Uncertain Economic Issues

The stock market continued its upward march during the third quarter. Large company stocks ended up 4.5%, while small companies rose 5.7%, and foreign stocks were up 5.4%. Bond returns for the quarter broadly measured— were also positive, up 0.8%.

These results arrived amid a backdrop of generally positive global economic news. IMF economists believe the pickup in global economic growth will remain on track and have expressed particular optimism for developed European economies. Though difficult to predict reliably, there is some analyst consensus that foreign stock markets may present better opportunities in 2018 than U.S. markets.

This is in part because the U.S. is now in an (unhurried) interest rate increase cycle. Rising interest rates are known to have a cooling effect on an economy. You might think of low rates as oiling-up the economic machine, while higher rates can slow the machine, to a degree. A recent Wall Street Journal poll of economists showed that the majority expects the Fed to raise rates once more this year, in December.

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Taking Inventory

As the Natural Investments team prepares for our annual Conference on Sustainable, Responsible, Impact Investing, I find myself reflecting on how much has changed in just one year. Last year’s conference convened the day after the U.S. presidential election. Although we were all in utter shock at the outcome, the members of our SRI community quickly settled into the realization that our work as activists on issues of climate change and social justice would be critical, since it was clear that government policy would no longer be supporting our trajectory.

Sure enough, here we are today, with the Paris Climate Accord teetering on the orange ledge, with Obama’s Clean Power Plan gutted, the Standing Rock water keeper camp razed, and the fires, hurricanes, and floods of our worst nightmares. It’s depressing. But as Valarie Kaur, one of my favorite civil rights activists, suggests, “What if this darkness is not the darkness of the tomb, but the darkness of the womb? What if our America is not dead but a country that is waiting to be born?”

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Catastrophe Planning in Real Estate

As Robert Muir-Wood says in The Cure for Catastrophe: “Natural disasters are in fact human ones: we build in the wrong places and in the wrong way, putting brick buildings in earthquake country, timber ones in fire zones, and coastal cities in the paths of hurricanes.” Global climate change is already amplifying freak weather events, adding tricky considerations to today’s real estate decisions: unprecedented droughts, raging wildfires, and superstorms with their disastrous floods.

How is the smart, responsible homebuyer/homeowner to reduce exposure to such risks? No one would disagree that protecting one’s life, family, and assets is a worthy goal, but planning and preparation don’t come easily to everyone.

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States, Businesses Filling the Leadership Void on Climate

Both stock and bond markets finished the quarter with solid gains. Large company stocks in the U.S. were up 3.1%, while smaller companies gained 2.5%. Foreign stocks were in the black as well, up 6.1%. Bonds advanced 1.4%, even as the Fed raised interest rates.

Federal Reserve officials forged ahead with another interest rate hike in June, the third in six months, and maintained their outlook for one more hike this year. The Fed announcement struck a careful balance between showing resolve to continue increasing interest rates toward more historically normal levels, and acknowledging concern over unexpectedly low inflation this year. While we may think of inflation as a bad thing, the Fed sees benefits in it—in the right measure.

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Solid Market Fundamentals Trump Unstable President

What’s Up On Wall Street, 1st Quarter 2017
(written April 2017)

As the first quarter drew to a close, most stock markets had moved higher while bonds overall recovered from a poor prior quarter and nished up as well. Over the quarter the stocks of large U.S. companies rose by 6.1%, U.S. small companies nished This is a continuation of higher by 2.5%, foreign stocks were up 7.2% what was already happening and bonds, broadly measured, rose by 0.7%.

Both the financial and general press were dominated by news out of Washington D.C. as the new President’s term got underway. While action in the capitol does affect the broader economy, the economic and business earnings outlook will normally have more impact on stock market results. Presidents have long received too much credit—or blame for economic conditions on their watch. Still, it is understandable why the markets and media are xated on Washington. The news never seems to stop and it’s increasingly wacky. It feels like rubbernecking on the highway as we pass an accident; it’s hard to look away.

However, the long-term movement of stock prices tends to be more in uenced by interest rates and business earnings. As the stock market has continued to rise since the election, some economists now believe that the rally is more about positive economic data that supports the picture of a normalizing U.S. economy. This is a continuation of what was already happening during the second term of the Obama administration.

Speaking of interest rates,

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Globally, Sustainable Investment Strategies Winning Popular Vote

On March 27, 2017, the Global Sustainable Investment Alliance (GSIA) released its biennial Global Sustainable Investment Review 2016, showing that global sustainable investment assets reached $22.89 trillion at the start of 2016, a 25% increase from 2014.

Socially responsible investment (SRI) continues to grow as a favored set of investment strategies:

  • Europe accounts for 53% of these assets, the United States at 38%.
  • In nearly every market represented in the report, sustainable investing has grown in both absolute and relative terms since the beginning of 2014.
  • Environmental, social, and governance performance and/or criteria integration is being applied to $10.37 trillion in assets.
  • Growing global concern over climate change has resulted in rising interest in green finance, including climate-aligned bonds.
  • Fiduciary duty and client demand are key growth drivers for sustainable investing.

While institutional investors hold the largest percentage of SRI assets, with pension funds often comprising the largest percentage of institutional SRI assets, interest by individual and family investors is growing. The relative proportion of individual and family SRI investments in Canada, Europe, and the United States increased from 13% in 2014 to 26% at the start of 2016. Over a third of SRI assets in the United States were owned by individuals and families.

To download the full report click here.

About Global Sustainable Investment Review

Now in its third edition, the biennial Global Sustainable Investment Review is the only report presenting results from Europe, the United States, Canada, Asia, Japan, Australia, and New Zealand. The report draws on in-depth regional and national reports from GSIA members—Eurosif, Responsible Investment Association Australasia, RIA Canada, and US SIF—as well as data and insights from the Principles for Responsible Investment, JSIF (Japan), LatinSIF, and the African Investing for Impact Barometer. Together, these resources provide data points, insights, analysis, and examples of the shape of sustainable investing worldwide.

About Global Sustainable Investment Alliance

The Global Sustainable Investment Alliance (GSIA) is a collaboration of membership-based sustainable investment organizations around the world. It includes US SIF, UK SIF, Eurosif, RIA Canada, VBDO (Netherlands), and the Responsible Investment Association Australasia (RIAA). The GSIA’s mission is to deepen and expand the practice of sustainable, responsible, and impact investing through intentional international collaboration. Our vision is a world where sustainable investment is integrated into financial systems and the investment chain and where all regions of the world have coverage by vigorous membership based institutions that represent and advance the sustainable investment community. www.gsi-alliance.org

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A look at limits of the post-collapse political/regulatory response

Earlier this month, Salon ran a hefty excerpt of Barry Eichengreen’s new book, “Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History,” which examines the ways that Wall Street managed to minimize the structural and regulatory changes that many had hoped would follow after the near-collapse of the financial system.

This excerpt focuses on comparisons between the political and regulatory response in 2008 and those taken after the Great Depression; while Eichengreen clearly feels we fell far short this time, he also tells the tale in a way that helps make sense of some of the factors—beyond Wall Street power-plays—that contributed to the lackluster response.  He notes that several of the proposed banking reforms were vehemently opposed by smaller community banks, which apparently felt that their smaller operations would be overly burdened by new requirements aimed at cooling the excesses of banking giants. And he looks closely at many of the particular elements of what he calls “Obama’s competent response,” acknowledging the fiscal and political constraints that stood in the way of some of the more vigorous proposals to ease the burdens of homeowners and Main Street.

The whole piece is worth a read; this concluding paragraph captures its essence:

The experience of the 1930s suggests that radical reform is possible only in the wake of an exceptional crisis. Absent that crisis, business as usual remains the order of the day, and radical reform that threatens to disrupt such business is ruled out. An exceptional crisis halts such business for a time. The problem starting in 2009, if it can be called a problem, was that policy makers managed, just barely, to prevent a 1930s-style crisis. There was still business as usual to conduct. Radical reform that interfered with customary banking practices could be criticized as jeopardizing the recovery then slowly getting underway. This left only strengthening the existing system, as opposed to replacing it. And the incremental nature of the reform process, which unfolded slowly as new rules implementing Dodd-Frank directives were proposed by the regulators, allowed concentrated interests, notably the bank lobby, to re-form and mobilize in opposition.

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Wall Street Expands its Reach: Farming, Rental Markets at Risk

Wall Street is expanding its reach. In the years since the financial crisis, recovering markets and a flood of easy money from the Federal Reserve have encouraged large institutional investors to move into whole new sectors such as rental homes and farmland. Unfortunately, small farmers and homeowners are losing control of their futures while the well-funded newcomers capitalize on their latest opportunity. By introducing profit-maximizing corporate management in these areas, we may see higher prices for food and rent before long. How is Big Money able to boldly expand so soon after what seemed to be a very humbling experience just a few years ago? And what role might sustainable and responsible investors have in responding to this situation?

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The Minimum Wage and Your Purchasing Decisions

By Susan Taylor

One of today’s interesting economic and political shifts is the growing momentum to raise the minimum wage. Roughly 2.5 million low-wage U.S. workers saw at least a small minimum wage hike go into effect Jan. 1 this year, bringing to 21 the number of states with a minimum wage above the federal level of $7.25 per hour. Though many of those minimums are only modestly above the federal wage floor, other areas are making bigger changes. Washington, DC, and two adjacent Maryland counties have already voted to raise their minimum wage to $11.50 per hour, effective in 2016. In his first week in office, Seattle’s new mayor began developing plans to pay all city workers at least $15 per hour.

ST minwage real500

Growing wage inequality has been the focus of recent speeches by people ranging from representatives of fast food workers’ groups to President Obama and Pope Francis. Sensing the swing in momentum, Congressional Democrats have floated a proposal to raise the federal minimum wage to $10.10 and index it to inflation going forward.

Many news sources outline the various data and economic arguments for or against a higher minimum wage. Social investors probably have a range of opinions on any particular piece of legislation, but it seems we have already expressed our support for a higher minimum wage in some quite tangible ways.

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Engaging the Two Global Economies: Sustainability’s Shadowy Edges

This article is adapted from a section of our book-in-progress, The Resilient Investor, that describes our Global Sustainable Economy investment strategy; this is one of our three strategies; the other two are Close to Home (local investing) and Evolutionary (directly fostering personal and systemic change). Within the three strategies, we consider three asset types that we all invest in and with: financial assets (money), tangible assets (house/land, regional habitat and food systems, enduring goods such as solar panels), and personal assets (relationships, professional skills, personal growth).

As exciting as it may be to expand your notions of investing to include the full range of assets and strategies we’ve outlined, the fact is that much of the resilient investor’s focus remains in the familiar realm of engaging with the global economy.  That’s where most of us both build our financial assets—via salary and investment gains—and purchase many of our tangible assets: our transportation (whether personal or public; on airplanes or bikes), our nifty gadgets (from frypans to smartphones), our clothes. . . the list really does go on and on.  And, while being conscious of over-consumption, we do enjoy the fruits of this consumer product cornucopia, many of which enrich our lives and empower our work and social engagement in profound ways.  So the goal of this investment strategy is to work with the existing system in as effective a way as possible, even as we keep raising the bar toward more responsible corporate citizenship, including increasing focus on environmental ethics and social justice.

There’s lots of room for making personal choices that reflect your own particular areas of interest as you allocate your assets in this strategy.  Some of you may be adamant about reshaping the corporate structures and/or priorities that underlie today’s global economy.  Or, you might diligently consider the climate, habitat, or social impact of your purchasing decisions.  Others will want to focus on investing in particular green sectors (renewable energy, natural foods, local businesses, etc.), or will prioritize building a career that deeply reflects one’s values.  While a full-on global economy warrior may do all of this, most of us are more likely to pick a few fronts on which to add our two cents to the direction of the global economy.

Here’s the rub: even as we think we’re participating in the “sustainable global economy,” much of our economic activity is still taking place within the existing “extractive” economy, with all of the social and environmental exploitation issues that led us to decide not to outline a strategy that centers on it. Buy your shoes at a local shoe store, not a chain: the shoes still came from somewhere, and you might not like the backstory. That smartphone you rely on is filled with the spoils of remote mining activity and oppressive working conditions.

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