What a simple statistical investment tool can tell us about the climate
Guest essay by Eric Worrall
One of the simplest statistical tools used by investors is a moving average plot. If you plot the average share price of a company, or other investment product, with different smoothing periods, on the same graph, a crossover between the different plots can provide early warning of an imminent change in trend – a buy or sell signal.
From Wikipedia:-
“A moving average, as a line by itself, is often overlaid in price charts to indicate price trends. A crossover occurs when a faster moving average (i.e., a shorter period moving average) crosses a slower moving average (i.e. a longer period moving average). In other words, this is when the shorter period moving average line crosses a longer period moving average line. In stock investing, this meeting point is used either to enter (buy or sell) or exit (sell or buy) the market.”
http://en.wikipedia.org/wiki/Moving_average_crossover
The interesting thing about moving averages is they can provide useful, actionable information, without requiring any knowledge of the nature of the underlying commodity.
So what happens if we create a moving average plot of global temperature (in this case Hadcrut4)?
Source: http://www.woodfortrees.org/plot/hadcrut4gl/mean:60/plot/hadcrut4gl/mean:120/plot/hadcrut4gl/mean:240/plot/hadcrut4gl/mean:360
What is immediately apparent is we may be in the early stages of a significant inflection point – it is too early to tell for sure, but the beginning of an inflection which appears to centre on the early 2000s seems very similar to the inflection which occurred in the 1940s, heralding decades of cooling temperatures.
If the numbers I was plotting was the value of an investment, I would interpret the chart as a strong “sell” signal – a warning that a substantial drop could be imminent.
UPDATE: A previous post on WUWT by David Dohbro also comes to the same conclusion, and has a more detailed analysis:
http://wattsupwiththat.com/2013/10/01/if-climate-data-were-a-stock-now-would-be-the-time-to-sell/
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Another one who seems prepared to bet on future temperatures – but who will no doubt pass if someone challenges him.
To be honest this faux certainty about imminent global cooling is become tiresome. I’ve been reading it for a decade or more. The rate of surface (and atmospheric) warming has slowed but, as someone has already noted, it’s no different to other earlier periods. But, it is most definitely NOT COOLING.
David Dohbro forgets, I think, that reviewing market trends using standard charts has its own internal feedback mechanism — i.e. that hundreds, if not thousands of other investors are also viewing the charts and basing their investment decisions accordingly. Consequently the charts are not an objective view of the markets, but an internal mechanism within them. This is why momentum-chasers are as likely to lose their shirt as win a few dollars.
Incidentally, Der Spiegel has an article this morning which shows that any investor would be wise to pull out of the wind farm market… http://www.spiegel.de/international/business/wind-power-investments-in-germany-proving-riskier-than-thought-a-946367.html
John Finn
… To be honest this faux certainty about imminent global cooling is become tiresome. I’ve been reading it for a decade or more. ,,,
To be honest this faux certainty about imminent dangerous global warming and disappearing icecaps is become tiresome. I’ve been reading about it for a decade or more – a decade during which surface temperatures have stagnated, despite a massive rise in CO2… 🙂
Its a bubble!
short! short! short!
: )
You might want to keep a copy of the chart for future reference.
I saw a similar chart on the JoNova website where the warming from 1910 to 1940 had almost disappeared. The warming from the 1970s then looked far more significant. I read that GISS are making the slight cooling from 1940 to 1970 disappear.
In a few years time the chart will no doubt show flat temperatures up until 1970 when the rise will look like a mountain. Who know, even ‘the pause’ may start to disappear.
There is no one to stop them. Certainly most of the press, most politicians and most climate ‘scientists’ would comment!
http://stevengoddard.wordpress.com/2014/01/31/hiding-the-1970s-ice-age-scare/
PS. last sentence should end ‘would NOT comment’
John Finn says: “To be honest this faux certainty about imminent global cooling is become tiresome. I’ve been reading it for a decade or more. The rate of surface (and atmospheric) warming has slowed but, as someone has already noted, it’s no different to other earlier periods. But, it is most definitely NOT COOLING.”
Climate has been cooling long term since the halocene optimum about 8000 years ago.
Climate warmed naturally over last 300 years
Climate warmed naturally over first half of 20th c.
Climate cooled naturally from 1935-1975
Climate warmed from an unknown combination of AGW and natural causes from 1975 to 1997
To be honest this faux certainty that this latter period is a valid calibration period for century scale extrapolation is become tiresome.
anticlimactic says:
You might want to keep a copy of the chart for future reference.
http://stevengoddard.files.wordpress.com/2014/01/hidingthedecline1940-19671.gif
Thanks. Do you have the original data archived anywhere? Where is this available?
Do you have it as monthly?
I long ago got into the habit of keeping a copy of any dataset before downloading an update. I then check for this kind of adjustment.
BTW, do you have any pre-2012 versions of global means sea level?
The flip side of that adjustment is that it makes the 20th c. a more uniform, continuous increase thus reducing the amplitude of the supposed ~60y cycle. That makes the ‘hiatus’ even more remarkable and implies that a century long rise is coming to an end.
Such a cycle was detected by Thomson et al 2009 in the Gomez Dome ice core.
http://climategrog.wordpress.com/?attachment_id=53
Though clearly seen in their graph they carefully avoid writing about it in the text of their paper about “unprecedented” warming based on computer simulations of the local climate that they don’t even compare to the overlap with their own data !
Unprecedented malfeasance?
Braqueish says:
January 31, 2014 at 5:47 am
“David Dohbro forgets, I think, that reviewing market trends using standard charts has its own internal feedback mechanism — i.e. that hundreds, if not thousands of other investors are also viewing the charts and basing their investment decisions accordingly. Consequently the charts are not an objective view of the markets, but an internal mechanism within them.”
Right on!! I traded in commodities with a club decades ago and this wonderful method using some long and some short moving average and when the short fell below the long = sell and when short rose above long, buy. Bullion traders do this kind of stuff and this is part of the “technical analysis” oxymoron. You are correct, that if the method is widely used then triggering buys and sells create a self-fulfilling “prophecy” to a degree.
Slavish adherence to this has the predictable results that you can also lose your shirt from time to time. For example, if you get your buy signal on frozen orange juice futures the day before a massive frost in Florida, you end up on the wrong side of the trade (when oranges freeze on the tree, they are made into orange juice to save the crop and their is a glut of same). The uninitiated may think, okay you turn around and make a sell order. Here is where the trap is waiting: the market has a daily limit up and down and you aren’t the only one to jump in to sell. This means, before your sell gets processed, the market has to sink a number of daily down limits before the number of buyers appearing becomes sufficient to execute your order. I’ve forgotten what the cost of a slide in orange juice is – $300 for each penny the price goes down with a contract? I recall sugar was $1100 per penny change. A couple of years worth the success is quickly wiped out, maybe even along with your house.
Suggestion, yeah you can use this but spend a lot of time studying fundamentals and don’t set yourself with software for automatic buying and selling! Check out the status of sugar crops on a regular basis and the weather factors that effect them. If you get a forecast for -30C in Toronto, a speculative short sell on orange juice might pay off. If you are wrong, you probably won’t have too big a losses in buying in again because daily limits are not likely to have been triggered.
To emphasize!
The “stock market” financial markets, futures trading markets, and even the day-to-day eBay/Craig’s list/Superbowl ticket markets are NOT a complex chaotic “climate market” …. ALL of the first group – though used here as a analogy to the climate future – are personal and human interactions somewhat regulated as pointed out above) by fractions and dates and account numbers and investment “rules” both written, unwritten, enforced and unenforced. Crowd panics, crowd emotions, and crowd fears ARE a valid and complicated interference in every financial “futures” rule.
But, the climate?
NO RULES. NO EMOTIONS, no fear, no “forecasting” or predicting or hedging AND .. no control. No control by the users (we humans) NOR by the different factors changing at different times. Thus, if we assume a solar influence as an independent influence (forcing), that solar influence WILL HAPPEN regardless of any other factor changing (or NOR changing!) at the same time. That a solar change happens 2 months prior to a volcano does NOT delay or speed up the volcano’s eruption (some may differ, but that too is part of this “trend prediction” game of this thread.
Thus, over the past measurable years, IF the past changes in climate were cyclical, and IF today’s single obvious change in CO2 levels are near-negligible in the world’s climate, and IF the causes of those past changes and IF the effects of those past influences in those past cycles are similar to what is going on now, then cyclical predictions do make sense and can be projected usefully. A lot of “if’s” there – but, then again, the CAGW religion tells us that past cycles absolutely do not matter (if they even acknowledge that those past changes happened at all) , and that no past changes are happening now, and that no future changes will ever happen except CO2-induced warming. So you need to compare if-if-if-if to “didn’t happen then + didn’t happen then + is not happening now + will not happen in the future except for CO2 which will kill us in the far deep future”.
Whether the climate cyclical projection/prediction is correct is a whole another matter …. But simply using definitive and known financial “failures-to-predict” in the stock market and futures market to “prove” cyclical predictions near-term climate predictions will never be “right” is itself wrong.
A number of people have suggested that moving averages do not apply to climate, because they only work in investment, and only because everyone believes in them.
This is a misunderstanding of what moving averages represent.
Moving averages are a tool for teasing out the underlying trend from noisy data – nothing more, nothing less. By smoothing the data at different levels of smoothness, they seek to highlight changes which have already occurred.
This highlighting of changes is not dependent on any predictive mechanism, or belief in the system.
I thoroughly recommend anyone interested in a more in-depth analysis read david dohbro’s post on the subject:- http://wattsupwiththat.com/2013/10/01/if-climate-data-were-a-stock-now-would-be-the-time-to-sell/
Dear Mr. Watts,
My respect and high regard for WUWT and the invaluable work that you do is such that my sole intent is to prevent any blemish from doubtful associations. Your accomplishment in stemming the tsunami of misinformation and the intentional attempt to stampede the country into misguided legislative action has been, and continues to be, irreplaceable. I am, quite obviously, an admirer and a fan.
http://wattsupwiththat.com/2014/01/30/is-the-climate-sell-signal-imminent/#comment-1554918