Quote of the week:
'Besides being a leader in genetic engineering, Monsanto is one of the largest suppliers of seeds in the world. It also sells the widely used herbicide Roundup, use of which has grown with the adoption of genetically engineered crops resistant to Roundup.' - The NY Times lets slip how the Agri-Food business really works.
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Does Ethical Investing Work? (Part II - contd. from the last issue):
As promised, this week sees us beginning to tackle the idea of Ethical or Socially Responsible Investing (SRI), which are actually slightly different from each other but which I will knowingly treat as two peas in a pod for the purpose of most of our discussion. The actual difference is that SRI is typically a negative screen which roots out bad apples in the corporate sector, whereas Ethical Investing is a search for the 'good apples' in the stock market in which we can invest. For the purposes of our discussion today, think of them as identical twins - they might be different in theory, but to us they look the same (this is called the problem of reductionism in logic - a severe logical fallacy for lesser mortals).
As we discussed last week, one of severest problems we face as people who believe that we are responsible and accountable for our wealth (or debts), not just our actions - is the inability to control what uses our funds are put to if we plug into the conventional financial system in any meaningful way. Given that we 'need' to have mortgages, savings, credit cards etc. simply in order to live 'normally', how are we to ensure that the hard-earned money we earn and save for our kids is not actually going towards poisoning the very Earth and the water that will be left for our Grand-kids? In a system that functions according to its own value-less logic, how do we live and function with the values that we do have without feeling like hypocrites who talk a lot but whose money is still part of the problem. After all, nobody really believes that we should spread poisons like cyanide in their own backyard, so then why is okay if it is done 2000 km away (and we ignore it) if the rivers will simply carry it to your neighbourhood (if not your cousin's) in a matter of weeks? How much is clean water really worth? The economists of the world have a really good answer to this question - so good that it is not even worth discussing.
Our answer has to be different. We must of course, begin to impose some limits (did someone say values) on how capital is taken from our savings, put into companies that do damage, and then given back to us in a sanitized manner without us really knowing what it has been up to in the meantime. This is the moral disintermediation problem we discussed two weeks ago and even though I was away for more than a whole week, I return to see it still has not been solved (come on people ...).
One possible proposed solution has been the movement towards Socially Responsible (SRI) or Ethical Investing. This is the movement where individuals and investment companies screen and focus their investment activities by first screening out 'bad' corporate citizens from their portfolios and then investing instead in companies that are either improving their image or practices, as the case may be. This is supposed to have two effects (at least). One, it signals to companies and governments (perhaps) that they need to have policies and governance mechanisms in place that will protect egregious abuses and that someone is always watching. Two, it is supposed to deny capital to the 'bad' companies and deny much needed liquidity to their shares in the stock markets so that the stock collapses and the company is sold to someone with a better handle on both business and morals.
This sectors has now grown to over $500B in Canada (which is big) and there seems to be a groundswell of interest in the subject. People from all backgrounds are now asking their financial advisor questions about whether there is anything available which makes them money and is also not damaging to the environment. God only knows how this question is being handled in your household my advisor is very shifty with his answers. One suspects that he knows less about this sector that he lets on, but I digress (and embellish). The question for us is whether SRI does what it intends to do? Does SRI solve the problem of disintermediation? Does it signal the right thing to companies? Does it deny capital to corporate offenders?
The answers to these questions are, from my humble perspective - Yes and no, no, yes & then finally - no. Clear as mud? Let me explain. SRI as a sector is only partly successful (to date) given its intentions. It does not solve the problem of moral disintermediation because we still do not know what our money is up to and where it actually goes (transparency is still an issue). It does signal extremely well to companies that investors are waking up, but ultimately it does not really deny capital to companies with faulty records and dubious future plans. This is because the top holdings for many SRI funds and portfolios in Canada are the banks. This would not ordinarily be a problem except for the fact that in Canada, the banks are actually the largest producers and channels of capital (no, not the government). Even though some investment capital is moving away from companies directly, the same investment capital finds its way to companies through the banks in the form of debt instead. The SRI fund invests in a new offering of bank shares, the bank turns around and loans this money to Company G. Cyanide still finds its way into the water supply. The difference though, is that Company G has a more difficult time (sometimes) selling its shares. Is this success?
Of course, it is too early to say and I think that we should all as people still investigate it for ourselves, but in my opinion, and I fully recognize that I am both a bit weird and in the minority, but we need something a little more drastic. At the very least, the SRI sector needs to begin to demand that the banks begin to include SRI considerations in their loan criteria. That will send shockwaves through the corporate board-rooms where the environment is considered little more than a garbage dump because they know they can always get a bigger loan. It will also begin to address the seriousness of the situation in a way that will change practices quickly, rather than at the leisurely pace that things are usually done in Canada. Of course, as believers, we do not think that the banks' business models are good for society at all, but that is no reason to think that they could not have better practices than they do at the moment. I leave it up to you to decode where IF fits into all this, but from my perspective, we really have to stop thinking about just money when we talk about money. As thinking, feeling people, we are called to a deeper existence.
--------------
Upcoming Events:
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Wonderful Q/A session with a serial entrepreneur (hat-tip to K Niazi) ... read more here
2. Remember how Dr. Yunus from Bangladesh got the Nobel Prize for Micro-finance a few years ago? Well, this article looks at some recent happenings in the world of Micro-finance. I believe the word used was 'shocking' ... read more here
Economic News:
1. The Economist's analysis of the prospects for the Oil markets ... read more here
2. House prices fall faster than in the depression ... read more here
3. Some insights about what drives Innovation in an economy ... read more here
4. The companies whose tinkering with our food supply contributed to the food crisis in the first place now say they have a solution ... this news is most disturbing ... read more here
Islamic / Middle East / Emerging Markets:
1. In case you were still wondering where Oil Money usually goes ... read more here
2. The definitive and final reason on why Japan is the absolute and most advanced civilization on Earth (ever) ... read more here
Interesting but not all Finance:
1. In case you're wondering where to go for the summer ... read more here
2. A new way to clean up oil spills? ... read more here
3. A new site to help you analyze your business ... read more here
4. A wonderful play about a girl from the US who died under tragic circumstances in Palestine recently. A must see for those interested in how wars affect people's livelihoods and why Ethical Investing has an aversion to investing in defence related industries ... read more here
Showing posts with label SRI. Show all posts
Showing posts with label SRI. Show all posts
Sunday, June 15, 2008
Wednesday, June 4, 2008
Investing and Ethical Investing (Part I)
Quote of the week:
'It is what you read when you don't have to that determines what you will be when you can't help it.' - Oscar Wilde
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Difference between Investing & Ethical Investing (Part I):
For regular readers of the briefing, you all know how I usually nitpick and split hairs in order to arrive at any deep insight (or any insight for that matter). This week is a bit different, and it is not some esoteric minutiae of finance that is under discussion but rather what we do with our money on a practical basis all day, every day, all night, every night - for even though we are all sleeping, the stereotypical financial corporation is wide awake and thinking of your money. I don't mean this is a bad way of course, you all know by now how deeply I respect the world of finance (hmm). I just mean that even though you think your money is safely laying golden eggs in a bank account, GIC, mutual fund, hedge fund, LP, Stock or Bond, it is actually nowhere close to any such entity. It is lost in a sea of electrons, moving from your corner bank branch, brokerage or financial advisor, through public markets such as the TSX and into and out of the pockets of actual people and companies again somewhere else, only to show up on your bank / investment statement at the required end of the month exactly as scheduled. In this sense, your dollars are like me when I was in high school: registered, but not always present (ah, those were the days).
For example, if you invest in a mutual fund and the mutual fund participates in the IPO of a mining company, then a portion of your money has actually found its way into the coffers of the mining company. Let us then also suppose that this Gold Mining company is imaginatively called Company G. A portion of that portion then, went into the purchase and use of cyanide (yes, the poison) which is used in the separation the gold from the sulphurous rocks in which it is usually found. This cyanide then, after the gold has been extracted, then finds its way sometimes (some say always, it is only a matter of time) into the local water supply. Company G then gets sued and in order to protect your hard earned savings from seizure in legal claims, you now find yourself on the wrong side of a legal case involving poor farmers from some foreign country whose livestock and children are sadly no more and whose lands are no longer safe for the growing of food. Your financial health and moral imperative are now in conflict and this causes you great trouble. You read about the issue, go the Annual General Meeting (AGM) and demand that the company change its practices and begins to use a safer chemical than cyanide for the extraction of Gold. But wait a second, you are not a shareholder of the company. What!!!, you ask? How can that be? They have your money after all and surely you can do something to make them stop poisoning the Earth, can't you? Alas, my friends, you invested in a brand name mutual fund, not in Company G. Not only do you not know which companies you have invested in beyond the top ten, you also do not know which countries each of those then are involved in and what it is that they do once they are there. After all, you need to see the 10+% return on investment every year that the Financial Advisor promised you and also, you are not in finance - so how is all this your problem? Surely, someone else is supposed to be making sure your money is spent in good things while making good money. Isn't that why you pay your advisors? (and trust me, you do pay).
Excellent answer. This is indeed not your problem because you cannot solve it. Your mutual fund solves this dilemma for you quite neatly. You neither ask what it is that they do with your money and they oblige your intense curiosity by not telling you. But even if they did tell you, what could you do? You are not a full shareholder in the companies in which you have invested. You are just a unit-holder of the mutual fund. The mutual fund doesn't have the mandate to actually prevent the use of cyanide even if they knew what the devil it was; the mutual fund wants the company to extract as much gold as possible for the least amount of costs without getting into too much trouble with the authorities. You provide the money, the bank provides a loan, the mutual fund provides 'intermediation', the government(s) provides the mining license and company G provides the returns. The farmers provide just collateral damage. Since they are not Canadian / American / European and they don't make the 6:00 pm news and because Company G has great lawyers and a large advertising budget that keeps the story from getting to us - you and I don't have to think about where the returns came from. All parties are able to sleep at night without use of Xanax, except for the poor farmers for whom all sleep is short and whose insomnia is spent in remembrance of that which brought them such joy in a land that existed a long time ago.
This, in a nutshell is called Investing. While I have picked (perhaps unfairly) on mutual funds and mining this week, this story applies to other sectors and savings / investment vehicles as well. Also, the major point here is not that mining is terrible (which it might well be), but that we are constantly plugged into a system (for lack of a better word that describes the movement of money) that has no moral values as such. I say this because any moral outcome that results is little more than an accident. As people, we all have some moral code we follow, yet our finances are strangely liberated from this need to be good. There is in the financial sector no aim greater than that of taking some money and making some more money out of it. This is the sole measure of success. Back when I was a psychology student a few decades ago, having no values was considered psychopathic. Now that I am a student of finance, having no values is called efficiency.
Nevertheless, I don't say all this to make you depressed. We have to get over ourselves and our petty emotions, we have to pray for those we have hurt unknowingly and think deeply about how we want to move forward (and then perhaps actually move forward). The whole problem with humanity is that when we see a complex problem, we lose heart even before we understand all of it. We need realistic, determined enthusiasm driven by something approaching Love to change the world (even if that makes you nervous). We do not need the half-hearted, depressional funk that people like me can get you into so easily. We must never allow the search for an accurate description of our circumstances to confuse our internal apparatus of hope - each has its place in life. Wake up, shape up & grow up - more rests on our attitude towards life than on our money.
Next, we shall have to tackle Ethical Investing - which some people say is the antidote to moral disintermediation in finance. In the meantime, enjoy the caviar at the next AGM - it is the least damage we can do to the companies we 'own' but have no sway over.
The IWB will return two weeks from now IA as I will be away on vacation. Be good, make me proud, write some responses on the Blog and start a conversation amongst yourselves.
--------------
Upcoming Events:
The Crescent Entrepreneurial Association (CEA) is hosting a business plan competition that I think many of you will enjoy attending. This is a volunteer organization that is helping the community get a better handle on its economic future. The exposure and insights gained at the competition will be quite priceless IA so if you have daughters, sons, younger nieces and nephews, cousins etc., try and bring them out to this event on the 31st of May. We at Ittihad are both fans and supporters of CEA and would like to see a large turnout. This wonderful organization will help the community build a critical mass of good, ethical businesses that will contribute to society IA. Please register here.
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Five steps to a better financial future ... read more here
2. The Guardian's introduction to Ethical Investing (hat-tip Br. Alim) ... read more here
3. Investing in inflationary times ... read more here
Economic News:
1. The Fed raises their inflation projections. Did someone finally send them the Ittihad Weekly? ... read more here
2. An extremely disturbing (if you are a consumer) development on the Oil front. Seems that futures prices have increased so much that even the Oil companies want to start stockpiling oil rather than selling it ... this should be an interesting political battle. No way the consumer can win this one with the kinds of spineless politicians we have ... read more here
3. A great short article on the interplay between the US$ and Chinese Yuan ... read more here
4. Outlook for the Real Estate and Housing in different countries ... read more here
5. One usually doesn't publicize such things, but I feel a bit like Mary Poppins must have when she opened up her umbrella and flew around town. The IWB of three weeks ago makes the cover of the Economist ... read more here
Islamic / Middle East / Emerging Markets:
1. N/A
Interesting but not all Finance:
1. Is mining still ethical if some lakes are destroyed? ... read more here
1. This is what happens to fertilizers after we use them so liberally to grow mostly bland food ... read more here
2. Brazil's minister for the environment resigns, but her life story is quite inspiring (although too short) ... read more here
3. Getting energy from Garbage ... read more here
'It is what you read when you don't have to that determines what you will be when you can't help it.' - Oscar Wilde
The Ittihad Weekly Briefing is now archived at: www.ittihadsecurities.blogspot.com
Commentary of the week:
Difference between Investing & Ethical Investing (Part I):
For regular readers of the briefing, you all know how I usually nitpick and split hairs in order to arrive at any deep insight (or any insight for that matter). This week is a bit different, and it is not some esoteric minutiae of finance that is under discussion but rather what we do with our money on a practical basis all day, every day, all night, every night - for even though we are all sleeping, the stereotypical financial corporation is wide awake and thinking of your money. I don't mean this is a bad way of course, you all know by now how deeply I respect the world of finance (hmm). I just mean that even though you think your money is safely laying golden eggs in a bank account, GIC, mutual fund, hedge fund, LP, Stock or Bond, it is actually nowhere close to any such entity. It is lost in a sea of electrons, moving from your corner bank branch, brokerage or financial advisor, through public markets such as the TSX and into and out of the pockets of actual people and companies again somewhere else, only to show up on your bank / investment statement at the required end of the month exactly as scheduled. In this sense, your dollars are like me when I was in high school: registered, but not always present (ah, those were the days).
For example, if you invest in a mutual fund and the mutual fund participates in the IPO of a mining company, then a portion of your money has actually found its way into the coffers of the mining company. Let us then also suppose that this Gold Mining company is imaginatively called Company G. A portion of that portion then, went into the purchase and use of cyanide (yes, the poison) which is used in the separation the gold from the sulphurous rocks in which it is usually found. This cyanide then, after the gold has been extracted, then finds its way sometimes (some say always, it is only a matter of time) into the local water supply. Company G then gets sued and in order to protect your hard earned savings from seizure in legal claims, you now find yourself on the wrong side of a legal case involving poor farmers from some foreign country whose livestock and children are sadly no more and whose lands are no longer safe for the growing of food. Your financial health and moral imperative are now in conflict and this causes you great trouble. You read about the issue, go the Annual General Meeting (AGM) and demand that the company change its practices and begins to use a safer chemical than cyanide for the extraction of Gold. But wait a second, you are not a shareholder of the company. What!!!, you ask? How can that be? They have your money after all and surely you can do something to make them stop poisoning the Earth, can't you? Alas, my friends, you invested in a brand name mutual fund, not in Company G. Not only do you not know which companies you have invested in beyond the top ten, you also do not know which countries each of those then are involved in and what it is that they do once they are there. After all, you need to see the 10+% return on investment every year that the Financial Advisor promised you and also, you are not in finance - so how is all this your problem? Surely, someone else is supposed to be making sure your money is spent in good things while making good money. Isn't that why you pay your advisors? (and trust me, you do pay).
Excellent answer. This is indeed not your problem because you cannot solve it. Your mutual fund solves this dilemma for you quite neatly. You neither ask what it is that they do with your money and they oblige your intense curiosity by not telling you. But even if they did tell you, what could you do? You are not a full shareholder in the companies in which you have invested. You are just a unit-holder of the mutual fund. The mutual fund doesn't have the mandate to actually prevent the use of cyanide even if they knew what the devil it was; the mutual fund wants the company to extract as much gold as possible for the least amount of costs without getting into too much trouble with the authorities. You provide the money, the bank provides a loan, the mutual fund provides 'intermediation', the government(s) provides the mining license and company G provides the returns. The farmers provide just collateral damage. Since they are not Canadian / American / European and they don't make the 6:00 pm news and because Company G has great lawyers and a large advertising budget that keeps the story from getting to us - you and I don't have to think about where the returns came from. All parties are able to sleep at night without use of Xanax, except for the poor farmers for whom all sleep is short and whose insomnia is spent in remembrance of that which brought them such joy in a land that existed a long time ago.
This, in a nutshell is called Investing. While I have picked (perhaps unfairly) on mutual funds and mining this week, this story applies to other sectors and savings / investment vehicles as well. Also, the major point here is not that mining is terrible (which it might well be), but that we are constantly plugged into a system (for lack of a better word that describes the movement of money) that has no moral values as such. I say this because any moral outcome that results is little more than an accident. As people, we all have some moral code we follow, yet our finances are strangely liberated from this need to be good. There is in the financial sector no aim greater than that of taking some money and making some more money out of it. This is the sole measure of success. Back when I was a psychology student a few decades ago, having no values was considered psychopathic. Now that I am a student of finance, having no values is called efficiency.
Nevertheless, I don't say all this to make you depressed. We have to get over ourselves and our petty emotions, we have to pray for those we have hurt unknowingly and think deeply about how we want to move forward (and then perhaps actually move forward). The whole problem with humanity is that when we see a complex problem, we lose heart even before we understand all of it. We need realistic, determined enthusiasm driven by something approaching Love to change the world (even if that makes you nervous). We do not need the half-hearted, depressional funk that people like me can get you into so easily. We must never allow the search for an accurate description of our circumstances to confuse our internal apparatus of hope - each has its place in life. Wake up, shape up & grow up - more rests on our attitude towards life than on our money.
Next, we shall have to tackle Ethical Investing - which some people say is the antidote to moral disintermediation in finance. In the meantime, enjoy the caviar at the next AGM - it is the least damage we can do to the companies we 'own' but have no sway over.
The IWB will return two weeks from now IA as I will be away on vacation. Be good, make me proud, write some responses on the Blog and start a conversation amongst yourselves.
--------------
Upcoming Events:
The Crescent Entrepreneurial Association (CEA) is hosting a business plan competition that I think many of you will enjoy attending. This is a volunteer organization that is helping the community get a better handle on its economic future. The exposure and insights gained at the competition will be quite priceless IA so if you have daughters, sons, younger nieces and nephews, cousins etc., try and bring them out to this event on the 31st of May. We at Ittihad are both fans and supporters of CEA and would like to see a large turnout. This wonderful organization will help the community build a critical mass of good, ethical businesses that will contribute to society IA. Please register here.
We have been invited by TARIC mosque (located here) to present our views on Islamic Finance on Saturday, the 21st of June at 7:00 pm. I encourage everyone to attend with friends as the discussion will focus on the place that Islam does or does not have in our financial choices. By the end of the discussion, attendees should have a good idea about how to judge the IF field for themselves. This is a discussion that will IA take place outside the logic of a sales presentation so you can leave your cheque-books at home, we will accept Halal Credit Cards instead (Relax, I'm kidding). Come with friends and come with difficult questions - hopefully, we will trade in good ideas that will profit our minds.
__________
Finance News:
1. Five steps to a better financial future ... read more here
2. The Guardian's introduction to Ethical Investing (hat-tip Br. Alim) ... read more here
3. Investing in inflationary times ... read more here
Economic News:
1. The Fed raises their inflation projections. Did someone finally send them the Ittihad Weekly? ... read more here
2. An extremely disturbing (if you are a consumer) development on the Oil front. Seems that futures prices have increased so much that even the Oil companies want to start stockpiling oil rather than selling it ... this should be an interesting political battle. No way the consumer can win this one with the kinds of spineless politicians we have ... read more here
3. A great short article on the interplay between the US$ and Chinese Yuan ... read more here
4. Outlook for the Real Estate and Housing in different countries ... read more here
5. One usually doesn't publicize such things, but I feel a bit like Mary Poppins must have when she opened up her umbrella and flew around town. The IWB of three weeks ago makes the cover of the Economist ... read more here
Islamic / Middle East / Emerging Markets:
1. N/A
Interesting but not all Finance:
1. Is mining still ethical if some lakes are destroyed? ... read more here
1. This is what happens to fertilizers after we use them so liberally to grow mostly bland food ... read more here
2. Brazil's minister for the environment resigns, but her life story is quite inspiring (although too short) ... read more here
3. Getting energy from Garbage ... read more here
Tuesday, May 6, 2008
Sustainability and Finance
Quote of the week:
'Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody's Economy.com.' - Edmund L. Andrews and Louis Uchitelle at the NY Times: Rescues for Homeowners
Commentary for the Week:
Sustainability and Finance:
We have recently been hearing quite a bit about how we need to begin to live sustainable lives and create sustainable economies. There are even many movements that have been spawned from this imperative, including 'The Inconvenient Truthers' and Socially Responsible Investing (SRI). But what is sustainability, really? If it means plundering the Earth for all we can on an annual basis while hoping oil prices stay down, then surely we want no part of it. If however, sustainability means living lives that contribute at least as many resources to posterity as the amount we take out, then sure - we are all for it. Framed in this way, finance - which essentially underwrites and monetizes resources, has an important part to play in sustainability. Looking at it in other ways, even if they are Carbon-Neutral, simply confuses the issue.
The problem as it exists today is twofold. First, we are addicted to economic growth. If our economies do not expand by a certain percentage, the worthwhile-ness of life comes into question. People start jumping off bridges, the latest Ferrari remains un-leased and politicians get voted out by a vengeful public. What binds us to this addiction is of course inflation, which slowly and steadily saps our purchasing power such that the lordly sums we survived on as kids seem quite piddly and insignificant with the wisdom of old age. The second problem is our incessant borrowing from future generations. We borrow today, that which we can never pay back tomorrow. Governments borrow to finance wars, corporations borrow to extract or re-order allocation of resources and people borrow to live in houses and drive cars that they cannot afford.
While many focus on consumer behaviour as a large driver of environmental damage, very few have made the connection to how the practice of borrowing on interest speeds up our usage of the planet's resources and ends us up with inflation too boot. The philosophy of 'Why wait to consume tomorrow what you can borrow for and consume today' is facilitated and encouraged by our financial system. It is not just a matter of inexplicable and irrational 'Consumer Behaviour'. We are able to over-consume and over-spend because we have to borrow to merely be 'normal'. So the question now arises about who it is that we are borrowing from. Although the more regular readers among you will be bracing for yet another perhaps inappropriate harangue against our beloved banks, the reality is sadly a bit more complex. Although Banks and other lenders are the face of the loan, the ultimate lender is not an institution. The lenders are future generations. As we borrow gynormous (I am told that this word means even bigger than enormous) sums and mis-spend them, the resources available to future generations come under enormous pressure and are reduced. Will they pay back our loans or will they be able to invest in their own future? The last thing we should want to leave them with is having to repay government, corporate and personal debt though further borrowing from their future generations - which is sadly how we operate today.
A lot of people ask me why usury is forbidden in Islam (and also other faiths). This may be one of the good reasons why. As you make lending more and more profitable, you skew the payoffs to market participants. If you add to that the fact that it is not the market that is dictating this but rather the Central Authorities who keep pumping money into the scheme so that lenders are never chastised (subprime anyone?), you see how the game is rigged. Looking at it this way gives a whole new meaning to the old adage that we have not inherited the Earth from our ancestors, we have borrowed it from our children. I wonder what interest rate is enough to satisfy an unborn child ...
Finance News:
1. A glimpse into one the company founded by the most successful money manager in Canada ... must read ... read more here
2. Yet another successful Canadian company sold to private buyers ... read more here
3. The Caisse declares a $2B loss on its 'investments' ... read more here
4. Excellent article on who gets left holding the bag when derivative trading goes bad ... read more here
Economic News:
1. What happens when funds that promise an absolute return uncorrelated with public markets begin to suffer absolute losses all together ... read more here
2. Battling the coming Bear market ... read more here
Islamic & Middle East Finance:
1. Morgan Stanley says GCC banks with Shariah assets will hold 18% of world financial system assets by 2012 ... read more here
Miscellaneous:
1. Beautiful story about Toyota's founding family ... (are you the best in the world, your country or the best in town?) ... read more here
2. The Cartoon that captures it all ... see it here
'Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody's Economy.com.' - Edmund L. Andrews and Louis Uchitelle at the NY Times: Rescues for Homeowners
Commentary for the Week:
Sustainability and Finance:
We have recently been hearing quite a bit about how we need to begin to live sustainable lives and create sustainable economies. There are even many movements that have been spawned from this imperative, including 'The Inconvenient Truthers' and Socially Responsible Investing (SRI). But what is sustainability, really? If it means plundering the Earth for all we can on an annual basis while hoping oil prices stay down, then surely we want no part of it. If however, sustainability means living lives that contribute at least as many resources to posterity as the amount we take out, then sure - we are all for it. Framed in this way, finance - which essentially underwrites and monetizes resources, has an important part to play in sustainability. Looking at it in other ways, even if they are Carbon-Neutral, simply confuses the issue.
The problem as it exists today is twofold. First, we are addicted to economic growth. If our economies do not expand by a certain percentage, the worthwhile-ness of life comes into question. People start jumping off bridges, the latest Ferrari remains un-leased and politicians get voted out by a vengeful public. What binds us to this addiction is of course inflation, which slowly and steadily saps our purchasing power such that the lordly sums we survived on as kids seem quite piddly and insignificant with the wisdom of old age. The second problem is our incessant borrowing from future generations. We borrow today, that which we can never pay back tomorrow. Governments borrow to finance wars, corporations borrow to extract or re-order allocation of resources and people borrow to live in houses and drive cars that they cannot afford.
While many focus on consumer behaviour as a large driver of environmental damage, very few have made the connection to how the practice of borrowing on interest speeds up our usage of the planet's resources and ends us up with inflation too boot. The philosophy of 'Why wait to consume tomorrow what you can borrow for and consume today' is facilitated and encouraged by our financial system. It is not just a matter of inexplicable and irrational 'Consumer Behaviour'. We are able to over-consume and over-spend because we have to borrow to merely be 'normal'. So the question now arises about who it is that we are borrowing from. Although the more regular readers among you will be bracing for yet another perhaps inappropriate harangue against our beloved banks, the reality is sadly a bit more complex. Although Banks and other lenders are the face of the loan, the ultimate lender is not an institution. The lenders are future generations. As we borrow gynormous (I am told that this word means even bigger than enormous) sums and mis-spend them, the resources available to future generations come under enormous pressure and are reduced. Will they pay back our loans or will they be able to invest in their own future? The last thing we should want to leave them with is having to repay government, corporate and personal debt though further borrowing from their future generations - which is sadly how we operate today.
A lot of people ask me why usury is forbidden in Islam (and also other faiths). This may be one of the good reasons why. As you make lending more and more profitable, you skew the payoffs to market participants. If you add to that the fact that it is not the market that is dictating this but rather the Central Authorities who keep pumping money into the scheme so that lenders are never chastised (subprime anyone?), you see how the game is rigged. Looking at it this way gives a whole new meaning to the old adage that we have not inherited the Earth from our ancestors, we have borrowed it from our children. I wonder what interest rate is enough to satisfy an unborn child ...
Finance News:
1. A glimpse into one the company founded by the most successful money manager in Canada ... must read ... read more here
2. Yet another successful Canadian company sold to private buyers ... read more here
3. The Caisse declares a $2B loss on its 'investments' ... read more here
4. Excellent article on who gets left holding the bag when derivative trading goes bad ... read more here
Economic News:
1. What happens when funds that promise an absolute return uncorrelated with public markets begin to suffer absolute losses all together ... read more here
2. Battling the coming Bear market ... read more here
Islamic & Middle East Finance:
1. Morgan Stanley says GCC banks with Shariah assets will hold 18% of world financial system assets by 2012 ... read more here
Miscellaneous:
1. Beautiful story about Toyota's founding family ... (are you the best in the world, your country or the best in town?) ... read more here
2. The Cartoon that captures it all ... see it here
The Challenge of Islamic Finance (Part 2)
Quote of the day:
'It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay.' - Ralph Waldo Emerson
Commentary for the Week:
The Challenge of Islamic Finance (Part 2):
Last week we began to scratch the surface of the challenge ahead for Islamic Finance. The idea there being that the purpose of Islamic Finance cannot be to replicate injustice. There must be a higher aim - and a better process put in place to reach those heights. A system based on indebting people and putting them on a treadmill against inflation is perhaps leading us to an end that will be unrecognizable from where we began. Aside from the various shortcuts afforded to us by virtue of birth and class, the primary way to own assets is by way of mortgages. Already we are at a point where things such as homes / cars / machinery / land are unaffordable without debt. In such a system, who owns whom?
While access to the financial system and debt is thought to have increased our standard of living such that we can now engage in such debates, on whose terms we engage in these debates remains in question. We are so vested in this cycle of credit & repayment, that even miniscule changes to our outlook seem drastic and idealistic. Thus, while it is easy to demonize bankers and politicians for their various shortcomings, the responsibility for change is more widely distributed. In my opinion, changes seldom arise from within the sources of the problem, so we must end our dependence on financial expertise that is short on wisdom. Indeed, even my own meticulously researched solutions make perfect sense only at moments of perfect idiocy. The purpose for this column, can therefore only be to suggest directions and inspire dialogue - not demand allegiance to a preconceived end.
So how do we get from where we are to where we want to move towards? First we must identify areas where we must be involved as Canadians - able and privileged to have input into policy debates relevant to our lives. We must also recognize that we are missing the boat on a recent development that is exceedingly positive. We are once again following good people, but following nevertheless, into the realms of Ethical Finance. As a movement, Islamic Finance has had very little to do with developing Socially Responsible and Ethical finance other than prohibitions against alcoholism. We have yet to become involved in these debates beyond perfunctory levels. While it should make us happy that Good people, regardless of whether they are Muslim, have reached a point in their ethical consciousness that leads them to ask value-based questions - where is our place at the table? Who among us represents our concerns in a serious manner? Could it be that while we grapple with the problem of national economies, our input into the moral economy of the world has been absent?
One of the opportunities ahead of us is to really take advantage of the blessings of being in a place where we have some genuine choices. If we make good choices with our funds, attention and involvement today, future generations might have a genuine choice between conventional and Islamic Finance tomorrow. For example, there has been a sea change in Canada as far as socially responsible investing is concerned. From a small, niche market serving 'hippy-types' (not the best choice of words), ethical investing has grown into the predominant theme of investment conversations in boardrooms today. This is a movement that we need to involve ourselves in, immerse ourselves in and guide as much as possible. It is a smaller, more immediately manageable challenge; and one feels that it has come at the right time in our development for us to engage and perform with purpose. Asking one's broker / advisor / investment banker whether they allow investments solely into at least clean if not debt-free businesses is now a simple conversation to have. How many of us have had it? How many of us have defined for our service providers what we mean by 'ethical'? Do we really trust the same people that got us into these problems through their faulty gate-keeping of funds to define those ethics now? Why the pliancy and quietude? Is it that our backbone is reserved for US foreign policy debates or can we make it work in other situations as well?
Most importantly, how do we begin to have intelligent conversations about finances ourselves, such that we do not need humble intermediaries such as myself? These are the questions of the day, and I look to you to answer them ...
To be continued ... (but replies and commentaries are very welcome)
Industry News:
1. A contrarian opinion on financial stocks ... DeCloet says this may be a decent opportunity to buy, but since nobody has been able to time investing exactly right, do you buy on the way down, or the way up? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wrdecloet13/BNStory/robColumnsBlogs/home
2. Keep an eye on this case ... a lot of unsuspecting investors were manoeuvred out of their retirement savings by Portus offering a principal 'guarantee' ... the OSC's record of convictions in fraud cases is not excellent but this is an open and shut case - the fraud was clear and egregious ... stay tuned ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmanor1113/BNStory/robNews/home
3. Time for Canadians to pay attention to personal finance issues ... the results of this survey are not encouraging ... http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=41897&IdSection=3&cat=3&BImageCI=1
4. What does the subprime credit mess have to do with you as an average Canadian? ... http://www.canada.com/nationalpost/financialpost/story.html?id=3fa6f59d-ef5a-4fa6-a937-25973eeb8af5&k=97150
5. Insight into how the world of stock-trading is changing in Canada ... http://www.theglobeandmail.com/servlet/story/LAC.20071115.RWILLIS15/TPStory?cid=al_gam_globeedge
Economic News:
1. Goldman Sachs says the loonie 'could' go back under par against the US$. Well, technically anything is possible but is it likely? As producer's of oil and gold and other commodities, one would think not. But then again, these are currency markets - what is not probable is still quite possible ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wloonie1113/BNStory/robNews/home?cid=al_gam_mostview
2. StatsCan finds that companies with more of an 'international' orientation are better for the economy ... bit of a stretch to say foreign takeovers are the way to engender 'international' orientation though ... surely there is benefit in exporting finished goods and services made by Canadian-owned companies instead of simply exporting resources as a branch operation of an American conglomerate? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmultinationals1113/BNStory/robNews/home
Islamic Finance:
1. A 'Muslim' car !!! ... wow! ... and you thought Islam was only for people?! ... can 'Muslim' bulldozers be far behind? ... http://news.bbc.co.uk/1/hi/world/asia-pacific/7089707.stm
Management Training:
1. The difference between 'Marketing' and 'Hype' ... why hype can get you into the trouble that marketing was supposed to get you out of ... http://hbswk.hbs.edu/item/5810.html
2. An absolutely excellent (but long) interview on Business Strategy - what that means to many companies right now & what it should mean to people managing them ... talks about capitalizing on your own strengths and processes but also being ready for windows of opportunity ... how to make the organization ready to capitalize on external changes, and then executing ... http://www.mckinseyquarterly.com/Strategy/Innovation/Strategys_strategist_An_interview_with_Richard_Rumelt_2039
'It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay.' - Ralph Waldo Emerson
Commentary for the Week:
The Challenge of Islamic Finance (Part 2):
Last week we began to scratch the surface of the challenge ahead for Islamic Finance. The idea there being that the purpose of Islamic Finance cannot be to replicate injustice. There must be a higher aim - and a better process put in place to reach those heights. A system based on indebting people and putting them on a treadmill against inflation is perhaps leading us to an end that will be unrecognizable from where we began. Aside from the various shortcuts afforded to us by virtue of birth and class, the primary way to own assets is by way of mortgages. Already we are at a point where things such as homes / cars / machinery / land are unaffordable without debt. In such a system, who owns whom?
While access to the financial system and debt is thought to have increased our standard of living such that we can now engage in such debates, on whose terms we engage in these debates remains in question. We are so vested in this cycle of credit & repayment, that even miniscule changes to our outlook seem drastic and idealistic. Thus, while it is easy to demonize bankers and politicians for their various shortcomings, the responsibility for change is more widely distributed. In my opinion, changes seldom arise from within the sources of the problem, so we must end our dependence on financial expertise that is short on wisdom. Indeed, even my own meticulously researched solutions make perfect sense only at moments of perfect idiocy. The purpose for this column, can therefore only be to suggest directions and inspire dialogue - not demand allegiance to a preconceived end.
So how do we get from where we are to where we want to move towards? First we must identify areas where we must be involved as Canadians - able and privileged to have input into policy debates relevant to our lives. We must also recognize that we are missing the boat on a recent development that is exceedingly positive. We are once again following good people, but following nevertheless, into the realms of Ethical Finance. As a movement, Islamic Finance has had very little to do with developing Socially Responsible and Ethical finance other than prohibitions against alcoholism. We have yet to become involved in these debates beyond perfunctory levels. While it should make us happy that Good people, regardless of whether they are Muslim, have reached a point in their ethical consciousness that leads them to ask value-based questions - where is our place at the table? Who among us represents our concerns in a serious manner? Could it be that while we grapple with the problem of national economies, our input into the moral economy of the world has been absent?
One of the opportunities ahead of us is to really take advantage of the blessings of being in a place where we have some genuine choices. If we make good choices with our funds, attention and involvement today, future generations might have a genuine choice between conventional and Islamic Finance tomorrow. For example, there has been a sea change in Canada as far as socially responsible investing is concerned. From a small, niche market serving 'hippy-types' (not the best choice of words), ethical investing has grown into the predominant theme of investment conversations in boardrooms today. This is a movement that we need to involve ourselves in, immerse ourselves in and guide as much as possible. It is a smaller, more immediately manageable challenge; and one feels that it has come at the right time in our development for us to engage and perform with purpose. Asking one's broker / advisor / investment banker whether they allow investments solely into at least clean if not debt-free businesses is now a simple conversation to have. How many of us have had it? How many of us have defined for our service providers what we mean by 'ethical'? Do we really trust the same people that got us into these problems through their faulty gate-keeping of funds to define those ethics now? Why the pliancy and quietude? Is it that our backbone is reserved for US foreign policy debates or can we make it work in other situations as well?
Most importantly, how do we begin to have intelligent conversations about finances ourselves, such that we do not need humble intermediaries such as myself? These are the questions of the day, and I look to you to answer them ...
To be continued ... (but replies and commentaries are very welcome)
Industry News:
1. A contrarian opinion on financial stocks ... DeCloet says this may be a decent opportunity to buy, but since nobody has been able to time investing exactly right, do you buy on the way down, or the way up? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wrdecloet13/BNStory/robColumnsBlogs/home
2. Keep an eye on this case ... a lot of unsuspecting investors were manoeuvred out of their retirement savings by Portus offering a principal 'guarantee' ... the OSC's record of convictions in fraud cases is not excellent but this is an open and shut case - the fraud was clear and egregious ... stay tuned ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmanor1113/BNStory/robNews/home
3. Time for Canadians to pay attention to personal finance issues ... the results of this survey are not encouraging ... http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=41897&IdSection=3&cat=3&BImageCI=1
4. What does the subprime credit mess have to do with you as an average Canadian? ... http://www.canada.com/nationalpost/financialpost/story.html?id=3fa6f59d-ef5a-4fa6-a937-25973eeb8af5&k=97150
5. Insight into how the world of stock-trading is changing in Canada ... http://www.theglobeandmail.com/servlet/story/LAC.20071115.RWILLIS15/TPStory?cid=al_gam_globeedge
Economic News:
1. Goldman Sachs says the loonie 'could' go back under par against the US$. Well, technically anything is possible but is it likely? As producer's of oil and gold and other commodities, one would think not. But then again, these are currency markets - what is not probable is still quite possible ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wloonie1113/BNStory/robNews/home?cid=al_gam_mostview
2. StatsCan finds that companies with more of an 'international' orientation are better for the economy ... bit of a stretch to say foreign takeovers are the way to engender 'international' orientation though ... surely there is benefit in exporting finished goods and services made by Canadian-owned companies instead of simply exporting resources as a branch operation of an American conglomerate? ... http://www.reportonbusiness.com/servlet/story/RTGAM.20071113.wmultinationals1113/BNStory/robNews/home
Islamic Finance:
1. A 'Muslim' car !!! ... wow! ... and you thought Islam was only for people?! ... can 'Muslim' bulldozers be far behind? ... http://news.bbc.co.uk/1/hi/world/asia-pacific/7089707.stm
Management Training:
1. The difference between 'Marketing' and 'Hype' ... why hype can get you into the trouble that marketing was supposed to get you out of ... http://hbswk.hbs.edu/item/5810.html
2. An absolutely excellent (but long) interview on Business Strategy - what that means to many companies right now & what it should mean to people managing them ... talks about capitalizing on your own strengths and processes but also being ready for windows of opportunity ... how to make the organization ready to capitalize on external changes, and then executing ... http://www.mckinseyquarterly.com/Strategy/Innovation/Strategys_strategist_An_interview_with_Richard_Rumelt_2039
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