I firmly believe that we may be approaching a turning point in the volume of waste that is produced around the world. To illustrate, lets just say that we are moving from a 3 Michelin Star world to a family restaurant world! Let me explain.
A 3 Michelin starred restaurant has to have everything perfect. As such, if something isn't crispy enough, is a little overcooked or isn't perfectly round, it goes in the trash and the chef starts again. A family restaurant is different. The chef knows that he has to maximise his ingredients. As such, today's roast beef is tomorrow's cottage pie. Today's fresh fruit salad is tomorrow's trifle.
Over recent years, it has been easy in many quarters to behave like a 3 star restaurant. A good example is palm oil. As the price has risen, it has been standard to focus on selling the vegetable oil alone, leaving the crushed kernals and residual oils as waste. However, these 'waste' products have value. Residual oils can be converted to biodiesel, crushed kernals can be fertilisers, animal food or biomass.
Companies such as Lanza Tech are converting all sorts of waste into biogas or similar fossil fuel replacements. The use of many types of waste is increasing within building materials. I could go on.
I firmly believe that the world is about to enter (or has already entered) far more difficult times than we have seen for many years. This will cause us all to tighten our belts. However, this is not necessarily a bad thing. Perhaps we should have not wasted the energies of politicians by travelling to Durban to discuss environmental policies, and just left it to the basic human instinct that comes from necessity in difficult times.
Tuesday, December 13, 2011
Winners in a Recession
It is easy to analyse the losers from the upcoming (or more appropriately, prevailing) recession, but who will be the winners. Sure the equity analysts will trot out the usual suspects (buy McDonalds and the like) but lets me more imaginative.
1. Anyone who cuts costs. Somewhat obvious but worth analysing nonetheless. Over the past 10-15 years, the big winner from this category has been China (and to a lesser extent, India). Their contribution to the world has been to cut the cost of everything from stuffed animals to electronics. (though in turn increasing the cost of energy and commodities!). In the future, I believe that China will continue to benefit from this, but there may be others. Dwolla is a clear example of an initiative that will cut a few percentage points off of transaction costs. It may not sound as dramatic as a remote control toy car having fallen in price by 70-90% over recent years, but it is far more important to the world economy and financial structures.
2. Cleantech. Perhaps more controversial is my sense that the the recession will cause a change in people's priorities (or at least accelerate the growth of a nascent trend). This involves a greater sense of the environment and our treatment of the world. I dont think that we will all become tree huggers, but I do believe that when we can not afford to closet ourselves in luxury cars as we drive from luxury mall to luxury mall, and have more time on our hands, we will become more aware of environmental issues. The big question is whether this trend will offset the undoubted reduction in funding that will inevitably happen.
3. Waste Services. We need to maximise our use of resources and eek out every last penny. Mothers and housewives understand this. When money is easy, they throw out any dinner that is not eaten. When money is easy, it becomes leftovers and the next night's dinner is built around it. It is the same in industry. Even in agriculture, where only a percentage of the plant may be used. For example, grapes may be pressed for wine, but what happens to the rest of the grape after pressing? The same goes for palm oil with over 40% of the crop being discarded. The reality is that this 'waste' can be used and has value. People who do this will make a lot of money.
Am sure that there are many more examples.....need to put my thinking cap on!
1. Anyone who cuts costs. Somewhat obvious but worth analysing nonetheless. Over the past 10-15 years, the big winner from this category has been China (and to a lesser extent, India). Their contribution to the world has been to cut the cost of everything from stuffed animals to electronics. (though in turn increasing the cost of energy and commodities!). In the future, I believe that China will continue to benefit from this, but there may be others. Dwolla is a clear example of an initiative that will cut a few percentage points off of transaction costs. It may not sound as dramatic as a remote control toy car having fallen in price by 70-90% over recent years, but it is far more important to the world economy and financial structures.
2. Cleantech. Perhaps more controversial is my sense that the the recession will cause a change in people's priorities (or at least accelerate the growth of a nascent trend). This involves a greater sense of the environment and our treatment of the world. I dont think that we will all become tree huggers, but I do believe that when we can not afford to closet ourselves in luxury cars as we drive from luxury mall to luxury mall, and have more time on our hands, we will become more aware of environmental issues. The big question is whether this trend will offset the undoubted reduction in funding that will inevitably happen.
3. Waste Services. We need to maximise our use of resources and eek out every last penny. Mothers and housewives understand this. When money is easy, they throw out any dinner that is not eaten. When money is easy, it becomes leftovers and the next night's dinner is built around it. It is the same in industry. Even in agriculture, where only a percentage of the plant may be used. For example, grapes may be pressed for wine, but what happens to the rest of the grape after pressing? The same goes for palm oil with over 40% of the crop being discarded. The reality is that this 'waste' can be used and has value. People who do this will make a lot of money.
Am sure that there are many more examples.....need to put my thinking cap on!
Monday, December 12, 2011
A New Crisis for Banks?
Whilst the banking industry is currently focused on its asset problems, it may have another, arguably more dangerous threat ahead. www.dwolla.com
This is a start-up which is challenging the ridiculous prices that banks charge for payments. Essentially, it has built a model which permits payments to be made for a maximum of $0.25 per transaction. This compares with the 3%-5% that might be charged by credit card companies and similar fees for telegraphic transfers etc.
If their model is scalable and able to be launched in the international market, this will crucify the retail banking industry's business model. My take is that there will be enormous pressure to resist it, but that it will succeed on the basis of consumer demand.
Over the past 10-15 years we have become used to China lead deflation in manufactured goods and Indian lead deflation of service costs. However, this could be a massive factor in future economic development far greater than the 3-5% savings made from not paying bank transaction fees.
For some time, the analysis has been on the evolution of mobile phone companies becoming 'banks' or the use of the 'square' to replace credit card machines, but the basic business model of charging a few percent hasn't been challenged. Now it may be.
Tuesday, December 6, 2011
Blue Green Algae
To those involved in renewable energy, algae represents the hopes of a new biofuel feedstock. However, for many, algae is a toxic blight on our waterscapes.
As Summer approaches Australia, Blue Green Algae (cyanobacteria) has raised its head in reservoirs and marinas around the country. The ABC have warned that it could be the worst outcome for over a decade. However, the authorities appear to believe that the only solution is to wait for colder weather and hope that no people or animals suffer (or has happened in many other countries) die.
The traditional problem to this has been the lack of an appropriate treatment. Chemicals may be able to kill algae, but they are toxic themselves and the impact on the water can be worse than the original treatment, killing fish and other marine plant and animal life.
However, a new Canadian group I am advising, has the answer. ECOblue is a formulation made according to Green Chemistry principles from ingredients normally associated with a vegetarian curry! However, they ferment, heat, cool and blend them in a highly sophisticated (and secret!) fashion and prepare a formulation which attacks the algae, literally breaking it apart. However, unlike traditional chemicals, ECOblue does not endanger marine life and it naturally biodegrades extremely quickly. This means that there is no lasting evidence of the algae nor the treatment.
Australia take note!!
As Summer approaches Australia, Blue Green Algae (cyanobacteria) has raised its head in reservoirs and marinas around the country. The ABC have warned that it could be the worst outcome for over a decade. However, the authorities appear to believe that the only solution is to wait for colder weather and hope that no people or animals suffer (or has happened in many other countries) die.
The traditional problem to this has been the lack of an appropriate treatment. Chemicals may be able to kill algae, but they are toxic themselves and the impact on the water can be worse than the original treatment, killing fish and other marine plant and animal life.
However, a new Canadian group I am advising, has the answer. ECOblue is a formulation made according to Green Chemistry principles from ingredients normally associated with a vegetarian curry! However, they ferment, heat, cool and blend them in a highly sophisticated (and secret!) fashion and prepare a formulation which attacks the algae, literally breaking it apart. However, unlike traditional chemicals, ECOblue does not endanger marine life and it naturally biodegrades extremely quickly. This means that there is no lasting evidence of the algae nor the treatment.
Australia take note!!
Monday, December 5, 2011
African Portfolio Investment - Moving East
Given the collapse of international portfolio investment into Africa in 2008 and 2009, borrowers and issuers in the continent must be looking at the likelihood of an equal (or greater) financial crisis in the West with trepidation. In 2009, 44% of all external portfolio investment in Africa was held by the US and only slightly less from Europe. As Europe collapses and the US stagnates, the prospects for significant new issuance to investors in these regions appears remote.
Given the positive economic trends that are evidence in many African countries, this may appear to be a potential disaster, but perhaps not. Perhaps we will simply see a continuation and expansion of the trends recently apparent towards inward investment being made from Eastern Asia.
Over recent years, Chinese FDI in the continent has been well documented. This has taken place on the back of the country's insatiable appetite for resources and has supported the necessary infrastructure for such resources to be exported. Today, I believe that we are about to see an expansion of this trend into portfolio investment into bonds and equities.
Look, for example, at the debt issue by Senegal earlier this year. Only 4% of the issue was placed in Asia, but the issue soared in price. Was this a result of a lack of interest by Asia or simply that the issue wasn't marketed in Asia? My guess is that it is the latter.
As infrastructure continues to be built and exports from Africa continue to expand, I'd expect continued expansion of portfolio investment from Asia. Pension Funds and other investors are seeking to internationalise their portfolio and are generally seeking the holy grail of diversification. Dont get me wrong, Africa wont be immune to the economic travails of the West, but the impact will be cushioned by continuing demand from Asia. Asian investors will also be comforted by the relationship with Asian importers and the ability to structure securities where cash flows emanating from Asia will pay off principal and debt of bonds, or finance dividends for equities.
Expect to see the HKSE and SGX becoming the more dominant home for African equity listings rather than AIM and expect to see the Dim Sum market and Asian syndicated loan markets launching more debt issues.
Does London see this coming?
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