US Fed drops rates from 5.25% to 4.75% – oh dear …

Oh dear …

Well, it wasn’t as if it wasn’t expected. Futures were pricing a 100% chance of a drop of 0.25% and a 50% chance of a drop of 0.5%. But I still think it was a dangerous mistake. Inflation is pulling at the rein and the speculative dynamic of stock markets continues to undermine fiduciary responsibility and sensible personal wealth management. (For more on these concerns, please see August GRI Equity Review here.)

The first sign that the rate cut wasn’t appropriate was the bounce in the stock markets. After the decision was announced all three major US indexes were up more than 1%.. The Dow Jones industrial average was up 1.37% at 13,587.54, the S&P 500 Index was up 1.87% at 1,504.29, and the Nasdaq was up 1.60% at 2,622.95. As of this writing markets are still open, and up.

There will be a speculative rush for a few weeks until the reality that interest rates are not the problem sinks in. Perhaps on a positive note, they could be increased again if inflation accelerates too soon.

The most unnerving conclusion, however, is that the Fed is not able to give the tough love the markets need, or, even worse, emotions and personal interests got in the way of the decision.

The lower rate will encourage another bout of gorging on debt and further extension of an unsustainable mountain of credit. Consumer behaviour needs encouragement to change, to become more practical. The sooner the better.

(And here’s another discussion of the Fed’s Irresponsible Move published in BusinessWeek.)

More money than deals in clean tech

As we expected, there appear to be more money than deals in clean-tech.

New Energy Finance reports: 2006 was another record year for Venture Capital and Private Equity investment in the clean energy sector, with $18.1 billion invested in companies and projects. This represented a 67% increase on 2005 ($10.8 billion), and beat New Energy Finance’s original forecast. However, this rapid growth in VC & PE investment only tells half the story: a significant amount of money ($2 billion) resides in funds and has yet to be invested. During 2006 clean energy VCs invested only 73% of the total money available to them – a symptom of a competitive market where demand for deals is outweighing supply, thereby driving up company valuations.

Cleaning Up 2007: Growth in VC/PE Investment in Clean Energy Technologies, Companies & Projects by NEF

Since Autumn 2006 attention to the sector rose as various reports came out: The Stern Report, various IPCC reports, the movie The Inconvenient Truth and so on. Private equity managers all rushed to get in on the game because they saw it as an easy way to raise money and thought that the fundamental economic drivers had suddenly changed. As is always the case with too much money chasing too few deals it is likely that many over paid. It is also likely that few had expertise or an understanding of the emerging economic dynamics of the enlightened consumer. Money will be lost.

The good result however is that more attention is being paid to this area, especially aspects like alternative energy.

The better managers are those that can also look beyond clean tech and make the connection with the growing LOHAS consumer profile as well.

IEA reports on poor record of energy consumption

Energy Use in the New Millennium by the International Energy Agency published on 10 September draws a gloomy picture of efforts made by the 26 IEA member countries to control their energy consumption since 1990, the reference year of the Kyoto Protocol on climate change.

“Final energy-use increased by 14% between 1990 and 2004. This increased energy-use fed directly into the level of CO2 emissions, which also rose by 14%.”

“These findings confirm the conclusions of previous IEA analyses – that the changes caused by the oil-price shocks in the 1970s and the resulting energy policies did considerably more to control growth in energy demand and reduce CO2 emissions than the energy efficiency and climate policies implemented since the 1990s.”

What this tells us is that either we, as individuals, must take globally responsible initiatives to reduce our energy consumption, or we will all be faced with increasing shocks, in pain and frequency, to societies increasingly withdrawn from nature by modern conveniences.

Article here.

IEA: Energy Use in the New Millennium | Executive summary

EU: Energy Efficiency pages

Water shortage risks highlighted by Marsh

A report from the newly launched Marsh Center for Risk Insights highlights the risk of water shortages.

Marsh was under severe scrutiny in 2005 for governance issues.  They have clearly taken concerns of global sustainability to heart with the launch of their new research centre.

Their report singles out water shortage as one of the greatest and most immediate threats.   Ironically although 40% of those surveyed believe that a water shortage would be severe or catastrophic for their business operations, less than 20% of Fortune 1000 companies surveyed are prepared for a water shortage crisis.  Companies across industrial sectors could be affected by water shortage issues directly and indirectly through their supply chains, with even non-water intensive companies realizing higher costs as suppliers deliver higher costs.  And water-related costs are rising with manufacturers paying to treat both source water and wastewater.

Article here.

WBCSD  Global Water Tool.

WBCSD Business in the world of water: WBCSD water scenarios to 2025

WBCSD Water Facts and Trends

WBCSD Collaborative actions for sustainable water management

Role of soil in climate change highlighted

The International Forum on Soils, Society and Climate Change, a title you wouldn’t have imagined a few years ago, attempts to raise our awareness of soil erosion and the impact it has on the environment.

Every year, some 100,000 square kilometres of land loses its vegetation and becomes degraded or turns into desert.  In addition, soil is degraded by the use of unnatural herbicides and pesticides which reduce the natural bio-cycles of the soil habitat.

Degraded soil not only impacts food production but also reduces the ability of soil to hold water, thus increasing the tendency to flood, and reduces soil’s ability to retain carbon.  Degradation is responsible for up to 30% of the world’s greenhouse gas releases, according to Ohio State University. Soil degradation  also alters temperature and energy balance of the planet.

The principal solutions are to increase natural farming methods and move away from industrial agriculture, and to halt deforestation and replace it with sustainable forestry.

Looking forward as much as 20% of anticipated net fossil fuel emissions between now and 2050 could be stored by sequestering or storing carbon in the soil and vegetation according to the U.N. Development Programme.

These concerns are highlighted by the recent and sudden interest in primary biofuels which may be produced by industrial agriculture.

Eat naturally grown, local food, and less meat, to make a real difference.

Is Northern Rock the “whale” that signals the rebalancing of the price of liquidity?

Anatole Galetsky presents GaveKal’s perspective in Here Comes the Whale that Northern Rock is the large problem that needs bailing out in order to pass through the financial liquidity imbalance that has accrued during the past few years.

… on past experience, the long-awaited appearance of the whale – Continental Illinois, Chrysler, Brazil, Drexel Burnham, Kidder Peabody, Mexico, LTCM/Russia, Enron/MCI/Argentina – would announce the beginning of the end of the liquidity crunch. …

… because we started thinking in the middle of 2006 that our whale was overdue for an appearance, but it never quite turned up. In February we finally realised what species of a fish we were looking out for – a mortgage lender, with a specialty in high-risk loans – but still the damn creature refused to show. But this weekend, a whale finally surfaced, though somewhere totally unexpected. Until last week, almost nobody in the markets had heard of Northern Rock PLC. And even on Friday – when Britain’s fifth-biggest mortgage lender was officially “rescued” by the Bank of England in its first lender-of-last-resort operation for 34 years – most people in the markets saw this event as “a little local difficulty” compared with the mess in the US sub-prime market or German state banks.

Time will tell how history views these events and and Northern Rock’s place in history, but other “whales” where well known and media savvy before the crisis, this one was not. It can be said, however, that Northern Rock is contributing to the evidence that a rebalancing of the price of liquidity is taking place.

Norway’s high standard of sovereign fund management

The FT describes how Norway’s sovereign fund management sets the standard. Government Pension Fund-Global, part of Norges Bank, was set up by the Norwegian government in 1990 and manages about €235 billion. It has worked with authorities in Kazakhstan, East Timor, Bolivia, the Faroe Islands and several African countries among others.

“We make no strategic investments,” said Martin Skancke, director-general of the fund at the Ministry of Finance. “We invest in individual companies and sec tors. We are invested in between 3,000 and 4,000 companies in 40 countries and average ownership of a company is below 1 per cent. We do not feel that this distorts markets.”

Investment decisions are either made by individuals at the fund with specific investment mandates or are contracted out to external asset managers. At the end of 2006, 22 per cent of the fund was managed by 50 external managers with 80 different mandates.

Transparency is paramount. The ministry receives advice on the investment guidelines from the Central Bank of Norway. Consultants are also employed to help with this work as well as to judge performance and the management of costs.

Ethical Guidelines for the Government Pension Fund – Global Norwegian Ministry of Finance

Principles for Corporate Governance and the Protection of Financial Assets

EU reports water wastage of 40%

EU leaders agree that up to 40% of water is being wasted by consumers, industry and farmers across Europe. The EU executive is calling for higher water prices and better implementation of existing water-management rules.

Commission’s latest report is here.

EU: 01 Septemeber Presidency Conclusions 

WWF: Freshwater page

Commission: Water policy website

Special report on financial centres

A comprehensive review of the characteristics of the world’s main financial centres by The Economist (EIU): Magnets for money.  While the impact of technology on transformations of financial centres in recent decades is analysed, there could have been a more critical review of the outlook for the decentralisation of financial services through ICT.

Big Picture thinking for positive change