Tag Archives: management
Unwinding The World’s Biggest Economic Experiment
http://www.ft.com/cm…l#ixzz2X2Dkv6m2 By Gavyn Davies When the Fed does change direction, tightening often comes in a rapid series of interest rate rises ©Bloomberg On Wednesday, the chairman of the Federal Reserve announced that the greatest experiment in the history of central banking might be nearing its end. Ben Bernanke’s announcement included many caveats, but the financial markets did not miss the message. Since 2009, the central bank has been buying financial assets – US Treasury bonds and some types of corporate debt – paid for by an expansion of the monetary base (so-called “printing money”). This kept interest rates low, which damaged savers but helped indebted businesses and households. It has also been the major prop for financial markets. Within about a year, if the Fed’s plans come to fruition, the US government deficit will need to be financed from private sector savings – not by the central bank. Asset markets will be left to fend for themselves as the biggest buyer withdraws from the arena. That is why some hedge funds sold off bonds this week, causing a big drop in their prices – the flipside of which is a rise in borrowing costs (or “yields”). Mr Bernanke has expressed consternation that adjustments to the path for the Fed’s balance sheet, such as the one he announced this week, can have such a profound effect on the bond market. But investors are making logical inferences from central bank behaviour. The Fed does not change direction often. When it does, tightening often comes in a rapid series of interest rate rises that are not fully anticipated by investors. Furthermore, when the Fed was supporting markets, investors had to seek out new sources of income to replace declining interest receipts on their government bond holdings. In this so-called “reach for yield”, some of them leveraged themselves up to buy into emerging markets and bond funds – positions they are now dropping sharply. It is impossible to be sure where deleveraging will end. The last big unwind – a much smaller one – started almost exactly a decade ago. On June 25, 2003 the Federal Open Market Committee met amid expectations of a cut in the interest rate from 1.25 per cent to 0.75 per cent. Vincent Reinhart, the committee secretary, opened the meeting with some gallows humour. “On Friday”, he said “I was in line with my 11-year-old son to purchase Harry Potter and the Order of the Phoenix . . . It is somewhat longer than the briefing papers the committee has received. But it, too, considers an alternative world filled with uncertainty and great perils”. Alan Greenspan was chief wizard at the Fed that day. Mr Bernanke, more radical than he is now, was there, but mostly stayed silent. The committee was fully aware of the dangers ahead when it decided to cut the federal funds rate by only 0.25 percentage points. The market concluded that the Fed was preparing to tighten policy sooner than expected, and sharply adjusted expectations for where it thought rates would be in the years ahead. The same thing happened this week. The previous big Fed exit, announced on February 4, 1994, was even more dramatic. It was a day that triggered such turbulence that it is etched in the memory of all bond traders. Working as a Goldman Sachs economist, I was on the bond trading floor when the Fed released an innocuous-sounding statement. The FOMC had decided “to increase slightly the degree of pressure on reserve positions . . . which is expected to be associated with a small increase in short-term money- market interest rates”. Pardon? After a few moments, there was an explosion of noise as realisation set in. The market was unprepared for the Fed change, Investors were over-leveraged and knee-deep in Mexican debt and mortgages. Equities emerged relatively unscathed. But before the bloodbath ended that November, the survival of the US investment banks was at stake. Mr Bernanke wants this time to be different. His main weapon will be transparency and forward guidance. He says the Fed will end its asset purchases only if unemployment falls below 7 per cent, reducing the risk of tightening before the economy can take it. Short-term interest rates will stay close to zero for a long time after that and eventual rises will be gradual. He wants bond prices to fall slowly, leaving time for the financial system to adjust. There are two risks with the Fed’s exit plan. The first, raised by Paul Krugman and other Keynesian economists, is that it sends a premature signal to the world economy that the central banks will tighten before the private sector recovery has achieved escape velocity. This has happened before: the Fed made this error in 1937-8 and the Bank of Japan in 2006. Macro-economists such as Michael Woodford argue that the main economic effect of the Fed’s asset purchases is that they signal to households and business that the central bank is serious about keeping short rates lower for longer than normal. These stimulatory effects could now be reversed. If so, the US recovery might peter out, taking the global economy down with it. The second danger, in sharp contrast, is that the Fed has left it too late to bring market exposures under control, in which case the unwinding might take bond yields and credit spreads much higher than economic fundamentals seem to justify. In the famous phrase of Warren Buffett, the legendary investor, we only discover who is swimming naked when the tide goes out. Higher bond yields would spell danger for the financial system – and would mean rising mortgage rates at a time when the US housing market is only just starting to recover. The exit from quantitative easing was always going to be long and arduous. There is no historical playbook for the central banks to follow. Like a fighter pilot who has experienced combat only in a flight simulator, the real thing might be very different. The central bankers are confident that they have the technical tools to finish the job but, as Mr Bernanke admits, it will be like landing that plane on an aircraft carrier, and possibly in stormy seas. The writer is chairman of Fulcrum Asset Management and writes a blog on macroeconomics on FT.com Continue reading
U.S. Forest Management Policy Must Evolve To Meet Bioenergy Targets
Jun 19, 2013 U.S. forest management policy must evolve to meet bioenergy targets In order to keep pace with the burgeoning demand for renewable energy, forest management policy in the U.S. must change to address environmental sustainability issues, according to an article by a University of Illinois expert in bioenergy law. Unless the forestry sector can tailor sustainable forest management policies specifically to forest-to-energy feedstocks, its role in helping the country broaden its energy portfolio – and by extension, meeting ambitious bioenergy targets – may be limited in large part because of uncertainty about whether existing policies can effectively constrain overharvesting, said Jody Endres, a professor of bioenergy, environmental and natural resources law at Illinois. “Because we have a federal system of government, we don’t have a one-size-fits-all policy on land use and biofuels,” said Endres, who also is an affiliate of the Energy Biosciences Institute, a collaboration between the U. of I., the University of California at Berkeley, the Lawrence Berkeley National Laboratory and the energy company BP. “In a lot of environmental and natural resources law in the U.S., the primary role lies with the states to manage private land. But we also have national-level problems, like climate change, biodiversity and water-quality issues, which span jurisdictions. In other words, ecosystem services are not confined to a single state’s jurisdiction. So we have this crazy-quilt system in the U.S. that needs to be untangled.” The paper, which was published in the Vermont Law Review, was written to pinpoint what U.S. policy looks like, “which is very complicated because of the intermingling of state and federal policy,” Endres said. “We don’t have a coordinated public, state or federal policy in the U.S. about what sustainability means in the bioenergy context,” she said. “We don’t have one overarching policy that says, ‘This is how you assess land for biodiversity, or for water quality.’ So this patchwork of policies really makes it difficult for outsiders like European regulators looking in. A lot of misperceptions grow out of that.” According to Endres, the U.S. needs to craft some sort of integrated standard that covers not only the purpose-grown, short-rotation biomass crops such as the perennial grass miscanthus, but also forested plantations and seminatural environments, and be able to assess whether there are actually some ecological and climate benefits for getting those lands into the bioenergy system. “Those are the problems that bioenergy in the U.S. is facing, and it’s all really very nascent, but we know it’s problematic,” she said. “How do we translate that into a policy and into a sustainability certification? How do we make it economic while also providing an on-ramp for consideration of the ecological properties of forests in terms of larger scale landscapes and connectivity? That’s yet to be decided, but the paper lays it out what the points of contention look like.” It’s an interesting conversation to have in the U.S., because unlike Europe, “we still have some natural or seminatural forest left,” Endres said. “Ultimately, the goal is for U.S. forestry interests to access the European bioenergy, which may involve an additional level of certification or verification. We certainly have mandates here in the U.S., but they’re becoming much more stringent about certification in Europe.” According to Endres, there are two main certification programs in the U.S. – the Forest Stewardship Council and the Sustainable Forestry Initiative. “Those are the two dueling standards in the U.S., but what they don’t do is address bioenergy applications specifically, and that’s mainly the carbon foot-printing of managing forests for bioenergy,” she said. “Through all of these bioenergy policies, one of the main goals is to reduce greenhouse gas emissions. But we’re not there yet in terms of how to design a policy that chooses the appropriate measurement methodology for carbon fluxes within forests, because what you really want is a net greenhouse gas reduction. Private standards have not determined yet how to account for that – the science is still nascent on the effects of sustainability standards, as well as the time horizons for accounting in comparison to business as usual.” Assessing whether a land is natural, seminatural or a plantation is also something that the U.S. doesn’t do neatly in one overarching bioenergy policy. “We need to be able to classify land so we know whether or not we can access it for bioenergy applications that would be additional to, for example, lumber or paper, although those markets have been in general decline over the past decade,” Endres said. “The renewable energy directive in Europe is not going away. Forest product industries are actually gearing up to access those markets, and ultimately consumers, especially the type who go to big-box stores and look for sustainability certification on two-by-fours and other products, will likely want to see that forests aren’t overharvested. The European Union also may want to see that in some type of formal certification.” Thus, bioenergy now carries the burden, whether justified or not, to address perceived shortfalls in sustainable forest management, Endres said. “It is simply not enough in policy design, given the historically highly charged debate about forest sustainability, to make assumptions that existing sustainable forest management policies provide the assurances necessary for stakeholders, particularly environmental and wildlife organizations, to support forest-based bioenergy initiatives,” she said. “The main environmental groups are very concerned with over-sourcing from natural and seminatural private forest lands and federal lands. And they were actually successful at the federal level at keeping federal forests off-limits from the Renewable Fuel Standard.” According to Endres, forest policy since the early 1970s has grappled with how to manage forests holistically, “so I applaud bioenergy for bringing that conversation to the forefront on how we can really manage forests in a more informed, connected way at the ecosystem level,” she said. “We could really learn a lot from Brazil’s Forest Code protections for water quality and habitat connectivity derived from forests simply because they’ve been under the microscope since the 1990s for how they’ve managed their forests, including the Amazon rainforest,” she said. “But with the emergence of bioenergy, the whole world is going to participate in that conversation, and I see that dialogue as paradigm changing, as something that will ultimately benefit both the environment and humanity.” The Energy Biosciences Institute supported the research. Source: UI Urbana-Champaign Continue reading
Institutional Trees… A New Species?
June 14, 2013 Sustainable Asset Management (Investorideas.com renewable energy newswire) It has long been understood that trees are a very important part of our planet and they remain one of the few natural resources that touch all our lives on a daily basis, whether a piece of wood in the home, the floor we walk on, a book we are reading, or even the feint rustle of leaves in the air as we stroll along; we all benefit from trees. We need them, and yet we all know they are under threat. Despite the efforts over the years of governments, politicians, business magnates and even celebrities, the growing commercial demand for timber, crop land for food and biomass, combined with other demands on forest resources & related products, mean that large natural forests remain under serious threat; some of the most treasured species are in danger of extinction. More recently trees and timber have become a mainstream part of our everyday investments. Hedge funds and pension funds have long been investing in forestry & timber plantations along with their associated supply chains; these have even outperformed stock markets for over a century. During the last decade pioneering companies like Asia Plantation Capital have made plantations and trees more accessible to both large and smaller investors who can now buy plantations and have them managed on their behalf to reap the future returns from this amazing natural resource . In fact many analysts, the United Nations and a growing number of those same business magnates now agree on one common solution that always succeeds; “Show a man how to make money from a problem and let the money solve it”. One shining example of this is the threatened agarwood tree. Harvested in the wild to near extinction due to traditional uses now exasperated by modern trends and high global demand for fine fragrance and medicines produced from this rarest of trees and the natural oil it produces, Oud. Despite the fact it was made illegal to harvest in the wild by international convention (CITES) more than ten years ago, commercial demand today has the species as a wild natural tree teetering on extinction. A combination of science, research, practical experimentation and a huge amount of investment has been salvation for the agarwood tree, now a shining example of an international environmentally successful and commercial project which has the ability to; safeguard and protect the species; supply global demand in a sustainable way whilst generating revenue; guarantees the future of a rare species whilst benefiting the economies of fragile forest communities often dangerously driven to illegal logging simply to feed and care for their families. Asia Plantation Capital (APC) has not only become the market leaders in sustainable agarwood, along with other plantation industries such as teak, but also major campaigners, lobbyists and educators to the global markets on its importance. Sponsoring and supporting related industry events such as IFEAT (the International Federation of Essential Oils and Aroma Trades) annual conventions, and reintroducing the agarwood species to Sri Lanka where it had all but been wiped out in the wild by illegal loggers, as well as taking the largest promotional stand at the recent UN World Teak Conference held in Bangkok showcasing their advanced plantation monitoring systems. One company that has spotted APC, and more importantly studied and researched its agarwood plantation model, is Singapore based Sustainable Asset Management. After almost six months of due diligence, inspection visits, meetings with end users and Institutional Investors, Sustainable Asset Management (SAM) has developed what they believe is one of the most carefully structured and balanced forestry investment products available today for HNWI and institutional investors looking at exposure to the asset class as part of a risk balanced portfolio; that’s right, trees are now a risk assessed asset class! Adam Sprague, Head of Risk Analyses at SAM, clarifies “we decided some time ago that we wanted to find a solid and structured investment wrapper for forestry and plantations which meets all the criteria of stringent institutional and high net worth sophisticated investors. We are working on teak projects, biomass, palm oil and various other proven forest sector and timber related assets; but whilst they are good none of them had the credentials of directly protecting an endangered species as with the agarwood story, and as part of the process creating a new sustainable industry which benefits the investors at the top of the chain all the way down to the local communities on the ground; a net new economy in fact. Whilst most investors will confirm it’s the bottom line that really matters, i.e. how much return you can get for your buck, being able to invest in a product that not only provides all the required financial benefits and security but becomes a real force for good is hard to find.” What SAM have done is listen to their institutional clients and create a product that mixes limited numbers of mature CITES approved agarwood trees, in themselves relatively hard to find and valuable from the outset, with new plantings thereby creating a 7 to 8 year investment horizon which has capital growth and income throughout. A unique financial product in a sector where returns are usually either annual and low, or long term and potentially high. This is a balanced structure of income and future returns creating a risk weighted portfolio product with an income of around 8% and variable final IRR of 12 to 24%. The product is available to funds and sophisticated HNWI investors only in minimum tranches of US$500,000 and presently SAM have access to around US$50million in inventory only which will be managed by APC with leverage from their proven from soil to oil programme. About Sustainable Asset Management: Sustainable Asset Management is a private Singapore based company funded by Africasia Private Equity. Africasia focus on providing seed capital and funding for companies within the agricultural domain. Sustainable Asset Management now advises on and deals with all the project evaluation and due diligence of businesses Africasia considers investing in, as well as offering the same service to private investors, institutions and alternative fund managers. www.sustainable.com.sg About Asia Plantation Capital Asia Plantation Capital is an owner and operator of a diverse range of commercial plantation and farming businesses across the Asia-Pacific region and globally, part of the Asia Plantation Capital Group of associated companies. Their focus is on multicultural and diverse plantation projects geared to the domestic and commercial demands of the countries in which they operate. Working closely with and supporting fragile local communities is an underlying core principle of the APC business, providing social and cultural support as well as investment to move these communities away from traditional deforestation and illegal logging activities as a main income source. Established officially in 2008, although operating privately since 2002, the group now has plantation and agricultural projects on four continents with operational projects at various stages in Thailand, Malaysia, Laos, India, Cambodia, Sri Lanka, Mozambique, The Gambia, North America and Europe. www.asiaplantationcapital.com For further information please contact: Mark Wills – Managing Director Sustainable Asset Management Park View Square, 600 North Bridge Road, #12-04, Parkview Square , Singapore 188788 Tel: +(65) 6299 4998 // Email: mark@sustainable.com.sg // www.sustainable.com.sg Stuart Andrews – Public Relations at Sustainable Options Ltd 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +(44) 7921 264557 // Email: info@sustainableoptions.eu SUSTAINABLE OPTIONS LTD 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +44 (0)7921 264557 www.sustainableoptions.eu Disclaimer: The following news is paid for and /or published as information only for our readers.Investorideas.com is a third party publisher of news and research. Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities . All Investment involves risk and possible loss of all investment. Disclaimer in full , Investorideas.com Disclosure Please read individual disclosures for featured stocks. Continue reading
