Friday, December 19, 2008

The Sustainable Solution

If you're in the wrong industry right now, 'business as usual' is no longer a viable option. Change is necessary; adaption is required for survival. Governments, business owners, and layed-off workers alike are scratching their heads over what to do next. We are witnessing a once-in-a-lifetime opportunity to drastically alter the economic paradigm... out of necessity.

We need to change course, but to what direction? How can we cut costs, improve the chances for profit, and ensure that we won't be caught in this mess again? The one word answer is Sustainability.

Lots of people are telling me that we need to solve the current financial situation before even thinking about social and environmental issues like poverty and climate change. They argue that we need cheap credit and more spending in the short-term to buy our way out of this recession. Once consumption levels are back up, then we can turn our attention to more 'luxurious' items like income inequality and ecosystem protection. I couldn't agree less. If we keep borrowing and spending on consumption (i.e. buying things that lose value or depreciate with time), then we will only be making the problem worse for the future. Instead, if people, companies, and governments strategically invest (i.e. buy things that become more valuable as time passes), our future will look brighter and we will become wealthier.

The typical argument against investments in sustainability is that short-term costs take too long to pay back. I've heard business people groan about a 5-year payback time on new windows or the installation of a solar energy system. For some reason, they are scoffing at a very safe 20% return on investment. Even more, it will reduce someone's carbon footprint and help create lots of new green jobs! With interest rates as low as they are, businesses should be encouraged to make investments in waste reduction and energy efficiency. Banks should be encouraged to prioritize this type of loan from governments that would provide incentives and aid packages targeted at employing low-skilled workers and cutting CO2 emissions. For a more detailed description of what this might look like, read this article.

Just as FDR created a New Deal for the American people in 1933, Obama has a unique opportunity to enact Change and create Hope. He's been speaking with some great organizations, like the Center for American Progress, and has announced a great energy team.

A change is gonna come, oh yes it is!

Wednesday, December 17, 2008

Fed up!

Just when I thought that Distrust had reached his zenith and was starting to leave, today comes in and hands him a folded metal chair.

I'm so angry about this $50-Billion investment scam run by Bernard Madoff. I can understand someone bending the rules of the game for self-gain, but it hurts everyone when they get outright broken. I hope the judge makes an example of him. Talking about building investor trust and confidence, the TSX has halted trading today for technical reasons. No better way to provide assurance than with a technical glitch! Forgive my sarcasm, but this is just silly. Is the TSX's plan B really to just re-route trades through a competing trading system?? Finally, the US Federal Reserve has cut interest rates to zero. The Globe & Mail calls it "the monetary policy equivalent of a Hail Mary pass", but I like the analogy of a soldier throwing his last grenade into a crowd of credit zombies. I'm starting to get really worried.

To take my mind off of this mess, I'm watching Gorrila in the Greenhouse. Let me know when the TSX is back up.....

Friday, December 12, 2008

Trust and Volatility

Watching the financial markets with a more attentive eye for these past months has given me some insights into what I like to call ‘market psychology’. I’ve realized that lately, stock price changes have had less to do with facts, figures, and metrics, but have been influenced more by perceptions, expectations, and other less tangible aspects created by the minds of institutional investors.

Markets have been experiencing unprecedented volatility over the past weeks. It’s become common for good, solid companies to take a 5-10% loss in a day for no apparent reason, then bounce back up the following day almost as much. Retail investors are losing trust in stocks and the way they are traded. This mistrust is understandable when you see these big swings that are based on nothing logical. Jim Cramer describes it as “a broken casino where stocks move in 3, 4, or 5 point increments over [...] whiffs, rumors”. There are several other reasons why the markets are so out-of-whack, including a transitional US government; rising unemployment causing income insecurities; and uncertainty on just about everything from input costs to waste disposal. But perhaps there is a sinister role being played behind the scenes in all of this.

Hedge funds have to be making money, regardless of whether the market is going up or down. Long or short, they need to generate cash. That’s why they exist. They also have the power to borrow money to make investments on margin (where they put up 1/2 or 1/3 or the cash and borrow the rest). When markets were up, they were profiting and pushing stocks even higher. Now that markets are down, one fund will be forced to sell at bad prices, while another will vulture the stock by shorting, and buying it back when the first company is done dumping it. This theory assumes two things: 1) that hedge funds are in cahoots; and 2) that they are greedy enough to sacrifice long-term retail investor trust in order to make a quick buck. You make your own call, but I’d recommend watch Jim Cramer’s 13-minute rant on the subject.

If I’m right, then major structural changes will need to be made before these markets can earn back the trust of mainstreet investors. Until a reasonable degree of consistency is restored, it is hard to recommend any stock based solely on good fundamentals. Anyone got the number to a Wall Street hedge fund manager for me??

Thursday, December 11, 2008

ABCP What?

Amidst the chaos of Canada's political posturing, some people were afraid that government was getting distracted from more important matters, i.e. the economy, stupid. Unfortunately, it seems although they were right.

Canada has escaped the brunt of the global financial meltdown, but we are not unaffected. Case in point, the Caisse de Dépôt is struggling to backstop Québec's banking system from sliding down into oblivian. Unfortunately, multiple Montréal financial institutions bought Asset-Backed Comercial Papers, or ABCPs, back in 2007 when they were considered 'safe'. These debt instruments were sold as short-term low-risk investments, which became toxic as people stopped paying their mortgages in the US. Since no one would buy them anymore, the market for this type of security froze. Institutions that happened to own that at the time were stuck with them, and took a big hit on their balance sheet.

Most other countries have moved to limit the damage caused by these radioactive papers (like $150 billion for AIG), but so far Canada has done nothing. Lots of Canadians will be affected if this downward spiral continues, and it will cost more to fix as time goes on. Having banks collapse is the worst-case scenario in the current crisis, as it could precipitate a full-blown depression.

This matter should have been resolved 6 months ago, when the credit securities were first discovered to be toxic and plans were put in place to restructure. Again, it should have been resolved last month, when Stephen Harper assured Canadians that "we will engage in sufficient stimulus to do our part in carrying global economic demand". Unfortunately, it is still not resolved, leaving beleaguered banks left begging for funds. They are not asking for the full value of the toxic papers to be covered by the government, just enough so that they won’t get killed.

Many Canadians are weary of public bailouts, but the stakes are simply too high. A domino effect is in place, and unless it is stopped, all Canadians will feel the financial pinch. This is not a time for politicians to sit by and play internal games, The Canadian economy needs action NOW. National Bank Financial's stock is down almost 10% today, and will continue to slide unless assurances are given that Ottawa and Québec City will do something about it.

Obama to Pop a Green Collar??

There is great speculation about how Obama could possibly meet the insane expectations that the United States, much less the world, have piled upon his shoulders. Last I heard, he's poised to clean-up the biggest financial mess on record; find employment for millions of people; reform the health care system; champion climate change mitigation; improve school conditions; and end the war in Iraq. And I thought I had it tough.....

Fortunately for Obama, there is an idea out there that can help solve many of these problems at once. It's called the 'Green Collar Economy'. Popularized by a recent book by Van Jones, it embodies the goal of creating an environmentally sustainable economy powered by ordinary workers. According to Jones, "the main piece of technology in the green economy is a caulk gun". Focus areas include: energy efficiency upgrades and retrofits for millions of homes and buildings; the construction of renewable energy infrastructure (generation and transmission); and new green developments on remediated land.

By engineering a Green Economy Stimulus Package, Obama can spur development that will curb energy usage, decrease dependency on foreign oil, carve CO2 emissions, give a boost to important market sectors, and inspire a generation. I'm not the only one saying this. The idea of a green economy is embraced by grassroots organizations, and has been picking up traction in the mainstream media. It might not be on CNN (yet), but it's gaining momentum. If Obama really wants to change America, then he is going to put some green into the old red, white and blue. With stock prices in the trenches, the investment opportunity of a generation is presenting itself.

In the coming weeks, I will be researching and analyzing companies that are slated to benefit from the massive Green Economy Stimulus Package that is in the works. I'll help you weed out the losers from the leaders in various Cleantech and Socially Responsible indexes. Your portfolio will be poised to grow massively in the short-term as the Green Economy concept builds steam, and you'll have the pleasure of helping finance the sustainable change that America needs.

Y'all come back now, ya hear!?

Monday, December 8, 2008

Spreading Happiness

A recent study from Harvard and the University of California shows how an individuals happiness increases the happiness of those around him/her in up to three degrees of separation. If you haven't heard about this, then you can read about it here or listen to a 60-second science podcast. Basically, this study provides a scientific founding for something that I've always known: When I smile, the people around me are more likely to smile and vice-versa!

The contagiousness of happiness is an important point to consider, because it gives credence to the idea that we benefit selfishly by giving to others. It is in our own self-interest to ensure the happiness of those around us, be they family, friends, or unknown neighbours. No man or woman is an island, and I am clearly impacted by the actions and attitudes of others. In the same way, I need to be aware of what emotions I am projecting and realize that a positive vibe will likely result in happier people around me!

Although obviously relevant for individuals' decision-making, this study is even more important for a macroeconomic discussion of governmental objectives. Conventionally, governments aim for economic growth in the form of higher GDP. This priority is clear from the importance of money in our lives, and the place of prominence that Finance/Commerce Departments and Ministries have in any country's governmental power hierarchy. Unlike happiness, money is not contagious. In fact, the flows of money show that it tends to concentrate in the hands of the few, as if there were a 'trickle-up' effect (see here and here for proof). Therefore, our governments' efforts to increase monetary wealth have primarily resulted in the rich getting richer. If governments really want to 'raise all boats' to prosperity, then it should focus on something positive that will self-perpetuate. Several regions (most noticeably the countries of Thailand and Bhutan) have embraced happiness as the ultimate end social well-being. They employ measures like Happy Planet Index, Gross National Happiness, and Genuine Progress Indicator to provide guidance and quantify success.

Accepting happiness as a economic strategy recognizes that having money alone does not constitute a high quality of life. Instead, societies must strike a balance between the connected spheres of profit, people and planet. By measuring and encouraging the growth of human capital, social capital and natural capital in conjunction with financial and manufactured capital, we get a more robust form of economic development that is more sustainable.

Don't worry, be happy!

Vancity takes top prize as ‘Greenest Company’ at the Canadian Investment Awards

Meritas Jantzi Social Index Fund wins SRI prize

December 4, 2008 by Timothy Jack Nash

Toronto, Canada -- Vancity Credit Union took home the inaugural Green Company Award for Environmental Leadership at the Canadian Investment Awards gala Wednesday night at the regal Royal York Hotel. Given to the company who best combines environmental impact mitigation with economic bottom-line performance, the award was created in order to reward and communicate environmental leadership activities within Canada’s financial services industry. Given the difficulty of defining what it means for a company to be ‘Green’, the winner was selected by a diverse jury of experts in the environmental and financial fields. Vancity was praised for their work of integrating green methodologies into every level of their organization, and for successfully becoming carbon-neutral.

The Meritas Jantzi Social Index Fund also celebrated a win, taking home the award for best Socially Responsible Investment fund. The fund received accolades for its transparency, disclosure, and strong financial performance. As well, the fund was applauded for its strong influence on corporate behaviour through shareholder resolutions and advocacy.

The awards ceremony, which focused on long-term investing, took great strides in lessing its environmental impact. Local food and drinks were served, and the evening’s festivities were powered by 100% renewable energy.