Creative Investment Research, Inc. September 2, 2010. Volume 2. Number 20.

This week in SRI

Social investing this week

We are pleased to offer weekly economic and social investing news, told from our unique perspective. We hope you find this publication useful. Note that we are moving to a subscription model. Please see the link below for information on subscribing. Comments? Send us an email


Economic Outlook and Summary

Several factors influence our final quarter 2010 economic forecast: the midterm elections, conflicts in Iraq and Afghanistan, and progress in restoring ethics to the marketplace (as evidenced by the passage of the financial reform bill and by the SEC's speedy implementation of open proxy access rules). We continue to believe that unemployment will trend downward as payrolls and the economy gain strength. Why? As we have often said, watch the Fed. Fed Chairman Bernanke recently "spelled out what he sees as the central bank's policy options to help lift an economy burdened by high unemployment and low consumer and business confidence. He spoke at an annual late-summer conference for central bankers in Jackson Hole, Wyo," where he "highlighted three ways the Fed could act to spur US growth (by:) 1. expanding the Fed's holdings of longer-term securities; 2. modify the language used in its recent post-meeting statements..to communicate that short-term interest rate will remain near zero percent for a longer period than is currently priced in markets. and 3. lowering the rate of interest that the Fed pays to private banks on the reserves they hold with the Federal Reserve System. This list doesn't include all the Fed's options. The Fed could also purchase private sector loans." We believe the central bank will do all of the above and more. Just as multiple approaches eventually successed in capping the Gulf oil leak, the weakened state of the economy demands a mult-pronged strategy. 

We think the Fed will begin to purchase U.S. bank stocks. While current regulations prohibit the Fed from 
making outright equity purchases, any number of financial instruments can be structured to create a bank stock purchase agreement that is national in scale and scope. Some think the Fed has already intervened in equity markets. (Given their track record in missing the actual cause of the crisis, we do not agree with arguments put forward by these analysts. We think the Fed will buy stock because: a. it is the one tactic they have not yet tried, b. they have run out of  alternatives and c. they have run out of time.) We believe they will exclude banks who have received TARP funding. There is a precedent: "During the 1998 Asian currency crisis, the Hong Kong Monetary Authority (HKMA) purchased US$15.1 billion worth of Hong Kong shares -- approximately 6% of the value of the entire market -- to stabilize markets." We think the Fed will buy a portfolio consisting of all domestic publicly traded bank equity, ex TARP recipients. This comes in the face of mounting international economic pressure generated by the rapid expansion of indigenous Chinese bank lending: "China's (domestic) full-year quota for new loans was reached within the first six months of 2010." We note that "China's gross domestic product, the broadest measure of economic output, grew at an annual rate of 10.3% during the second quarter of 2010." Bank lending explains, in large part, this robust economic activity.

Lag times between policy implementation and changes in real economic activity have shortened, so we believe these tactics, if implemented expeditiously, will serve to boost U.S. economic activity sufficiently to allow Democrats to retain control of the Legislature. 

On other fronts:

Section 342 of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act contains a significant “provision creating an Office of Minority and Women Inclusion at various agencies to monitor the diversity efforts of the agencies, the regulated entities and agency contractors.” The Section establishes several Offices Of Minority And Women Inclusion at financial institution regulators. For a blog posting that reviews the Section in light of recent opinions, see: http://twisri.blogspot.com/2010/07/sec-342-office-of-minority-and-women.html

CIR recently completed an analysis of Section 342. We  outlined major opportunities. For more information, see http://www.creativeinvest.com/pubs.html

On August 17th, Creative Investment participated in the Conference on the Future of Housing Finance. The event was a forum for public input as the Obama Administration develops a comprehensive housing finance reform proposal. In our comments at Breakout Session Two:  Delivering Access and Affordability, we suggested the Administration define Housing Finance Access as: "the ability to engage in a statistically fair and racially neutral home mortgage financing process." This definition more pointedly defines Freddie Mac and Fannie Mae's new mission as enhancing statistical fairness and racial neutrality in the housing finance market. Other suggestions we made at the Conference included merging Freddie Mac into Fannie Mae, and then merging the resulting entity into GNMA. For more information, see this link

Socially Responsible Investing: what's going on...

An article in the Huffington Post noted that the recent "op-ed published in the Wall Street Journal by Aneel Karnani has stirred up quite a reaction in the corporate responsibility (CR) community. For those not familiar with the op-ed, Mr. Karnani argues that 'the idea of corporate social responsibility is irrelevant" because companies always do everything they can to increase profits, regardless of social impact.'"

One blog noted that the "Singapore Stock Exchange has issued a policy statement and a guide on sustainability reporting for its listed companies. The Exchange is seeking feedback from the public and market players on the policy statement." The Policy Statement can be found here.

On August 25, 2010, the Securities and Exchange Commission voted to adopt changes to the federal proxy and other rules to facilitate director nominations by shareholders by allowing shareholders to more easily nominate directors to corporate boards.

A new website, pdfcast.com, has a number of important studies on Corporate Social Responsibility (CSR) and E
nvironmental, Social and Governance (ESG) issues. 

According to the Seattle Times, "the 
Gates Foundation ties with Monsanto are under fire from activistsLocal activists are mounting a campaign to get the Gates Foundation to cut its ties with the agribusiness giant Monsanto and other firms involved in developing bioengineered crops."

A recent blog posting asks: "Could a case for avoiding financial stocks be built on socially-responsible-investing (SRI) grounds? For one thing, the industry certainly qualifies in terms of hardship inflicted on society." The answer: Yes.


MinorityFinance.com is pleased to announce the publication of the Minority and Women-owned Company Small Business Financing Guide and Workbook, 2010 Edition. The Guide and Workbook are designed to provide actionable information minorities and women can use to obtain small business financing.  The Guide and Workbook consists of two sections: The Guide  provides detailed business financing information of specific relevance to Minority and Women-owned Businesses. The Workbook is an electronic document with blank loan applications, grant forms, business planning and financial reporting templates, IRS Forms and other documents. The Guide and Workbook will be of specific interest to those seeking to finance a new firm and/or start-up. It has special sections on financing a Day Care Center, financing a Beauty/Hair Salon, financing a Music/Film business. 716 pages (including CD-ROM). Introductory Price: $99.00. Order at: http://www.minorityfinance.com/mfinform1.html

We are a Media Partner for the:

Private Equity Summit for 
Institutional Investors

September 15-16, 2010
JW Marriott Hotel Union Square, San Francisco, CA

sponsored by Opal Financial. The Private Equity Summit For Institutional Investors is designed for institutional investors to address current trends in Private Equity, Venture Capital and Leveraged Buyouts. Set to take place in September 2010, thisprivate equity conference will investigate a variety of investment avenues and the most effective strategies for investing in each. We will discuss such issues as private equity portfolio theory, fund of funds as an investment vehicle, private equity buyouts in emerging markets, real estate opportunities and pitfalls, fixed income alternative investments, international investing, and more. 

Pursuant to Request for Proposal No. 2009-5330, the California Public Employees’ Retirement System intends to award the contract for Corporate Governance Research Spring-Fed Pool to: Creative Investment Research, Inc. See: http://www.calpers.ca.gov/j2/data/ei/contracts/files/2009-5330/Intent-to-Award.pdf

MBE Certification: On Friday, April 16, 2010, the Supplier Clearinghouse of the Public Utilities Commission for the State of California certified Creative Investment Research, Inc. as a minority-owned business. See: http://www.prlog.org/10637478-creative-investment-research-inc-certified-as-minority-business-by-the-ca-supplier-clearinghouse.html


We are working with the following High Social Impact Companies:

1. HandReach "is an international network of professionals and volunteers dedicated to ensuring that children are not held back from education or a full, productive life because of complex trauma injuries like burns or amputations." 

2. The Contract Financing Institute (CFI) announces the publication of the Contract Financing Workbook & Reference Guide, 2010 Edition. "CFI draws upon seasoned professionals, with well over 25 years of experience in the Contract Financing Industry as both direct lenders and as Financial Intermediaries. Their background in serving as principals, senior management, underwriting, due diligence and 'back office' operations provides the experience and perspective that both clients and lenders have come to both rely on and trust. They have been involved in a number of industries including energy, construction, wholesale distribution, manufacturing, shipping, technology, communications and real estate. CFI is the educational division of The Finance Engineers, LLC (FELLC). FELLC is a Financial Intermediary that specializes in arranging contract financing for growing firms." Order online at: www.contractfinancinginstitute.org/indexmf.html



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Note: Not an offer to buy or sell securities. Past performance is no guarantee of future results. Investing, even socially responsible investing, involves risk. All information from sources believed reliable, but the Advisor is not responsible for errors contained herein. 

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