Dividends and A Minsky Movement

A Minsky Moment happens when asset values collapse with little or no warning. The term was named after Hyman Minsky, the American economist who noted that financial systems can move from apparent stability to mayhem in a very short period of time.

In an article by Eric Reguly, he connects climate change concerns with the markets.

In 2018, Pacific Gas and Utility, the California utility was one of the biggest electricity companies, it had a value over $25 billion, it was investing in clean energy, it was paying higher dividends each year. All looked from the outside to be a normal electrical company in a growing state, the future looked good. Then disaster happened, PG&E had been slow to upgrade its transmission system spanning over 30,000 miles. One of its cables fell to the ground sparking the forests. The problem was the area where the forests were had been very dry, it was a fire waiting to happen. The fire did happen near the town of Paradise and 14,000 homes were destroyed and 88 people died. Because the fire was the fault of PG&E rather than an lighting strike or human error; the value of PG&E went from $25 billion to $3 billion in 3 months or 90% of the value of the shares was gone. Worse the company was forced into Chapter 11 bankruptcy and only recently came out of it.

Another example is coal companies, although the President loves coal, investors do not. Climate change and the role coal plays has Peabody Energy values down 77%, partly because utilities who were some of the biggest customers switched to gas and more solar and wind energy.

Another example is the fires in Australia. People must have known about the on going drought had made the forests highly vulnerable to fires. What systems were there in place? There is hope – The Mulloon Institute is doing some very good things, with increasing support.

Linking to dividend paying stocks, the Minsky Moment will have an affect on companies who dismiss climate change because something is happening. As small investors, we expect management to be able to stay current with their maintenance programs, to examine how the weather is changing their operations. If management does not acknowledge climate change in their operations, watch over for a Minsky Movement and you will be wondering what happened?

There are more questions than answers, til the next time – to raising questions.

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