Hedge Funds Betting on Weather?! WTF? Enron-style trading expands??

[Roland99]

Snow coming? Bets placed at Chicago exchange
City planners, retailers, insurers expected to hedge their risk
http://www.msnbc.msn.com/id/11269409/

Here's how it will work.

Snowfall futures and options are geared to a snowfall index focusing initially on Boston and New York. The index will change based on official daily snowfall totals.

Investors can buy and sell contracts trading on a monthly basis from October through April. A trader makes money on a contract when the index rises after it is purchased and loses money when it falls.

...

Last fall, it began trading futures contracts based on the number of frost days in Amsterdam after a major construction project in the Dutch capital was delayed several times due to a persistent frost, resulting in heavy financial losses.

"We're seeing more and more hedge funds and banks trading the weather contracts," said Brian O'Hearne, managing director of the environment and commodities markets for Swiss Reinsurance Co. and president of the Weather Risk Management Association.

And this is sound business investing how exactly?!?!

[pitohui]

1. maybe not all bad

the mayor of biloxi, a. j. holloway, purchased an interruption of business insurance for city of biloxi for $90,000 2 months before katrina, he received the full value of the $10 million policy for city of biloxi when the casino industry was destroyed

it's a bet you would rather lose, better to lose $90K and still have yr town and its industries, but since weather is unpredictable and stuff happens, at least he had some extra city income to tide them over until they got some casinos open and paying tax again, there are still only three open, palace, imperial palace, and isle of capri

since weather is not going to become any less predictable or controllable, city planners are going to have to look for other ways to spread the risk

look at new orleans, no tax revenue at all really, $10 million insurance would have gone a long way to pay the police officer overtime

now as for the dumbass who sold an insurance policy in hurricane season to the mayor of biloxi, i have a feeling that's an insurance agent who will never work in this industry again, ha ha, but if there is a "bargain price" offered such that the hedge or insurance is a good deal then planners should take advantage of it

if the hedge or insurance is extortionately priced then the planners should not buy the insurance

most times since insurance and hedge firms do have actuaries, the prices won't be in the city's favor, but even the big firms make mistakes obviously and occasionally give the little guy an edge

[TahitiNut]

2. Industries with dependencies on weather ...

... such as construction, retail, recreation, et. al. can offset their downside risk (e.g. no snow = bad for ski slopes) against others for whom that downside is an upside (no snow = good for construction). Make sense? Think of a hedge fund as a "risk washing" pool where two interests with opposite risk "cushion" each other's backsides.


Let's realize that the Enron abuses stemmed from the manipulation of both demand and supply of a commoditized market, using derivatives, where that specific market (energy derivatives) was carefully deregulated by Enron cronies to permit exactly the kind of manipulation that Enron embarked upon.

While hedge funds can certainly be abused, the potential for actually affecting the underlying phenomena (i.e. weather) is very, very limited.

[Roland99]

6. Just feels like a lot of nothing. Maybe this is part of the "Dark Matter"?

[shance]

3. It's called HAARP. They've been able to manipulate weather for years.

Nothing new, other than those who choose to turn their heads to the technology and the capacity to do so.

[applegrove]

4. Likely why they want to undo the National Weather Service and the like.

Because that would give out good information to all people.

[Roland99]

5. Santorum does. He wants forecasts to be a pay-for-access feature.

Only fair since one of his campaign donors is a pay-for-access weather site.

[applegrove]

7. Exactly. They want to undo all the agencies that give "good information"

to the public. Why they want to destroy public education.

If everyone is not fully informed - it is easier for the rich (who can buy information) to make money.

This is all about the neocon world view that all humans should follow a set of rules and guidelines including being systematically un-informed, while humans in corporations have access to all the good information.