Friday, December 10, 2004

Counting on Catastrophe

Just about any business self-help book will tell you that one of the keys to success in the market is positioning oneself to take advantage of changing conditions.

But this raises an interesting point. If the changes in question are changes for the worse, what happens you cross the line between preparing for them, and depending on them? In other words, if you were to invest heavily in a company that would profit from a disaster, how would you feel about other people's efforts to avert that disaster?

Here's an example of what I'm talking about:

Denver businessman Pat Broe, owner of the subarctic port of Churchill, Canada, stands poised to profit from polar trade....Global warming is melting once-frozen passages. Scientists even predict that by midcentury the fabled Northwest Passage will become a navigable reality, providing a northern commercial link between the Atlantic and the Pacific. Arctic mineral deposits are beckoning miners. As for oil, one-third of the Earth's untapped reserves are believed to be up here...Churchill is the continent's only subarctic industrial port.


Sitting in this chilly catbird seat is Denver railroad magnate and real estate developer Patrick Broe, 57. In 1997 his company, Omnitrax, the largest privately owned operator of short-line railroads in North America, bought the port for $7 from a Canadian government happy to unload a moneyloser. As part of the deal Omnitrax also paid $11 million to the Canadian National railroad for an 800-mile stretch that links Churchill to Canada's grain belt.

I'm not accusing Broe of anything, by the way. It just seems clear that before he can realize the greatest possible returns on his investment, some pretty awful things have to happen. So if enough people make similar speculative decisions, do we reach a point where the market "requires" disaster?

1 comment:

Phila said...

Joshowitz, I agree with you that Broe is not the problem. It's not that someone here or there might try to make a few bucks off global warming. If problems come, they'll come when the market, which has a herd mentality, "commits" to a particular outcome, and thus self-justifies it. Business and investment, once they reaches a certain level, create their own logic and their own rules, so that the world refers to them for guidance, rather than vice versa. Indeed, that's partially why we're talking about global warming at all; it's largely a market-made problem. It's a typical game-theoretic situation: pursuit of short-term gains leads to long-term losses. The fact that Broe's behavior is "rational" in a classical economic context is somewhat irrelevant, because our best economic thinking led us where we are today. It's rational to follow the money up to a point...but some places that money goes, you really don't even want to visit.