tag:blogger.com,1999:blog-192305152024-03-14T06:39:42.329-05:00Sustainable LogMark Brandon is the Managing Partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.comBlogger104125tag:blogger.com,1999:blog-19230515.post-20121234570973995892007-03-08T15:59:00.000-06:002008-12-10T23:35:02.040-06:00<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEip6jVnk6hvheJr95R9-4-_DFKJegC1gh7lygrmoCMqjdFN8w68Y1MIyX7htnAr-IfzgcYMl4wg-SnHy3N5dVRvjp1FQWr57lOqDfEjb8jYIyUEce0Oc5CABFx2oZSDWmjfmcZWXQ/s1600-h/BugsonHiatus.gif"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 223px; height: 179px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEip6jVnk6hvheJr95R9-4-_DFKJegC1gh7lygrmoCMqjdFN8w68Y1MIyX7htnAr-IfzgcYMl4wg-SnHy3N5dVRvjp1FQWr57lOqDfEjb8jYIyUEce0Oc5CABFx2oZSDWmjfmcZWXQ/s320/BugsonHiatus.gif" alt="" id="BLOGGER_PHOTO_ID_5039678060486830162" border="0" /></a><span style="font-weight: bold;font-size:130%;" >On Hiatus</span><br /><br />I am announcing today that Sustainable Log and the newsletter are going on hiatus this month. I need a vacation, and I also need to re-tool the site. It's difficult to do it all right without driving myself crazy. Look for a resumption in April.<br /><br />Thanks for the concern.<br /><br />-MarkMark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com48tag:blogger.com,1999:blog-19230515.post-1171048101230170922007-02-09T13:08:00.000-06:002007-02-09T13:08:21.823-06:00<span style="font-weight: bold;">Branson, Gore, and the $25 Million Virgin Earth Prize</span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/867644/branson-gore.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/569918/branson-gore.jpg" alt="" border="0" /></a>In a headline-grabbing, well-intentioned, but possibly self-defeating move, <a href="http://www.cbc.ca/technology/story/2007/02/09/branson-greenhouse.html">Richard Branson announced a $25 million dollar prize to whomever could build the technology to remove billions of tons from the atmosphere over 10 years</a>. The contest is open for five years, after which a panel will judge the entrants. The winner will be awarded $5 million, with the remaining $20 million, distributed after the ten year period demonstrates proof of concept. Inspired by the 17th - 18th century <a href="http://en.wikipedia.org/wiki/Longitude_Prize">Longitude Prize</a> which awarded 20,000 pounds to whomever solved the longitudinal clock problem, and the more-recent <a href="http://en.wikipedia.org/wiki/ANSARI_X-PRIZE">Ansari X-Prize</a> ($10 million awarded to the first commercial space vehicle), the concept seems rational. Greenhouse gases are causing earth temperatures to rise; therefore, remove the carbon and everything is hunky dory.<br /><br />I see this stunt (and I do mean stunt) as useful for starting the dialogue and getting dreamers to dream, but let's look at what this means. Over 150 years, human activities have caused dangerous concentrations of greenhouse gases. Earth scientists are up in arms because, in geological terms, 150 years is a relatively short time... shorter than our Earth can digest the unexpected change in atmospheric composition. Is the solution to this problem ANOTHER HUMAN ATMOSPHERIC ENGINEERING PROJECT? The possible consequences of this action needs to be debated among the same climate scientists that recently declared that we need to accept global warming as inevitable.<br /><br />I am not a climate scientist. But, here are a few bad things that I envision happening:<br /><ul><li>Thousands of amateur scientists start undertaking garage experiments which unleash chemicals intended to mitigate carbon.</li><li>In order to test innovations, the contest participants have to release carbon into the atmosphere to see how well it works.</li><li>The simplistic sounding solution makes people forget that the best way to decrease greenhouse gas concentrations is to prevent them from getting released in the first place. Carbon sequestration technologies are being developed all the time, but their implementation is slow, because there really is no punishment for continued emissions.</li></ul>I am sure other real experts could REALLY scare the pants off you with other scenarios.<br /><br />Let me suggest some prize sweepstakes that might make more sense:<br /><ul><li>Manufacturing plans for an ultra-affordable, yet stylish and flashy, electric car</li><li>A solution to the <a href="http://en.wikipedia.org/wiki/Hydrogen_storage">hydrogen storage</a> problem that vexes the promise of a hydrogen future</li><li>A solar panel that is efficient enough, yet cheap enough, to generate electricity at half the price of coal... without government incentives.</li><li>A biomass conversion kit that turns human and animal waste into oil. A technology called <a href="http://en.wikipedia.org/wiki/Thermal_depolymerization">thermal depolymerization</a> already exists here, but its practical uses are limited.</li><li>A revolutionary new accounting system that accurately takes into account the value of shared natural resources.</li><li>A smokestack scrubber that is cheap enough for even the most austere Chinese manufacturers.</li></ul>Not nearly as sexy (or headline-grabbing), but ultimately more productive. Their hearts are in the right place, though.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com24tag:blogger.com,1999:blog-19230515.post-1170715873846936402007-02-05T16:49:00.000-06:002007-02-05T16:59:59.303-06:00<strong><span style="font-size:130%;">Great New Site: Green Options</span></strong><br /><br /><br /><p align="center"><a href="http://photos1.blogger.com/x/blogger/4983/1899/1600/42496/gosite.jpg"><img style="FLOAT: left; MARGIN: 0px 10px 10px 0px; CURSOR: hand" height="95" alt="" src="http://photos1.blogger.com/x/blogger/4983/1899/320/548174/gosite.jpg" width="263" border="0" /></a></p>Green junkies will love a new site launched today called "<a href="http://www.greenoptions.com">Green Options</a>". The site was founded by David Anderson, Jeff McIntire-Strasburg, and Shea Gunther. The triumvirate has assembled a truly all-star band of writers and bloggers (including -- ahem -- yours truly) to write about all things green. And, no, I don't recycle content that you will see here on Sustainable Log.<br /><br />I was already big fans of McIntire-Strasburg's blog, <a href="http://sustainablog.blogspot.com">Sustainablog</a> (no relation to my own blog -- I didn't even know it existed when I started writing this blog), and Gunther's blog, <a href="http://sheagunther.org/blog">Musings of an Eco-Entrepreneur</a>. If you like <a href="http://sheagunther.org/blog">Treehugger</a>, you'll love Green Options.<br /><br />The site covers all things green, including politics, green romance, clean tech, and green finance. Today, on their first day, they landed an <a href="http://www.greenoptions.com/blog/2007/02/05/the_green_options_interview_andy_ruben">interview with Andy Ruben</a>, Wal-Mart's VP of Corporate Strategy and Sustainability. You should check it out.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com10tag:blogger.com,1999:blog-19230515.post-1169914676384353902007-01-27T09:17:00.000-06:002007-01-27T10:17:56.670-06:00<span style="font-size:130%;"><span style="font-weight: bold;">Are Americans Saving Too Much?</span></span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/132190/savings.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/719039/savings.jpg" alt="" border="0" /></a>Some leading <a href="http://www.chron.com/disp/story.mpl/headline/biz/4503769.html">economists released a report challenging the notion that Americans are spendthrifts </a>with a negligible savings rate. In fact, their research says the opposite -- that Americans have been duped by the financial industries to save too much. By surveying various online calculators made available free of charge on financial purveyors' websites, they concluded that the amount the financial firms suggest to save is way too much. Here is my opinion on the subject.<br /><br />First of all, the notion that Americans are NOT savers is hogwash, perpetuated by some laughably arcane statistics tracked by government bean counters. The statistics do not take into account savings directed to equity investments, 401k investments, real estate investments... just about anything except savings accounts. Our Asian counterparts still use bank accounts as the primary savings method, so we have an appearance of over-saving in Asia, and under-saving over here. Combined with the media's need to breathlessly proclaim impending doom, this statistic is WAY overplayed.<br /><br />Now, do we save too much? In the aggregate, the economists may be right. But, people do not -- and should not -- plan based on aggregate numbers. Almost by definition, savings occurs when a family has a surplus over their basic needs. Since America has a significant and widening gap between rich and poor (whether this is good, bad, or indifferent is a subject for another post), the upper ends of the income distribution allow for excess savings, even if it is more than is required to ensure a comfortable retirement. You can also bet that the financial purveyors with online calculators are targeting the upper ends, as well.<br /><br />The economists should approach the question as to the percentage of Americans that are saving to their reduced expectations. Or, they should take a poll and see how many Americans are saving AT ALL. I am afraid this answer would paint a much bleaker picture. Especially since any American under the age of 40 needs to question whether social security will exist anywhere close to its present form, I would rather have people over-save than otherwise.<br /><br />Of course, using online calculators is a troublesome methodology. Financial math is easy. While every qualified investment adviser on the planet has planning tools that take care of the math part, an adviser's skill at identifying, clarifying, and prioritizing your goals is what separates the good professionals from the low-end service providers. Adding social criteria adds to the complexity. Such non-financial questions your financial adviser should be asking include:<br /><ul><li>Do you want to simplify during retirement, or splurge?</li><li>Do you want to stay put in your current residence, move around, or travel?</li><li>Do you want to continue working part-time in a different role, volunteer, or leave the office behind forever?</li><li>Do you care if your children have an inheritance?<br /></li></ul>The answers to these questions give you a clearer picture as to how much money you need when you retire. Once you have that, working backwards into an appropriate savings amount is easy.<br /><br />Now, in defense of these economists, they gave a good clue as to their altruistic reason for releasing this research. They make a statement about "squandering youth" instead of squandering money. On this point, I could not agree more, but this also requires a detailed and regular self-examination of your values. Aggregate pictures are of no use whatsoever.<br /><br />Time will be your most important asset, by far. For example, should you hire a housekeeper once a week, have the lawn mowed by someone else, send out the laundry? Or, should you save the money, and either let the chores slide, or take 3-5 hours per week away from the important people in your life, self-improvement, or leisure activities? Even in my own family, we struggle with these questions.<br /><br />Working through these questions is where a financial planner earns your money.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com10tag:blogger.com,1999:blog-19230515.post-1169555543555472412007-01-23T06:20:00.000-06:002007-01-27T09:17:14.660-06:00<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/967557/0705covdv.gif"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/397572/0705covdv.gif" alt="" border="0" /></a><span style="font-weight: bold;">Business Week Covers Social Responsibility</span><br /><br />If you have an interest in the social responsibility of business, not only because it is the right and moral thing to do, but also because it presents one of the greatest business opportunities of the century, you should check out the current issue of Business Week. They do a great job of showing how SRI can be about proactive identification of companies positioning themselves for a sustainable or carbon-constrained world. The reasons to do so are to capitalize on THE 21st century mega-trend, and not for the touchy-feely, feel-good reasons.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com2tag:blogger.com,1999:blog-19230515.post-1168977070662715552007-01-16T13:50:00.000-06:002007-01-16T15:26:24.560-06:00<span style="font-weight: bold;">Beer Signs That Change the World and A Solar Collector Made Out of Vacuum Tubes and Shot Glasses?</span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/135611/cartablanca.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/148147/cartablanca.jpg" alt="" border="0" /></a>Last week, I was invited by the <a href="http://www.ic2.org/">University of Texas' IC2 Institute</a> to participate in a technology commercialization program between the Institute and <a href="http://www.oecd.org/dataoecd/6/55/35603029.pdf">Invite</a> (in-vee-tay), an organization established by the governor of the Mexican state of Nuevo Leon to assess technologies coming out of that region. A group of 80 technologies had already been whittled down to 20. The technologists, along with IC2 and Invite staff, were given a lovely reception at the governor's palace in Monterrey. Of the 20 technologies, I was given 5 energy and environmental technologies with which to complete an in-depth assessment, using methods taught in IC2's <a href="http://msstc.ic2.org">Science and Technology Commercialization Masters Program</a>. I am a 2005 graduate of this program. Last week was all about interviewing the inventors to understand their technology.<br /><br />As an economic development project, the Invite program should be emulated by every region that wishes to stimulate technology clusters. I met some earnest, motivated, and passionate inventors with truly world changing technology. With just a little help, these technologies could form the backbone of a progressive economy that is less reliant on low-end manufacturing. Just a sample:<br /><br /><ul><li>A 25 year-old engineering student invented a solar thermal collector out of vacuum tubes and shot glasses. One of his professors added some product design expertise (and got real materials instead of shot glasses). This design allows the collector to work more efficiently, while allowing it to do its job past the usual seasonal limitations of the existing technology. It also is less expensive, lasts longer, and requires less maintenance than existing solar collectors. Their University, <a href="www.mty.itesm.mx">Instituto Tecnologia de Monterrey</a>, liked it so much, it was patented. More research is needed to determine if the vacuum chamber can be maintained in real world conditions.</li><li>Two professors and an engineering student invented a controller for LED lamps that reduces energy consumption by 80 percent. By sequentially lighting individual LED's at a frequency that is greater than what the human eye can detect (the same principle enables your eyes to perceive a series of photographs as , the quality of the illumination is barely perceptible, but the energy savings not only represents money in the pocket, it also opens up whole new swaths of off-grid applications. The same University created four patents around this one. The project started as a request for a Carta Blanca beer sign that did not cost so dang much to operate. The prototype is pictured at top.<br /></li><li>An electrical engineer in the air conditioning space invented a "sub-cooler" device which makes air conditioning units twice as efficient at one tenth the cost of existing sub-cooling technologies. This device could eliminate the need for giant water cooling towers at large facilities. One thousand of these devices are in use already in Mexico, with loads of documentation backing up the claims. The solution is so elegant, and so simple, Carrier and Trane will wonder why they did not think of it. (Even though more specific intellectual property was revealed, I will not go further than this)<br /></li><li>A <a href="http://www.grupofch.com/Defaulting.htm">wastewater engineer invented a wastewater treatment plant</a> that reduces the need for sludge removal from several times a month to as low as once a year. Since sludge is a hazardous waste, and therefore, expensive to remove, this innovation has the potential to alter the dynamics of the wastewater treatment market. Again, several of these prototypes already exist in the field to back up the claims of the inventor.</li></ul>These were just the innovators with whom I worked. My colleagues handling the medical, software, and wireless innovations were just as impressed with their batch. The subject matter expert with whom I conducted these interviews, Richard Amato, formerly of the <a href="http://www.cleanenergyincubator.com/">Austin Clean Energy Incubator</a> and currently with <a href="http://www.ventienergy.com/">Venti Energy</a>, also came away impressed.<br /><br />We'll see how these technologies stack up after we get a chance to do some primary market research. Following the assessments, which we hope, will contain a roadmap for commercialization, IC2 will help the technologists meet some benchmarks for business development. Then, assuming the governor of Nuevo Leon is pleased, we can start all over again next year. IC2 has similar projects underway for Hungary, Jordan, and India, while a similar project for Kazakhstan was completed last year. This type of transnational knowledge transfer is valuable, important, and yes, fun work. Our hosts were spectacular. I sampled some local specialties, including cabrito (baby goat), crickets (prepared like one would prepare crawfish), and a banderra (tequila, lime juice, and sangria served separately and drank in sequence... interesting!). I can't wait to be asked again.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com7tag:blogger.com,1999:blog-19230515.post-1167763131964549002007-01-02T11:51:00.000-06:002007-01-02T12:50:35.906-06:00<span style="font-size:130%;"><span style="font-weight: bold;">2007 Technology To Watch: Solar Thermal</span></span><br /><br />Nice to be back after the holidays.<br /><br />Before I get to the 2007 Technology to Watch, let's take a minute to review last year's prediction. On January 1, 2006, I predicted that 2006 would be the <a href="sustainablelog.blogspot.com/2006/01/2006-technology-to-watch-thin-film.html">Year of Thin Film Solar</a>. Well, let me be clear. Despite some nice breakthroughs and interesting developments, I would not call 2006 the Year of Thin Film Solar. Maybe I was a few years too early. The company I mentioned in last year's post, Heliovolt of Austin, won a <a href="http://www.time.com/time/2006/techguide/bestinventions/inventions/light2.html">Time Magazine award</a> for the top 10 innovations of the year. <a href="http://finance.google.com/finance?q=HMC">Honda (ADR: HMC)</a>, <a href="http://finance.google.com/finance?q=DD">Dupont (NYSE: DD)</a>, and <a href="http://finance.google.com/finance?q=GE">General Electric (NYSE: GE)</a> all entered the field. Despite this good news, actual demonstrable products are in short supply and installed capacity is even more scarce. Keep an eye on this one, though.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/456239/solarth.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/228865/solarth.jpg" alt="" border="0" /></a>Solar Thermal is my pick for the 2007 Sustainable Technology to Watch. This is not a new innovation. It has been around for years, but this year, I predict that government policy, along with some nice technological breakthroughs will put this technology on the same level as more mainstream methods of energy generation, especially if oil and gas prices resume an upward swing.<br /><br />By attaching the word "solar" to the technology, you are probably thinking about giant solar panels nailed onto your local treehugger's roof. Solar Thermal is not that technology. This technology involves calibrating mirrors to concentrate the sun's rays in a spot where water (or some other liquid) is heated. Heated water can then be used to generate steam. Steam is the driver of most turbines at most power plants, except that the heat is usually created from burning coal or natural gas. With solar thermal, there is no carbon byproduct.<br /><br />For years, solar thermal has found a niche in water heaters and heated swimming pools. The technology is getting to where it can function on a utility scale now. Manufacturing a set of mirrors with the size and integrity to do the job is a surprisingly difficult task, but <a href="http://www.eia.doe.gov/cneaf/solar.renewables/page/solarthermal/solarthermal.html">manufacturing methods are getting better and the number of companies involved keeps increasing</a>.<br /><br />Regulatory actions will make this alternative attractive to many utilities. Renewable Portfolio Standards are gaining traction nationwide, instigated by wholesale price spikes brought on by the oil shortages. Put simply, these are mandates from state legislatures that a specific percentage of overall electricity generated needs to come from renewable resources. The other renewable alternatives are facing obstacles. For utility scale solar (panel) generation, silicon is still facing supply constraints. As for wind, the size and scale of the new turbines is leading to some NIMBY-ism. The status of some very important wind generation tax credits also remains - ahem - up in the air.<br /><br />Finally, 2006 saw an awakening of the potential of clean energy among institutional investors. Bill Gross, founder of technology incubator Idealab, founded a company call <a href="http://www.energyinnovations.com">Energy Innovations</a>, which makes rooftop solar collectors for commercial buildings. <a href="http://www.newenergyfinance.com/">New Energy Finance</a> predicts that 2006 venture and private equity investment in clean technologies to be up 167 percent over 2005 when all is said and counted. What is most significant is that this investment continued even after oil prices dipped back toward historical levels. This shows that the clean tech bandwagon has some serious legs.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com16tag:blogger.com,1999:blog-19230515.post-1166025715324397242006-12-13T09:47:00.000-06:002006-12-13T10:01:55.956-06:00<span style="font-size:130%;"><span style="font-weight: bold;">New EPA Gas Mileage Guidelines - Good or Bad?</span></span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/616079/cafe-h2_200.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/675142/cafe-h2_200.jpg" alt="" border="0" /></a>The Environmental Protection Agency, in a rare show of backbone, <a href="http://www.freep.com/apps/pbcs.dll/article?AID=/20061212/BUSINESS01/612120360">has forced automakers to display fuel efficiency figures on the sticker</a> that are closer to actual reality. Almost all auto buyers have known that these figures are only useful for comparison purposes, so its effect on our oil consumption culture may be a blessing or curse.<br /><br />Owing to changing driving habits, most vehicles have been overstating fuel efficiency for quite some time. The EPA estimates that most vehicles are overstating by about 8 - 12 percent. The hybrids, darlings of the environmental crowd, have been claiming upwards of 60 mpg while most owners report somewhere in the 40 - 45 mpg range, a 30 percent difference.<br /><br />The truth-telling exercise is certain to wake people up. Not only is the U.S. lagging its foreign competition in fuel efficiency standards, most of what we publish is bogus. A great number of vehicles -- and no automakers -- now meet our current CAFE standards. If the EPA started to enforce our current standards, that by itself would decrease our gasoline consumption enormously. However, we not only need to get up to snuff with our current standards, we should up the CAFE standards by 20 percent, <span style="font-style: italic; font-weight: bold;">just to keep pace with China</span>.<br /><br />It is too early to tell if the new standards will increase the volume of whining from Detroit about the cost in jobs and money to put higher standards in place. The foreign competition has been living with the higher standards, and does not seem to be suffering (though, to be fair, foreign automakers have been fudging their numbers, too).Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1165983839817532502006-12-12T21:25:00.000-06:002006-12-12T22:24:00.093-06:00<span style="font-weight: bold;font-size:130%;" >N.Y. Attorney General (and Governor-Elect) Sues UBS for Wrap Accounts<br /><br /></span><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/x/blogger/4983/1899/1600/411126/espitzer.gif"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/x/blogger/4983/1899/320/240255/espitzer.gif" alt="" border="0" /></a><span style="font-size:130%;"><span style="font-size:100%;">Eliot Spitzer, current Attorney General and incoming Governor of New York, has long been the bane of Wall Street nogoodniks. With only two weeks to go in office, Spitzer sued the largest financial services firm on the planet, Union Bank of Switzerland (more commonly known as UBS), for allegedly overcharging customers in fee-based accounts. As with many Spitzer actions, the suit has been greeted with calls of over-reaching and headline pursuit. Seeing as my firm's eschews commissions in favor of this type of fee-based business, I find myself in a unique </span></span><span style="font-size:130%;"><span style="font-size:100%;">position to comment on the merits. If you are wondering what type of relationship is proper for your situation, read on.<br /><br />Traditionally, brokerage customers were charged commissions when they made a transaction. If you bought 100 shares of XYZ, the broker probably tagged you for a few hundred dollars. When brokerage commissions were de-regulated in the 1970's, and especially since the 1990's when technology has made it possible to process trades for a few pennies, competition has pretty made it difficult for the army of Merrill Lynch-style brokers who had to convince their customers that their advice was worth $300 when several online brokers were charging $9.99. Additionally, this problem created a conflict of interest when brokers had the incentive to recommend more trades than would be suitable for most, a practice known as churning.<br /><br />To respond to these competitive pressures, brokerage firms unveiled so-called "wrap" accounts. In these programs, customers generally get trades at low or no-cost, but instead pay the firm a small percentage of assets under management. A typical wrap fee is in the 1.5 - 2 % range, so a customer with a $100,000 balance would be dinged for $1,500 to $2,000 per year. This might be a good deal for a customer that trades a lot. These accounts are also suitable for someone who truly wants somebody else to make all the financial decisions. For that type of service, 1.5% - 2% is neither unhead of, nor unreasonable.<br /><br />The abuses on Wall Street happen when brokers put their wrap customers into vehicles that already have steep fees, and without having read the lawsuit, I am almost certain this is where Spitzer found his outrage. Very few brokers these days are calling about individual stocks. Instead, most commission-based brokers are selling vehicles such as mutual funds or annuities, which themselves have steep fees of up to 3% per year, and maybe even front-end loads of up to 8.5%. Theoretically, at least, these fees are supposed to pay for the professional management and decision-making. So, why pay an additional wrap fee on top of this? Piling on fees on top of fees is unethical, but many of our sterling, white-shoe firms get away with it.<br /><br />When faced with increasing quotas, and decreasing trading commission income, moving low maintenance, self-directed customers into wrap accounts is an easy way for a sales manager to meet his goals. Trust me on this, as I've witnessed it firsthand. This type of practice is one reason I chose to open my own practice, rather than be conflicted between clients and my boss.<br /><br />Now, to be certain, Spitzer is himself only telling half-truths. Wrap accounts are not the problem in and of themselves, and for many, many people, they are absolutely appropriate. A wrap fee is appropriate under two circumstances: 1) When you have a Separately Managed Account (SMA) which consists of a broad pool of individual equities, and 2) When you have no desire whatsoever to make the financial decisions, but you want your broker to take advantage of the opportunities that arise. At <a href="http://www.firstsustainable.com">First Sustainable</a>, the Folio method of investing allows an investor to buy an underlying index of stocks, thereby cutting out the mutual fund structure. It is more tax efficient, usually less expensive, and better able to handle social screening. We charge customers nothing (or a nominal ticket charge, depending on the security) for trades, and instead assess a wrap fee that is still less expensive than the average actively managed mutual fund.<br /><br />In their defense, UBS has 2 million wrap accounts. At that scale, finding a few instances of inappropriate behavior is a given. They will claim that the practice is not widespread. I can not comment for UBS, but I can say definitively that unscrupulous operators, some of whom reside in this country's largest firms, are everywhere. On balance, Spitzer's move is once again positive news for investors. Anything that can raise an awareness about when these practices are appropriate will be useful.<br /><br /></span></span>Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com5tag:blogger.com,1999:blog-19230515.post-1165592461815375822006-12-08T08:39:00.000-06:002006-12-08T09:58:21.670-06:00<span style="font-weight: bold;font-size:130%;" >Green Peace Ranks Tech Company Responsibility</span><br /><span style="font-weight: bold;">Dell 2nd, Apple Dead Last</span><br /><br />The environmental watchdog, Greenpeace, released the 2nd edition of its Green Electronics Guide, ranking tech companies on their commitment to environmental responsibility. On a 10-point scale, Nokia <a href="http://finance.google.com/finance?q=nok&hl=en">(NYSE:NOK)</a> scored the highest with a 7.3. Surprisingly, Apple <a href="http://finance.google.com/finance?q=aapl&hl=en">(NASDAQ:AAPL)</a>, the company with former Veep Al Gore on its board, came in dead last, owing to its tepid commitment to recycling, the continued presence of some dangerous chemicals in its manufacturing process, and the lack of a timeline to phase out these chemicals. The full list is below:<br /><a href="http://finance.google.com/finance?q=nok&hl=en"><br />Nokia (ADR:NOK)</a><a href="http://finance.google.com/finance?q=nok&hl=en"> </a>- Good on all criteria, but needs clear timeline for PVC phase out for all applications. Score: 7.3/10<br /><br /><a href="http://finance.google.com/finance?q=dell&hl=en">Dell (NASDAQ:DELL)</a> -Loses points for not having models free of the worst chemicals. Strong support for takeback. Score: 7/10<br /><br /><a href="http://finance.google.com/finance?q=OTC%3AFJTSY">Fujitsu-Siemens (ADR:FJTSY)</a> - High score on chemical policy, some models free of worst chemicals. But should improve takeback and recycling. Score: 6/10<br /><br /><a href="http://finance.google.com/finance?q=mot&hl=en">Motorola (NYSE:MOT)</a> - Big improvement on all criteria, info on cleaner products, still to provide clear timelines for phase out of worst chemicals. Score: 6/10<br /><br />Sony Ericsson - Some models without the worst chemicals, provides timelines for chemicals phase out, but needs better chemicals policies and takeback reporting. Score: 5.7/10<br /><br /><a href="http://finance.google.com/finance?q=hewlett&hl=en">HP (NYSE:HPQ) </a>-Needs to do better on the chemicals criteria especially phase out timelines and greener products. High scores on takeback. Score: 5.7/10<br /><br />Acer - Improved chemical policies but no models free of the worst chemicals. Needs to improve on takeback. Score:5.3/10<br /><br /><a href="http://www.greenpeace.org/international/press/reports/greener-electronics-lenovo-ran-2">Lenovo (ADR:LNVGY)</a> - Progress on most criteria but loses points for not having products free of the worst chemicals, on takeback and recycling. Score: 5.3/10<br /><br /><a href="http://www.greenpeace.org/international/press/reports/greener-electronics-sony-ranki-2">Sony (ADR:SNE)</a> - Some models without the worst chemicals, loses point for inconsistent takeback policies. Score: 5/10<br /><br />Panasonic-Improved score but no commitment to eliminate BFRs, and poor on takeback. Score: 4.3/10<br /><br />LGE-Improved chemicals policies, but no cleaner products on the market, loses points for inconsistent takeback policies. Score: 4/10<br /><br />Samsung-Scores points for timelines for toxic phase out but poor on waste criteria. Loses points for inconsistent takeback policies. Score: 4/10<br /><a href="http://finance.google.com/finance?q=OTC%3ATOSBF"><br />Toshiba (ADR:TOSBF) </a>-Some models without the worst chemicals and reports on recycling, but no timelines for chemical phase out and poor on other waste criteria. Score: 3.7/10<br /><br /><a href="http://finance.google.com/finance?q=aapl&hl=en">Apple (NASDAQ:AAPL)</a> -Low scores on almost all criteria and no progress. Score: 2.7/10<br /><br />The report's primary benchmarks were the company's use of dangerous chemicals, specifically PVC (a vinyl plastic) and brominated flame retardants (BFR's), the presence of these chemicals in their current models, and the presence of a plan to phase out these chemicals from their model lineup. Additionally, Greenpeace judged the company's commitment to a takeback program when the product becomes obsolete. This measure is especially important to keep those aforementioned chemicals out of landfills. A final criterion was the company's efforts to push responsibility onto their supply chains.<br /><br />Particularly pleasing for me is the presence of Dell at the number 2 position. As I have mentioned in these posts before, I am a former employee of both Dell and Apple. When I was at Dell in the early part of this decade, environmental responsibility was not important to the company at all. To this, I would like to relate a humorous story. My superiors at Dell once sponsored a contest among the lower ranks to come up with a marketing gimmick for the Small and Medium Business Division. I suggested a takeback program when a new system was purchased. As the thinking went, you got a competitor's computer out and our computer in. Hauling away old machines had gotten to be a bigger problem in Corporate America. Plus, it's the right thing to do for the environment. In short, the idea was laughably dismissed as being impractical, expensive, and not worthwhile. Seeing this company at the forefront of the computer recycling movement is now gratifying.<br /><br />A short time later, I had defected to Apple. When asked about computer recycling in front of employees, Steve Jobs, dismissed protesters outside Apple's headquarters as extortionists from environmental groups. Apple, too, is making headway on the recycling front, but has so far resisted efforts to phase out those harmful chemicals.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com3tag:blogger.com,1999:blog-19230515.post-1165504991980530072006-12-07T08:00:00.000-06:002006-12-07T09:28:30.323-06:00<span style="font-weight: bold;">Blood Diamonds</span><br /><br />A new <a href="http://blooddiamondmovie.warnerbros.com/">Warner Bros. movie</a> out this season is sure to spark discussion on the propriety of the diamond trade. Starring Leonardo DiCaprio (Titanic, The Aviator, The Departed) and Djimon Hunsou (Amistad), the epic is a fictionalized account of the 1990's conflict in Sierra Leone, which was, in part, financed on the backs of poor miners engaged in back-breaking, dangerous, and exploitative work in the diamond mines. The trailer is attached here:<br /><br /><object width="425" height="350"><param name="movie" value="http://www.youtube.com/v/KCOB6lYQ9Y0"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/KCOB6lYQ9Y0" type="application/x-shockwave-flash" wmode="transparent" width="425" height="350"></embed></object><br /><br />Diamond merchants are surely watching the extent to which the film is embraced here in America. As one of the hallmark lines in the movie goes, as delivered by Jennifer Connelly (A Beautiful Mind) but paraphrased here, nobody would want to wear a diamond on their finger if they knew that someone lost their hand to get it. The fear is that moviegoers will look at their wedding ring as they depart the theater and resolve to not buy another piece of jewelry. That fear is well founded, because a diamond's value is inherently nothing more than some shrewd marketing by De Beers, SA, the stateless, privately held consortium, along with that company's iron-fisted control over diamond supply.<br /><br />Over decades, the company has exploited the population's vanity by insinuating that your significant other must not love you as much as your friend's significant other if he did not get you a stone as large as hers (or his, I suppose). Today, it is simply accepted protocol to spend THREE MONTHS SALARY on an engagement ring. To me, that figure is just flabbergasting, and a blatant commercialization of something not meant to be commercialized. (Fair disclosure: I am fortunate to be married to someone who would have valued a Cracker Jack ring as much as the minuscule diamond dust that I could afford at the time of our engagement.) Quoting Mordechai Rappaport of the Rappaport price list in a recent <a href="http://money.cnn.com/magazines/fortune/fortune_archive/2006/12/11/8395442/index.htm">Fortune article</a>, "when a guy gives a woman a diamond, and someone was killed for it, it is not worth anything."<br /><br />To be fair, the $60 billion industry supplies much needed export income and jobs to an already impoverished continent. A public awakening to the true cost of that bling on your finger poses enormous risk to those people, too. Also, according to the industry, only a small percentage of worldwide diamonds originated from conflict areas.<br /><br />Recognizing their conundrum, the industry has started to embrace the <a href="http://www.kimberleyprocess.com:8080/">Kimberley Process</a>, which is a certification scheme. Several member countries agree to only trade with themselves. The self-policing members inspect each other's facilities, with the hope of having their diamonds declared conflict free. Still, the nature of the process is ripe for abuse. Aside from having members self police, the stones themselves make it difficult to certify. It is not like they have serial numbers attached to them. Black markets in the banned countries still thrive.<br /><br />Into this fray steps what is possibly the biggest challenge to De Beers hegemony in its history, the fairly new process of <a href="http://www.wired.com/wired/archive/11.09/diamond.html">creating synthetic diamonds</a>. Using sophisticated, high pressure equipment, some startups have learned how to make actual diamonds that are structurally and materially the same as the real thing. Only the most sophisticated jewelry experts can tell the difference. At least for now, these companies are marking their diamonds with barely visible serial numbers. These processes threaten to bring lab-produced mass production to an industry that requires scarcity. If you rationalize your diamond purchase on the notion that it will always retain its monetary value, sell now.<br /><br />If I had it my way, we would all awaken to the fact that love is signified by everyday commitments and not some<span style="font-style: italic;"> thing</span>, be it jewelry, cars, perfume, gifts, or whatever. Seeing that as a utopian notion for the time being, if you are purchasing jewelry this holiday season, make sure your jeweler understands and embraces the Kimberley Process. Kimberley may not be perfect, but it is the best we have at present. If the person at the counter looks at you cross-eyed, move on to another one. Many web merchants are now specializing in conflict-free diamonds, such as <a href="http://www.brilliantearth.com">Brilliant Earth</a> (I have never used them, nor do I specifically endorse them). Stay safe and responsible this season.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com27tag:blogger.com,1999:blog-19230515.post-1164509198826979022006-11-25T20:46:00.000-06:002006-11-26T14:02:39.266-06:00<span style="font-size:130%;"><strong>SEC Probes Ford Motor's <a href="http://finance.google.com/finance?q=f">(NYSE: F)</a> Ties to Syria and Sudan</strong></span><br /><br />On Friday, the Associated Press reported that the Securities and Exchange Commission sent a letter to Ford Motor inquiring about the non-disclosure of it's ties to Syria and Sudan. The SEC contends that these operations constitute material risk to shareholders and should therefore be disclosed. The company states that, since its operations comply with the law, the information is not material, and therefore does not require disclosure in the company reports. Given the lawyer-like response, an examination by the social investment crowd is in order.<br /><br />The allegations center around the activities of Ford subsidiaries Land Rover, Volvo, and Jaguar, as well as Mazda, in which Ford owns a one third stake. Both Syria and Sudan are on the State Department list of terror-sponsoring states. U.S. Companies are not prohibited to conduct business inside Syria as long as the Syrian government is not a party to the transaction. Sudan, on the other hand, requires an exemption issued by the U.S. government, putting that genocidal regime in the same league as Iran, North Korea, and Cuba. A loophole exists for products that contain less than 10 percent U.S.-originated components. Pardon the pun, but this loophole is large enough to drive a Ford Truck through it.<br /><br />Anyway, Ford claims that is dealership in Syria is authorized, and it meets the U.S. origination requirement. As for Sudan, a U.K.-based distributor of vehicles has dealerships in Sudan for Land Rover, Volvo, and Jaguar. Since these products also meet the U.S. origination requirement, and the distributor is not subject to U.S. law, Ford claims that this, too, is within the law. As for Mazda, which also does business in Sudan, Ford claims that since it is a separate legal entity and Ford is a minority stakeholder (owning one third of the shares), the Japanese company is also not subject to the U.S. sanctions. Nonetheless, Ford benefits from these operations to the tune of $50 million a year, according to its own figures. Since this is a drop in the bucket compared to its $177 billion in sales, it could not possibly be considered "material".<br /><br />I, personally, find Ford's defense to be correct on all counts. The operations conform to the letter of the law, and $50 million is not a material amount requiring disclosure. Still, even children know that what is legal and what is right and moral are often different things altogether. Socially responsible investing is about rewarding companies who embrace the latter.<br /><br />Of course, even this position opens up more cans of worms. Every social investor has his or her own definition of social responsibility. For example, Wal Mart <a href="http://finance.google.com/finance?q=wmt">(NYSE: WMT)</a> is a beacon for the crowd that seeks companies that provide opportunity for minorities. At the same time, it is a pariah for the environmental crowd. Fannie Mae <a href="http://finance.google.com/finance?q=fnm">(NYSE: FNM)</a> is a darling to the community investment fans, but for the corporate governance adherents, few companies are worse. Ford has always been a labor-friendly company. They have even been making substantial progress on the environmental front with their embrace of Hybrids and E85 ethanol. So, even these revelations require one to re-examine what is important in your own definition.<br /><br />On a related note, the press could do more to expose these multinationals doing business with our enemies. For all of the invective that our Vice President receives over his tenure at Halliburton <a href="http://finance.google.com/finance?q=hal">(NYSE: HAL)</a>, not much of it is about that company's subsidiary which is currently helping Iran build its oil infrastructure. This relationship was ongoing <strong><em>during Cheney's tenure</em></strong> as CEO. Schlumberger <a href="http://finance.google.com/finance?q=slb">(NYSE: SLB)</a> is also able to help the Iranians, thanks to the subsidiary loophole. That company has a Dubai-based shell company to get around the rules. The company's address is nothing more than a mail drop. These are but two of the most egregious examples.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com0tag:blogger.com,1999:blog-19230515.post-1163433936880909522006-11-13T09:37:00.000-06:002006-11-13T10:10:10.116-06:00<strong><span style="font-size:130%;">Yet Another Mutual Fund Industry Scandal</span></strong><br /><br />The SEC is investigating 27 mutual fund companies, along with fund service provider Bisys (NYSE: BSG), for allegedly paying kickbacks in return for fund servicing contracts. In addition to the market timing scandals of 2003, this provides another black eye for an industry that has long been a cesspool of corruption and long overdue for regulatory scrutiny.<br /><br />Bisys provides back office processing work for various mutual fund companies. They might perform the fund accounting, prepare the statements and confirmations, mail out all correspondences to customers, etc. It is not bad work if you can get it, because the process is mostly automated, and it provides annuity-like revenue streams for the company. Usually, the service provider charges the company a percentage of assets under management, just like the management company itself, even though the marginal cost of adding additional investors is close to nothing.<br /><br />The allegations are that Bisys and fund management companies colluded to overcharge investors for these services. Bisys then provided a "rebate", which amounts to a kickback, back to the management company. Because expenses are deducted from the fund before prices are calculated, this whole process is invisible to fund investors, who are getting robbed. This case is only the tip of the iceberg, as other fund service companies have come under scrutiny as well. The largest fund complexes typically do their own processing, so the fund companies under the microscope are smaller private-labelled funds, such as those pushed by your bank branch.<br /><br />When I say "tip of the iceberg", I am referring to the myriad ways that funds management companies are getting kickbacks. Fund servicing is only one. For example, many companies, including the largest fund complexes, get overcharged on transaction costs in return for free research, office equipment, data terminals, even office space and travel junkets. Broker A charges Fund B 50 basis points per share when a reasonable cost might be 5 basis points. Transaction fees are not included in the quoted expense ratios, but those other costs are. The fund gets to publish a lower expense ratio, even though their actual expenses are probably far higher.<br /><br />The real outrage here is that the "mutual" in mutual fund has been totally perverted. In the beginning, mutual funds evolved so that small investors could pool their funds, creating an economy of scale that could enable them to hire professional management and decrease their expenses. Since the 1980's, mutual fund assets have risen twenty-fold, but expense ratios have actually inched up a bit. At the same time, the digitalization of trading, trade processing, and clearing have enabled fund costs to go down. Lower costs distributed across many more investors should have equated to dramatically lower fund expenses. Instead, those savings are going straight to the bottom line of the fund industry and their willing (sometimes colluding) partners.<br /><br />Far be it from me to say that fund companies should be exempt from raising their prices, just like any other business. However, they are doing so in ways that are not transparent. Fund investors do not even know they are being overcharged for services, until 30 years down the line when they notice that their fund underperformed the market benchmarks by a percent or two every year. That does not sound like much, but it can mean that your nest egg is half or a third what it would have been had the "mutual" in mutual fund remained.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com0tag:blogger.com,1999:blog-19230515.post-1162919804843817812006-11-07T11:16:00.000-06:002006-11-07T11:16:45.413-06:00<span style="font-size:130%;">My Advice To Whomever Has Control of Congress</span><br /><br />I have proclaimed in this blog a few times that I consider myself a non-partisan, but that does not mean that I don't vote. I must implore anybody with a civic and social conscience to go vote today.<br /><br />I am cynical enough to believe that, among the group of politicians now running things on both sides of the aisle, even a change in party control will not lead to genuine governance. Here is my wish list:<br /><br />1) To Democrats. Please don't spend two years engaging in payback. It would be easy to spend taxpayer dollars investigating the administration and other members of Congress to the exclusion of the serious problems of the day. I believe that this tactic could result in a switch back in 2008. However many seats the Dems gain, it will be because of voter fatigue with the current regime. Unless you rise above, cynicism will take root, suppress turnout in 2008, and you will be right back in the minority. The strategy of just being the anti-Bush party is tired. Get back to the principles that made the party great: social justice, equality of opportunity, and looking out for the poor and working classes.<br /><br />2) To Republicans. At the time I write this, the polls have not closed, so we do not know if control is changing. It is apparent that the GOP is going to lose a substantial number of seats. Take a lesson. Good conservative values like fiscal responsibility and minimal regulation have been abandoned lately in favor of fiscal piggishness, backscratching, and the curtailing of civil rights.<br /><br />3) To Both Parties. How about actually meeting? In January, I heard the Republican leadership admit that not much would get done in this election year. So, if action during an election year is off the table, and we have an election cycle every two years, that does not leave much time to get substantive work done. This Congress has the lowest number of days in session since the pre-industrial era.<br /><br />4) Please Abandon the Class Warfare Strategies. Sorry lefties, the GOP has shown twice now (during the Reagan years and now) that lower top tax rates result in a significant increase in government revenues. The lower taxes have resulted in renewed business investment. The unemployment rate is still well below what was considered to be the natural rate just a few years ago. I could spend a lot of posts on this topic. However, in both of those cases, the GOP has failed to keep a lid on spending. Spending is the problem, not tax cuts.<br /><br />5) To Both Parties. Please figure out a way to decrease the power of Iowa and New Hampshire. Why do those two states get to pick our presidents?<br /><br />6) Don't abandon the electoral college. I know that it stings when the candidate with the popular vote is defeated in the college. It has happened four times in our republic's history, and we have still managed to survive and thrive. Getting rid of the college would mean that candidates will only embark on a major city tour, and ignore rural and small-state concerns.<br /><br />7) To Both Parties. Bring some common sense to the immigration debate. This discussion has totally ignored the evidence of immigration's impact on the economy. The right has reverted to xenophobic platforms, trying to make the working class afraid of all the "brown people" coming to re-conquer the U.S. The left has done nothing but make charges of racism.<br /><br />8) Show Me. Medicare will be insolvent within 15 years. Social Security is still on its way to insolvency. The bureaucracy at all levels is still woefully unprepared for more terrorist attacks. One out of every three children is born into poverty. Vast numbers of workers are unprepared for the challenges of globalization, not to mention many of our children. You want it. You got it. Rise up and lead. Show us that you can tackle these problems instead of making of mockery of political discourse by trotting out base issues such as gay marriage, Terry Schiavo, and age and class warfare. We are watching.<br /><br />Go vote.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1162090878583781492006-10-28T20:34:00.000-05:002006-10-29T16:24:41.863-06:00<strong><span style="font-size:130%;">The Conspiracy To Lower Gas Prices</span></strong><br /><br />During the Clinton years, right wing nut jobs made a mint by propagating theories of a drug-addled president, who was responsible for offing Vince Foster and his own Commerce Secretary. They were ludicrous theories, of course, but they still made money. Supporters of Clinton, as well as non-partisan moderates like myself, rolled their eyes. Several years later, left wingers are showing that they can be just as unhinged. Theories of a GOP-led conspiracy to manipulate gas prices prior to the election are just as misguided as those suggesting that they were manipulated on the way up. Unfortunately, <a href="http://www.usatoday.com/money/industries/energy/2006-09-25-gas-poll_x.htm?csp=15"><em>USA Today</em> reports </a>that about 42 percent of respondents believe it. I say it is unfortunate not because a Democratic takeover of Congress would be necessarily bad. It is unfortunate because it distracts from the real energy policy outrages.<br /><br />In case you missed it, moreso than any other issue, including the Iraq War, George W. Bush's approval ratings are tied to gas prices. The charts of each could be mirror images. Clearly, the drop in gas prices puts a cork in the Democrats' champagne bottles. The conspiracy stems from the proximity of the price drop to the elections, along with a mysterious move by Goldman Sachs to decrease oil's importance in a widely followed commodities index. The new Treasury Secretary, Hank Paulsen, just joined the administration from Goldman.<br /><br />Let me be clear on this. Nobody is able to manipulate global oil prices enough to account for such a steep drop. Not Bush. Not Exxon. Not the Saudi Royal Family. Not even OPEC. Financial markets players, especially those in a commodity market so large, are just too greedy to let it happen. Whenever prices get too far away from reason, other players will fill the gap to bring prices back to normal. Not doing so would cost them money, or at least cause them to miss an opportunity (which they view as one and the same).<br /><br />Gas prices are going down for several reaons, just as they went up for several reasons. The increase of the last 2 1/2 years was brought about from pretty good economic growth in the world's largest consumer country (the U.S.), torrid growth in two economies that account for 1/3 of the earth's population (India and China), supply disruptions in Venezuela and Nigeria, supply disruptions from Gulf hurricanes, and instability in the Middle East in the form of wars in Iraq and Lebanon. The new thing about the last round of increases was the speed, brought about by an army of speculators flush with hedge fund assets. The speculators amplify and speed up changes that would have occurred eventually, but they, too, are incapable of manipulation. In fact, speculators often cause prices to overshoot the reasonable targets, which usually creates a bloodbath in the pits.<br /><br />This year, economic growth is beginning to cool in the U.S., China, and India. Not only is the supply that was knocked offline by the Gulf hurricanes coming back, no new hurricanes have exacerbated the problem. Fears of a World War III-like blowup in Israel and Lebanon are subsiding. Iraqi oil production has just surpassed pre-war production levels. Add to this the worldwide scramble to bring new supply online while prices are high, and you have the classic, market-driven antidote to high prices. This time, the speculators were caught off-guard. When the weather services announced that, counter to previous reports, the Gulf Hurricane season would not be as severe as thought, billions upon billions of long hedge fund money evaporated nearly overnight. One large fund, Amaranth Advisors, blew up completely to the tune of $9 billion.<br /><br />One reason commodities are such an enduring asset class is the length of their up and down cycles. Because of permitting, environmental studies, building infrastructure, and other reasons, suppliers in extractive industries will always take awhile to meet demand after it becomes apparent. Last month's alleged (and I do mean alleged) find off the Gulf Coast will take years before we see the first drop.<br /><br />Even OPEC is almost powerless when it comes to setting prices. They were somewhat successful during this last upswing only because every member except Saudi Arabia was pumping at their capacity. As oil prices started dropping, the Saudis called for production cuts from their members, and were promptly given the bird by the other members. If a small number of countries who have benign (or otherwise) dictators are unable to cooperate, how could the administration marshall multiple oil companies with shareholders to answer to and operations all over the planet?<br /><br />It may be fanciful to expect the electorate to grasp complex principles, or that politicians will embrace facts and reason instead of pandering. But, I believe the conspiracy business detracts from what are real Bush Administration energy policy failures. Taxpayers still shell out billions in drilling subsidies to oil companies at a time when prices require no such subsidy. The infernal tax writeoff for SUV's still gives people an incentive to buy the most inefficient gas guzzlers. Much of the energy legislation is not only supported, <em><strong>but actually written</strong></em>, by energy companies. And, government subsidies to the alternative energy technologies that can really help ween the country off oil are but a fraction of the aforementioned oil drilling subsidies. Leave the conspiracy talk to Oliver Stone.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com2tag:blogger.com,1999:blog-19230515.post-1161798937582602802006-10-25T12:55:00.000-05:002006-10-28T20:25:19.483-05:00<strong><span style="font-size:130%;">Alarmism in Climate Change Circles?</span></strong><br /><br />Many reasons exist for the lack of urgency among politicians and the general public about Global Warming. One of them is a sense that they've all seen predictions of doom in the past, some of which are laughable now. Senator James Inhofe, who is the leading skeptic in Congress, recently held up a 30-year-old <a href="http://www.msnbc.msn.com/id/15391426/site/newsweek/">Newsweek article </a>warning us all of the coming Ice Age as a result of Global Cooling. The theory was that aerosols in the air would reflect the sun's heat back into space, resulting in cooler temperatures and a return of the North American glaciers. The increased glacier cover would bounce more of the sun's radiation back into space, creating the feedback loop of cooler temperatures and more glacier coverage. Back then, we were coming off several back to back years of cooler-than-average temperatures.<br /><br />A few weeks ago, I saw a <a href="http://www.pbs.org/wgbh/nova/sun/dimming.html">PBS documentary </a>on television about <a href="http://www.pbs.org/wgbh/nova/sun/dimm-flash.html">Global Dimming</a>. In this scenario, man-made atmospheric particles such as coal soot from power plants absorbs the light from the sun before it gets to the surface, causing a change in growing seasons, shifting monsoonal rainfall, and cooling the earth's surface. The worst type of manipulation was used in this documentary, showing images from the 1980's Ethiopian famine with emaciated children and dead cattle. The show concluded with a demonstration that the solutions to Global Dimming could easily be implemented, except that eliminating the cooling effect would exacerbate Global Warming. Switch to pictures of oceans on fire, stranded polar bears, and collapsing glaciers.<br /><br />This morning, I <a href="http://www.philly.com/mld/philly/living/health/15840611.htm">read a story </a>of one lone scientist who has a theory that the asteroid that killed off the dinosaurs was actually only the final straw in a wave of species extinction caused by tens of thousands of years of warming. Not much weight is given to this theory in scientific circles, yet it deserved a spot in our morning newspapers.<br /><br />Predictions of Armageddon, including your "run-of-the-mill" global catastrophes and the actual Armageddon apocalypse of the Bible, have always sold newspapers and magazines. Educated, and not-so-well educated, readers have come to regard them with fatigue. With all due respect to Al Gore, a politician makes a living by predicting doom and gloom (which can only be avoided by electing me). Why should the general public accept him as the spokesperson?<br /><br />Now we have panels of virtually all respected climate scientists and numerous Nobel laureates saying that we really are facing a catastrophe from Global Warming. Here is where this cause departs from the other two. There is virtually no argument that Global Warming is happening and that humans are causing it. The questions are only what will the consequences be and how bad will it get.<br /><br />Anybody who reads this blog knows that I am not a denier of Global Warming, and I even appreciate Al Gore's efforts. I am not qualified enough to know if those other theories hold water. However, I feel like a strategy change is in order. Thus far, we have been relying on manipulative pictures and video of doom and gloom. Even <a href="http://www.climatecrisis.net/">"An Inconvenient Truth"</a> was guilty of this (by the way, <a href="http://sustainablelog.blogspot.com/2006/06/summer-movies-with-social-conscience.html">I do believe this is a great film</a>). The advocates need to take a page from Ronald Reagan and profess eternal optimism that we can invent our way out of this mess. Demonstrate the technologies. Show how cleaning up the atmosphere can be both helpful and profitable. Relive how multiple countries were able to come together to help eliminate CFC's, thereby actually shrinking the hold in the ozone layer. Above all, hammer home at every turn how THERE IS SCIENTIFIC CONSENSUS. The naysayers need to be marginalized as the kooks (or worse) that they are.<br /><br />Of course, I realize that this is all easier than it sounds, and that many good people are already working on these fronts. One writer who does this extremely well is Amory Lovins of the <a href="http://www.rmi.org">Rocky Mountain Institute</a>. His book, <a href="http://www.amazon.com/Natural-Capitalism-Creating-Industrial-Revolution/dp/0316353000/sr=8-1/qid=1161790486/ref=pd_bbs_sr_1/104-9325444-4076757?ie=UTF8&s=books">Natural Capitalism</a>, is one of the reasons I am in this business.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1160832575655243292006-10-14T07:36:00.000-05:002006-10-14T08:30:30.403-05:00<span style="font-size:130%;"><span style="font-weight: bold;">Grameen Founder Yunus Wins Nobel Peace Prize</span></span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/blogger/4983/1899/1600/muhammad_yunus.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/blogger/4983/1899/320/muhammad_yunus.jpg" alt="" border="0" /></a>If Community Investment and Microcredit are your particular flavor of social responsibility, one has to rejoice over Bangladeshi <a href="http://nobelprize.org/nobel_prizes/peace/laureates/2006/">Muhammad Yunus' win of the Nobel Peace Prize</a>. The selection represents clear acceptance by the Nobel committee that poverty reduction will trump even the best statesmen as a tool for world peace and stability. Grameen Bank, the for-profit institution founded by Yunus, claims to have helped lift 100 million people out of poverty in its 30 year existence.<br /><br />As a refresher, microcredit involves lending small amounts to poor, often rural, often undocumented individuals on an unsecured basis. These individuals are unlikely to find sympathy at a traditional lending institution, at least not at reasonable rates. The average size of Grameen's loans is $200, though they are often as small as $50. While one would expect that loans made to people living on the razor's edge of poverty to have a high default rate, Grameen claims to have a better repayment rate than even the stodgiest of traditional lending institutions. They achieve this by having a complex social pressure system in place. The loan applicants must be part of a group of five, endorsed by the other members, and if one of those members is not current, all members will be unable to get more loans. Some of the success stories involve loans to buy egg-laying chickens, beauty shop supplies for hairdressers, even corrective eye surgery to enable a parent to get back to work.<br /><br />Though widely considered as the father of the microcredit movement, Yunuf and Grameen have spawned a worldwide movement, reaching almost every corner of the globe, including the United States. Sadly, some of the best financial innovations of the last century have yet to meaningfully be applied to microcredit. The securitization of bundled loans is in its infancy. Loan insurance, a la MBIA <a href="http://finance.google.com/finance?q=mbia&hl=en">(NYSE:MBI)</a> or FGIC for U.S. municipal entities, is almost non-existent. Standards of grading credit, a la Moody's <a href="http://finance.google.com/finance?q=Moody%27s">(NYSE:MCO)</a> and S&P, are not uniform enough to attract the largest pools of capital.<br /><br />We see hope on the horizon. Pierre Omidyar, founder of E-Bay <a href="http://finance.google.com/finance?q=ebay&hl=en">(NASDAQ: EBAY)</a> has made $100 million available to for-profit enterprises engaged in poverty reduction through the <a href="http://www.tufts.edu/microfinancefund/">Omidyar-Tufts (University) Microfinance Fund</a>. Accion International, a global non-profit making microcredit loans,<a href="http://www.accion.org/media_press_releases_detail.asp_Q_NEWS_E_280"> has just partnered with AIG</a>, one of the largest financial institutions on the planet, to deliver financial literacy and education campaigns across the globe. Lots of success stories involving companies finding profit from the poorest 80 percent of world population can be found in a wonderful book by C.K. Prahalad, <a href="http://www.amazon.com/Fortune-Bottom-Pyramid-Eradicating-Through/dp/0131877291/sr=8-1/qid=1160831734/ref=pd_bbs_sr_1/102-0815301-8292118?ie=UTF8">The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits</a>.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com2tag:blogger.com,1999:blog-19230515.post-1160090356742382152006-10-05T18:19:00.000-05:002006-10-05T20:42:50.873-05:00<strong><span style="font-size:130%;">Blue Chip Companies Face Class Action Over 401(k) Fees</span></strong><br /><strong><span style="font-size:130%;"></span></strong><br />St. Louis law firm Schlichter Bogard & Denton has <a href="http://money.cnn.com/services/tickerheadlines/for5/200610031609DOWJONESDJONLINE000686_FORTUNE5.htm">filed a class action suit </a>against US Blue Chip companies <a href="finance.google.com/finance?q=lmt">Lockheed Martin (NYSE: LMT)</a>, <a href="http://finance.google.com/finance?q=gd">General Dynamics (NYSE: GD)</a>, United Technologies <a href="http://finance.google.com/finance?q=utx">(NYSE: UTX)</a>, Bechtel Group (private), <a href="http://finance.google.com/finance?q=cat">Caterpillar (NYSE: CAT)</a>, Exelon Corp. <a href="http://finance.google.com/finance?q=exc">(NYSE: EXC)</a>, and <a href="http://finance.google.com/finance?q=ip">International Paper Co. (NYSE: IP)</a> over excessive fees in their 401(k) plans. Each defendant has either denied wrongdoing or refused to comment thus far, so let's examine some evidence against them.<br /><br />At issue is the companies' fiduciary obligation to ensure adequate supervision over fees under the Employee Retirement Income Security Act (ERISA) of 1974, which sets forth standards for qualified plans. Put simply, companies that sponsor these plans have an obligation to make sure that their plans are being managed -- this is crucial -- <em>in the best interests of employees</em>.<br /><br />Why choose these companies as the first defendants? I'm speculating, but I would think it is because these are old line companies that happen to have both old-line pension plans and 401(k) plans at the same time. With pension plans (defined benefit), a company has to make up any shortfall from promised benefits. With 401(k) plans (defined contribution), the employee bears all risk. Therefore, by comparing the company's pension management with it's 401(k) management, malfeasance (or at least negligence) can be shown.<br /><br />Financial people have known about this negligence for years, and I am glad someone is shining a light on this cesspool of corruption. Management and the fund complexes have been conspiring at the expense of employees for years. First, some background.<br /><br />A mutual fund is supposed to enable small investors to have sufficient scale to afford professional management and lower expenses. As assets increase, scale increases, so a fund's expense ratio should go down. Over 25 years, assets in mutual funds have increased from a few billion to over 8 trillion in assets, thanks in large part to the increasing popularity of 401(k) plans. Roughly half of all mutual fund assets are held in defined contribution plans. With that kind of spectacular growth, one would expect expense ratios to fall. Instead, they have actually inched up. The average actively managed mutual fund in a 401(k) plan has an unconscionable 1.57 percent in fees. Companies such as Vanguard, whose funds are still truly mutual, are owned by their shareholders. Their funds have expense ratios which are roughly half of their brethren that are managed by mutual fund complexes. Think about that. Eighty basis points on $4 trillion dollars amounts to a <strong><em>$24 billion dollar skimming operation</em></strong> perpetuated annually by fund management complexes.<br /><br />However, they could not accomplish this travesty without willing accomplices in senior management at large companies. How? The first way is by performing myriad services, such as compliance testing and administration, for free. By doing so, the company gets an earnings boost by not paying out of pocket for these services, in exchange for a larger management fee, which is almost invisible to employees and certainly does not count against earnings. The value of the extra percentage, however, far surpasses the value of these free services. The second, more sinister, collusion involves the implicit suggestion that fund managers, who collectively own a mammoth portion of corporate America, will not rock the boat on corporate governance and executive compensation issues. Company management gets free reign to loot the corporate till, while the fund complexes are free to fleece the employee retirement plans.<br /><br />The cost to employees can not be overstated. That eighty basis points does not sound like much, but over a 30 year horizon, it could literally mean that the retiring employee's nest egg is 1/3 to 1/2 of what it would have been with reasonable fees. As pension plans are fast going the way of the dinosaurs, this affects just about everybody.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1159373411706557912006-09-27T11:09:00.000-05:002006-09-27T11:10:12.450-05:00<strong>Green Net National Product</strong><br /><br />Discussing economic statistics and accounting principles are usually not useful for driving blog traffic and newsletter subscriptions. However, if investment decisions on the corporate, government and individual levels are based on the numbers (and they are), and the numbers have a serious flaw that ignores environmental degradation (and they do), then we have a problem. If the world truly wants to move to sustainability, one of the most effective measures we can adopt is an update of economic statistics and accounting measures.<br /><br />One of the most widely cited economic statistics in Gross Domestic Product (GDP), which as the name suggests, is supposed to be a reflection of the production occurring within the borders of a country. To illustrate, pretend that we have two countries: Country A, whose chief export is database software, and Country B, whose chief export is aluminum cans. If Country A sells $100,000 worth of software, its GDP goes up by an equivalent amount. If Country B produces $100,00 worth of aluminum cans, the same happens. However, Country B's process of making those cans destroyed several acres of cropland because aluminum extraction is a dirty business. It does not take a ph.D in economics to see that these two undertakings are not equal in benefit to its country. Yet, GDP measures them equally.<br /><br />To use a real life example, many small African countries have experienced an explosion in GDP because their (often corrupt) rulers have made deals to develop the oil infrastructure. The resulting oil sales explode the country's GDP. But, when you consider that the lion's share of the profits either went to foreigners or corrupt rulers, what do you have? The country liquidates its natural resources, thus becoming poorer by one measure, while not that many people share in the wealth. A recent <a href="http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387507/index.htm">Fortune article </a>cited the case of a gold and copper mine which resulted in huge gains in GDP for Papua New Guinea. Much of the income went to BHP Billiton, while the indigenous population was left with a poisoned river from mine tailings, destroying the livelihoods of at least 40,000. Most would argue that the country is poorer for the experience, yet national statistics do not reflect it.<br /><br />This phenomenon works at the corporate level, too. For the last two years, the media has focused on multi-billion dollar quarters for oil giants such as <a href="http://finance.google.com/finance?q=xom">Exxon (NYSE:XOM)</a>, Chevron <a href="http://finance.google.com/finance?q=CVX">(NYSE:CVX)</a>, and British Petroleum <a href="http://finance.google.com/finance?q=bp&hl=en">(NYSE:BP)</a>. Yet, the stock prices have not really reflected the exuberance in their earnings reports. The reason is that they are only liquidating reserves that were already carried on their balance sheets. They have not been able to replace these reserves with new oil field finds (the recent discovery of a giant Gulf of Mexico field excepted). <a href="http://finance.google.com/finance?q=RDS.B">Shell Oil (NYSE:RDS.B) </a>was embroiled in an accounting scandal a few years ago over the exaggeration of proven reserves. Again, earnings reports are not telling the full story.<br /><br />Another mercilessly flogged number is the trade deficit. Here, the equation tries to make two countries look like individuals. For the U.S., much of the public is convinced that we are becoming poorer because of our trade deficit with China. For example, if China sells us a $1,000 laptop, the trade deficit goes up $1,000. However, probably 90 percent of the profits from this $1,000 went to one of a few U.S. behemoths, <a href="http://finance.google.com/finance?q=msft&hl=en">Microsoft (NASDAQ:MSFT)</a>, <a href="http://finance.google.com/finance?q=intel&hl=en">Intel (NASDAQ:INTC)</a>, or <a href="http://finance.google.com/finance?q=aapl&hl=en">Apple (NASDAQ:AAPL)</a>. Which country is better off? The more useful measure is what these countries (or companies) are doing to add value to the raw materials. Apple has had a significant trade deficit with its component suppliers since the company's founding, but that is not a useful measure. It <em>is useful</em> to know what Apple does to add value to its motley collection of components. The same should be evaluated when two countries are being compared.<br /><br />Despite the apparent shortcomings, economists and the media continue to use them only because they have always used them. It is also convenient to keep compiling it the same way, so as to compare it with last year's figures. A movement is afoot to more adequately account for environmental degradation. One of these measures, Green Net National Product (GNNP), not only adjusts for environmental degradation but also for the flow of earnings. This would not only mitigate the flaws in GDP, but also the trade deficit numbers.<br /><br />Among its chief proponents is The World Bank. They have provided an excellent 235-page manual <a href="http://siteresources.worldbank.org/INTEEI/214574-1153316226850/20781069/EnvironmentalDegradationManual.pdf">"Estimating the Cost of Environmental Degradation"</a>, which is free. Warning: this publication may induce sleep.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com3tag:blogger.com,1999:blog-19230515.post-1158679241842624932006-09-19T10:20:00.000-05:002006-09-19T10:23:28.563-05:00<span style="font-weight: bold;font-size:130%;" >MIT Technology Enables Far-Out Wind Farms</span><br /><br />Offshore wind turbines have huge promise. Just a few miles offshore, the winds are far more steady than onshore, and turbine size (which has a proportionate effect on power generation) can be increased dramatically without being an overly burdensome eyesore, noisy, or dangerous to birds. Yet, despite the promise, NIMBY-ism has prevented construction of large-scale wind farms. Most notoriously, a proposed farm off Massachusset's Cape Cod has met opposition by rich coastal homeowners because of the blight it would bring to their ocean views. Although conservatives like to point out that liberal icon Edward Kennedy is opposed to the construction, NIMBY-ism in Massachussets is mostly bi-partisan.<br /><br />The <a href="http://www.nrel.gov/">National Renewable Energy Lab</a>, along with MIT Researcher <a href="http://www.me.mit.edu/people/research/pauls.htm">Paul D. Sclavounos</a> have unveiled a new design that would enable locations much farther out to sea, and thus out of sight. The system relies on tethering the turbines to concrete blocks on the bottom of the ocean, up to depths of over 600 feet. Currently, wind turbines are in relatively shallow water and built on a sea-floor foundation, similar to a bridge or oil platform. Sclavounos claims that having the turbines further out will double the power generation because of the steadier and faster winds farther out to sea. However, their press release does not mention what kind of power losses would occur when transmitting longer distances.<br /><br />Although birds may find their migratory paths still interrupted, these offshore turbines are much less likely to kill them. First, the size of the turbines means that the blades turn more slowly so that the chances of striking a bird mid-flight is much decreased. Second, whereas near-shore and on-shore wind turbines are frequently mentioned as bird-killers, far fewer flocks of birds are found that far offshore.<br /><br />As for sea life, the best evidence shows that wind platforms create an artificial reef that is beneficial. Oil platforms have become havens for ocean eco-systems. Wind platforms would most likely be un-manned and therefore, less polluting. Both types create a haven for sea life from commercial and recreational vessels.<br /><br />The vast amount of ocean real estate, available for a relatively benign use makes this breakthrough much needed. Now, we just need policies that can allow for rapid construction and testing.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1158169416505830282006-09-13T11:58:00.000-05:002006-09-13T12:52:04.810-05:00<span style="font-weight: bold;font-size:130%;" >Dueling Viewpoints About the Future of Retirement Savings</span><br /><br />While Reading my Sunday <a href="http://www.statesman.com"><span style="font-style: italic;">Austin American Statesman</span></a>, I happened to notice two stories that offer two wildly different perspectives on the state of Americans' retirement dilemma. In one story, <a href="www.statesman.com/business/content/business/stories/personalfinance/09/10/10pensions.html">Pension Plans Go By the Wayside</a> (syndicated), LA Times reporter Jonathan Peterson bemoans the abandonment of the traditional pension plan by large companies. As the story goes, corporations are greedy entities for allowing workers to be responsible for their own retirement. The intimation was that the public is not equipped to handle this responsibility. Yet, on a facing story <span class="cxnhdln"><a href="http://www.statesman.com/business/content/business/stories/personalfinance/09/10/10saving.html">Long-term 401(k) savers sit on six-figure nest eggs</a>, the Investment Company Institute cites statistics that 401k participants who save for only six years now have an average balance in the six figures. This represents an increase of 50 percent since 1999, despite the most brutal market correction in a generation. Although it is politically popular to berate corporate America for abandoning the traditional pension, for several reasons, it is the correct course of action. However, this opinion also comes with a few qualifiers.<br /><br />First, let's differentiate the companies who are "abandoning" the pension plan. The first kind, companies such as DuPont (<a href="http://finance.google.com/finance?q=dupont">NYSE: DD</a>)and IBM (<a href="http://finance.google.com/finance?q=IBM&hl=en">NYSE: IBM</a>), are halting new participants into their pension plan, slowly buying out the pension so as to guarantee benefits for the current participants, and shifting focus for new participants to the defined contribution (401k and 403b) plans. Nobody is losing out on promised benefits. These companies are wholly different than the companies, such as Bethlehem Steel and United Airlines, who dumped their pension plans onto taxpayers because they over-promised benefits and failed to contribute enough to meet them. Instead, they opted to use bankruptcy laws to turn over their pension obligations to the federally backed <a href="http://www.pbgc.gov">Pension Benefit Guarantee Corp</a>, itself a woefully misguided bureaucracy. The latter group rightfully deserve our scorn.<br /><br />Pensions have become a relic of yesterday's economy for the following reasons:<br /><br /></span><ol><li><span style="font-weight: bold;">Over-promised benefits</span>. Taking a cue from our federal government (though still not nearly as brazen), corporate executives have not shown the backbone to either keep a lid on promised benefits or keep contributing enough to meet them. Managements in the auto and airline industries are notorious for buckling under to union pressure to up benefits because someone else will be in charge when the bill comes due.</li><li><span style="font-weight: bold;">Employee Turnover</span>. In the postwar "Company Man" era, it was far more common to spend one's entire career at one company. In many cases, the amount of benefit depends on years of service. Since the average adult now changes jobs every 5-6 years, almost nobody is getting the maximum benefit of a pension plan.</li><li><span style="font-weight: bold;">Pensions affect a company's earnings</span>. Stay with me on this. GAAP rules require that a company report investment gains or losses on its earnings statements. This not only unfairly ties a company's operating performance to the vagaries of the market, it opens up the plan funds and the earnings reports to manipulation. Verizon (<a href="http://finance.google.com/finance?q=verizon&hl=en">NYSE: VZ</a>)is one company that used investment gains to essentially manufacture earnings. They did so by just changing some basic assumptions on their plan performance. Presto! A quarter with no earnings suddently had bountiful earnings.</li><li><span style="font-weight: bold;">Size has become a problem</span>. Despite their much publicized troubles, General Motors (<a href="http://finance.google.com/finance?q=GM">NYSE: GM</a>) has a pension fund about 6 times larger than the market cap of their own company. AND IT IS STILL UNDERFUNDED! Any investment manager knows that size is the enemy of returns.</li><li><span style="font-weight: bold;">Lack of Appropriate Allocation</span>. Pension managers make decisions based on their upcoming obligations in the next 10-15 years. This means that they are managing for people in their 50's. If you are in your 20's, 30's, or 40's, you would probably benefit immensely by having a more aggressive allocation, but since you don't, your investment performance will likely underperform.</li></ol>The 401k data clearly shows that participants can manage effectively, if only they would. Nationwide, only about 17 percent of eligible employees are both participating in their plan, and making the necessary allocations that are appropriate to their age and risk tolerance. This is where the political hand-wringing needs to focus. The problem is entirely fixable if companies and government focused on educating workers to make the right decisions.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com0tag:blogger.com,1999:blog-19230515.post-1157730805434314412006-09-08T10:53:00.000-05:002006-09-08T12:13:24.856-05:00<span style="font-size:130%;">Cynical House Debate About Horse Consumption Ban</span><br /><span style="font-weight: bold;"><br />This post is for the animal rights crowd</span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://photos1.blogger.com/blogger/4983/1899/1600/beamears.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="http://photos1.blogger.com/blogger/4983/1899/320/beamears.jpg" alt="" border="0" /></a>In the eighth century A.D., Pope Gregory III banned the consumption of horse meat. Historians debate whether the ban was the result of a continent-wide horse shortage, or that the practice resembled pre-Christian pagan rituals. Today, even though horse meat is as nutritious as any hoofed animal, in plentiful supply, widely consumed in much of Europe and Asia, and quite tasty (so I've heard), Americans still adhere to the religious taboo. Yesterday, the House of Representatives voted to ban the slaughter of horses in the U.S. for human consumption. Almost all of the slaughtered horse meat is exported to tables abroad. As is typical of our elected heroes, they took a complex issue and tried to make it into a "my-opponents-love-to-club-baby-seals" mockery of the issue at hand. A wonderful <a href="http://www.npr.org/templates/story/story.php?storyId=5786985">report from NPR</a> can summarize.<br /><br />Animal right activists could justifiably line up on either side. On the one hand, the <a href="http://www.hsus.org/pets/pets_related_news_and_events/sweeney-spratt_horse_slaughter.html">U.S. Humane Society</a> claims that the 3 horse slaughter plants (all foreign-owned) in operation on domestic soil are unjustifiably cruel in their operation. They allege that old and feeble animals are transported in cramped conditions to the plants. Since federal mandates require that the animals be unconscious, a metal rod is then injected into their brains before they are hoisted by their hind-quarters to a hideous machine that then cuts their throat. Some claim that not all animals are unconscious. On the other hand, veterinary groups oppose the ban because, in their opinion, slaughter is more humane than growing old and sick. As any horse owner knows, care and feeding of a horse is not an inexpensive pursuit. True, we would wish that humanity would treat our animal companions better, but we know that tens of thousands of animals are discarded after their usefulness ceases. Even former Kentucky Derby winners have been rendered into food.<br /><br />Curiously absent from the debate was the question of commercial interests rounding up wild horses on public lands for sale to the slaughterhouses. Even more absent was the chance to talk about the inefficiency, corruption, and environmental damage caused by all meat consumption. Those would be worthwhile debates, even considering other pertinent issues in front of the house, like... oh, say... the Iraq War, the Hezbollah-Israeli War, nuclear proliferation, social security, and health care. Instead, we just had representatives recalling their days of rugged, outdoorsy horse companionship. So much for the substantive debate.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com0tag:blogger.com,1999:blog-19230515.post-1156974836524630522006-08-30T16:22:00.000-05:002006-08-30T21:24:18.316-05:00<span style="font-size:130%;"><strong>Are Green Consumers Gullible?</strong></span><br /><br />As an advocate for all things green and sustainable, I am often peeved by the firms that feel it is their God given right to charge a massive premium for sustainable products. All of us in the business have read the LOHAS and Cultural Creative Market Research. Sure, it shows that the green consumer is often willing to pay a 20 percent premium for a product to know that its creation conforms with certain social values. However, charging a Whole Foods-like premium for everyday commodities will always keep the movement relegated to the elite types who can afford it. The typical Wal-Mart shopper, who, by the way, outnumbers the LOHAS crowd by a significant margin, will rarely buy "fair trade" coffee at $9/lb when you can get Folger's for $2. And, until the everyday shopper embraces sustainable values, our impact will be minimal.<br /><br />The window for making an impact with a new sustainable product or business model is getting smaller and smaller. Although this is probably so in any industry, once a market is demonstrated, the marketers among us stink it up with off-base, fraudulent, or misleading claims. Fair Trade coffee is one of those. What started out as a noble idea -- committing to give rural farmers better than market prices so that they can afford subsistence -- has now been taken over by brands that expect to charge 200% more by slapping the words "fair trade" on the label along with some bucolic scenes of Latin American peasants. Coffee is already a global commodity, and even moderately priced bags of beans carry a magnificent margin. The same can be said for organic milk now. Paying a 100 percent premium for a gallon of milk is now more than likely to by you a fancy label with pictures of dancing cows and nothing more (see a post a few weeks ago concerning Dean Foods and Horizon Organic). When there is no official definition, loose regulation, no oversight of the use of terms such as "organic", "fair trade", "all natural", "herbal", "sustainably harvested", etc., we invite abuse.<br /><br />In the investment field, I have to look in the direction of the Domini family of funds, though it pains me to do so. This week, they approved a move of their KLD Social Index fund to active management. Index funds are a commodity, and the primary measure of their worth is the expense ratio. Where Vanguard charges 20 basis points for their socially screened fund, Domini tried to get away with 80 basis points. Management will tell you that this was because of their size, relative to behemoths at Vanguard, but I see that as a bunch of bunk. An index fund is on auto-pilot. Trading costs would be minimal, even at a firm of Domini's size. There are no research costs. The only thing they have to pay is for annual prospecti, statements, confirms, regulatory registrations, and presumably a license fee to KLD. So, after several years of sub-par performance , they have decided to now call their fund "actively managed", which means they will trade the markets in an attempt to beat it. By definition, an index will underperform its benchmark by the sum of its expenses, so either Domini set themselves up for failure, or they must have believed in gouging green consumers.<br /><br />This move is unconscionable for shareholders. First, re-balancing a portfolio will create immense capital gains taxes, which have to be distributed to shareholders. Management says they will be "strategic" about this, which to me, means they will pretty much stay with their index and only move to active management slowly. Only now, their expense ratio is in line with other actively managed funds. Second, actively managed funds are usually a bad bet for investors for the same reason expensive index funds are bad: their expenses are too high. Frightfully few actively managed funds exceed their benchmarks over a three year period. On average, actively managed funds underperform their benchmarks by the average expense ratio, which is 1.57 percent (almost 8x the aforementioned Vanguard index fund).<br /><br />If you believe in indexing, it is time to reduce or get rid of your holdings in the Domini index fund. The Vanguard-Calvert index fund is a much better choice.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com1tag:blogger.com,1999:blog-19230515.post-1156347780476433322006-08-23T10:42:00.000-05:002006-08-23T10:44:24.480-05:00<span style="font-weight: bold;font-size:130%;" >Plug-In Hybrid Electric Vehicles -- Get Your Municipality on Board</span><br /><br />My local utility, <a href="http://www.austinenergy.com/">Austin Energy</a>, which happens to be one of the most forward thinking utilities in the country, along with municipal governments, non-profits, and even individuals have launched<a href="http://www.pluginpartners.com/"> Plug-In Partners</a>. The organization seeks to spur the manufacture of PHEV's by generating advanced demand for the vehicle. They do this by gathering advance purchase orders from fleet buyers. The video attached will show you the benefits of this program.<br /><br /><object height="350" width="425"><param name="movie" value="http://www.youtube.com/v/AvPQqSHXeF8"><embed src="http://www.youtube.com/v/AvPQqSHXeF8" type="application/x-shockwave-flash" height="350" width="425"></object><br /><br />With due respect to the pro-hydrogen crowd, PHEV's offer a much more sensible solution to curbing automobile emissions. Our H2 friends should focus on stationary applications of energy production. The technology and infrastructure exists now for PHEV's, plus the problems of transportation and storage of hydrogen are non-existent.<br /><br />The electric cars of the 1990's, recently eulogized in "Who Killed the Electric Car" had an enormous flaw. They could not be counted on for long trips. PHEV's solve this problem. While the 35-40 mile range on one charge of the PHEV's will take care of the average commute, long commuters and weekenders do not want to wait 8 hours for the battery to re-charge if they are travelling beyond range. PHEV's solve that by including a regular internal combustion engine for those times that it is required. The pundits are predicting that a PHEV could get 100 mpg, while at least one designer, <a href="http://www.afstrinity.com/">AFS Trinity</a>, have <a href="http://www.greencarcongress.com/2006/08/afs_trinity_sig.html">signed a Memo of Understanding with Austin Energy</a> to supply their so-called "Extreme Hybrid Drive Train" which they claim will get 250 mpg. An equivalent "gallon" of electrical charge (the juice it would take to travel the same miles as the nationwide fuel efficiency standard) averages about 75 cents. This dollar savings is real money to the average car owner. Add in the environmental and national security benefits and this solution becomes the most compelling case for alternative fuels. This even beats ethanol, which as I've <a href="http://sustainablelog.blogspot.com/2006/07/morality-of-using-food-to-fuel-our.html">explained in previous post</a>s, creates competition between fuel and food.<br /><br /><a href="http://www.pluginpartners.com/whatYouCanDo/index.cfm">Sign the petition</a>, and if possible, call your city council members and urge them to become a <a href="http://www.pluginpartners.com/whatYouCanDo/localGovernment.cfm">Plug-In Partner</a>. Most mid-sized to large municipalities have sizable fleets, and their demand could help make the technology affordable for us all.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com0tag:blogger.com,1999:blog-19230515.post-1155750593632260892006-08-16T12:49:00.000-05:002006-08-16T13:38:11.286-05:00<span style="font-size:130%;"><span style="font-weight: bold;">Is That $6 Gallon Of Organic Milk Really Organic?</span></span><br /><br /><br />The <a href="http://www.cornucopia.org/HorizonComplaint8-06.pdf">Cornucopia Institute</a>, an aggressive watchdog of the organic industry has sued Dean Foods (<a href="http://finance.google.com/finance?q=DF">NYSE: DF</a>), the makers of Horizon Organic Milk, claiming that the world's largest dairy concern does not conform to the USDA's <a href="http://www.ams.usda.gov/nosb/">National Organic Standards</a>. The Institute alleges that Dean's grazing and pasturing amount to a "dog and pony" show, which if true, means that all of those $6 gallons of milk were not truly organic. Considering that, in my town of Austin, TX, the non-organic brands go for less than $4, the 50 percent premium also amounts to outright theft. In my household, we have been buying organic milk for years, so this story hits close to home. However, if Cornucopia Institute is being too aggressive, it could scare off other large corporate players from entering organic agriculture.<br /><br />According to the USDA's guidelines, organic milk must come from cows that are grazed in pasture. Additionally, there are guidelines about where, and how long cattle can be kept in confinement. Graze Magazine uncovered numerous ex-employees who say that proper grazing and pasturing techniques were used when VIP visitors, such as Whole Foods' (NASDAQ: WFMI) John Mackey, were touring the facilities. If true as alleged, then the milk should not have carried the organic label. The Cornucopia lawsuit is not the only black eye for Dean Foods. The <a href="http://www.organicconsumers.org/">Organic Consumers Association</a> issued a boycott of Horizon products last year.<br /><br />Such conflict in organic agriculture makes one apprehensive. Of course, we would hope that corporations would live by the honor system and not cross the line. On the other hand, one of the primary drivers for going organic is the ability to charge a premium and get a little positive PR value out of being Green (aside from the intrinsic, non-economic reward of doing the right thing). If going organic also carries the prospect of unrelenting scrutiny by activists, then large corporate concerns might decide that the venture would not be worth it. Up until now, Horizon has been THE most successful organic brand, with margins that the rest of the dairy business can only dream about. Clearly, the best hope to ensure organic quality is for the large organic grocers (think Whole Foods) to make it clear that crossing the line means losing shelf space. This, too, would be a difficult move for those companies, since they, too share in the fantastic margins. After all, John Mackey is the CEO of a publicly traded corporation. Clever marketing by his company has sort of made him the standard bearer, like it or not.<br /><br />In any event, let's hope the allegations are not true. If they are true, I hope class action lawyers are paying attention.Mark Brandonhttp://www.blogger.com/profile/12313094648748254107noreply@blogger.com3