tag:blogger.com,1999:blog-8861605.post362236786693226551..comments2024-03-24T11:01:27.668-04:00Comments on Resource Insights: Stock hedges, home insurance, and our misunderstanding of riskKurt Cobbhttp://www.blogger.com/profile/05330759091950742285noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8861605.post-88631992526806363892017-05-22T11:38:53.236-04:002017-05-22T11:38:53.236-04:00A feature of a hedge is that is fully replaces the...A feature of a hedge is that is fully replaces the losses sustained. So, the insurance on a house that has burned down provides enough money to build a new house similar to the old one. Similarly, a financial hedge will recoup all of the money lost on the original investment.<br /><br />As you say, with regard to climate change there are no hedges that will allow us to maintain our current way of living. A self-sufficient lifestyle has its attractions, but it is very different from the way that we live now. And, as Joe says, it will not work for our current world population. Before the industrial revolution the world population was around 1.5 billion. Now we are at 7.5 billion, and increasing.<br /><br />I have found Taleb’s insights to be very valuable. But I am noticing that the term ‘Black Swan’ is becoming synonymous with ‘Bad Luck’ or ‘Unknown Unknown’, neither of which is the case. Taleb does not define a Black Swan event as being inherently unpredictable; it is just that our risk models failed to predict it, or that we ignore what the models tell us. With regard to resource depletion and climate change, we cannot predict the details or the timing, but that does not make them Black Swans.<br />ChemEnghttps://www.blogger.com/profile/05168251215012150114noreply@blogger.comtag:blogger.com,1999:blog-8861605.post-64907397005724099242017-05-21T13:45:06.533-04:002017-05-21T13:45:06.533-04:00SteveB, Thanks for catching my error. I've co...SteveB, Thanks for catching my error. I've corrected it in the text.Kurt Cobbhttps://www.blogger.com/profile/05330759091950742285noreply@blogger.comtag:blogger.com,1999:blog-8861605.post-39374344322083768192017-05-21T13:37:14.030-04:002017-05-21T13:37:14.030-04:00"Hedges are designed to go up in value direct..."Hedges are designed to go up in value directly in relation to the instrument they are hedging."<br /><br />Did you mean in inverse relation, Kurt? And that would be when "the instrument they are hedging" is going down, right?SteveBnoreply@blogger.comtag:blogger.com,1999:blog-8861605.post-29835672013333350312017-05-21T12:38:17.268-04:002017-05-21T12:38:17.268-04:00... the twin crises of energy depletion and climat...<i>... the twin crises of energy depletion and climate change...</i><br /><br />The crisis of energy depletion is our hedge against the crisis of climate change. Right now the growth curve is flattening due to recent periods of high costs for energy and other resources. It will soon roll over and then begin to decline as we go over the EROEI "cliff". <br /><br />It is almost certain that the structure of the global market economy cannot survive continuous recession and will collapse as soon as it becomes clear that growth is never coming back. So we have good reason to hope that the climate will be saved by economic collapse before catastrophic warming happens.<br /><br />If the hedge against climate change is decline in energy/growth leading to economic collapse, what is the hedge against collapse? I suggest that food producing land, together with the skill to help it produce, is the best hedge. There are others, such as joining a criminal organization willing to steal or extort food from farmers, but I hope that most would prefer to be a farmer rather than a criminal. The only hedge against criminals is the cooperation of farmers. <br /><br />In any case, the collapse of industrial agriculture will be hard on everyone and fatal for many. There aren't enough hedges to go around for 7.5 billion of us. Get yours now.Joehttps://www.blogger.com/profile/01251330546889158364noreply@blogger.com