Blue Haven Capital

November Ends with a Bang

2011-11-30T18:38:00.006-06:00

Isn't it amazing what a little perceived bank liquidity will do to the stock markets? Central banks all over the world agreed to lower the cost of funds by 50 basis points and that concerted effort was recognized as a strong positive. The Dow closed on November 30 at slightly over 12,000 for a 4.23% return on the day, with some of the biggest gains being made in the financial sector.

This week, Standard & Poor's announced downgrades on 37 global banks, including Bank of America, Citigroup, Credit Suisse, JP Morgan Chase, RBS, and UBS. In true market fashion, the combination of Central Bank action and the fact that most banks were downgraded only half a notch (from "A" to "A-" for example) led to a strong rally.

Less bad news (the downgrades COULD have been worse) is interpreted these days as extremely GOOD news...and the markets reacted accordingly.

On the bond side, the US Treasury 30 year bond was all over the place today, ending the day down around 2 points for a yield of 3.06. The 10 year was down 3/4 of a point and ended at 2.08%, a 10 basis point change in yield.

Other numbers out this week look good, but we are a long way from being out of the woods. In the bond markets, credit risk rather than interest rate risk is still the thing to watch out for. The street is pumping out floating rate to fixed rate paper along with a fair amount of absurdly low coupon step-coupon bonds. We continue to monitor credit situations, buy premium coupon callable paper, and try not to get overly enthusiastic on the big up-days in stocks.

Big Rally in Stock Market

2011-11-02T16:23:00.000-05:00

What a month it was for stocks! The last 4 weeks has seen an almost 12% rise in the Dow Jones Industrial Average, yet the year-to-date performance is only slightly ahead of the various bond indices. We continue to believe that stock performance over the next 5 years will be only marginally higher than bond performance, yet the stock market volatility will be dramatically higher. For those who have had a reluctance to take on stock market volatility, fear not. If stocks and bonds perform as expected, your bond results should not be too different than the stock market's results.

As interest rates eventually begin to rise, Blue Haven Capital is poised to take advantage of the opportunity for our client accounts. We continue to recommend a balance between short and longer term bonds and an emphasis on higher coupons. Why higher coupon bonds? See this post from 2009 for a quick explanation.

Credit Spreads and Perceived Risk

2011-11-02T12:38:00.000-05:00

The US fixed income markets trade in relation to the US Treasury market. If McDonald's has a 10 year bond, and McDonald's is perceived as riskier than the US Treasury 10 Year Note, then McDonald's will trade at the 10 year Treasury yield PLUS some extra yield spread. In trade lingo, one might hear someone say they have "McDonald's of 2021 at +100 to Tens" meaning they are offering McDonald's 10 year bonds at 100 basis points (1%) higher yield than the US Treasury 1o Year Note.

As the bond buying public perceives more risk in the US economy, spreads widen. In other words, that same McDonald's bond might trade at "+150 to Tens" when corporate profits and the US economy is suspect. Likewise, in a stronger economy with higher confidence, that bond may trade at +60 to Tens.

Over the last 12 months, corporate spreads on Industrial bonds in general have tightened. For example, on average a non-bank 10-year bond was trading at +103 a year ago and is now trading at +86. Consumer confidence is higher and the public's perception of risk is a bit lower. The one area that has widened over the last 12 months has been bank and finance paper. Some weeks ago when the future of Greece and perhaps all of Western Europe was in question, bank and finance paper widened out to +200 in the 10-year part of the curve. Over the last week, as the EU came to some agreement about how to help Greece, those spreads have tightened to +190, but bank and finance paper still has the highest yields available in the market.

As industries fall in and out of favor, and as corporations go through various events (HP deciding to stay in the computer business or Apple's death of Steve Jobs) Blue Haven Capital looks for opportunities to capture the incremental yield increases that such events generate.

Update: Latest Bank Failures Versus Previous Years

2011-11-02T11:57:00.000-05:00

The latest numbers from the FDIC's Failed Bank List show that bank failures are decreasing. The last time Blue Haven Capital discussed banks going into receivership was September 2009 at which time the number of banks failing had been doubling every six months for the previous 4 years. The first half of 2010 saw the first decrease in the number of failed banks since 2005, and we have seen a steady decline for each of the last three semi-annual periods. One might logically argue that there are fewer banks around to fail, but tightened lending standards and increased FDIC oversight also have much to do with the better numbers.

Here is an updated list of annual bank failures:
2000: 2
2001: 4
2002: 11
2003: 3
2004: 4
2005: 0
2006: 0
2007: 3
2008: 26
2009: 140
2010: 157

From January 2011 through June 30, 2011 there were 48 bank failures.
Between July 1 and October 30, 2011 there have been 37 bank failures.
We should see fewer than 100 bank failures for 2011, which would be a decrease of more than 33% versus 2010.

Again, we encourage those who are buying CDs from a brokerage firm to be suspect of premium CDs. If a bank fails, the FDIC will NOT refund the premium you paid for that CD and you could easily end up losing money. We would welcome your questions regarding this little known fact of the brokered CD market.

Dimensional Funds Ranked Number One by Barron's

2011-02-16T16:40:00.000-06:00

The February 15 Edition of Barron's Magazine, noted that Dimensional Fund Advisors (DFA) was ranked #1 in US Equities in the Barron's/Lipper ratings. DFA attributed the continued success of its funds to low trading, wide diversification, and a continued focus on value investing.

Interestingly enough, Dimensional Funds are not offered through the mainstream retail stock brokerage outlets. In its attempt to shave costs and increase returns to customers, Dimensional has decided that most, if not all, of its funds will carry no 12b-1 fee and will not pay a commission to selling brokers. And, despite the fact that Dimensional Funds are some of the best performing and lowest cost funds in the country...stock brokers will not and cannot offer them. In fact, only 15% or so of investment management companies in the United States are approved by Dimensional to offer their funds. (Full disclosure- Blue Haven Capital is an approved Dimensional Fund Advisor Firm).

Dimensional Funds are similar, but not identical, to index funds. The fund's expenses are often lower than even some of the best known low cost funds in the industry...and that attention to expenses pays off. Hats off to a firm that operates much quieter (and much cheaper) than its competition.

Rising Rates and Falling Bonds

2011-02-08T11:17:00.003-06:00

As higher interest rates have begun to appear, professional hand wringers, nervous Nellies, wet blankets, and killjoys have all come charging into the streets, arms waving and warning bells ringing. Higher interest rates means lower bond prices and the rush to exit the bond mutual fund arena has lately become a stampede.

Has anyone slowed down on their way to the exit doors and considered what the bonds of various maturities will do in a rising interest rate environment? Has there been any consideration given to the opportunity cost of selling a bond yielding 4% and moving into a money market fund paying 1/4%?

Let's take a look at two bonds: One is due in 2021, and one is due in 2041. Both bonds have 5% coupons. The ten year bond is yielding 3.38%, the 30 year bond is yielding 4.92%. Let's bump up interest rates on each bond 3% over the next 4 years. Voila! Come 2015, the 2021 bond is now down 14.2% in amortized value versus its purchase, and the 2041 bond is now down 32.8% in amortized value versus its purchase. If interest rates rise another 2% over the following three years, then in 2018 our 2021 bond would be down 12.7% in amortized value versus its purchase price and the 2041 bond would be down 44.8% in amortized value versus its purchase price.

Focusing on the 2021 bond: If one moves from 3.38% to money funds, the opportunity cost is approximately 3.25% each and every year. By the seventh year, that equates to a lost opportunity of almost 23%. Compare that to the 12.7% loss in principal value coupled with the 23.66% total coupon income received over those years for the bond holder. The bond holder's portfolio is ahead by almost 11% versus the nervous Nellie who went to money funds. 11% better on a portfolio is significant.

Pick your spots on the curve wisely. Yes, there is higher yield available in longer maturities, but there is significantly higher risk also. Before dismissing bonds altogether, quantify the risk of an interest rate change of 5% over the next 5 years or so. You may be pleasantly surprised.

Getting Around Municipal Bond Default Risks

2011-01-22T08:16:00.005-06:00

By now, many in the US have either seen or heard the latest municipal default risk opinion by Meredith Whitney which was broadly distributed by that venerated news program "60 Minutes" in December, 2010. At the conclusion of the program, many bond investors picked up both their babies and their bath water and dutifully hauled both out to the curb without even a second thought.

Along with weak credits such as Harrisburg PA, stronger credits have suffered. In fact, the very strongest type of municipal bond credit in the country ended up on the curb, right next to its lesser counterparts. Escrowed to maturity municipal bonds and pre-refunded municipal bonds have suffered the same fate as Harrisburg PA bonds.

When an individual borrows high and sees rates drop, such as with a mortgage, the individual can go and borrow at a new lower rate and pay off the higher rate mortgage with the newly borrowed money. Municipalities do much the same. High interest rate debt from years ago can be refinanced with money borrowed at lower rates. The older municipal bonds that get paid off are escrowed to maturity or pre refunded...often by US Treasuries...which are held in an escrow account and are used to pay the principal and interest of the old bonds. In effect, the holder of an escrowed or pre refunded bond has a tax exempt municipal bond backed by US Treasuries paying tax exempt interest.

Along with names such as Harrisburg PA, various escrowed and pre refunded bonds have similarly gotten cast aside by investors rushing for the exit doors in order to avoid municipal defaults. Currently, many escrowed and pre refunded munis are trading cheaper than Treasuries. That's right- cheaper - than Treasuries, which has happened only a handful of times since the mid 1980s.

Municipal bond investors have been leaving municipal bond funds for over 2 months. We have had 9 or 10 weeks of steady outflows from municipal bond funds to the tune of some $25 billion. The muni bond fund managers of the largest fund companies in the world wake up, come to work, and begin putting bonds out for the bid to satisfy investor withdrawals.

There are always opportunities in the midst of panic, and right now, one of the highest quality municipal bonds in the country is being treated like a lowly incinerator bond. Want safe, tax exempt income? It's right out there on the curb....

Efficient Markets or How An Average Beats the Average

2010-01-10T15:13:00.005-06:00

Recently, Jason Zweig wrote a Wall Street Journal article titled "Inefficient Markets Are Still Hard to Beat" in which he addressed the ongoing argument of market efficiency and active management. In the article, Mr. Zweig pointed out that even if markets are inefficient, concluding that "...therefore it must be easy to beat the market" is extremely dangerous.

Russell Wermers, finance professor at the University of Maryland, claimed in a February 2009 New York Times article that fewer than 3% of domestic equity mutual funds beat the S&P 500 over a recent 20 year period and that furthermore, it was virtually impossible to guess which funds would be the funds to outperform the indices in the next 20 years.

What is the best way to beat 97% of the domestic mutual funds in the mutual fund universe? Well, the best way may be to buy a cheap index fund. Index fund average returns historically beat upwards of 97% of the active fund returns. Not bad for being average.

Bond Mutual Fund Fees

2009-10-18T11:55:00.003-05:00

A recent Wall Street Journal article by Jason Zweig discussed the annual costs of owning a taxable bond fund. He referenced Morningstar research which showed that the average taxable bond fund charged over 1% in annual fees with some bond funds charging as high as 2.98%. His recommendation? Look to a bond index fund rather than an actively managed bond mutual fund. The example Zweig gave was the Vanguard Total Bond Market Index Fund which charges only 22 basis points, or 0.22 of 1%....about 1/5 what the other funds charge on average. Another example of an inexpensive fund group would be Dimensional, which charges approximately half of what Vanguard charges. (Blue Haven Capital uses both Vanguard and Dimensional products for its client portfolios).

A third choice is for the investor to use a money manager to build his or her own bond portfolio using individual bonds. The trick here is to make sure that the money manager really knows bonds. Most retail stock brokers are not familiar with bonds and will often purchase bonds at very uncompetitive prices. By finding a money manager that really knows bonds, the investor can capture the low cost structure that Dimensional and Vanguard offer, but also end up owning a highly customized bond portfolio which provides exactly the income stream the investor needs. (Blue Haven Capital also builds portfolios using individual bonds).

It pays to shop around when looking for fixed income products. ETFs, funds, and individual bond portfolios all make sense, but not at the prices that Morningstar found.

The High Cost of Waiting for Interest Rates to Rise

2009-10-08T11:36:00.006-05:00

We were recently asked by a foundation to quantify the cost of sitting in cash (money market) with a $1mm portion of their fixed income portfolio. The foundation assumed that rates would be going up starting in 2010, and that one alternative would be to buy a 3 year agency bond with a one time call which would occur 12 months from now...often described as a 3yr/1yr 1x call. Is it better to sit in cash and wait for rates to rise, or is it better to get invested now in what could be a rising interest rate environment?

We assumed that money market rates were 1/4% and that starting in 2010, money market rates would increase by 25basis points (1/4 of 1%) every quarter for the next three years. We also assumed that the market could give us a 3yr/1yr 1xcall Agency bond at 2.00%.

At the end of 12 months, sitting in cash (even with rates rising) has cost the foundation $15,625. At this point, if the bond gets called, the foundation will need to reinvest in another bond. If the bond does not get called, the foundation will hold the bond for another 24 months. At the end of that next 24 months, even with rising rates, sitting in cash has cost the foundation a total of
$18, 125.

Unless one thinks that rates are going to increase dramatically in a very short period of time, the cost of sitting in cash is too high. If the interest rate curve were flatter, it might make sense. But, with low money market rates combined with very attractive 3 and 5 year bond rates, it pays to grab some of those yields right now.

FDIC, Banks in Receivership, Your Certificates of Deposit (CDs)

2009-09-18T08:55:00.004-05:00

Bank failures are on the rise and accelerating according to statistics released by the FDIC on its Failed Bank List which the FDIC has maintained since the year 2000.
Here are some quick statistics on annual failure rates:

2000: 2
2001: 4
2002: 11
2003: 3
2004: 4
2005: 0
2006: 0
2007: 3

From January 1 through June 30, 2008, there were 4 bank failures
From July 1 through December 31, 2008, there were 22 bank failures

From January 1 through June 30, 2009, there were 45 bank failures
From July 1 through September 11, 2009, there were 47 bank failures

The number of failed banks is increasing with an increasing frequency...more than doubling each semi annual period for the last 3 years.

Beware of the brokered CDs that are offered. Even if your CD is insured, if it is issued by a bank that fails, the FDIC will NOT refund the premium you paid for that CD and you could easily end up losing money. If your broker tells you the CD you are buying at a premium is non callable-beware. The FDIC can refund any CD at any time once a bank goes into receivership.

Curious about other anomalies in the fixed income markets? Talk to Blue Haven Capital.

Fiduciary Duty- Now Coming to a Town Near You

2009-08-31T07:12:00.003-05:00

The Obama administration has proposed holding the broker/dealer community to a stricter standard than ever before and the brokerage community is furious about it. What is the brokerage community so upset about? What is it that has brokerage firms spending millions of dollars in a battle against the proposal? What sort of egregious proposal did the Obama administration propose that has brokers so enraged?

The Obama administration is proposing that brokers act "in their clients' best interest."

Oh horrors of horrors.

A recent Wall Street Journal article details the inevitable move by brokers towards accepting fiduciary duty when making recommendations to clients. For 70 years, money managers have accepted fiduciary duty regarding their clients. Brokers simply sold securities that clients and money managers wanted. Nowadays, brokers offer themselves out as "financial managers," "investment counselors," and "financial advisors." In their scramble to become more than securities transactors, brokers have crossed the line into money management...and with that ability will come extra responsibility.

As investment advisors, we welcome the additional requirement. A person or firm which provides investment advice should provide that advice in light of a client's best interests, period. Doctors do it, attorneys do it, money managers do it, and brokers will soon do it too if the Obama administration has its way.

Cramer is Harmless

2009-08-25T17:04:00.003-05:00

Professors Paul Bolster and Emery Trahan of Northeastern University in Boston recently concluded and published a 33 page report examining the popular CNBC Television program Mad Money with Jim Cramer. The program is the most watched program on CNBC and has an estimated 380,000 viewers tuning in per night.

The research looked at the effect that Cramer had on the stocks he mentioned on his show, and the research also examined the success rate that Cramer had in choosing stocks.

The results? Yes, Cramer beats the S&P500...but he does it through beta, not alpha. What does that mean? Well, it means he takes more risk...and therefore gets more reward...than the S&P500. The next question should be "Does Cramer beat an index with similar risk characteristics?" IE, by accepting the same risk tolerance, is a person better off following Cramer or buying an index? The answer is that the person is better off just buying an index...something like the Russell 1000 Growth, the Russell 1000 Value, and a bit of the Russell 2000 Growth. In other words, save the transaction costs, the frenzied buying and selling, the inanity of the television program, and just buy the index.

Cramer did not outperform a similarly styled index, nor did he underperform it by much. He evidently has no stock picking ability, nor is he especially dangerous. As Professor Bolster stated in his conclusion: "He's harmless."

Bond Math: High Coupons versus Low Coupons

2009-08-12T11:30:00.002-05:00

Recently we have had a few people ask us why we are buying larger coupon rather than smaller coupon bonds and it became evident that many don't understand the effect rising interest rates can have on a bond portfolio. Here is a good example of the price change rising interest rates can have on a bond portfolio:

Let's imagine there are two bonds in the market, both by the same issuer. One bond is a 7% coupon due in 2029 and the other is a 5% coupon due in 2029. Let's also imagine that both are trading at 6% yield to maturity. Now let's move out one year from today...and let's imagine that interest rates have moved up. Let's imagine that both these bonds have now moved to a 7% yield to maturity...so their prices have fallen.

The price of the 5% coupon bond has fallen approximately 10.75%...but the price of the 7% coupon bond has fallen only 10%. In other words, with the same rate of change in interest rates, the lower coupon bond has changed more in price relative to its original price than the higher coupon bond has changed relative to its original price.

What does this mean for the investor's portfolio? Well, for a $1mm portfolio, it means that our decision to buy a larger coupon bond rather than a smaller coupon bond just saved the investor $7500 in portfolio losses.

5 Months of Strong Returns

2009-08-05T21:09:00.005-05:00

The Standard & Poor's 500 Index returned over 44% in less than 5 months between March 9, 2009 and July 31, 2009. Interest rates, although higher than 6 months ago, remain at historically low levels. Unprecedented amounts of cash are being pumped into the economy by the US Government. Corporate bond spreads have tightened, and municipal bond yields in relation to Treasuries are returning to more normal times. What's ahead? Possibly inflation. How does one mitigate the effects of inflation on one's portfolio? Maintain some exposure to commodities through broad based inexpensive commodity index etfs, and make sure your bonds have enough coupon that they can weather the storm.

There are still enough inefficiencies in the bond market that one can occasionally shorten maturity and pick up yield and still hold the same credit. Maturities can be shortened, coupons can be increased, and some preparation can be made for the upcoming inflationary times.

Rhode Island Pension Fund

2009-07-23T14:35:00.004-05:00

It came to light today that the Rhode Island Pension Fund lost 19 percent of its value over the last 12 months...outperforming the major indices and most major pension funds. Rhode Island's General Treasurer Frank Caprio has gone to great lengths to lessen the investment management costs of state's pension funds including using index funds for the fund's equity exposure. In fact, in a recent article he claimed that the move to indexing saved the fund upwards of $9 million in fees.

A recent study by Eugene Fama and Kenneth French once again points to the fact that fewer than 1% (0.6%) of fund managers actually add value above their most appropriate benchmark. Even more depressing is the fact that as years go by, fewer and fewer equity managers actually bring any alpha to the table at all.

The key of course is "appropriate benchmark." We see many active managers benchmarking themselves to the S&P500 and then showing alpha of 1% plus. A little digging shows that the stocks they are buying are considerably smaller in capitalization than the S&P500, and that when capitalization and risk are taken into account...the manager is actually underperforming a similar index.

The key? Unless you can find the 0.6% (and falling) of active managers who truly bring alpha, just buy the index.

Bond Returns vs Stock Returns Over Long Periods

2009-05-26T11:56:00.004-05:00

According to Research Affiliates LLC's Robert Arnott in an article found here in the May/June issue of Journal of Indexes, for the previous 10 years, 20 years, and 40 years long-term Treasury bonds have outperformed the broad stock market. In fact, over the long term, the out performance of stocks versus bonds from 1802 through February 2009 averages only 2.5% per year- a much lower figure than most investors would ever imagine.

The article goes on to say that "For the long-term investor, stock markets are supposed to give us steady gains, interrupted by periodic bear markets and occasional jolts like 1987 or 2008. The opposite-long periods of disappointment, interrupted by some wonderful gains-appears to be more accurate."

The answer? Don't shy away from having bonds in your portfolio. The long term yields are not that different than stock yields and bonds will certainly add a bit of income and stability to your overall portfolio.

Merrill Lynch, Standard and Poor's, Bank of America

2009-01-07T09:32:00.002-06:00

Yesterday afternoon Standard & Poor's upgraded Merrill Lynch's long term credit rating to A+ from A. At the same time, the short term credit rating of A-1 was affirmed. This equalizes the Merrill Lynch ratings with the Bank of America credit ratings and is due to the fact that the Bank of America purchase of Merrill Lynch is now complete.

It has been a while (seems like forever) since we have seen an upgrade announcement out of Standard & Poor's. Don't put on the party hats yet though, the S&P credit outlook on both is negative.

Hedge Funds- Persistence of Returns

2008-12-28T09:05:00.004-06:00

Burton G Malkiel and Atanu Saha published a report in 2005 looking at hedge fund returns, persistence of hedge fund returns, and variance of those returns. The work was supported by Princeton's Center for Economic Policy Studies.
The "persistence of returns" figure caught my eye. Essentially, Malkiel and Saha asked "If I am fortunate enough to invest in a hedge fund that displays better than average returns for a year, what are the odds that that same hedge fund will persist with better than average returns for the following year?"
In their 2005 report, Burton G. Malkiel and Atanu Saha claimed "We found similar results for the entire 1996-2003 period. Indeed, the probability of observing repeat winners during during the period was basically 50-50."

So there you go. Hedge funds provide low correlation, but high variance in returns and a 50/50 chance of persistently above-average returns. They have a high barrier to entry, are very illiquid, are lightly regulated, and lately seem to be a lightning rod for types like Madoff.

Mad Mad Mad Mad World

2008-12-27T22:37:00.002-06:00

At last count there were between 30 billion and 50 billion reasons to be upset at Bernard Madoff this month. In fact, if you count the (now excluded) potential recipients of funding from the charitable organizations he harmed, you can add thousands more to the list. In one fell swoop, Mr. Madoff harmed individuals, businesses, the arts, and sciences for decades to come and generations to follow. If you believe in the butterfly effect, his selfish actions may have wiped out whole worlds.

The need for transparency and regulation is obvious. If transparency eliminates "the edge" that exists for certain managers, so be it. If regulation becomes onerous and difficult, so be it.

The LTCMs, Madoffs, Enrons, Leesons, Amaranths, etc. have soiled the sandbox for everyone.

Size of the stock and bond markets in the United States

2008-09-29T12:10:00.004-05:00

The capitalization of the US Stock market, according to August 2008 figures from Wilshire Associates, is $15.59 trillion.

The capitalization of the US Bond market, according to 2007 figures released by FINRA, is in excess of $27 trillion, making it the largest securities market in the world.

It is no wonder that the normally ignored bond market can shake things up worldwide when the market begins to deteriorate. Many investors focus only upon the stock portion of their investment portfolios- and TV news, magazines, newspapers, etc. all do the same. Stocks are "exciting", bonds are "boring." We continue to encourage those with balanced portfolios to look at ALL aspects of their portfolios. Find experienced advisors who can truly bring some value added to your portfolio!

The Short End

2008-08-27T10:32:00.003-05:00

For those seeking shelter on the short end of the curve, the instruments with some of the best yields may also be the instruments with the least amount of risk- a somewhat unusual situation in the bond markets.

According to Bloomberg, spreads currently show 3 year Aa2 rated industrials at +146, with 3 year Aa2 rated financials at +275. However, when one looks to the CD market, they'll see 3 year CDs at +220 or so...cheaper than AA2 rated industrials and within 50bps or so of the financial paper.

CDs? Boring old CDs? Yup, boring old, FDIC insured, certificates of deposit are yielding more than Aa2 rated industrials...something to consider next time you are looking on the short end of the curve.

Economic Recovery Act of 2008

2008-08-12T14:21:00.004-05:00

In addition to providing relief to those stuck in subprime, high interest rate mortgages, the Housing and Economic Recovery Act of 2008 also provides a unique opportunity for those investors who use municipal bonds in their portfolios. With municipal yields in the ten year range at around 3.75%, and equivalent Treasuries at 3.90%, everyone who pays any taxes at all should be taking a hard look at municipals.

With the signing of the Act, the housing cap that existed for states to issue non AMT housing bonds has all but disappeared. Issuance of non AMT housing bonds is expected to rise dramatically over the next few months as states issue bonds to finance mortgages made available by the Economic Recovery Act. As supply increases, so too should the yields available to the municipal bond buyers. In fact, non AMT housing bonds are yielding approximately 100 basis points (1%) more than non housing bonds with the same rating.

Urban Sprawl, Urban Growth

2008-06-03T11:06:00.005-05:00

"Now Coming To A Town Near You"

Gina Olszowski, a first time author, grew up with rapid development and urban growth all around her. At the ripe old age of 24, helped out by a grant from Wild Gift, an Idaho based 501(c)(3) public charity, Gina wrote and published her first book, titled "Now Coming To A Town Near You." 66% of revenue from the book sales go to The Conservation Foundation, a local land and watershed protection organization.

The book has many voices, some collective, some disparate. Gina interviewed small town mayors who faced pressure to increase their town's nascent tax base. She interviewed farmers who faced pressure from family to give up their difficult life and sell to developers. She interviewed teens, seniors, new residents and old residents.

The photography in the book is all by Gina, and the voices heard represent the various participants in the sometimes out of control, life of its own, growth that is occurring in rural and suburban America.

There is little blame cast- the book is more essay than expose- but an interesting essay nonetheless. More information, including purchase information, can be found here.

Corn, ethanol, and the net energy saved

2008-05-02T15:57:00.004-05:00

According to a recent Washington Post article, "If every one of the 70 million acres on which corn was grown in 2006 was used for ethanol, the amount produced would displace only 12 percent of the U.S. gasoline market. Moreover, the "new" (non-fossil) energy gained would be very small -- just 2.4 percent of the market. Car tune-ups and proper tire air pressure would save more energy."

The biofuel argument is certainly timely and popular, but like many solutions, it does not come without its own set of problems.

One might argue that biofuel production is our latest bandaid solution to an issue that needs to be more deeply examined: our energy usage. Perhaps rather than using cheaper fuel, we need to also use less fuel.

Biofuels and starvation

2008-04-29T12:51:00.003-05:00

Corn prices are being buoyed by the confluence of higher ethanol demand, China moving solidly into first world status, and drought conditions worldwide. US prices for corn have risen due to increased demand for ethanol. China's demand for corn has risen due to its population being able to afford higher quantities of pork (China has the world's second highest per capita consumption of pork, and the pork comes from hogs which eat corn). Drought conditions the world over are making grain production more difficult.

Is it ethical that the US pursues corn based ethanol production in light of the fact that corn could be used elsewhere for food?

Recycling and the coal industry

2008-04-01T13:54:00.014-05:00

From the April Blue Haven Capital newsletter quiz:

The answer is C) 72mm tons....

Fly Ash is a recyclable byproduct of coal combustion. According to the American Coal Ash Association (ACAA), ash has been used as a strengthening ingredient in concrete since Roman times. Volcanic ash, similar to fly ash, was used in the construction of the Roman aqueducts as early as 312 BC.
The ACAA reported that in 2006, U.S. coal-fired power plants produced over 72mm tons of fly ash. Of the 72mm tons, approximately 36mm tons were recycled, the most common product being concrete and concrete related items. That still leaves over 36mm tons of fly ash that was "landfilled", which equates to a volume of almost 24,000 acre feet. In laymen's terms: 36 square miles covered one foot deep with ash.
Coal powered energy production is making great strides in recycling some of its waste byproducts, but there is still room for improvement. Like any power production method, there are negatives associated with coal, but many of those negatives are being addressed by the industry.

China and the Olympics

2008-03-31T22:17:00.005-05:00

NPR had an interesting debate between David Kilgour, a human rights activist and former Canadian Parliament member, and Anita DeFrantz, a former Olympic rower who missed the 1980 Moscow Olympics because of the U.S. boycott. Ms. DeFrantz is now a member of the International Olympic Committee and is opposed to a boycott. She believes that because the Olympic games are being held in China, that alone has forced China to be more open about its human rights practices.

In February, Steven Spielberg stepped down as artistic director to the Olympic games in protest to China's human rights practices. Corporate sponsorship discussions for the Olympic games have not really made headlines yet, and may not.

That seems to be the question right now: Should one support the Olympics and encourage interaction and openness with China, or should one boycott some or all of the Olympics in protest to the historic and ongoing human rights abuses so prevalent in that country?

Straighter Noodles

2008-02-27T12:55:00.015-06:00

It's true !
In their ongoing effort to become more environmentally responsible, General Mills began making the noodles in their Hamburger Helper product a little bit straighter. The end result is a 20% reduction in packaging size, leading to a yearly savings of 890,000lbs of paper fiber, and resulting in 500 fewer trucks on the road. General Mills' effort caught the eye of Matt Kistler, senior vice president for sustainability at Wal-mart who said recently that this "...illustrates some true product innovation that has led to an even greater packaging reduction." Regarding Wal-mart, Kistler said "I don't consider Wal-mart to be a 'green' company, but we're certainly doing the right thing and making immense progress in the area of sustainability."

Mission Related Investing: Granting vs Investing

2008-02-18T13:27:00.009-06:00

Mission related investing provides an additional way for today's foundations and charitable organizations to further their mission. If an organization can grant out 5% of its foundation's assets and make a genuine difference in a particular area, it stands to reason that investing the remaining 95% of the foundation's portfolio in a similar direction can provide an even greater difference. Foundations and other charitable groups are now able to support education, literacy, health care, and other mission areas through their investments, thereby multiplying the effect they can have in their mission area. Through Mission Related Investing, not only can private foundations support their mission, but they can make sure that their investment dollars are not at cross purposes with their goals.

The LA Times provided a great story back in early 2007 (Dark cloud over good works of Gates Foundation)about just such a conflict of interest. The Gates Foundation was found to be granting upwards of $218 million worldwide into polio and measles immunization and research, while at the same time investing over $423 million worldwide in Eni, Royal Dutch Shell, Exxon Mobil Corp. and Chevron Corp. In Ebocha Nigeria, the residents' immune systems are being weakened by exposure to airborne toxins such as benzene, mercury, and chromium making the residents more prone to measles and polio. The main culprit of the airborne toxins? The Eni petroleum plant smokestacks in the surrounding area...and one of the investment vehicles of the Gates Foundation.

If the Gates Foundation decided to practice Mission Related Investing, not only would they be granting money to eradicate polio and measles, but they would also be examining the influence they have as an investor in changing the habits of the corporations in which they are invested. That influence could be shown by letter writing, proxy voting, negative screening, etc. In that way, their grant dollars and their investment dollars would not be at cross purposes and both would be furthering the mission of eradication of polio and measles.