Relocalized Investments?

Today in the news I read about concerns that foreign investors may gain too much control over corporate domestic assets, such as a gold mine near some military facilities in Nevada.

I hope CalPERS staff are looking for the kind of investments in basic value that such investors are likely attuned to. My father, who did reasonably well with his investments, advocated buying stock in companies that made things people needed and wanted.

From an investment perspective, rates of return on investment in production of needs are low, because such industries are usually old and stable. On the other hand, rates of return on investment in production of wants tend to be higher, because of the growth in sales often seen with new toys and also the risk that this growth is likely to be unrealized or temporary.

But it should be obvious that any economy without businesses that are old and stable and producing basic needs at affordable prices - clean air and water, healthy food, and snug shelter - cannot be a healthy economy. And without a healthy economy, no pension fund can succeed in paying benefits without recourse to the taxpayers.

Is Capitalism Sustainable?

Some recent commentary on the anniversary of the fall of communism suggests mixed reviews.

But it's safe to say that Pogo was right. We have met the enemy and he is us. No one can manage their money wisely if their underlying values are about money rather than about reality. Wall Street says it cares about Main Street, but I'm skeptical.

Of course, if worse comes to worse, you can always blame someone else.

Is Arnold Gaming This CalPERS Pension Contribution?

I just read that the Governator wants to pay CalPERS $4.8 billion next year rather than one of the lower and longer-term options CalPERS offered the state.

But is this more or less fiscally responsible than paying one of the lower options this year and more in later years? By paying more now, Arnold puts CalPERS more on the hook for their own promise of 7.75% per long-term-average year. I wager that CalPERS' calculations of the higher payments that the state would have to make later, if it contributed a lower amount next year, are based on that 7.75% assumption. Perhaps Arnold doesn't think the state's tax economy will grow 7.75% per year in the future. I would not predict it either. (Of course, taxes are not a fixed proportion of the economy.)

On the other hand, neither Arnold nor CalPERS have offered any answers to the questions above. How will CalPERS identify and invest in enterprises whose returns will fund retirees' pensions and whose workers will produce directly the most sustainable good and services? Will these enterprises offer 7.75% ROI? I would not predict that either.

But we don't need 7.75%, especially if we are investing in direct production such as properly civilizing and empowering our children. Or investing in ecovillage smart growth.

More immediate relief could come in the form of state retirees stepping up to the plate and en masse agreeing to progressive reductions in benefits, where the smallest pensions were maintained while the largest bore the brunt of an evidence-based sliding scale. Or CalPERS could invest in the state educational system.

Legislators Say: Do As I Say Not As I Do

Today in the Humboldt Times-Standard, I found an op-ed piece that revealed a well-kept secret that I don't recall reading about in the Bee: our Legislature thinks they don't deserve the same pay cut that has been inflicted on other state employees.

Apparently the California Citizens Compensation Commission decreed back in May that legislators' pay should be cut 18% effective December 2010, from $116,208 to $95,291, and also that per-diem, car, medical and other benefits should be cut 18% effective next month.

And legislators are feeling so threatened and deprived, they have been whining to AG Jerry Brown, claiming that if they are based on budget problems rather than on the constitutional criteria that are presumably prescribed as a basis for the commission's decisions.

What is not immediately clear is whether or not legislators have read the existing legal opinions which the commission presumably based its actions on. It's also not clear why the AG should spend its remaining unfurloughed staff time on this rather than on truly important matters that affect the whole state.

It's also not clear if CalPERS has any legal basis for putting legislators in their place, nor if they have the moral authority to do so, given recent reports of funny business highlighted in previous posts. But it's in the interests of CalPERS members and retirees, even those who reside in other states, for legislators to follow the rules and take their fiscal medicine, just like everyone else.

As my mom used to say, 'joys shared grow happier; sorrows shared are weakened.'

Does CalPERS Have A Board Recall Process?

About halfway through this news article, we learn that Kurato Shimada, re-elected to the CalPERS Board just a few weeks ago, is also implicated in the insider-trading funny business that tars two former colleagues on the Board, Alfred Villalobos and Fred Buenrostro, as well as the lame (and ill) duck, Chuck Valdes.

The mystery of the power of incumbency is clearly not yet solved. Although we may easily identify the perpetrator - namely, human nature - the nature of the motive is far murkier. But until that clarity is achieved, I fear that democracy will fail to achieve its promise of the greatest good for the greatest number.

Sustainable Pensions

It's not news that pension funds nationwide have taken a beating, and face tall challenges if they are to meet the overly-optimistic commitments which have been made.

As a retiree, I am very concerned about a CalPERS investment strategy that is fixated on a numerical target such as 7.75% ROI, rather than on investments which are sensible and low-risk. Personally, I would prefer to see relatively small reductions in my modest stipend if they meant that CalPERS would have the flexibility to abstain from unrealistic or uncomfortably high risk.

The selfish attitude of too many civil servants, that they should get what has been promised no matter who else suffers, could easily erode everyone's quality of life as local and state governments gut basic services now and in the future.

Retirees, many of whom receive stipends that dwarf mine, should have options to give back some of the money in return for considerations such as having the capital that has been set aside on their behalf invested in more conservative and less risky ways.

Another alternative would be investing such capital in truly sustainable ways that could directly benefit such wise pensioners.

I'm Voting For JJ Jelincic

JJ and I sat down yesterday afternoon for a discussion of CalPERS, economics, and sustainability. After almost 2 hours of a wide-ranging conversation, I feel that his understanding of CalPERS as an organization, the details and structure of the financial system as a whole, and the practice of ethical politics, all make him an excellent choice for helping protect our retirement security and strengthen CalPERS operations. Apparently he had been considering running for at least a year before making a definite decision about a year ago.

While my ideas about how best to achieve sustainability, and related concepts about economics, are unusual, he understood these ideas well enough and readily enough that our conversation was for me an enjoyable discussion and meeting of two informed and independent minds. I believe we both learned some valuable information and concepts.

He listed 4 key reasons for running:

1. having a board member with his level of investment expertise

2. cutting costs by bringing money management in-house and reducing the use of contractors and consultants, and also reining in top staff salaries

3. defending defined benefit pensions in general

4. improving corporate governance

However, I have not yet had the opportunity for a similar discussion with Cathy Hackett, which I hope will take place later this month. Still, I should state for the record that I am somewhat skeptical of unions in their role nowadays, although more skeptical about corporations. Union leadership often seems to focus on money only and not on the larger leadership of ensuring a robust economy that can actually meet everyone's needs. And they are not always open to new ideas, such as when Bill Camp and the Labor Council didn't even bother to talk to me before making an endorsement in Sacramento's 2008 mayoral race.

Nov. 5 update: Having never had an opportunity to discuss economics and CalPERS management with Cathy Hackett, I cannot know if I would have changed my mind. But maybe she didn't really want to respond to my questions.

Another Predatory Investment Comes Home To Roost

Today's paper had more news about investment woes at CalPERS. It turns out that this isn't exactly new news.

As in East Palo Alto, this ill-timed real estate venture is all about dispossessing renters and profiting from gentrification. But apparently the tenants were tenacious, being as fond of their homes as anyone.

Especially nowadays.

Healthy Lives Essential to Wellness

Rep. Matsui and CalPERS Board Chair Feckner explain - and advocate - how to fix our health care system, and why we need to.

But as long as we continue to live the lifestyle common in the over-developed countries, this fix won't stick. We need to use less fossil fuel, less sugar and white flour, less paperwork, and do a lot more walking, gardening, and traditional crafts that are the foundation of local self-reliance and sustainability.

Now, half the people do all the paperwork, a quarter of the people run the machines, and a quarter of the people are either homeless or filthy rich. We need a 20-hour workweek so people have time to take care of themselves and their families, and live a healthy balanced life.

Discussions about economic welfare never address the insecurity of a very uncertain future for this economic system, and of not knowing how your town will be able to take care of itself locally. We need to de-develop in order to achieve the greatest economic security for the greatest number.

It's Not the Money, Folks

Apparently CalPERS invested in another ill-fated real estate venture to gentrify East Palo Alto.

The weak link in their analysis is similar to the misperception which underlies regulators' concern that banks should retain more capital as a proportion of loans on their books. But the real cause of the financial crisis was bad collateral, overvalued houses funded with abusive mortgages. So what banks must do is insist on quality collateral for their loans, and exercise due diligence on mortgage terms.

Similarly, for CalPERS, the quality of an investment cannot be completely evaluated by looking at the expected monetary return on investment. One also has to look at how an investment will directly help meet people's needs for clean air and water, healthy food, and snug shelter. A project that substitutes rich people's needs for poor people's needs just creates for social chaos.

Will The Real Conservatives Please Stand Up?

The Tea-Party March on Washington last Saturday was billed as a grassroots movement of conservatives. But since the dominant theme seemed to be frustration, it's hard to tell what they wanted to conserve. Jitters about the national debt, while understandable, seem like a delayed reaction, given military spending in this century and the last.

But whatever "conservative" means, there is something suspicious about any definition of conservatism that attracts fewer women than men. Given the nature of human reproduction, women are by definition the more conservative sex. Whether created or evolved, the sex whose reproductive success requires more long-term planning is the sex who will conserve and allocate resources in the most judicious and thrifty way, ceteris paribus.

I can't help noticing that groups labeled "progressive" often attract women and others who are having trouble finding enough resources to conserve. While I'm not altogether sure exactly what "progressive" means, I think these groups are often trying to improve people's lives.

One way of looking at all this is to try to find the best of both worlds. So, if it is conservative to think we have to live within our ecological means, then I am a conservative. And, if it is progressive to think we have to share when we can, and take care of mothers and children first, then I am a progressive.

But what about CalPERS? How can investments best succeed at optimizing both resource uses and outcomes? One way is by directness; by minimizing the distance, the amount of processing, between resource and outcome.

Transitions to a Sustainable Future

I have been reading The Transition Handbook by Rob Hopkins. He does a really wonderful job of mapping out paths "from oil dependency to local resilience."

In fact, the Transition recipe he describes has been kitchen-tested in England, and looks appetizing enough to have inspired similar groups in California towns such as Cotati, Santa Cruz, Sebastopol, Laguna Beach, Pine Mountain, Los Angeles, Mount Shasta, Paso Robles, San Luis Obispo, and Santa Barbara.

And we don't have to wait for the government, cap-and-trade, or corporations to lead the way. We can just do it. We each have the power to make changes in our lives that shrink our ecological footprint but not our quality of life. And coordinating these changes with each other, in our neighborhoods and towns, just offers more leverage.

One place to start is by figuring out just what is really essential about "the American Way of Life." Is it the Constitution? Cheap gas and fast cars? A chicken in every pot? Happy families? Capitalism?

What do you think is essential?

Wise Investment

The book "How To Figure Out Company Accounts" by Michael Brett has some good advice for anyone who is considering direct investment in a corporation. On page 133, he recommends that:

If you really want to get to grips with a company's report and accounts, here's a bit of advice. Start with the figures themselves: the profit and loss account, cash flow statement and consolidated balance sheet. The real purist would go even further: read the notes to the accounts before you even read the accounts, as that's where any 'nasties' are going to be tucked away, well out of the spotlight. Remember that there are certain things a company must, by law, disclose. But there's no law against companies making generous use of the public relations industry in the way they choose to present material, and most of the bigger ones do. At the same time, check on the auditor's report to make sure there are no unpleasant surprises there and have a glance at the note on accounting policies. If there have been changes in policies over the year this always deserves a second look.

There's no point in trying to learn accounts interpretation in the abstract. Have a set of accounts in front of you. See first of all what impression you get of the company and its current state of health from the bare figures. It's not easy at first but you develop an instinct for homing in on the important areas once you've looked at a number of different sets of accounts. There will, at the very least, be some points of detail you cannot fully comprehend from the bare figures; but form your own broad impression. Only after that should you begin looking at the chairman's statement, chief executive's review and finance director's report to see if what you find there confirms and amplifies what the figures have told you. They should at least help to explain some of the points of detail that confused you. And, as we've said elsewhere, a really good finance director's report, read in conjunction with the figures, can provide an excellent grounding in the principles of corporate finance in general.

Brett goes on to offer more advice about more specific and detailed financial indicators. Towards the end of the book, he share his translations of the kind of 'weasel words' to watch out for. Here are a few:

'Unfortunately, our widget division suffered very difficult trading conditions in the second half...' Thanks to our failure to invest in new production plant, our competitors knocked the stuffing out of us in the widget market.

'The company's remuneration policy is to provide competitive remuneration packages which enable the company to attract, motivate and retain executives of high calibre.' And since every other company's bumping up its pay and perks packages to do exactly the same, boardroom pay continues to rise at about five times the rate of general wage inflation. But we're not complaining.

'The operating culture of the group now embraces internal control and continuing assessment of risk...' Previously, we crossed our fingers and hoped.

Of course, this kind of analysis is designed for one corporation. Analysis of the potential for return on investment in a fund (such as those offered in deferred compensation plans) should be based on the funds' analyses of the corporations whose stocks, bonds, and securities they are considering.

Now many of us will never practice this kind of scrutiny ourselves. But in the free market, it's 'buyer beware,' and we can question the advertising and competence of multinational corporations before investing in their products. And as CalPERS members, the more we understand about financial affairs, the better we can comment about CalPERS direction.

But I don't think we can limit ourselves to traditional financial analysis of this or that company; we must keep the overall economic picture in mind. For example, despite recent stock market trends, the long-term outlook is clouded. Any improvements in transparency and fairness would be helpful.

A Living Wage? It's Not the Money.

Everyone wants a living wage. But almost everyone except me seems to think they'll be secure if only they can get enough money.

I think my economic security lies in my ability to obtain clean air and water, healthy food, and the warmth that allows me to get plenty of sleep at night. I think my economic security lies in my ability to help others in ways that matter to them, that directly or indirectly help them survive and thrive.

Although increasing one's money wage can help assure economic security, avoiding foolish or unnecessary expenses can be equally rewarding. It's also easier to not spend money you have than to get someone else to spend more.

But isn't that bad for the economy? Not exactly. It may be bad for the monetary system, but the economy is bigger than the monetary system.

For starters, the economy includes the natural resources that are free for the taking, like air, sun and water, like the plants and animals that grow alongside us, and the rivers, oceans, and winds that surround us. While people pay each other to exploit all these gifts, Mother Earth can't be bought.

Maybe if we did have to buy these ultimate necessities we would have a better perspective on what a living wage really means.

Ballot Statement

Climate de-stabilization caused by our cheap-energy fossil-fuel addiction has already begun to change the physical world we depend on, a reality that money only reflects. Thus, conventional concepts about money, interest rates, investment, benefits, etc., must be constantly questioned. The theories which CalPERS staff use to guide investment must be regularly reconsidered and recalibrated.

I believe the best way to protect CALPERS members' real benefits is to begin ASAP to consistently correlate and integrate energy data and quality-of-life benchmarks with existing ongoing financial data and analysis.

I believe retirees' real economic needs - clean air and water, healthy food, and warmth - are more important that strictly financial benefits, which could conceivably fall short of what's needed even with the COLA.

Health care costs are a key concern. Substantial reductions can be realized with a transition to a more sustainable lifestyle that is more consistent with the way humans are evolved to live, with respect to nutrition, activities, and sleep.

My broad experience in engineering, economics, and in the community offers CalPERS members a kind of expertise that's particularly useful now, given the nature of likely future changes and challenges.

My financial track record includes management of my deferred compensation account. In the dot-com recession, my account only lost about 15% from its 9/30/00 high point, and had recovered by 9/30/03. In the current market crisis, I am seeing similar results so far. My choice of a permanent part-time position and early retirement are more evidence of good money management.

Moreover, I believe the active participation of well-informed member-investors will also strengthen CalPERS policies and investments. Members can educate themselves in theCalPERS' website's Investments section. They can sign up for CalPERs eSubscriptions.

Also, PERS Watch offers independent analysis.

Supporters

"I was very impressed by the statement you made in your candidacy for Sacramento mayor.

     Best wishes. Bob"

Robert F. Sawyer

Class of 1935 Professor of Energy Emeritus

University of California, Berkeley, Mechanical Engineering Dept.

Curriculum Vitae Summary

Profession:  Research & Analysis

Education:  Graduate Studies in Economics, CSUS, 1997-1999

                 MS, Mechanical Engineering, UCB, 1988

                 BS, Mechanical Engineering, SJSU, 1984

                 AB, French, UCB, 1976

Employment:  CA Air Resources Board, 1988-2005

                    UCB ME & Biomed. & Env'l Health Sci, 1986-1988

                    Design Eng'g Services, San Francisco, 1985-1986

                    Int'l Energy Systems Corp., San Jose, 1982-1984

                    MHB Associates, San Jose, 1982

                    BNP/French Bank of CA, San Francisco, 1977-1979

Community:  Newsletter, Sac'to Friends Meeting, 2006-2009

                   Cooking Teacher, Quinn Cottages, 2002-2005

                   Franklin Blvd. Project Area Committee, 1999-2003

                   Sac'to Natural Foods Co-op Board, 1999-2002

                   Environmental Council of Sacramento, 1990-1997

                   Sac'to Environmental Commission, 1991-1996

                   Sac'to Army Depot Re-Use Commission, 1992-1994

                   Charter Member, Sacramento Greens, 1988-1989

                   Consumers Cooperative of Berkeley, 1987-1988

                   City of Berkeley Yard Waste Task Force, 1987-1988

                   San Jose Food Co-op, 1982-1983