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Private and Confidential

September 2007

The following sections are delivered through Astraea. The links below will take you to those sections.



Hope is not the answer; living in reality is

By coincidence a number of comments received on last month's musings (both News and Views and Review) drew attention to hope. Whether a quantitative or qualitative observer of life, people seem to want a hopeful sign that everything is going to be alright. It would be fantastic if that could be. But it is only fantasy. Whether your god is religion or science, the fact of nature is that there is order. And that order even extends into our virtual world of money: that world which interprets participants' values.

But hope is not a strong foundation for planning for the future.   It is teh foundation upon which the sub-prime mortgage market ballooned during the past 5 years.  We must be drawn to the concerns of the World of Money because, while players continue to say its all fine, the actual foundation looks shaky. We know that we've had a good run of obtaining credit on the promise that we will pay for our consumption in the future.  But as we realise that we've borrowed more tahn we can hope to repay, we start to take desperate measures.  The delusion of asset prices increasing while the economic news is so dire and regulatory authorities are reacting as if there is a problem, suggests that we are desperate to continue the illusion.  Unfortunately this can only lead to trouble.  First inflation.  And if this becomes gross, then the efficiency of financial markets will be compromised, participants will be unwilling to risk what they have on the uncertain future and our ability to operate as a cohesive market will dissipate.

If, however, we allow our feet to resettle on the ground, bring our expectations back in to the realm of nature, and stop confusing consumption with happiness, the adjustment will be easier, even pleasant.  But it requires that we appreciate the human values upon which communities thrive, not the belligerent values upon which individuals rise.  Do not confuse this with a step backward.  It is in fact a step forward, but a big one.  It is elevating humanity from bestial constraints of a simple organism to the self-aware delight of a fully conscious being.  It is humanity working together as one and interdependent on nature.  The stimulation of space age technology will flourish, but we must be relish the stimulation of natural systems too.  This means making space for nature; which means moving aside.

A different scale of leverage has accelerated our progress and imbalances

As has been discussed over the past months, the economic imbalances around the world have grown beyond normal measures for some years now.  Trade imbalances, government debt, consumer spending have all been beyond expectations in the US and other mature economies.  With the tremors of collapse touching many since the cracks in US housing started to show in July have focused the attention of analysts who are increasingly focused on the scale of the mountain of credit that has accumulated over the past 5 - 10 years.  Last month's commentary characterised the pyramid-scheme type of credit accumulation that has been allowed by financial derivatives: dicing and splicing of financial assets to create derivatives more and more removed from the reality of the underlying instruments.  Analysts have increasingly focused on the dysfunction that occurred in the sub-prime lending niche as rating agencies, investment banks, asset managers, lenders, mortgage brokers and other fiduciaries became caught up in the game of singing the same tune: "doesn't the emperor have lovely new clothes".  And this deluded song had been taken up by all of us from regulators to consumers.

Historically one could expect that the multiple of credit to cash (which together underlie money for the economy) might be of the order of 10:1.  But this has grown, perhaps by a factor of 10, as credit builds upon credit to build an economy based on leverage.  We have bought a wonderful life, but have not recognised the mortgage secured on our future.

The challenge is to deflate this balloon of credit in an orderly manner.  And this is made difficult by the need to change human behaviour, to change our expectations.  It will be impossible for developed economies to continue the illusion because the natural resource constraints are bringing the reality of debt from "the future" to today.  There is no doubt that the currently used measures of economic growth, focussed on GDP, can only show a flat or negative trajectory while the global financial system deleverages.  This requires that regulators, governments and business must either adjust to alternative methods of economic measurement, which are increasingly advocated, or suffer the pain of depression era economies.

It is not certain how long the illusion will remain.  We all want to retain it, especially since our cultures and measures of progress are slaves to the notion that more consumption is desired, ad infinitum.  But I do not expect it to hold for long because the imbalances have reached the ends of the earth.  Our economic systems have become contained by our natural world, both by physical resource interconnectedness and virtual communications. We must learn to live together or the pain of adjustment will be gruesome.

The best advice for taking a step in the right direction is to not be afraid of letting go of the illusion.  Enlightened individuals and leaders have already started to do so.  Make an effort to recognise that you have enough and focus your energy on building relationships with family and friends, not business.


The World of Money

The non-bank banking crisis, and a solution for the future

Andrew Hunt has pointed out that many UK banks have been behaving as if they were non-banks. This is likely to have been the case in America and elsewhere too.

Hunt points out that:

the problems in the UK banking system have arisen because the banks have, in effect, been behaving as though they were non-banks. Since the end of 2004, the UK commercial banks have expanded their sterling-denominated loan books by some GBP 429 billion. They have also added GBP 53 billion of sterling bonds to their portfolios, giving them a total on balance sheet expansion of circa GBP 480bn to residents since 2004. On top of this, the banks have lent a further GBP 220 billion of sterling to non-residents and although some of these funds may have been used abroad, many may have been used within the UK by companies and individuals acquiring assets in the country. Therefore, the banks have enjoyed total GBP asset growth of circa GBP 700 billion. This expansion of assets has, however, only been matched by a GBP 430 billion increase in resident deposits. The building societies, meanwhile, have increased their assets by around GBP 80 billion but they have apparently only financed half of this growth through traditional deposits. From this, we can gather that the UK banks and building societies have financed between a tenth and a fifth (and at times more) of lending to residents, and perhaps 40% of total GBP credit since 2004 through recourse to the wholesale money markets, thus behaving as though they were non-bank financial institutions.

Thus significant leverage has been hidden in plain sight and the recent trouble with Northern Rock shone a light on the issue.

While there is no easy way out of this one suggestion that bears merit is to consider regulating two tiers of banks.  The banks with a loan to deposit ration of 90% would be able to avail of a guarantee facility, while those with higher leverage would not and customers would clearly be able to see the difference.  This is a simple solution that is transparent and understandable by customers.

Fast and loose culture of top finance houses.

A recent article in the NYT describes how financial analysts are opting to learn on the job, rather than do MBA's.  While the article is largely anecdotal, what is apparent is that the culture of Wall Street encourages a cut-throat approach to business.  While you can make more money than you need (maybe even more than you want) very quickly, there is little loyalty and only cash counts.  The hedge fund career is mentioned frequently and raises the profile of a mercenary approach to investment.  While those making money will fully support this culture, I've never been a fan of it. Although philosophically it may be justified by  objectivist (even hedonistic) perspectives like that of Ayn Rand and Milton Friedman, which discount any value of a moral code to the duty of "rational self-interest", it provides fuel for the criticisms of capitalism and globalisation.   And it would be wrong to say that this is what Adam Smith advocated or that it is the only or appropriate way.  We may choose to manage assets so that the financial performance is enough, but our approach to business also leaves space for relationships, family and leisure.  Growing up in an investment bankers' family can be a privileged path, but it ought to be underpinned by necessity to survive rather than greed because otherwise one finds oneself in later life with dysfunctional family and friends who only communicate with you if there's something in it for them.  It is not a happy result, as some realise after the first or second heart attack.

How We Got into the Subprime Lending Mess

This linked article, How We Got into the Subprime Lending Mess (published by my alma mater Wharton), describes the background to the changes in the mortgage industry that contributed to the dislocation between stated risk/return profiles and reality of the loans. The comments following are insightful too.

Energy, credit and big picture change

This statement from hedge fund manager Hamid Hakimzadeh bears serious reflection.

The global financial system is critically predicated on future energy supplies meeting projected demand. The credit pyramid presumes that future expansion is adequate collateral for today’s debt. The emerging reality on energy undermines this assumption, which in turn erodes the valuation of wide variety of financial assets. Since low quality covenants cave in first when confronted with cash flow stresses, it is no surprise that sub-prime assets are the first to register the drain cause by sustained higher energy costs. The sub-prime crisis may be no more than the opening salvo of an energy crisis.

While the logic is not novel, what is important is that the concurrent analysis that resource limits are being reached (as reflected in rising energy prices) makes the reality of this situation more present. The consequence being that global economic dynamics are going to change in fundamental ways that change the philosophy of capitalism.  Our holonic perspective suggests that there will be a leveling of the playing field.  But in the meantime, energy and credit businesses will become increasingly important as they adapt to changing dynamics.

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.



US August data modest

Retail sales and industrial output both slowed in the US in August.

Shop sales grew 0.3% in August, below market expectations of a 0.5% rise and below July's 0.5% increase, but excluding car sales, which are at their strongest in two years, retail spending actually declined 0.4% in August.

Industrial output rose 0.2%, the slowest pace in the past three months; output at U.S. factories fell 0.3% last month, the first decline in manufacturing after five straight increases.

Last month the economy also shed 4,000 jobs. The August figure from the Department of Labor came as a surprise, because economists had anticipated data showing an increase of 110,000 jobs. The last time the US economy shed jobs was four years ago in August 2003 when the total number employed fell by 42,000. The Department of Labor also cut its estimates for the number of new employees hired in June and July by a total of 81,000.

Meanwhile, figures from the University of Michigan showed that consumer confidence remains close to a yearly low.

A piece of more positive economic news: the US balance of payments deficit, which has been a factor in the weakness of the dollar, narrowed to $190.8 billion in the second quarter from $197.1 billion in the previous three months. However, this may be partly a consequence of a slowing economy and more expensive imports. The financial system is working.

We expect data to continue to be modest, but this is appropriate and will equalise the imbalances in the US economy, allowing a natural adjustment there and globally. Importantly, these changes must be underpinned by a changing culture, one which saves more and spends on infrastructure, health and education as much as convenience consumption.

US housing still on the way down

A useful summary of data points from John Mauldin illustrates that the US housing market is still receding.  This matches the IFC chart showing that sub-prime mortgage problems are not expected to peak till the beginning of the year.  (That chart is in the July Review here.)

First the inventory of existing homes rose yet again to 4,581,000, which is an increase of more than 1,000,000 since March alone. It is more than double the supply since the beginning of 2005. In January there was a 6.6 months supply of homes for sale. Now it is 10 months. Over 500,000 homes are in the process of foreclosure and will soon come onto the market. I think that means in the near future we will see a 12 month supply of existing homes for sale.

Remember, that is an average. In some markets, that means there may be a two year supply and a three month supply in areas of higher demand. It is going to become a buyer's market in the middle of next year as sellers

Want to buy a condo? Existing condos for sale have risen by 35% since January to 661,000. That is almost 12 months of supply, and there are a lot of new condos coming onto the market as there are a lot of construction projects that are just now nearing completion.

New home sales in August saw the largest decline in three decades, down 8.3%. Mean new home prices are down 11% in the last five months. The inventory of new homes for sale is up to 8.2 months and rising.

Greg also spotted something which I suspected and hinted about in previous letters. The number of homes above $750,000 which are selling is down by over 35% from last year. Sales of home from $500,000 to $749,000 is down by 25%. Jumbo mortgages are just hard to find at rates that make sense. I think it is likely that Congress will allow Fannie and Freddie to take larger loans onto their books. I would not be shocked to see the number at $600,000, at least temporarily. Right now they are limited to taking $417,000 loans. With a 20% down payment that means about $525,000 for the sales price of the home.

These anecdotal data points illustrate that the adjustment in US housing has not yet completed and we can expect more downward pressure on consumption and by extension the economy in general.

US housing slump could raise headline inflation

 This extract from John Mauldin's Thought's From The Frontline suggests that the downturn in US housing could be bad for inflation:

Indeed, there may be some concerns that the CPI (Consumer Price Index) number could come under pressure from the housing component. Given that home prices are falling, that may be considered odd by many. But CPI does not measure home prices. It measures something called owner's equivalent rent. And even as house prices rose by 93% in real terms (per Bob Shiller) in the last decade run-up, rent in real terms did not go up all that much, so the cost of a new home was not reflected in the CPI.

Now, we may have the opposite problem. As more and more people cannot get a mortgage coupled with a very precipitous rise in foreclosures, we are seeing more people who need to rent. Rental property availability in many markets is quite tight, which means that rent prices are increasing. If you go to the Bureau of Labor Statistics and look at the housing rent data, it is not too hard to think that the housing component of CPI could easily rise by more than 4% in the fourth quarter given the current trend.

Since the housing component is about 30% of the total CPI, a 4% inflation in housing could be significant. And oil is over $80 and rising. The dollar is falling, meaning that import prices are going to rise. And should we mention that food costs a lot more than this time last year?

Rise in US consumption for August could be misleading

Although Commerce Department data for August showed a rise in August and a moderation of core inflation, this data should be considered warily as they may be a result of unusual incentives.  Consumer confidence and housing are still down.

Consumer spending rose 0.6% in August, the largest increase since April and more than expected.  The rise was underpinned by strong sales of durable goods, automobiles and weather-related services.  However, analysts have noted that retailers offered discounts and other incentives to move product, especially 2007 cars.

The core personal consumption expenditure deflator, posted its smallest year-over-year gain since February 2004. The core deflator index, which excludes food and energy prices, rose 1.8% on an annual basis, continuing a downward trend since February.  This adds to the confidence the US Fed might have in reducing interest rates again.  However, we still believe this would be dangerous as it contributes to moral hazard (attested to by the spike in stock markets since the rates were dropped on 18 September) and would reduce their ability to reduce rates in future, when it may be more needed.

Separately, construction spending increased 0.2% in August after a 0.5% decline the month before, though many had expected another drop. Nonresidential construction offset a decline in home building.

This data continues to give mixed signals, contributing to uncertainty which make business planning difficult.   It is pragmatic to focus on core business in this difficult environment and be prepared for a downturn - it is easier to rise with the tide, than stay afloat while everything else is sinking.


Interest Rates and Currencies

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.)

Mishkin's band-aid

Will the interest rate cut be seen as prescient salvation or impulsive band-aid in the coming months? The Fed, it seems, were swayed by Frederic Mishkin who, notes The Economist,

argued forcefully in a recent speech that central bankers can cushion the impact of falling house prices on the economy, provided they act quickly and decisively, at little cost in terms of inflation.

While the markets bounced quickly it is not certain to be sustained and much can happen in the coming months. Let's hope for stability, though our track record is not good and I can't help remembering that Enron hired The Smartest Guys in The Room. We shall watch markets and data in the coming weeks to see where the pressure bears (ha ha).

As always, screening should be selective. Prefer fundamentals to story.

Further reading: An essay by The Economist discussing the Fed's policy approach.

Commodity prices underpin inflation

Many observers have noted the spike in food commodity prices, underpinned by interest in corn for ethanol in the US.  There also appears to be a broader rise in prices of commodities which is bound to push up inflation.  Last year the pressure on metal commodities from demand from China was observed.  As the chart from Reserve Bank of Australia shows, commodity prices have spiked as prices for metals and food are now rising.  Their index is at an all time high and the index chart for the past couple of years is vertiginous.

While central bankers and regulators scramble to be seen to do something about the stagnation of financial markets, I do not think that interest rate reductions are going to help.  In fact they may exacerbate problems as they contribute to the moral hazard of investors believing there is no downside and contribute to the difficulty of ascertaining the balance of economic conditions because of unnecessary changes in monetary and fiscal policy.

EU rates held at 4%

The European Central Bank left interest rates unchanged at 4% on 7 September, but it is not clear that they will not be increased to 4.25%  soon.

The ECB is reacting to the increase in perceived risk in financial markets, catalysed by the sub-prime meltdown.  At the same time as the hold on rates increase, the ECB provided another €42 billion to the banking system, whose liquidity has dried up as banks continue to be reluctant to lend to each other, without knowing the scale of losses in the lending markets.

Unfortunately, it will be some months before the scale and scope of the liquidity crisis might be known, and this will make interest rate decisions more difficult.  However, I think it unlikely that they will be brought down this year.

Chinese rates up again, but inflation still an issue

China’s central bank increased rates for the fifth time this year. The one year lending rate is now 7.29% as authorities attempt to ease inflationary pressure. However, the build-up of reserves continues as those that can borrow US$ at under 5%, like multinationals and foreign investors, do.  The discrepancy between interest rates net of currency appreciation, fuels a carry-trade.

Their other tactic has been to ease investment control allowing investment outside China, which offers some pressure relief valve for money to find its way out of China.  This is unlikely to be sufficient however to moderate inflation.  This is therefore going to add to pressure for teh Yuan to appreciate.  While the Chinese authorities may accelerate that appreciation they are very unlikely to pursue destabilising step changes in the currency that American and European authorities have been calling for.

Japanese housewives trading FX

Its not just the professionals that have benefited from the yen carry trade.  Japanese housewives have been moonlighting as currency speculators too.  Unfortunately, in the past couple of months the reality that there is no risk free investment has hit them hard, often wiping out savings in a few weeks because of leveraged/margin positions.  This linked article from the NYT tells some of the stories.


Trade and FDI

Cost of food rising fast, driving inflation and hurting the poor

rural commodity pricesThe cost of food is rising fast. We had been expecting this because of variations in weather patterns which we feared would upset cultivation. However, the sudden interest in corn for ethanol, since the warnings last year by the Stern Review, An Inconvenient Truth and IPCC, has also contributed to an increase. The chart here shows the Reserve Bank of Australia's index for food commodities since 1982. (Includes Wheat, Beef and veal, Wool, Cotton, Sugar, Barley, Canola, Rice.) It is now at its highest level ever, having bounced up in the past couple of months.

While we will start to feel the pinch at the basic end of our consumption spectrum and this relative scarcity of food commodities will push up inflation, it is the poor of the world that will suffer most, particularly the poor in developing countries. The first sign of this pain was the hike in corn prices in the middle of the year as agro-industrial giants and investors rushed to invest in US corn for ethanol, which meant Mexican's staple tortilla doubled in price. Now signs of a wider pain are showing as we learn that US food aid has halved because of increasing prices: The amount of food bought for American food aid programs has fallen to 2.4 million metric tons this year from 4 million metric tons in 2005 and 5.3 million metric tons in 2000.

It is perhaps time to think more seriously of ending the food subsidies that rich countries pay their farmers. That would have the multiple benefits of moderating prices of commodities, helping feed people in poor countries and realigning resource use to a more natural and economical profile in rich countries.

(Further browsing: the UN Food and Agriculture Organisation (many divisions, lots of news and data) USDA Food sector site and an interesting site on food history.

Hype over Chinese toys exaggerated

Recent hype about problems with Chinese manufactured goods was used as an excuse by some protectionist politicians and lobbies in the US to push for trade sanctions and even used as a tool to push for revaluation of the Chinese renminbi. The greatest hype surrounded the recall of more than 20 million toys by Mattel. However, Mattel now has admitted that most of the toys recalled in recent safety scares had "design flaws" and that Chinese manufacturers were not to blame!

This is not surprising in light of the story we related in August Review about Bush ignoring the toxic off-gassing results of a Mattel doll that were shared with him by Michael Braungart 3 years ago.  And perhaps more revealing is the declaration that China is simply following good capitalist practice (role-modeled by the US of course) by using lead paint because its cheaper!

A senior Mattel executive apologised for the damage that the incidents had done to the reputation of Chinese-made goods. Too little too late, perhaps. Mattel needs to make a public apology in the US, and the general tone of belligerence that the US employs on all "partners" needs to be softened as America grows up.

Quality enforcement Chinese style

As previously reported, the head of China's Food and Agriculture minister was executed for corruption and dereliction of duty earlier this year. That sets teh tone for measures that will be taken in in China to maintain standards. But it is more extreme than one would like. So, with the spate of product quality issues in the summer, Vice Premier Wu Yi has been appointed head of a task force to raise standards in China. As BusinessWeek reports she has a good chance of making a positive change quickly.

Wu is off to a fast start. In the three weeks since she took over the job, Chinese authorities have banned the use of lead paint in toys, shuttered 953 unlicensed food processing plants, closed more than 2,000 factories making fake goods, and suspended the licenses of 1,200 drug and medical equipment companies. As she did when she oversaw the fight against SARS four years ago, Wu will likely create a nationwide campaign to motivate the public, boost coordination among various ministries and agencies, and fire officials who resist change.

We must remember though, that most stakeholders are happy with the rough playing field, including western brands outsourcing manufacturing to China. It is western markets that push Chinese factories to produce more product, more cheaply and turn a blind-eye to standards that would not be accepted at home. It is the "child-labour" story with different actors, but the same directors. Businesses operating in China know its standards are more permissive - that's why they're there:

... more than one-fifth of China's food products failed government safety-tests last year. Corruption, blackmail and counterfeiting are rampant. Eight buyers at Carrefour, a French supermarket chain, are under investigation for accepting kickbacks from suppliers. Zheng Xiaoyu, a former boss of the SFDA, was executed earlier this year for taking bribes to approve fake drugs and certificates claiming that the paint used by Mattel's suppliers was lead-free. Yet many foreign managers working locally say bosses in Europe or America do not understand these problems, or do not want to hear about them.

Higher standards in China will mean higher prices globally which will mean some short term pain and an incentive to recreate opportunities at home.

World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk

The Columbia Program on International Investment and the Economist Intelligence Unit published World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk. The report contains the first authoritative data on FDI flows for 2006 and forecasts flows until 2011, with 2007 set for a new record. It pays special attention to the rise of FDI protectionism and regulatory risk.  Download pdf of the World Investment Prospects to 2011 report.



After the FED dropped rates ... the illusion continues

John Mauldin writes convincingly that the Fed is trying to preempt the negative consequences of the housing collapse. However, the players in the market are behaving as if a bail out had occurred. In order for the message to be correctly heard, other signals need to be forthcoming. The problem is that asset markets are not responding to the crisis appropriately. Prices should be down, but they are up ... the illusion continues.

Are lower rates going to reduce the chance of recession. Not really. The people that will benefit are those least exposed to the sub-prime problem; those higher up the income ladder. And it won't encourage a change in behaviour of them either. In fact we will continue to do our supermarket shopping ...

Hugh Moore of Guerite Advisors writes:

"Consumer spending accounts for two-thirds of the U.S. economy. Total Household Debt is particularly important in supporting the growth of consumer spending. This indicator includes mortgage debt due to the important role that Home Equity Withdrawal (HEW) has played in sustaining the growth in consumption since the beginning of the decade.

"As shown in the graph below, each time the year-over-year increase in Total Household Debt has dropped more than 40% below its recent peak, a recession (or in the case of 1967, a mini-recession) has occurred. The mid-1980's slowdown touched this level, but did not exceed it. The current -38.9% level is approaching this boundary and, based on recent credit tightening by financial institutions, is likely to drop significantly below the -40% level.

The risk of a global coordinated slump

The Economist asks whether the golden age of stable growth enjoyed by America and others for 2 decades is coming to an end.

Regular readers will know that my prognosis is not optimistic. While the risk of a global coordinated slump is low, it seems that economic imbalances have grown rapidly beyond historical norms in the last 5 to 10 years and a more balanced flow of economic and social energy is likely. Expansion of emerging economies like China and India should provide an engine while selective opportunities in developed economies will be attractive. The most likely catalyst of a global slump today is a coordinated housing slump, but that is a more remote possibility and the most exposed countries like the US and UK will weather the adjustment.

And if the US does suffer recession, this might even be good for China.  As the Economist notes in a review of China's economy:

A recession in America would reduce China's growth, but since Beijing's policy-makers are fretting that the economy is starting to overheat, weaker exports and hence slower GDP growth might be a good thing. Not only would it reduce the risk of inflation, but it would also help to trim China's embarrassing trade surplus.

Sub-prime losses estimates rising

Fed Chairman said during testimony to the the House Committee on Financial Services on 20 September that losses from sub-prime mortgages have far exceeded "even the most pessimistic estimates". This statement is disappointing because it undermines any build-up of confidence that might be encouraged by recent rate cuts and liquidity injections.

But worse, his comments do not quantify the Fed's understanding of the losses. We shared an estimate of sub-prime exposure of $ 250 billion some months ago, although most analysts estimates are closer to $ 100 billion. If the exposure exceeds even our pessimistic number, the knock-on effect will be devastating; if, however, it exceeds the previous consensus the ramifications are already accounted for.

Whatever the number is, the adjustment process must continue for some months yet.

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.

Invest in Kenya: Focus Kisumu

A new African investment guide, Invest in Kenya: Focus Kisumu, was launched by the Millennium Cities Initiative and the Columbia Program on International Investment in Nairobi on September 26. MCI's first investor's guide focuses on Kisumu, the first city named a Millennium City. Kisumu, located on Lake Victoria, is Kenya's third largest city and an important economic center. Its location, climate and safety, combined with Kenya's increasing access to foreign markets, make Kisumu attractive to investment in a number of areas. One sector of great potential discussed in the Guide is agriculture, with opportunities in the areas of sugar cane, cotton, groundnuts, rice, and horticultural crops. Other areas with potential include aquaculture, agro-processing and dairy. The Guide delves into these opportunities as well as relevant matters such as tax and regulatory conditions in Kenya.


Responsible Investing

The financial market risk of climate change

We've mentioned it before - people are getting together with lawyers to focus on polluters in the same way cigarette makers were targeted.

On the same day that US rates were lowered investors and NGOs petitioned the SEC to clarify whether firms had an obligation to disclose how climate change might affect them.  It is certain that disclosure must occur.  Directors ought to know since it is a significant material business risk, and if they know shareholders must too.

Integrity for success

I came across a recent compilation of presentations from various events entitled Integrity: A Positive Model that Incorporates the Normative Phenomena of Morality, Ethics, and Legality (page down to find link to full study). The authors present a positive model of integrity that provides powerful access to increased performance for individuals, groups, organizations, and societies. They note that integrity is thus a factor of production as important as knowledge and technology, however its role in productivity has been largely ignored by economists and others. Their model reveals the causal link between integrity and increased performance and value-creation, and provides access to that causal link.  The point: honesty is good business.

Case studies in green portfolios

The September issue of Sustainable Business's Progressive Investor discusses three green portfolios describing the manager's rationale and an analysts' evaluation in each case.  It is a useful starting point for building your own green portfolio.  If you are not US based, it still offers insight in to the trade-offs you're likely to have to make in building you global portfolio.  I recommend Progressive Investor for ethical investors.

Global CSR review by EIRIS

EIRIS" new report "The State of Responsible Business" details growing corporate responsibility in businesses worldwide. The study, "The State of Responsible Business: Global corporate response to environmental, social and governance (ESG) challenges" casts a wide net, offering an overview of current corporate responsibility. It also points out trends in corporate responsibility. Generally, more and more businesses are adopting responsible practices in regard to key issues identified by EIRIS. These issues consist of corporate governance, environment, equal opportunities, human rights and the supply chain. In spite of the increase of corporate responsibility overall, not all areas of the world are responding equally. Looking at company annual reports, sustainability/CSR reports, company websites, survey responses and third party materials. EIRIS' also identified and considered "green-wash" in its research. EIRIS went beyond what companies say they do, to actually considering what processes they have in place, and whether these processes are successful in achieving meaningful results.

Europe leads the way in adopting responsible businesses practices across the board. Almost 75% of European companies that have operations in high-risk countries have a human rights policy in place, compared to less than 40% of US companies and fewer than 20% of Asian companies. Europe and Japan have the highest number of companies with environmental protocols in place, with over 90% of companies having some form of an environmental policy. In Europe, a number of factors drive strong ESG performance: Stricter regulatory environment across the European Union, the presence of many non-governmental organizations, individual awareness of sustainability issues and investor willingness to put pressure on companies to adopt better environmental practices all raise the awareness of European companies. It is a shame to see that US companies are behind European companies in their reactions to social and environmental concerns and we hope that will change in the coming years.

Social Funds' review is here.

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

Excessive pay hurts economy and society

A new report claims that excessive executive compensation in the US is taking a staggering economic and social toll on American society, threatening leadership in the business, government, and nonprofit sectors and creating instability in the economy. The report gives a good summary of the gross disparity between top earners and average earners and disparages the arguments justifying the excesses.

According to Executive Excess 2007, the fourteenth annual survey of executive compensation from the Institute of Policy Studies and United for a Fair Economy, the figures stand in stark contrast: the CEO of a large company pulls down an average $10.8 million per year in salary and bonuses (excluding perks and some stock options, whose value can run to many millions more. But the average wage is only $29,544 (only about 160% of the poverty level for a family of four). Despite an increase this year to $5.85 per hour, the real value of the minimum wage has declined 7% over the past decade and real wages have risen little over the same period. During this time, executive pay has soared by 450%. The stark comparison even raises the illegitimacy of capitalism and democracy because the socio-economic profile is so feudal. You have to ask what these "leaders" stand for when they are so intent on grabbing more from so many who have relatively little.

The report appropriately debunks the rationalisations for excessive compensation: Excessive compensation is not necessary to attract talent. In fact it may do the reverse by attracting machiavellian individuals out for themselves rather than their employer. Executive Excess 2007 makes the case that it actually erodes good leadership by giving the highest rewards to those who ignore long-term stability in favor of short-term market gains. Employee relations may also suffer, leading to negative impacts on company performance. Enlightened analysis has shown for a long time that money does not make happiness, in fact often the reverse once average needs have been met. And high CEO pay does not correlate with outstanding performance either. The great illustration today is Angelo Mozilo of Countrywide Financial, "the sixth highest paid CEO in 2006...with $42.9 million. In July 2007, the company's sub-prime mortgage woes drove its foreclosure rates to the highest level in more than five years and contributed to a global liquidity crisis."

The report makes some proposals for change:

  • Eliminate tax subsidies for excessive CEO pay.

  • End preferential tax treatment of private investment company executive income.

  • Cap tax-free "deferred" executive pay.

  • Eliminate the tax reporting loophole on CEO stock options.

  • Link government procurement to executive pay.

Download report here. See Social Funds' review here

SRI reduced sub-prime exposure

An interesting review of the run-up to the sub-prime mortgage meltdown shows that SR investors started considering the implications of sub-prime business exposure back in 1999 and a number of institutional SR investors adjusted portfolio exposure accordingly.  It shows that investors who take a broader view of business (social and environment as well as economic) have a built in capacity to screen for off-screen risks.  While they may not know who will be the next Enron or Countrywide Financial or Northern Rock, they are more likely to have lower exposure to sectors or companies with unrecognised dangerous risk profiles.

See the analysis by Social Funds here.

CSR is growing up

The recent launch of Supercapitalism by Robert Reich which criticises CSR has stimulated debate about its role in private enterprise.  You can see The Economist's take here and an interview with the author by BusinessWeek here.

It is naive, even primitive, to argue that corporations have no ethical dimension, rather it is increasingly their role to reflect the values of their shareholders.  It is simplistic to reduce the objective of a company to "making profits".  While businesses must be profitable to survive, their organisation has never been the objective of making profits but to provide an understood system for cooperation between people who would like to create something greater than they can individually.  (If the objective was only profits there would be no rationale for being in any particular business and criminal activity, with its very high return on investment would be the most attractive option.)  Company organisation offers a substitute for feudal hierarchy and as we insist on ethics in government so we demand ethics in business.

For most businesses the discussion has moved beyond "is it appropriate for companies to pursue social responsibility?", the answer to that is "of course".  The challenge is now how to build ethics in to everything we do and reflect the values of our stakeholders; how to make the organisation more human.

CSR increases profitability

According to a survey of more than 500 business executives by Grant Thornton, executives believe that corporate responsibility programs can positively impact their business and help achieve strategic goals. While commentary by traditionalists might suggest that CSR will be a cost, without benefit, only a quarter of survey respondents agreed that profits need be sacrificed, while three quarters believed corporate responsibility could enhance profitability - 77% said they expected corporate responsibility initiatives to have a major impact on their business strategies over the next several years.

The press release with summary analysis is here and Social Funds' analysis is here.

Carbon auction on regulated exchange

The first carbon auction held on a regulated exchange just concluded in Brazil. 800,000 tonnes of carbon rights were sold by the City of Sao Paolo which is earning them from power generation from methane released by a massive urban landfill. The winning bidder, Fortis a European bank, paid € 13 million or about € 16.25 per tonne; carbon is now trading around € 21 per tonne so it seems like a good investment. The Brazilian Mercantile and Futures Exchange expects to have another 10 carbon auctions in the coming year.

5th Global Corporate Climate Change Report issued by CDP

The Carbon Disclosure Project released its fifth Global Corporate Climate Change Report, tracking carbon disclosure and attitudes toward climate change in the world's largest companies. The CDP this year also launched the Climate Disclosure Leadership Index, an honor roll for companies who are best addressing climate change issues. The launch coincided with the U.N. summit on how to mitigate climate change in which over 80 world leaders taking part. These high profile meetings on climate change illustrate the growing pressure on governments, companies and individuals to act now on carbon emission and climate change issues.  The CDP is underpinned by over 315 global institutional investors with more than $41 trillion in assets under management, a collaboration includes some of the largest US and foreign institutional investors, including CalPERS, Merrill Lynch, and Goldman Sachs. The CDP has collected 90 new signatories and almost $10 trillion in assets since last year's report.  Although the CDP5 finds that the gap between awareness and action is shrinking, there is still a huge disconnect between awareness and action on the investor side. The CDP calls on governments to help push investors into using carbon disclosure information in their investment making decisions.

DJSI company survey available

The ninth annual survey of the Dow Jones Sustainability Indexes is available.

More information about the report, as well as selected downloads about each industry leader and regional rankings, are available at http://www.sustainability-indexes.com.


Venture Capital

Fees win over carry for buyout managers ...

A new study by two professors at Penn's Wharton School lifts the lid on a "secret" of private equity managers. The findings of Wharton professors Andrew Metrick and Ayako Yasuda show that, "on average, leveraged-buyout funds can expect to collect $10.35 in management fees for every $100 they manage, whereas about half that, $5.41 for every $100, comes from carried interest." Those numbers in total equate to over 15% of funds under management - a big number.

Investors that become aware of this statistic may negotiate more on the terms of management agreements where the GP is given the ability to be on both sides of the table when it comes to negotiating corporate finance fees. It should also encourage a move to more appropriate fee structures in which interests of LP and GP are more closely aligned, such as replacing carry with fund equity and making the management company a subsidiary of the fund.

The 53 page study dated September 9 which was featured in the Wall Street Journal will also hardly help private equity firms with their argument that the pending carried interest bill will damage the buyout industry.

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.

Should you invest in the company or its management ... ?

A 2004 study, recently updated, adds to the debate about whether management or the company is the important focus of investment screening.  The study, written by Steve Kaplan of the University of Chicago, Berk Sensoy of USC and Per Stromberg of SIFR, found that over 90% of successful VC-backed companies have the same business model at the time of IPO as they had at the time of initial VC funding. Conversely, only 72% have the same CEO, and that number drops to 44% by the third annual report. Interestingly, the researchers also examined a sample that included both VC-backed and non-VC backed IPOs for 2004, and found no demonstrable difference in the human variable's importance.

You might question the sustainable value of management, however, the results may be a bit sterile and simply reflect the effecient evolution of business aided by experienced VCs.  As a company grows from early stage to a self-sustaining critical mass, the nature changes from entrepreneurial and adds other dimensions.  This requires a changing culture of management, which often requires new skills at the top which may not be displayed by the founder or (incumbent CEO).

While we think management is critical to the success of VC investment, it is also certain that if the company is in the wrong business, because the market is not ready or passed, then even the best CEO won't make the numbers.

Carlyle's seedy connections ...

Carlyle, the large successful private equity firm, has always been a cause for concern because its claim to excellence at its inception a decade ago was the raft of politicians on its board. The New York Post revealed recently that it paid $12.3 million in fees to a company tied to former state Comptroller Alan Hevesi's top political consultant. Carlyle, which invests $1.3 billion for the state pension fund, paid the fees to Searle & Co., of Greenwich, Connecticut, from 2003 through 2006, when Hevesi served as comptroller. Apparently the fees were "in connection with Hank Morris' work as a placement agent related to [state pension-fund] investments". Searle, is not the medical company which was run by Rumsfeld which "lobbied" for approval of aspartame, but a small financial-service firm headed by Robert Searle, a longtime personal friend of Morris. Morris has been employed by Searle since 2003. Connections and behaviour like this do not depreciate the value of Carlyle, which is expected to launch an IPO soon. Investors prefer conflicted connections to integrity.

Disclosure and transparency in private equity

Here is a link to the consultation report by Sir David Walker on the UK private equity industry: Disclosure and Transparency in Private Equity.  It offers a profile of the current industry and recommends guidelines for improving transparency.  It does not focus on tax treatment, though there are implications for this.

Ethical Corp magazine reviews it here.

The consultation response period ends 9 October.

September VC deals and data

According to the Emerging Markets Private Equity Association, 107 private equity funds focused on investing in the emerging markets of Asia, Europe, Latin America, the Middle East and Africa raised US$21.5 billion in capital commitments in the first half of 2007, compared to US$33.2 billion raised by 162 funds in all of 2006. Here's their release in pdf.

Climate Change Capital raised €200 million for a new private equity fund that will focus on clean-tech opportunities in Europe. Limited partners include AlpInvest, Robeco, HSBC, USS, Alliance Trust, Bankinter, Woelbern Group and Harcourt. The fund will focus on expansion-stage, later-stage and buyout opportunities, in areas like clean power, clean transportation, energy efficiency, waste recovery and water.

Environmental Capital Partners, a new firm, will focus on middle-market opportunities in the "green" space. ECP recently received a $100 million cornerstone commitment from New York Private Bank & Trust, and is planning to raise an additional $100 million from other limited partners. Its typical transaction will require an equity investment of between $10 and $25 million, for companies focused on such things as green consumer products, eco-friendly building materials, alternative energy and industrial environmental services.

Miasole Inc., a US manufacturer of thin-film solar cells, has raised $50 million in Series D funding. The deal included six new investors. Miasole previously had raised $56 million from firms like Kleiner Perkins Caufield & Byers, VantagePoint Venture Partners, Firelake Strategic Technology Fund, Garage Technology Ventures and Nippon Kouatsu Electric Company. Company CEO David Pearce had told Cnet last September that the company expected to go public within 12 to 18 months.

Ceres Inc., a US developer of energy crops that can be planted as feedstocks for cellulosic ethanol production, has raised $75 million in Series F funding led by Warburg Pincus. It is unclear who else participated in the deal. Ceres has previously raised over $77 million in VC funding from Artal Luxembourg, Oxford Bioscience Partners, GIMV, H&Q, KBC, Monsanto Co., Oppenheimer Funds, QuestMark Partners and Towerbrook Capital Partners. A 2001 round came with a post-money valuation of nearly $200 million.

Solarity Inc., a developer of nano-structured solar cells, has raised $5 million in Series A funding led by New Enterprise Associates, according to a regulatory filing. The company is being spun out of Georgia Tech, and is founded by Ajeet Rohatgi.

Nanosolar Inc., a US provider of lower-cost solar energy panels, has received a $20 million grant from the U.S. Department of Energy. The company has previously raised VC funding from such firms as Mohr, Davidow Ventures, Benchmark Capital, Mitsui & Co., Onpoint, SAC Capital, GLG Partners, Swiss Re and Grazia Equity.

Solar Power Partners Inc. has secured $6 million of a $6.2 million Series A round, according to a regulatory filing. Globespan Capital Partners led the deal, with Globespan partners Barry Schiffman and Ullas Naik joining the SPP board of directors. The Mill Valley, California-based company develops, owns and managers a distributed network of mid-size commercial solar energy facilities that is remotely managed from a central location.

Solar Notion Inc., a Sunnyvale, Calif.-based maker of solar energy panels, has raised around $10 million in Series A funding led by hedge fund Third Point, according to a regulatory filing.
Solazyme Inc., a US developer of biofuels through the use of microalgae, has raised $5 million in venture debt funding from BlueCrest Capital Finance. The company previously raised around $9 million in VC funding from The Roda Group and Harris & Harris Group.

Pentadyne Power Corp., a US commercial manufacturer of clean energy storage systems, has raised $14 million in a venture recap round led by Loudwater Investment Partners.

Tioga Energy Inc., a US provider of solar power purchasing services, has raised an additional $4 million in Series A funding led by Nth Power. The round is now closed with just over $14 million, including capital from NGEN Partners, Draper Fisher Jurvetson, Rockport Capital, DFJ Frontier and Kirlan Ventures. Tioga is basically a restart of CerOx Corp., which closed earlier this year after having raised around $15 million over two rounds.

Solarcentury Holdings Ltd., a UK supplier of solar energy systems, has raised £13.5 million in new VC funding. Zouk Ventures led the deal, and was joined by Vantania Holdings, Foursome Investments and return backers VantagePoint Venture Partners and Scottish and Southern Energy.

ClearEdge Power, a US fuel cell developer, has secured around $6.47 million of a $19.47 million Series C round, according to a regulatory filing. The only listed backer is existing shareholder Applied Ventures.

Sierra Nevada Solar Inc., a US solar energy startup, has raised $4.5 million in Series A funding, according to a regulatory filing. No investor information was disclosed.

Cocona Inc., a US maker of textiles using green-friendly polymers derived from coconut shells, has raised $4.86 million in Series A funding led by FairHaven Capital Partners, according to a regulatory filing.

Purple Labs, a France-based provider of embedded Linux solutions for the wireless market, has raised $14.5 million in Series A funding. The deal was led by Sofinnova Partners, which five months ago bought a majority stake in the company from Vitelcom of Spain. Other backers include Earlybird Venture Capital and Partners Group.

Intalio Inc., a US provider of open-source business process management software, has raised an undisclosed amount of VC funding led by Partech International. This follows a $2.3 million recap earlier this year, and includes return backers 3i, Cargill Ventures, Sippl MacDonald Ventures, Woodside Fund, and XML Fund.

Yahoo Inc. has agreed to buy Zimbra Inc., a US maker of open-source email server software,for around $350 million. No other financial terms were disclosed for the deal, which is expected to close in Q4. Zimbra has raised $28.5 million since 2004, from firms like Accel Partners, Benchmark Capital, DAG Ventures, Redpoint Ventures and Presidio STX.

Whole Body Inc., a national chain of yoga and fitness studios, has raised $13 million in Series B funding, according to a regulatory filing. Highland Capital Partners led the deal, with Dan Nova and Corey Mulloy taking board seats. Whole Body was founded by Rob Wrubel, an entrepreneur-in-residence with Highland between June 2001 and July 2002.

AEA Investors has hired Goldman Sachs to explore a sale of portfolio company Burt's Bees Inc., a US maker of personal care products like lip balm. The news was first reported by The Deal, which said buyers may pay up to $1 billion.

Spectrum K12 School Solutions Inc., a US provider of special education and IEP management software, has raised $5.7 million in Series B-1 funding, according to a regulatory filing. Backers include Novak Biddle Venture Partners and Updata Partners. Past backer Warburg Pincus is not listed on the filing, but lists Spectrum K12 as a portfolio company on its website.


Activities, Media and Gatherings

Being a parent, really

In September I took over most of the parenting chores to allow Pam to study for exams at the end of the month.  This involved a minimum of 3 hours driving for the school run alone.  Plus the usual grocery shopping, cooking and laundry.  And of course giving the children something to do other than make a noise around the office!  It left about 5 hours a day for other things, which meant lots of postponement.  But it has been a very worthwhile project which I'll continue in a less intense way.  It really showed up the benefit of hands on attention to children that makes parenting interesting, challenging and productive.  The children (4 of them aged 4-12) get the kind of guidance that is missing at school and get to develop a more friendly relationship with parents.  It makes clear the undervalued trade-off that people make by handing children over to child-carers so that they can live and work without them.  I really recommend a more hands on approach to all parents.

The other big change has been the reformatting of this newsletter to a blog format.  That has been time consuming but adds much more value because it is easily segmented by subject, titles become summaries and entries can be more timely.  However, I still have catching up to do.

On the investment management side, I did reenter the markets, largely in response to market sentiment, but with great caution for limiting downside.

And in the garden some chores have been postponed till October, while essential harvesting of tomatoes, french beans and root vegetables did provide us tasty fare for the table (especially the cherry tomatoes of which we've already harvested about 10kg :-) ).

Be The Change - book now

Be The Change 2007 will take place in November.  Supported by The Independent newspaper, The Sky's The Limit is a collaboration between Be The Change, the World Future Council, The Converging World, the new economics foundation and Rights and Humanity. In three days of presentations, panels, world cafes - and with film and music - participants seek to generate new, solution-oriented responses.

Participants include Prof. C.S. Kiang (China), Vandana Shiva (India), Maude Barlow (Canada); Hermann Scheer (Germany), Frances Moore Lappe and Drew Dellinger (USA) and from the UK, Bianca Jagger, Jonathon Porritt, Nicki Gavron, Richard Reed, Rob Hopkins and many more: entrepreneurs, activists, scientists, film-makers, poets and musicians.

November 15 - 17 at the magnificent Central Hall, Westminster, where the UN General Assembly first met in 1946.

BeTheChange.org.uk for bookings

Not for sale - end slavery

A campaign to end slavery, check out Not For Sale and the interesting people behind the campaign.

Making Money

Pratchett's latest novel is on the stands. In today's volatile world of money its bound to be revealing. We'll review it in due course, but Pratchett is always brilliant.

How to get fat without even trying

This five part YouTube series with now deceased TV newscaster Peter Jennings explores how the food industry spends billions of dollars to sabotage your health. Jennings also takes a critical look at the US government's agricultural subsidy programmes, and the consequences of misguided government policies on diet and health. For example, sugar and fat receive 20 times more government farming subsidies than fruits and vegetables. The food industry spends $34 billion per year marketing their products, $12 billion of which is spent marketing unhealthy foods to children. Learn how misleading advertising, food additives, and a corrupt subsidy system have undermined public health.

Click here for the videos: part 1. Part 2Part 3Part 4. Part 5.




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