Category Archives: Markets

Asset prices down, money chasing security. What’s the problem?

While there has been enthusiasm for a recovering global economy, optimism is being dampened by market movements.

There are some fundamental concerns about projected consumption levels and production costs.

There are a number of geopolitical risks festering around the world:

The strife in Hong Kong is being calmed by force.  That will be re-assuring now, but has shown the inability of Xi to lead a new path and China to manage the inevitable progression to maturity.  Hong Kong is China’s best testing ground for political innovation, which must manifest in China soon otherwise social tension will disrupt economic strength.

The middle east …!  Syria and IS are immediate and top of the list, but they are set to be a decades long drama of death.  Iraq, Afghanistan, Iran., Libya, and more.  Israel/Palestine … so sad.  These are are drain on the consciousness, but are inconsequential as long as the oil flows.  Phew.

Ebola is gaining momentum rather than being contained.  That might change.  But it’s scary to imagine a wierd disease like that becoming a global epidemic.  Managing a cataclysm like that might bring people together.

Everything’s going to be fine, in the short term.  But the underlying systemic risks, economic, social and ethical,  remain.

A holonic prescription for success without growth beckons.  Will our leaders lean in that direction?

BBC: Global shares slide on growth fears

BloombergBusinessWeek:  U.S. Oil Producers May Drill Themselves Into Oblivion

 IMF: World Economic Outlook (WEO) Legacies, Clouds, Uncertainties

 

 

 

Cows are eating the planet.

Since primary school it has been clear that animals require more food than plants.  Those food pyramids with grass at the bottom and lion at the top made it quite clear that it takes far more land and resources to fee a lion than a patch of grass.  Later on, as an observer of human behaviour, it became obvious that a human eating meat consumes more planet resources than one eating only veg; a rule of thumb is five times as much.

Now, further research shows that while a meat diet generally requires about 5 times as much land as a veg based diet, cows in fact consume many times more resources than other livestock.  Cattle need 28 times more land and 11 times more irrigation water than other livestock.  Eating beef really is eating the planet.  So enjoy your lunch!

BBC: Beef environment cost 10 times that of other livestock

Proceedings of the National Academy of Sciences: Land, irrigation water, greenhouse gas, and reactive nitrogen burdens of meat, eggs, and dairy production in the United States

A local beef farmer said yesterday that while beef prices in Ireland are being depressed by a corrupt monopolist who has the government and EU is his pocket, the Department of Agriculture wants to increase beef production by 30% in 5 years, so as well as eating more planet, farmers will still not make a living.

Most big companies don’t care about sustainability.

Only 3% of the world’s largest companies report on  the first generation of sustainability indicators according to Corporate Knights report on Trends in Sustainability Disclosure. The seven indicators are: employee turnover, energy, greenhouse gases (GHGs), lost-time injury rate, payroll, waste and water.  Sadly, but unsurprisingly, Corporate Knights recommends mandatory disclosure because voluntary disclosure is plainly not revealing the required data.

EIRIS coincidentally reported on research done with eleven stock exchanges which have expressed their desire to improve sustainability reporting.  The reasons for supporting sustainability disclosure are all worthy, economically as well as morally:

  •   to improve the environmental, social and corporate governance (ESG) performance of companies listed on their exchanges
  •    to encourage and to help investors engage with companies on sustainability issues
  •    to identify themselves in the marketplace as committed to sustainability
  •   to draw on the latest research to support the link between long-term financial performance and ESG issues.

More regulation always brings imperfections but it becomes necessary when behaviour doesn’t adapt voluntarily.  For that to happen, investors must demand disclosure from the companies they own.  That means that asset managers and other fiduciaries must ask for ESG data.

It is long past time for big listed companies to own up about their behaviour, about the amount they pollute the planet and society.  It will be revealing when they do, as this graphic from Bloomberg’s sustainability report indicates (eg 1.9 tonnes of travel emissions per employee!).

bloomberg2012indicators

SocialFunds.com: Sustainable Stock Exchanges can Influence Corporate ESG Performance

EIRIS: EIRIS interviews reveal stock exchanges’ leadership on sustainability issues

Sustainable Stock Exchanges Initiative reports

 

US downgrade – the world is beginning to wake up

So S&P, one of the rating agencies that fuelled the bubble and bust, has downgraded US credit rating.  Its about time.  Not that the US isn’t wonderful, but its economic profligacy expanded to new levels in the last decade and the culture is becoming one of gratuitous consumption at the cost of future earnings.

The king’s new clothes are not his and finally one of the courtiers has drawn attention to the fact.  Everyone is dressed in robes they can not afford – the king’s new clothes are owned by someone else (China and other lenders to the US) and the king’s coffers are empty.

Recognising the reality of consumption, debt, productivity and earnings is a step in the right direction.  It is a good thing.  It is good that the rating agency is doing its job.  It’s good that our delusion is being revealed.  It might be uncomfortable, but the sooner it happens the sooner we can fix the problem and change our behaviour.

August is usually a volatile month with low trading volumes so let’s see what happens in September when bankers get back to “work”.

S&P Report

BBC US loses AAA credit rating after S&P downgrade

Bankers crashed the economy.

It wasn’t just bankers, we all played a part.  But top of the list of immoral players are fiduciaries.  The US Senate Subcommittee investigating the financial crash of 2007/8 highlighted emails by top investment bankers who were short selling the mortgage security market as it declined, while publicly obfuscating the hole in the financial system.  Not surprising, but infuriating and unethical.  Unfortunately not illegal.  And the system is not changing.  The global financial system is being resurrected as it was before with inherrent moral hazards.

Is there hope for change?  Yes, open media and personal choices about investment and consumption can change the system.  But that means all of us, individuals, must make more enlightened and less selfish choices.  And that is going to take time or catastrophe.

BBC: Goldman in crash profit boasts

BBC: Goldman Sachs ‘profited at clients’ expense’

‘The bellboys are handing out stock tips in the lifts’

Are markets reaching bubble proportions?

Regular readers of our world of money blog know how I feel. That’s not to say you can’t make money in a bubble. Or that valuations won’t be maintained. But I just can’t get comfortable with the massive hole in the financial system on one hand and the buoyancy of stock valuations on the other. $ 3.4 trillion losses, but stock markets and housing markets where they were a year ago. And this against a backdrop of the same old games of extraordinary bonuses, moral hazard, lack of fiduciary responsibility and, for most businesses and people, very tight liquidity.

Place your bets!

IMF: World Economic Outlook

BBC: Rare £11m gem becomes £100 rock

Energy shown to be the most important issue in world’s biggest company ranking.

The latest annual survey of the largest companies by Fortune magazine confirms the dominance of oil companies, with 7 in the top 10, despite the steep drop in crude prices in the past year.

This isn’t surprising because we realise the unnatural dependence on oil that humanity has nurtured over the past century.  It would not be so worrying if these companies were producing energy from alternative sources, that is low carbon sources.  But they are not.  The ranking reinforces the message that humanity is consuming buried sunlight  in a suicidal way.

The company revenue ranking by Fortune also shows significant changes in US corporate strength because of the economic meltdown.

BBC: Shell beats Wal-Mart as top firm

12 year lows are rare

I don’t think that the economic contraction has ended yet, but there are signs of a bottoming out of some markets. The US market has been cleaning itself out for six months, though moral hazard remains as do some big skeletons (like the Madoff, Stanford …). The Fed Chairman is concerned about stagflation too. But the market is low and maybe only has another 10% to fall – DJIA bottoming around 6,000.

See this chart from JPMorgan. Thomas Lee, their US Equity Strategist writes: “Believe or not, retracing 12-year lows for the Dow is an incredibly rare event. Besides the retest of 1997 lows seen on Monday, this has only happened two other times, on April 8, 1932, and December 6, 1974.”

Come clean and admit it – there’s a recession.

Why don’t the reulators, policy makers, players and pundits just admit there’s a problem. I find it extraordinary that Bernanke and co won’t admit there’s a recession.  If they think that they can talk their way out of this downturn, how we can we believe that they will be able to re-engineer the financial system so that this does not happen again.  The root cause of this meltdown has been moral hazard and here they are again destroying their integrity and credibility.

And the failure to face the facts is merely prolonging the pain and the ability to adjust.  The markets will only hit bottom once the admission has happened – so get on with it!