How much is .07%?

May 24, 2012

While the 1% has been a subject in the press a lot recently, I’d like to take a look at .07%.

While many people are talking about the 1% or 99%, we are questioning a different number:  .07%. Believe it or not, .07% is the rate that Germany recently sold €4.56 Billion ($5.77 Billion) two year bonds. The Greek and Spanish dramas are unsettled, and German investors have been seeking the safety and protection of bonds – even at .07%. Regrettably, the flight to quality is not unique to Germany.

In the U.S., two year Treasury yields are .29%. In September, 2011, yields traded at an all time low of .16%. Compare this to the last five year average yield of 1.34%, or average yield of 2.76% since January 2000. In the normalized period of 1980 to 1999, two year Treasuries averaged 7.95% yield.  From 7.95% to .29%, that’s quite a rally. (Don’t forget Bond Math 101:  yields down, prices up.)

German bund yields are close to zero, or at least closer to zero than U.S. Treasuries. The question is:  how much lower can they go? We are still in an extended bond market interest rate rally that began in the early 1980’s. Fixed income investors have certainly been rewarded over this long period. Due to the recent unsettled global markets, investors have once again flocked to bonds as a bastion of safety.

A casualty of the economic and political upheaval has been the renewable energy markets. The rise and fall of government stimulus, the move to retrenchment by government policies, and low natural gas discoveries in the U.S. have all put pressure on the balance sheets and business models of many companies in the clean tech (green) sector. And, of course, the laws of supply and demand in this new growth industry have created many new winners and losers. It is likely that the playing field will look differently in the next several years than did the mega stimulus period of 2009-2010. 

As investors debate both the short and long term outlook for Facebook after the fallout of the recent IPO, we are looking at interest rates, and the drivers of rates.  Rates may go lower, but there is not a lot of room. Government expenses may be cut more, but not much before political leaders push economic activity over the cliff. From our vantage point, the drop in rates has created both risk and opportunity for many investors and many investment sectors.

We are always looking at the green, clean technology hedge fund sector, and we recognize how poorly long only strategies have performed over the last 18 months. On the other hand, specialist green hedge fund and hedge fund of fund strategies have been able to deliver positive results in a difficult market environment. 

During our long history of investing, we have seen some of the most obvious opportunities have been realized in periods of uncertainty with poor market psychology.

It seems that the world is becoming more uncertain, so it is gratifying to identify even a single event that reflects confidence, however unusual. Yesterday, I was standing at Rockefeller Plaza near the ice skating rink (where the outdoor café is today), and noticed that a plaque had been inserted into the stone pavement where the annual Christmas lighting takes place. The plaque has a head start on the holiday season and proudly displays in bronze the date for this year’s lighting: November 28, 2012. A small victory for certainty!

While the date for the festivities is well known, not much else is at this time. Maybe now is the time to do a review of past ideas, as well as hunt for new opportunities.

OutFront

October 13, 2011

OutFront

CNN’s new program with Erin Burnett is a fresh approach to headline news. She’s “OutFront” with the leading news and really flies below the radar screen.

Through our lens, we look at the environment and a national energy policy and see that our leaders have done nothing. Zip! A lot of conversation, debate, and failed attempts in the last several years that could not achieve majority approval probably best summarizes the discussions.

In the meantime, global populations keep growing while more power is needed for iPads, iPhones, and more cars on the highways. What have we done? Since the gas lines of the 1970’s, Washington has provided little direction.

But, there is a shining star (or stars). It looks like  52 colleges and universities are outfront. Energy costs are rising and many innovative colleges are using green revolving funds (GRF’s) to invest in cost saving initiatives in energy efficiency upgrades and projects to reduce college overhead. The cost savings flow to the bottom line of the college and then back to the GRF for reinvestment in additional projects.

Foundations and endowments often speak about “impact investments.” Results from the different colleges show returns ranging from 20% to 47% with a median return of 32%. Not bad! The schools reported payback periods from 1 to 10 years with a median of 4 years.

By the way, the schools can now track energy consumption and have data that is helpful for class room instruction and additional research for sustainability.

Look at the report, www.greeningthebottomline.com and see all of the participants. Colleges and universities that are outfront include Harvard, Stanford, and Yale as well as Lane Community College, Kalamazoo College, and Seattle University.

As viewers may note, Erin Burnett’s initial countdown since the August Treasury ratings downgrade has not witnessed any constructive results yet in the nation’s capital. I have an energy policy countdown that is even a bit longer:  at least 40 years and still rising. It’s been long overdue for Congress to establish and embrace an energy policy for the U.S.

Look beyond these 52 schools, and there are many others who get the joke. They understand the issues of sustainability, and they’re doing something. Better yet, there’s no cost and a positive ROI. Clearly, our kids are getting the education. Maybe Capitol Hill should go to class as well!

Is kicking the can the new normal?

While Capital Hill is making little progress on the energy policy front, the private sector is moving forward.


McGraw Hill and NJR Clean Energy ventures, a subsidiary of New Jersey Resources (NJR), a natural gas distributor for residential and commercial customers, recently announced plans to build the largest privately owned solar project in the Western Hemisphere. The $60 Million project built on 50 acres located 40 minutes from Manhattan will produce 18 Million KW annually and reduce carbon emissions. According to Rutgers University, it will also generate 294 jobs.

NJR recently issued the 2011 Corporate Sustainability Report. “The decisions we make today have the potential to change the world. That’s a tremendous responsibility, and one that we take seriously. At New Jersey Resources, we believe we all have a role to play in protecting our natural resources and enhancing our customers’ quality of life and the communities we serve, today and for generations to come. That is why we have made corporate responsibility a core component of our business strategy.”

In Europe, Energy & Environmental Magazine recently reported that “Almost 100 prestigious companies from Google to Coca-Cola, with a combined annual turnover of more than €1 trillion, have signed up to a declaration calling on the European Union to extend to 30% its planned emission cuts. Currently the target is 20% below 1990 levels by 2020, but the EU is debating whether or not to increase this to 30%. Britain’s energy secretary, Chris Huhne, has also called for an EU target of 30%.” Companies included Allianz, Capgemini, Coca Cola, Google, H&M, Johnson Controls, Sony, and Nestle. Absent from the list are heavy industrial energy users from the steel, cement, and the oil and gas industry.

PricewaterhouseCoopers (PWC) recently released its 14th Annual Global CEO Survey. http://www.pwc.com/ceosurvey

1,201 business leaders in 69 countries responded. The findings are enlightening.

Nearly half of the executives said “They would change their companies’ strategies within three years because they expect stakeholders to factor companies’ environmental and corporate responsibility practices. Companies are planning to adapt their offerings---or develop entirely new ones---to address society’s changing sentiments. They’re also planning to answer questions about their environmental and corporate responsibility practices.”

The report continues “More than two-thirds (64%) said environmentally friendly products and services are an important part of their innovation strategy.”

Stephen A. Roell, Chairman and CEO of Johnson Controls said “Most corporations want to do the right thing. They want to be responsive regarding energy use. The people we’re hiring expect us to be. They want to work for a company that has a value system built around sustainability. I don’t think you need government regulation to drive it.”

More and more companies are integrating the financial implications of energy, commodities, and natural resources, and certainly the most precious of all----water---into the day to day analysis of the business model. More and more shareholders are voting their proxies for resolutions to become more proactively regarding the environment.

These are not tree hugger issues. These are business issues. These are issues of national security. These are issues of dealing with depleting (and ever so costly) natural resources in an environment where global populations are growing dramatically. And, quickly!

79% of the PWC respondents said that “Our innovations will lead to operational efficiencies that provide us with a competitive advantage.”

Sounds to me that corporate leaders are equating environmental stewardship with the 1960’s race to the moon. Yet Capitol Hill still does not seem to want to get into the race. Though most people are tiring quickly of the phrase “kicking the can,” Washington doesn’t seem to tire at all.

Maybe Capitol Hill should read the PWC survey.

LinkedIn

100 million people are now LinkedIn, building their professional network, building their relationships, and learning more about opportunities. Members join groups to connect with others who have similar interests. Groups range from web development to marketing to pets as well as sustainability and the environment.


Not only can you connect with clean techies or environmental jobs or public policy, but you could Link to 9,885 water professionals. Or, 9,000 smart grid professionals.

In a recent Bloomberg report, Linda J. Fisher was profiled as the chief environmental strategist at DuPont. She joined the company in 2004, and advised the company’s former CEO and now Chairman of Bank of America, Chad Holliday, to “…get ahead of the curve rather than making the regulator make you do it.” One example is the decision made by DuPont and other chemical companies to cut the use of harmful chemicals used to manufacture Teflon coatings.

FedEx has placed hundreds of vehicles in service that are electric or hybrid to reduce fuel consumption, improve efficiency, and reduce carbon emissions. The company is using biodiesel trucks in the nations’ capital.

The Pew Charitable Trust recently released a report: Global Clean Power, A $2.3 Trillion Opportunity.
 http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Global_warming/G20-Report-LowRes.pdf

In conjunction with data provided by Bloomberg’s New Energy Finance, the title of the report summarizes the findings very well. The findings include:

• The opportunity to attract more capital in renewables by adopting strong energy policies,

• China and India are the global leaders in clean energy investing,

• The U.S. “would benefit from strong clean energy policies” while the “European marketplace will mature in the next decade”

And, yes, “Clean energy policies reduce greenhouse gas emissions.”

Look at the country appendix in the report:

• China: “China leads the world in clean energy finance and will continue to do so for the foreseeable future.”

• United States: “Because its economy leads the world, the United States is a clean energy leader, but unless it adopts additional policies, it will continue to fall short of its potential. Under current policies, U.S. clean power investments increase to $27 Billion, about $23 Billion less than the world leader, China.”

Economic data released this morning showed the U.S. trade gap narrowed in April to the lowest level since the end of 2010, and the U.S. imported only 8.41 million barrels per day – the lowest since October 2010. Now that’s real progress!! 8.41 million barrels times 30 days times $111 average price of WTI in April is an egregious $28 Billion. One month. $28 Billion. Don’t even bother multiplying it times 12 months. It’s worse.

Somehow, we need to get the Pew report on LinkedIn sent to, and read by, our elected officials. (Please no Twitter, just LinkedIn).

While Congress worries about ‘Too Big to Fail’ for banks, $28 Billion per month is Too Big to Fail. Period.

$28 Billion per month could do a lot for renewables, couldn’t it? Ask Linda Fisher. DuPont was started in 1802 as a gunpowder mill. Or, ask Fred Smith of FedEx. He started the company and created a new industry less than 40 years ago.

$28 Billion could buy a lot of solar panels, wind turbines, insulation, or fix a lot of leaking water pipes.

New companies and old companies seem to understand the benefits. Why doesn’t Capitol Hill?

C’mon Man!

February 23, 2011

As viewers of TV’s ESPN know, there is a segment on the regular schedule called “C’Mon Man!” During these programs, the announcers describe a play that is extraordinary and immediately respond with a “C’mon Man!” It could be for the best “dunk” or missed dunk or the longest run or the worst run in football, but it always ends with an emotional C’mon Man.

So, to Washington D.C. we say, “C’mon Man!” Have you looked at gas prices recently?

As Warner Wolf, a well known New York sports broadcaster would say, “Let’s go to the videotape.”

In 2010, the U.S. imported $337 Billion of oil. In 2009, because of the recession, imports were only $250 Billion. Remember the campaign slogan of 2008, “Drill, baby, drill?” The imported oil bill was $450 Billion that year, and $319 Billion in 2007. I won’t do the math for the 4 year total, but it does start with the dreaded “T” word.

Wouldn’t it be ironic if the oil producing countries did a profitable arbitrage trade by capitalizing on the dry and sunny weather? They could deploy solar installations to replace oil burning facilities that generate power in their respective countries while still maintaining high levels of exports to the rest of the world.

In 2010 crude oil prices averaged $79/barrel and today crude is trading at $99. Don’t forget that many analysts were calling for $100 well before the Mid East tensions because of the global economic recovery. Imagine what the prices for gasoline will be this summer as motorists take to the roads for family vacations? C’mon Man: at $4, I’m stayin’ home! My car will be in the driveway.

Where are we today? President Obama says, “For the sake of our economy, our security, and the future of our planet, I will set a clear goal as President. In ten years, we will finally end our dependence on oil from the Middle East.” C’mon Man.

In 2006, George W. Bush said, “The best way to break this addiction is through technology. Since 2001, we have spent $10 Billion to develop cleaner, cheaper, and more reliable alternative energy sources.” C’mon Man.

Look back to the first oil crisis of the 1970’s; the U.S. created the Strategic Petroleum Reserve to stockpile oil. C’mon Man.

Since the 1970’s, every President, and probably every candidate for national office has stressed energy independence. And, what are the results? Where is the energy policy? How many more dollars does the U.S. need to export?

Today, U.S. Treasury Secretary Geithner said at a Bloomberg breakfast, “The economy is in a much stronger position to handle” rising oil prices. “Central banks have a lot of experience in managing these things.” C’mon Man. What are you lookin’ at? Have you filled up your car with gas lately? This is crude oil that we’re talking about, not Treasury securities.

Better yet, click on the following link:

http://www.eia.gov/emeu/steo/pub/contents.html

The U.S Energy Information Administration (EIA) said in a February 8, 2011 release that “EIA expects a continued tightening of world oil markets over the next two years. World oil consumption grows by an annual average of 1.5 million barrels per day (bbl/d) through 2012 while the growth in supply from non-OPEC countries averages about 0.3 million bbl/d this year and remains flat in 2012.” Maybe Secretary Geithner should chat with his neighbors at EIA.

Let’s try a novel approach. Create an energy policy. Cut the export dollars and spend it on new forms of renewable energy.

C’mon Man. That’s too easy.

Help each other, learn from each other.

February 9, 2011

In the current issue of Businessweek, Michael Forsythe reported that Jon Huntsman, the U.S. Ambassador to China, has a wall hanging in his office with the characters "hu xiang bang zhu, hu xiang xue xi." It means “help each other, learn from each other.”


Two days ago, ESPN reported a remarkable story that unfortunately did not seem to get enough media exposure.

Kevin Jordan, a 19 year old freshman baseball player at Wake Forest University and 19th round draft pick of the New York Yankees, was diagnosed in April 2010 with a debilitating disease that attacks the kidney. Four months later, Kevin’s kidneys were functioning at 15-20% of normal levels. Kevin needed a kidney transplant, turned to his family, and found out that unfortunately, they were not compatible.

Last week, Kevin found out that his coach, Tom Walters was a match. And, Coach Walters stepped up. The 42 year old Coach donated his kidney to Kevin on Tuesday at the Emory Transplant Center in Atlanta.

Forget about records on the field. It’s off the field that really counts. One of the fellow team members said that Coach Walters is “a stand up guy.”

While I’m sure that they do not know each other, Coach Walters sure abides by the words on Jon Huntsman’s wall hanging. Do you know who else should know about those words? Every member of the U.S. Senate and House of Representatives! With the 50th anniversary of John Kennedy’s inaugural speech in 1961 just passing, we all remember the well known sentence “Ask not what your country can do for you……” Coach Walters knows.

Yesterday, Dr. James Heintz, professor at the University of Massachusetts, published a report on infrastructure investments for air pollution facilities. He states that electric utilities that are being driven by proposed EPA rules “will bring economic benefits and jobs across much of the United States. Based on recent estimates that the power sector will invest almost $200 Billion in capital improvements over the next 5 years, total employment created by these capital investments is estimated at 1.46 million jobs, or about 290,000 jobs on average in each of the next five years.”

The report was sponsored by CERES, a leading coalition of investors and environmental groups that work to address sustainability. Click on link to see the complete report. http://www.ceres.org/epajobsreport

Jon Huntsman is leaving his post in China in April to possibly run for President against his current boss. He’s not afraid of uncertainty.

Coach Walters donated his kidney. He was not afraid of uncertainty. He said that donating the kidney was “a no-brainer.”

Kevin is recovering, and hopes to make it back to the baseball field, and I’m sure he has learned a lot about helping.

Now back to Capitol Hill. What have they learned? Why don’t they take a chance? Begin by starting to invest some funds in infrastructure! Imagine what it would happen if the capital investments really work? Imagine what would happen if the grid improved? There may even be improved air quality. Imagine what would happen if nearly 1 million, or 1.5 million, or even 2 million new jobs were created?

Remember: “Help each other, learn from each other.” We can all learn from Coach Walters.

Congress – let’s help each other too.

What do Washington DC and Punxsutawney Phil have in common?

January 31, 2011


This is a big week in Punxsutawney, PA. Phil, the famous groundhog resident, will pop up on Wednesday morning to tell us all how much longer the winter will be. If Phil looks back on last year’s prediction, he would note that crude oil was at $82 a barrel, and only $2.50 at the gas pump, but $62 and $2.25 in 2009.

Now the year is 2011. And, $92 crude oil translates to $3.25 at the pump.

While Phil may go back underground for 6 more weeks, will Congress hide as well? Will they do the same as was done in 2010, or 2009, or even 2008? Watch the price of crude go higher?

It’s time for a national energy policy! Recent unsettling events in the mid-East are expected to apply upward price pressure in the short term. Growing global economies and the thirst for more energy will push prices higher in the long term.

Big news last year was the growth of the U.S. population to over 310 million people. In 1900, the figure was 76 million, and in 2000, it was 281 million people. Globally, in 1900, the population was 1.6 billion, 6 billion in the year 2000, and today is nearly 7 billion people. Projections of 2050 are as high as 9.5 billion. Even if the estimates are off by a billion or so (remember, this is 2011 and billions really don’t count as much), there will still be a lot of people that need energy.

As the rest of the world constructs turbines and installs solar panels on a huge scale, what are our leaders doing to meet our energy needs? Most of those in Washington seem to have the same idea as Phil: Let’s go back to bed and not worry about it! Rising food prices have caused riots in Egypt, Morocco, Algeria, and Yemen. What’s next? And, yes, higher energy prices can also be expected to put pressure on transportation and food costs.

Despite more cars, more people, and increased power demand, the U.S. has not built a new refinery since 1976. Now, our leaders talk about jobs. And, they talk about how we’re going to export more U.S. made products. How do they propose to do it without an energy policy? How can new plants open, and how can we expand existing facilities without clean and readily available energy? How are new jobs created if employees can’t afford to drive to work? The fact that mass transit isn’t readily available to most Americans is just as big of a problem.

Maybe that’s why our leaders are still not looking towards the sunlight. They just don’t know where it is, and consequently what to do. Maybe they’re waiting for $4.00 gas. Or, higher.

Bottom line: it’s time to stop kicking the can down the street!