July Round-up

Agricultural policy, as well as war and violence, is destroying Iraq.   In particular, agriculture is being decimated by US policy and favoritism to big-pharma and agribusiness. Order 81 demands the use of imported seed which is not resilient to local conditions.  The justification is the poor state of agricultural production in Iraq, but this has been caused by a lack of water (drought 1991-93), lack of inputs and the centralised regime of Saddam Hussein.  50% of the seed imported by the new regime is for pasta (that is, they want it grown for export to feed US consumers, not for domestic food); previously seed saved was used, which is reslilient and adapted to local conditions.  We have seen the same policy destroy livlihoods in India where Monsanto bribed and cajoled the insinuation of their seed into agriculture - the result: low harvest, higher input costs, lower nutritional profile, susceptibility to local pest and disease.  We do not hear of this war (only the wars of weapons and oil) but it is destroying the foundation of well-being for Iraq - food is fundamental to survival.

Venture Capital

The bankruptcy of Atkins is somewhat interesting as a LOHAS or nutrition story, but real investment lessons may be learned because its demise is hurting a well-known VC investor - Parthenon.  The company was bought at a high valuation in late 2003 by Parthenon Capital and Goldman Sachs Capital Partners, it skyrocketed in paper value and then crashed due to competition, poor business focus and the realisation that sandwiches taste best with bread.  Parthenon over-committed to a company whose business model relied on a passing fad, but more than that, they paid $200 million for the privilege of doing so.

Thomson Venture Economics and the National Venture Capital Association released US venture capital and LBO fund performance data through the end of Q1 2005.  The high returns on LBO funds for 1 year compared with historical performance suggest that returns may take a hit soon.  Perhaps the short term high returns are driven by capital overhang pressure, which will evaporate as overpricing becomes apparent.

Venture Economics' US Private Equity Performance Index (PEPI)
Investment Horizon Performance through 03/31/2005

Fund Type	1 Yr	3 Yr	5 Yr	10 Yr	20 Yr
Early/Seed VC	1.4	-5.5	-8.6	45.8	19.8
Balanced VC	5.8	1.2	-4.2	17.0	13.0
Later Stage VC	-0.4	0.6	-6.6	15.2	13.7
All Venture	3.6	-1.4	-6.3	25.4	15.6
Small Buyouts	24.1	5.4	1.6	8.7	26.7
Med Buyouts	17.8	4.3	-3.2	10.6	17.7
Large Buyouts	16.8	9.6	0.9	10.9	14.5
Mega Buyouts	20.6	9.0	2.7	7.7	9.7
All Buyouts	19.8	8.5	1.8	8.7	13.0
Mezzanine	8.5	3.7	1.8	6.9	9.2
All Private Equity	14.0	5.3	-0.5	12.5	13.8
NASDAQ	0.3	2.7	-15.3	9.4	11.4
S & P 500	4.8	1.0	-4.7	9.0	10.8

*The Private Equity Performance Index is based on the latest quarterly statistics from Thomson Venture Economics’ Private Equity Performance Database analyzing the cashflows and returns for over 1750 US venture capital and private equity partnerships with a capitalization of $585 billion. Sources are financial documents and schedules from Limited Partners investors and General Partners. All returns are calculated by Thomson Venture Economics from the underlying financial cashflows. Returns are net to investors after management fees and carried interest. Buyout funds sizes are defined as the following: Small: 0-250 $Mil, Medium: 250-500 $Mil, Large: 500-1000 $Mil, Mega: 1 Bil +

Mid Atlantic Biodiesel Company, LLC broke ground this month on a five million gallon per year facility in Clayton, Delaware that will produce biodiesel from virgin soy bean oil as well as waste vegetable oils and animal fats. The first large-scale biodiesel production plant in the Northeast/Mid Atlantic region.   New Energy provided equity capital, along with other investors, for the $10 million project and worked closely with the developer, Rural Enterprise Management Company (REMCO), LLC, to secure financing. Greater Atlantic Bank of Reston, Virginia provided a loan for the facility. The U.S. Department of Agriculture provided a loan guarantee and grant; the State of Delaware also provided financial support.

Also, alternative energy company, Seattle Biodiesel has $ 2 million series A funding.

It seems that the clean-tech/energy-tech space is taking off. CalPERS is finally ready to make good on its promise to support funds focused on the space.

The observation of cash surplus mentioned above and the resultant decline in innovation is complimented by research that indicates that the best source of innovation is not these tech oriented companies themselves but VC backed innovation.  The average innovation initiative success rate is 4.5%, with the highest non-VC being pharma at 7.5%, while the VC success rate is over 30%.  A very powerful indicator that a VC investment partner can make or break the success of a venture.  Research also shows that successful innovation is enhanced by new approaches including networked decision makeing, open space, parallel decision making and flat organisational structures.

Toyota announced that it would open a new $800 million (CAN) plant in Ontario. Apparently the company turned down millions of dollars in subsidies in the United States because, when compared to Canadians, U.S. workers have become too hard to train, are often illiterate and too expensive to insure. This is a dangerous sign of declining US competitiveness.

Interest Rates and Currencies

China has begun the process of liberalising its currency by removing its fixed relationship to the US$ and  ralating it to a basket of currencies still being designed.  The Yuan appreciated by 2%.  This move is clever - it  allows a gradual emergence of the currency to full exchangeability and will placate some of the exagerated demands for liberalisation , such as those of the US and its Treasury Secretary John Snow.  This will allow a more gentle management of the economy and trade tensions, but do not expect that it will solve the US deficit problems.  This clever move displays the experience  of China and the world should remember the Chinese proverb "What you can not avoid, welcome!".

Greenspan continues to be upbeat on the US economy and we can expect continued increases in the base rate, now at 3.25%.  In July he noted three threats to continued growth: oil prices, wage inflation, and sectors of the economy such as housing which are exposed to interest rate risk. The Federal Reserve is widely expected to raise interest rates by 0.25% to 3.5% - its tenth monthly increase in a row when it next meets month in an effort to keep a lid on inflationary pressures while maintaining growth.

The US economy has racked up another quarter of growth, despite fears that rising fuel costs would dampen activity.  GDP grew at an annual rate of 3.4% in the three months to June, according to the Commerce Department. Despite slowing from 3.8% between January and March, it was the ninth consecutive quarter of growth above 3%. Consumer spending, the driving force behind the US economy, was up 3.3% in the three months, compared with 3.5% in the previous quarter. Spending on durable goods such as cars and refrigerators jumped 8.3%. This is driven by the increase in house prices which are begining to look bubblicious in some areas.

Although the US economy is looking good, our concerns about foreign debt and retail credit are now joined by another spectre - unemployment.  The US economy created 146,000 new jobs in June, taking the unemployment rate down to a four-year low of 5%. However, recent research indicates that there may be as many as 5 million people missing from the unemployment figures who have evaporated from the work force because they have been unemployed long term, especially among younger people. This nearly doubles the unemployment rate suggesting that either there are serious problems in the US economy or that traditional economic assumptions are not appropriate and need to be reworked.

Italian Prime Minister Silvio Berlusconi launched an attack on the euro blaming Europe's single currency for Italy's economic woes, saying "Italy is not at a disastrous point, but I can say that Prodi's euro screwed us all," trying to score points against his opponent in the run up to the campaign for next year's general election. A spokesman for the EU Commission said, "The euro is here to stay and will stay. Hundreds of economic studies clearly demonstrate that the introduction of the euro has been clearly beneficial for the economy."

Trade and FDI

Negotiators are set to miss yet another deadline in their attempt to reach a new world trade deal. The deal is already some two years behind schedule, and the World Trade Organization is hoping for results at a make-or-break meeting in December. But there seems little prospect of a draft emanating from the current talks. Developing countries say richer states are still pushing them too hard for concessions in what was originally billed as a "development round". India has been one of the main critics. "What we are seeing now is developed countries saying: tell us what we will get, and then we will tell you what we will give you," Indian Trade Minister Kamal Nath told Reuters news agency. Other countries have singled out the US, the European Union and Japan for refusing to open their agricultural markets and lessen high subsidies paid to farmers. The rich states say they are moving in the right direction, and need more market access to be granted by the bigger developing states such as India, China and Brazil. The Open World Initiative (OWI) network of The Evian Group focusses on these trade issues and has issued an appeal to trade ministers, which is linked here with signatories, and you may read and circulate.

The case was eloquently put in a letter in the FT of 20 July by Marshall Stocker:

"Sir, In his commentary on the World Trade Organisation ("Waning expectations", July 18), Alan Beattie accurately details the dilemma that stymies progress in the Doha round of trade negotiations. Each nation is afraid to dispose of protective tariffs and subsidies for fear other nations will not reciprocate. Discomfort with unilateral trade liberalisation is grounded in the classic prisoner's dilemma such that each nation believes it will gain only when other nations liberalise.
Fortunately, in 1817, one of Britain's great sons - David Ricardo - dispelled this trade myth. He showed in his theory of comparative advantage that benefits that come from unilateral trade liberalisation far exceed costs.
Folks, this is economics 101. As the Doha round nears an end, trade representatives must discard the politics and accept the economics. Embracing the benefits of unilateral trade-liberalising is the only way to spring us from our prisoner's dilemma.
Marshall L. Stocker, Sanderson Stocker, Ithaca, NY

The House of Representatives approved the Central American Free Trade Agreement (CAFTA) by 217-215. The vote is a major victory for President Bush and the Republican House leadership. However, it comes at the expense of increased partisanship and mounting disarray in the conduct and management of US trade policy.

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Energy

Well the price of oil is now bubbling above $ 60, and it doesn't seem to matter!  The increase in energy costs have been offset by cheap consumer goods from Asia so household spending is similar.  However, the pressure will continue to build and one can expect the pressure valve of emerging economies will evaporate as exchange rates adjust and wages griow.  And the price of oil does not show signs of tailing off - can we expect $ 80 by year end?  We think so.

The former head of the CIA, James Woolsey, is aware of the benfits of alternative fuels. He drives a Toyota Prius, powered partly by a battery rather than the notorious internal combustion engine which burns gasoline and emits the smoke that many scientists believe causes global warming. Woolsey, no tree-hugging liberal, drives this cleaner car for what he calls "national security reasons".

Climate Change and Environment

“There's no doubt about the science. [...] The debate is over. [...] We see the threat posed by changes in our climate. And we know the time for action is now.” Arnold Schwarzenneger, Governor of California,

145 mayors across the US have formed a coalition to combat global warming and begun to reshape their cities using innovative programmes and technologies. Tired of waiting for action from federal authorities, the U.S. Conference of Mayors, as the coalition is called, unanimously agreed last month to implement aspects of the protocol locally. A total of 169 U.S. cities have now agreed to match or better the standards laid out in the Kyoto Protocol -- which requires industrialised nations to reduce their greenhouse gas emissions by an average of six percent below 1990 levels by the year 2012 -- through actions such as restoring forests, reducing urban sprawl, developing alternative energy technologies, and educating the public. They have also agreed to pressure state and federal governments to follow Kyoto's targets, and to push Congress to pass the bipartisan Climate Stewardship Act, which would establish a national emissions trading system.

”We have destroyed some ecosystems and lost the services they provide,” said Steve Percy, retired CEO of the oil company BP America, and co-author of a new report, ”Ecosystems and Human Well-being: Opportunities and Challenges for Business and Industry”. ”This report is a wake-up call for business and industry -- the ecosystem services they depend on are being eroded.” The report is one of several Millennium Ecosystem Assessment (MA) synthesis reports released this year. It is based on an unprecedented, four-year scientific assessment of the Earth's ecosystems by 1,360 experts from 95 countries. Those experts have concluded that 15 of the 24 ecosystem ''services'' that support life on Earth are being degraded or used in an unsustainable fashion. And those findings have enormous implications for the world's business. Ecosystem services such as seas full of fish or clean water for agriculture that are freely available today will cease to exist or become more costly in the near future if current decline continues, the report says. Not only will costs and risks rise but customer preferences, stockholder expectations and government regulations will all change, says Percy. Report and Sector reports.

The G8 meetings, not withstanding being overshadowed by London bombings, did not achieve the change of heart needed. The US succeeded in removing from the text some key sentences of the G8 statements, including the opening statement in the first draft, "Our world is warming," and that climate change represented an "urgent" threat to the earth. Jacques Chirac, the French president, and Gerhard Schroder, the German chancellor, insisted on a reference to Kyoto targets remaining, but it was moved to the end of the text. Britain will host on November 1, was the centrepiece at the Gleneagles summit, of measures to combat global warming. It was aimed at keeping efforts to combat global warming high on the world agenda after Britain hands over the G8 to Russia at the end of the year. However, the package of measures on climate change fell far short of the demands for tougher action by campaigners who accused President Bush of sabotaging progress. The US President left Gleneagles still resisting signing up to the Kyoto protocol to impose cuts in harmful emissions on the US economy.

A US company, AeroVironment, says it has successfully completed test flights of a potentially environment-friendly aircraft powered by liquid hydrogen. Liquid hydrogen stored on board and oxygen extracted from the air are combined in fuel cells. The electricity generated drives the propellers. A full tank of hydrogen would keep the unmanned plane in the air for 24 hours. Planes using fuel cells might help curb greenhouse gas emissions from aviation. The aircraft, called Global Observer, looks more like a glider than a conventionally powered plane, with its wingspan of over 15m, small fuselage slung underneath and extended, "dragon-fly" tail.

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IT

A highly visible and persuasive demonstration of the utility of the internet and web structures occurred during the London bombings. A secret internet chatroom helped keep London's financial markets open after Thursday's bomb attacks, it has been revealed. The Bank of England, the Treasury and the Financial Services Authority switched to the chatroom to talk to the major banks about how they were coping. A spokeswoman for the Bank of England said it was the first time the facility had been used. It was created in the aftermath of the 11 September 2001 attacks in the US. "In the light of yesterday's events, the tripartite authorities (Treasury, Bank of England and FSA) have activated the contingency part of the website," the three organisations said in a joint statement. London's financial markets kept trading on Thursday, despite the disruption caused by the bomb blasts.

in recent posting Microsoft's abuse manager Mike Lyman has effectively been conceding that Microsoft sends out unsolicited mail, and that company staff are unwilling and unable to do much about it. Microsoft's anti-spam stance is being undermined by a combination of faulty software systems, bureaucracy and incompetence. It can however be very difficult not to wind up on one or more Microsoft lists, via registration of OS or applications, or through the (largely compulsory) registration procedure for the Windows Update or Office Update services. Microsoft inevitably gets its hands on details of a very large proportion of PC users, and it therefore has a duty to be serious, consistent and responsible in the way it handles this data. But on the contrary, Lyman
admits that "the data base was tainted and [the] mailing wasn't justified".

It was a bad month for Microsoft's efforts to promote their visions of trustworthiness and authentication in Internet commerce. Just as the ground began to crumble beneath Microsoft's "Sender
ID" email authentication proposal, it was discovered that the software giant was considering acquiring Claria, one of the world's most notorious adware and spyware companies. just as the industry is backing away from Sender ID, Microsoft rekindled fears of monopolistic bullying tactics by unilaterally declaring that all email sent to MSN and Hotmail would be scanned for Sender ID compliance. Resistance is futile. If your company's email doesn't pass a patent-pending Sender ID check, it might be labeled as spam and consigned to the dreaded Spam folder. Just as the world was trying to digest what Microsoft was attempting to shove down its collective throat, word leaked out that MS was in talks to buy Claria, formerly known as Gator, one of the world's most notorious peddlers of spyware and adware (malware). According to several news reports, Microsoft has been eager to compete in the online advertising markets dominated by companies like Yahoo and Google. Experts suggest that buying Claria would give Microsoft a jumpstart in the market because of Claria advertising network consisting of more than 40 million souls who
receive Claria annoying pop-up ads. Reports suggest that an acquisition of Claria is never going to happen because Claria reputation is too tarnished for even Microsoft's tastes. But that didn't stop Microsoft from giving Claria a pre-engagement gift just last week -- downgraded threat rating in Microsoft's anti-spyware utility!

Google has released its toolbar for Firefox, its first product designed specifically for a non IE browser.

Enterprise computing is in for a difficult ride. New developments in chips, which put two/multiple cores in to a chip, increase speed and reduce power. This innovation is allowing enterprise comouting to go to the desktop. The incentive to do so will come from teh enterprise software companies themselves because the charge license on a per core basis which will make services expensive for small and medium businesses. The incentive to use open source is growing.

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Integral Systems and LOHAS

LOHAS (Lifestyle of Health and Sustainability) represents a quarter of the US population, according to surveyor Natural Marketing Institute.  According to the 2005 LOHAS Consumer Trends Database, 72% of LOHAS consumers state that providing healthy foods to their family is a top priority, 89% care about social issues such as protecting workers' rights, and 95% care about protecting the environment. "LOHAS" describes a segment of the U.S. population for whom health, society, values-driven beliefs, and the environment are extremely important. LOHAS consumers, who represent almost one-quarter of the population, are highly driven by their own personal wellness and the health of the planet.

The test scores are in from the changing face of US education.  Since the mid 90s and now ensconsed in the No Child Left Behind policy, is a focus on basic subjects and regular testing.  While this is not an advanced approach, and still needs to be applied to high schools (13 - 18 years), it is a significant step ahead of the current state of education in the US and is already making a significant positive impact on learning.  This is critical for America because in order for the country to maintain a competitive strength it must have an educated work force - the work force in emerging economies is certainly cheaper than that in the US and is catching up quickly in terms of education and productivity.

Japan's first Biblos National Proficiency Test for Geeks demonstrates Japan's otaku (geek) boom - a recent phenomenon that has demonstrated the cultural and economic power of young men and women whose obsessive interests and hobbies once pushed them to the margins of Japanese society. Major investment houses have begun studying the world of the otaku. More than a million comic-book obsessives in Japan spend the equivalent of nearly €1bn every year buying comics and travelling to conventions. An estimated 800,000 worship pop stars and fritter the equivalent of about €500,000 on attending every event in which their idol is involved. According to a study otaku command a market worth about €2bn a year, without including the Japanese video games market. The most striking change wrought by the otaku boom has been in Akihabara, Tokyo's electronics district. Colourful cafes have sprung up to meet the demand for geek meeting places, and a train line now links Akihabara with Tsukuba where the country's top scientific research takes place. Akihabara has the first university specifically aimed at harnessing the talents of young otaku.

Modified genes from crops in a GM crop trial have transferred into local wild plants, creating a form of herbicide-resistant "superweed", the Guardian can reveal. The cross-fertilisation between GM oilseed rape, a brassica, and a distantly related plant, charlock, had been discounted as virtually impossible by scientists with the environment department. It was found during a follow up to the government's three-year trials of GM crops which ended two years ago. The new form of charlock was growing among many others in a field which had been used to grow GM rape. When scientists treated it with lethal herbicide it showed no ill-effects.

Monsanto Corporation is out to own the world's food supply, the dangers of genetic engineering and reduced biodiversity notwithstanding, as they pig-headedly set about hog-tying farmers with their monopoly plans. We've discovered chilling new evidence of this in recent patents that seek to establish ownership rights over pigs and their offspring. http://www.greenpeace.org/international/news/monsanto-pig-patent-11. It seems to be unbelievable, but it is true. Please read and act.

Georgina Downs of the UK Pesticides Campaign has called for urgent action to protect children from the health risks posed by spraying agricultural chemicals in and around schools. She was responding to a new American study which confirms that significant numbers of schoolchildren are suffering from illnesses directly related to pesticide exposure. The new report, carried out by the National Institute for Occupational Safety and Health and published in the Journal of the American Medical Association, shows that new cases of pesticide-related illnesses arising from school exposure rose “significantly” between 1998-2002. The report looks at data over this period from 2,593 people with acute pesticide related illness associated with school exposure. It identifies three cases of high severity, 275 cases of moderate severity and 2,315 cases of low severity. Of 406 cases with detailed source information, 281 (69%) were associated with pesticides used at schools and 125 (32%) were associated with pesticide drift from farmland.

And on the subject of toxic chemicals at home, DuPont is facing another suit for failing to warn consumers of the dangers of Teflon.

A new study Body Burden — The Pollution in Newborns  questions the long-held belief that fetuses in the womb are largely protected from dangerous chemicals pregnant women are exposed to. We mentioned this last month after hearing of research discussed by Common Weal. Laboratory tests of the umbilical cord blood of 10 newborns found that the samples contained an average of 200 chemicals that can cause cancer, brain damage, birth defects and other health ailments, according to the study sponsored by the Environmental Working Group. The lab tests tested for 413 chemicals and detected 287 in the 10 blood samples, with each containing between 159 and 234 chemicals. Of the contaminants detected, 180 can cause cancer in humans and animals, 217 are known to be dangerous to the nervous system and brain, and 208 can cause birth defects in animals, according the EWG study, which was peer-reviewed by eight physicians and a toxicologist.

While you attack weeds with Roundup (glyphosate) you should know that the claims made by Monsanto about its benign action are false  new research from France confirms it is much more toxic that Monsanto admits. The study indicates that at levels 100 times lower than the recommended use in agriculture, Roundup - the most commonly used herbicide in the world - causes reproductive damages and endocrine disruption. And the FDA Office of Plant and Dairy Foods finds that half the non-organic produce tested in grocery stores contains traceable residues of various pesticides, including Roundup.

Lance Armstrong won the Tour de France for teh 7th time.  While he may get the best pharmaceutical help (widely debated) there is no doubt that he is a top athlete who came back from cancer to make this record.  His retirment from the Tour was delivered with integrity as he declared his love of cycling and wished the tour long life.  Great cameraderie was displayed on the Tour and it was warming to see the friendship between American and European, even French!

For an amusing perspective on how good life is, see this comparison with Life in the 1500s ...

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Activities, Books and Gatherings

July was a month of new learning. We ran a yoga intensive locally, YogArt, a week long programme for young people and a week long intensive transformation work shop. The transformation workshop is a new programme developed and refined for executives and entrepreneurs which is innovative - fortunately the feedback indicates that we deliver the promise! We know we're on the right track with comments like "I felt parts of my body that I didn't know exist", "it helped me think in totally new ways", and "it'll take me two weeks to come down!". The July programme was a 5-day retreat which is a good beginning. We also designed a 3-day Executive programme, with input from executives on the Retreat, wherein an emphasis is allowed for Integral Technology. Please let me know how we can design a course to help you - the programme is excellent value.

Unfortunately, leisure reading was rather curtailed during the month. Not only did we launch three new training rogrammes but it is the height of summer and everything is growing in the garden. Its ironic that everyone gets "summer reading lists" because regular work doesn't go away but the harvest season provides another tranche of activity to eat up leisure. Nevertheless, Pratchett's Moving Pictures, a wonderful parody of Hollywood, was enjoyed on a few evenings.

 

 

 

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