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If you look at various financial crises throughout history, you'll see that even amid increasingly clear evidence of problems, the status quo is surprisingly st
by cjlars 10y ago
If you look at various financial crises throughout history, you'll see that even amid increasingly clear evidence of problems, the status quo is surprisingly sticky. Things move along as normal, and everything seems fine until suddenly... they don't. In hindsight things seem obvious, but at the time it's difficult to know if you are merely flirting with the edge, or you've actually gone over it.
Miami real estate (and other low lying shorefront) isn't quite at that 'oh crap' moment yet. While the evidence for CO2 driven rising sea levels is clear to me, there are plenty of financiers from the previous generation for whom it isn't. And even if they're wrong on global warming, they might be right on sea-walls, pumps and other mitigation methods. The Raising of Chicago lifted the entire city up 3-6 feet with merely 1850s technology, so it's not as if we can't solve Miami's sea level issue with sufficient investment. The issue is who foots the bill, how large it is, and what neighborhoods are left to the sea.
- finnh 10y agoI think it's time to do some research and figure out the appropriate short.
- simonebrunozzi 10y agoI was thinking about it. How would you short something like this?
- sbierwagen 10y agoThe general problem with attempting to profit from global warming is that you end up having to short the entire financial system, and it's tough to make money from the idea of "everything stops working".
- finnh 10y agoI dunno - waterproof bulldozer manufacturers should do pretty well.
- scarmig 10y agoRealistically, both Canada and Russia are countries likely to be net beneficiaries of global warming. Taxes won't have to be increased as much to deal with the effects; more taxes will be generated from increased agricultural productivity; and heating costs will decrease. Must be some way to hedge your personal losses from global warming with investments there.
- zzzzzzzza 10y agohttps://www.theguardian.com/cities/2016/oct/14/thawing-permafrost-destroying-arctic-cities-norilsk-russia https://www.theguardian.com/cities/2016/oct/14/thawing-perma... maybe not so much in the short-medium term.
- sulam 10y agoBefore you short, read the Big Short and imagine yourself as Michael Burry. Very often you can be short, right, and lose your pants because markets are slow to recognize things that they are paid to ignore.
- finnh 10y agoYup. The markets can be irrational longer than you can be solvent. But there must be some arbitrage with derivatives or something, right? =)
- maxerickson 10y agoYou could go long on post sea level rise oceanfront properties. There's probably a few places where a narrow strip of land has enough of the right slope to be a win for quite a range of sea level increases.
- pixl97 10y agoAnd then some idiot will scam the taxpayers in to building a large seawall miles out from your location, leaving you high, dry, and broke.
- maxerickson 10y agocjlars already brought up a similar strategy with less sensitivity to sea level changes and less sensitivity to interventions. Maybe the best climate change hedge is investing in low carbon power production. (incrementally) Good for the climate, benefits if things go worse than expected.
- acchow 10y agoNo, that's exactly the problem. If you're betting on the market's irrationality fixing itself, you better be able to weather the storm of however long that takes.
- bronson 10y ago
- toomuchtodo 10y agoEasy. Have someone on Wall Street create a derivative for you that increases in value as Miami Beach real estate value declines, and be willing to pay the premium for decades. If you wanted to speed things up, find a way to force saltwater into the water table faster without being caught by regulatory agencies. Sulam's sibling comment nails it.
- cjlars 10y agoThe inflection point, if there is one, is likely a decade or more away. Real estate losses will be unique to each area. So you're more likely to see a smattering of "Hurricane Katrina Moments" than a wholesale reversal in the financial markets a la 2008. Deep out of the money options on overexposed instruments is a plausible position to take here, especially during the ~6 week hurricane season. Another thing to note is that it costs money to short -- you are borrowing the shares after all, so you need to pay interest on the loan. This makes a multi-year position shorting select REITs troublesome. The position I'm taking (roughly) is to hold oceanfront property with excellent sea-level protection. Think cliff-front, not beach-front. A different play? Construction companies specializing in sea level mitigation.
- bzbarsky 10y agoCliff-front property may have its own issues. For example, the cliff parts of Cape Cod are eroding by an average of 3 feet per year according to http://woodshole.er.usgs.gov/staffpages/boldale/capecod/quest.html http://woodshole.er.usgs.gov/staffpages/boldale/capecod/ques... -- and that link claims that sea level rise would be expected to speed up erosion. Of course if you pick sturdier cliffs you might be better off.
- sseveran 10y agoThats pretty easy for an institution to do. You would simply find the most exposed developments with the highest credit ratings and buy CDS on their bonds. The issue is that if this is not a crash (e.g. prices rapidly collapse triggering defaults) its very hard to monetize.
- Declanomous 10y agoI live in a 130 year old house in Chicago. If you go in the basement, you can see the new foundation built on top of the old one when the house was raised, and how they added indoor plumbing at the same time. That being said, even though Chicago had high-rises at the time, buildings were all pretty much held in place by gravity at the time. Raising them was just a matter of having enough jackscrews to support the building and making sure the building was raised evenly so that it didn't crack. I suspect that the higher level of integration between modern buildings and their foundations probably means that it's going to be cheaper to just tear down the buildings and rebuild them. My best friend is a structural engineer, so it would be interesting to see what he has to say on the topic. If Miami is anything like Chicago, all the buildings are probably built on piles already, and burying them is one of the most time consuming and expensive parts of the construction process. If you could re-use the piles for a new building you might be able to get away with rebuilding buildings on the cheap. I suspect raising the vast majority of buildings would still be eminently possible though. You see this all of the time in flood-prone areas already. The only difference is that you'd be adding fill up to your new front door.
- Spellman 10y agoLive in Sacramento region where we also raised the buildings to reduce flooding issues. Not quite as impressive as the Chicago effort, but proves that it could be done.
- gniv 10y agoOr maybe Miami will turn into a Venice-like romantic canal city, where travel will be done by jetski, tourism will flourish, and real estate prices will keep going up.
- humbleMouse 10y agoI like this hypothesis.
- tqkxzugoaupvwqr 10y agoIsn’t Florida plagued by alligators? A Venice-like canal city and alligators make for an interesting mix.
- bpicolo 10y agoAlligators are mostly just fresh water. They can sort of survive brackish / a bit of salt but they're not as versatile as crocs.
- Avshalom 10y agoUnfortunately that opens the door for invasive saltwater crocodiles. While alligators are mostly super chill crocs are total dick bags.
- bpicolo 10y agoYeah. If I remember right there were a couple reports of crocs in South Florida over the years, though certainly no major issue
- flukus 10y agoBut then sea level rise will fix the issue. If cities are sticking out like islands then it doesn't leave much habitat for crocs.
- Camillo 10y ago
- will_brown 10y agoIt is a long title as is, but should read Miami Beach. Rising sea levels are an interesting question for barrier islands like Miami Beach and Florida as a whole. Though its important to also understand some of these articles unfairly paint sea level rise and climate change as responsible for a new phenomenon, the truth is Miami Beach has always flooded (during full moons water can rise right up through the ground). Not to mention Hurricanes, but truthfully Miami Beach has been sparred for the most part considering all the potential direct hits over the years and the fact that Andrew was a relatively dry hurricane. Al things considered, the engineering has always been impressive and continues to improve, just look at pre/post Hurricane Andrew codes. Does the Miami Beach flood, sure, but no more than say Charleston, South Carolina. Or have you ever drove on a road that wasn't cracked in NOLA because the salt, (its actually below sea level), Miami Beach doesn't have that issue. I will say this about the article, it doesn't even bother pretending or discussing how Miami Beach/Miami/Florida might position itself to take a leadership position issues of climate change and sea level rise. Moreover, there is almost an acknowledgement and reading between the lines of the money going into development as a scam on foreign investors...personally, I think that is pretty far off, but I can't help but admit such a fraud would be so Miami that it would be poetic.
- bubbleRefuge 10y agoYou are so right. We've allways had water come in on high tides. The risk is hurricanes and storm surge, that is why flood insurance is so high on miami beach. (BTW its feels like hurricane frequency is in a downtrend) I just purchased a place on the intercoastal waterway in miami beach after selling my palce in west broward burbs. Flood insurance is around $2500 per year. Windstorm/Homeowners is $4500. Burbs was like 350 per year for flood.
- toomuchtodo 10y ago> The risk is hurricanes and storm surge, that is why flood insurance is so high on miami beach. This nails it. Miami Beach real estate values will decline as soon as insurance companies throw up their hands and refuse to insure the losses. Can't insure, can't finance a property.
- KingMob 10y ago> they might be right on sea-walls, pumps and other mitigation methods Unfortunately, Florida will have an even harder time than most in mitigating rising sea levels, because the ground is heavily porous limestone. The sea can literally bubble up from below through the ground, and nothing short of dropping a state's worth of granite will help once the sea level rises high enough. Miami should prepare to become America's Venice in 100 years.
- mmaunder 10y agoSame in Seattle in the late 1800's. > While a destructive fire was not unusual for the time, instead of rebuilding the city as it was before, the response of the city leaders was to make two strategic decisions: first, that all new buildings must be of stone or brick, as insurance against a similar disaster in the future; and second to regrade the streets one to two stories higher than the original street grade. Pioneer Square had originally been built mostly on filled-in tidelands and, as a consequence, it often flooded. The new street level also assisted in ensuring that gravity-assisted flush toilets that funneled into Elliott Bay did not back up at high tide. https://en.wikipedia.org/wiki/Seattle_Underground https://en.wikipedia.org/wiki/Seattle_Underground