August was dominated by uncertainty about what is going on in financial markets. This affects most of us because we've got mortgages and investments. And there is concern over whether other issues will be affected, like trade or even our jobs. Much of this month's newsletter addresses this area. And for some detail, please look at the Investment section.

There were also a number of reports reviewing education, principally in the UK. Taken together they offer a strong argument for focussing early years education on emotional intelligence and leaving academic subjects till a bit later, say 8.

Please enjoy August's review below or on-line here, which I hope you find stimulating and useful.

Best wishes,



August 2007


Living in a fantasy world ...

You may have heard of the downturn in financial markets recently.  Its quite serious in fact.  Though at the moment what's happened is only heightened volatility coupled with a modest correction in asset prices which has merely eliminated the optimism of the past few months.  Unfortunately it will continue because the fantasy of creating something from nothing must be unwound.  The irresponsible expansion of credit fuelled consumption has exceeded our ability to pay our debts.  As you can read in the section on Investment, it has been too easy for us all to buy "stuff" with money we don't have.  Our propensity for greed fuelled by envy has become immoral.  And this does not account for the wasted investment in war (which has simply been a money pit), corruption and, unfortunately, below standard infrastructure.  This is OK because it can all be blamed on human nature.  But that means us.  And unless we bring back morality into our personal lives the pain of correction will be exacerbated.  Unwittingly our values reflect the fantasy of Hollywood more than the reality of nature.

The mechanism that underlies the sub-prime crisis is a good illustration of the fantasy that we have created.  Fiduciaries (people that are supposed to be responsible for other people's money) grouped together many loans then repackaged them into another group of loans based on the original group.  The second group of derived loans were then sold on and by collusion and misinformation the sum of the second group became more valuable than the first group even after the costs of doing the work.  Its like dividing a cake and then putting the pieces back together and having a bigger cake than that you started with, even though crumbs (sometimes big crumbs) have been eaten in the process!  This is the fantasy.  And we've created other fantasies, like children without parents or self control in an unattended sweet shop. It is fantasy to advocate free trade while you subsidise your producers.  It is fantasy to expect full employment while encouraging automation without education and training to ensure that people can move up the skills ladder.  It is fantasy to believe that you can take more out of the earth than is put in.

This financial discomfort is only going to be short term.  But it is another severe warning which will touch more lives than a tsunami, hurricane, flood or heat wave.  We're living a bigger fantasy that needs to be unwound before the quake occurs. That is the fantasy that this biosphere can support 6 billion people (and more).  Malthus was right, but he did not count on fossil fuels, especially oil.  Petrol has fuelled an exponential growth in consumption during the past century.  A hundred years ago human consumption was more closely equal to the energy input of the sun to our biosphere.  In the past 100 years we've sucked energy, stored over millennia, out of the ground and burned it to create cars, TVs, cities and ... people.  We believe it's all normal and OK.  But it's not.  And we've begun to feel the tremors of a planet self-destructing.  While the biosphere is likely to survive, there is no way it will continue to tolerate the footprint of humanity.  And while we feel the pain of repossessions, reduced consumption and uncertainty with a brief financial tremor, the lifestyle change that is inevitable in our lifetimes is inconceivable.

Some enlightened intentional communities have started to initiate  transition to infrastructure and dynamic which explore enlightened technology like alternative energy, open systems and organic food.  These are communities of leading thinkers who have gathered together to experiment with redesigning society in a world without oil.  These initiatives are not insignificant and are the laboratories of future living.  They do not advocate regression to the stone age.  But they are innovating choices about how to continue the rich, varied and stimulating lifestyle that we now enjoy, without sucking the planet dry.  We have built up a massive ecological credit in the past century and the biosphere's banker has decided that our credit rating needs to be reconsidered.

The impending restructuring of global economics is an opportunity to embark upon system change.  And that starts with us as individuals.  We are irresponsible if we look to leaders to show us the way.  That is an abdication of responsibility.  We must each take a step in the right direction.  We must face the fear of change and realise that we all know how to do the right thing the right way.  We can apply the standards that we have for our children and leaders to ourselves.  We are not powerless.  We must face the fact that being unable to do everything does not mean that we should do nothing.  Once we take a step in the right direction we soon realise that the reality of nature is as wonderful as the fantasies created by financial credit and feudal power structures.



The tremors of financial markets around the world in August raised the real spectre of there being no world leader.  The US, as part of a natural cycle of ebb and flow, is stepping back from its role of the past century.  And no nation is stepping forward.  While we know that China will soon dominate the world it is not in their culture nor interest to play the role of world leader.  It is as if a natural dynamic is forcing nations to work together.  Perhaps this is the first step in the natural demise of the nation state and the rise of local community politics and global politics.

A model of society underpinned by the work of Hayek and Freidman blossomed in the second half of last century which allowed a democratisation of economic power and a maturing of capitalism.  Motivated by self interest businesses innovated and prospered.  This social dynamic, which is where we are today has had its place and role in humanity's emergent intelligence.  It was a necessary reaction to growing attitude of righteousness embedded in socialist movements of 1950s  and 1960s.  It took economic meltdowns of 1970s to get leaders like Thatcher and Reagan and their policies to the top of the list of priorities.  But that model must now be subsumed within the next level of organisational sophistication - a more consensual model of external cohesion.  And hopefully then emerge an integral dynamic to human organisation within a short time.


Maybe these videos explain why there is such a credibility gap between what the American administration would have us believe and what we accept. Forget North Korea, watch our (global) dear leader - the real power behind the throne of America: Cheney '94: Invading Baghdad Would Create Quagmire in which he concludes "How many dead Americans would it be worth?" I think this would even surprise the die-hard pro-war readers.  And then there is Powell/Rice 2001: "Saddam has no WMDs" and  A Symphony of Lies.  While it may difficult for those of us in America to sift between truth and lies in the slick professional propaganda and media, it is easier for those of us outside with the ability to compare the tone and culture of news and media with more critical and sophisticated perspectives.

And back in America broad new surveillance powers approved by Congress in August could allow the Bush administration to conduct spy operations that go well beyond wire-tapping to include, without court approval, certain types of physical searches on American soil and the collection of Americans’ business records. The measure, which President Bush signed into law on August 5, was written and pushed through both the House and Senate so quickly that few in Congress had time to absorb its full impact.  These are exactly the kind of executive powers that the founding fathers were trying to escape when the formed the nation two and a half centuries ago.


The US Census Bureau's latest report on income, poverty and health insurance in the United States, was released at the end of August.  It offers some insights in to the evolving character of the waning global superpower.  It suggests a deterioration in healthcare.  This comes ironically on the heels of the release of Sicko, a colourful case study of the inefficiencies of US healthcare.  For a review of the report by The Economist go here.  And here for the Census Bureau’s report. Also, Robert Rector of the Heritage Foundation, a think-tank, has written a paper examining poverty in America. See also the State Children’s Health Insurance Programme.

The problems in the US are not making people happy as life-long Republicans change their stripes simply in protest at the way their savings are disintegrating and the national morality is compromised by an administration that has diverted resources from the needy to the rich (helping fund managers and banks, not subprime borrowers), from health care to war and from administration to cronyism (attorney general Gonzales being the soap opera in August).

There seems to be a general deterioration in US infrastructure - transportation, housing, health and education - likely caused by a consumption-driven and debt-driven culture at risk of spending itself into illiteracy and impotence in the global sphere.    Let's talk about what we've been spending our money on - burgers, coke and guns instead of roads and health.

More positively, the US Senate gave final approval to a far-reaching package of new ethics and lobbying rules, with an overwhelming majority of Republicans and Democrats agreeing to improve policing of the relationship between lawmakers and lobbyists. If President Bush signs the bill into law, members of Congress would face a battery of new restrictions. The legislation, approved by the Senate on a vote of 83 to 14, calls for bans on gifts, meals and travel paid for by lobbyists and makes it more difficult for lawmakers to capitalize quickly on their connections when joining the private sector. The measure also abolishes the practice of discounted rides on private planes, requiring senators as well as candidates for the Senate or the White House to pay full charter rates for trips. House members would be barred from accepting free trips on private planes. Also tucked into the 107-page measure are several Senate procedural changes intended to curb a practice that has become more common in recent years: adding surprise, last-minute provisions to bills. Until now, lawmakers could only challenge what they call “dead-of-night” provisions by objecting to the entire bill, an uphill battle because most members of Congress are reluctant to block major legislation on the verge of enactment over a single element. Under the bill, senators will be able to try to kill select provisions without endangering the entire bill.  All of these measures are excellent improvements and we hope they become law and enforced soon.


Last month China said it would reject any international effort to limit its greenhouse gas emissions. The announcement came on the heels of a report that China has become the world’s emissions leader, overtaking America.  This is entirely to be expected for two reasons: firstly China is an emerging nation whose priority must be to feed, house, educate and employ its population until they are on a par with richer countries.  Secondly, the example set by the US is that pollution control is a secondary concern and not worth multilateral action.

While the US is seen as the worst offender in terms of climate change, trade and even economic equity, it is true that all nations are motivated by self-interest and the US is no different.  Except perhaps that the US and other rich countries should be able to extrapolate the consequences of setting a bad example.  In terms of the Kyoto treaty, the US would have had to bear up to two-third of the costs simply because they have such a high energy consumption per person, even 2x that of Europe. According to current projections, the biggest losers from a warmer planet, in terms of economics and health, will be Europe and developing nations; hence the stronger stands in those parts of the world.

Also as a matter of corrective justice, perhaps the US has a special obligation to reduce the problem of climate change as it has already been the disproportionate contributor of greenhouse gas emissions in the atmosphere, having produced about 30% of the existing stock (compared with 8% for both Russia and China).


Pakistan was high in the geopolitical media in August, partly because of the 60th anniversary of its creation and partly because of the ongoing political volatility in this country bordering Iran and Afghanistan.  What is apparent is that the country has been hindered by a culture of violence and confrontation since its birth.  This extract by Mohsin Hamid, author of the novel “The Reluctant Fundamentalist”, gives a flavour for the problem and the opportunity for Pakistan to emerge more stable and prosperous  in the coming years.

For me personally, the 60th anniversary of independence, while worthy of note, is not of the utmost importance. My hopes are already dashing ahead and attaching themselves to the elections that are scheduled for later this year.

On one side are the forces of exclusion, who wish Pakistan to stand only for their kind of Pakistani. These include the political descendants of the man who stabbed my great-grandfather, the people who seek to oppress those who are clean shaven or those who toil for meager wages or those who are from provinces other than their own. But arrayed against them is something wholly new.

Pakistan now has private television stations that refuse to let the government set the news agenda. It has a Supreme Court that has asserted its independence for the first time, restoring a chief justice suspended by the president. And it has an army under physical attack from within and in desperate need of compromise with civil society.

A 60th birthday brings with it the obligation to shed some illusions. Pakistanis must realize that we have been our own worst enemies. My wish for our national anniversary is this: that we finally take the knife we have turned too often upon ourselves and place it firmly in its sheath.


A by-election in Lebanon showed that there remains a strong democratic spirit in that country ripped apart last year.  The election was one of two being contested to find replacements for two murdered anti-Syrian MPs. Christian cabinet minister Pierre Gemayel was shot dead in November, and Sunni Muslim lawmaker Walid Eido was killed in a Beirut car bomb in June. The vote to replace Eido in mainly Sunni West Beirut was won easily by pro-government candidate Mohammad Amin Itani, as expected.  But opposition leader Michel Aoun acclaimed victory for his candidate who defeated a government-backed, former president Amin Gemayel in a tense by-election near Lebanon's capital Beirut.  The election was not happy with supporters of the two sides were separated by tanks and hundreds of troops.  This result in the deeply-divided country trapped between the pro-Syrian, Hezbollah-led opposition and the western-backed, anti-Syrian government, illustrates the level of resentment against foreign involvement in the region: Gemayel’s doom seems to have been sealed by his support from the Bush administration and the implied agendas behind its backing. The paradox of American policy in the Middle East, promoting democracy on the assumption it will bring countries closer to the West, is that almost everywhere there are free elections, the American-backed side tends to lose. Lebanon’s voters in the Metn district, in other words, appeared to have joined the Palestinians, who voted for Hamas; the Iraqis, who voted for a government sympathetic to Iran; and the Egyptians, who have voted in growing numbers in recent elections for the Islamist Muslim Brotherhood. Regional analysts say candidates are tainted by the baggage of American foreign policy, from its backing of Israel to the violence in Iraq, and, importantly, American support is often applied to one faction instead of to institutions, causing further division rather than bringing stability.

While a new constitution was approved in Thailand, it seems to have been done with the hope that elections would not be delayed.  Meanwhile the governing junta continues to try to ring fence Thaksin and the supreme court approved a prosecution request to issue arrest warrants for the Manchester City owner and his wife on corruption charges. (The former Thai prime minister, who has been living in self-imposed exile in England, took over City in the summer.)  The Thai attorney general issued the warrant for Thaksin and his wife Pojamarn, in connection with corruption charges over a controversial land purchase deal in Bangkok. Despite these moves the popular support for Thaksin remains strong and while his party may have been outlawed, it appears that it will be replaced by a new political party, largely the same except in name.  Thailand's prospects remain positive, except for the political uncertainty, which we hope will subside in the new year.


An on-line tool that reveals the identity of organisations that edit Wikipedia pages has produced some interesting, though unsurprising information.  The CIA was involved in editing various entries, including pages on Iran's president. On the profile of Iranian President Mahmoud Ahmadinejad, the tool indicates that a worker on the CIA network reportedly added the exclamation "Wahhhhhh!" before a section on the leader's plans for his presidency. The Vatican  has edited entries about Sinn Fein leader Gerry Adams. The edit removed links to newspaper stories written in 2006 that alleged that Mr Adams' fingerprints and handprints were found on a car used during a double murder in 1971. Wikipedia Scanner also points the finger at commercial organisations that have modified entries about the pages. One in particular is Diebold, a company which supplies electronic voting machines in the US.  In October 2005, a person using a Diebold computer removed paragraphs about Walden O'Dell, chief executive of the company, which revealed that he had been "a top fund-raiser" for George Bush. A month later, other paragraphs and links to stories about the alleged rigging of the 2000 election were also removed.  The paragraphs and links have since been reinstated.

Related to this virtual politics, was news of a "cyberprotest" in which  hackers attacked the United Nations official website, forcing some sections to be taken off-line.  Slogans accusing the US and Israel of killing children appeared on the pages reserved for statements from UN Secretary General Ban Ki-Moon. Other pages on the site were also breached by the group.


Risk and Terror

Every now and then it is worth repeating these words from Martin Luther King in the early 1960's:

"Through our scientific genius, we made of the world a neighborhood, and now through our moral and ethical commitment, we must make of it a brotherhood. We must all learn to live together as brothers or we will all perish together as fools. This is what we must learn. It simply means that every nation must be concerned about every other nation; every individual must be concerned about every other individual."


George Friedman, international political science expert and founder of Strategic Foresight offers a valuable synthesis of  The Major Diplomatic and Strategic Evolution in Iraq.  A mutual need to resolve the strife in Iraq is emerging between America, Iraq and Iran, which led to high level meetings of U.S. Ambassador to Iraq Ryan Crocker, Iranian Ambassador to Iraq Hassan Kazemi Qomi and Iraqi National Security Adviser Muwaffaq al-Rubaie, and separately, a committee of Iranian, Iraqi and U.S. officials held its first meeting on Iraqi security. As Friedman notes:

"No one is in control of the situation. No one is likely to get control of the situation in any long-term serious way. It is in the interests of the United States, Iran and Saudi Arabia that the Iraq situation stabilize, simply because they cannot predict the outcome -- and the worst-case scenario for each is too frightening to contemplate.

None of the three powers can bring the situation under control. Even by working together, the three will be unable to completely stabilize Iraq and end the violence. But by working together they can increase security to the point that none of their nightmare scenarios comes true. In return, the United States will have to do without a pro-American government in Baghdad and the Iranians will have to forgo having an Iraqi satellite.

But if the United States and Iran, plus Saudi Arabia, work together -- with no one providing cover for or supplies to targeted groups -- the situation can be brought under what passes for reasonable control in Iraq. More important for the three powers, the United States could draw down its troops to minimal levels much more quickly than is currently being discussed, the Iranians would have a neutral, nonaggressive Iraq on their western border and the Saudis would have a buffer zone from the Iranians."

If this approach continues there is hope for stabilisation, because as has been pointed out previously, resolution in Iraq, as in Palestine/Israel and other hot-spots, requires local multilateral cooperation.  The likelihood of a US retreat from Iraq is growing, despite the "surge" and rhetoric to the contrary.

A senior Republican senator, John Warner, urged President Bush to begin bringing troops back from Iraq by Christmas, as US intelligence agencies published a bleak assessment of the chances of progress in the country in the next 12 months. Warner, who recently returned from Iraq and is widely respected by his Republican colleagues, went much further than in June when he first broke ranks with Mr Bush over the war. After a meeting with White House aides, he told reporters: "We simply cannot, as a nation, stand and continue to put our troops at continuous risk of loss of life and limb without beginning to take some decisive action." But he did not go as far as saying that he would support Democratic members of Congress who are likely to renew their attempts to pass legislation to set a timetable for withdrawal. So far only a handful of Republicans have joined them.

He spoke only hours after the national intelligence estimate, the consensus view of the CIA and 15 other American intelligence agencies, published their latest assessment of Iraq. They predicted that the prospects for the Iraqi government are "precarious", and expressed fears of a surprise attack in that country in the next few weeks comparable to the 1968 Tet offensive that threatened to overwhelm American forces in Vietnam.

It is not just politicians that are losing faith. Disillusionment with Iraq's elected leaders has forced President Bush's senior advisers to contemplate a future without democracy - a goal that was at the heart of the rationale for the US-led invasion. Frontline generals in Iraq spoke openly of the need to have a government that could function and guarantee security above all else, including democratic legitimacy. Brigadier General John Bednarek, who commands forces in Diyala province, told CNN that "democratic institutions are not necessarily the way ahead in the long-term future".


Meanwhile new UK prime minister Gordon Brown dismissed pressure to quit Iraq.  The UK approach of a kind of policing is likely to remain in place until Iraq has its own resources and more stability.  However, in a shift in policy, the UK asked the US to release five detainees at Guantanamo Bay,  who have resided in Britain but are not citizens. The Bush administration has said it has been looking for ways to reduce the Guantanamo population.


The EU stopped paying for fuel supplies to the only power plant in Gaza, leaving thousands of Palestinians without electricity.  The European Commission said it had withheld funding because of concerns over plans by Hamas, which controls Gaza, to tax electricity bills. The fuel aid programme will resume once Hamas agrees not to introduce the tax. Hamas denied it plans to impose any such tax.  The EU's decision forced the Gaza Generating Company, which provides power for at least 25% of the coastal strip's 1.5 million population, to shut down operations at the Nusseirat power plant. 


Bruce Lee said the greatest art is fighting without fighting.  This article describes in real terms why fighting less, leads to winning more in the counterinsurgency world of Afghanistan and Iraq.  The lesson may be applied to other areas, like Israel, and also to most spheres of human life including government, crime, education and work.

And to build on that, Chas Freeman intelligently outlines how Americans and Arabs are so much alike here in U.S. Foreign Policy and the Arab World.


Maybe the cost of the Iraq war would be slightly lower if someone was reading the cheques being issued to suppliers.  You will appreciate this extraordinary story of two sisters, Charlene and Darlene, owners of C&D Distributors, who defrauded the pentagon of millions of dollars by invoicing hundreds of thousands of dollars for shipping small parts to Iraq.  For example, they billed $ 455,009 for shipping three machine screws worth $ 1.31 each.  In total they swindled over $20 million over the past 9 years.  You've got to laugh, unless you're the taxpayer ...


Investment, Finance & VC

(The investment section is dominated this month by notes on the credit crunch precipitated by realisation that risk/return profiles in US housing finance and global credit are out of line.)

Hello, moral hazard.  No, there is no free lunch.

The unwinding of imbalances in the world of money continued in August.  While we will make a number of observations in this month's review, the story has not changed.  And while the outlook is not easy to determine, the principal driver is unchanged.  Last month we highlighted the new appreciation investors have adopted for risk.  Previously it was hardly considered, now it is high on the agenda.  This month the buzz word is uncertainty.  Unfortunately that is a step beyond risk.

The financial markets face uncertainty, rather than risk.  My portfolio theory professor at Wharton helped us understand the difference as risk being a defined variation or defined probable outcomes, uncertainty, however, is not even knowing what possible outcomes might be.  With the increasing sophistication of securities and their derivatives understanding the underlying drivers of an asset has become more elusive.  The interconnectedness of assets and the gross negligence of due diligence in committing capital over the past five years means that even the most sophisticated analysts have difficulty identifying real data.  With that proviso, let's review some of the news and views ...

The general theme is that the markets are down, credit is tighter, liquidity has been made available to banks and investors are hoping for a drop in interest rates in mid-September.  But don't imagine we've had a real correction.  Via Jim Stack's Investech, comes this interesting view of how prior bear markets compare relative to the most recent 9% correction.  That's right, the drop these last few weeks hardly registers.  Global stock markets are down, but not heavily. The S&P fell less than 10%, before rallying.  The comparison with Black Monday in 1987, when Wall Street fell 17% in a single day, is very wide of the mark.  Most market are still up on the year - some marginally, like US, some substantially like Korea, Brazil, and Germany.  The dogs which didn't bark are emerging market bond spreads, which remain tight by historical standards, and shipping rates and commodities. 

But the correction is healthy because it has refocussed attention on the other side of investing, the down side.  Now asset managers are reconsidering things like risk, security and loan terms.

(We won't be seeing so many NINJAS! As far back as 2001, advocates for low-income home-owners had argued that mortgage providers were making loans to borrowers without regard to their ability to repay. Many could not even scrape together the money for a down payment and were being approved with little or no documentation of their income or assets. In the most extreme cases, mortgage brokers were handing out what came to be known as "NINJA" loans, to people with no income, no job and no assets. Often the loans were "no-doc", where the borrower did not have to provide proof of how much they earned. Recent research suggests that in many if not most of these, borrowers (or their brokers) lied about their income. But now as interest rates have risen, so have repossessions. The US housing market has collapsed, and the banks find themselves saddled with a lot of bad debts.  In December 2006, the first subprime lenders started failing as more borrowers began falling behind on payments, often shortly after they received the loans. And in February, HSBC, the UK bank, set aside $1.76 billion because of problems in its American subprime lending business.)

What is needed now is confidence and trust in the market, not a bail out that perpetuates moral hazard.  Let's see whether regulators and central banks can give us the tough love that the market needs.  If the US Fed reduces rates on 18 September, we know that a bail out is preferred. 


The Fed lowered the discount rate, and the administration has initiated reform of tax laws to help troubled borrowers refinance their loans.   Even so, Bernanke insisted it was not the job of the Fed "to protect lenders or investors from the consequences of their financial decisions", and President Bush said that it is not the government's job to bail out speculators.

While it is questionable whether or not a reduction in the Fed funds rate would resolve any of the problems of over-borrowing, Bernanke has said that "The Fed stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of the markets."  This may be the rationale behind a lowering of rates, but would only serve to fuel speculation instead of allowing the market to develop its own discipline.  A reduction in rates would induce a brief surge, but like that in Iraq, it would be relatively impotent.  The cycle induced would be much shorter because the memory of the pain from July and August is fresh and investors want to lower risk now, not increase returns.

As an aside, Bernanke may be in the hot seat, but many analysts are beginning to review their evaluation of Greenspan's performance as Fed Chair.  Supporters of  Greenspan may claim that his role was not to advise investors, but the low level to which interest rates were dropped is increasingly questioned because it encouraged a consumption boom born of mortgage equity withdrawal underpinned by low cost debt.  My concern now is that similar strategies will be employed to lessen the consequences of fiscal profligacy and economic imbalances.

The US policy outlook is uncertain.  It is fine to lubricate financial markets to allow an adjustment to take place gradually, but to bail out the market perpetuates the illusion that downside is limited.  The moral hazard allows imbalances to build which reduces productive capacities of society.  Worse is the habit of bailing out the market from the top, rather than the bottom.  In other words banks, asset managers, brokers, professionals, agencies and other fiduciaries are bailed out while the least protected are allowed to suffer.  And this suffering is usually very personal and painful - people with little have that taken away.  Retired home-owners and young families have their houses repossessed.  Let's hope that this does not happen.

A bail out of bigger players might be rationalised by the idea that "investors were persuaded to buy complex packages of securities by prime brokers".  But this is a dangerous and self-serving excuse.  All of the big players (including individual investors) are sophisticated fiduciaries who can tell the difference between transparency and an opaque opportunity.  They could have asked the right questions.  Due diligence was in fact minimal.  There should be no bail out at the top of the investment pyramid.  Penalties should be imposed upon the brokers and lenders who effectively took advantage of naive home owners or young families - the sub-prime target market -

So far the pain has been concentrated in alternative assets and those exposed to them, managers and intermediaries. The stock market declines are not serious enough to indicate a large-scale macro event, and the globalisation story remains largely intact. Too much capital went into alternatives. Return expectations were too high, and strategies too similar. The sub-prime meltdown, a medium-size problem, triggered industry-wide deleveraging which ended up hurting everyone involved.  But at the end of the day the alternatives industry is not that important and other sectors are more relevant.  However, the vibration from a handful of sub-prime lenders and blue-chip hedge funds disintegrating has changed the perception of investors and lenders.  It is a good opportunity for the unwinding of the credit build-up of the last five years.  We can only hope that the decline in valuations is gradual. But I'm afraid the correction this time may not be enough to galvanise a system change.

There remains great opacity about the state of leverage and interconnectedness, such as the use of hedge fund positions (which are leveraged) being used as collateral for further loans for investment.  The kind of layered leverage which Enron was so good at hiding, until it wasn't. Barry Ritholtz asks whether it isn't a house of cards illustrated by the term CDOn - a generic term for CDOs backed by other CDOs, ranging from CDO2 to CDO3 to CDO4 and so on!  Similar opacity has been created by the degree to which special purpose vehicles have been used to market products, or to circumnavigate restrictions, either internal or regulatory.  This Enron risk is evident, however its extent is not, and there is a strong incentive to keep it that way for those exposed to deteriorating market values.


Last month we noted the role rating agencies played in helping create a distorted evaluation of risk/return profiles.  This has become clearer as we reflect on the evolution of rating policy and rising sophistication of derivatives. What occurred was that regulators required pension funds to restrict investment to A grade securities, but failed to adapt regulation of ratings to the changing nature of securities in a market moving from "book to hold" to "originate to distribute".  Rating agencies, initially reluctant to rate tranches of securitised sub-prime portfolios, became involved in their creation and found them to be a large, attractive source of revenue - they had strong incentives to be generous to their paymasters. 

Although there is evidence that Moody's and S&P remain relatively conservative when rating structured products, it is clear that even they allowed their ratings scale for securitised products to become inflated. Bloomberg Markets reported in July that: "Corporate bonds rated Baa, the lowest Moody's investment grade rating, had an average 2.2% default rate over five-year periods from 1983 to 2005, according to Moody's.   From 1993 to 2005, CDOs with the same Baa grade suffered five-year default rates of 24%, Moody's found." In other words, long before the current crisis, Moody's was aware that its Baa CDO securities were 10 times as risky as its Baa corporate bonds. Given the different and shifting meanings of Baa and other ratings as measures of risk and given the high rate of financial innovation and the lack of transparency inherent in multi-layered structured finance deals, it is not surprising that investors underestimated risks so badly leading up to the recent crisis.

And it wasn't just rating agencies and the buyers of tranches that had a distorted (or opaque) picture of the risk/return profile.  There was asymmetric information throughout the value chain. And the asymmetry is less about information differential on either side of a transaction (except between the sub-prime borrower and the mortgage broker), but more about a difference between what both parties thought the deal was and the reality of the risk/return profile. The originators did not know much about the underlying mortgages, the buyers less.  The rating agencies knew little about the products they rated, investors even less.  Borrowers hardly understood what they were getting in to and lenders did not know who they were lending to; mortgage brokers were getting paid for closing deals not for building a well understood portfolio of loans.

My conjecture is that the problem of overvalation is spread among many market participants and therefore will be felt across the global economy, but only to a great extent by a few participants heavily weighted in risky portfolios (most likely because they were (greedily) pursuing super returns) and focussed in the US.  If interest rates are not brought down, the market will adjust and the majority of investors will feel the consequences of their decisions, and, hopefully, market discipline will increase.  This will help stabilise economic dynamics in the future.  If on the other hand, interest rates are reduced, the worst offenders will benefit the most, moral hazard will be exacerbated and the market will not learn.  The next shock, will be equally disruptive and occur within a year (probably much less).

System change would be welcome.


While the news has been dominated by financial markets' liquidity concerns, another spectre raised its head in August - deteriorating infrastructure.  In America the collapse of a Minneapolis bridge caught people's attention and while it is unlikely that infrastructure is going to start collapsing, it is the case that the cost of maintenance and repair is high and rising and the condition of infrastructure is well below its condition when installed thus reducing its efficiency and raising its usage costs (eg time lost, wear and tear on vehicles and passengers). The American Society of Civil Engineers, grades the nation. Issuing its first report, in 1988, it issued three Bs (for aviation, flood defences and drinking water) and one D. All other systems were graded C. In sum, a slow pupil, but not a hopeless one. By 2005 America was a drop-out, with no As or Bs, four Cs and ten Ds. Worryingly, the second-best grade went to the nation's bridges.  It is not just America.  Many will have felt the pressure in air travel, or congested roads.  In Ireland (a small player) some analysts fear that corruption has raised the cost and lowered the quality of massive infrastructure build out over the past decade or so.  (One story of a contractor complaining that motorway siding they had installed did not work, then to be told that they had installed it upside down, thereby resulting in an additional cost of some € 7 million, illustrates the harm that comes from getting incompetent friends to do the work.)  These signs suggest that economic efficiencies will be dampened and if a long term slowdown does ensue, we will be spending more on repairing modern infrastructure than we should - which will exacerbate and extend the pain of economic slowdown.

What have Americans gained from their nation's mountain of debt? A crumbling infrastructure, a manufacturing base that has declined 60% since World War II, a rise in the wealth gap, the lowest consumer-savings rate since the Great Depression, 50 million Americans without health insurance, an educational system in decline and a shrinking dollar that makes foreign travel a luxury.  As Hamid Varzi notes, a return to fiscal responsibility would make America far stronger, both domestically and internationally, than would a continuation of current policies that falsely project strength through protectionist threats and military aggression.

Central banks have added an additional € 0.5 - 1 trillion in short term liquidity around the world.  That is certainly in excess of the exposure to the sub-prime sector.  But what is that cash for?  Its to tide banks over until they can sort out their balance sheets, not a gift.  They will be paying interest on the money lent while they try to restructure loans.  Lending terms will be tougher again.  Goodbye to ninja loans.  And how long will it last?  The pressure on the market must remain for one to two quarters and more rigorous terms should remain indefinitely (though that's unlikely).  We expect that stock markets should continue to correct, and then will rise again at a more modest pace.  The US economy will remain under pressure, whereas China will continue to underpin global prosperity.

While the focus in rightly on America, remember that all rich economies have been playing a similar game and the global economy will suffer.  Where credit has been used to pay for consumption instead of investment the pain will be greatest.

What investment strategy might be pursued?  Well, the first priority these days is to focus on the return OF capital rather than the return ON capital.  Having said that, gold has become popular and is already hitting $ 700 an ounce, because it is seen as a low risk asset.  But it is a traders investment and not one that we would focus on.  Blue chips are also worth considering for their lower risk profile.  In general, the simple rules of fundamental valuation should be applied.  Paying too much now, will be costly later.

And three links which offer further fuel for thought:

BBC's Q&A on world stock market falls

In mid-August investment guru Jeremy Grantham  analysed the private equity market. In this article he notes that it is one thing to make money when debt is cheap, but another when capital costs rise.  While he focusses on private equity, and leveraged deals, his observations are relevant for businesses in general and therefore relevant generally to investors and analysts. 

Bankers have always got flak from charging interest.  This is inappropriate because everyone values time and that is what interest accounts for.  While the subprime implosion rattles markets, new research from a case study in South Africa shows that lending to the poor benefits them.  And is cost effective for the lender to take on extra risk.  The Economist's summary of the research is here.

Responsible Investing

A few anecdotal benchmarks on the SRI market are worth noting.  The size of the assets under management is now estimated to top $ 1,000 billion and many listed companies are trading at multiples of 40 - 50 times earnings.  There is no doubt that a boom in clean tech investing has occurred since last autumn/fall when a raft of reports legitimising climate change were released, like the Stern report and IPCC reports.  This has resulted in high valuations in both the private and public markets and there is no doubt that expectations will not be met.  It is also fair to expect that a significant portion  of the new capital will have been wasted by encouraging businesses into gratuitous spending - this is normal and always happens when money managers are falling over themselves to invest (and some have little grounding in what they are doing).  With the current downturn in the market, it may be that over the medium term (1-3 years) these investments may not perform too badly relative to non-SRI portfolios, which would help preserve the reputation of the sector.  What is also happening though is that all mainstream asset managers are incorporating some kind of SRI screening in all their fund management procedures.  This is simply a pragmatic and cost effective way of reducing investment risk.  It requires a more sophisticated view of opportunities, because the analysis of non-financial dimensions becomes more important than it has been.  But investors should remember that it is they who are driving this trend and they must remain diligent in their selection of funds and managers.

According to a new survey from EyeForProcurement, more than 50% of companies have policies on greening their supply chain, and companies are nearly unanimous in their belief that green supply chains will only continue growing.  The survey asked 188 procurement professionals, primarily in the United States, Europe and Asia, about their companies' practices, policies and plans for reducing the environmental impact of the materials used in their work.   The two most heavily represented sectors in the survey were the transportation/logistics fields and the high-tech industry. The retail and apparel sectors were minimally represented, which suggests to the study's authors that going green is not a high priority for businesses in that field. The vast majority of products that companies are sourcing sustainably are packaging materials and the raw materials used in manufacturing, with 29% and 24% of respondents purchasing those materials from sustainable sources.   Two-thirds of the professionals in the survey said that they are practising green procurement to support their companies' environmental or sustainability strategies, while 49% also said they're responding to customers' interest in eco-friendly products and services.   Although companies are increasingly aware of the benefits and importance of green procurement, most of them are only acquiring a small portion of their materials in that way. Only 13% of respondents are sourcing half or more of their products and services sustainably, while 55% said they source less than 10% of green goods.


In most countries, companies have no legal responsibility to issue sustainability reports that focus on the social, environmental, and governance ramifications of their business activities. However, more and more companies are responding to internal and external demands to create these reports with, for example, almost half of the S&P 100 corporations writing sustainability reports in 2006.  A new study from GRI and KPMG on sustainability reports notes that companies highlight new business opportunities created by climate change and shy away from risks associated with climate change.   As you will see from the summary information below, this is demonstrates a massive opportunity: for some years now the opportunity to change business systems and culture to moderate operational risk has been evident, but apparently ignored, and the investment opportunities (other than "alternative energy") also evidently attractive, have similarly been ignored. The GRI / KPMG Global Sustainability Services study reviewed sustainability reports from 50 companies that follow GRI's guidelines. The newly released research, entitled Reporting the Business Implications of Climate Change in Sustainability Reports  notes that 90% of surveyed reports include climate change, however, only 20% of the studies reports mention any risks to their businesses from climate change. This lack of information on risks is in spite of evidence from a number of sources, including the Stern Report on the Economics of Climate Change, that say that climate change has serious ramifications for the world's economy.   The report concludes that carbon emissions trading and credits are the most focused on as new businesses opportunities created by climate change. Other opportunities from climate change vary widely from sector to sector, and include hybrid cars to energy efficient detergents.The risk that was mentioned in the reports most often is the increase of energy costs, with about 20% of sustainability reports mentioning rising energy bills. Very few companies mentioned the risk of increased legal action, such as the risk of class-action lawsuits with regard to climate change.

The World Business Council for Sustainable Development officially launched its new Global Water Tool, designed to help companies and organizations to map their water use and assess risks relative to their global operations and supply chains. The launch coincides with World Water Week in Stockholm.  Companies around the world are exposed to risk from water issues, and provision of clean water is a rapidly growing industry. Nearly every firm is a consumer of water at some point in its supply chain, and understanding usage of this vital resource is becoming increasingly important. Around 10% of the world's population currently lives under water stress as defined by the United Nations, and the UN predicts that by 2025, two-thirds of the earth's population will be living in areas suffering from scarcity of water. Increased water use due to growing populations and economic development, as well as droughts and changes caused by climate change will likely worsen the situation. Under the old business adage “what gets measured, gets managed”, WBCSD says the tool should help companies better manage their water use. Better local management leads to better global management. The tool is downloadable from . The Global Water Tool allows companies to quickly and accurately answer such key questions as: How many of our sites are in extremely water-scarce areas? Which sites are at greatest risk? How will that look in the future?  How many of our employees live in countries that lack access to improved water and sanitation?  How many of our suppliers are in water-scarce areas now? How many will be in 2025? It does not provide specific guidance on local situations, which require more in-depth, systematic analysis. The tool also enables companies to quickly and accurately: Compare their water use (including staff presence, industrial use, and supply chain) with validated water and sanitation availability information, both on a country and watershed basis; Calculate water consumption and efficiency;  Establish relative water risks in their portfolio;  Create key water Global Reporting Initiative indicators, inventories, risk and performance metrics;  Enable effective communications between internal and external stakeholders on water issues.


Standard and Poor's launched its Global Thematic Index Series, which includes the S&P Global Clean Energy Index. Merrill Lynch expanded its line of "green" indexes with a new product, the Energy Efficiency Index, that tracks the growing movement to reduce energy costs and CO2 emissions. The EEI has a universe of 40 global companies found in four sectors that should benefit from improved energy efficiency.  Other well-known indexes that follow clean energy include the WilderHill Clean Energy Global Innovation Index, the NASDAQ Clean Edge U.S. Index, the KLD Global Climate 100 Index and the Ardour Global Indices

If you are an SRI investor have a look at Natural Investing.  This investment advisor was launched by experienced professionals and it seems that their work is driven by much of the empathetic passion that drives GRI Equity.  Worth a browse for private investors and investment managers.

Venture Capital

Grant Thornton released a report on the ethics of the private equity industry (focussed on the UK).  Unfortunately their methodology was flawed: they surveyed private equity pros and asked them if they feel ethical!  As you guessed, most private equity pros say that their industry has “high” ethical standards.  Oh dear.  That doesn't sound very ethical.  As Dan Primack suggests, wouldn't it be great to do a qualitative review of actual private equity transactions, which would include interviews with equity sponsors, portfolio company management and portfolio company employees.  (Anyone want to sponsor us to do such a survey?)


While risk perception has raised volatility and reduced market liquidity, there is apparently still enough discretionary capital to raise a few billion for restructuring private equity.  Oaktree Capital ($3-5 billion), Goldman Sachs ($ 1 billion) and Lehman Brothers ($ 2 billion) are already well on their way to closing funds totalling $ 6 - 8 billion to buy bridge (not the road and rail kind) financing debt that has stalled because of market concerns.

China has begun selling Yuan 600 billion ($79 billion) in bonds to finance a state agency that will invest the country's foreign currency reserves. The bond sale was the first tranche of a Yuan 1.55 trillion ($199 billion) basket of special treasury bonds, approved in June by China's legislature.  The interest rate is about 4.3%, matching the market rate for long-term debt.  The fund could end up managing between $200 billion and $400 billion. China is setting up the agency, tentatively called the State Investment Co., to make more profitable use of its $1.2 trillion in reserves, of which and estimated 70% are in U.S. Treasury securities and other US$ assets; the remainder is thought to be in euros and a small amount in yen.The growth in China's reserves has been driven by its surging exports, which bring in a flood of foreign currency. That's forcing the central bank to drain billions a month from the economy by selling bonds to reduce pressure for prices to rise. The reserves are growing by about $20 billion a month.  Chinese officials say the investment agency is modelled in part on Singapore's state-owned Temasek Holdings, which invests in banks, real estate, shipping, energy and other industries in Singapore, India, China, South Korea and elsewhere. The investment vehicle has already made one investment, valued at $3 billion, in the U.S. private equity investor Blackstone Group. That investment has not panned out, as Blackstone shares have plummeted 34% since an initial public offering in June.


US venture capital performance continued to show positive returns across most investment horizons ending 1Q 2007.  The NVCA puts average five-year returns for all VC at 2.7%, with far stronger performance for one-year (18.1%), three-year (9.6%), 10-year (21%) and 20-year (16.4%). Only the five-year underperformed the Nasdaq or S&P 500, and that can be chalked up to venture getting hit particularly hard by the Internet bubble burst. But after hearing the conjecture that the majority of VC funds have underperformed for nearly a decade, Dan Primack of Thompson did some analysis and notes the following:

"Through the end of Q1 07, funds raised between 2001 and 2007 have a median IRR of -2.6%. Moreover, the super quartile benchmark was at just 4.1%, which means that the vast majority of VC funds raised since 2001 have underperformed a typical savings account. The data beginning in vintage year 2003 is even worse (which is probably to be expected with the J-curve). The median for these funds is -5.7%, with the upper quartile benchmark at -0.2%. That’s right, more than 75% of VC funds raised since 2003 were underwater through the end of Q3. VCs were paying relatively low valuations for companies between 2003 and 2005 (or at least should have been), and the IPO and M&A windows have been steadily improving. If most funds are losing money in that environment, then what happens when some of today’s inflated valuations – particularly in clean-tech and later-stage deals – come home to roost?"

Venture capitalists invested $7.1 billion in 977 deals in the second quarter of 2007 - the highest level of deals reported in a quarter since Q3 2001 - according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial. The quarterly strength in the number of deals was driven by companies in the Seed and Early stages of development, which increased by 31% from the prior quarter.  Venture Investment Q2 '07 - MoneyTree

Reklaim Technologies Inc. has secured $7 million of a $10 million Series B round led by Goldman Sachs, according to a regulatory filing. The US company is developing a climate-neutral solution to recover materials and trapped energy from discarded products such as tires, computers and automobile plastics.

HerbalScience Nutraceuticals LLC, a Singapore-based developer of a botanical extraction technology, has raised an undisclosed amount of convertible preferred funding, from Aisling Capital and Weston Presidio. VentureWire reports that the deal was $28 million for a 25% stake. BMO Capital Markets served as placement agent.

Propel Biofuels Inc., a developer of biodiesel pumps for existing service stations, has raised $4.75 million in its first institutional funding round, according to VentureWire. Backers include @Ventures and Nth Power. 

Solexant Corp., a US developer of low-cost photovoltaic cells, has raised $4.3 million in Series A funding, according to a regulatory filing. Backers include Trident Capital, Firelake Capital and X/Seed Capital.

HelioVolt Corp., a Texas-based developer of thin-film photovoltaics, has raised $77 million in Series B funding. The round was co-led by Paladin Capital Group and Masdar Clean Tech Fund, an affiliate of the Abu Dhabi government. Series A backer New Enterprise Associates also participated, alongside Solucar Energias, Morgan Stanley Principal Investments, Sunton United Energy and Yellowstone Capital.

SunEthanol, an US developer of cellulosic ethanol production technology, has raised an undisclosed amount of VC funding from VeraSun Energy Corp, Battery Ventures, Long River Ventures and AST Capital.

Venture Vehicles Inc., a Los Angeles-based maker of "green-friendly" automobiles, has raised $6 million in Series A funding, according to a regulatory filing. Backers include NGEN Partners and DVC Technologies NV.

ArcLight Capital has agreed to acquire interests in 18 geothermal, wind and solar renewable power generation projects from Caithness Energy LLC. The projects have an installed capacity of 824 megawatts. No financial terms were disclosed.  

Laureate Education Inc. has completed its $3.82 billion take-private acquisition by a consortium that included Laureate chairman and CEO Douglas Becker, Kohlberg Kravis Roberts & Co., Citi Private Equity; S.A.C. Capital Management, SPG Partners, Bregal Investments, Caisse de dépôt et placement du Québec, Sterling Capital, Makena Capital, Torreal SA, Brenthurst Funds and Vulcan Capital. Laureate stockholders received $62 per share. Laureate is a Baltimore-based provider of on-campus and on-line higher education


Interest Rates and Currencies

The hope of August has been that the US Fed will lower interest rates in mid-September.  I do not think this should happen, but there might be more emotional pressure on the Fed Chair and the OMC than we realise.  A reduction in the rate would give support to the stock market but not help improve fundamentals.  In fact it would contribute to moral hazard (as discussed above in Investment).  A rate cut will not make a difference in the credibility of the ratings, nor will it transform bad debts into good ones.   I don't think that interest rates should come down.  They are where they need to be.  And the problem in the financial markets has been over-leverage.  The lesson needs to be learnt and both lenders and creditors should be allowed to learn.

Interest rates are not high and consumption remains strong in America.  The US economy grew at an annual rate of 4% in the second quarter, a better performance than first thought. Revised figures from the Commerce Department showed the economy fared better than its initial forecast of a rate of 3.4%.  The rise, eclipsing the 0.6% growth seen between January and March, was due mainly to strong business investment.  US retail sales, which account for more than two-thirds of the US economy, rebounded more than expected in July.  Overall sales at US retailers rose 0.3% in July, compared with June's 0.7% drop, and better than the expected 0.2% rise. The core retail sales figure,  which excludes building materials, cars and petrol rose to 0.6% in July from 0.4% in June. It has not yet become apparent that consumers have changed habits.

What has happened in the last few weeks is a massive injection of cash.  An estimated $ 0.5 - 1 trillion more than normal has been lent by central banks, mainly in Europe and Japan.  And the US Fed reduced the discount rate (the rate at which it lends to banks overnight).  This injection of liquidity would normally contribute to inflation, which continues to be undesirable.  While core US consumer prices, which exclude food and energy costs, rose by 0.1% in July, compared with market expectations of a 0.2% expansion, and the Commerce Department said the annual level of consumer price inflation was 1.9%, below where it stood earlier this year and within the Fed's unofficial 1% to 2% comfort zone, as discussed below, the annual rate will keep rising because of high inflation in the first half of the year.

Inflation is not under control in the US.  Read the following extract from the US Bureau of Labour Statistics July CPI report (available in full here):

During the first seven months of 2007, the CPI-U rose at a 4.5% seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5% for all of 2006. The index for energy, which rose 2.9% in 2006, advanced at a 21.3% SAAR in the first seven months of 2007 despite registering declines in each of the last two months. Petroleum-based energy costs increased at a 36.9% annual rate and charges for energy services rose at a 3.8% annual rate. The food index has increased at a 5.7% SAAR thus far this year, following a 2.1% rise for all of 2006. Excluding food and energy, the CPI-U advanced at a 2.3% SAAR in the first seven months, following a 2.6% rise for all of 2006. The food and beverages index rose 0.3% in July. The index for food at home, which increased 0.6% in June, rose 0.1% in July. Another sharp increase in the index for dairy products was nearly offset by declines in the indexes for fruits and vegetables, for meats, poultry, fish, and eggs, and for nonalcoholic beverages.  The index for dairy products increased 2.7%, following a 3.2% increase in June. Milk prices rose 6.4% and have risen 16.9% since the beginning of the year.


Moving on to exchange rates, the dollar has not deteriorated despite market volatility.  But in order to continue borrowing at reasonable interest rates America, which borrows a $2.5 billion daily from abroad to service its burgeoning debt, needs to retain credibility with its overseas creditors, especially Asian nations running huge trade surpluses. A cessation of foreign lending would force the Fed to raise interest rates to attract money, accelerating the economic rebalancing in the US. The U.S. debt situation is such that the Chinese would not even need to "dump dollars" to precipitate a meltdown but could simply refuse to extend further credit: They could cease purchasing additional Treasury Bonds and Treasury Bills, without selling any excess inventory. China has the far stronger hand, because a run on the dollar would merely reduce China's gigantic cash surplus while increasing America's debt burden to astronomical levels.

Last month we shared some data on foreign exchange holdings and global investment patters which indicate that a reallocation from US dollars to other currencies is occurring and underpinned not just by the $5 trillion or so held by central banks, but also by the $ 20 trillion of so in US real money management accounts.  The recent moderation of equity markets has reinforced this rationale.  Investors, including those in the US,  are likely to be reconsidering their risk profile of US markets and others that are exposed to housing downturns and rising capital costs.  At the same time they will be looking for good returns.  Both of these criteria can be satisfied by investing in emerging markets, and the wealthiest have access to these markets both in listed markets and also in direct investment (PE and VC) markets.  I expect that this reallocation will accelerate and a portion of capital divested in recent weeks may be reinvested in emerging markets.


China's inflation rate jumped to 5.6% in July, year-on-year, up from 4.4% in June and its highest level for more than ten years. Rising food prices were to blame and the central bank expressed concern.  China raised interest rates for the fourth time this year.  This is part of an ongoing policy to keep inflation moderate, manage exchange rates and provide some rein on the booming stock market.  Capital controls were also eased by allowing investment by mainland nationals in the Hong Kong market.  This may take some of the pressure of Shanghai and Shenzhen and even provide a boost to Hong Kong.


Japan's economy grew by only 0.1% in the second quarter, below market expectations of 0.2%. Japan's weak 2Q economic growth was led by modest exports.  The yen has appreciated making goods more expensive abroad. The government's latest economic figures came as the Bank of Japan announced a second cash injection of 600 billion yen (US$5 billion) into money markets, its second intervention in two trading days.The Bank of Japan had been expected to raise interest rates from 0.5% to 0.75% this month, but the weak data and volatile markets changed this and rates were kept at 0.5%.

A brief quote from Greg Weldon (whose technical analysis is available via regarding the depreciating economics of the world's second largest economy, Japan, is worth noting.

Deflation is taking hold again in Japan ... ... while wealth disinflation is becoming more acute in the US stock market. It is not coincidence that both ... Japanese and US bank shares, brokerage shares, and consumer-retail sector funds are leading the global markets lower. This is a major macro-message being sent to investors around the world. A move in USD-JPY below 118 might just cause the next shoe to drop. Expect it.


The rate of economic growth in the Euro area slowed to 0.3% in the second quarter compared with the previous quarter.  This is half the QoQ increases seen for at least the previous 4 quarters, raising some doubts about whether the European Central Bank would soon raise interest rates, although they are still modest. 


In the UK, a supermarket price war helped the UK's rate of inflation to fall to 1.9% in July, well below analysts' forecasts. The Consumer Price Index dropped sharply from June's level of 2.4%, raising hopes that further rises in interest rates will not be needed. It is the first time UK inflation has fallen below the government's target of 2% since March 2006. The Retail Price Index, a measure often used in wage bargaining, fell to 3.8% in July from 4.4% the previous month.  The impact of the price war demonstrates the power and influence of the major chains and raises the issue of market control.  (We have certainly seen the effect in our local town (in Ireland) as the inception of two main stream supermarkets in the past year or so has put three town square convenience stores out of business.)


Trade and FDI

A growing concern I now have is that the US policy will cause the problems in that economy to spread beyond the limit of the current imbalances  It appears that they are doing this by trying to restrict trade with China (and others) through media and legal tactics.  The problem of safety issues in Chinese goods, from food to toys, obviously needs attention but it has been blown in to a media attack on China that is imbalanced and will have the consequence of reducing the needed flow of lower cost goods from China, thereby reducing consumer choice, increasing inflation and probably reducing consumption too.  The other tactic is to litigate through the WTO against IP pirates in China.  For similar reasons this will not open China's market to the likes of Microsoft because people in China simply can not afford the full cost of their products.  It will also reduce the market share of these brands in China, which will be replaced by lower cost alternatives, in the case of software by open-source versions.  And of course there are the complaints about the value of the Yuan.  But here again as we have noted before, it is not certain that the currency is so far from equity, it is also destabilising when currencies change too fast.  And of course more expensive Yuan, means more expensive imports in the US, which means inflation.  If global trade is stifled because the US effectively stops trading with China, then there will a much more severe and unpredictable meltdown of the global financial system.

The US has made a formal request to the World Trade Organization for it to crack down on copyright piracy and counterfeiting in China.  It says that China's failure to enforce copyright laws is costing software, music and book publishers billions of dollars in lost sales. The US also argues that China makes it hard for legitimate firms to operate.  The two countries have been in talks for four months, since the US first launched its challenge.  The US now wants the WTO's Dispute Settlement Body to intervene.

But more revealing is that the US Congress is considering legislation that will implement tariffs on Chinese goods if China does not revalue its currency. There is a high level of rhetoric from both US political parties and presidential candidates, but it is unlikely that the US will actually be able to get such legislation passed into law. Even if such legislation passed Congress (a possibility) it would be vetoed by President Bush. That means that any real change would not be possible until some time in the middle of 2009, by which time the situation will be unpredictably different.  And remember that the Yuan has already dropped almost 10% in the last two years since the Chinese started their policy of a crawling peg.   The bi-partisan economic illiterates in Congress are effectively advocating lost American jobs and increasing inflationary pressure.  Protectionism has a very high cost.

In another protectionist initiative, the Bush administration is pressing the International Monetary Fund and the World Bank to examine the behaviour of sovereign wealth funds, which control up to $2.5 trillion in investments, and develop possible codes of conduct for them. Among the proposed rules would be an obligation to disclose investment methods and to avoid interfering in a host country’s politics.  Efforts this year by China and Singapore to buy stakes in Barclays Bank in Britain, and by Qatar to take over Sainsbury’s supermarket chain in Britain, have caused little stir in Britain. Neither Dubai’s bid for Barney’s, the American retailer, nor China’s purchase of nearly a 10% stake in Blackstone this year has produced an outcry in the United States, although there has been some repercussion in China over the recent losses in the Blackstone investment. But in Germany, where there is concern about Russia’s buying up pipelines and energy infrastructure and squeezing Europe for political gain, Chancellor Angela Merkel has warned that purchases by foreign governments or government-controlled companies pose a risk.  Probably the most political turbulence caused by a sovereign wealth fund occurred when Temasek Holdings, the state-owned investment branch of Singapore, purchased a stake in the company owned by the prime minister of Thailand, Thaksin Shinawatra. The deal fed antigovernment demonstrations that led to his ouster in a coup in 2006. The worry is that beyond the possibility of foreign funds pushing up prices on bonds, stocks and real estate, they might exercise inappropriate control politically or in the private sphere.

Another twist has occurred in the tale of WTO degeneration.  The failure of Doha has been largely because of the unwillingness of rich countries to stop subsidising their industries, particularly commodity industries like cotton.  Now the US has found itself in an escalating dispute over internet gambling, which should be open according to WTO agreement, but which the US has prohibited using a virtually unused clause in the treaty.  At the end of July Antigua and others which had significant revenues from on-line gambling businesses, launched formal arbitration proceedings to recover lost revenue.  Unless the US compensates these jurisdictions, or changes its laws, the message that the WTO is a tool of US convenience will again be reiterated.

Meanwhile CARE, one of the world’s biggest charities, is walking away from some $45 million a year in federal financing, because American food aid is not only plagued with inefficiencies, but also may hurt some of the very poor people it aims to help.  CARE’s decision is focused on the practice of selling tons of often heavily subsidized American farm products in African countries that in some cases, it says, compete with the crops of struggling local farmers. The charity says it will phase out its use of the practice by 2009. But it has already deeply divided the world of food aid and has spurred growing criticism of the practice as Congress considers a new farm bill. Under the system, the United States government buys the goods from American agribusinesses, ships them overseas, mostly on American-flagged carriers, and then donates them to the aid groups as an indirect form of financing. The groups sell the products on the market in poor countries and use the money to finance their antipoverty programs. It amounts to about $180 million a year.

The death of the WTO's Doha talks is a primer by the BBC on the WTO and the outlook for global trade.  Most will be familiar with the situation, and this is a convenient summary. 


In a direct attack against India's right to protect public health, Novartis had challenged an Indian-law that allows the country to refuse a patent for an existing medicine when it is not truly innovative. However, the verdict by an Indian court against the Swiss pharmaceutical company Novartis is an important victory for global public health, according to international aid agency Oxfam and the Interfaith Center on Corporate Responsibility, an institutional investor organization. The decision will protect India's special role as the world's leading provider of affordable medicines to people who depend on inexpensive medicines as their only means of treatment. With this ruling, Novartis and the pharmaceutical industry have been given a clear message to respect developing countries' legal right to use the World Trade Organization TRIPS (trade-related intellectual property) safeguards in order to strike a fair balance between protecting public health and intellectual property, noted Oxfam and ICCR.   India, sometimes known as the 'pharmacy of the developing world' due to its massive generic drug production industry, supplies most of the world's affordable generics to developing countries where patented medicines are priced out of most people's reach. More than two-thirds of the generic medicines produced in India are exported to developing countries at a fraction of the cost of patented brand medicines. Multilateral and bilateral aid programs, such as the US AIDS treatment program (PEPFAR), UNICEF and Doctors without Borders, rely heavily on Indian generics.



The US House of Representatives passed a radical new energy bill, which aims to expand the use of renewable fuels and cut tax breaks to oil firms.  The draft law details support for "clean" energy sources like biofuels, wind, solar and geothermal resources and would withdraw some $16 billion in annual subsidies from the oil industry.  This is a welcome, long over due initiative (though the subsidy cutbacks are modest in the context of the total subsidies received).  Unfortunately, the bill is opposed by President Bush, and still has to be reconciled with a Senate version, which passed last June but is more restrained and emphasizes slightly different priorities.  If it passes in its current form, the bill will require all American utility companies to generate 15% of their energy from renewable sources by the year 2020, compared to just 6.1% currently. It also calls for more stringent efficiency standards for lighting and electrical appliances.  It would cancel tax concessions long enjoyed by the major oil companies such as Exxon-Mobil, Conoco and Chevron.   The Senate energy efficiency package, which includes new car fuel efficiency standards, is projected to reduce US demand for oil by 5.3 million barrels a day in 2030 -- 32% of oil and other liquid fuel imports projected for that year.


paper batteryHere's a cool technology.  A team of researchers say that flexible paper batteries could meet the energy demands of the next generation of gadgets.  They have produced a sample slightly larger than a postage stamp that can store enough energy to illuminate a small light bulb. The ambition is to produce reams of paper that could one day power a car. Professor Robert Linhardt, of the Rensselaer Polytechnic Institute, said the paper battery was a glimpse into the future of power storage.  The team behind the versatile paper, which stores energy like a conventional battery, says it can also double as a capacitor capable of releasing sudden energy bursts for high-power applications. While a conventional battery contains a number of separate components, the paper battery integrates all of the battery components in a single structure, making it more energy efficient.  The research appears in the Proceedings of the National Academy of Sciences.  The battery contains carbon nanotubes, each about one millionth of a centimetre thick, which act as an electrode. The nanotubes are embedded in a sheet of paper soaked in ionic liquid electrolytes, which conduct the electricity. The flexible battery can function even if it is rolled up, folded or cut. Although the power output is currently modest, Professor Linhardt said that increasing the output should be easy. "If we stack 500 sheets together in a ream, that's 500 times the voltage. If we rip the paper in half we cut power by 50%. So we can control the power and voltage issue." Because the battery consists mainly of paper and carbon, it could be used to power pacemakers within the body where conventional batteries pose a toxic threat. "I wouldn't want the ionic liquid electrolytes in my body, but it works without them," said Professor Linhardt. "You can implant a piece of paper in the body and blood would serve as an electrolyte."  However, carbon nanotubes are very expensive, and batteries large enough to power a car are unlikely to be cost effective for a few years.

Sony has developed a bio-battery that uses glucose to generate enough electricity to power a Walkman. The technology breaks down sugar in the carbohydrates using enzymes as the catalyst. The bio-battery reached a 50 milliwatt power output, the world's highest for passive-type bio-batteries.   In passive-type batteries, reactive substances, such as glucose and oxygen, are absorbed into electrodes through natural diffusion rather than by force. A flow of electrons through the cathode and anode produces the power. Sony said it created a new cathode structure which manages to efficiently supply oxygen to the electrode while ensuring that enough water content is maintained. The high power output levels were reached because Sony was able to optimize the electrolyte for these two technologies.   The technology holds great promise as a clean energy source because sugar is produced naturally by plants through photosynthesis.  Sony said it will continue developing immobilization systems, electrode composition and other technologies to boost power output and durability. The company one day hope to drive the technology toward future practical applications.   Sony's research was accepted as an academic paper at the 234th American Chemical Society National Meeting and Exposition.


A recent article in GLOBE outlines the trends in greening of auto techIt is reproduced here.  I found a couple of points regarding electric vehicle to be pertinent because electric vehicles are currently available, especially the two wheeled variety. Electric motors are beneficial because they can dramatically improve upon the energy efficiency of internal combustion engines. Interestingly, electric vehicles were more popular than gasoline vehicles during the early days of the automobile, but were phased out in favour of cheap, high-performance internal combustion engines.  According to studies, electric cars substantially reduce emissions of air pollutants and greenhouse gas emissions even when drawing electricity from a grid supplied mainly by coal power. Battery technologies have improved dramatically since electric cars were last market-tested in the 1990s, and small, lightweight lithium-ion cells, of which the Tesla roadster uses more than 6,800, could be leading a revolution. However, challenges still exist in improving battery efficiency and longevity, and research and development is ongoing. A widespread global introduction of “gridable” vehicles would also have complex ramifications for electric power systems. The world's largest carmakers have either signalled a wholesale move to hybrid gas-electric vehicles or more broad efforts toward the full electrification of the automobile.

With some tantalizing cars on the way, it appears the world will once again see electric vehicles in widespread use.  Fully electric vehicles are on the way, with a host of companies planning cars powered only by advanced battery systems and electric motors. Tesla Motors' roadster can accelerate from zero to 60 mph in 4 seconds and provide more than 300 km of driving range; Miles Automotive's Javlon will go nearly as far without a charge and will hit a top speed of 128 km/hour. Venture Vehicles Inc., a Los Angeles-based maker of "green-friendly" automobiles is developing:"A revolutionary, two-passenger, three-wheeled, tilting (articulating) vehicle, powered by a highly fuel efficient hybrid propulsion system that will deliver over 100 mpg, at over 100 mph, and blistering 0 to 60 acceleration." 

BusinessWeek published a special report on high-tech cars which focusses on lowering fossil fuel consumption and pollution.  It offers some food for thought in the emerging battleground for the the auto industry.


In the UK, the third political party, the Liberal Democrats, have made radical proposals to be approved at the upcoming party members' conference.They have dared to talk about making it compulsory for cars to be free of carbon emissions by 2040, establishing personal carbon allowances not just in Britain but across the world, and capping airport capacity at today's levels! They propose that we move towards a so-called "pay as you burn" world. Every service or product we purchase - be it a mini-break, a television, or bottle of wine - would have its full carbon cost "internalised". If you have a taste for a carbon-rich lifestyle, you would be highly taxed accordingly.  Their policy document is about as bold as a mainstream party is likely to go in today's political scene. But the political climate is changing almost as quickly as the planet's. It is highly likely that, even if voters reject this vision in the short term, it will drag the other parties' policies in the same direction. No one is likely to run on a ticket of "Let's burn lots more of the black stuff" ever again.

In a similar vein check out ZeroCarbonBritain.  And this short video by GreenPeace discussing alternative power and the inconvenient solution - Nuclear.


Climate Change and Environment

According to a UN climate change report, investment of more than $ 200 billion will be needed by 2030 just to keep greenhouse gas emissions at today's levels.  (By the way that is only the same order of magnitude as what has been tied up in the US subprime crisis and less than the injections of liquidity by central banks in the past few weeks.)  "Global additional investment and financial flows of 200-210 billion dollars (146.3-153.7 billion euros) will be necessary in 2030 to return global greenhouse gas emission to current levels," according to the report by the United Nations Framework Convention on Climate Change. Presenting the report, UNFCCC Executive Secretary Yvo de Boer told reporters that finding "an economic answer" was key to dealing with the peril of climate change.  The report estimates that between 0.3 and 0.5% of global GDP and between 1.1 and 1.7% of global investment will have to be spent on addressing climate change.  It seems that that would be a better use of resources than war and the report seems to agree by suggesting that although additional funding is necessary, "a substantial part of the additional investment and financial flows needed could be covered by the currently available sources" ... the aim will be to "direct the financial and investment flows into new facilities that are more climate-friendly and resilient". This will include investing in technology research, renewable energy and energy efficiency for transport, industry and construction, as well as supporting agroforestry and implementing sustainable forest management.


Scientists say they have developed a model to predict how ocean currents, as well as human activities, will affect temperatures over the next decade.  By including short-term natural events, such as El Nino, a UK team says it is able to offer 10-year projections.  Models have previously focused on how the globe will warm over a century. Writing in Science, Met Office researchers project that at least half of the years between 2009 and 2014 are likely to exceed existing records.  However, the Hadley Centre researchers said that the influence of natural climatic variations were likely to dampen the effects of emissions from human activities between now and 2009.  The conclusions drawn by the team seem to support the sense that our expectations of the speed of climate change should be measured in years not decades, as many of projections have done to date.


The RSPB says that climate change is to blame for a drop in the number of some birds that visit Britain each winter.  The charity said many wildfowl no longer needed to migrate as far as the UK from places like Greenland and Siberia because of warmer winters. It warned that the numbers of seven regular visitors, including the shelduck, mallard and turnstone, are declining, though the overall number of waterbirds wintering in the UK has doubled since the late 1970s.   The State of the UK's Birds 2006 report, says in particular the number of wading birds including the black-tailed godwit and the avocet, had increased markedly, mainly due to action by conservationists.


A team of scientists have said that the EU target of ensuring 10% of petrol and diesel comes from renewable sources by 2020 is not an effective way to curb carbon emissions in Carbon Mitigation by Biofuels or by Saving and Restoring Forests?  They suggest that reforestation and habitat protection is a better option as forests could absorb up to nine times more CO2 than the production of biofuels could achieve on the same area of land.  Also, the growth of biofuels was also leading to more deforestation rather than replacing other uses, as should be the case.  Dr Righelato, one of the team and chairman of the World Land Trust, noted that the policy could actually lead to more deforestation as nations turned to countries outside of the EU to meet the growing demand for biofuels.  However, he said that so-called second generation biofuels, which used feedstocks such as straw, grasses and wood (lignocellulosic material) rather than grains or palm oil, offered a much better opportunity. The adoption of second generation biofuels would be welcomed by environmental groups and food agencies, who view first generation fuels as unsustainable. 

Also experts at the World Water Week conference in Stockholm voiced concern that growing food crops to be used to make biofuels could jeopardise water supplies.



Lenovo, one of the world's biggest PC manufacturers, is to start selling laptops to business and consumers with Linux pre-installed on the machines.  Linux the free, open source operating system is a highly competitive alternative to Windows, especially if security and stability are important.Novell will provide the Linux software on the laptops, which are due to go on sale at the end of the year.  Shuttle, a German PC maker, is offering nice looking, good value PC's preloaded with Novell's Linux offering too. Shuttle PCs are fully configurable.  (We have used SuSE Linux for three years now with good results - full integration with legacy systems (eg Windows) and no viruses!). Earlier this year PC maker Dell also announced it would start shipping PCs with the Linux installed - in this case the distribution is Ubuntu. Dell introduced Linux-powered PCs after chief executive Michael Dell asked customers for suggestions for new products on the company's website: Linux PCs were the most-requested item.

In a decision that may finally settle one of the most bitter legal battles surrounding software widely used in corporate data centres, a federal district court judge in Utah ruled Friday afternoon that Novell, not the SCO Group, is the rightful owner of the copyrights covering the Unix operating system.  In the 102-page ruling, the judge, Dale A. Kimball, also said Novell could force SCO to abandon its claims against IBM, which SCO had sued. Judge Kimball’s decision in favour of Novell could almost entirely undermine SCO’s 2003 lawsuit against IBM. The ruling could remove the cloud over open-source software like Linux, an operating system loosely modelled on the proprietary Unix. The unresolved ownership has been seen as a limiting factor in the willingness of computing managers for businesses large and small to adopt open-source software, which can be adapted freely by software developers and can be legally shared or modified by end users. “It was argued that this was supposed to suggest riskiness in open source, but it turns out that the open-source world was rock solid from the beginning,” said Eben Moglen, a professor of law at Columbia University and the founding director of the Software Freedom Law Center, which advocates open-source software.

PowerTOP, a cool, new, free utility from Intel, gives companies a snapshot of which applications use the most power, and can help reduce the total power load at data centres around the world.  PowerTOP works on Intel-based Linux systems to monitor how much power all running applications are using. The program's developer, Intel's Arjan van de Ven, said that the trick to PowerTOP is that it runs on a "tickless" idling feature, which keeps the system's processor idle for longer stretches, rather than waking up every millisecond.   "The primary objective is getting Linux to use less power, to have Linux make maximum use of the power-saving features within your computer," van de Ven told "Intel can't do this alone; we want and need to cooperate with the wider Linux community.... With PowerTOP, we provide a tool that enables developers to quickly see issues on their own setups and to fix them."   According to Intel's PowerTOP website, one user said he was able to increase the battery life on his laptop from four to seven hours, and another said that using PowerTOP lets his laptop idle using 13 watts of energy instead of the 25 to 30 it took before installing the utility.   PowerTOP is not designed for novice users, but IT pros who want to explore the cutting edge of power savings can download PowerTOP from


It seems that video conferencing is establishing itselfTelepresencing, as it is called, is now used by larger firms to save time and money from travelling by bringing disparate people from offices together in the same room as in the picture.  It is not yet ready for the home PC because it uses massive ICT power, for example HP charges $ 350,000 per room it installs and $ 18,000 per month for service.  But for big and international businesses, it is very cost effective in comparison to the time and energy used in travelling and the cost of flights and hotels.  It also reduces decision making time.  And in case you care, it greatly reduces pollution - a round trip flight from NY to London emits over 1.3 tonnes of CO2.

The explosion in popularity of on-line video could lead to increases in the cost of broadband for UK consumers.  Internet services providers, such as Tiscali, say that the raft of recently launched on-demand services will "undoubtedly" congest the network. Upgrades to the net could be needed to ensure services such as the BBC iPlayer continue to work properly, with costs passed on to the consumer. Alternatively, the ISPs say they would have to limit access to services.  One option that would allow them to do this would be to use so-called traffic shaping. This involves delaying packets of information sent across the network until congestion has eased.  Tiscali already targets some of its customer's traffic using the technology.  On a personal note, in August I unwittingly put our ISP to the test by downloading many big files, including 2 Linux distributions each over 3 GB.  All was fine until I got a call at the end of the month from my friendly ISP who pointed out that I had exceeded my allowed download quota of 15 GB by over 2x and asked if there is a virus on my computer!  There isn't.  He suggested I upgrade my service or keep tabs on download volume.

A report by  Interactive Media in Retail Group claimed that wet weather in July drove on-line shopping to record levels in the UK as consumers surfed the net rather than sloshing down the High Street.  Internet sales nearly doubled to £4.2 billion in July, up from £2.34 billion in the same month a year ago. Sales are also picking up as retailers improve websites, and as consumers get faster internet connections.


Nokia has also joined the music download party and launched a music and games download service, challenging both rival handset makers and mobile phone network providers.  The Nokia Music Store should make it easier for customers to use Nokia handsets as music players, making them stronger rivals to Apple's iPhone. It will also make Nokia a rival to the sellers of its phones, the network providers, which also offer downloads.  Nokia has also unveiled handsets better suited as multimedia players.  Nokia predicts that the market for such phones, which can be used to surf the web, play music and games, and even make calls, is set to grow by 50% to 120 million units this year.


Vivendi's Universal Music will also test the digital sale of songs from artists without the customary copy-protection technology.  It will allow the sale of thousands of albums and tracks available in MP3-form without the protection, known as digital rights management. Most major recording studios insist music sellers use DRM technology to curb on-line piracy. Universal artists include 50 Cent, the Black Eyed Peas, and Amy Winehouse.  Universal said: "The experiment will run from August to January and analyse such factors as consumer demand, price sensitivity and piracy in regards to the availability of open MP3s." Retailers including Google, Wal-Mart, and, will participate in the DRM-free trial.  Participants do not include Apple iTunes on-line music store, the third largest music retailer in the US - although iTunes already offers a selection of music from EMI free of copy protection, albeit for a higher price.

Google ("do no evil", mmmm...) is shutting down its premium video service, leaving users who have bought or rented content unable to view their videos in the future.  In an e-mail to users they said that money spent on videos would not be refunded.  Customers are being offered fixed credit on the firm's on-line payment system, Google Checkout, instead. The move comes nine months after Google paid $1.65 billion for on-line site You Tube, which also sells some video.  Google started selling video content on its video site in January last year, offering programs such as Survivor, CSI and Star Trek for about $1.99. Google co-founder Larry Page launched the service at the Consumer Electronics Show, in Las Vegas, but the success of YouTube has made Google Video increasingly irrelevant.


Punishing corrupt officials has been a big theme this year for the Chinese Communist Party after a succession of scandals. But no-one expected computer game addicts would be allowed to join in and vent their frustration with such enthusiasm that they would crash the website that allowed them to do so. Incorruptible Warriors is the new big hit of the on-line gaming world in China, where, like its Asian neighbours, tens of millions of young men and women are in thrall to sites like World of Warcraft and the Romance of the Three Kingdoms. The player's task is to find, and kill, not just corrupt officials but their sons, daughters, and even mistresses. In the first week after its launch as part of an education campaign by local government, it was been downloaded so many times the website was closed "for its hardware to be upgraded". The game has clearly hit a nerve at a time when the louche behaviour of party cadres, many of whom have been accused of taking bribes and spending them on high living, lovers and prostitutes, is being widely publicised.

China has seen a sharp increase in requests for patents, according to the UN's intellectual property agency.  The number of requests for patents in China grew by 33% in 2005 compared with the previous year.  That gives it the world's third highest number behind Japan and the United States.


A 17-year-old hacker hacked the lock that ties Apple's iPhone to AT&T's wireless network, freeing the most hyped cell phone ever for use on the networks of other carriers, including those outside the US. George Hotz of Glen Rock, New Jersey, confirmed that he had unlocked an iPhone and was using it on T-Mobile's network, the only major US carrier apart from AT&T that is compatible with the iPhone's cellular technology. In a video posted to his blog, he holds an iPhone that displays "T-Mobile" as the carrier.  He put the unlocked 4GB iPhone up for sale on eBay, where the high bid was above $2,000 (4x retail price) within one day!

Also, a UK firm's plan to sell software that could open the iPhone to non-US networks was stalled following legal threats.  Belfast-based UniquePhones joined several others in claiming it had cracked the code which locked iPhone into AT&T's network. But a middle-of-the-night phone call from AT&T's lawyers has forced the firm to rethink its plans and is now taking legal advice to assess the ramifications.  According to UniquePhones, it received a 3am call from a lawyer claiming to represent AT&T and warning it that selling unlocking software could constitute copyright infringement and illegal software dissemination.

A website called iPhonesSimFree also claimed to have cracked the code with a software solution that it would begin selling imminently. Analysts believe Apple may still have time to modify the iPhone to tighten its locks before the phone is launched in Europe.


Holonics and LOHAS

Holonics * Health * Environment * Education * Living


Experiments reported in August show that out-of-body experiences can be created.  Both Henrik Ehrsson in Stockholm and Olaf Blanke in Geneva, independently have been able to simulate an out of body experience.  While their work is focussed on developing treatments for unusual conditions, this kind of experience gives meaning to the idea that our physical existence is not the dominant dimension of ourselves.  A sense of self is what makes us distinct from our environment and from other people, and now this sense of self can be shown to de dissociated from our physical bodies.  (There is a summary of the research experiments here.)


Now even the venerable Harvard Business Review has now embraced the benefit of stories in learning.  In late August a fictitious story by Joseph Finder was published as a case study.  In fact, Finder's books fictional stories set in the world of business have a growing following among chef executives, including the likes of Jeff Imelt. His stories have the benefit of being able to draw on confidential reality to describe events or environments which otherwise could not be disclosed.  Artistic licence may also improve the readability of stories.  The review of the  "chief fiction officer" by the Economist describes how valuable stories can be.


The hype around sustainability in the corporate sector has been a daily media staple since high level reports like the Stern Report and IPCC reports were circulated last autumn.  But there are two cautions.  As noted in the section on Responsible Investing, many of the initiatives are more talk than walk and do not attempt real system change.  There are announcements of corporate commitment to reducing energy or emissions, reducing packaging, or introducing some innovative product or service with a lower environmental impact, but not as much action.  And, as Kevin Fletcher pointed out in Small Business, Big Results, the predominant business constituency is hardly mentioned at all: SMEs.  And this is of great concern because underlying the system change required is a move to a more holonic system - one in which many small players act interdependently, as opposed to a hierarchical one with large feudal corporates dominating the thoughts and actions of consumers.  Smaller companies, those with 500 or fewer employees, represent over 95% of all companies, lack the time, money, and other resources to commit to environmental practices, despite the fact that they stand to gain much.  The challenge is how to encourage change.  Command-and-control regulation doesn’t even work for bigger firms. Incentive help, to a point, but don’t necessarily provide harried small business owners more time and personnel needed to do the job.  An underutilized resource is business-to-business mentoring, programs in which small companies share ideas and knowledge, or in which big companies tutor their smaller brethren, but with a dearth of understanding of big picture dynamics there are few role models in established sectors. (A handbook on business-to-business mentoring is downloadable here.)   Our recommendation is simply to open up in the style of Semco - have a look at Ricardo Semler's Maverick.  Open management methods are as effective in improving business performance and open technology is at improving IT performance.


Here's a little diversion ... a US law firm, Nixon Peabody, now has its own inspirational song "Everyone's A Winner".   Its a bit tongue in cheek, but has a message.  Its an unusual style for the stereotypical lawfirm - it talks about win-win.


There was a raft of reports in August about the dangers of overeating, not just the benefits of longevity from a calorie restricted diet.  Get a bag of chips before you read the next few paragraphs ...

I really took the following warning to heart:   Scientists warned that even a small pot belly can increase the risk of heart disease.  So I've even attempted to do a few sit-ups daily (ugh!).  Research from the University of Texas, reported in the Journal of the American College of Cardiology, found large waist measurements, relative to hip size, were linked to early signs of heart disease. This confirms other research that waist size, rather than overall body weight, is a key indicator of heart disease. The study of 2,744 people suggests that a waist size of 32ins (81cm) for a woman and 37ins (94cm) for a man represents a "significant" raised risk.  They found adding a few inches to the waist increased the risk of damage in the arteries, even if body weight remained within the normal range. People with the largest waist-to-hip ratios (WHRs) were almost twice as likely to have calcium deposits, which indicate the onset of atherosclerosis, in the arteries of their hearts, as those with the smallest WHRs.  And even when other risk factors such as blood pressure, diabetes and age were taken into account, the link remained strong. Professor James de Lemos, who led the research, said: "Fat that accumulates around your waist seems to be more biologically active as it secretes inflammatory proteins that contribute to atherosclerotic plaque build-up, whereas fat around your hips doesn't appear to increase risk for cardiovascular disease at all." And waist-to-hip ratio was more closely linked to these early signs of heart disease than either body mass index (BMI) or waist circumference alone. BMI is widely used to assess relative body weight, and is calculated as weight in kilograms divided by the square of the height in meters.

In the UK food products promoted by popular cartoons and film characters are undermining parents' efforts to make their children eat healthily, according to a survey published by Which?  It warns that biscuits and other snacks are being advertised as ideal for school lunchboxes when in fact they are high in fat and sugar. The unhealthiest foods include many popular cereals as well as biscuits. Products on the blacklist, many with over 30% sugar, all attract red "traffic light" labels under the new system introduced by the government's Food Standards Agency. The series and characters identified by Which? for its Cartoon Heroes and Villains report include The Simpsons, Bratz, Shrek and Spider-Man, as well as new characters created by food companies themselves. Three-quarters of parents interviewed by Which? said they thought it was irresponsible for companies to feature cartoon characters on unhealthy foods and wanted the practice to be stopped. They also objected to marketing practices linking purchases to competitions and promotions on websites.  I think much of the problem lies with parents who are careless about what their children eat and just give them fat and sugar to keep them quiet ... until the next hour when they must be fed with more of the addictive stuff.  I regularly see children eating chocolate bars and potato crisps for lunch, and even in the morning on the way to school!

In America more evidence of the problem of advertising to children was released.  A new study in the Archives of Pediatrics & Adolescent Medicine indicates that the annual $10 billion the food and beverage industry is spending on advertising foods to kids is working alarmingly well. The study found that 4 out of 5 kids preferred the flavour of foods served in McDonalds packaging as compared to the exact same foods served in packaging without the McDonalds brand. By the time they are two years old, children may already have beliefs about certain brands, and by the age of six they can recognize brands and specific brand products. Not surprisingly, the study found that children with more televisions in the home had stronger preferences for brands. Wow!  The authors suggested this study strengthened the justification for tighter regulation or banning of advertising and marketing of high calorie, low nutrient food and drink, and perhaps a ban on all marketing that is aimed at young children.

And the problem starts before the children are born.  Pregnant women who overindulge in junk food risk giving their child an addiction for a fatty, sugary and salty diet, according to researchers who studied the phenomenon in rats. Neil Stickland at the UK's Royal Veterinary College and his team fed pregnant and breast-feeding rats on either a balanced diet or processed food such as doughnuts, muffins, biscuits, crisps and sweets. They then gave the offspring a choice of diets. The mothers who ate the high fat, sugar and salt diet gave birth to young with a greater preference for junk food. They also had a propensity to overeat and to put on more weight. The research did not address how the changes in offspring occur. However, Stickland speculated that a mother's junk food diet might affect the development of reward centres in the brain involved in the feeling of satiety and response to drugs. "The foetus is getting used to the high fat, sugary and high salt diet and seems to prime the reward centres in the brain so it needs more when it is born," he said, "It's an addiction if you like."   The study counters the convenient myth adopted by some that mothers-to-be can safely overindulge because they are "eating for two". Although the effect on rats may not necessarily be exactly comparable in people, the research does back up a US study of 190,000 families published in 2005. It found that women who gained more weight during pregnancy than the US Institute of Medicine's recommended amount - 11.5 to 16 kg - were more likely to have obese two to four-year-olds.

A new study, published in the Journal of the American Medical Association, shows that many children and adolescents have high blood pressure that is going undetected.  Dr Matthew Hansen of Case Western Reserve University in Cleveland and his colleagues attempted to discover how much undiagnosed high blood pressure there was by looking at the health records of more than 14,000 children, aged between three and 18, living in Ohio. The results show that of 507 children who had high blood pressure, only 136, just over a quarter, had such a diagnosis noted on their record. The team concluded that even where blood pressure is measured, doctors are not drawing the appropriate conclusions. The study estimates that as many as one-in-20 American teenagers may suffer from high blood pressure. The long-term effects can include heart attack, heart failure, stroke and kidney disease. Researchers described an epidemic of high blood pressure, going hand in hand with the obesity epidemic and blamed poor diets, salty foods, and lack of exercise. Professor Bryan Williams of the University of Leicester, a past president of the British Hypertension Society, said: "We have probably seen a doubling of high blood pressure in the young over the past 20 years." He said lifestyle changes were building up serious health problems that could undermine recent advances in the control of disease.

Data from Cancer Research UK show that too much food, alcohol and sun has fuelled a massive rise in some forms of cancer.  Cases of melanoma, the most dangerous form of skin cancer, have risen by 40% in the past decade, and mouth cancer, which is associated with smoking and drinking, has risen by almost 25%. Research suggested that around half of all cancers could be prevented by changes to lifestyle.  Rates of kidney cancer and womb cancer - both linked to obesity - have also shown rapid increases over the past 10 years. Overweight and obese women are twice as likely to develop womb cancer as women of a healthy weight due to higher than normal exposure to the hormone oestrogen.  The charity is particularly concerned about rates of malignant melanoma which have doubled in women and tripled in men since the mid-80s.

A recent study by Val Smith, of which a paper was published in the Journal of Integrative and Comparative Biology shows that diet may be important in disease control, not just because a healthy diet supports a healthy body that is more resistant to disease, but because restricting access to certain nutrients can help winnow a disease which needs those certain nutrients.  In particular control of the intake of iron, which the host seems to be able to obtain more easily than pathogens.  In general terms however, it also adds some weight to the notion that a calorie restricted diet increases longevity.


"Is ignorance bliss when eating out?" is the question posed by the Food Commission in a special report in August's Food Magazine.  While food labelling has become more rigorous, especially when it comes to chemical ingredients on one side or organic food on the other, caterers are exempt from food labelling requirements.  Of course regulating restaurants in this area would be complex. It's not just that menus are often large and variable, it's also the fact that we expect good chefs to adjust seasoning and, yes, add, or take away, a bit of oil or cream here and there.   But as the report points out there is little indication as to what is in preparations and no incentive for restaurants to open up.  The report asks "why should restaurants be free to add as much salt, sugar or saturated fat as they like to foods without mentioning it to anyone?", but in fact the issue is more stark than that.  Most of the time you would not want to know what goes in to your meal, even at good restaurants.  There is a strong incentive for restaurants to cut corners, include cheap ingredients, even frozen meals, whenever they can; and often its the fancier looking ones that do it because their overhead is so high.  I operated an organic restaurant in London a few years ago and while we strove to use fresh and wholesome ingredients, the competing restaurants around us were using bulk, processed "food" which cost half as much; we found that most people are don't care about quality and we survived simply because no one around us was doing anything similar.  Some kind of disclosure of processed and chemical ingredients would be helpful to consumers, but that's unlikely to happen.  There is a stronger case for introducing some controls on the big restaurant chains and fast food outlets, where the menus are limited and fixed and it ought to be fairly straightforward for the big companies to provide clear, accessible nutritional information to customers, as in fact they now have to do in parts of America.  The best advice is simply to assume that there is a relation between price and quality, smell your food, remember how you felt after eating it, ask if the restaurant uses any kind of MSG (also called modified starch etc) and so on.  Or just don't worry!


Could eating off-season tomatoes contribute to heart attacks? Dr Joon Yun thinks it’s possible that "stressed food", like off-season tomatoes, contributes to heart attacks. Yun, based at Stanford’s Department of Radiology, is a partner at Palo Alto Investors focusing on health care startups, a founder of the think tank The Palo Alto Institute and, most recently, the author of Low-Stress Food. Yun theorised that stress is accumulated up the food chain. “Fish don’t die of heart disease,” he says. Instead, they die, of course, primarily in the mouths of predators. And the stress that that any individual fish feels (from living in constant fear of being eaten, from harsh living conditions, etc.) is transferred to its predator…up the line until you reach the final stop, humans. As such, a more highly stressed fish confers greater stress to the predator than a happy fish. How do you know a happy fish when it’s sitting on your plate covered in breadcrumbs? A bit of science can help. “If you look at wild salmon versus farmed salmon, the former is high in Omega 3’s and low in Omega 6’s, and the latter is high in Omega 6’s and low in Omega 3’s,” Yun says, referring to the ratio between the two types of essential fatty acids. A diet high in Omega 6 fatty acids is thought to increase the likelihood of all sorts of diseases and afflictions, including heart attacks and certain types of cancer. Yun concludes that the chemical makeup of each type of fish is merely a manifestation of its happiness. In other words, the farmed fish (living its life in crowded pens) is more stressed than the wild fish (swimming freely in rivers and oceans). “Eating a farmed salmon increases the risk of heart disease,” he says, noting that the same benefits derived from eating wild salmon can be found in, say, grass-fed beef and eggs laid by cage-free chickens. And it’s not just protein. You know that saying, one rotten apple spoils the whole bunch? Well, Yun says it’s also rooted in science. As soon as a fruit is picked, it stresses about its loss of nutrients. The further from maturity that it’s picked, the greater its stress. As such, it begins emitting ethylene, which he calls “the stress hormone of fruit,” (a corollary to cortisol, the human stress hormone). The ethylene is detected by surrounding fruit, which causes secondary stress, causing what amounts to a panic attack, a chain-reaction of ethylene production. Before long, they’re all rotten. Conversely, a fruit that is picked when fully ripe, or close to it, is essentially satiated. It has reached maturity and so is less stressed, tastes better, and is healthier for its consumer. So, the more natural the growing and distribution process , the happier the fruit, the better the taste, and, ultimately, the healthier the consumer.  Our conclusion: aim for an organic, local, vegetarian diet, especially if you've a stressful lifestyle.

The synthetic hormone recombinant (genetically engineered) Bovine Growth Hormone is banned in most of the world, due to its links to prostate and breast cancer, although it is still being injected into thousands of dairy herds in the US.  Grassroots pressure from health-minded consumers and public interest groups, however, have caused Starbucks, Chipotle, and many supermarket chains to put pressure on their dairy suppliers to stop using the drug.  And here aresome recent marketplace developments: California Dairies, which produces 8% of the milk supply in the US, has banned the use of rBGH; food retail giant Kroger recently announced they will be banning rBGH in all of their stores by February 2008; all milk produced in Oregon is now rBST-free.

Meanwhile initiatives to raise the ethical standards of the USDA, which we reported is dumbing down organic standards, have reached mainstream. In August the New York Times exposed the USDA for short-changing organic programs.  It pointed out that the National Organic Program, which regulates the entire organic industry, has just nine staff members and a puny annual budget of $1.5 million; in contrast, the chemical-agribusinesses have individually received more than that in subsidies, including $1.7 million in subsidies given to a single mega-farm in Florida. They point out that the USDA (whose annual budget is $100 billion) spent $28 million on organic agriculture programs last year, while in comparison the agency spent $37 million subsidizing farmers who grew dry peas last year - consumers spend only $83 million a year on dry peas, but spent almost $17 billion last year on organic food. NYT noted, "It's not entirely surprising that organics are such a low priority at the department and in Congress. Both the agency and farm-state members of Congress are reliable cheerleaders for industrialized agriculture, and Big Ag has often viewed organics with suspicion, if not outright disdain."  And of course regulators receive cash and benefits from industrial-agriculture lobbies.


Research by a team from Ohio State University which was presented at a meeting of the American Chemical Society suggests that the compounds which give certain fruit and vegetables their dark colour may contain powerful cancer fighting properties.  Studies on rats and human cells found anthocyanins, which colour red, purple and blue fruits, notably slowed the growth of colon cancer cells. The more exotic the plant the better: purple corn and bilberry were found to be much more potent than the radish. In some experiments cancer growth not just slowed, but as many as 20% of the cells killed. For instance, anthocyanin pigments obtained from black carrots and radishes slowed the growth of cancer cells by between 50 to 80%. But compounds from chokeberries for instance killed up to 20% of existing cells, without impacting healthy ones.  This is made more interesting by the finding, reported in Living below, that females can navigate to stationary food sources (ie plants) more accurately than males, particularly if the food is reddish in hue.

Meanwhile, India is to pour £20 million (€ 30 million) into clinical trials on traditional herbal medicines used to treat major health conditions.  The Indian Government, keen that its long and rich tradition of herbal medicine should be brought into the mainstream, is recruiting leading Indian pharmaceutical companies to help undertake the trials.  The initiative, called The Golden Triangle Partnership, will involve trials on a wide range of traditional herbal remedies and will focus on the their application in the treatment of more than 20 medical conditions, including arthritis, diabetes, IBS, malaria and psoriasis. The Partnership will seek to identify ‘actives’ present in traditional Ayuervedic, Siddha and Unani remedies, and it will not be looking for new molecules to turn into chemically pure drugs. Its purpose instead is to “make herbal medicine more scientific in the 21st Century”.


According to the Soil Association, annual sales of organic food and drink in the UK have hit £2 billion (€ 3 billion).  However, supply of home-grown organic food is not growing fast enough to meet demand. Spending on organic products grew 22% between 2005 and 2006, making the UK the third largest market in Europe behind Germany and Italy. UK supermarkets saw their slice of organic retail sales rise by 21%. And people in London, the south east, the south west and Wales were the biggest spenders on organic products.  This data and personal observation suggests that people are buying what's conveniently available and want to avoid the poisons sprayed on conventional crops, but are unwilling to make an effort to buy local and fresh produce which is what is needed for system change.

An Indian Court has ruled against Swiss pharmaceutical company Novartis’ attempt to challenge an Indian law that allows the country to refuse a patent for an existing medicine. Oxfam and the Interfaith Center on Corporate Responsibility call it an important victory for global public health. This ruling supports the right of developing countries to use the World Trade Organization’s guidelines to balance public health and protection of intellectual property. Novartis had received numerous petitions to pull the case and had been questioned by many political groups from India, Europe and the United States. Currently, more than two-thirds of the generic drugs manufactured in India go to developing countries.


baijiThe baiji (a species of dolphin) is the first mammal to become extinct in more than 50 years.  (The ironic coincidence is that in the Hitchhiker's Guide to the Galaxy, dolphins, more intelligent than humans, leave the planet a week before planet earth is blown up to make way for an inter-galactic transport corridor ...!) Biologists, writing in Biology Letters journal, have concluded that China's rapid industrialisation (not their fault - we've all done it) has made extinct a species of fresh water dolphin that had been on Earth for over 20 million years.  Scientists from China, Japan, Britain and the United States failed to find the white dolphin, known as the baiji and a cousin of the bottlenose dolphin, during a six-week search of its natural habitat in the Yangtze river last year and further searches this year .   "This result means the baiji is likely extinct," Wang Ding, who led the survey and is one of the world's leading experts on the species.   The dolphin was a victim of devastating pollution, illegal fishing and heavy cargo traffic on the Yangtze.  The World Conservation Union's Red List of Threaten Species currently classifies the creature as "critically endangered".   Other rare species that live in the Yangtze, such as the Chinese sturgeon and the finless porpoise, are also in danger of extinction.  Read The Ecologist's Dead as a dolphin here.


One of the main causes of global warming is agro-industrial farming and the global food system associated with it. Although it is scarcely ever mentioned, farming is responsible for 14% of greenhouse gas emissions. Within farming, the largest single cause is the use of chemical fertilisers, which introduce a huge amount of nitrogen into the soil, and nitrous oxide into the air. Changing land use (mainly deforestation and thus linked to the expansion of crop monoculture) is responsible for another 18%. And a large part of global transport, which is responsible for a further 14% of emissions, stems from the way in which the agro-industrial complex moves large quantities of food from one continent to anther.  It is abundantly clear that we can only halt climate change by challenging the absurdity and the waste of the globalised food system as organised by the transnational corporations.  Of contentious concern is the way on which biofuels may be generated and there is concern that industrial production of biofuel will do to the environment what agro-industrial farming has done - destroy it.  We believe that a fair trade-off would be industrial meat production for biofuel, but either way we can't have it all. See here for further reading on agrifuels from Grain.  And background on biofuels here.  And the report above in Climate Change and Environment on the trade-off between primary and secondary biofuels and deforestation.

Continuing the theme of industrialised agriculture, have a look at The Arbiters of Risk - How ‘Regulatory Science’ Is Leading to a Biotech Nightmare an interview with Denise Caruso.  Caruso's new book, Intervention, exposes the dysfunctional regulation of US  biotechnology as business interests and their hired scientists on one side, suspicious citizens and a few independent scientists on the other, argue the merits with “our appointed arbiters of risk, the government regulators" in the middle.  The story she tells is about risk, and the disasters that can flow from mistaken or cynical notions of risk.  This quote from the interview gets to the nub of the problem: "One of the things that I have found to be disingenuous about the risk rhetoric around transgenic crops is the idea that this is just a continuation of what humans have done since the beginning of time, since we domesticated plants. It’s actually not true. There is no way to create transgenic plants except forcefully and invasively. There’s no natural way to do that."


A quick update on summer's volatile weather reported last month ...

Here's a cool picture of the US heatwave continuing in August here.  Also on that page is a handy explanation of how weather patterns are changing.

In the UK, this summer appears to have been the wettest since rainfall records began in 1914, according to provisional data from the  Met Office.  Britain had 358.5mm of rain, just beating the 1956 record of 358.4mm. The main reason for the high rainfall has been the unusually southerly position of the jet stream, a band of strong winds high in the atmosphere. Following earlier floods in central and southern England, five areas of the country are still on flood alert.

A clever initiative for warning rural residents of impending floods is going live.  When floods strike rural areas in emerging economies it is difficult to warn residents because they are not connected to high tech networks.  Flood warnings in places like Bangladesh are for naught if the people who may be affected by the floods cannot be warned in time. Now, a forecasting system designed by scientists at the U.S. National Center for Atmospheric Research and Georgia Tech will aim to deliver one-to-ten-day flood forecasts directly to more than 100,000 people living in the floodplains of the Brahmaputra and Ganges rivers.The program alerts the network of volunteers who then go directly to affected residents, many of whom are in poor rural regions that lack radios or even electricity. Residents have said that advance notice of floods could help them quickly harvest near-ripe crops or move livestock, thus preserving some of their livelihoods.


The US, Canada and Mexico are strengthening their efforts to ensure the safe manufacture and use of industrial chemicals by developing a regional partnership for assessing and managing potential risks. This regional partnership was announced in Montebello, Quebec following discussions between President Bush, Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon at the Security and Prosperity Partnership of North America Leaders' Summit.  A article outlining the agreement is reproduced here.  As part of the regional agreement, the three countries' top environmental officials agreed that their agencies would coordinate efforts to assess and take action on industrial chemicals. The United States, by 2012, will complete risk characterizations and take action, as needed, on more than 9,000 chemicals produced above 25,000 pounds per year. It also provides for the sharing of scientific information and technical understanding, best practices and research on new approaches to chemical testing and assessment. The agreement establishes goals to be met by 2020, which include creating and updating chemical inventories in all three countries, as well as coordinating the management of chemicals in North America as outlined in other international agreements.  It sounds like too little, way too late.


The results of studies in brain development published in the Proceedings of the National Academy of Sciences show that there are two neural networks involved in memory and analysis whose relationship changes as we age. The two networks, the “cingulo-opercular network” and the “frontoparietal network” were bound into a single web in children; in adolescents, some of the connections between networks had been undone; and in adult volunteers the brain regions fired as two distinct networks. Moreover, the web of activity inside the children's heads depicted the cingulo-opercular (sustaining) network as being clamped inside the frontoparietal (rapidly adapting) one.  This understanding helps show why younger minds are eager to have immediate rewards and are less able to wait and plan for bigger rewards later (even a short time later).  Another study has shown that the both the whitening of grey matter in the brain and the increasing activity of the prefrontal cortex as the brain gets older aid more detailed memory recall.  This understanding helps because it underpins an understanding of how we might learn at different ages, which suggests adapting educational methods to the stage development of youth.  For example, training in emotional intelligence and motor skills is appropriate at a younger age, while problem solving and research becomes more relevant later.  It also gives some rationale for the idea that older people are better able to synthesise disparate ideas, suggesting that older minds can continue to develop aptitude and that the perspectives of older people can be more valuable in understanding situations and projecting outcomes.  By the same token, younger minds are better suited to situations where quick decisions might be useful, such as in dangerous sports.


In the UK, the Professional Association of Teachers says many who begin formal schooling aged just four are not ready for an academic curriculum and the age at which pupils start school should be raised to six or seven. Deborah Lawson from PAT said it was vital that children should have more freedom to play in nurseries without being told what to do by adults. The government said primary schools followed an age-appropriate curriculum.  Speaking at the PAT annual conference Lawson said: "There is evidence that by starting school earlier, our children are not better off than those children who are starting later."  Anecdotal evidence seems to support this: the curriculum in Ireland is well behind that of the UK at primary level, but seems to catch up in secondary.  And the area generally ignored but increasingly relevant is development of emotional intelligence, which I believe relies on a nurturing environment at a younger age.  So keep your children close while you can - and don't use work as an excuse, after all you're working for them.

Meanwhile, also in the UK, a survey suggested less than half of second year pupils were reaching the expected reading and numeracy levels.  The Scottish Survey of Attainment looked at how children were performing in primary school and their first two years of secondary school.  Maybe younger children should be having more fun and more practical activities.  We recommend that early education up to 6 - 8 years old focusses on emotional intelligence to lay a sound foundation for academic excellence and the realisation of academic intellect later in life.  This early training would focus on music, art, sport, games, building, personal habits, team exercises and so on.

Furthermore, research suggests that a string of government policies aimed at boosting pre-school children's educational achievement in England has had no impact.  Children's vocabulary, ability to count and name shapes when they start school are no better than they were six years ago, a study of 35,000 children claims. The Durham University research covered such policies as the expansion of free part-time nursery places. Early years education has been a government priority, with £ 21 billion invested since 1997, and the research covered initiatives such as free nursery places for three and four-year-olds and the roll-out of Sure Start children's centres. It also covers the introduction of the Every Child Matters policy which aims to provide more support for the welfare of children. Although it may be too soon to assess the impact of some of the policies, perhaps the focus should be more on nurturing emotional intelligence than achieving academic hurdles.  For example Sure Start Children's Centres were underpinned by research which suggested high quality, inclusive early education, leads to positive effects for children, families and communities, particularly in areas of disadvantage.

However, lowering of standards in later years is not welcome.  The proportion of 14-year-olds in England reaching the required standard in maths tests fell slightly this year. Some 76% reached Level 5 or above, against 77% in 2006 after a three-point rise over the previous year. There was an increase of 1% in the proportions of pupils meeting English and science standards, to 74% and 73%. But the government had set a target of 85% reaching Level 5 in English and in mathematics by this year.  Within the English results, there was a 6% increase in the share of boys meeting the required standards for reading but a drop of 2% in writing.  Some 65% of boys met the standards for reading compared to 78% of girls, while 80% of girls met the standards for writing compared with 67% of boys. In fact girls out-performed boys in each of the core subjects. Girls are more likely to get the benchmark five good GCSEs than boys and more girls do better at A-level.  Yes, girls are smarter!  Boys' writing was highlighted as a particular concern when the primary school results for 11-year-olds were published last month.

Continuing the trend in to tertiary level a survey suggests that boys are not as keen to go to university as girls.  76% of girls want to go to university compared with 67% of  boys,  a poll of 2,400 11 to 16-year-olds suggested. The gap of 9%  is double the one that emerged in a survey of pupils in England and Wales in 2006. Educational charity the Sutton Trust, which commissioned the poll, said ways of raising male aspiration were needed and an aptitude test might be used.  Although publicising the data might do the trick given the male ego.  The survey of state school pupils also suggested girls were more certain of their intentions than boys.  Some 41% of girls said they were very likely to go to university compared with 33% of boys.  The same poll also suggested boys were more cynical than girls about what factors might help them get on in life. They were more likely to list "knowing the right people" and "which secondary school you go to" than girls. Female respondents, by contrast, listed "aiming to be the best you can" and "being able to read and write well".  I'm afraid the boys might be right, but I don't like it and work to support the girls' conjecture.

In the UK, worrying but not unexpected news that examiners have raised concerns over the amount of "sickeningly violent" content in students' creative coursework for their English GCSEs.  An examiners report from the Edexcel board said one of the most frequently used titles for creative writing coursework was "The Assassin". It comes amid national alarm over a spate of murders and attacks involving young people.  The report also questioned high marks given for poor quality work.  Examiners said some students were producing thinly plotted and extremely violent content in their stories.  It again raises the notion that attention to emotional intelligence should be raised.

A related report on UK education says that business leaders feel educational standards have not improved since 1997, despite official data showing record exam and test results.  More than half thought education and skills in England had not improved, the Institute of Directors found in a survey of 500 members. The IoD report also claimed record investment had not led to exam results improving any faster than before, though the government said record investment had improved standards in schools.  The report, which is the first in a series on the education system, aims to provide some "necessary context" to the yearly debate on examination results. It highlights the fact that at primary school, although results are continuing to "creep up", the pace of change is slow. Four out of 10 still do not achieve the expected standard for their age in reading, writing and mathematics. It also says although the percentage of pupils achieving five or more GCSEs at grades A to C has increased, the proportion of those getting the grades in subjects including mathematics, sciences, English and a modern language has fallen. The fact that the A-level pass rate rose for the 15th year in succession last year and the percentage of those getting grades A to C has doubled since the early 1980s is also highlighted. But by contrast, the report says, the proportion of those passing the international Baccalaureate has remained stable. These included the claims that grade standards have slipped and that changes in assessment, such as more coursework, meant that it was now easier to achieve the same level.  It suggested that more pupils passed exams because of an increased focus on preparation, but that this had not necessarily improved learning overall. The report also suggested that because of the well-known correlation between educational achievement and income, the fact that more people were better off had also raised results.


The story of a critical phase in human evolution may have to be rewritten after the discovery of two fossils in Kenya that have shed new light on the origins and behaviour of two ancient relatives of Homo sapiens (or Pan sapiens as we should perhaps be more correctly named). One of the fossils found near Lake Turkana has shown that two early human species, thought to have evolved one from the other, actually lived side by side for almost half a million years, redrawing the most widely accepted version of humanity's family tree. The discovery means that only one of the two species, known as hominins, can be a direct ancestor of modern human beings, and not both as was previously proposed. While scientists are still confident that Homo erectus, the younger of the two, ultimately gave rise to Homo sapiens, it is now suspected that the older, Homo habilis, was an evolutionary dead end.

On a similar subject Nature journal reports that nine fossilised teeth found in Ethiopia are from a previously unknown species of great ape.  The 10 million-year-old fossils belong to an animal that has been named Chororapithecus abyssinicus by an Ethiopian-Japanese team. This new species could be a direct ancestor of living African great apes. The finds from the Afar rift, in eastern Ethiopia, raise questions on current theories of human evolution.  The researchers say the fossils from Ethiopia probably belonged to an ape from the gorilla family.  Based on genetic evidence, gorillas and humans were thought to have split away from a common ancestor about eight million years ago.The 10-million-year age of the fossils led the research team to suggest that the split must have happened earlier than 10.5 million years ago. If correct, molecular and DNA studies will need to be revisited.  Not everyone agrees with the team's conclusions, however. Professor Peter Andrews, from London's Natural History Museum, commented: "It is stretching the evidence to base a time scale for the evolution of the great apes on this new fossil." Professor Andrews believes the structures found on the teeth could be related to the diet of the animal.  He added: "These structures appear on at least three independent lineages of apes, including gorillas, and they could relate to a dietary shift rather than indicating a new genetic trait."


Researchers from St Andrews University have shown that the animals intentionally modify or repeat their signals to get their messages across, in other words, orang-utan communication resembles a game of charades.  The scientists said they believed all great apes could have this capability, suggesting that the skill may have evolved millions of years ago.  The study is published in the journal Current Biology.


In a paper just published in the Journal of Personality and Social Psychology, Geoffrey Miller, Vladas Griskevicius and colleagues look into two activities, conspicuous consumption and altruism towards strangers, to see if these support the “mating mind” hypothesis: that the human brain is the anthropoid equivalent of the peacock's tail, in other words, it is an organ designed to attract the opposite gender. Their conclusion is that they do.  Altruism, according to the text books, has two forms. One is known technically as kin selection, and familiarly as nepotism. This spreads an individual's genes collaterally, rather than directly, but is otherwise similar to one helping one's own offspring. The second form is reciprocal altruism, or “you scratch my back and I'll scratch yours”. It relies on trust, and a good memory for favours given and received, but is otherwise not much different from simultaneous collaboration (such as a wolf pack hunting) in that the benefit exceeds the cost for all parties involved. Humans, however, show a third sort of altruism, one that has no obvious pay-off: this is altruism towards strangers, for example, charity. That may enhance reputation. But how does an enhanced reputation weigh in the Darwinian balance?  Their studies found that this display of blatant benevolence is more akin to conspicuous consumption and is designed to attract mates.  The profligate display of resources is a costly signal to display power.  It is therefore not as altruistic as one might think.  And so anonymous benevolence is much closer to the ideal of charity than the conspicuous variety.

The two linked articles caricature the psychological profiles of people showing that perspectives makes the difference between happiness and stress, not wealth.  On the one hand are millionaires Who Don’t Feel Rich, a really sad story, but one which tells us a lot about humanity - we choose to live in a fantasy world in which we choose not to be happy. And in contrast this story  tells a much more enlightened tale of a millionaire who knows he has enough: Despite a nest egg of roughly $1.5 million, small in comparison to many of his engineering friends’, Wilson, 40, feels less anxious about his wealth than many of his peers in Silicon Valley. Wilson, an engineer with a master’s degree from Stanford University, rents rather than owns. And in the land of BMWs and Lamborghinis, he drives a 2002 Nissan Sentra. He lives on a fixed budget rather than pursue a more expensive lifestyle simply because he can afford it.

Research published in the journal Science explains how a Pac-Man-like computer game that delivers electric shocks to gamers has been used to show how the brain reacts to imminent danger.  The research team asked volunteers to play a computer game in which they had to move a blue triangle through a 2D maze while avoiding a red dot "predator". If the predator caught the triangle, the volunteer received an electric shock. Scans showed the different regions of the brain used by volunteers as the level of threat in the game increased.  The scans showed that activity switched from the front of the brain to the middle as anxiety turned to panic.   This is not surprising to students of emotional intelligence and illustrates again why managing by fear reduces the intellectual resource of humanity - it stops the thinking part of the brain from functioning. The prefrontal cortex is much larger in modern humans than it was in our ancestors, and so we may have evolved to be more adept at avoiding threatening situations, even though we are quite adept at creating fear in one another, whether it be fear of academic failure, failure at work, or failure to look or sound "right".  The research further underpins the rationale for system change from feudal thinking to holonic thinking.

Women might be pleased to know that a recent study demonstrates that females are better at navigation, in the specific task of locating food resources, than men.  Related studies also show that there is a preference for reddish colours (pink) in the female brain.  The colour preference is thought to be underpinned by the fact that more nutritious foods are often colours other than green.  (By coincidence, in our gardening ventures we have also found that red vegetables tend to be less attractive to pests, for example they will prefer white potatoes but our purple ones are left alone.)

Using Nasa satellites, an international team have discovered that the great medieval temple of Angkor Wat in Cambodia was once at the centre of a sprawling urban settlement.  They disclosed at least 74 new temples as well as more than 1,000 man-made ponds and a single complex channel that extended 20 to 25km out from Angkor city supplying the city's water, which were part of complex irrigation systems.  The discovery suggests that the medieval settlement surrounding Angkor, the one-time capital of the Khmer empire which flourished between the ninth and 14th centuries, was at least three times larger than previously thought. The map, published in the journal PNAS, extends the known settlement by 1,000 sq km, about the size of Los Angeles and the team believes it could have covered 3,000 sq km, the largest pre-industrial complex of its kind. Its nearest rival is Tikal, a Mayan city in Guatemala, which covers between 100 and 150 sq km (40-60 sq miles). Analysis also lends weight to the theory that Angkor's residents were architects of the city's demise.  "The large-scale city engineered its own downfall by disrupting its local environment by expanding continuously into the surrounding forests," said Damian Evans of the University of Sydney and one of the authors of the paper and map. "We saw signs that embankments had been breached and of ad hoc repairs to bridges and dams, suggesting that the system became unmanageable over time."In addition, deforestation, over population, topsoil erosion could have contributed to the population's sudden disappearance.  We should heed this lesson of history as our modern urban populations now exceed rural populations and urban infrastructure is pushed beyond their limits.

The stories of toy recalls by Mattel and other related quality issues are disappointing.  But they should be taken in the context of what we buy and what we are prepared to pay for (see the comment on restaurant food quality in Health above).  It is not as if the issues of toxins in consumer products have not been known by us, consumers.  In fact Bush himself was made aware of the issue five years ago when he was given a summary of the toxic emissions from a Mattel doll by Michael Braungart.  (Braungart had been questioned by his daughter "Daddy, why does this doll smell funny?"  So he ran off gassing tests which showed high levels of dangerous and banned toxic gases.  The results were shared with Bush.) The irony is of course that most plastic toys and many household items seem to give off toxic fumes, but we've grown accustomed to them and sometimes are even attracted to them!


South Korean Woo Suk Hwang became famous after claiming to have extracted the world's first stem cells from a cloned embryo and then it emerged that he had lied about his work, and the source of the cells.  Ironically however, analysis in the journal Cell Stem Cell reveals he may have produced stem cells from human eggs alone, which is potentially even more useful. Hwang said that he had created cloned human embryos by placing the nucleus from the cell to be cloned into a "hollowed out" human egg, then managed to extract stem cells from the resulting embryos.  However, it later became clear that he had used eggs from young female researchers at his laboratory to create the embryos, itself a major ethical breach - and that the resulting stem cells did not come from cloned embryos. The latest twist came from the Harvard Stem Cell Institute in the US, who looked closely at his data, and found the cells were actually from a different type of embryo. Researchers said that the distinct "genetic fingerprint" of the stem cells means they may be the first in the world to be extracted from embryos produced by the so-called "virgin birth" method, or parthenogenesis. This happens when eggs are stimulated into becoming embryos without ever being fertilised by sperm, and has been achieved in animals. However, before Hwang, no one had managed to produce a human embryo using parthenogenesis which lived long enough to allow the extraction of viable stem cells.  Scientists are excited about the potential of stem cells because they are the body's "master cells", with the potential to become any cell type in the body, perhaps replacing those lost through ageing or disease.

Another milestone in our legacy of inhumanity occurred in August when Johnny Ray Conner, 32, became Texas' 400th death penalty execution.  Texas is America's busiest death penalty state.  Connor was convicted for the 1998 fatal shooting of a grocery store clerk, Kathyanna Nguyen.  He had always maintained his innocence and asked for forgiveness and expressed love to his family and Ms Nguyen's family.   Conner was pronounced dead eight minutes after a lethal mix of drugs was injected.  The EU took the opportunity to urge the governor of Texas to stop all executions expressing "great regret" at the sentence saying the punishment is "cruel and inhumane". The statement from the EU presidency said: "There is no evidence to suggest that the use of the death penalty serves as a deterrent against violent crime and the irreversibility of the punishment means that miscarriages of justice, which are inevitable in all legal systems, cannot be redressed." The EU is unreservedly opposed to the use of capital punishment "under all circumstances" and has consistently called for the universal abolition of the punishment. Texas's governor said it was a "just and appropriate" punishment. According to the Washington-based Death Penalty Information Center, 1,090 executions have taken place in the US since the Supreme Court lifted a ban on capital punishment in 1976. Texas has carried out more than a third of those.

Also in Japan, three prisoners on death row were hanged.  The executions bring to 10 the number of prisoners hanged since December 2006. Officials did not reveal the identities of the executed prisoners, but a human rights watchdog said that they were men in their 60s convicted of murder. Japan, like the United States, is one of the world's few developed countries to exercise capital punishment. 

On the other hand, America took another positive step to an open equal society when an Iowa county judge struck down a ban on same-gender marriages as unconstitutional. Judge Robert Hanson ruled that a law allowing marriage only between men and women violated the rights of due process and equal protection. Only the state of Massachusetts allows gay marriages. Nine others, including New Jersey, New Hampshire, Connecticut and Vermont, offer civil unions which do not give gay couples the same legal rights as heterosexual marriages.

Another piece of the universal big picture is to be reported in the Astrophysical Journal: astronomers found an enormous void in space that measures nearly a billion light-years across. This is BIG: if you were to travel at the speed of light, it would take you several years to get to the nearest stars in our own Milky Way galaxy; but if you were to go to this hole and enter one side, you'd have to travel for a billion years before you would get to the other side!  It is empty of both normal matter, such as galaxies and stars, and the mysterious "dark matter" that cannot be seen directly with telescopes. The "hole" is located in the direction of the Eridanus constellation and has been identified in data from a survey of the sky made at radio wavelengths.   Previous sky surveys that have traced the large-scale structure of the nearby universe have long shown how the clustering of galaxies is strung into vast filaments and sheets that are separated by great gaps, but the void discovered by a University of Minnesota team is about 1,000 times the volume of what would be expected in typical cosmic gaps.  The void is roughly 6-10 billion light-years away and takes a sizeable chunk out of the visible Universe in its direction.

Activities and Media

August provided a break in the normal routine for us.  While our children escaped to visit grandparents with Mum, Dad stayed home to feed the chickens and relive a bachelor lifestyle.  What a treat to be woken by the sun instead of the sons!  It allowed time to review our web presence and IT, testing the new Fedora distribution (excellent) and preparing the website for a blog.  I also set up a bit-torrent client which has been a boon for downloads.  The weather was boring with low temperatures and regular showers, but vegetables in the garden continued growing - harvesting tomatoes and French beans started.  I love this season when much of our food is fresh from the garden and it just tastes good.  As the month drew to an end we had a couple of birthday parties just before returning to the school routine.


Here are a couple of media links.  Goodsearch is a search engine which contributes a portion or revenue to a (US) charity of your choice.  Why not check it out?  This book review of A Billion Bootstraps: Microcredit, Barefoot Banking and the Business Solution for Ending Poverty is a useful smmary in itself.  And if you are pursuing or considering micro-finance it might be worth buying the book.

The 11th Hour was released.  It is a more visually striking story of our inconvenient truth. To judge from all the gas-guzzlers still fouling the air and the plastic bottles clogging the dumps, it appears that the news that we are killing ourselves and the world with our greed and garbage hasn’t sunk in.   This movie is an unnerving, surprisingly affecting documentary about our environmental calamity and is worth viewing. It may not change your life, but it may inspire you to recycle that old slogan-button your folks pinned on their jeans back in the day: If you’re not part of the solution, you’re part of the problem.

We got to see Sicko - definitely Michael Moore-ish.  Whether you like him or not, its a stimulating story.

Oxford University philosopher Nick Bostrom and Trinity College bioethicist James Hughes teamed in 2004 to found a forum for a diversity of "voices arguing for a responsible, constructive approach to emerging human enhancement technologies. We believe that technological progress can be a catalyst for positive human development so long as we ensure that technologies are safe and equitably distributed." The Institute for Ethics and Emerging Technologies covers special research areas like Securing the Future, Envisioning the Future, Rights of the Person, and Longer, Better Lives.  Essays, white papers, newsletters, discussion forums, and links to  projects and events explore a variety of future-oriented issues where technology and society meet, such as the Singularity, human longevity,climate change, and terrorism.

And a quick heads up (given the concern by many about what's happening in teh world of finance) ... The  World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk  is to be released on September 5.





Please forward this publication to associates, family and friends, print it, and share it.

This is a publication of: Astraea, Ireland + 353 59 9155037 Subscribe and Unsubscribe



This report has been prepared for information purposes and is not an offer, or an invitation or solicitation to make an offer to buy or sell any securities. This report has not been made with regard to the specific investment objectives, financial situation or the particular needs of any specific persons who may receive this report. It does not purport to be a complete description of the securities, markets or developments or any other material referred to herein. The information on which this report is based, has been obtained from publicly available sources and private sources which may have vested interests in the material referred to herein. Although GRI Equity and the distributors have no specific reasons for believing such information to be false, neither GRI Equity nor the distributors have independently verified such information and no representation or warranty is given that it is up-to-date, accurate and complete. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates and/or their directors, officers and employees may from time to time have a position in the securities mentioned in this report and may buy or sell securities described or recommended in this report. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates may provide investment banking services, or other services, for any company and/or affiliates or subsidiaries of such company whose securities are described or recommended in this report. Neither GRI Equity nor the distributors nor any of their affiliates and/or directors, officers and employees shall in any way be responsible or liable for any losses or damages whatsoever which any person may suffer or incur as a result of acting or otherwise relying upon anything stated or inferred in or omitted from this report.