Monday, November 6, 2017

BUSINESS DAY | A Bull Market Should Make Investors Happy. This One Isn’t.

Traders working the floor of the New York Stock Exchange in October, the 12th straight month that the Standard & Poor’s 500 investment index has logged a positive return. CreditJustin Lane/European Pressphoto Agency
One day in September, investors with fading summer tans mingled with their brokers over a three-course lunch at Cipriani in Lower Manhattan. Stocks were soaring and they swapped market tips and touted apps that allowed them to buy Bitcoin on the golf course.
But the full stomachs and fat portfolios couldn’t mask a sense of unease that pervaded the gathering: that the good times could suddenly end, derailed by nuclear war, political upheaval, a sudden rise in inflation or simply from stratospheric stocks crashing down to earth.
“Investors have never felt less secure, even though we are eight years into a bull market,” Mark H. Haefele, the chief investment officer in the wealth management division at the investment bank UBS, told the crowd.
Rarely has a bull market been so unloved. Since March 2009, the Standard & Poor’s 500 stock index has nearly quadrupled in value. This year, not only is the index up 15 percent, but it also seems to have stopped going down at all: October was the 12th straight month that the S.&P. has logged a positive return, the first time that has happened since 1935.
Yet in most conversations about the ever-rising stock market, brokers and investment advisers say, are dominated by the question of when it will all come to an end.
With the exception of President Trump, of course. On Saturday, in an interview on Air Force One, he once again took credit for the market’s most recent record close on Friday.
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Generally, this far into a bull market, euphoria kicks in. In 1929, shoeshine boys were doling out stock tips. In 1999, people were quitting their jobs to trade technology stocks from their living rooms.
These days, each successive stock market record seems to spur more hand-wringing than cheerleading. There is anxiety about overhyped shares, about the possibility of central banks withdrawing their support for global economies, even about markets simply being worryingly quiescent, as evidenced by the historically low readings of the volatility index known as the VIX.
“The VIX is too low, valuations are too high, the recovery is too old and the Fed is tightening,” said Jim Paulsen, a veteran market strategist for the Leuthold Group in Minnesota. “For an old market dude like me, that is a scary list.”
For several years now, Mr. Paulsen has been pleading with his clients to embrace the bull market. He has touted the breadth of the surge, in which no single sector has dramatically outrun another on the way up. And he has argued that worldwide growth with little inflation represents an unusual buying opportunity.
When he meets with clients or presents his views at conferences, though, the vast majority of the questions he receives are about what will ultimately bring the market crashing down.
“No one ever asks me when the S.&P. is going to blow past 3,000,” he said of the benchmark stock index which ended trading on Friday at 2,587.84.
In fact, many analysts say that this so-called wall of worry is a positive sign. Investors may be piling into stocks and bonds, the thinking goes, but they are doing it with a measure of hesitation, which prevents some of the excesses that preceded previous market corrections.
That is not to say the market is without froth.
Since early 2009, the market capitalizations of Amazon and Apple, have soared from $26 billion and $74 billion to $532 billion and $872 billion.
The surge in the price of Bitcoin strikes many observers, including the billionaire investor Warren Buffett, as a classic portent of a bubble ready to pop.
Nor are many skeptics comforted by the fact that a former logistics manager at a Target store has made millions of dollars betting that the VIX index, Wall Street’s closely watched fear gauge, will continue to fall.
These are not exactly the hallmarks of a restrained market.
To a large extent, the main drivers of the bull market have been sophisticated investors. Cash holdings by institutions and high-net-worth investors are at record low levels, which means they have been plowing money into the markets, according to numerous surveys.
Many retail investors, though, have remained on the sidelines — a sharp contrast to the activity that preceded the bursting of previous bubbles.
According to Charles Schwab, which oversees $3.1 trillion in retail investments, the cash portion of client accounts was 11.1 percent as of September. That is down from 13 percent at the end of last year, but it is still a sizable ratio, which suggests that investors are not dumping their entire savings into the stock market, at least for now.
Liz Ann Sonders, the chief investment strategist for Schwab, said that until just recently, investors have been highly skeptical that the market’s bull run was justified. However, in the last month or so, she has noticed a change in sentiment at client meetings and investor events.
“Some investors are conceding it’s a bull market,” she said. “They are looking for approval to jump on the bandwagon.”
Still, she points out, retail investors have nowhere near the commitment to stocks that characterized past stock market booms.
Richard Bernstein, a former equity strategist at Merrill Lynch who now runs his own investment firm, has been bullish on stocks since 2009. He said that by this point of a strong equity run, buying stocks traditionally becomes widely accepted by all investor classes — the consequence of one outstanding stock market year following another. Nobody wants to hear their neighbors boasting about their sizzling portfolios without having their own good news to share.
That is not the case this time. According to Mr. Bernstein, Wall Street experts on average advise investors to put 55 percent of their portfolios into stocks, as opposed to other assets such as bonds. That is considerably more conservative than the traditional recommendation that investors have up to 65 percent in stocks.
And many pension funds, instead of investing in the stock market, are putting money into private-equity investments, even though they incur hefty fees and their money generally gets locked up for 10 years.
“This is crazy,” Mr. Bernstein said. “So when people say there is euphoria in the market and people are getting carried away, I say, ‘who are we talking about?’”
Late last month, at an investor panel sponsored by the fund company Eaton Vance, Mr. Bernstein cited the rising South Korean stock market in arguing that fears of nuclear war were overblown and should not be used as an excuse for investors to avoid putting their money into stocks.
As usual, the pushback was quick in coming.
What happens if war breaks out in the Korean Peninsula, a member of the audience asked him. Wasn’t he ignoring that possibility?
Mr. Bernstein argued that investors should care the economic and corporate fundamentals — not the remote chance that a calamity will strike.
“You cannot invest successfully,” he said, “when you are crouched under your desk in a fetal position.”

Cape Verde’s goal is 100% renewable energy by 2025

Cape Verde’s goal is 100% renewable energy by 2025. Why it may just do it

Cape Verde’s renewable energy resources account for about 25% of total energy production. Shutterstock
Cape Verde, the small island archipelago nation off Africa’s northwest coast, has set itself a very bold renewable energy target. As part of its “sustainable energy for all” agenda, it has pledged to obtain 100% of its electricity from renewable resources by 2025.
Cape Verde is made up of 10 islands, nine of which are inhabited, that lie about 600km west of Senegal. Almost all of the islands’ 550,000 residents have access to electricity, but about one-third still rely on firewood and charcoal for cooking. Cape Verde’s per capita electricity consumption of 727 kWh per person per year is substantially higher than the sub-Saharan Africa average of 488 kWh per person per year. But electricity prices are high. They range from US$0.26 - 0.32 in recent years compared, for example, to an average of US$0.13 for residential homes in the US.
Although most of its electricity is produced by generators, which run on imported petroleum products, Cape Verde has started to diversify its energy portfolio. A quarter is now provided by renewable sources. This is good news because there are estimates that, between 2015 and 2020, Cape Verde will almost double its annual electricity consumption to 670 GWh, up from 360 GWh.
With cutting-edge technologies and innovative business practices, Cape Verde can achieve its 100% renewable energy goal in a way that is cost-effective and equitable. One research team suggested that a system based on solar, wind and energy storage (as batteries and pumped hydropower) could meet Cape Verde’s goals. It certainly has a wide range of options for increasing its share of renewable energy to achieve this.
Some countries obtain almost all of their electricity from renewable sources, but these have substantial hydroelectric resources. Cape Verde, lacking large hydropower resources, would be unique in achieving 100% renewable energy with a diverse resource mix.

Resource variety

Like its mainland African neighbours, Cape Verde has a variety of resources and technologies to choose from. It has wind resources like Morocco, the solar potential of the Sahel, geothermal resources like Kenya, and marine energy comparable to many coastal countries.
Cape Verde’s northeasterly trade winds are considered excellent for wind power production. A wind farm typically requires wind speeds of at least 6.4 m/s at 50m above ground. Cape Verde’s average annual wind speeds exceed 9.0 m/s at the wind farm. Already three of the islands, including the two most populated, produce about 25% of their electricity from wind turbines. But without energy storage there is little opportunity to expand wind energy on these islands.
Another technology that could be integrated into the electricity generation offering is the country’s desalination systems. Many of Cape Verde’s communities depend partially, or entirely, on these for drinking water. Desalination systems require electricity and can be run at times when the wind turbines are operating, but electricity demand is low – such as at night.
Additionally, the desalinated freshwater can be pumped into a high-elevation reservoir and used for energy. When demand peaks the water flows back down, spinning hydro turbines and generating electricity in the process. Integrating desalination and energy systems like this could be highly beneficial. For example, on the island of São Vicente it could enable wind turbines to meet up to 84% of the island’s electricity demand.
Like many African countries, Cape Verde’s tropical location has good potential for solar photovoltaic (PV) electricity. One study suggests that the solar PV capacity potential is more than double the currently installed electrical generating capacity. Most of the potential development is on the densely populated island of Santiago. The challenge, as with wind, is integrating irregular flows into the grid.
Cape Verde could also take advantage of an emerging technology called ocean thermal energy conversion. This uses the difference between warm surface water and cold, deep ocean water to produce electricity. It works best in equatorial latitudes where there is a large difference in temperature between surface water and deep water. Assessments show that the ocean waters around the southernmost tip of Santiago might be suitable for it.
In addition, as a volcanic archipelago Cape Verde has potential for geothermal energy – which uses heat from the earth. Both geothermal and ocean thermal energy conversion electricity generation have the advantage of running all the time. This provides baseload power, meeting the minimum level of power demand all day.

Energy technologies

When it comes to distributing and paying for energy, systems also need a re-think.
Although the centralised grid model of electricity has been effective, technological advancements are making community-based “micro-grids” increasingly attractive. At least three communities in Cape Verde are already using a solar and wind-based micro-grid.
microgrid is a local electricity grid. It includes electricity generation, distribution to customers, and, in some cases, energy storage. It’s beneficial because solar- or wind-based microgrids are cleaner than diesel-based systems and have lower life cycle costs. Microgrids are also often connected to the main electricity grid but can disconnect and operate independently, for example, when a storm damages the main grid.
“Pay-as-you-go” energy systems have also revolutionised the delivery of electricity services in Africa. They integrate energy technologies, mobile communications and mobile banking. This allows households to purchase “solar home systems” and pay the cost over time. Kenya and Tanzania have emerged as leaders in this sector and are home to companies such as M-KOPAMobisol, and Off-Grid Electric. Pay-as-you-go systems could enable Cape Verde to reach its renewable energy goals without the large capital investments of centralised systems.
Cape Verde has already had tremendous success in integrating wind and solar into its energy system. By adopting cutting-edge technologies and innovative business practices, Cape Verde can achieve its 100% renewable energy goal in a way that is cost-effective and equitable.
The following research assistants contributed to this project: Abigail Barrenger, Jessica Crawford, Jacob McLaughlin, and Chad Wilcox. Dr Anildo Costa provided technical assistance and insights into Cape Verde’s energy system.

Which is more fundamental: processes or things?

Which is more fundamental: processes or things?

Celso Vieira
has a PhD in philosophy from the Federal University of Minas Gerais in Brazil. He lives in Belo Horizonte where he started the first Brazilian chapter of the effective altruist group The Life You Can Save.
Published in association with 
American Philosophical Association 
an Aeon Partner
1,200 words
Edited by Sam Dresser
Which is a more useful paradigm: processes or objects?
Neither half-full nor half-empty.  <em>Courtesy Wikipedia</em>
Neither half-full nor half-empty. Courtesy Wikipedia
Metaphysics is the attempt to understand how existence works by examining the building blocks of reality, the distinctions between mental and physical entities, and the fundamental questions of being and reality. But metaphysics is not only an arcane branch of philosophy: human beings use metaphysical assumptions to navigate the world. Assumptions about what exists and what is fundamental exert a powerful influence on our lives. Indeed, the less aware we are of our metaphysical assumptions, the more we are subject to them.
Western metaphysics tends to rely on the paradigm of substances. We often see the world as a world of things, composed of atomic molecules, natural kinds, galaxies. Objects are the paradigmatic mode of existence, the basic building blocks of the Universe. What exists exists as an object. That is to say, things are of a certain kind, they have some specific qualities and well-defined spatial and temporal limits. For instance: Fido is my dog, he is grey, and was born one year ago. (It’s worth noting that such a simple statement will give rise to a litany of metaphysical disputes within substance metaphysics: realists believe that universals, such as the natural kind ‘dogs’, exist while nominalists believe them to be only intellectual abstractions.)
Though substance metaphysics seems to undergird Western ‘common sense’, I think it is wrong. To see this, consider the cliché about the glass of water: is it half-empty or half-full? The question assumes a static arrangement of things serving as a basis for either an optimistic or a pessimistic interpretation. One can engage in interminable disputes about the correct description of the physical set-up, or about the legitimacy of the psychological evaluations. But what if the isolated frame ‘a glass of water’ fails to give the relevant information? Anyone would prefer an emptier glass that is getting full to a fuller one getting empty. Any analysis lacking information about change misses the point, which is just what substance metaphysics is missing. Process philosophers, meanwhile, think we should go beyond looking at the world as a set of static unrelated items, and instead examine the processes that make up the world. Processes, not objects, are fundamental.
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The pre-Socratic Greek philosopher Heraclitus provides the most famous image of process metaphysics. ‘It is not possible,’ he says, ‘to step twice into the same river’ – because existence depends on change; the river you step into a second time is changed from the river you stepped into originally (and you have changed in the interval, too). And while substance philosophers will tend to search for the smallest constituent objects in order to locate reality’s most fundamental building blocks, process philosophers think this is insufficient. So do modern physicists. Electrons are now understood as bundles of energy in a field, and quantum vacuum fluctuations prove that there are fields without bundles but no bundles without fields. Things seem to be reducible to processes – and not the reverse. (As the philosopher Alfred North Whitehead put it, we should think about ‘occurrences’ instead of ‘things’.)
Change poses a recurring problem for substance metaphysics. Universals have traditionally been a popular way to circumvent it. These static entities are difficult to define precisely, but can be thought of as ‘hyper-things’ that are instantiated in many different particular things. A universal is the thing that particulars have in common, such as types, kinds and relations. Universals are essentially different from particulars: Aristotle, for instance, argued that particulars – such as Fido my dog – are subject to generation and corruption, while species – the universal – are eternal. This particular example provides another instance in which science seems to favour process metaphysics. Thanks to the theory of evolution, the Aristotelian view that species are unchanging and eternal was proven wrong. Species evolve. They change. Dogs, after all, evolved from wolves to constitute a whole different kind. Once again, we’re better off using the paradigm of change rather than substance.
Process metaphysics leads to a re-evaluation of other important philosophical notions. Consider identity. To explain why things change without losing their identity, substance philosophers need to posit some underlying core – an essence –that remains the same throughout change. It is not easy to pin down what this core might be, as the paradox of Theseus’ ship illustrates. A ship goes on a long voyage and requires significant repairs: new planks to replace the old, fresh oars to replace the decayed, and so on, until, by the time the ship returns to port, there is not one single piece that belonged to the ship when it departed. Is this the same ship, even though materially it is completely different? For substance philosophers, this is something of a paradox; for process philosophers, this is a necessary part of identity. Of course it is the same ship. Identity ceases to be a static equivalence of a thing with itself. After all, without the repairs, the ship would have lost its functionality. Instead, as the German philosopher Nicholas Rescher argues in Ideas in Process (2009), identity just is a programmatic development. That is, the identity of a process is the structural identity of its programme. Other things being equal, every puppy will turn out to be a dog. (This programme need not be thought of as deterministic. The interactions between processes, Rescher argues, open room for variations.)
Processes are not the mere intervals between two different states of affairs or two objects, as the paradox of the heap exemplifies: take a heap of sand and remove one grain. It remains a heap; one grain doesn’t make a difference. But if you repeat the subtraction enough times, eventually there will be just one grain. Clearly, this isn’t a heap. Where did it become a non-heap? By looking at the process, and not the end-states of affairs, you’ll realise the impossibility of pinpointing the boundary between heap and non-heap. (Similarly, no individual was the exact turning point between wolves and dogs.) At the very least, this gives us a warning about the unnoticed abstraction operating on our division of natural kinds. Process philosophers such as Henri Bergson stop at this negative conclusion, believing that processes cannot be known but only experienced. Regardless, as the Danish philosopher Johanna Seibt notes, it might just be the case that focusing on the process requires a whole new perspective.
Looking at the world as a manifold of interconnected processes has scientific and philosophical advantages, but there are more prosaic benefits too. Process philosophy invites us to look at longer stretches of time, blurred boundaries and connected relations. Identity as a programmatic – but not deterministic – process welcomes innovation through small, recurring changes. Under these metaphysical assumptions, a meaningful life is less about finding your ‘real’ self than expanding its boundaries. 
06 November, 2017All topics →