Sustainable Convictions
Mahmoud Mohieldin
16 August 2012


WASHINGTON, DC Achieving a more sustainable world presupposes a worldview that considers well-being not only in terms of income, but also in terms of human security and opportunities for every person to thrive. It is worth considering what the world would look like from such a perspective.

For starters, it would be a world in which people live free from conflict over land, water, and space, and that ensures food security for the 739 million people who are hungry or malnourished today. Such a world would preserve the 20,000 species of animals and plants that face extinction, understanding their power to heal us physically and spiritually. It would draw us back from the brink of unstoppable global warming and its consequences for coastal communities, weather patterns, and, in some regions, habitability. It would protect sites of extraordinary natural beauty and inspiration. And, for future generations, it would be a world that is more sustainable than ours.

Many people consider this idealistic. But economic growth enables people to improve their lives. It alters the political economy of decision-making, creating space for new ideas to thrive. And one of those ideas is that growth is unsustainable in the long run unless it is inclusive and green.

We need to break the myth that greener growth is more costly. Smart policy can help us to overcome short-run constraints, deeply entrenched behaviors, and social norms, and to develop innovative financing instruments that change incentives. A recent report by the World Bank makes the case for cleaner, greener, and more inclusive growth models. At the same time, the Equator Principles offer companies a framework for considering the environmental and social risks of their investments.

Similarly, we need to use more comprehensive wealth accounts as a reference point for decision-making. Countries have long used national income accounts, with GDP as the main indicator, to describe economic performance. A more accurate portrait of the wealth of nations must account not only for income, but also for natural and social assets.

Such indicators would enable decision makers to consider the longer-term impact of behavior that might deplete or build assets and impede or establish a more sustainable pattern of development. New tools such as Wealth Accounting and Valuation of Ecosystems, or WAVES, enable increasingly robust ecosystem accounting – an approach endorsed by 62 countries, more than 90 private companies, and 17 civil-society and international organizations at the Rio+20 summit in June.

We must also protect our oceans, which are the source of 16% of the global population’s animal protein intake. Only a small fraction of species that live in oceans have been discovered and documented. The potential value of ocean life for medicine, the economy, and our climate is unknown. Yet ocean bio-systems are under threat from acidification, pollution, and over-exploitation.

Where oceans meet the shore, degradation of mangroves and grasslands jeopardizes our coastal communities. With less than 1% of ocean space protected, and only a small fraction affected by well-considered government policies or international treaties, opportunities abound to improve the oceans’ health. The Global Partnership for Oceans is a promising new alliance of more than 100 government and international institutions, civil-society organizations, and private companies seeking to address threats to ocean health, resilience, and productivity.

Likewise, we must recognize that the sky is (at) the limit. After the Kyoto Protocol was agreed, world leaders hoped to limit global warming to two degrees Celsius above the pre-industrial level. They recognized the dramatic implications that even this amount of warming would have for sea levels, freshwater supplies, agriculture, extreme weather events, public health, and the planet’s flora and fauna. We now appear to be on track for four-degree warming, with almost unimaginable consequences.

The need for concerted action to limit greenhouse-gas emissions is beyond doubt. While the politics of international agreements plays out, we need to take action now. More thoughtful urban planning, more efficient transport systems, better management of forests, agricultural techniques that help to sequester carbon, cleaner and more affordable energy, and appropriate pricing of dirty fuels can all move us in the right direction. Climate Funds such as the Climate Investment Fund, the Global Environment Facility, and the recently created Green Climate Fund deserve support as major vehicles for developing workable solutions.

Above all, we must use goals to focus policy. The United Nations Millennium Development Goals set ambitious targets for lowering poverty, improving health and nutrition, expanding education, increasing gender equality, and ensuring environmental sustainability. Those targets have served as a useful rallying call. As the global community develops Sustainable Development Goals to complement the MDGs, we need a robust public debate on the lessons learned and the financing mechanisms used to meet the targets.

Once we set goals, we need reliable information systems to assess progress toward achieving them. The information needed to understand social, environmental, and economic trends is generally produced by government statistics offices. But, even as the urgency of being able to understand trends and act in real time is increasing, many governments face significant gaps in their ability to produce and analyze information. Massive investments will be needed to strengthen governments’ capacity to collect timely, relevant, and high-quality data; to analyze information; and to present it to policymakers in ways that allow them to grasp and tackle the major challenges to sustainability.

Think globally, act locally” has long been a useful rallying call for the health of the planet. But the magnitude of the problems that we face also compels us to act globally. New tools for economic modeling, natural-wealth accounting, and investment decision-making can move us forward. Action now to build smarter cities and protect oceans, air, and forests will shape the trajectory of our changing climate. As the agreements reached at Rio+20 are implemented, the global community should resolve to take even bolder action in the next 20 years – at the local, national, and international levels – to foster sustainability.

This column was produced within the framework of the EC-funded “V4Aid” project. The views expressed do not necessarily represent the view of the EU.

Mahmoud Mohieldin is Managing Director at the World Bank Group, and was formerly Egypt’s minister for investment.

Silver: The King Of Monetary Stimulus

August 18, 2012

by: Eric Parnell

The stock market is boldly signaling that a new round of balance sheet expanding monetary stimulus may soon be on its way. Having advanced virtually uninterrupted since the day after the latest ECB meeting in early August, stocks as measured by the S&P 500 Index (SPY) are already demonstrating that daily melt up pattern that we have come to know all too well from past rounds of stimulus.

Whether this next round of stimulus actually arrives is still subject to extensive debate, as many other key asset classes such as gold (GLD) are not yet confirming this outcome in any meaningful way. But given that the stock market has already begun aggressively pricing in more stimulus, this implies that better opportunities to capitalize likely reside elsewhere if this potential outcome were to come to pass. And nowhere is the possible upside more attractive than in silver, the undisputed king of balance sheet expanding monetary stimulus.

For the purposes of this analysis, I will focus on the iShares Silver Trust (SLV). However, the same price principles apply to the ETFS Physical Silver Shares (SIVR), the PowerShares DB Silver ETF (DBS), the UBS E-TRACS CMCI Silver Total Return (USV) and the Sprott Physical Silver Trust (PSLV).

Silver represents an attractive investment opportunity in the current environment for several key fundamental reasons. First, it provides hard asset protection against aggressive monetary stimulus, competitive currency devaluations, asset inflation and crisis. Also, if the global economy actually resumes a sustained growth phase at some point in the future, it also offers appeal for its industrial uses. Thus, the fundamental case for owning silver remains attractive despite the fact that the price has languished over much of the past year.

Silver has enjoyed its best performance since the outbreak of the financial crisis during periods when major central banks have been engaged in balance sheet expanding monetary stimulus. A look back over past stimulus programs highlights how dramatic this positive performance has been.

During QE1 in the aftermath of the financial crisis through the end of this program on March 31, 2010, silver posted returns that doubled the performance of the stock market.

Click to enlarge

The performance of silver was even more impressive during QE2. From the moment that the program was effectively announced at Jackson Hole on August 26, 2010, silver exploded into a speculative bubble with gains in excess of +150% through the end of April 2011. Even after the silver bubble burst, it still posted gains that were quadruple those of stocks by the end of QE2 on June 30, 2011.


And the major stimulus program from the ECB had similar effects. During the ECB's LTRO program, silver posted returns that were triple those of stocks.


Thus, silver offers the potential for explosive returns during periods of balance sheet expanding monetary stimulus.

But what are the risks associated with silver going forward if the Fed and the ECB both opt to withhold further stimulus? The good news is that the performance has also traditionally been much better than stocks. Following the end of QE1, silver continued to post solid gains at a time when stocks began plunging lower.

And following the end of QE2, silver continued to post double-digit gains for the first several months. It was only after the Fed's announcement of balance sheet neutral Operation Twist in late September that Silver gave up its gains. But even with this pullback, it still managed to perform on par with stocks through most of the remainder of this post QE2 period.

Only over the last few months since the end of the ECB's LTRO program in February 2012 has silver posted poor results that have vastly underperformed stocks.

Silver represents a particularly attractive investment opportunity at present in light of recent developments. The white metal has a demonstrated track record of outperforming stocks by multiples during periods of balance sheet expanding monetary stimulus. As a result, if policy makers deliver on their seemingly endless promises that such an outcome is soon to arrive, silver is likely to once again explode to the upside. And the potential upside may prove particularly pronounced this time around, given silver's recently stark underperformance relative to stocks. Conversely, with the exception of the last few months, silver has also demonstrated itself to be a solid performer without the support of monetary stimulus. So given the fact that silver has trailed stocks by such a significant margin recently implies even greater downside protection if it turns out that the Fed and the ECB disappoint markets with no further stimulus in the months ahead.

With all of these positives for silver in mind, it is important to emphasize a final key point. Investing in silver is not for the faint of heart. The price movement of the metal is highly volatile, with the average daily price movement of 1.8% in either direction on any given day over the last five years.

Moreover, it has moved as much as +14% to the upside and -18% to the downside on single trading days during this time period. For these reasons, the allocation to silver as a percentage of an overall portfolio should be considered carefully and managed with care.

I recently added to overall allocations to silver, given the opportunities in the current environment. Given that I am also long gold, the allocation to silver is captured through holdings in the Central Fund of Canada (CEF), which contains both gold and silver. Incorporating this investment in complement with the Central Gold Trust (GTU) allows for the ability to maintain targeted exposures to both metals in the context of the overall portfolio strategy. It should be noted that I am selectively long stocks within a similar context through positions such as the S&P 500 Low Volatility ETF (SPLV), as well as individual names such as Occidental Petroleum (OXY), McDonald's (MCD), Nike (NKE) and Hormel Foods (HRL).

This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.

Updated August 16, 2012, 7:42 p.m. ET

.Rob Portman: The Regulatory Cliff Is Nearly as Steep as the Fiscal One
The president has postponed damaging rules until after the November election.


Americans are learning more about the "fiscal cliff" approaching at the beginning of next year, when tax rates for families and small businesses are set to spike and new taxes in President Obama's health-care spending law take effect. But unless there's real change in Washington, we're also headed for a steep "regulatory cliff" that could compound the damage.

After three years of bureaucratic excess, the Obama administration has been quietly postponing several multibillion-dollar regulations until after the November election. Those delayed rules, together with more than 130 unfinished mandates under the 2010 Dodd-Frank financial law, could significantly increase the regulatory drag on our economy in 2013.

The Labor Department, for example, is working on a regulation that would increase the cost of retirement planning for middle-class workers, to "protect" them from investment help. This regulation, known as the Fiduciary Rule, would tighten restrictions and increase litigation risks for businesses that offer investment guidance on a commission basis, rather than the more expensive fee-for-service model.

A study last year by the Oliver Wyman Group found that the Fiduciary Rule could result in higher retirement account minimums and cause 7.2 million individual retirement account (IRA) holders to lose access to investment advice. Even the Labor Department was unable to show that the rule's illusory benefits outweigh its substantial costs.

After other lawmakers and I urged the White House to step in, this rule-making was delayed temporarily. But the Labor Department has told interested parties to stay tuned for another iteration of this rule.

Then there is the mega-rule on the shelf at the Environment Protection Agency (EPA) that could block business expansion in many areas of the country. Proposed in 2010, the Ozone Rule would impose a limit on ozone (which creates haze from emissions from cars, power plants and factories) so strict that up to 85% of U.S. counties monitored by the EPA would be in violation.

Susan Dudley, a regulatory economist at George Washington University who served in the previous administration, notes that this rule would force many communities "to forego productive investment and hiring decisions in order to spend hundreds of billions of dollars per year in vain attempts to meet unachievable standards."

The EPA itself says the rule could impose up to $90 billion in yearly costs on manufacturers and other employers. Last September, after months of public outcry, the White House instructed the EPA to put the rule on ice until 2013, when it will be "revisited."

Also on the Obama EPA's to-do list for 2013 is a new rule that its regulators admit could increase costs for energy consumers and others by as much as $4.5 billion per year, depending on how it's implemented. The rule targets equipment that power plants and manufacturing facilities use to draw in water to prevent overheating, even though those intake systems are not harmful to human health or water quality.

Last year the EPA estimated that this new rule would cost $1 for every three cents in benefits. More recently, the EPA has proposed the use of public-opinion surveys with hypothetical scenarios that boost the alleged benefits of its proposed regulation by nearly 14,000%. This is another example of a major regulation put off until next year, ensuring that Americans won't learn about its effect on their electricity bills until after the election.

Consumers can also look forward to a new Department of Transportation rule that will increase the costs of new cars and trucks by mandating expensive new technology. First proposed in 2010, the Rear-View Camera Rule would require that all cars and trucks be equipped with a rear-view camera and video display on the dashboard, at a cost of some $2.7 billion to auto makers and car buyers.

Americans who want this technology are free to buy it and more than 40% of new cars have it. We don't need a government mandate to drive up costs for families who need to economize. Not surprisingly, the administration delayed moving forward on this costly rule until after Dec. 31.

Next year will bring not only new rules but new regulators. The Independent Payment Advisory Board—a bureaucracy created by the president's health-care law—has vast authority over patient care and health markets, yet it is immune from the usual public input and review requirements that apply to other regulators.

As the American Medical Association and others have pointed out, the board is charged with the contradictory mandate of cutting Medicare reimbursement rates to health-care providers, without reducing benefits or finding new ways to increase value. The result will be a technocratic body with almost unchecked power to limit access to care for Medicare patients.

According to a 2011 Gallup survey, overregulation tops the list of "most important problems" facing America's small-business owners. With our economy stuck in the worst jobs slump since the Great Depression, the pressing need is to build a regulatory climate that encourages investment, growth and job creation. Avoiding the coming regulatory cliff, like the fiscal cliff, will require new leadership at the top.

Mr. Portman, a Republican, is a U.S. senator from Ohio.

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