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October 6, 2006

Doing Something About the Weather, Part XXXIV

There is a fascinating article in Bloomberg about the role errant weather forecasts played in the Amaranth meltdown. The gist:

• Traders have become increasingly reliant on a number of high-profile hurricane forecasts;
• Hurricane forecasting (like all of weather forecasting) is an inexact science;
• Last year's record damage had people prepared to believe the worst about this year;
• Forecasts for this year said hurricane activity would be normal, and normal had been ratcheted up given damage in recent;
• Hurricane activity has actually been less than expected, as forecasters have now conceded.

While this plays into the my thesis that there are lots of interesting things to do in weather, an ironic upshot is nicely captured in a coda to the Bloomberg piece:

"Traders are very fickle,'' says Gleichmann, the United Strategic Investors president. "Guys are coming back to a more jaded outlook with these weather forecasts, which only means down the road we're going to be set up for another surprise.''

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