We’ve had (according to Barry Ritholz) what technicials call a death cross. This tech specialists think means more trouble. There was not much here or in Europe to justify the fall. Sure the bank reform bill is in trouble. And consumer confidence is lagging.
But China had the real bad news. Shanghai fell on revised numbers for GNP growth from the Conference Board . That body corrected a leading index of Chinese growth of 1.7% calculated in April right down to a mere 0.3% now.
But in fact the Chinese market had slumping before this. The bears then escaped all over Asia, and hurriedly released their fellows in Europe and later in the US, where there was nothing particularly awful happening.
But if the Red Rooster is not a strong enough locomotive to pull the world economy out of its malaise, we are in trouble. Instead of watching the stock market sink I attended an alternative energy conference.
A new fund that may be of interest came out from Bank of New York-Mellon‘s Dreyfun Corp. whose chief economist I have been quoting lately. Dreyfus Global Real Return Fund will invest globally in pursuit of absolute return. It will be managed by Newton Capital Mgm Ltd, a London boutique which already manages similar multi-asset absolute return funds for non-US investors. Newton is known for its thematic investment approach seeking total return (both capital appreciation and income) using a multi-asset strategy to get real returns with less volatility. The aim is to work over a market cycle (typically 5 years.) It does not use benchmarks or indexes and the goal is to get returns that do not depend on the movement of markets (or beta.) . Jeams Harries is the primary portfolio manager at Newton.
Meanwhile investors in Invesco Powershares ETFs discovered today that its managers have shifted indexes for their funds which keep the same ticker symbols. You no longer own what you thought you bought with this ETF family.
A trio of global funds are affected. Power Shares Autonomic Growth (PTO) will track Ibbotson Alternative Completion IndexTM in place of a New Frontier index; PowerShares Autonomic Balanced Growth (PAO) will drop New Frontier for RiverFront Tactical Balanced Growth Portfolio, and PowerShares Growth and Income (PCA) will drop New Frontier for a different RiverFront Index. Also affected are two Power Shars US portfolios linked to Value Line Timeliness and Rotation which are being linked to Morningstar indexes instead.
The renewable conference lobbied for the US to extend or replace cleaner energy programs which were part of the stimulus bills. They are slated to sink into the sunset by the end of 2010 unless what one delegate called “the Pearl Harbor” impact of the BP Deepwater Horizon gets Washington to change tack.
The American Council On Renewable Energy and the US Partnership for Renewable Energy Finance worried about potential deceleration and loss of jobs as green for green runs out. To say nothing of money for their members. In a joint press conference they called for extension of 1603 Renewable Energy Treasury Grants (AKA Grants in Lieu of Investment Tax Credit) to run out at the end of this year at a time of continued financial crisis and capital scarcity. Conferees, many of them lawyers and financial pros, clamoured for the1603 cash grants program to be renewed and for other loan guarantees and manufacturing incentives. Continued uncertainty and disorder in the US tax equity and credit markets are constraining financing for solar, wind, and other renewables, they say.
If BP is the best argument for money, the worst was the presence of so many foreign investors coming to feed at the trough: engineers, banks, utes, manufcturers of solar and wind equipment, pernsion plans. Even a Spanish Caixa turned up, from Madrid, presumably not in distress and about to be merged into the super-Caixa.
Antonio Garcia Mendez, CFA, of Santander Investment Securities (a US firm), cited the zeal shown by Europe’s “government-intervened banks” for more environmental deals. I had assumed European renewables would find funding hard to get now but he claims “inactive banks are active again” in Europe, and that liquidity, down in 2009, is on the rise along with “a higher risk appetite.” Against that, he noted that despite a strong pipeline of deals, “there are regulatory uncertainties in Spain and Italy.” To say nothing of the US.
Another European, the British-educated German, Gisela Kroess (of UniCredit, an Italian bank) warned that European banks face higher funding costs because of what she called “the Greek crisis” and the resulting lower euro. She thinks the time has come for longer-tenure financing involving mixes of loans, grants and equity. She wants to see a standardized system of funding and protection (maybe called collaterized debt obligations?)
She noted that so far this year there have been 10 US deals with a total funding of $3.4 bn in the USA vs 20 deals with a total funding of only $4.3 bn last year. (Of course this may only be because the funding will soon run out.)
Your editor was interested in how other countries encourage renewables without direct grants. Canada and many Euro countries make local utilities contract long-term to buy green energy and fold it into electricity sold, at a fixed price higher than non-renewables get. Sometimes utes finance the green plant. According to Daniel Soper, CFO of Carbonfree Technology (of Toronto) such pass-through pricing has less impact for example on German retail electricity prices than the bill for upgrading transmission sytems. So it can slip into your electric bill without your noticing.
But he warned that a weak economy makes it harder to contract for passthrough rate payment for renewables because politicians fear supporting it. A tax is a tax when it is contracted for even if it later is hidden.
The industry is frustrated mainly by lack of volume. Canada for example produces zero mW of solar vs 400mW or so in the USA, said Soper. The price of clean rooms and solar panels and cells has fallen sharply as the silicon industry finally woke up to new opportunities from solar. But solar prices are still too high for unaided investment.
Another thought: Consumers could cut their household electricity use by 2-12% and save up to $35 bn over the next 20 years if U.S.utes use smart meters and a range of energy-use feedback tools to educate us to use less energy.This according the nonprofit American Council for an Energy-Efficient Economy .We need at-home or on-line displays to inform and motivate us to cut down on juice consumptiom. ACEEE likes enhanced billing daily or weekly feedback,on- or off-line. But these programs are rare with no US ute providing the full gamut. Most have barely learned about smart meters.
Matters of subsidy and taxation are complicated in the main thing to take away from the above. Simplistic rants against government programs or taxes make no sense. In a period of shrinking investment somebody has to take the initative and right now the designated driver is government.
Stay the course. This is buy time not sell time. News of our companies follows from Israel, Britain, Canada, Spain, Portugal, France, Belgium, and Brazil.
