Author: Ron Clutz

Swiss Central Bank Bets on US and Loses

Posted on by Ron Clutz

Tyler Durden reports at Zerohedge Massive Hedge Fund, Also Known As Swiss National Bank, Suffers Colossal $143 Billion Loss In 2022.  Excerpts in italics with my bolds.

The last time we looked at the massive money-printing (literally) hedge fund that also moonlights as the Swiss National Bank, we were stunned to learn that its US equity holdings had exploded to a record $177 billion at the end of Q1 2022, orders of magnitude more than the mere $27 billion it held as recently as 2014.

But while we wait for the SNB’s year-end 13F which should be published in about a month’s time, we already know the damage suffered by the Swiss hedge fund in 2021 and it is staggering: on Monday, the SNB reported an annual loss of 132 billion Swiss francs, or $143 billion, for fiscal 2022, the biggest loss in its 115-year history as falling stock and fixed-income markets hit the value of its share and bond portfolio. The recent drop in the US Dollar also did not help.

Monday’s provisional figure, which marked a reverse from a 26 billion franc profit in 2021, was far bigger than the previous record loss of 23 billion francs chalked up in 2015, and according to Reuters, it is equivalent to slightly more than the annual GDP of Morocco.

According to the bank, the bulk of the loss, or 131 billion francs, was from its foreign currency positions – a broad term used to describe the more than 800 billion francs in stocks and bonds the SNB bought during a long campaign to weaken the Swiss franc. Indicatively, the amount is also almost precisely the same as the GDP of Switzerland.

The losses accelerated as global stock and bond markets tumbled in unison – 2022 was the first year in over a century when both stock and bond market suffered double digit losses – as central banks around the world, including the SNB, hiked interest rates to combat inflation. Meanwhile, the strong Swiss franc – which rose above parity against the euro in July – also led to exchange rate-related losses.

And while the SNB lost money in pretty much everything there was one solitary asset class that generated a profit (take a wild guess which one): that’s right, the SNB’s gold holdings which stood at 1,040 tonnes at the end of 2021, gained 400 million francs in value during 2022.

The 2022 loss meant the central bank will not make its usual payout
to the Swiss central and regional governments, it said.

Last year the SNB paid out 6 billion francs. In fact, if the SNB followed similar accounting rules and logic as any other bank, it would have been wiped out with a loss that obliterated all of its equity capital. But in the magical world of seigniorage, where central banks are assumed to be able to print – again, literally – their way out of everything, the bank never loses and the SNB will continue its merry existence as if nothing happened.

Still, the loss is unlikely to have an impact on SNB policy. It hiked interest rates three times in 2022 as Chairman Thomas Jordan moved to stem high Swiss inflation, analysts said.

“The SNB’s colossal losses will not change its monetary policy at all,” said Karsten Junius, an economist at J.Safra Sarasin. “The high reputation of the SNB helps that it doesn’t have to change anything.”

Well, it may have a record loss that’s bigger than the GDP of most medium-sized countries, but at least it has its “high reputation” earned courtesy of years of laborious and exhausting… money printing.

And yes, because we live in a kangaroo world in which there are never any adverse consequences for colossal central bank stupidity, the SNB’s monetary policy will most certainly not change at all.

Footnote: Swiss Federal Budget Cuts

Swiss federal government signs off on negative budget

Negative government budgets are not the norm in Switzerland. Over the 23 years since 2000, 14 federal budgets have been positive and 9 negative. This week the federal government signed off on a negative budget for 2023 with a hole of CHF 4.8 billion in it, bringing the number of negative budgets since 2000 to 10.

In 2023, Switzerland’s federal government expects to spend CHF 86.2 billion, CHF 4.8 billion more than CHF 81.3 billion it expects to collect.

A large part of the deficit relates to a CHF 4 billion reserve that is expected to be lent to the electricity company Axpo, which faces a liquidity crisis. Axpo, which is owned mainly by Swiss cantons, owns and operates nuclear (49%), hydro (27%), fossil fuel (19%) and solar and wind (5%) power plants. The company has been hit by recent price disruption in the energy market. Rapid price shifts and efforts to deal with these by hedging future sales have consumed large amounts of cash.

The budget was accepted in parliament by 137 votes to 49. Ahead of vote an extra CHF 15 million was added to spending to fund marketing of Swiss wine, protect wolves, to support sport and a few other activities.

Not everyone was happy with the spending plans for 2023. Some on the left wanted higher spending on humanitarian aid to Ukraine, international funds, the Erasmus programme and support for clean energy and the circular economy, and less spending on the military.

Calls by the UDC/SVP for cuts to spending on the environment, health, energy, migration and culture were also rejected. Broadly, the party wanted across the board cuts with the exception of the military and welfare support for farmers.

Ocean Temps Warm Slightly December 2022

Posted on by Ron Clutz

 

The best context for understanding decadal temperature changes comes from the world’s sea surface temperatures (SST), for several reasons:

  • The ocean covers 71% of the globe and drives average temperatures;
  • SSTs have a constant water content, (unlike air temperatures), so give a better reading of heat content variations;
  • A major El Nino was the dominant climate feature in recent years.

HadSST is generally regarded as the best of the global SST data sets, and so the temperature story here comes from that source. Previously I used HadSST3 for these reports, but Hadley Centre has made HadSST4 the priority, and v.3 will no longer be updated.  HadSST4 is the same as v.3, except that the older data from ship water intake was re-estimated to be generally lower temperatures than shown in v.3.  The effect is that v.4 has lower average anomalies for the baseline period 1961-1990, thereby showing higher current anomalies than v.3. This analysis concerns more recent time periods and depends on very similar differentials as those from v.3 despite higher absolute anomaly values in v.4.  More on what distinguishes HadSST3 and 4 from other SST products at the end. The user guide for HadSST4 is here.

The Current Context

The chart below shows SST monthly anomalies as reported in HadSST4 starting in 2015 through December 2022.  A global cooling pattern is seen clearly in the Tropics since its peak in 2016, joined by NH and SH cycling downward since 2016. 

Note that in 2015-2016 the Tropics and SH peaked in between two summer NH spikes.  That pattern repeated in 2019-2020 with a lesser Tropics peak and SH bump, but with higher NH spikes. By end of 2020, cooler SSTs in all regions took the Global anomaly well below the mean for this period.  In 2021 the summer NH summer spike was joined by warming in the Tropics but offset by a drop in SH SSTs, which raised the Global anomaly slightly over the mean.

Then in 2022, another strong NH summer spike peaked in August, but this time both the Tropic and SH were countervailing, resulting in only slight Global warming, later receding to the mean.   Oct./Nov. temps dropped  in NH and the Tropics took the Global anomaly below the average for this period. Now in December an uptick in SH has lifted the Global anomaly slightly above the mean.

A longer view of SSTs

To enlarge image open in new tab.

The graph above is noisy, but the density is needed to see the seasonal patterns in the oceanic fluctuations.  Previous posts focused on the rise and fall of the last El Nino starting in 2015.  This post adds a longer view, encompassing the significant 1998 El Nino and since.  The color schemes are retained for Global, Tropics, NH and SH anomalies.  Despite the longer time frame, I have kept the monthly data (rather than yearly averages) because of interesting shifts between January and July.1995 is a reasonable (ENSO neutral) starting point prior to the first El Nino. 

The sharp Tropical rise peaking in 1998 is dominant in the record, starting Jan. ’97 to pull up SSTs uniformly before returning to the same level Jan. ’99. There were strong cool periods before and after the 1998 El Nino event. Then SSTs in all regions returned to the mean in 2001-2. 

SSTS fluctuate around the mean until 2007, when another, smaller ENSO event occurs. There is cooling 2007-8,  a lower peak warming in 2009-10, following by cooling in 2011-12.  Again SSTs are average 2013-14.

Now a different pattern appears.  The Tropics cooled sharply to Jan 11, then rise steadily for 4 years to Jan 15, at which point the most recent major El Nino takes off.  But this time in contrast to ’97-’99, the Northern Hemisphere produces peaks every summer pulling up the Global average.  In fact, these NH peaks appear every July starting in 2003, growing stronger to produce 3 massive highs in 2014, 15 and 16.  NH July 2017 was only slightly lower, and a fifth NH peak still lower in Sept. 2018.

The highest summer NH peaks came in 2019 and 2020, only this time the Tropics and SH were offsetting rather adding to the warming. (Note: these are high anomalies on top of the highest absolute temps in the NH.)  Since 2014 SH has played a moderating role, offsetting the NH warming pulses. After September 2020 temps dropped off down until February 2021.  Now in 2021-22 there are again summer NH spikes, but in 2022 moderated first by cooling Tropics and SH SSTs, now in October and November by deeper cooling in NH and Tropics.

What to make of all this? The patterns suggest that in addition to El Ninos in the Pacific driving the Tropic SSTs, something else is going on in the NH.  The obvious culprit is the North Atlantic, since I have seen this sort of pulsing before.  After reading some papers by David Dilley, I confirmed his observation of Atlantic pulses into the Arctic every 8 to 10 years.

But the peaks coming nearly every summer in HadSST require a different picture.  Let’s look at August, the hottest month in the North Atlantic from the Kaplan dataset.

The AMO Index is from from Kaplan SST v2, the unaltered and not detrended dataset. By definition, the data are monthly average SSTs interpolated to a 5×5 grid over the North Atlantic basically 0 to 70N. The graph shows August warming began after 1992 up to 1998, with a series of matching years since, including 2020, dropping down in 2021.  Because the N. Atlantic has partnered with the Pacific ENSO recently, let’s take a closer look at some AMO years in the last 2 decades.

This graph shows monthly AMO temps for some important years. The Peak years were 1998, 2010 and 2016, with the latter emphasized as the most recent. The other years show lesser warming, with 2007 emphasized as the coolest in the last 20 years. Note the red 2018 line is at the bottom of all these tracks. The heavy blue line shows that 2022 started warm, dropped to the bottom and stayed near the lower tracks.  Note the strength of this summer’s warming pulse, in September peaking to nearly 24 Celsius, a new record for this dataset. In November the SSTs were closer to the middle.

Summary

The oceans are driving the warming this century.  SSTs took a step up with the 1998 El Nino and have stayed there with help from the North Atlantic, and more recently the Pacific northern “Blob.”  The ocean surfaces are releasing a lot of energy, warming the air, but eventually will have a cooling effect.  The decline after 1937 was rapid by comparison, so one wonders: How long can the oceans keep this up? If the pattern of recent years continues, NH SST anomalies will likely decline in coming months, along with ENSO also weakening will probably determine a cooler outcome.

Footnote: Why Rely on HadSST4

HadSST is distinguished from other SST products because HadCRU (Hadley Climatic Research Unit) does not engage in SST interpolation, i.e. infilling estimated anomalies into grid cells lacking sufficient sampling in a given month. From reading the documentation and from queries to Met Office, this is their procedure.

HadSST4 imports data from gridcells containing ocean, excluding land cells. From past records, they have calculated daily and monthly average readings for each grid cell for the period 1961 to 1990. Those temperatures form the baseline from which anomalies are calculated.

In a given month, each gridcell with sufficient sampling is averaged for the month and then the baseline value for that cell and that month is subtracted, resulting in the monthly anomaly for that cell. All cells with monthly anomalies are averaged to produce global, hemispheric and tropical anomalies for the month, based on the cells in those locations. For example, Tropics averages include ocean grid cells lying between latitudes 20N and 20S.

Gridcells lacking sufficient sampling that month are left out of the averaging, and the uncertainty from such missing data is estimated. IMO that is more reasonable than inventing data to infill. And it seems that the Global Drifter Array displayed in the top image is providing more uniform coverage of the oceans than in the past.

uss-pearl-harbor-deploys-global-drifter-buoys-in-pacific-ocean

USS Pearl Harbor deploys Global Drifter Buoys in Pacific Ocean

Footnote Rare Triple Dip La Nina Likely This Winter

Here’s Where a Rare “Triple Dip La Niña” Might Drop the Most Snow This Winter Ski Mag

The unusual weather phenomenon might result in the snowiest season in years for some parts of the country.

The long-range winter forecast could be good news for skiers living in the certain parts of the U.S. and Canada. The National Oceanic and Atmospheric Administration (NOAA) estimates that the chance of a La Niña occurring this fall and early winter is 86 percent, and the main beneficiary is expected to be mountains in the Northwest and Northern Rockies.

If NOAA’s predictions pan out, this will be the third La Niña in a row—a rare phenomenon called a “Triple Dip La Niña.” Between now and 1950, only two Triple Dips have occurred.

Smith also notes that winters on the East Coast are similarly tricky to predict during La Niña years. “In the West, you’re simply looking for above-average precipitation, which typically translates to above-average snowfall, but in the East, you have temperature to worry about as well … that adds another complication.” In other words, increased precip could lead to more rain if the temperatures aren’t cooperative.

The presence of a La Niña doesn’t always translate to higher snowfall in the North, either, as evidenced by last ski season, which saw few powder days.

However, in consecutive La Niña triplets, one winter usually involves above-average snowfall. While this historical pattern isn’t tied to any documented meteorological function, it could mean that the odds of a snowy 2022’-’23 season are higher, given the previous two La Niñas didn’t deliver the goods.

 

 

Southwestern Solar: Bright Shining Disappointment

Posted on by Ron Clutz

Solar farms in Southwest USA from Solar Energy Maps

D. Dowd. Muska reports in his National Review article A Bright Shining Disappointment.  Excerpts in italics with my bolds and added images.

Solar has failed in the Southwest.  In the ’70s, it all seemed so simple.

President Carter issued a proclamation declaring the sun “an inexhaustible source of clean energy.” A joint resolution of Congress predicted that “the development of solar technologies will provide an abundant, economical, safe, and environmentally compatible energy supply.” Robert Redford assured Americans that “the sun will always work” and “never increase its price on a heating bill.”

But nearly 50 years later, solar’s failure is blindingly clear. The Southwest Public Policy Institute, where I serve as a senior fellow, recently explored the contribution sunshine makes to utility-scale electricity generation in eight states: Oklahoma, Texas, New Mexico, Colorado, Utah, Arizona, Nevada, and California. What we discovered was jarring.

In the Southwest, solar generates a mere 6.4 percent of utility-scale power (power from facilities where total generation capacity is one megawatt or greater), despite the region enjoying the sunniest skies in America. While California (16.7 percent) and Nevada (14.4 percent) had the heaviest solar shares, the drop-off in the other states we studied was profound: Utah (8.1 percent), Arizona (5.5 percent), New Mexico (5.0 percent), Texas (3.1 percent), and Colorado (3.0 percent). Coming in last — and by a country mile — was the Sooner State, at a miniscule 0.1 percent.

These disappointing figures are all the more perplexing when one considers the massive level of government succor that has flowed the solar industry’s way since the late 1970s, the era of Annie Hall, the Bee Gees, and the Star Wars Holiday Special. In 2012, an audit by the Government Accountability Office found that federal agencies have overseen hundreds of “initiatives that support solar energy across the four key federal roles”: R&D; “fleets and facilities,” “commercialization and deployment,” and “regulation, permitting, and compliance.” For decades, wildly generous tax credits have been offered at the federal and state levels. And in the late 1990s, lawmakers began to adopt renewable portfolio standards, which required power suppliers to generate or purchase “green” electricity. In Arizona, 15 percent of power must satisfy these standards by 2025. In Nevada, the rule is 50 percent by 2030. And in New Mexico, all electricity is mandated to be “zero carbon” by 2045.

Enjoying both free fuel and government-conferred advantages, solar power should play a leading role in the Southwest. Yet it doesn’t.

This indicates that solar’s problems are fundamental. As the Institute for Energy Research recently noted, sunlight is “relatively weak because it must first pass through the atmosphere, which protects the Earth from the sun’s intensity.” In 2015, a study by the Massachusetts Institute of Technology described the solar radiation that reaches us as suffering from “low energy density.” In addition, even the most-efficient photovoltaic panels in common use today convert far more solar irradiance to heat than electricity.

Intermittency, in energy journalist Robert Bryce’s opinion, is another “killer drawback” for solar: “Lower power output on cloudy days and during the winter — and zero output at night — means that solar power facilities must be paired with expensive batteries or conventional power plants in order to prevent blackouts or brownouts.”

“Free” fuel, it turns out, isn’t so free. As the Manhattan Institute’s Mark P. Mills explained:

Claims that wind, solar, and EVs have reached cost parity with traditional energy sources or modes of transportation are not based on evidence. Even before the latest period of rising energy prices, Germany and Britain — both further down the grid transition path than the U.S. — have seen average electricity rates rise 60%-110% over the past two decades. The same pattern is visible in Australia and Canada. It’s also apparent in U.S. states and regions where mandates have resulted in grids with a higher share of wind/solar energy. In general, overall U.S. residential electricity costs rose over the past 20 years.

But those rates should have declined because of the collapse in the cost of natural gas and coal — the two energy sources that, together, supplied nearly 70% of electricity in that period. Instead, rates have been pushed higher thanks to elevated spending on the otherwise unneeded infrastructure required to transmit wind/solar-generated electricity, as well as the increased costs to keep lights on during “droughts” of wind and sun that come from also keeping conventional power plants available (like having an extra, fully fueled car parked and ready to go) in effect by spending on two grids.

Then there’s the NIMBYs. Utility-scale solar, in community after community,
faces resistance from locals.

In November, the Roswell Daily Record reported that a New Mexico regulatory agency “voted against three proposed [solar] projects after hearing objections from county residents.” Issues raised included fencing that “will deter from scenic views and hurt property values” and “concerns that the panels contain hazardous substances.” According to The Durango Herald, residents near Hesperus, Colo., have banded together to fight a photovoltaic project, citing concerns about “water runoff” and “direct loss of 1,900 acres of elk habitat.”

In short, solar has not been shining very bright since it came on the scene in the ’70s. Indeed, even in the sun-drenched Southwest, solar has proven inefficient, unreliable, and — when all costs are considered — expensive. That should be a warning:

If it struggles here, in ideal conditions, how well
can it be expected to perform in the rest of the country?

D. Dowd. Muska is a senior fellow at the Southwest Public Policy Institute, a research institute dedicated to improving the quality of life in the American Southwest by formulating, promoting and defending sound public policy solutions.

When it opened in 2014, the Ivanpah Solar Power Facility was the world’s largest solar thermal power station, covering 4000 acres in the Mohave desert. While Ivanpah was supposed to be the future of clean energy, it seems that the rate at which it burns fossil fuel might actually outweigh any environmental benefits of solar power production.