High on my list of: THINGS THAT COULD GO VERY WRONG, is the drought in the west coast. The three year run of below average rain has already had a big toll. Agricultural production is way off, fires are burning in all of the affected states, and there has been some curbs on water consumption by individuals. But there has been no real crisis as of yet as the major reservoirs are not completely dry. My question is:
What if there is another year of below average rainfall?
Over the past six months there has been some evidence that a normal rainfall pattern was coming to Cali this fall. But as of today, the forecast of fall/winter rain is now in doubt.
The folks at NOAA (and a lot of other scientific types) believe that Pacific Coast rain is driven by the El Nino/La Nina cycles in the Pacific ocean. When there are La Nina conditions rainfall is low (yellow) during El Nino conditions rainfall is higher (blue).
The west coast drought is now in its third year. It’s no coincidence that there has been no El Ninos during this period:
Earlier this year there was a water temperature “anomaly” that lead a few weather folks to predict that a “Super El Nino” was coming to Cali. More charts:
This was a very big
anomaly ‘bump’. The media picked up on it:
But the bump went away, and with it went the expectation for a strong El Nino (lots of rain). NOAA has kept up its forecast of an El Nino this fall/winter. However, as of today NOAA downgraded the outlook(Link):
Clearly there has been an El Nino head-fake this year. It’s now more probable that Pacific waters remain in neutral condition for the next six months. If we don’t get an El Nino, the West Coast will likely see below average precipitation for another year. Another year of drought would mean that some large population areas will have real water problems (rationing). The consequences to agriculture, industry, tourism and wildfires will be multiples of what they are this year.
#1) El Nino increases the potential for rain in the West, it also reduces the probability of Atlantic hurricanes (the prevailing El Nino winds shear off the tops of the big storms). NOAA has a very benign outlook for the 2014 hurricane season. That forecast is (was) supported by the 80% chance of an El Nin0. The NOAA forecast:
2014 Atlantic Hurricane Season Outlook: Summary
NOAA’s updated 2014 Atlantic Hurricane Season Outlook indicates that a below-normal season is likely. The outlook calls for a 70% chance of a below-normal season, a 25% chance of a near-normal season, and only a 5% chance of an above-normal season.
#2) I’m no weather expert – I read what the scientists are saying, and I watch the weekly numbers.
We may be skating on very thin ice here, but the weight of the evidence still supports a weak bull case for the near to intermediate term. So I’m adding buy picks on the chart pick list and adjusting trailing stops to account for the risk.
These reports are not investment advice. They are for informational purposes, for a broad audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance.