Friday, June 15, 2007

Just In Case You Missed It

Sicko = Socko!; + Mea Culpa

Mea Culpas come particularly hard to politicians since even one admission of error is a clear indication that he (Mr. Bush, for example) or she (substitute Mrs. Clinton here) is not infallible. Despite the unease that results from a mistake, in the case of my imprecision, it is not of the caliber of Mr. Bush’s entry into a wasteful war, or Mrs. Clinton’s vote to support that decision. However, since these two are pros when it comes to responding to accusations of miscalculations, to paraphrase Mr. Bush, I too relied on faulty intelligence, and as Mrs. Clinton has not so convincingly stated, “If I had known then what I know now…,” well, I would not have understated the opening date of a new film by over one year.

Yes, an article that appeared in this blog in August, 2005, contained a timing error. The article in question was Part III of a series titled, “Pharmaceutical Follies,” dealing with some of the transgressions associated with the large pharmaceutical companies. The article’s opening paragraph stated, “About six months ago, the Los Angeles Times ran a story stating, ‘at least six of the nation’s largest companies already have issued internal notices to their work forces, preparing them for potential ambushes.’ Warnings at these companies had nothing to do with terror attacks or homeland security matters. The initial cautionary pronouncement came from a Pfizer Global Research and Development spokesman, citing the latent danger as ‘a scruffy guy in a baseball cap.’ He went on to say that if you see such an individual, ‘you’ll know who it is.’”

It turns out that the various pharmaceutical companies anticipated that the “scruffy guy” was preparing a film with the name, Sicko, a name most appropriate for describing the status of the health industry in this country; a film that would depict the dark side of not only the drug manufacturers, but the health organizations, the insurance companies, and the politicians beholden to these institutions for political contributions.

That film, that I predicted would appear sometime in the Spring of 2006 just premiered at the Cannes Film Festival in mid-May, and will be opening country-wide on June 29 th of this year, some 13 months later than my article stated. The reaction to the film in Cannes was overwhelmingly favorable, one review using the entertainment jargon “Socko” to describe the film’s potential. As a result, the most popular celebrity in Cannes was the film’s creator, that scruffy guy in a baseball cap, the very controversial, Michael Moore. described the premier showing of the film as follows: “There wasn’t a single empty seat inside the [theater] — which holds more than 2,000 people — for ‘Sicko,’ dozens of stragglers were locked out on the sidewalk. Moore’s screed against the outrageous state of American healthcare was received with uproarious affection, but one might argue that Cannes provided the softest possible crowd — an American left-wing populist, attacking America’s profit-motive, private-sector ideology before a roomful of international intellectuals, at least half of them Europeans. May I introduce a new phrase into the Franglais dictionary? C’était un slam-dunk”.

The targets of this movie, the health industry, the insurance companies, and the pharmaceutical manufacturers, the very ones that have lobbied our legislators so generously and therefore so successfully, are, understandably, less then enthusiastic. For example, as reported by The Wall Street Journal, “The industry trade group, Pharmaceutical Research and Manufacturers of America (PhARMA), has already prepared a press release it is sending out when asked for comment on the movie, even though no one at PhARMA appears to have seen it and their knowledge of the contents is secondhand. In the press release, the group says Mr. Moore is a sensationalist and will not make a documentary that is ‘balanced, thoughtful, and well-researched.’” A lobbying organization talking about balanced and thoughtful? Give me a break!

By the time you read this, the question about the legality of Moore’s trip to shoot scenes in Cuba may have exploded into some type of federal action, and if so, it would merely add to the film’s publicity and popularity. If that occurs, the publicity would merely accelerate ticket sales, assuming the Justice department does not try to confiscate the film. Remember the opening date of June 29 th. Unlike the consequences of the Iraq war, this movie does look like a slam-dunk.

Timing — The Holy Grail of Investing?

If you were prescient enough to time the stock market perfectly — with money in a broad basket of stocks in months when the market went up, and in Treasury Bills in the down months — $1,000 invested in 1926 would be worth $30 trillion today, compared to a mere $3 million if that same $1,000 had been invested in stocks and remained untouched. That was the conclusion reached by the illustrious research firm of Ibbotson Associates, and reported in the February 19 th issue of Business Week. Viewed from a more recent and shorter term period, $1,000 invested in the Standard & Poor’s 500 Index 10 years ago would be worth some $2,224 for the buy-and-hold investor, and $14,561 for those more prophetic.

Obviously timing is the way to go. Well, wait a minute! Timers are a special breed. They generally rely on data, all kinds of statistics, some quite arcane, found within the market itself. They eschew the more traditional fundamental information such as company revenue, price/earnings ratios, and earnings. Broader economic and market fundamentals are also ignored. According to Business Week, the performances of the 100 leading market-timing newsletters are followed by Timer Digest, and after reviewing the results, the question that must be asked is, “Who cares?”

In 2006, for example, only four of the timers were able to beat the performance of the S&P 500 index, and the next seven best merely matched the index—that’s before deducting taxes, trading costs and the costs of the newsletters. The Hulbert Financial Digest followed the record of 103 market-timing strategies over a 10 year period and determined that by the time you get down to the 10 th best timing system, it is only slightly better than the S&P 500 Index return. Animal entrails, anyone?

More years ago than I would like to admit remembering, and certainly well before the steroid era, baseball players who had a batting average in the .300 range (give or take) were considered respectable, while the few well over that number were at the exceptional level. Those in the .250 area were viewed with skepticism and at .200 and below were destined for the minor leagues. Today however, even .250 hitters receive multi-million dollar contracts and are considered celebrities. That same more recent syndrome can be applied to investment timers and analysts, either individuals putting out newsletters, or those employed by large investment institutions.

In the May 21 st issue of The Wall Street Journal, a report titled “Best on the Street 2007 Analyst Survey,” published the identities of the top five performing analysts within 45 industry groups. Although not stated specifically, the implication was that these were current market masters of the investment universe and fortunes could be made by following their advice, thus justifying the money spent on subscribing to the Journal.

That once stately news source, currently looked upon by Rupert Murdoch as his next juicy acquisition, also published the survey’s performance numbers that rated a total of 85 investment firms based on their individual analyst performances using (unspecified) benchmarks. The survey itself and the rating process was quite extensive in nature since a total of 1456 so-called experts working for 85 firms were considered qualified to participate in the finals although there were many more analysts eliminated for poor ratings. (It is not known if they were sent back to the minor leagues.) The baseball analogy is pertinent because the Journal’s survey ratings of the various investment firms were called “Batting Averages.”

So, what did this industry-wide survey prove? There ain’t no Holy Grail. Of the 85 firms surveyed, about half employed between 10 to 62 analysts, and the rest were in single digits with 22 employing 5 or less. Only 26 of the 85 firms enjoyed a batting average of .300 or more. This rating indicated that 30 or more percent of a given firm’s analysts were worthy of an award. Putting it differently, 70 percent were not deserving of recognition—that’s not too reassuring is it? Quite notable was the fact that by and large, the best results were attained by those firms employing the smallest number of analysts. Only three firms with 10 or more analysts made the cut. Eight firms with only one analyst batted 1.000, and four firms with two analysts batted .500.

Significantly, not one of the largest and best-known research firms such as Merrill Lynch, Bear Stearns, Wachovia, Lehman Brothers, Bank of America, Sanford Bernstein, and Raymond James achieved the .300 mark. Index funds, anyone?

Friday, June 01, 2007

The Doomsday Book, An Environmental Nightmare — Part III

I must admit to a certain bias when I consider information emanating from the Massachusetts Institute of Technology (MIT), not only because of its world-renowned reputation, but because that institution was the recipient of a not insignificant sum of my money in return for providing my son with his undergraduate degree. This revelation might influence your opinion regarding the objectivity of my citing the following article from the MIT publication, Technology Review.

“Jim Hansen may be the most respected climate scientist in the world. He’s been director of NASA’s premier climate research center, the Goddard Institute for Space Studies (GISS), for 25 years and a member of the National Academy of Science (NAS) for 10. And he more or less single-handedly turned global warming into an international issue one weltering June day in 1988, when he told a group of reporters in a hearing room, just after testifying to a senate committee, ‘It’s time to stop waffling so much and say that the greenhouse effect is here and is affecting our climate now.’”

The article continues, “It took the rest of the scientific community about eight years to catch up with him on that point. He was ahead of the pack in 1988, and he remains so. He’s been accurately predicting the progress of global warming for 25 years. And as the science grows ever more solid, owing in no small part to his own work, Hansen’s predictions about an issue some see as the greatest threat civilization has ever faced are becoming ominously precise.”

In testimony before the House of Representative’s Select Committee on Energy and Global Warming (yes there is such a committee), just two months ago, Hansen predicted that without extraordinary mitigation efforts, the world can expect global warming to cause “the loss of all summer Arctic ice with devastating effects on wildlife and indigenous people; an intensification of subtropical conditions that would greatly exacerbate water shortages in the American West and many other parts of the world, and likely render the semi-arid states from west and central Texas through Oklahoma, Kansas, Nebraska and the Dakotas increasingly drought prone and unsuitable for agriculture; and to cause the extermination of a large fraction of plant and animal species, an indictment of humanity’s failure to preserve creation.”

He then warned, “For humanity itself, the greatest threat is the likely demise of the West Antarctic ice sheet as it is attacked from below by a warming ocean and above by increased surface melt. There is increasing realization that sea level rise this century may be measured in meters if we follow business-as-usual fossil fuel emissions.”

Possible Solutions

Hansen does provide a potential bright side to this planetary emergency. He states, “ I've arrived at five recommendations for what should be done to address the problem. If Congress were to follow these recommendations, we could solve the problem. First, there should be a moratorium on building any more coal-fired power plants until we have the technology to capture and sequester the CO2. [That’s five to ten years away, however.] Second, and this is the hard recommendation that no politician seems willing to stand up and say is necessary: The only way we are going to prevent having an amount of CO2 that is far beyond the dangerous level is by putting a price on [carbon] emissions. [This is in place already in Europe, but not yet refined.] But a price on carbon emissions is not enough, which brings us to the third recommendation: We need energy-efficiency standards. That's been proven time and again. The fourth recommendation—and this is probably the easiest one—involves the question of ice-sheet stability. …The concern is that it's a very nonlinear process that could accelerate.… [T]his problem with the stability of ice sheets is so critical that it really should be looked at by a panel of our best scientists. Congress should ask the National Academy of Sciences to do a study … The National Academy of Sciences was established by Abraham Lincoln for just this sort of purpose, and there's no reason we shouldn't use it that way.”

Ideology Trumps Science

As insidious as the problem of climate change might be, Hansen, for his fifth recommendation, addresses another ominous trend. He refers to the politicization of scientific evidence, most recently, by the Bush administration. As described in Technology Review, this became unmistakably evident when in early December of 1995, “Hansen declared in a talk at the American Geophysical Union in San Francisco that if our rate of fossil fuel burning continues to grow, we will eventually transform Earth into ‘a different planet.’ He presented an analysis showing that existing technologies can significantly cut greenhouse emissions, and suggested that a global solution requires leadership by the United States.”

The article continued, “Shortly thereafter, on December 15, he and three colleagues posted a routine monthly analysis on the Goddard (GISS) website, summarizing data from thousands of weather stations around the globe. It showed that 2005 was coming in as the warmest year since the mid-1800s. He was interviewed about this by ABC News. According to NASA memorandums provided by Hansen, senior political appointees at NASA headquarters in Washington quickly called career public-affairs officers at the agency and directed them to give headquarters advance notice of Hansen's speaking schedule, his "data releases," and his attendance at scientific meetings. The career officers also understood from the phone calls that the posting of all content on the GISS website, including scientific data sets, would now require headquarters approval; that no NASA employees or contractors could grant media interviews without approval; and that public-affairs officers had the right to stand in for scientists in all interviews. Hansen emphasizes that the political appointees made sure to leave no paper trail. But by throwing off this muzzle, Hansen propelled himself -- and global warming -- into the headlines. The story broke on the front page of the New York Times; Hansen appeared on NPR and 60 Minutes, too.”

Hansen then raises an even broader issue: “The global warming problem has brought into focus an overall problem: the pervasive influence of special interests on the functioning of our government and on communications with the public. It seems to me that it will be difficult to solve the global warming problem until we have effective campaign finance reform, so that special interests no longer have such a big influence on policy-makers.”

Hansen exclaims that “These problems are worse now than I've seen in my thirty years in government. But they're not new. I don't know anything in our Constitution that says that the executive branch should filter scientific information going to Congressional committees. Reform of communication practices is needed if our government is to function the way our Founders intended it to work.” As an indication of his objectivity, p olitically, Hansen calls himself an independent, and admits he’s had trouble with both parties. “He says, from time to time, the Clinton administration wanted to hear warming was worse that it was. But Hansen refused to spin the science that way.”

Skepticism Exists

Harry Truman was famous for saying that he longed for a one handed economic advisor in order to avoid hearing the phrase, “On the other hand…” Well, here is more of “the other hand.” For a list of notable skeptics, and their reasoning, Google the phrase “Scientists opposing the mainstream.” In addition, a recent book, titled Unstoppable: Global Warming Every 1500 Years, has gained significant popularity with those skeptical about the impact of human activity on global warming, many who view the book’s “revelations” as if they were of biblical proportion. The hypothesis advanced in the book is that variances in solar radiation is the prime source of climate change, resulting in a natural and unstoppable 1500 year cycle of warming that is currently forming — concluding that human activity is not a factor.

In the eyes of the skeptics, the book’s two authors are champions of scientific veracity challenging a wrong leaning scientific community. Critics of the book and its conclusions point out that both authors have faced charges of conflicts of interest in the past, in their (sometimes paid) efforts to defend tobacco and oil interests. Leaving aside those charges, from an objective standpoint, the hypothesis itself is far from new having been promulgated originally by Gerard Bond of Columbia University in 1999 and 2001. However, unlike the book’s conclusions, it has been noted that Bond “did not think his work cast any doubt on the possibility of anthropogenic [relating to the influence of human beings on nature] warming.”

It is true that amongst scientists there is general agreement that variations in solar irradiance (probably due to sunspot activity) are indeed a factor in global warming. The issue then becomes, to what degree does solar radiation influence global warming compared to other elements? That question is clearly answered in the U.N.’s Intergovernmental Panel on Climate Change (IPCC) most recent report. It states, “Carbon Dioxide is the most important anthropogenic greenhouse gas.” It then confirms that, “The primary source of the increased atmospheric concentration of carbon dioxide since the pre-industrial period results from fossil fuel use, with land use change [emissions of methane and nitrous oxide] providing another significant but smaller contribution.”

The relational effect of the above gaseous emissions compared to solar activity is numerated as follows: “The combined radiative forcing due to increases in carbon dioxide, methane, and nitrous oxide is +2.30.” “Changes in solar irradiance since 1750 are estimated to cause a radiative forcing of 0.21.” In other words, greenhouse gas has an 11 times greater impact on global warming than solar irradiance. In the event the U.N. report is looked upon with suspicion, the federally funded National Center for Atmospheric Research has come to the following conclusions: data show that Earth's surface air temperature has risen more than 1.1°F (0.7°C) since the late 1800s. This warming of the average temperature around the globe has been especially sharp since the 1970s. Global models at NCAR have simulated 20th century climate and found three main factors at work:
  1. Solar activity contributed to a warming trend in global average temperature from the 1910s through 1930s.

  2. As industrial activity increased following World War II, sun-blocking sulfates and other aerosol emissions helped lead to a slight global cooling from the 1940s to 1970s.

  3. Since 1980, the rise in greenhouse gas emissions from human activity has overwhelmed the aerosol effect to produce overall global warming.

The essence of this finding has also been confirmed by the Committee on Radiation Forcing Effects on Climate of the National Research Council of the National Academies.

The Doomsday Book

A different type of book, one with a much broader agenda, describes a myriad of problems faced by our earth in addition to global warming. It also includes recommendations for planetary survival in the face of what could be termed a “Doomsday Scenario.” The title of the book is Plan B 2.0: Rescuing a Planet Under Stress and a civilization in Trouble.

As described in Part I of this article, the author Lester R. Brown, is one of the world’s most widely published authors having written more than 50 books translated into some 40 languages. In 1974, he founded the Worldwatch Institute, the first institute devoted to the analysis of global environment issues. In 2001, he founded the Earth Policy Institute. According to that Institute, its goal is “to provide a vision and a road map for achieving an environmentally sustainable economy. The book is available not only in paperback, but it can be downloaded free of charge by Googling “Earth Policy Institute, Plan B.”

The extraordinary range of the book can be gauged from the following review found in the online bookstore site, “The world faces numerous environmental trends of disruption and decline such as rising temperatures, falling water tables, shrinking forests, melting glaciers, collapsing fisheries, and rising sea levels. In Plan B, Lester R. Brown notes that in ignoring nature's deadlines for dealing with these environmental issues, we risk the disruption of economic progress. In addition to these environmental trends, the world faces the peaking of oil, the addition of 70 million people per year, a widening global economic divide, and the spread of international terrorism. The global scale and growing complexity of issues facing our fast-forward world have no precedent.”

Despite the “doomsday” potential of each of these factors, Brown provides solutions that must be undertaken to prevent the possible collapse of civilization as we know it. These will be described in next month’s issue.