died of exhaustion because of noise from a wind farm.

A farmer on an outlying island told the BBC he had lost more than 400 animals after eight giant wind turbines were installed close to his grazing land.

The Council of Agriculture says it suspects that noise may have caused the goats' demise through lack of sleep.

Entire BBC article can be found here. 

Photo courtesy of  wYnand

Aqua Terra Asset Management / G2 Weather Intelligence Event: Water Investment Forum

Looking forward to seeing you there!

Click here (or dial 800.883.1212) if you'd like to attend.

- Paul

The Bottom-Line: Why The Summer Sun Means More Than Just A Tan To The Long Island Economy

Photo  and story courtesy of The Long Island Press

Loved this article from today's Long Island Press.  Beautifully written by Michael Martino. 

Read the excerpt below.   

Why The Summer Sun Means More Than Just A Tan To The Long Island Economy

The rhythm on the Island this time of year is usually bass-heavy, a steady sequence of thuds that are the suburban equivalent of tribal drums. It is the soundtrack to a mating dance, and as countless tanned bodies bend into one another, they feel the beat through the floor and the sun on their faces at one of the many clubs, bars or restaurants that rely on Ra himself to set the wheels of nature in motion. It is summer on Long Island, a time of Earthly celebration as the sands warm and a current of booze washes across our shores.

The rhythm has been different this year, though. The steady tapping of rain has replaced the power of driving bass lines, the clinking of beer bottles and the hum of boat motors idling dockside. At a time when Long Island’s economy needs a shot in the arm, June has all but been washed away, and the crucial summer economy has to make up for a lot of lost time.

June has been a non-stop cascade of rain and gray, misty days. The rough start to the important season puts a lot of pressure on Mother Nature to deliver nothing short of perfect weather in July and August. On Long Island, where tourism has been the most important economic engine since the departure of the aerospace industry, the difference between a sunny weekend and a rainy one can mean jobs. It can mean the life (or death) of a business that relies on the skies to stay clear.

It’s not about the turbulent international economy, either. For seasonal business owners on Long Island, it is the weather that affects the balance sheet, and June 2009 was the collapse of Enron, the housing market and Bernie Madoff all rolled into one.

Nice!

To read the rest of the story, click here.

"There is no climate. It's just liberal weather!"

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Somali court postpones amputations, citing weather

Turns out it's going to be too hot. 

When it comes to public amputations, you can't be too careful. 

"Safety first" said the warlord.  

NAIROBI, Kenya (AP) — An Islamic court in Somalia that sentenced four men to have a hand and a leg cut off postponed the punishment Tuesday, saying the sweltering weather could cause them to bleed to death.

The court sentenced the men Monday in the capital, Mogadishu, after accusing them of stealing mobile phones and guns. The court is run by al-Shabab, a powerful insurgent group that is trying to topple the U.N.-backed government and install a strict form of Islam.

"The sentence will be carried out later," an al-Shabab official said, requesting anonymity because he was not allowed to speak publicly. "It was postponed because of the hot weather and fears that the victims will bleed to death."

No date was set for the punishments to be carried out.

Click here to view the whole article:  Somali court postpones amputations, citing weather

The American Obsession: Weather Forecasts

"There will be a rain dance Friday night, weather permitting." 
- George Carlin

Apparently it's true. 

While Americans complain about weather forecasts (and forecasters) incessantly, they are, at the same time,  checking the forecast several times a day.

 Is it a function of trust or perhaps a mass case of OCD?

Following is an extended excerpt from a post written by Meg Marquardt on the Science News Examiner web site:

300 Billion weather forecasts accessed by Americans annually

Americans are apparently obsessed with weather forecasts.  Each year, they access weather forecasts via the internet, paper, or television 300 billion times.  As the population of the United States is around 300 million, that averages out to about three checks of the weather a day per person.

The study, carried out by National Center for Atmospheric Research (NCAR), suggests that “the value Americans place on these forecasts appears to be far more than the nation spends on public and private weather services.” [NCAR] The press release goes on to detail that most people are fairly confident in the information they receive in forecasts two days in advanced.

 

The irony in the article is two-fold. First, for as much as people rely on weather forecasts, one would think that considerably more money would be poured into the field of atmospheric science, even just in the realm of private donors. When asked to place a monetary value on forecasts, scientists found that “on a per-household basis, [a person] would place an average value of about 10.5 cents on every forecast obtained. This equates to an annual value of $31.5 billion.” [NCAR] That is an enormously large industry, and one that isn’t equated in the real world, where only $5.1 billion is used to provide forecasts.  However, "the authors cautioned that it is difficult to put a dollar figure on the value of forecasts." [NCAR]

Rain, Warmth Creating Perfect Storm for Mosquito (Repellent)

Looks like this summer will be a good year to invest in a healthy supply of Off!  This from an article in  the Daily Herald, a paper located in the Chicago suburbs:

Rain, warmth creating perfect storm for mosquitoes

Mosquitoes, like the rest of us, are still waiting for summer to arrive.

All the recent rain normally would be ideal for the pests, but unseasonably chilly temperatures have cooled their romantic desires and conspired to keep their populations down.

"The cooler temperatures are suppressing biting activity," said Mike Szyska, director of the Northwest Mosquito Abatement District that serves communities in Northwest Cook County.

That likely will change, though, because as temperatures have risen so will the swarms of skeeters that thrive in warmer temperatures. And because there is so much excess water this year, there are more places for mosquitoes to lay their eggs.

Weather forecasters say temperatures are expected to start climbing in time for the start of summer, which could launch a biting bug boom. While the anticipated showers may keep West Nile-carrying culex mosquitoes at bay for the time being, floodwater mosquitoes will bask in the wet warmth.

"Every year is different because the weather fluctuates so much," said George Balis, an entomologist for Clarke Mosquito Control based in Roselle.

Click here to read the rest of the story.

Along with demand for insect repellent, an onslaught of mosquitos can also have a material impact on all forms of outdoor activity -- not to mention the increased risk of West Nile virus. 

This is yet another example of how seemingly unrelated weather and environmental events (in this case a cool and wet late spring) can have a direct and predictable impact on consumer trends.

Photo courtesy of freebird.