Monthly Archives: February 2018

Solar jobs

This is reported by CNBC, with data provided by The Solar Foundation.  So obviously an interested party making this claim.  However, it’s great news:

Solar jobs in America increased at an “historic” pace in 2016 on “unprecedented” consumer demand as the cost of solar panels declined, according to The Solar Foundation’s National Solar Jobs Census 2016.

The report – now in its seventh edition – found that the solar industry accounted for two percent of all jobs created in the U.S. over the past year, with solar jobs increasing in 44 of the 50 states.

As of November 2016, 260,077 solar workers were employed by the industry, “representing a growth rate of 24.5 percent since November 2015.” Over the 12 month period, the solar industry was responsible for more than one in every 50 new jobs created in the U.S.

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Investing in China

Any emerging markets or global markets investment strategy must, by definition, include an allocation to China.  Investing in China is not simple or straightforward. Here are some facts to help you determine how much exposure is appropriate, what kind of investments are available in indexed products, and other ways to find the investments you want.

Difficulties begin in understanding the availability of Chinese equity.  Here’s a snapshot of share classes available, where they trade, and in what currency:

Share Type Where traded Currency Notes Market Cap (USD, 12/31/17)
A-shares Mainland China (Shanghai and Shenzhen) Renminbi (Chinese Yuan) Ownership by foreigners still somewhat limited 5,089,631.28 (Shanghai)

3,621,635.94 (Schenzhen)

B-shares Mainland China (Shanghai and Shenzhen) US Dollars or HK Dollars   Included in data for A-shares
H-shares Hong Kong Exchange HK Dollars Often correspond directly to A Shares 865,144.86***
Red Chips Hong Kong Exchange HK Dollars State owned companies 732,986.54***
P-chips Hong Kong Exchange HK Dollars Non-state owned companies Included with H-shares and Red chips
S-chips Singapore Singapore Dollars   *
N-shares USA US Dollars    
ADRs USA US Dollars ADRs of H-shares and red chips are often called N-shares **
  Taiwan Taiwan Dollars   10,717.81

*Total Singapore exchange market cap was 787,255 as of 12/31/17 per WFE. 153 of 707 listings on the Singapore Exchange are Chinese companies, S-chips. http://www.shareinvestor.com/prices/stock_prices.html?market=sgx#/?filter=CC03&type=categories&page=1&layout=static_trading_data, http://www.sgx.com/wps/portal/sgxweb/home/marketinfo/indices/indices

**There are currently 93 Chinese ADRs trading on US exchanges and 202 Chinese ADRs trading OTC in the US, according to topforeignstocks.com.

***According to the Hong Kong Stock Exchange, approximately 30% of the total market cap in the exchange is comprised of Chinese companies via H-shares, red chips, and P-chips: http://www.hkex.com.hk/Market-Data/Statistics/Consolidated-Reports/China-Dimension?sc_lang=en&select={3A4BB661-6EB1-469E-AFBA-1E5664DDCE8D}

A, B, and H Shares consist of companies that are primarily Chinese and are incorporated in China. The other share types are incorporated in foreign countries, although the businesses exist within mainland China. Another complication is that many companies are traded using more than one of the share classes listed above. Additionally, Taiwan is in some respects considered a part of China, but economically, it is a separate state, and is a developed market.

What kind of indexed products are available? A variety of funds and ETFs follow indices tracking China. They are very different from one another based on the share types they hold. Here are a few examples, using some of the largest ETFs:

Symbol Benchmark Share types held Top Sector
FXI FTSE China 50 Index H-shares, Red Chips, P-chips Financial Services
MCHI MSCI China H-shares and B-shares Technology
GXC S&P China BMI All shares except A-shares and B-shares Technology

FTSE provides a guide on their website showing exactly what share types each index includes. MSCI also includes some of this information on their website regarding share types. S&P Dow Jones Indices details the geography and markets included rather than share types. All of the index providers have a variety of indices holding a variety of combinations of the above share types.

Active mutual funds are also an option. An advantage of active funds in this space is their ability to select the best available share type(s) for each company, instead of investing in each share type by market cap.

How do you know how much Chinese equity exposure you really have? The major indexing companies all assign a stock to a domicile based on factors other than the home exchange it is traded in. From S&P Indices:

A large number of companies based in China are incorporated and/or listed and traded in other places such as Hong Kong, Singapore, Bermuda (incorporation) or the U.S. (listings) because the Chinese equity markets are not completely open to global investors. These companies have been, and will continue to be, considered Chinese.

http://us.spindices.com/documents/methodologies/methodology-sp-equity-indices-policies-practices.pdf?force_download=true

FTSE reclassified N-shares and S-chips to China as of September 2017.

Morningstar reports also correctly classify these companies as being Chinese and EM, not the country where traded and/or DM. This means that whether your equity is an ADR purchased in the US or an A-share purchased in China or a Red Chip purchased in Hong Kong, your Morningstar report will correctly show you that it is a Chinese equity.

How much Chinese equity should you own? The table above shows us that A-shares traded inside China were valued at roughly $8.7T at the end of 2017, with over $2T more traded in other markets. Compare that to total global market cap of $85.3T, and you might assume that a weighting of approximately 13% for a global cap weighted portfolio might be appropriate. If you include GDP or PPP weightings as a factor, you would end up with an even larger share allocated to China.

However, global indices do not reflect this allocation. MSCI ACWI All Cap Index includes over 14,000 individual constituents. It shows a 6% allocation to Asia Emerging via Morningstar, which includes not only China but also other Asian emerging markets. S&P Dow Jones publishes their Global BMI Index, which includes over 11,000 stocks and allocates 3.7% to China. The FTSE Global All-Cap Index, with 7,400 stocks, includes just over 3% exposure to China.

Part of the reason for this lower-than-justified allocation is difficulties investing inside China. A-shares have gradually become more available to investors who are not Chinese. S&P Indices reviews possible inclusion of A-shares in their indices annually. Thus far, they have declined to add them at full market cap. In June 2018, MSCI will begin to include a portion of A-shares in its indices.

Related to the MSCI change, another reason for the low allocation to China in EM and all-world indices is that making changes to indices is problematic for everyone who uses them, even though changes are certainly required at times.

Investors and investment professionals who use an index as a benchmark will see any sudden changes in constituents of the index reflected in sudden changes to risk and return. MSCI estimated last year that if they included A-shares proportionally in their Emerging Markets index, the country weight for China would go from 28% to 40%. Their current plan only moves the needle a little – from 28% to 29.3%.

Changes to an index will result in market impacts, as funds that replicate the index buy and sell to match the changes. As an example, go look up what happened when Pakistan, UAE, and Qatar were moved from Frontier Market classification to Emerging Market by MSCI over the last few years. Their markets immediately jumped to new, higher levels, and stayed there, due to the additional buying by EM funds.

In addition, there’s a lot of debate about whether A-shares are a “good investment.” The arguments against investing in A-shares include the fact that many of the newly available equities are state owned enterprises and the apparent mis-pricing of stocks sold in more than one exchange. Maybe you aren’t ready to make this change.

What’s the bottom line?

  • To match actual China market cap, additional exposure to Chinese equity is likely required in any index-based portfolio. Many available indices simply do not reflect current markets.
  • Because the index providers are slowly playing catch-up, it’s vital to monitor and adjust exposure periodically.
  • Look beyond the Morningstar report – understand the share classes represented in any indices and funds chosen and verify that they match your intent.

 

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Fiduciary, please.

Josh Brown really has this explanation down.  He is 100% correct.  I have bolded the really key parts here:

 

“Private Banker”

 

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be kind to yourself

From Eric Barker:

 

You’re compassionate with others all the time. You need to start showing more self-compassion, and treating yourself the way you would a friend in need.

Self-compassion boosts happiness and reduces stress, makes you less likely to procrastinate, and even improves romantic relationships.

So how do you do it? Next time that voice in your head starts saying critical things, reframe the thoughts into something positive and forgiving.

From Self-Compassion:

The best way to counteract self-criticism, therefore, is to understand it, have compassion for it, and then replace it with a kinder response… Reframe the observations made by your inner critic in a kind, friendly, positive way.

Imagine someone who loves you (like Grandmom) saying the kind words. Research shows this delivers serious results.

From Self-Compassion:

Practitioners first instruct patients to generate an image of a safe place to help counter any fears that may arise. They are then instructed to create an ideal image of a caring and compassionate figure… The training resulted in significant reductions in depression, self-attacking, feelings of inferiority, and shame.

You need to dispute negative thoughts and reframe them into something positive. Every time that critical voice starts yammering, instead imagine Grandmom giving supportive advice.

This is only a small part of his post about how to be your best self.  The whole thing is worth a read.

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Clean Energy from Hydrogen

Great article from Vox.

It is expensive, in both money and energy, to pry hydrogen loose from other elements, store it, and convert it back to useful energy. The value we get out of it has never quite justified what we invest in producing it. It is one of those technologies that seems perpetually on the verge of a breakthrough, but never quite there.

Seattle native Evan Johnson thinks he can change that. He thinks he’s finally figured out how to unlock a hydrogen economy.

Johnson is far from the first or only person with that goal. But after 10 years of tinkering, testing, and preparation, he has worked out a series of technologies and a practical business plan that chart a path to real commercial scale for hydrogen.

The best part is his 3 product plan:

HyTech Power, based in Redmond, Washington, intends to introduce three products over the next year or two.

The first will use hydrogen to clean up existing diesel engines, increasing their fuel efficiency by a third and eliminating over half their air pollution, with an average nine-month payback, the company says. That’s a potentially enormous market with plenty of existing demand, which HyTech hopes will capitalize its second product, a retrofit that will transform any internal combustion vehicle into a zero-emissions vehicle (ZEV) by enabling it to run on pure hydrogen. That will primarily be targeted at large fleets.

And that will tee up the third product — the one Johnson’s had his eye on from the beginning, the one that could revolutionize and decentralize the energy system — a stationary energy-storage product meant to compete with, and eventually outcompete, big batteries like Tesla’s Powerwall.

This is all very exciting.  If ICE can be converted, then that would immediately accelerate the elimination of fossil fuel usage.  The big issue with electric cars isn’t that they won’t happen, but that they can’t happen fast enough.  There are around 270 million cars in the USA, and around 6 million new cars sold each year.  All 3 of these products will have huge impacts on the entire transportation industry.  And there’s plenty of room for electric cars and this.

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Another study on dietary fat

From The Lancet:

 

Background

The relationship between macronutrients and cardiovascular disease and mortality is controversial. Most available data are from European and North American populations where nutrition excess is more likely, so their applicability to other populations is unclear.

Methods

The Prospective Urban Rural Epidemiology (PURE) study is a large, epidemiological cohort study of individuals aged 35–70 years (enrolled between Jan 1, 2003, and March 31, 2013) in 18 countries with a median follow-up of 7·4 years (IQR 5·3–9·3). Dietary intake of 135 335 individuals was recorded using validated food frequency questionnaires. The primary outcomes were total mortality and major cardiovascular events (fatal cardiovascular disease, non-fatal myocardial infarction, stroke, and heart failure). Secondary outcomes were all myocardial infarctions, stroke, cardiovascular disease mortality, and non-cardiovascular disease mortality. Participants were categorised into quintiles of nutrient intake (carbohydrate, fats, and protein) based on percentage of energy provided by nutrients. We assessed the associations between consumption of carbohydrate, total fat, and each type of fat with cardiovascular disease and total mortality. We calculated hazard ratios (HRs) using a multivariable Cox frailty model with random intercepts to account for centre clustering.

Interpretation

High carbohydrate intake was associated with higher risk of total mortality, whereas total fat and individual types of fat were related to lower total mortality. Total fat and types of fat were not associated with cardiovascular disease, myocardial infarction, or cardiovascular disease mortality, whereas saturated fat had an inverse association with stroke. Global dietary guidelines should be reconsidered in light of these findings.

 

and

 

Research in context

Evidence before this study

We did a systematic search in PubMed for relevant articles published between Jan 1, 1960, and May 1, 2017, restricted to the English language. Our search terms included “carbohydrate”, “total fat”, “saturated fatty acid”, “monounsaturated fatty acid”, “polyunsaturated fatty acid”, “total mortality”, and “cardiovascular disease”. We searched published articles by title and abstract to identify relevant studies. We also hand-searched reference lists of eligible studies. We considered studies if they evaluated association between macronutrient intake and total mortality or cardiovascular disease. The studies cited in this report are not an exhaustive list of existing research. Existing evidence on the associations of fats and carbohydrate intake with cardiovascular disease and mortality are mainly from North America and Europe.

Added value of this study

Current guidelines recommend a low fat diet (<30% of energy) and limiting saturated fatty acids to less than 10% of energy intake by replacing them with unsaturated fatty acids. The recommendation is based on findings from some North American and European countries where nutrition excess is of concern. It is not clear whether this can be extrapolated to other countries where undernutrition is common. Moreover, North American and European populations consume a lower carbohydrate diet than populations elsewhere where most people consume very high carbohydrate diets mainly from refined sources. Consistent with most data, but in contrast to dietary guidelines, we found fats, including saturated fatty acids, are not harmful and diets high in carbohydrate have adverse effects on total mortality. We did not observe any detrimental effect of higher fat intake on cardiovascular events. Our data across 18 countries adds to the large and growing body of evidence that increased fats are not associated with higher cardiovascular disease or mortality.

Implications of all the available evidence

Removing current restrictions on fat intake but limiting carbohydrate intake (when high) might improve health. Dietary guidelines might need to be reconsidered in light of consistent findings from the present study, especially in countries outside of Europe and North America.

The study appears mainly to have been funded by Canadian health organizations.

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China tidbits

From the New York Times.

This article is discussing goings-on at Davos, January 2018.

 

At one end of town, President Michel Temer of Brazil welcomed an unexpected offer from Beijing for Latin American nations to work closely with a Chinese initiative, known as the Belt and Road, intended to spread its economic and diplomatic influence abroad.

At the other end of town, a senior Chinese diplomat helped introduce the prime minister of Pakistan at a breakfast meeting. Prime Minister Shahid Khaqan Abbasi used his talk to praise the rapidly expanding Chinese investments in his country, including to build power stations and a large port.

“The China One Belt, One Road is going to be the new W.T.O. — like it or not,” said Joe Kaeser, chief executive of Siemens, the German industrial giant, referring to the World Trade Organization.

On Friday, the Chinese government used a policy document issued in Beijing to call for a “Polar Silk Road” that would link China to Europe and the Atlantic via a shipping route past the melting Arctic ice cap.

These are very important developments internationally.

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