Posted by Big Gav in water energy efficiency nuclear power oil lithium climate science australia politics
Following on from Malcolm Turnbull's proposal to ban incandescent globes, there are now moves to try and eliminate electric hot water heaters. Life would be much easier if carbon taxes were levied instead of running around trying to think of particular point solutions to impose via regulation if you ask me, but what do I know...
A FEDERAL Government proposal to phase out inefficient light bulbs in a bid to tackle climate change has been welcomed by energy experts and environmentalists, who hope it will lead to other energy efficiency programs. The plan to introduce new lighting standards legislation by 2010, announced yesterday by the Environment Minister, Malcolm Turnbull, could be replicated in areas such as home insulation and hot water systems, they said.
Together, such programs would significantly cut demand for electricity and curb greenhouse gas pollution, without threatening jobs or industry, Greenpeace's energy campaigner, Mark Wakeham, said. "This will be a very fast way of getting compact fluorescent light bulbs into every house in the country," he said. "We are always talking about job losses … with energy efficiency it is really a win-win."
Greenpeace estimated replacing electric hot water systems with solar hot water and water efficient shower heads by 2020 would save 17 million tonnes of carbon dioxide a year, the equivalent greenhouse gas pollution emitted by a large coal-fired power station.
Mr Turnbull said the most effective and immediate way to reduce greenhouse gas emissions was to use energy more efficiently. "We have been using incandescent light bulbs for 125 years and up to 90 per cent of the energy each light bulb uses is wasted, mainly as heat," he said, explaining the Government's preference for the more energy efficient fluorescent bulbs. ...
Although the proposal was a good first step, it did not take much political courage because it didn't upset any industry lobby groups, the managing director of the energy efficiency company Big Switch, Gavin Gilchrist, said. "I look forward to the day when lobby groups are taken on and we ban off-peak electric hot water, selling residential and commercial buildings without any electricity performance data and electricity market regulation that favours coal-fired generators."
The Opposition Leader, Kevin Rudd, gave the idea his "complete support". The Greens also applauded it, but called on the Federal Government to do more.
London mayor Ken Livingstone is also getting in on the emissions reduction act. I suspect anyone who has ever been disgusted at the black mess created by blowing their nose after a day breathing London smog would agree that anything that reduces air pollution in the city must be a good thing...
THE Mayor of London, Ken Livingstone, is appealing to residents to stop using energy wastefully and will urge businesses to embrace green technology as part of a plan to slash the capital's carbon emissions by 60 per cent within 20 years.
Mr Livingstone wants a quarter of London's electricity supply to be shifted from the national grid to local combined heat-and-power systems by 2025. The city will offer "green gurus" to help families make their lifestyles more environmentally friendly, and will subsidise supplies of cavity wall and loft insulation.
The move is the most far-reaching attempted by a big city in Britain, but dozens of others are also planning action to cut emissions. Nearly 200 local authorities have signed a pledge to take action, known as the Nottingham Declaration, and other cities, such as Birmingham, have set targets to reduce greenhouse gases.
Officials say the "vast majority" of the measures announced yesterday will save money, mainly in reduced fuel and energy bills. They estimate that half the required carbon savings can be made through simple changes in behaviour.
In his foreword to the published details of the plan, Mr Livingstone says: "All of us have a responsibility; actions taken at an individual level can have consequences that are unacceptable for society as a whole. Buying a gas-guzzling 4x4 vehicle is an 'individual choice' but it creates carbon emissions that contribute to global warming and harm everyone. It should be no more socially acceptable than to claim the right to dump rubbish in the street."
Paul Krugman notes we can do something about global warming.
The factual debate about whether global warming is real is, or at least should be, over. The question now is what to do about it.
Aside from a few dead-enders on the political right, climate change skeptics seem to be making a seamless transition from denial to fatalism. In the past, they rejected the science. Now, with the scientific evidence pretty much irrefutable, they insist that it doesn't matter because any serious attempt to curb greenhouse gas emissions is politically and economically impossible.
Behind this claim lies the assumption, explicit or implicit, that any substantial cut in energy use would require a drastic change in the way we live. To be fair, some people in the conservation movement seem to share that assumption.
But the assumption is false. Let me tell you about a real-world counterexample: an advanced economy that has managed to combine rising living standards with a substantial decline in per capita energy consumption, and managed to keep total carbon dioxide emissions more or less flat for two decades, even as both its economy and its population grew rapidly. And it achieved all this without fundamentally changing a lifestyle centered on automobiles and single-family houses.
The name of the economy? California.
There's nothing heroic about California's energy policy -- but that's precisely the point. Over the years the state has adopted a series of conservation measures that are anything but splashy. They're the kind of drab, colorless stuff that excites only real policy wonks. Yet the cumulative effect has been impressive, if still well short of what we really need to do.
The energy divergence between California and the rest of the United States dates from the 1970s. Both the nation and the state initially engaged in significant energy conservation after that decade's energy crisis. But conservation in most of America soon stalled: After a decade of rapid progress, improvements in auto mileage came to an end, while electricity consumption continued to rise rapidly, driven by the growing size of houses, the increasing use of air-conditioning and the proliferation of appliances. ...
I quite like my regular email updates from the Climate Change Coalition. One recent missive pointed out the problems caused by the thirst for water of coal fired power stations. Apparently the NSW generators are already having trouble with inland plants, with generation cut back and moved to coastal plants as far as possible, and something like 2 years of water supply left. Maybe our carbon dioxide emissions will be self regulating - once we run out of inland water we'll cut emissions by 50% straight away. I guess the old coal plant locations will be good places to install thermal solar power plants...
COAL FIRED POWER STATIONS’ THIRST FOR WATER IS AN EQUAL ARGUMENT FOR ALTERNATIVE POWER GENERATION
“A major problem with coal fired power stations is their insatiable thirst,” said Patrice Newell, who heads the Climate Change Coalition team for the New South Wales Legislative Council. “The giant facilities of Macquarie Generation in the Hunter Valley demand and get water no matter how dire the circumstances.
Producing 40 per cent of NSW’s energy requirements at just two coal-fired thermal stations, they take immense amounts of water from both the Hunter catchment and the Barnard River, a tributary of the Manning. This raises difficulties at the best of times but creates a deepening crisis for Hunter Valley communities during drought – and that’s before you factor in climate change.
Most people don’t realize that every time they turn on a light switch they’re also turning on a tap – that the flow of electricity is dependant on the flow of water. Yet water is not factored into the true price of coal-generated electricity.
On 15 Sept 2006 Macquarie Generation applied under Part 3A of the Environmental Planning and Assessment Act, 1979, to upgrade their power station with a low pressure pumping station. They want to put in new pipes and access 1,200 million litres of water a day. Their existing system accesses 400 million litres per day. Macquarie Generations’ entitlement already drains Glenbawn Dam, now a ghost of its former self. The problem is further dramatised by emission data. Take sulphur dioxide and mining.
Around Singleton alone 30,000 tonnes of fine dust is released into the air annually, with a further 1,200 tonnes from the coal-fired power stations. In the nearby agricultural area of Scone the total is 870 tonnes. Then there’s the problem of salinisation of water in the mining process – the high background salt level in the Hunter is of great concern. Even in times of normal rainfall Macquarie Generation’s thirst prevents the Hunter blossoming.
Any move to renewable and alternative energy could ease the situation for those at the other end of the queue and allow a diversification of agriculture to develop. There would also be water for new energy efficient communities”. Ms Newell concluded.
Recent additions to the CCC team include John McInerney, Nat Jeffery, Caroline Pidcock, John Polglase, Luke "Solarman" Williams, Lindsay Johnson, Stan Glaser, Louise Upton (associated with SmartShax) and Joe Herbertson of the Crucible Group.
Dr Joe Herbertson is a Principal and Managing Director of the Crucible Group Pty Ltd, a research and consulting business, which has been formed to enhance the link between sustainability, strategy, innovation and science. The Crucible has a core strategic focus on creating industrial solutions that are carbon neutral or better. This includes unlocking the potential for algae as a source of non-fossil fuels and chemicals and the potential for char products to regenerate soils and sequester carbon. The Crucible is currently piloting new technology for algae biomass production and its conversion by advanced pyrolysis methods into renewable oil, gas and char.
Dr Herbertson obtained his degree in Metallurgy from the University of New South Wales and his PhD from Imperial College, London University. He combines a distinguished career in technology with a commitment to sustainability.
Previously the General Manager for Research at BHP Steel, he was also head of the Central Research Laboratories in Newcastle, BHP's main global R&D facility at the time. Dr Herbertson initiated the Centre for Sustainable Resource Processing, a $90M collaboration between industry, government and research with a focus on minerals processing and metal production; is the Executive Director of The Natural Step in Australia, which is a global NGO with a science based, systems approach to sustainable development; is a Conjoint Professor in the Faculty of Engineering and the Built Environment at Newcastle University and a Visiting Fellow at the Graduate School of the Environment, Macquarie University.
Dr Herbertson is also a member of the CSIRO Minerals Sector Advisory Committee, the Yarra Valley Water Sustainability and Environment Committee, the Melbourne Sewage Strategy Expert Panel, the AP6 Steel Reference Group and the Tom Farrell Institute for the Environment Board at Newcastle University. He was the Chair of Green Processing 2006, an International Conference on Sustainable Processing of Minerals and Metals. Currently Dr Herbertson consults to a wide range of major companies in the resources and manufacturing sectors in Australia and overseas.
In announcing his decision, Dr Herbertson said:
"I am pleased to join Patrice Newell on the Climate Change Coalition team for the March 24 State elections. Patrice brings important qualities to the climate change debate, namely intelligence, a willingness to get to the bottom of complex issues, respect for people and a love of nature. At this critical period, we need independent and talented people taking a lead in government and public discussion that are not tied to party politics. The Climate Change Coalition provides the vehicle for a diverse range of experienced and passionate people to make a contribution. In joining the ticket, I bring a business innovation perspective to the team. Sustainable development will require large scale innovation throughout production and consumption systems and will be a lever for value creation for those companies that embrace it."
There have been a lot of reports that Rodent and some of his mates are trying to get their nuclear power plant building campaign going, prompting widespread abuse in states designated to host the money wasting monstrosities.
SUPPORT from the public and both main political parties was essential before Australia adopted nuclear power generation, the Federal Government said yesterday. The statement came as the Prime Minister came under attack in Parliament after reports that a group of businessmen planned to build a nuclear plant in Victoria or South Australia.
John Howard, and the Minister for Industry, Ian Macfarlane, were subjected to sustained attacks from the Opposition, which alleged they had been consulted on a proposal to build nuclear power plants by three of the country's most powerful businessmen - the former mining bosses Hugh Morgan and Robert Champion de Crespigny, and Ron Walker, the chairman of Fairfax Media, publisher of the Herald...
The Premier of Victoria, Steve Bracks, said he would hold a plebiscite if the Federal Government tried to override state laws and build a plant in Victoria. "There's no safe way of storing radioactive waste, No. 1," he said. "No. 2, the general safety of the plan is questionable, and No. 3, the economics are just not there."
The South Australian Premier, Mike Rann, said no reactor would be contemplated while he was premier.
Labor's environment spokesman, Peter Garrett, said he was surprised the plans to build a plant were so advanced. "Australians are very clear that they don't want nuclear energy and nuclear power in this country."
One researcher noted Australia is 20 years behind Europe on the move to renewable energy.
A leading environmental researcher has called for a government taskforce to look into renewable energy to balance up debate on Australia's response to climate change.
Barney Foran, a visiting fellow at the Australian National University's Centre for Research and Environmental Studies, says Australia is 10 or 20 years behind Europe in thinking on renewable energy. ... "While I'm not here advocating the renewables transition, I do suggest that if we are to have a decent debate in Australia, then we need something the size and intensity of the Ziggy (Switkowski) report (into nuclear energy), to be done on a renewables transition so that we may have balance, if you like, in the national debate that ensues," he said. "We could have a very different economy here run by renewable electricity mainly, and also by vast areas of woodscapes supply our liquid fuels". ...
Mr Foran spoke of a building at an institution in Austria which replaced its marble frontage with photovoltaic (PV) cells and managed to convert its energy useage to 50 per cent renewable, as an example of renewable energy innovation happening in Europe. "The Europeans are 10 to 20 years in front of us," he said. "Step-change comes when we put a goal in national terms that say we're going to go for something like 50 per cent renewable electricity by 2050.
Solarhome reports that a 10GL combined solar power and desalination plant is planned for South Australia (its a shame the gas part of the plant is larger than the solar component - South Australia made for thermal solar generation - its never been hotter in fact).
A parabolic dish array producing steam for power and desalination, has been announced for the town of Port Augusta on the upper tip of the Spencer Gulf in South Australia. Australian company Acquasol has been chosen to build the facility, which will produce 10 GL of fresh water each year, as well as have an output of 200MW, of which 50MW will be generated from the sun, and 150MW by a gas-fired turbine. 2GL will be provided to the Port Augusta council. It is assumed the balance will be required by the Olympic Dam mine expansion in the state’s far north.
Construction is planned to commence this year. The project will employ 500 people over 2 years, and 60 employees permanently.
Acquasol is attempting to list on the ASX according to a media accouncement on http://www.renergy.com.au/headlines.htm
Moving away from local news, Ontario in Canada seems to be suffering fuel shortages, prompting some speculation (in the more paranoid parts of the internet) that oil is being diverted to help double the size of the US Strategic Petroleum Reserve. Its always handy to have plenty of oil in hand if you're thinking of embarking of some overseas adventurism of course.
The Ontario Trucking Association warned on Tuesday that the big rigs used to transport everything from chickens to car parts could soon be parked on the roadside if nothing is done to alleviate a growing fuel shortage in Ontario.
Tight supplies of fuel have bedeviled motorists in Canada's biggest market since a fire at an Imperial Oil Ltd. refinery slashed output two weeks ago. And the situation could quickly become "critical," said David Bradley, the trucking association's president. "We're not in a crisis situation at this moment, but things have been gradually getting worse as the days go by," Bradley said.
The situation in Ontario, which accounts for about a third of Canada's demand, was aggravated by reduced transport capability, partly due to a strike at Canadian National Railway Co. (CNR.TO: Quote). The combination of factors meant dozens of gas stations across the province were forced to shut off their pumps as fuel supplies ran out.
CN Rail reached a tentative contract agreement with workers on Saturday, but services were not expected to return to normal for several days. As well, Imperial has said its Nanticoke, Ontario, refinery will not return to full production until mid-March. Imperial is apportioning supplies to its chain of Esso gas stations and other customers, but rival oil companies have found their pumps running dry as they feel the spike in demand.
A growing number of trucking companies are also reporting that their bulk storage facilities are empty, or close to being depleted, and fuel suppliers are saying relief may not come for days, Bradley added. If the fuel shortage persists, he said, smaller firms could go out of business -- and eventually shortages would be seen on store shelves. Ninety percent of consumer products and foodstuffs are shipped by truck, he said.
Auto Blog Green had an interesting post recently on lithium supplies - noting "peak lithium" may be just as much a problem as peak oil. Lithium is an important material for many types of battery, so any real supply limits would be a problem for the V2G / smart grid idea if these become the dominant type of battery in plug in hybrids and electric cars. Of course, how much lithium is really out there (and how well lithium batteries will fare compared to ultracapacitors and the like) still seem to be fairly open questions.
Lithium ion battery technology is all the rage when talking about future vehicle propulsion systems. Everybody wants lithium ion batteries because so far they are the only electro-chemical batteries devised that come close to providing the energy density necessary to be truly useful for passenger vehicles. There are lots of promising variations that may be able to improve the lifespan and chargeability of such cells, but one question has remained unasked. At least until now. The ability of the electrical grid to support large scale use of EVs is an open question, although some recent studies seem to indicate that having vehicles charged mostly at night, might be beneficial. The new question is "Where do we get the lithium?"
In a story in the Toronto Star, William Tahil, research director with Meridian International Research asserts that there isn't enough lithium available to mine to support the world's 900 million vehicles. Evidently most of the known supplies of lithium are in South America, in Argentina, Chile and Bolivia, potentially making them the new OPEC. Bolivia alone may have fifty percent of the world's metal lithium reserves. Production of 60 million PHEVs with smaller lithium batteries than would be needed for a full EV would require 420,000 tonnes of lithium every year, which is six times the current production level. So it looks like any potential savings from mass producing lithium batteries, could easily get negated and then some just by increasing demand driving up raw material costs.
Tahil proposes that battery research should be more focused on technology that uses more common metals like nickel and zinc. The article mentions sodium nickel chloride (Zebra) batteries and zinc air batteries. The Zebra batteries apparently tolerate cold and hot temperatures well, something lithium batteries generally don't. It looks like we need to start looking past lithium even before it gets established.
WorldChanging has a post on the future of food.
"The first freedom of man, I contend, is the freedom to eat" -- Eleanor Roosevelt
Perhaps because it is such a commonplace, defining the rhythms of our daily lives, many people who think seriously about the future have a tendency to dismiss food and food culture as a serious issue. That's too bad, not only because food is life, and questions of hunger and food supply still loom large on our planet (800 million people currently suffer from malnutrition, according to the FAO), but also because the growing, catching, selling and preparing of food creates some of our largest impacts on the planet and some of the largest conflicts between peoples.
The future of food is a gigantic issue, and that future is changing quickly.
That's why this week Worldchanging is focusing on the future of food. Sarah and I are at John Thackara's Doors of Perception conference in Delhi, India, which this year takes up questions of food and food culture and where they're headed: we'll be bringing you updates all week. But that's not all, because we will also have posts about new ideas and solutions and debates from a number of our regular contributors, and updates from some of our allies around the world, including Anna Lappé reporting from the first international Forum on Food Sovereignty in Mali.
How can we design food systems which are fair, sustainable and both efficient and holistic? How can we fill our plates without eating up our future?
Below is a round-up of many of the food-related posts from the Worldchanging archive. You may find it interesting to peruse as we add more to this section of our library in the coming days. ...
WorldChanging also has an inetrview with climate scientist Kerry Emanuel.
Kerry Emanuel, one of the world's leading authorities on hurricanes, is a professor of tropical meteorology and climate at the Massachusetts Institute of Technology. His book, Divine Wind, delves into the history and science of hurricanes. He visited Madison last week as part of the Weston Global Distinguished Lecture series sponsored by the Center for Sustainability and the Global Environment.
David Zaks: In the "statement on the U.S. hurricane problem" a group of scientists called upon leaders of government and industry to undertake a comprehensive evaluation of building practices, insurance, land use, and disaster relief policies that currently serve to promote an ever-increasing vulnerability to hurricanes. What role do you see adaptation play alongside mitigation when assessing courses of action for dealing with global warming?
Kerry Emanuel: Even if climate science could tell you exactly what would happen to the physical climate over the next 100 years, to undertake the analysis of the optimum route for society, what's the mixture of trying to mitigate it versus trying to adapt to it, it is a profoundly complicated problem and I would be foolish to have a shot at it. Invariably it will be a mixture of things because unless someone discovers some absolutely spectacular alternative energy source, and we can't rule that out it might happen.
People will have a demand for energy, but there are things we can do; conserve, use less, all the things that are recommended in the book, of course. It is foolish to say that we shouldn't do some of that, and maybe most of it, some of it is just easy, but a certain amount of adaptation is inevitable. What concerns me is that to some extent the free market is a vehicle for adaptation, I'm not saying it is perfect, or the only extent, but if you don't let the free market do what it does because of regulation then you are handicapping yourself. Right now the regulation of insurance in the United States, which is here to stay unfortunately, has led to wholesale subsidy of risk taking in a way that is not profitable to society and I don't see why that has not carried over to the other consequences of global warming. If as government says, we expect sea level to go up 2 feet over the next 50 years, and as a consequence of that, we will pay for it. Paying people to put themselves in the way of that doesn't make any sense.
DZ: Touching on what you said about new sources of renewable energy and your work on hurricanes, would it be possible to strategically place wind turbines or other devices in the path of hurricanes to collect some of that energy?
KE: It is very tempting and there are some very almost freakish coincidences about hurricanes. If you take your typical Atlantic hurricane it dissipates about 2 x 10^12 watts of energy. That happens to equal the global electrical capacity. Which means that if you could efficiently harvest it all, you could power the world. On the average there is one hurricane going on in the world at any given time. To make that even more intriguing, you can calculate for the same hurricane the amount of fresh water it produces, as it is a great desalinator taking salt water, evaporating it and making rain. The amount of rain falling out of an average hurricane is about equal to the global human freshwater consumption. One hurricane could solve all the problems, although I don't think it is feasible because you are dealing with such excessive force and the engineering challenges would be large, so I don't see that happening, unfortunately.
On a smaller scale, in Spain they have created what they call a dynamic chimney where they create a giant greenhouse over the desert floor and in the middle of the glass you have a chimney about 100 feet high and then you have some veins. The sun makes it very hot in there and the air goes rushing up the chimney, and you apply a swirl to that, which is essentially a tornado. The beauty of it is that once it leaves the chimney it keeps going and that is important because the thermodynamic efficiency of the engine is basically proportional to the temperature difference between the bottom and the top, and 100 feet is tall enough for that temperature difference to be appreciable, but if the column of rotating air goes a kilometer into the sky, you now have a change in temperature of about 10 degrees, and they use that to generate electricity. If salt water is used instead of just the desert surface, you have a much high albedo (reflectivity) so you get more efficient generation. You get moist air going up, which means it can go higher into the atmosphere, and then the rain that comes down can be harvested into fresh water! ...
The Chinese stockmarket was the trigger for a reasonably large fall on the markets everywhere today. Dan Denning from The Daily Reckoning has a look at recent falls on global markets, closing with an intriguing conspiracy theory (as I know you guys at the State Department have nothing better to do with your time than read conspiracy theories).
--Shanghai down 8.8%, London down 2.3%, the Dow down 3.3%. And so far, the ASX down by 3.5%. Is this the crash for which we've been flying a flag for weeks now?
--This, as we pointed out earlier in the week, is what you get when global markets go up for nearly eight months without a significant pull-back. It's more of a collision than a crash, the kind of thing that happens when you go over a speed bump too quickly. You bang your bumper into the asphalt. It's not so much that there were a lot of sellers yesterday, but that there were a lot fewer buyers.
--Not that we'd ever want to be accused of being bullish, but let's keep things in perspective. The same Shanghai 300 Index that fell 9% yesterday had been up 23%, year to date. In the context of its rise the last three years, yesterday's collision was tiny. A real crash would be more like what happened to American sub-prime lender Novastar. The company fell by 50% over three days when it reported rising defaults from its sub-prime borrowers. It also added, ominously (a ridiculous understatement) that it did not think it would make money any time in the next five years. Gulp.
--Yet what is so different about paying too much money for a stock like Novastar and paying too much money for stocks as an asset class? In both cases the faulty assumption was the same: abundant liquidity would drive earnings and prices higher. With Novastar, it was higher interest rates that burst the bubble. With global stock markets, it was something else.
--This brings us to the key vulnerability of the Goldilocks Paradigm: money supply, or liquidity. It takes a constantly increasing amount of money to drive stocks up. The same amount won't do. Bubbles require more buying power, always more. That's why liquidity theory is a better explanation of global stock price movements these days than valuation. Stocks long ago ceased to be correlated to real measures of value. With superannuation, private equity, and institutional buying, the ready supply of liquidity has been pretty smooth into all stocks-emerging markets and the Dow alike.
--But not yesterday. So just what happened? And where to from here? Probably more selling this week to shave another 5% off index values, followed-and we're only guessing here-by a fresh run toward record highs in the North American spring. If we're wrong, the crash to end all crashes will be this month. And though we think that day is coming, we don't think it's arrived just yet. Why?
--Did you know that on any given day, just over 30% of the volume on the New York Stock Exchange comes from automatic, computer-generated buy and sell programs? The NYSE makes the data public on its website. We'll quote some of it in a minute. But it's important for a simple reason: the direction of global markets is determined a lot less by human beings and a lot more by computer programs, models, and algorithms.
--The upside of this is that automated buying power pushes stocks higher. The downside is the Dow falls 200 points in two minutes as sell orders are automatically generated and executed. There's not even time for some good old fashioned hand-wringing and sweaty brows. Computers don't sweat. And they don't panic. They just execute. "Sell."
--The NYSE keeps data on a weekly basis, so we can't see quite what happened yesterday, at least not officially. But here's what it said about last week, "During Feb. 12-16, program trading amounted to 32.1% percent of NYSE average daily volume of 2,962 million shares, or 952 million program shares traded per day…Program trading encompasses a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks with a total value of $1 million or more."
--For the week, just 15 separate firms trade over 4 billion shares using program trading. The NYSE classifies about 7% of these trades as "index arbitrage," and the rest as "all other strategies." So just what are those strategies? We don't know, of course. But our guess is that some of them involve liquidating a position if the Dow falls, say 100, points.
--You can see how the process of program-driven selling becomes self-fulfilling, each order triggering more selling, which triggers further orders. There are computer programs designed to prevent this, called "trading collars," which apparently failed yesterday. At some point-probably later this week-other "buy programs" will kick in, and may in turn, trigger other "buy programs."
--Our point in all of this is that all rational discretion about what a business is really worth is thrown out the window. The index is driven by the programs, which then influences fund and ETF buying, none of which has anything to do with what a particular stock is worth. Buying and selling become reflexive, rather than reflective.
--This is what we call speculation driven by liquidity. And ironically, it's why recent history shows major one-day slides in financial markets seem to have little or no impact in the real economy. And it's not just one-day slides either. Remember the tech-wreck? The Russian bond-default? LTCM? All of these mini financial panics took place in the stock market without, apparently, causing so much as a ripple in the real economy.
--What happens in markets does matter, of course, and not least because it affects the net worth of consumers, who spend and earn money in the real economy. And in that sense, the stock market is a psychological leading indicator of the real economy. If investors are getting skittish-or become skittish because program trading causes a series of steep one-day declines-it can carry over into real world behaviour.
--God forbid most Western investors look at the real world. Then they'd really get scared, seeing millions of consumers in debt, with stagnant wages and large mortgage liabilities. Fully price that into the market and you'd start to see some real selling, as investor flee stocks into, of all things, short-term bonds with stable yields.
--Hmm. Here's a conspiratorial thought. Maybe all of this is an elaborate plot orchestrated by the GoldmanSachs/White House plunge protection team to drive global saving back into the U.S. bond market, just as the government needs to refinance its deficit and pay for its wars. Hmmn. Show of hands? Yea? Nay?