Monthly Archives: February 2010

Mother Earth On Crack

It must be the worst nightmare; the forces of nature spinning totally out of control. Is that what is about to happen? With one major ecological catastrophe after another? If so, it would be the “fattest tail” in the history of science.

“We hear about more earthquakes and it seems like they are more frequent.”

J. Ramón Arrowsmith

8,8 on The Richter Scale is quite a ride. But it’s not abnormal. Nor is the earthquake frequency out of the “normal” range, according to scientists. What’s worries me is that most scientists are using the same mathematical models when reaching their conclusions as the economists that didn’t see the financial crisis coming.

The Chilean earthquake, and the tsunami it spawned, originated on a hot spot known as a subduction zone, where one plate of Earth‘s crust dives under another.

It’s part of the very active “Ring of ire,” a zone of major crustal plate clashes that surround the Pacific Ocean.

“This particular subduction zone has produced very damaging earthquakes throughout its history,” says Randy Baldwin, a geophysicist with the U.S. Geological Survey (USGS), according to Associated Press.

The world’s largest quake ever recorded, magnitude 9.5, occurred along the same fault zone in May 1960.

A Whole Lotta Shaking Going On

Magnitude-8 earthquakes occur globally, on average, just once a year.

“Since magnitudes are given on a logarithmic scale, an 8.8-magnitude is much more intense than a magnitude 8, and so this event would be even rarer,” J. Ramón Arrowsmith, a geologist at Arizona State University, says.

The Ryukyu Islands of Japan were hit with a 7.0-magnitude quake just last night. News of this, the Haiti quake and now Chile make it seem Earth is becoming ever more active. But in the grand scheme of things, geologists say this is just Mother Nature as usual.

“From our human perspective with our relatively short and incomplete memories and better and better communications around the world, we hear about more earthquakes and it seems like they are more frequent,” Arrowsmith said.

“But this is probably not any indication of a global change in earthquake rate of significance.”

“Coupled with better communication, as the human population skyrocket and we move into more hazardous regions, we’re going to hear more about the events that do occur,” Arrowsmith adds.

However, Stephen S. Gao, a geophysicist at Missouri University of Science & Technology, says: “Relative to the 20-year period from the mid 1970’s to the mid 1990’s, the Earth has been more active over the past 15 or so years.”

“We still do not know the reason for this yet. Could simply be the natural temporal variation of the stress field in the earth’s lithosphere.”

(The lithosphere; the outer solid part of the Earth.)

Common Factors

The latest earthquake in Chile have two common factors with the 7,0 magnitude quake in Japan recently.

For one, any seismic waves that did make their way from Japan to the Chilean coast could play a slight role in the ground-shaking.

“It is too far away for any direct triggering, and those distances also make the seismic waves as they would pass by from the Haiti or Japan events pretty small because of attenuation,” J. Ramón Arrowsmith says.

(Attenuation is the decrease in energy with distance.)

“Nevertheless, if the Chilean fault surface were close to failure, those small waves could push it even closer.”

In addition, both regions reside within the Ring of Fire, which is a zone surrounding the Pacific Ocean where the Pacific tectonic plate and other plates dive beneath other slabs of Earth.

About 90 percent of the world’s earthquakes occur along this arc.

The Fat Tail of Mother Nature

What do you think geologists, climate scientists, financial engineers and poker players have in common?

Financial model

They all use – roughly – the same mathematical models, based on available historical data,  to calculate probability.

Events that occur outside the statistical pattern are usually referred to as “fat tails”.

The last couple of years, the term “Black Swan” have been used about similar unexpected incidences.

(After Nassim Taleb’s famous book by the same name).

The “rocket scientists” on Wall Street obviously ran into a “fat tail” and it seems like the climate scientists, (or should I say “the climate industry”?),  are about to do the same.

So, what about the geologists?

What happen if?

That’s the question probability models are used for.

General model

The answer is only as reliable as the date you put into the formula.

And when it comes to the development of the Earth, our historical data is less than insignificant.

Even a million years is next to nothing.

Still, we’re determined to alter the composition of our  delicate earthly mechanisms.

Without knowing the consequences.

What would happen if we replaced all the salt water on the Earth with fresh water?

Or, what would happen if we replaced all the oil in the Earths lithosphere with a mixture of salt water and dirt? (Or pump the empty oil wells in the North Sea full of CO2?)

Well, I’m no geologist.

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Netherlands Adds New Controversy To UN Climate Report

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Ukraine Dropping E.U. Membership?

The new Ukrainian president Viktor Yanukovych used his first inauguration speech to announce that the country want a “non-aligned” relationship with the European Union. Observers belive Ukraine will drop its plans to apply for full E.U. membership.

“In the minds of Ukrainian politicians it’s clear that joining the EU is not an option in the foreseeable future.”

Iana Dreyer

President Viktor Yanukovych of Ukraina

Ukraine needs the EU in a global dimension, as a power to guarantee a peaceful coexistence of different civilizations and safety in the spheres of energy, environment and food,” Yanukovych said in Kiev Saturday.

“We are prepared to take part in such processes as a non-aligned state,” he said, according to Bloomberg News.

Several European observers and commentators see the president’s remarks as another signal that the Eastern European state will not join NATO and E.U. after all.

The former president Viktor Yushchenko, who defeated Yanukovych in 2004, targeted NATO membership and joining the EU to help free Ukraine from Russian influence.

The Kremlin curbed natural-gas deliveries to Ukraine in 2006 and 2009, withheld a new ambassador to Kiev and accused Yushchenko of supplying arms to Georgia during Russia’s war with its southern neighbor in August 2008.

But Yanukovych, on the other hand, signaled in his election campaign that he’s to seek closer ties with Russia.

Yanukovych will also visit Moscow on March 6, deputy head of his office Hanna Herman said today. She added that the president spoke to the U.S. delegation after his inauguration and discussed a visit to Kiev by Secretary of State Hillary Clinton, which may take place in the next three months.

Ukraine’s economic collapse, which has left it relying on a $16.4 billion International Monetary Fund loan that has been frozen since the autumn has been exacerbated by political wrangling and the election campaign.

Yanukovych has pledged to set up a stable government to combat the deepest economic recession since 1994 and restore investor confidence. The hryvnia lost 41 percent against the dollar since September 2008 and was the world’s second worst performer after the Venezuelan Bolivar.

The new president of Ukraina seems already to have painted himself into a corner after he asked for Russian help to ease gas flows into Europe and signaled he may allow Russia’s Black Sea naval fleet to remain based in Ukrainian waters.

“It’s a rebalancing act,” says Iana Dreyer, an analyst at the European Centre for International Political Economy in Brussels.

“The country has been divided into two for a long time between a western-orientated government and a Russian speaking, Russia-oriented east. I’m not surprised Yanukovych is seeking to restore the balance a bit. He doesn’t want to alienate Russia more,” she says.

“In the minds of Ukrainian politicians it’s clear that joining the EU is not an option in the foreseeable future. The EU hasn’t been very keen to offer enlargement. But the Ukrainians do want a free trade agreement.”

Sources:

EUobserver

Bloomberg News

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All Eyes On Ukraina

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DnB NOR's Latest Fuck-Up

The grand national bank of Norway, DnB NOR, have done it again; five Norwegian fish exporters is filing for bankruptcy after buying structured foreign exchange products from the bank as hedge against losses. Over the last two years four small towns and over 150 000 private investors have lost all their money after buying complicated derivatives from DnB NOR.

“I had a fucking bad Christmas.  There was a lot of aquavit.”

Geir Børre Johansen


Several exporters of dried fish in Norway have bought foreign exchange products from DnB NOR as a hedge against losses. Now, five companies are out of business, the Norwegian news paper Dagens Næringsliv reports.

Many exporters of dried fish in the Lofoten area in northern Norway feared currency losses last year and thought they could secure their income with foreign exchange products from DnB NOR Markets.

Instead they are left with heavy losses, and several are already bankrupt, the Norwegian news paper writes.

DnB NOR Markets have earned more money on foreign exchange market than ever.

Recommended By The Bank

“DnB NOR Markets recommended to ensure the currency,” fish exporter Geir Børre Johansen at Røst Seafood says in a interview with Dagens Næringsliv.

“I had a fucking bad Christmas.  There was a lot of aquavit, he adds.

He thinks back on Christmas for just over a year ago. The euro had gone through the roof as the financial crisis ravaged. For an exporter with hedged against a fall in the euro exchange rate, it would mean big losses.

Many exporters like Røst Seafood was affected by the large exchange rate movements.

Several of these companies had purchased a type of foreign exchange product, sold by DnB NOR Markets, which could provide an additional benefit when/if the euro rose – up to a certain level, that is.

But if the exchange rate exceeded the agreed level, they risked heavy losses.

According to the news paper at least ten out of about 20 dried and salted fish businesses in the Lofoten area have entered into such contracts, in addition to regular currency hedging agreements.

A total of five companies have filed for bankrupt in recent months.

Total debt is around NOK 150 million.

Extreme Speculation

“This is miserable bank craftsmanship,” Professor Thore Johnsen at the Norwegian School of Management (NHH) says.

He thinks DnB NOR have behaved irresponsibly towards the fish exporters.

“The agreement that this is a hedging product is quite incomprehensible. It is an extreme speculation in the euro exchange rate. The bank provides the companies with an opportunity for disaster,” Professor Thore Johnsen says.

But he also points out that the companies that have signed such agreements, must take their share of the responsibility.

Strategy Specialists Ståle Johansen at DnB NOR Markets says he believe the dried fish exporters themselves must take responsibility for the fact that their foreign currency exposure was many times higher than sales revenue.

In 2008 four small town i northern Norway lost billions after buying U.S. mortgage backed securities from other banks in the DnB NOR system.

Over 150 000 private investors are still fighting DnB NOR in court after loosing all their savings when they bought  complicated products with hidden risks.

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DnB NOR Except Penalties of NOK 26 million

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