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Topic: Stock Market (Read 62713 times)
Water- part three
Reply #50 on:
October 25, 2007, 05:09:37 AM »
Page 7 of 10)
Mulroy is not gambling the entire future of Las Vegas on this project. One
catchphrase of the water trade is that water flows uphill toward money,
which is another way of saying that a city with ample funds can, at least
theoretically, augment its supplies indefinitely. In a tight water market
like that of the West, this isn't an absolute truth, but in many instances
money can move rivers. The trade-off is that new water tends to be of lower
quality (requiring more expensive purification) or far away (requiring more
expensive transport). Thanks to Las Vegas's growth - the metro area is now
at 1.8 million people - cost is currently no object. The city's cash
reserves have made it possible for Mulroy to pay Arizona $330 million for
water she can use in emergencies and to plan a controversial
multibillion-dollar pipeline to east-central Nevada, where the water
authority has identified groundwater it wants to extract and transport.
Wealth allows for the additional possibility of a sophisticated trading
scheme whereby Las Vegas might pay for a desalination plant on the Pacific
Coast that would transform seawater into potable water for use in California
and Mexico. In exchange, Nevada could get a portion of their Colorado River
water in Lake Mead.
So money does make a kind of sustainability possible for Las Vegas. On the
other hand, buying water is quite unlike buying anything else. At the
moment, water doesn't really function like a private good; its value, which
Peter Binney calls "infinite," is often only vaguely related to its price,
which can vary from 50 cents an acre-foot (what Mulroy pays to take water
from Lake Mead) to $12,000 an acre-foot (the most Binney has paid farmers in
Colorado for their rights). Moreover, water is so necessary to human life,
and hence so heavily subsidized and regulated, that it can't really be
bought and sold freely across state lines. (Enron tried to start a water
market called Azurix in the late 1990s, only to see it fail spectacularly.)
The more successful water markets have instead been local, like one in the
late 1980s in California, where farmers agreed to reduce their water use and
sell the savings to a state water bank. Mulroy and Binney each told me they
think a true free-market water exchange would create too many winners and
losers. "What you would have is affluent communities being able to buy the
lifeblood right out from under those that are less well heeled," Mulroy
said. More practical, in her mind, would be a regional market that gives
states, cities and farmers greater freedom to strike mutually beneficial
agreements, but with protections so that municipalities aren't pitted
against one another.
More-efficient water markets might ease shortages, but they can't replace a
big city's principal source. What if, I asked Mulroy, Lake Mead drained
nearly to the bottom? Even if drought conditions ease over the next year or
two, several people I spoke with think the odds are greater that Lake
Powell, the 27-million-acre-foot reservoir that supplies Lake Mead, will
drop to unusable levels before it ever fills again. Mulroy didn't
immediately dismiss the possibility; she is certain that the reduced
circumstances of the two big Western reservoirs are tied to global warming
and that Las Vegas is this country's first victim of climate change. An
empty Lake Mead, she began, would mean there is nothing in Lake Powell.
"It's well outside probabilities," she said - but it could happen. "In that
case, it's not just a Las Vegas problem. You have three entire states wiped
out: Arizona, California and Nevada. Because you can't replace those volumes
with desalted ocean water." What seems more likely, she said, is that the
legal framework governing the Colorado River would preclude such a dire turn
of events. Recently, the states that use the Colorado reached a tentative
agreement that guarantees Lake Mead will remain partly full under current
conditions, even if upstream users have to cut back their withdrawals as a
result. The deal supplements a more fundamental understanding that dates to
the 1920s. If the river is failing to carry a certain, guaranteed volume of
water to Lee's Ferry, which is just below Lake Powell, the river's
lower-basin states (Nevada, Arizona and California) can legally force the
upper-basin states (Colorado, Wyoming, New Mexico and Utah) to reduce or
stop their water withdrawals. This contingency, known as a "compact call,"
sets the lower-basin states against the upper, but it has never occurred; it
is deeply feared by many water managers, because it would ravage the fragile
relationship among states and almost certainly lead to a scrum of lawsuits.
Yet, last year water managers in Colorado began meeting for the first time
to discuss the possibility. In our conversations, Mulroy denied that there
would be a compact call, but she pointed out that Las Vegas's groundwater
and desalination plans were going ahead anyway for precautionary reasons.
Page 8 of 10)
I asked if limiting the growth of the Las Vegas metro area wouldn't help.
Mulroy bristled. "This country is going to have 100 million additional
people in it in the next 25 to 30 years," she replied. "Tell me where they're
supposed to go. Seriously. Every community says, 'Not here,' 'No growth
here,' 'There's too many people here already.' For a large urban area that
is the core economic hub of any particular area, to even attempt to throw up
walls? I'm not sure it can be done." Besides, she added, the problem isn't
growth alone: "We have an exploding human population, and we have a
shrinking clean-water supply. Those are on colliding paths. This is not just
a Las Vegas issue. This is a microcosm of a much larger issue." Americans,
she went on to say, are the most voracious users of natural resources in the
world. Maybe we need to talk about that as well. "The people who move to the
West today need to realize they're moving into a desert," Mulroy said. "If
they want to live in a desert, they have to adapt to a desert lifestyle."
That means a shift from the mindset of the 1930s, when the federal
government encouraged people to settle in the West, plant water-intensive
crops and make it look like the East Coast. It means landscapes of parched
dirt. It means mesquite bushes and palo verde trees for vegetation. It means
recycled water. It means gravel lawns. It is the West's new deal, she seemed
to be saying, and I got the feeling that for Mulroy it means that every
blade of grass in her state would soon be gone.
The first impulse when confronted with the West's water problems may be to
wonder how, as scarcity becomes more acute, the region will engineer its way
back to health. What can be built, what can technology accomplish, to ease
any shortages? Yet this is almost certainly the wrong way to think about the
situation. To be sure, construction projects like a pipeline from
east-central Nevada could help Las Vegas. But the larger difficulty facing
Pat Mulroy and Peter Binney, as they describe it, is re-engineering the
culture and conventions of the West before it becomes too late. Whether or
not there is enough water in the region for, say, the next 30 or 50 years
isn't necessarily a question with a yes-or-no answer. The water managers I
spoke with believe the total volume of available water could be great enough
to sustain the cities, many farms and perhaps the natural flow of the area's
rivers. But it's not unreasonable to assume that if things continue as they
have - with so much water going to agriculture; with conservation only
beginning to take hold among residents, industry and farmers; with supplies
diminishing slowly but steadily as the Earth warms; with the population
growing faster than anywhere else in the United States; and with some of our
most economically vital states constricted by antique water agreements - the
region will become a topography of crisis and perhaps catastrophe. This is
an old prophecy, dating back more than a century to one of the original
American explorers of the West, John Wesley Powell, who doubted the
territory could support large populations and intense development. (Powell
presciently argued that river basins, not arbitrary mapmakers, should
determine the boundaries of the Western states, in order to avoid inevitable
conflicts over water.) An earlier explorer, J. C. Ives, visited the present
location of Hoover Dam, between Arizona and Nevada, in 1857. The desiccated
landscape was "valueless," Ives reported. "There is nothing there to do but
Roger Pulwarty, for his part, rejects the notion of environmental
determinism. Nature, in other words, isn't inexorably pushing the region
into a grim, suffering century. Things can be done. Redoubling efforts to
prevent further climate change, Pulwarty says, is one place to start;
another is getting the states that share the Colorado River to reach
cooperative arrangements, as they have begun to discuss, for coping with
long-term droughts. Other parts of the solution are less obvious. To Peter
Gleick, head of the Pacific Institute, a nonprofit based in Oakland, Calif.,
that focuses on global water issues, whether we can adapt to a drier future
depends on whether we can rethink the functions, and value, of fresh water.
Can we can do the same things using less of it? How we use our water, Gleick
believes, is considerably more complex than it appears. First of all, there
are consumptive and nonconsumptive uses of water. Consumptive use, roughly
speaking, refers to water taken from a reservoir that cannot be recovered.
"It's embedded in a product like a liter of Coca-Cola, or it's contaminated
so badly we can't reuse it," Gleick says. In agriculture, the vast majority
of water use is also consumptive, because it evaporates or transpires from
crops into the atmosphere. Evaporated water may fall as rain 1,000 miles
away - that's how Earth's water cycle works - but it is gone locally. A
similar consumptive process characterizes the water we put on our lawns or
gardens: it mostly disappears. Meanwhile, most of the water used by
metropolitan areas is nonconsumptive. It goes down the drain and empties
into nearby rivers, like Colorado's South Platte, as treated wastewater.
Page 9 of 10)
Gleick calls the Colorado River "the most complicated water system in the
world," and he isn't convinced it will be easy, or practical, to change the
laws that govern its usage. "But I think it's less hard to change how we use
water," he says. He accepts that climate change is confronting the West with
serious problems. (He was also one of the country's first scientists, in the
mid-1980s, to point out that reductions in mountain snowpack could present
huge challenges.) He makes a persuasive case, however, that there are
immense opportunities - even in cities like Las Vegas, which has made
strides in conservation - to reduce both consumptive and nonconsumptive
demand for water. These include installing more low-flow home appliances and
adopting more efficient irrigation methods. And they include economic tools
too: for example, many municipalities have reduced consumption by making
water more expensive (the more you use, the higher your per-gallon rate).
The United States uses less water than it did 25 years ago, Gleick points
out: "We haven't even paid too much attention to it, and we've accomplished
this." To go further, he says he believes we could alter not only demand but
also supply. "Treated wastewater isn't a liability, it's an asset," he says.
We don't need potable water to flush our toilets or water our lawns. "One
might say that's a ridiculous use of potable water. In fact, I might say
that. But that's the way we've set it up. And that's going to change, that's
got to change, in this century."
Among Colorado's water managers, Peter Binney's Prairie Waters project is
considered both innovative and important not on account of its technology
but because it seems to mark a new era of finding water sources in the
drying West. It also proves that the next generation's water will not come
cheap, or come easy. In late July, I went to Aurora to meet up again with
Binney. It was the groundbreaking day for Prairie Waters, which had been on
the local television news: Binney and several other officials grinned for
the cameras and signed a section of six-foot steel pipe, the same kind that
would transport water from the South Platte wells to the Aurora treatment
facility. That evening, Binney and I had dinner together at a steakhouse in
an Aurora shopping mall. When he remarked that we may have exceeded what he
calls the "carrying capacity" of the West, I asked him whether our desert
civilizations could last. Binney seemed dubious. "Not the way we've got it
set up," he said. "We've decoupled land use from water use. Water is the
limiting resource in the West. I think we need to match them back together
again." There was a decent amount of water out there, he went on to explain,
but it was a false presumption that it could sustain all the farms, all the
cities, all the rivers. Something will have to give. It was also wrong to
assume, he said, that cities could continue to grow without experiencing
something akin to a religious awakening about the scarcity of water. Soon,
he predicted, we would talk about our "water footprint" just as we now talk
about our carbon footprint.
Indeed, any conversations about the one will in short order expand to
include the other, Binney went on to say. Many water managers have known
this for a while. The two problems - water and energy - are so intimately
linked as to make it exceedingly difficult to tackle one without the other.
It isn't just the matter of growing corn for ethanol, which is already
straining water supplies. The less water in our rivers, for instance, the
less hydropower our dams produce. The further the water tables sink, the
more power it takes to pump water up. The more we depend on coal and nuclear
power plants, which require huge amounts of water for cooling, the larger
the burden we place on supplies.
Meanwhile, it is a perverse side effect of global warming that we may have
to emit large volumes of carbon dioxide to obtain the clean water that is
becoming scarcer because of the carbon dioxide we've already put into the
atmosphere. A dry region that turns to desalination, for example, would need
vast amounts of energy (and money) to purify its water. While wind-powered
desalination could perhaps meet this challenge - such a plant was recently
built outside Perth, Australia - it isn't clear that coastal residents in,
say, California would welcome such projects. Unclear, too, is how dumping
the brine that is a by-product of the process back into the ocean would
Page 10 of 10)
Similar energy challenges face other plans. In past years, various schemes
have arisen to move water from Canada or the Great Lakes to arid parts of
the United States. Beyond the environmental implications and construction
costs (probably hundreds of billions of dollars), such continental-scale
plumbing would require stupendous amounts of electricity. And yet, fears
that such plans will resurface in a drier, more populous world are partly
behind current efforts by the Great Lakes states to certify a pact that
protects their fresh water from outside exploitation.
Just pumping water from the Prairie Waters site to Aurora will cost a small
fortune. Binney told me this the day after the groundbreaking, as we drove
north from Aurora to the site. Along the 45-minute journey, Binney narrated
where his pipeline would go - along the edge of the highway here, over in
that field there and so on. Eventually we turned off the highway and onto a
small country road, and Binney slowed down so I could take in the
surroundings. "Here's where you see it all coming together and all of it
coming into conflict," he told me. To him, it was a perfect tableau of the
West in the 21st century. There was a housing development on one side of the
road and fields of irrigated crops on the other. Farther ahead was a gravel
pit, a remnant of the old Colorado mineral-extraction economy.
He drove on, and soon we turned onto a dirt road that bisected some open
fields. We rumbled along for a quarter mile or so, spewing dust and passing
over the South Platte in the process. Binney parked by a wire fence near a
sign marking it as Aurora property. We got out of the truck, hopped over a
locked gate and walked into a farm field.
For miles along the highway, we passed barren acreage that formerly grew
winter wheat but was now slated for new houses. The land we stood on once
grew corn, but tangles of weeds covered it now. As we walked, Binney
explained that the collection wells on the South Platte would soon be dug a
few hundred yards away; that water would be pumped into collection basins on
this field, where sand and gravel would purify it further. Then it would be
pumped back to the chemical treatment plants in Aurora before being piped to
residents. "We're standing 34 miles from there," Binney said.
It was a location as ordinary as I could have imagined, an empty place, far
from anything, and yet Binney saw it as something else. Earlier, when we
crossed over the gravel banks of the South Platte, I found the river
disappointing: broad and shallow, dun-colored and slow-moving, its
unimpressive flow somehow incorporating water Aurora had already used
upstream. James Michener, in writing about this region years ago, was
dead-on in calling it "a sad, bewildered nothing of a river." Still, the
South Platte was dependable. It was also Aurora's lifeline, buying the city
20 or 30 years of time. "What I really like about it," Binney said, smiling
as we walked from the field back to his truck, "is that it's wet."
Re: Stock Market
Reply #51 on:
October 31, 2007, 12:18:22 PM »
MSN Money Homepage
MSN Money Investing
TODAY'S MOST POPULAR
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4. Bernanke Rewrites Fed Playbook
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PEOPLE WHO READ THIS...
Also read these stories:
LanOptics 3Q Losses: 5c/Share Vs 18c >LNOP
DOW JONES NEWSWIRES
October 30, 2007 9:08 a.m.
DOW JONES NEWSWIRES
LanOptics Ltd. (LNOP) on Tuesday reported a third-quarter net loss of $768,000, or 5 cents a share, narrowing from $2.1 million, or 18 cents a share, in last year's third quarter.
The Israeli maker of network processors had revenue for the period ended Sept. 30 of $5.24 million, up from $2.07 million a year earlier, according to a filing with the U.S. Securities and Exchange Commission.
The company's shares closed Monday on the Nasdaq Capital Market at $22.84.
-Ingrid Pedrick Lehrfeld, Dow Jones Newswires; 202-862-1361
Re: Stock Market
Reply #52 on:
November 07, 2007, 09:12:39 AM »
Silver company PAAS is now a four bagger for me
David Gordon thinks the market is headed for a rougher patch
Re: Stock Market
Reply #53 on:
November 08, 2007, 10:42:29 AM »
Bought more LNOP yesterday around 20.25, and slept through this morning's scary ride. Rick says there is rumor a hedge fund dropped a large block, which is a thinly traded stock like LNOP which is already volatile every day can really move things around. He says to buy more.
Buchanan: 2008 similar to 1929
Reply #54 on:
November 18, 2007, 09:10:45 PM »
Bernake in the middle of opposing tidal waves:
Re: Stock Market
Reply #55 on:
November 19, 2007, 07:02:11 AM »
I disagree with much that PB writes here.
Concerning the crash of '29 and the Great Depression that followed: Yes the Fed made things worse AFTER the market crashed, but this does not explain that there was a world-wide depression until WW2. PB is wrong-- the Great Depression was exactly because of the fragmentation of the world-wide economy brought on by beggar they neighbor devaluations, and tariffs and duties such as the Smoot Hawley Tariff Act and its analogues in our trading partners. FDR killed a nascent recovery of the stock market by increasing taxes in his first term. Jude Wanniski's analysis in his brilliant "The Way the World Works" is in my opinion, the correct analysis of this history.
PB is right that Bernake is on the horns of a dilema. What he misses is this is because monetary policy is only half the problem and solution. Tax policy is also half the problem and solution. Yes the Fed has been too loose and needs to stop it, but the real issue is tax rates. While we have not been looking, the various Euros have simplified and lowered their taxes and investment capital flows, which dwarfy trade flows, now flow to Europe. Despite this, the Dems, who look likely to win, are talking massive tax increases (Rangel's plan, various plans of the Dem candidates, the general nature of Dems). These tax increases (including accepting the end of the Bush tax cuts) if enacted, will tip the US into a severe recession and stagflation. THIS is the problem in my opinion.
Re: Stock Market
Reply #56 on:
November 19, 2007, 03:11:36 PM »
As George Will wrote, the stock market has predicted nine of the last three recessions. I agree with Crafty on his great depression summary. I don't completely understand the low dollar period we are now experiencing. Nor do I understand Pat Buchanan's dislike of free trade: "given their free-trade fanaticism and free-spending ways, that fate would not be undeserved." What qualifies a private freedom to do business to be lumped in with reckless public spending as a cause of economic disaster? Buchanan has never adequately explained that, in my view.
Re: Stock Market
Reply #57 on:
December 21, 2007, 04:22:25 PM »
On a PPP basis, the dollar is now dramatically undervalued. The explanation lies I think in the fact that much of Europe has cut and simplified taxes and investment capital, which if I understand correctly dwarfs trade, flows to Europe instead of us.
Anyway, here's an interesting URL:
Seems like a good list of places to go for intel ahead of the herd.
Re: Stock Market
Reply #58 on:
January 03, 2008, 02:07:32 PM »
POT is nearing a triple for me
PAAS is virtually a quadruple
Got out of CELG in time to keep nice profit intact
CWCO got hit hard for misleading accounting
LNOP is scaring me
-- but here's this:
LanOptics to Complete Acquisition of Substantially All of EZchip's Equity
Thursday January 3, 8:00 am ET
LanOptics Trading Moves to NASDAQ Global Market Applied to Change Trading Symbol to "EZCH"
YOKNEAM, Israel, January 3 /PRNewswire-FirstCall/ -- LanOptics Ltd. (NASDAQ: LNOP - News), a provider of Ethernet network processors, announced today that the last two principal shareholder groups of its subsidiary, EZchip Technologies Ltd., have elected to exchange all of their shares of EZchip for shares of LanOptics. This exchange represents the last major step in LanOptics' long-term plan to acquire 100% ownership of EZchip.
LanOptics will acquire preferred shares of EZchip from the two principal shareholders, representing the equivalent of 20,047,365 EZchip ordinary shares, in exchange for the issuance of 5,011,841 LanOptics shares. The resulting dilution in each LanOptics shareholder's percentage of ownership will be substantially offset by the increase in LanOptics' holdings in EZchip. LanOptics' business consists exclusively of the business of EZchip, a company that is engaged in the development and sales of Ethernet network processors.
Following the exchange, LanOptics will own approximately 99% of the outstanding share capital of EZchip, or 89% on a fully diluted basis. The residue represents unissued EZchip shares subject to outstanding EZchip options held by current and former employees of EZchip. Pursuant to the exchange agreement, LanOptics is required to register the shares issued in the exchange with the U.S. Securities and Exchange Commission.
LanOptics further announced that starting tomorrow January 4, 2008, the company's ordinary shares will be traded on the NASDAQ Global MarketSM. The company has also applied to change its trading symbol from "LNOP" to "EZCH" effective January 17, 2008.
"It is an exciting day in the history of our company and the beginning of a new era," commented Eli Fruchter, the Chairman of LanOptics and CEO of EZchip. "It has been our long-term goal to acquire full ownership of EZchip and we are excited to finally reach this milestone. We expect the rationalizing of our corporate structure and the unifying of the shareholdings in the two companies under our EZchip brand name to further support the company's continued growth and allow various efficiencies in the operation of the businesses."
"We are also delighted to announce our upgrade to the NASDAQ Global MarketSM - a testament to the company's recent results and increased trading in the company's shares. We expect the move to the more prestigious NASDAQ Global MarketSM, combined with our new trading symbol - "EZCH", once approved, will provide greater visibility and liquidity to our shares and promote our EZchip brand name recognition," Mr. Fruchter added.
This press release shall not constitute an offer to sell or solicitation of an offer to buy, any securities of LanOptics.
LanOptics' business consists exclusively of the business of EZchip, a company that is engaged in the development and marketing of Ethernet network processors for networking equipment. EZchip provides its customers with solutions that scale from 1-Gigabit to 100-Gigabits per second with a common architecture and software across all products. EZchip's network processors provide the flexibility and integration that enable triple-play data, voice and video services in systems that make up the new Carrier Ethernet networks. Flexibility and integration make EZchip's solutions ideal for building systems for a wide range of applications in telecom networks, enterprise backbones and data centers. For more information on LanOptics and EZchip, visit the web site at
Re: Stock Market
Reply #59 on:
January 24, 2008, 12:06:08 AM »
Like the rest of you in the market, I've had much adventure-- and not much time to report here.
Following David Gordon I have taken a position in VMW at 82 and doubled it the other day at 74.
Nice day from CREE and PCL.
Rick N has kept me apprised of LNOP, which is now EZCH. I added strongly to my position at 11.80 Here is the latest on its technology being used:
Press Release Source: Juniper Networks, Inc.
Independent Test Validates Simplicity of Juniper Networks MPLS Plug-and-Play Solution
Tuesday January 22, 9:00 am ET
Isocore's Comprehensive Testing Confirms Effectiveness of Juniper's Automated, Cost-effective Solution for Deploying Large Carrier Ethernet Networks
SUNNYVALE, Calif.--(BUSINESS WIRE)--Juniper Networks, Inc. (NASDAQ:JNPR - News), the leader in high-performance networking, today announced the completion of an independent, comprehensive test that validates the effectiveness of its MPLS Plug-and-Play solution designed to simplify network operations of Carrier Ethernet networks. Isocore, a leading technology validation and certification laboratory, evaluated Juniper Networks MPLS Plug-and-Play solution and verified a significant simplification in the provisioning of large-scale Ethernet networks and services, including the ease of managing and troubleshooting of Metro Ethernet networks.
“The ability to dynamically provision and deploy Carrier Ethernet networks and services expeditiously and cost-effectively — in a true ‘plug-and-play’ fashion — is very important to service providers,” said Dr. Bijan Jabbari, president of Isocore. “In our evaluation of Juniper’s MPLS Plug-and-Play solution, it demonstrated its capabilities in fulfilling the promises of automated provisioning and configuration, which helps save time and eliminate configuration errors.”
Juniper Networks MPLS Plug-and-Play is a unique solution based on JUNOS software, which is designed to streamline and simplify network operations by automating time-consuming provisioning, configuration and troubleshooting tasks. MPLS Plug-and-Play from Juniper Networks can reduce service providers’ operating expenses and improves the overall efficiency of Carrier Ethernet networks, while retaining the full feature set of MPLS. MPLS Plug-and-Play leverages error resilient configuration, scripting, auto-discovery and other innovative technologies to simplify the installation and maintenance of Carrier Ethernet networks. In addition, MPLS Plug-and-Play enables customers to accelerate the deployment of new revenue-generating services based on Carrier Ethernet technology.
During the independent Isocore analysis, testing was conducted on a large test bed — representative of a true carrier class network — comprised of Juniper Networks MX-series Ethernet Service Routers (ESRs) and M-series multiservice edge routers. A few of the key findings of the independent test include:
MPLS Plug-and-Play successfully established the support of error-resilient configurations on both edge and core routers used in the test;
Successful demonstration of commit and operation scripts to automate configurations and diagnose failures in the network;
Faultless discovery and operation of Ethernet Unnumbered Interfaces within IGP, BGP and MPLS networks.
The M- and MX-series also demonstrated successful auto-provisioning of Layer 2 Point-to-Point BGP-based VPNs and VPLS services with four sites, and met Isocore’s stringent specifications for a plug-and-play environment. Customers can download Isocore’s complete report on Juniper’s website:
“Ethernet’s ubiquitous success has been in large part due to its simplicity and ease-of-deployment,” said Manoj Leelanivas, senior vice president of the Edge and Aggregation Business Unit, Infrastructure Products Group, Juniper Networks. “As service providers adopt Ethernet-based networks, Juniper’s MPLS Plug-and-Play solution extends this simplicity to carrier networks — without requiring customers to give up any of their MPLS features or have their networks be a test-bed for unproven technologies.”
Webinar: Removing the Complexity in IP/MPLS Networks Using MPLS Plug-and-Play
In conjunction with Isocore, Telecommunications Magazine and Synergy Research Group, Juniper Networks will host an informative, no-cost webinar on the subject of MPLS Plug-and-Play. Entitled “Removing the Complexity in IP/MPLS Networks Using MPLS Plug-and-Play,” the webinar will take place on January 23 at 11:30 ET, and will be moderated by Sean Buckley, editor-in-chief of Telecommunications. The session will include expert perspectives from:
Kireeti Kompella, PhD, Juniper Fellow, former co-chair of the IETF CCAMP Working Group and author of several Internet Drafts and RFCs in the areas of CCAMP, IS-IS, L2VPN, MPLS, OSPF and TE;
Ray Mota, PhD, Chief Research Officer, Synergy Research Group;
Bijan Jabbari, PhD, president of Isocore.
For more information, and to register, please visit:
Isocore provides technology validation, certification and product evaluation services in emerging and next generation Internet and wireless technologies. Isocore is leading validation and interoperability of novel technologies including Carrier Ethernet, IPv6, IP Optical Integration, wireless backhauling and Layer 2/3 Virtual Private Networks (VPNs) and currently focuses on IPTV service deployment architecture validation and design. Major router and switch vendors, service providers, and test equipment suppliers participate in Isocore activities. Isocore has major offices in the USA (the Washington DC area), Europe (Paris, France) and Asia (Tokyo, Japan).
About Juniper Networks
Juniper Networks, Inc. is the leader in high-performance networking. Juniper offers a high-performance network infrastructure that creates a responsive and trusted environment for accelerating the deployment of services and applications over a single network. This fuels high-performance businesses. Additional information can be found at
Juniper Networks and the Juniper Networks logo are registered trademarks of Juniper Networks, Inc. in the United States and other countries. JUNOS is a trademark of Juniper Networks, Inc. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.
Juniper Networks, Inc.
Susan Ursch, 978-589-0124 (Media)
Kathleen Bela, 408-936-7804 (Investor Relations)
Re: Stock Market
Reply #60 on:
January 24, 2008, 04:04:05 AM »
Juniper reports earnings tonight. Hopefully they will disclose how their MX series CESR switches are progressing. The Juniper MX960 is the primary product in which the EZChip NP-2 is used.
The drop in price from 18 to current levels was caused mostly by a series of margin calls that hit some of the larger shareholders. Etrade especially raised maintenance margins on the stock from 30% to 50, 60 or 70% in accounts that were heavily weighted to EZCH. Some of the larger shareholders were hedge funds that began selling the stock to reduce exposure on all equities because they purchased a lot of their shares with borrowed funds. Also, last Friday, Etrade's system caused a lot of selling after the ticker symbol change when it was not updated promptly. The system called for 100% maintenance margin on EZCH; i.e., no margin allowed. This prompted a number of holders to dump their shares on Friday morning thinking that they had margin calls.
EZCH reports earnings on February 11th.
Reply #61 on:
January 31, 2008, 12:11:01 PM »
Hope you are well.
Does Juniper's entrance into ethernet help EZCH?
I don't see any mention of the MX family.
Re: Stock Market
Reply #62 on:
January 31, 2008, 04:07:10 PM »
Good question there.
Re: David Gordon's call on VMW. Tis a rare event for him to have a pick bomb as badly as VMW has. OUCH (and I just read that GOOG, a big success story of his, is down 10% after hours today). I'm following his advice on his blog on when and how to get out.
Re: Stock Market
Reply #63 on:
February 03, 2008, 09:56:24 AM »
Does DMG have any thoughts on Bidu? Or the MSFT/YHOo proposal.
Re: Stock Market
Reply #64 on:
February 04, 2008, 05:37:19 AM »
Here is his blog:
Reply #65 on:
February 15, 2008, 01:26:56 PM »
From the Gilder weekly letter:
The Week / EZ Reaction
LanOptics Announces 130% Revenue Growth in 2007: Yokneam, Israel, February 11, 2008 -- LanOptics Ltd. (NASDAQ: EZCH), a provider of network processors, today announced its results for the fourth quarter and full year ended December 31, 2007.
EZchip Corporate Presentation:
Gilder Telecosm Forum Member #1 (2/11/08): The only way to listen to the company's comments and be discouraged is if you are using the daily stock price as your primary source of research…
Any frustration is a function of our own expectations which have been formed off of an incomplete understanding of the development cycle. But we now have the window for the break-out narrowed down to a few months…
Gilder Telecosm Forum Member #2 (2/11/08): I too was struck by [CEO] Eli Fructer not ruling out a 1H08 Cisco move to production with NP-3c… Eli has always been conservative and understated.
George Gilder (2/11/08): The key to EZ is its role in the critical path of the next three generations of networking technology. It defines the system level products on the fiberspeed level. That means it is slow to get off the ground, but once aloft will fly high for a long time.
For me there was one major upside surprise. I would not have guessed that 20 percent of EZ's design wins were with the two first tier customers. That means a minimum of 10 design wins with both Juniper and Cisco. That strikes me as huge. EZ penetrated Cisco only a year or so ago….
EZCH (formerly LNOP)
Reply #66 on:
February 29, 2008, 08:01:54 PM »
From the Gilder weekly freebie letter:
The Week / EZchip on the Critical Path of Fiberspeed Connectivity (video)
EZchip CEO Eli Fruchter speaking on the “Critical Path of Fiberspeed Connectivity” at Gilder/Forbes Telecosm 2007 in October: I wanted to start by telling you what we do, because not all of you own LanOptics shares…We build chips. We are a fabless company. We build network processors that go into network equipment; mainly switched and routers. The big companies that build switches and routers are using our chips…
Now, I want to say a few things about our NP-2 chip in light of yesterday’s session on multicore processing….
View the Complete Video:
Gilder not so hot on EZCH
Reply #67 on:
March 11, 2008, 11:45:02 AM »
Apparently Gilder is no longer so gung ho on EZCH. I'm guessing why the stock has declined some 40% in the last few weeks
Why is GG suddenly cooled to EZCH?
Reply #68 on:
March 11, 2008, 08:20:28 PM »
He's promoting it for years.
Re: Stock Market
Reply #69 on:
March 11, 2008, 10:37:15 PM »
From the freebie Friday letter:
The Week /EZCH, NETL, SIGM, CAVM, and RMI
Gilder Telecosm Forum Member (3/1/08): George, What has changed to make
you view NetLogic (NETL) as having better long-term prospects?
George Gilder, Gilder Telecosm Forum (3/1/08): Comparing NetLogic (NETL)
with Sigma (SIGM) and Cavium (CAVM), and I have come to the conclusion
that NetLogic will be needed for IPv6 and that IPv6 will prevail over the
next decade. EZchip (EZCH) and NetLogic can work together where multiple
fast lookups are required.
EZchip has an architecture that can accommodate 7 layers, but 7 layer
processing will not happen for several years and when it does, TCAMs
(ternary content addressable memories) and so called knowledge processors
will be complementary for the first phases....
Cavium is a proven company pioneering in the largest but also most
competitive markets. It is in the upper layer processor field that is also
contested by the new Cisco (CSCO) control plane devices, LSI Corp. (LSI),
Applied Micro Circuits (AMCC), other control plane processors, RMI and all
the multicore multiprocessor innovators out there, from Intel (INTC) and
AMD (AMD) to Tilera and dozens of others.
To read more of George Gilder's posts and those of the Gilder Telecosm
Forum members, visit
and become a Forum member
You'd think I'd have learned by now.
My advice is to stay as far away from Gilder
Reply #70 on:
March 12, 2008, 09:35:12 AM »
Well, I am a major bagholder of LVLT from broadwing from corvis and can empathize with you. I do share your pain.
I am staying away from Gilder.
His model just doesn't work. Too many unforseen factors. Too many competitors. No one can know all that's going on behind closed doors, as well as the free market place, etc. Maybe EZCH will still do ok, but at my age its nuts to put any more into these companies which are really no more than patent or pending patent ideas.
He's toast for me.
He really does play into our emotional greed with his salesmanship.
Re: Stock Market
Reply #71 on:
March 29, 2008, 10:04:31 AM »
For a long time I was a true believer in the Efficient Market Hypothes, but that was a long time ago. This piece does a fine scholarly job of discussing the issues involved:
A critique of Black Swan theory
A critique of efficient markets hypothesis with improvements offered
A critique of Black Swan theory
Reply #72 on:
April 10, 2008, 09:08:14 AM »
I entered HPLF at .34 (yes, that is 34 cents
) with a suitably small position and added at .44 and am happy to report at the moment that it is at .68.
They are reporting success in their development of an artificial liver.
Reply #73 on:
May 02, 2008, 10:44:06 AM »
Cisco and EZchip earnings out soon. I don't own the stock but wish those who do good luck - Marc and Rick.
I've been doing a bit more value investing and looking at alternative energy.
Motley Fool and www.iwillteachyoutoberich.com
Reply #74 on:
June 02, 2008, 06:52:36 PM »
I really like the website by motley fool.
It has some very accessible stuff for first time investors
I also recommend
. It tends more for recent college grads but has good advice for everyone.
In other news Google now has real time stock quotes which will be nice.
Re: Stock Market
Reply #75 on:
June 03, 2008, 12:20:07 AM »
I poorly timed my exit from EZCH and have not re-entered.
I have been dancing with a minor position in HPLF (artificial liver startup), so far rather profitably. Exited water play BSHF just in time to take a minor profit before it nosedived; ISIS fully entered and in the black;
Re: Stock Market
Reply #76 on:
June 03, 2008, 09:34:02 PM »
I have read Nassim Taleb's "The Black Swan," and although he can be quite pompous in doing so, he points out a valid criticism of human thinking.... that we tend not to account for unforeseeable events even though we know they are there, and that they do happen. That is his simple premise in the book.
As far as investing guidance, Peter Lynch, who ran the Magellan Fund during its peak years, has several excellent books such as "Beating the Street." They describe his approach and statistically analyze how keeping your money in the market vastly increases your financial gains over time, despite rises and falls.
Also.... John Maudlin's "Outside the Box" is one of the best financial news letters out there. He regularly has guest writers with expertise in different areas, such as Stratfor's George Friedman on geopolitical issues, as well as leading brokers from all over the world. The newsletter is free:
C-Bad Dog, Lakan Guro DBMA
Re: Stock Market
Reply #77 on:
June 03, 2008, 09:39:15 PM »
A very high IQ friend recommends Taleb's book highly.
Marc, I know your pain
Reply #78 on:
June 05, 2008, 11:29:59 AM »
***I poorly timed my exit from EZCH and have not re-entered***
I am sorry to hear that. I did the same thing with LVLT. Bought corvis before it crashed (thousands of shares). Held on while it became broadwing. Then it became LVLT. Held on for 4 or 5 years. Then watched it go to 1.86 finally gave up and sold it at 2.79. Of course it is 4 and a quarter now.
Unless one is a savvy trader like David Gordon one should stay away from Gilder IMO. Gilder is poison for average investor like me. In addition, his political views are a bit out there and elitist, arrogant, and pompous (just like BO) though the other side of the political spectrum.
Re: Stock Market
Reply #79 on:
June 05, 2008, 05:54:59 PM »
Savy trader DG stays away from GG like the plague!
My biggest current winner is POT. I bought at 50 and it is now well over 200
Reply #80 on:
June 08, 2008, 10:50:25 AM »
I didn't know David G no longer watches GG. I wish I had followed DG's advice on ISRG, GOOG, and MA. BTW, Potash's chart is spectacular! Crafty, where did you hear of this a few years ago? By the time I was alerted to the fertilizer companies it was *after* the rush.
Here is one company that I am in love with and has good long term growth potential and is not followed by any analyst - yet.
From the Brendan Coffey Cabot Green Investor newletter which is excellent IMO and I would recommend.
Sims Group (SMS)
Bought at $31. Recent price: $32.25
Sims is a value play that we believe offers growth stock-like
potential for the year. Its March purchase of Chicago's Metal
Management makes it one of the most important metal recyclers in the
world, but also means it changed its listing country and its ticker,
so northern hemisphere analysts aren't following it yet and funds are
only just starting to build positions. Early signs are brand name
funds are gobbling up shares. Another bullish sign, a Deutsche Bank
analyst predicts ferrous and non-ferrous metal prices will remain
firm worldwide, while signs are higher shipping costs for firms like
Sims are bring successfully passed on to buyers. BUY.
Re: Stock Market
Reply #81 on:
June 08, 2008, 11:30:12 AM »
I think if you look at POT's chart you will see that the price of 50 is not so long ago. I got hipped to it in something Scott Grannis shared with me. The logic presented to me seemed very strong and so I entered into a position.
I have been following and ignoring
DMG's advice for years now. GOOG is very solid for me and recently he kept me from panicking out of my position
ISRG I ignored him on
And MA I followed on
I followed on VMW too
Thanks for the tip on SMS, I will look into it.
On Watts water
Reply #82 on:
June 24, 2008, 06:49:24 AM »
From Cabot value investor newsletter,
***Watts Water Technologies (WTS: 26.40) Min Sell Price = 46.08
WTS is the leading manufacturer of products used in the plumbing and
water quality industries. Major restructuring program will cause
earnings to decline in 2008, but a sharp rebound is expected in 2009.
Sims-down for no obvious reason
Reply #83 on:
July 17, 2008, 08:27:56 PM »
Cabot green investor seems to have soured on Sims since it is down for no obvious reason suddenly.
Re: Stock Market
Reply #84 on:
July 18, 2008, 01:00:51 AM »
Yeah, I liked what on saw on it and took a position and got stung.
What to do now?
I held WTS a while back and will take another look.
Re: Stock Market
Reply #85 on:
July 19, 2008, 09:12:12 AM »
It is possible SMS has gone down with the metals and even though it is not a mining company and is scrap it may just be going down with other metal companies and since it went to 40 from 31 or 32 people are taking profits? I still don't see any news and the most recent news was actually positive as they upped their forecasts. I believe the "sell" rec. was based on technical factors with the stock selling off on *no* news in addition with the downtrend in stocks in general. All the green stocks in the newletter are "hold" right now. Another recent "sell" was ADM because of the negative sentiment with corn based ethanol.
I bought and just sold SMS (yesterday) at about break even.
I still hold WTS because the long term story still makes sense to me but I am down from 36 to ~ 26
energy recovery - water desalination company
Reply #86 on:
August 28, 2008, 08:37:52 PM »
This could also have been posted under the "water" thread:
The Motley Fool's take on energy conversion which as a process to desalinate salt water 10 times cheaper then competitors.
The Cabot green newletter has been recommending it and that is why I bought some. As long as there is no improved competition this sounds like a long term winner.
****A Different Path to Green Profits
By Toby Shute
August 27, 2008 Comment (0) Recommend (0)
In response to the soaring energy costs of recent years, investors have flocked to all sorts of supply-driven solutions to our little energy problem. From First Solar (Nasdaq: FSLR) to American Superconductor (Nasdaq: AMSC) to VeraSun Energy (NYSE: VSE), there are countless ways to play the emergence of energy alternatives -- some more sound than others.
Compared to supply-side issues, energy efficiency is the low-hanging fruit along the path to a greener future. A McKinsey study last year found that some very simple steps could slash energy demand growth among U.S. households by a full third by 2020. I've been thinking about this theme for some time now, and I've kept my eyes open for investable ideas.
Aside from smart power meter providers like Echelon (Nasdaq: ELON), I hadn't come up with a whole lot -- until the IPO of Energy Recovery (Nasdaq: ERII).
Not a drop to drink
The Energy Recovery (or ERI) story actually begins with another resource that's just as precious as petroleum. According to the UN, more than 1 billion people lack access to water, and global consumption is expected to double every 20 years. Water issues have the potential to lead to all manner of conflicts and catastrophes in the decades ahead if solutions aren't found, pronto.
Since about 97.5% of the world's water is seawater, that's a natural place to start. Seawater desalination has been around for decades now, but it's traditionally been quite energy-intensive. Folks like the Saudis could always afford that trade-off, but the broader market for desalination plants was pretty limited until the cost started dropping significantly.
Two key factors have driven down the cost of increasingly popular seawater reverse osmosis (SWRO) technology: more efficient membranes from the likes of General Electric (NYSE: GE) and Dow Chemical (NYSE: DOW), and the introduction of energy recovery devices.
I won't go into the details of how they work (here's a video for the curious), but Energy Recovery's energy-saving pressure exchangers are apparently the hottest thing going when it comes to such devices. The company keeps landing large contracts in places like China and the United Arab Emirates, and sales are growing at a furious clip. ERI's hardly starved for capital, but it must have seemed like a natural time to sell some shares to the public.
But is it time to buy?
Of course, a company that grew its top line by more than 75% last year won't come cheap. On a trailing basis through the recently reported June quarter, ERI is valued at around 46 times earnings. This is one spicy seawater stock.
At the industry level, I can't really think of anything that would disrupt the increasing adoption of SWRO around the globe. Individual plants will be delayed or canceled, undoubtedly, but that's just a bump in the road. Desalination is an overarching trend that seems powerfully persistent.
I do have concerns at the company level, however. The key question, for me, is the durability of ERI's business model.
First and foremost, because ERI lives and dies by its pressure exchangers, the company needs an insurmountable competitive moat in this realm. I don't think it has one. I know the company has spent more than a decade developing this device. But what's to stop a company like GE from waking up one day and deciding to develop its own such doohickey, in a fraction of that amount of time?
Granted, that's what patents are for, and ERI has a handful. But the company's description of the patents -- " specific proprietary design features of our PX technology" -- makes it sound as though they're not particularly broad-based. In addition, these patents begin to expire in 2011. The company has filed for a new set, but I don't have more information than that.
Somewhat related to ERI's extreme product concentration is the company's lack of recurring revenue. One of the firm's stated strategies is to increase aftermarket sales, but it simultaneously acknowledges that the durability of its PX devices, which have only one moving part, may preclude a bustling aftermarket business. Rather than a razor-razorblade model operative here, aftermarket sales appear to be more incidental.
The Foolish bottom line
Having spent the better part of my weekend studying seawater desalination, I'm very bullish on the big picture here. As SWRO becomes big(ger) business, however, ERI will face intense competition, and I don't see enough of a barrier to entry to justify its premium valuation today.****
Re: Stock Market
Reply #87 on:
August 29, 2008, 07:09:29 AM »
Thank you for this.
Another desalinazation play, CWCO seems to have come off its lows, but the drama of its plunge leaves me unwilling to go back in. For me PHO remains my main water play. Heavily diversified in various water stocks, it seems a good way to play the concept relatively safely. AWR is back to even for me.
Re: Stock Market
Reply #88 on:
September 17, 2008, 11:20:45 AM »
Recommended in the highest terms as a place to go REGULARLY:
Reply #89 on:
September 19, 2008, 06:37:58 PM »
Thanks nice site.
It is laid out a little like DGs site. I guess I should have listened to Scott two days ago and bought a liitle more.
Re: Stock Market
Reply #90 on:
September 19, 2008, 09:47:04 PM »
I did add to PHO at 19 and CSCO too.
Scott Grannis blog
Reply #91 on:
October 08, 2008, 11:29:03 PM »
I recommend Scott Grannis in the very highest terms.
Re: Stock Market
Reply #92 on:
October 09, 2008, 07:30:47 PM »
From Scott Grannis' site:
"The total loss from '29 to the eventual bottom in '32 was 90%".
Yes and the market didn't return to its 1929 level till 1954.
Lets see, in 2033 I would be ____ years old.
Re: Stock Market
Reply #93 on:
October 19, 2008, 12:49:46 PM »
Someone whose opinions I respect highly writes me:
I do think TIPS are the ideal asset for anyone who is risk-averse.
They are fully guaranteed by the US government. They pay a real
interest rate of about 3% on top of whatever the rate of consumer
price inflation is. Any time you can lock in a guaranteed real return
of 3% you would be wise to take it. On a risk-adjusted basis, TIPS are
today probably the most attractive asset class in the world.
Let's say you buy $10K worth of 10-yr TIPS. They currently have a 3%
real yield. The face value of the bonds will rise by a rate that is
equal to the rise in the consumer price index. If the CPI averages 3%
a year for 10 years, you will have bonds with a face value of $13,440
at maturity. Plus, each year you will receive a coupon payment equal
to 3% of the inflation-adjusted face value of the bonds.
So, if inflation is 3% a year, the return on your investment will be
(1.03) * (1.03) - 1, or 6.1% per year. If inflation is 4% per year,
your annual return will be (1.04) * (1.03) - 1, or 7.1% per year.
One caveat: if you hold TIPS in a taxable account the inflation
accretion of the face value is treated as OID, so that can result in
negative cash flow.
If an individual buys TIPS on the secondary market, the bid/ask spread
can be huge, typically 2.5%. Better to buy them at auction, but you
have to plan ahead to do that. Or buy them via a mutual fund. The best
one I know is the iShares Lehman Inflation Protected fund (symbol:
WSJ: Fcuk it
Reply #94 on:
November 20, 2008, 03:05:14 AM »
Ignore the Stock Market Until February
The current volatility is less about fundamentals than forced selling.By ANDY KESSLERArticle
more in Opinion »Email Printer Friendly Share:
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Down in the morning, up in the afternoon. Or is it the other way around? The topsy-turvy stock market is tough to read.
In the last year, the Dow Jones Industrial Average has briefly been over 13,000 and below 8,000. The past month has felt like the Cyclone roller coaster on Brooklyn's Coney Island -- lots of ups and downs, the whole rickety thing feeling like it's going to crash at any minute.
David KleinGreat investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is like a giant mass of pulsing plasma doing price discovery and a game of hot potato, getting stocks into the correct hands with the right risk profile. It's way too big for any one person to manipulate, let alone touch directly. Instead, millions of us provide input with our buying and selling decisions.
When it's at its most efficient, with buyers and sellers neatly matched up at the right price, it's a pretty good predictor. The Crash of 1929 announced a recession, and the wake-up call unheeded might have caused many of the bad policies leading to the Great Depression. The Crash of 1987? Not so much.
You see, the market is a great manipulator. In September, the Dow dropped 700 points intraday after the House of Representatives voted down the Treasury's TARP bank-rescue bill. Spooked, the House passed the bill the next week. Or how about this? The Dow was up 300 points on Election Day applauding an Obama victory and then down 1,600 points since.
The market can also be a bold-faced liar. On Jan. 22, the Fed announced an emergency 75-basis-point rate cut in response to huge drops in European markets. A few days later, it came out that a rogue trader at Société Générale lost them $7 billion and the bank was unwinding his positions. Oops.
So which is it now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I'd say stick wax in your ears and don't listen to the market until February.
Don't get me wrong. The freezing of the credit markets is wreaking havoc on the world economy. Corporate profits are dropping. Central banks are fighting off deflation and may not turn off the spigots fast enough -- which could ignite runaway inflation. But because of the credit mess, I am convinced the stock market is at its least efficient today. Don't read too much into any move. Here are the five biggest dislocations taking place:
- Tax-loss selling: Whenever you have a loss in a stock -- and who doesn't -- it's always tax smart to sell it, take a tax loss and either buy something similar or wait 30 days and buy the original one back. December can be an ugly month of indiscriminate selling. The December effect will be huge this year.
- Mutual-fund redemptions: Mutual funds are also dumped for tax losses. When the stock market is down in the morning, it's usually because of mutual-fund redemptions.
Fidelity's giant Magellan fund, down 56%, is one of many in the $6 trillion stock-fund business having an awful year. As investors call or click to get out of these funds, Fidelity and the others have to unload shares the next morning to raise cash. This forced-selling overwhelms the system. New York Stock Exchange specialists, who are supposed to maintain an orderly market, stop buying and back away. You get huge drops, which can unnerve even more investors and cause them to redeem.
- Mutual fund cap-gain distributions: To make matters worse, in December mutual funds do capital-gains distributions. In a down year like 2008, you would think there are no taxes to pay. Think again. Legg Mason's Value Trust, run by Bill Miller, outperformed the market for 15 years by buying many "unvalue" names like Amazon. As investors redeem, he is forced to sell many of these stocks originally purchased at very low prices, triggering huge capital gains in a year his fund is down 62%. You can almost guarantee investors also will sell more of these funds to pay their unexpected tax bill.
- Hedge-fund redemptions: Instead of overnight selling like mutual funds, hedge funds typically require 45 days' notice for investors to get out of a fund. They've been furiously selling since September to raise cash to pay investors. This usually shows up as a set of stocks that just go down and down and down with no obvious explanation.
Rubbing salt in hedge-fund wounds is the fact that Lehman Brothers was a prime broker to many hedge funds, holding their shares. While Lehman's bankruptcy was not a problem in the U.S., in England the policy is to freeze accounts until the mess can be sorted out. There are billions in assets locked in this bankruptcy, and hedge funds are forced to sell positions in the U.S. and elsewhere to raise cash, exacerbating the downside here.
Today in Opinion Journal
REVIEW & OUTLOOK
The Obama Health Plan EmergesA Capital MessageThe Politics of Entitlement
Wonder Land: Mad Max and the Meltdown
– Daniel HenningerNow Obama Has to Govern
– Karl Rove
Ignore the Stock Market Until February
– Andy KesslerLet's Have a Real Middle-Class Tax Cut
– Newt Gingrich and Peter FerraraObama Should Look Into Putin's Record, Not His Eyes
– Garry KasparovAn Auto Bailout Would Be Terrible for Free Trade
– Matthew J. SlaughterBy the way, when hedge funds are down for the year, they work practically for free until they make up the loss. We'll see hedge funds close and stocks liquidated as -- no surprise -- hedge-fund managers like to get paid.
- Margin calls: Whenever stocks go down sharply, you quickly find who owns them with debt. We have seen spectacular margin calls, a requirement for more capital to cover share losses. Chesapeake Energy CEO Aubrey McClendon unloaded 33 million shares to cover losses. Viacom CEO Sumner Redstone had a forced sale of $400 million in Viacom and CBS shares because of a margin call on other stocks. You can bet many not-so-public margin calls are behind many huge price drops. These usually take place in the last 30 minutes of trading.
So won't January be alright once these dislocations weighing on the market are lifted? The January effect is supposed to be positive.
Well, often money managers are fired at the end of disastrous years. A new manager comes in, looks at the existing positions and dumps them all and remakes the portfolio with new stocks that he likes, thus generating more selling. My favorite Wall Street adage suggests that the stock market trades to inflict the maximum amount of pain. Remember, you can only ignore the stock market for so long. Once everyone thinks it can only go down . . . it might go up.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Restore the Uptick Rule
Reply #95 on:
December 09, 2008, 12:00:31 AM »
By CHARLES R. SCHWAB
The last time the stock market suffered from extreme volatility and risk of market manipulation as severe as we are experiencing today, our grandparents' generation stepped up to the plate and instituted the uptick rule. That was 1938. For nearly 70 years average investors benefited immensely from that one simple stabilizing act.
Unfortunately, in a shortsighted move, the Securities and Exchange Commission (SEC) eliminated the rule in July 2007, just as we were about to need it most. Investors have now been whipsawed by what appears to be manipulative trading, what we used to call "bear raids," which drive stock prices down without warning and at breakneck speed. Average investors feel the deck is stacked against them and are losing confidence in the markets.
For the sake of our children and grandchildren, and to avoid a needless future repeat of a bad situation, it is time to restore the uptick rule.
The uptick rule may seem far from a kitchen-table issue, but it is critically important to ordinary investors. With more than half of all U.S. households invested in the stock market, either directly or through a retirement plan, it matters a great deal. The average 401(k) retirement account has lost 20%-30% of its value over the last 18 months -- more than $2 trillion in retirement savings has been wiped out. Behind those numbers are real people who planned and saved, and who are suddenly facing an uncertain retirement and the prospect of working longer.
In the wake of the Great Depression, the uptick rule was established to eliminate manipulation and boost investor confidence. The rule said that short sales could be made only after the price of a stock had moved up (an "uptick") over the prior sale. This slowed the short selling process making it more expensive and limiting the ability of short sellers to manipulate stocks lower by piling on, driving the share price quickly down and quickly profiting from the downdraft they created. In July 2007, however, the SEC repealed the uptick rule after a brief study. Manipulative short sellers couldn't believe their luck.
The SEC's study took place during a period of low volatility and overall rising stock prices in 2005 through part of 2007 and didn't anticipate the kind of market we are experiencing today. We live in an environment now where 200 point drops or more in the Dow Jones Industrial Average are increasingly common, where a stock losing 20%, 30% or even more of its value in a single day barely warrants a second glance at the ticker. Ironically, it was just this sort of volatility that inspired the regulators of the 1930s to implement the uptick rule in the first place. Without this vital control mechanism, short sellers have been having a field day, betting heavily on lower prices and triggering panicked investors to sell even more.
Don't get me wrong. Legitimate short selling where a trader has borrowed shares for future delivery and believes those shares will lose value over time plays an important and stabilizing role in our markets. It provides a check on overexuberant prices on the upside, and provides natural buyers on the downside. The uptick rule, however, prevents short selling from turning into manipulative activity. Reinstating it will help smooth out the markets and reduce the speed of price drops. It will limit the ability of a small number of professional investors to trigger fast dramatic price drops that create panic among investors.
In today's Opinion Journal
REVIEW & OUTLOOK
The Obama Health-Care ExpressFight Racism, U.N.-StyleLet Ford Save Ford
Main Street: Now for an Honest Debate on Gitmo
– William McGurnGlobal View: Obama's Team of Conformists
– Bret Stephens
Getting Out of the Credit Mess
– Harvey GolubRestore the Uptick Rule, Restore Confidence
– Charles R. SchwabHolding CEOs Accountable
– Jonathan MaceyThe SEC has an opportunity to make a real difference in helping to control future market stability and restore confidence in the fairness of our capital markets. But the SEC has been strangely silent as the crisis has worsened. It did step in earlier this fall to implement short stock borrowing restrictions and a temporary ban on short selling, first on 19 stocks in the financial services sector, and later in a broader swath of 900 stocks across several sectors. But these steps were a temporary half-measure and didn't fix the problem for the long term.
Clearly, the SEC will need to work on some of the mechanics of reinstating the uptick rule. Regulators should act quickly to establish a framework and solicit public comment, then reinstate the rule and remain flexible and willing to fine tune it if necessary.
Ordinary investors' expectations for investing are reasonable. They want a fair playing field. They want to be successful. They want to provide for their families, support their children's education, have a comfortable retirement, and maybe even leave a little bit for future generations. But they can't succeed when the markets are gripped by fear and manipulated by those who want to profit from that fear, at the expense of everyone else.
It may be too late for the restoration of the uptick rule to have much impact on where we are today. But there is no reason to wait and we need the protection in place for the future. It is time to restore it. It's what our grandparents did for us in 1938, and it worked for nearly 70 years. With that kind of track record, we should tip our hats to the regulators of yesteryear and acknowledge that they had it right all along.
Mr. Schwab is the founder and chairman of the financial services firm that bears his name.
Reply #96 on:
December 16, 2008, 10:15:16 AM »
Why asset bubbles are a part of the human condition that regulation can’t cure
by Virginia Postrel
IMAGE CREDIT: CHRISTOPHER STEVENSON/GETTY IMAGES
IN THESE UNCERTAIN economic times, we’d all like a guaranteed investment. Here’s one: it pays a 24-cent dividend every four weeks for 60 weeks, 15 dividends in all. Then it disappears. Unlike a bond, this security has no redemption value. It simply provides guaranteed dividends. It involves no tricky derivatives or unknown risks. And it carries absolutely no danger of default. What would you pay for it?
Before financially sophisticated readers drag out their calculators, look up interest rates, and compute the present value of those future payments, I have a confession to make. You can’t buy this security, and it doesn’t really pay dividends every four weeks. It pays every four minutes, in a computer lab, to volunteers in economic experiments.
For more than two decades, economists have been running versions of the same experiment. They take a bunch of volunteers, usually undergraduates but sometimes businesspeople or graduate students; divide them into experimental groups of roughly a dozen; give each person money and shares to trade with; and pay dividends of 24 cents at the end of each of 15 rounds, each lasting a few minutes. (Sometimes the 24 cents is a flat amount; more often there’s an equal chance of getting 0, 8, 28, or 60 cents, which averages out to 24 cents.) All participants are given the same information, but they can’t talk to one another and they interact only through their trading screens. Then the researchers watch what happens, repeating the same experiment with different small groups to get a larger picture.
The great thing about a laboratory experiment is that you can control the environment. Wall Street securities carry uncertainties—more, lately, than many people expected—but this experimental security is a sure thing. “The fundamental value is unambiguously defined,” says the economist Charles Noussair, a professor at Tilburg University, in the Netherlands, who has run many of these experiments. “It’s the expected value of the future dividend stream at any given time”: 15 times 24 cents, or $3.60 at the end of the first round; 14 times 24 cents, or $3.36 at the end of the second; $3.12 at the end of the third; and so on down to zero. Participants don’t even have to do the math. They can see the total expected dividends on their computer screens.
Here, finally, is a security with security—no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics. The trading price should stick close to the expected value.
At least that’s what economists would have thought before Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.
So much for security.
These lab results should give pause not only to people who believe in efficient markets, but also to those who think we can banish bubbles simply by curbing corruption and imposing more regulation. Asset markets, it seems, suffer from irrepressible effervescence. Bubbles happen, even in the most controlled conditions.
Experimental bubbles are particularly surprising because in laboratory markets that mimic the production of goods and services, prices rise and fall as economic theory predicts, reaching a neat equilibrium where supply meets demand. But like real-world purchasers of haircuts or refrigerators, buyers in those markets need to know only how much they themselves value the good. If the price is less than the value to you, you buy. If not, you don’t, and vice versa for sellers.
Financial assets, whether in the lab or the real world, are trickier to judge: Can I flip this security to a buyer who will pay more than I think it’s worth? In an experimental market, where the value of the security is clearly specified, “worth” shouldn’t vary with taste, cash needs, or risk calculations. Based on future dividends, you know for sure that the security’s current value is, say, $3.12. But—here’s the wrinkle—you don’t know that I’m as savvy as you are. Maybe I’m confused. Even if I’m not, you don’t know whether I know that you know it’s worth $3.12. Besides, as long as a clueless greater fool who might pay $3.50 is out there, we smart people may decide to pay $3.25 in the hope of making a profit. It doesn’t matter that we know the security is worth $3.12. For the price to track the fundamental value, says Noussair, “everybody has to know that everybody knows that everybody is rational.” That’s rarely the case. Rather, “if you put people in asset markets, the first thing they do is not try to figure out the fundamental value. They try to buy low and sell high.” That speculation creates a bubble.
In fact, the people who make the most money in these experiments aren’t the ones who stick to fundamentals. They’re the speculators who buy a lot at the beginning and sell midway through, taking advantage of “momentum traders” who jump in when the market is going up, don’t sell until it’s going down, and wind up with the least money at the end. (“I have a lot of relatives and friends who are momentum traders,” comments Noussair.) Bubbles start to pop when the momentum traders run out of money and can no longer push prices up.
But people do learn. By the third time the same group goes through a 15-round market, the bubble usually disappears. Everybody knows what the security is worth and realizes that everybody else knows the same thing. Or at least that’s what economists assumed was happening. But work that Noussair and his co-authors published in the December 2007 American Economic Review suggests that traders don’t reason that way.
In this version of the experiment, participants took part in the 15-round market four times in a row. Before each session, the researchers asked the traders what they thought would happen to prices. The first time, participants didn’t expect a bubble, but in later markets they did. With each successive session, however, they predicted that the bubble would peak later and reach a higher price than it actually did. Expecting the future to look like the past, they traded accordingly, selling earlier and at lower prices than in the previous session, hoping to realize a profit before the bubble burst. Those trades, of course, changed the market pattern. Prices were lower, and they peaked closer to the beginning of the session. By the fourth round, the price stuck close to the security’s fundamental value—not because traders were going for the rational price but because they were trying to avoid getting caught in a bubble.
“Prices converge toward fundamentals ahead of beliefs,” the economists conclude. Traders literally learn from experience, basing their expectations and behavior not on logical inference but on what has happened in the past. After enough rounds, markets work their way toward a stable price.
If experience eliminates bubbles in the lab, you might expect that more-experienced traders in the real world (or what experimental economists prefer to call “field markets”) would produce fewer financial crises. When asset markets run into trouble, maybe it’s because there are too many newbies: all those dot-com day traders, 20-something house flippers, and newly minted M.B.A.s. As Alan Greenspan told Congress in October, “It was the failure to properly price such risky assets that precipitated the crisis.” People didn’t know what they were doing. What markets need are more old hands.
Alas, once again the situation is not so simple. Even experienced traders can make big mistakes when conditions change. In research published in the June 2008 American Economic Review, Vernon Smith and his collaborators first ran the standard experiment, putting groups through the 15-round market twice. Then the researchers changed three conditions: they mixed up the groups, so participants weren’t trading with familiar faces; they increased the range of possible dividends, replacing four possible outcomes (0, 8, 28, or 60) averaging 24, with five (0, 1, 8, 28, 98) averaging 27; finally, they doubled the amount of cash and halved the number of shares in the market. The participants then completed a third round. These changes were based on previous research showing that more cash and bigger dividend spreads exacerbate bubbles.
Sure enough, under the new conditions, the experienced traders generated a bubble just as big as if they’d never been in the lab. It didn’t last quite as long, however, or involve as much volume. “Participants seem to be tacitly aware that there will be a crash,” the economists write, “and consequently exit from the market (sell) earlier, causing the crash to start earlier.” Even so, the price peaks far above the fundamental value. “Bubbles,” the economists conclude, “are the funny and unpredictable phenomena that happen on the way to the ‘rational’ predicted equilibrium if the environment is held constant long enough.”
For those of us who invest our money outside the lab, this research carries two implications.
First, beware of markets with too much cash chasing too few good deals. When the Federal Reserve cuts interest rates, it effectively frees up more cash to buy financial instruments. When lenders lower down-payment requirements, they do the same for the housing market. All that cash encourages investment mistakes.
Second, big changes can turn even experienced traders into ignorant novices. Those changes could be the rise of new industries like the dot-coms of the 1990s or new derivative securities created by slicing up and repackaging mortgages. I asked the Caltech economist Charles Plott, one of the pioneers of experimental economics, whether the recent financial crisis might have come from this kind of inexperience. “I think that’s a good thesis,” he said. With so many new instruments, “it could be that the inexperienced heads are not people but the organizations themselves. The organizations haven’t learned how to deal with the risk or identify the risk or understand the risk.”
Here the bubble experiments meet up with another large body of experimental research, first developed by Plott and his collaborators. This work explores how speculative markets can pool information from lots of people (“the wisdom of crowds”) and arrive at accurate predictions—for example, who’s going to win the presidency or the World Series. These markets work, Plott explains, because people with good information rush in early, leading prices to reflect what they know and setting a trajectory that others follow. “It’s a kind of cascade, a good cascade, just what should happen,” he says. But sometimes the process “can go bananas” and create a bubble, usually when good information is scarce and people follow leaders who don’t in fact know much.
That may be what happened on Wall Street, Plott suggests. “Now we have new instruments. We have ‘leaders,’ who one would ordinarily think know something, getting in there very aggressively and everybody cuing on them—as they have done in the past, and as markets should. But in this case, there might be a bubble.” And when you have a bubble, you will get a crash.
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Government Relief Index
Reply #97 on:
January 09, 2009, 06:32:19 PM »
NASDAQ Creates Index To Track Bailed-Out Companies
Joe Weisenthal | Jan 8, 09 4:19 PM
This is fun. The folks over at the NASDAQ have created a new index, OMX Government Relief (^QGRI), to track firms that have been bailed out by the government. The index will track, with equal weight, companies of at least $1 billion market cap, that have come to Washington cap in hand. It's mostly TARP companies, but not necessarily all. The index, which was set at 1,000 on Monday, is already down to 941.42.
Now in true style, someone needs to come up with a triple-leveraged short ETF to track this.
We also like this suggestion from Schaeffer research that the NASDAQ should've given the index a clever ticker, like FAIL.
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Re: Stock Market
Reply #98 on:
January 09, 2009, 08:27:52 PM »
That is both funny and scary.
Public Pension Fund Implosion, I
Reply #99 on:
January 12, 2009, 02:35:49 PM »
The Next Catastrophe
Think Fannie Mae and Freddie Mac were a politicized financial disaster? Just wait until pension funds implode.
Jon Entine | February 2009 Print Edition
Funds worth trillions of dollars start to plummet in value. Political pressure to be “socially responsible” distorts the market decisions of government-related enterprises, leading to risky investments. Investors who once considered their retirements safely protectedwake up to a sinking feeling of uncertainty and gloom.
Sound like the great mortgage-fueled financial crisis of 2008? Sure. But it also describes a calamity likely to hit as soon as 2009. State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.
From January to October 2008, defined benefit funds—those promising a predetermined amount of retirement money to the payee—averaged losses of 26 percent, according to Northern Trust Investment Risk and Analytical Services, making it the worst year on record for corporate and public pension funds. The largest public pension fund in the United States, the California Public Employees Retirement Security System (CalPERS), lost a staggering 20 percent of its value in just three months last year. In May 2008, Vallejo, California, became the largest city in the state ever to file for Chapter 9 bankruptcy, thanks largely to unmanageable pension obligations. The situation in San Diego looks worryingly similar. And corporations with defined benefit plans are seeking relief in Washington as part of a bailout season that shows no sign of slowing down.
If the stock market remains in a funk for even a few more months, corporations that oversee union pension funds and state and municipal leaders responsible for public retirement pools may be faced with difficult choices. First on the docket might be postponing cost-of-living increases and reducing health care coverage for retirees. Over the longer term, benefits for new employees will have to be shaved and everyone is likely to see an increase in personal payroll contributions. Corporations will have to resort to more cost cutting and layoffs of their own just to guarantee the solvency of their pension funds. And things could go from bad to terrible if the managers of those funds do not quickly revise their investment practices.
During melting markets, all pension funds come under siege. If you’re covered by a “defined contribution” plan, contributions are invested, usually by your employer and usually in the stock market, and the returns are credited to the employee’s account. Your retirement savings grow if the market rises or, as is the case now, bleed when it crashes. You carry the risk on your shoulders.
The risk shifts to the employer under “defined benefit” plans, in which future outlays are guaranteed. That seemed like a great idea for business as recently as 2007, when the market was rising and the pension funds of America’s 500 largest companies held a surplus of $60 billion. Now they’re at a deficit of $200 billion, with fund assets dropping like a lodestone.
The Pension Protection Act of 2006 requires that companies keep the accounts fully funded over time, meaning that they have to have enough money to pay all of their retirees should they decide to withdraw their funds. Yet more than 200 of the 500 big-company plans are nowhere close to meeting that standard, and those dire numbers are increasing.
Companies with defined-benefit pensions may soon find themselves choosing between making payroll or pumping money into their pension plans. If companies are forced to make up the shortfall out of their assets, which seems likely, that would send profits tumbling even more, further destabilizing the stock market. And even with a cash infusion, many businesses might still have to freeze or even cut benefits.
Both the corporations and the pensioners are victims of a market meltdown whose depth and duration almost no one predicted. Yet the investment performances of their corporate pension funds, while dismal, are holding up better than the returns of many public and union defined benefit plans. Those funds are facing their own reckoning, but in this case a lot of the pain is self-created and exacerbated by politics.
Social Investing Shenanigans
There is about $3.5 trillion sloshing through the U.S. retirement system, scattered across more than 2,600 public pension funds and federal retirement accounts. Another $1 trillion or so covers union workers at corporate jobs in which the union has key management control of the fund. These public and union-based defined benefit plans cover 27 million people and represent more than 30 percent of the $15 trillion dollars held in U.S. retirement accounts.
Traditionally, public investments and union-based corporate pension funds were managed according to strict fiduciary principles designed to protect workers and taxpayers. For the most part they invested in safe government securities, such as bonds or U.S. Treasury bills. Professional managers oversaw the funds with little political interference.
But during the last 30 years, state pension funds began playing the market, putting their money into riskier and riskier securities—first stocks, corporate bonds, and foreign investments, then real estate, private equity firms, and hedge funds. Concurrently, baby boomers whose politics were forged in the 1960s and ’70s began using those pension funds to advance their social visions. Investments designed for the long-term welfare of retirees began to evolve into a political hammer. Some good occasionally came from the effort, as when companies were pushed to become more accountable in their practices. But advocacy groups often used their clout to direct money into pet social projects with dubious fiduciary prospects. Sometimes the money went to the very companies and financial instruments that, in the wake of the market meltdown, are now widely derided.
Many union funds and larger state pension plans screen stocks and investment opportunities based on what are known as “socially responsible investing,” or SRI, principles. Instead of focusing solely on maximizing value, fund managers have used the economic clout of concentrated stock holdings to make a statement by divesting from companies that don’t make it through certain “sin screens.” These included companies involved with weapons, nuclear energy, tobacco, alcohol, natural resources, and genetic modifications on agriculture, many of which did well over the past decade. Stocks of public companies deemed to have poor records on labor, environmental issues, women’s rights, and gay rights are also frequently screened out, as are corporations that do business with regimes that activists consider unsavory. In some cases, investments have been withheld altogether from some of the markets expected to best weather the current financial storm, including China and India, because of perceived transgressions.
Socially responsible investing now claims a market of more than $2 trillion, according to the Social Investment Forum, the trade group for social investors. There are dozens of mutual funds and investment advisory companies that incorporate ideological screens. Most of them are liberal, although there are now a few conservative funds and some based on religious principles, such as Islamic law. Activist treasurers and pension fund managers in numerous states and municipalities, most notably in California, New York, and Connecticut, have incorporated social screens into their investment strategies.
Many of these funds prospered in the 1990s, when the basic material stocks that they frowned upon swooned, while the favored sectors—mostly technology and financial stocks, which were considered “clean investments”—did great. But the technology and communications bust of 2000–02 knocked out one of SRI’s pillars, and now the crash in financial stocks has destroyed the other. Despite much hype to the contrary, socially responsible stocks, as measured by major broad-based SRI stock funds, have significantly underperformed the market this decade, and some of the most aggressive pension funds that use “responsible” screens—such as the California Public Employees’ Retirement System—have taken some of the largest hits.
“Investing in socially responsible stocks just because they are socially responsible is not—underline not—a valid investment thesis,” says Steven Pines, a senior investment consultant for Northern Trust. Many of the largest socially responsible mutual funds, including a leading benchmark, the Domini Social Index, have been laggards for years. The Sierra Club’s high-profile social fund, which had regularly trailed the benchmark S&P 500 index by about 6 percent a year, liquidated in December, a victim of its poor performance record. As recently as last November, 76 out of the 91 socially responsible stock funds were underperforming the Dow, according to the investment research company Morningstar.
“This crisis highlights the limitations of social research methods,” says Dirk Matten, who holds the Hewlett-Packard chair in corporate social responsibility at York University’s Schulich School of Business. Although some socially responsible research models are more sophisticated than others, particularly ones that eschew simplistic screens, social investors have downplayed the actual business of a business, including whether it can create jobs and spread wealth, while overweighting what Matten believes are more symbolic concerns, such as announced programs to combat climate change.
Sometimes corporate social responsibility can mask or come at the expense of responsibility to shareholders. Fannie Mae, for instance, was named the No. 1 corporate citizen in America from 2000–04, based on datacompiled by the top U.S. social research firm, KLD Research and Analytics in Boston. Well, it does have a great diversity program.
As recently as mid-2008, three of the top eight holdings by the leading social investing organizations in the country were financial stocks: AIG, Bank of America, and Citigroup. AIG was praised for its retirement benefits and sexual diversity policies; Bank of America strove to reduce greenhouse gas emissions and promote diversity; and Citigroup donated money to schools and tied some of its loans to environmental guidelines. The stock prices of all three companies tanked in 2008.
From South Africa to the Shop Room Floor
The catalyzing event that changed pension funds from boring retirement pools to political operators was the international boycott of apartheid South Africa in the 1980s and the campaign to limit investments in companies that did business with Johannesburg. The success of the campaign energized baby boomers, now entering their prime earning years, who were committed to “making a difference” with their dollars. Taking a cue from these social investors, pension funds began dabbling in what came to be known as economically targeted investments—injecting money into communities or projects that addressed social ills, with healthy returns becoming a secondary concern.
The earliest pension fund social investing initiatives were often cobbled together during crises, with little appreciation for unintended consequences. In the 1980s, for example, the Alaska public employee and teacher retirement funds loaned $165 million—35 percent of their total assets—for the purpose of making mortgages in Alaska. When oil prices fell in 1987, so did home prices in the nation’s most oil-dependent state. Forty percent of the pension loans became delinquent or resulted in foreclosures.
While unions and social investors often work together, their investment strategies are not always in sync. In 1989, under union pressure, the State of Connecticut Trust Funds invested $25 million in Colt’s Manufacturing Co. after the beleaguered gun maker—hardly a favorite of the SRI crowd—lobbied the state legislature to save jobs. Colt’s filed for bankruptcy just three years later, endangering the trust funds’ 47 percent stake.
In the late 1980s, the Kansas Public Employees Retirement System, then considered a model of activist social investing, placed $65 million in the Home Savings Association, after its lobbyists told top officials that this would help struggling segments of the state economy. That investment evaporated when federal regulators seized the thrift. All told, the Kansans wrote off upward of $200 million in economically targeted investments.
Olivia Mitchell, executive director of the Pension Research Council at the Wharton School, has reviewed the performance of 200 state and local pension plans from 1968 to 1986 . She found that “public pension plans earn[ed] rates of return substantially below those of other pooled funds and often below leading market indexes.” In a study of 50 state pension plans during the period 1985–89, the Yale legal scholar and economist Roberta Romano concluded that “public pension funds are subject to political pressures to tailor their investments to local needs, such as increasing state employment, and to engage in other socially desirable investing.” She noted that investment dollars were directed not just toward “social investing” but also toward companies with lobbying clout.
Because of poor returns, these early experiments in economically targeted investments lost their allure. Most states and municipalities steered clear of social investing for a time. That hesitancy eroded during the 1990s, partly as a result of a new strategy employed by organized labor.
With their membership falling, union leaders found it harder to influence companies or politics from the factory floor. The new approach was to ally with social investors and adopt one of their key tactics: lobbying through shareholder resolutions intended to pressure corporations. “The strengthening of shareholder democracy promises to further empower investors to address governance issues such as out-of-control executive pay as well as environmental and social issues such as climate change,” Jay Falk—president of SRI World Group, which advises pension funds on social investing—said in 2007, as the tactic was gaining traction.
Union-led pension funds are also trying to rattle political cages, but they’re running closer to empty every day. Even before the sell-off, in the summer of 2008, while nearly 90 percent of nonunion funds met minimum safe funding thresholds—meaning they had adequate cash on hand to pay their benefits—40 percent of union funds were at risk. “These are high risk numbers even in a steady economy,” writes Diana Furchtgott-Roth, a pension fund specialist with the conservative Hudson Institute, in a recent study. Furchtgott-Roth notes that union fund management practices are opaque, costs are higher than at nonunion funds, and the plans have promised more than they can ever hope to deliver. “When workers entrust their retirement assets to an outside party, it is important that this party’s only interest be achieving the best returns possible,” she argues. “Unions clearly do not do this.”
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