Official Blog – Cleantech, Investments, Bonds

Agency securities are generally bought and sold through brokers and are likely to include fees or transaction costs.

The agency bond market in which individuals might participate is considered relatively liquid. However, not all kinds of agency bond issues are considered liquid, including some of which may be structured for a particular issuer or class of investors and may not be suitable for individual investors. Investment dollar minimums may make buying and selling individual bonds less suitable to many individual investors than buying an agency bond fund or U.S. Treasuries directly. Investors should take into account that the tax status of various agency bond issues varies depending on the agency issuer. As with any investment, it is important to understand the work of the agency or enterprise that is issuing the bonds and know the credit rating of the issue. This allows an investor to know the basis on which a bond is being issued.

For more information, please visit: http://www.investinginbonds.com/

As noted above, most agency bonds pay a fixed rate of interest or fixed coupon rate semi-annually. Most agency bonds are non-callable or bullet bonds. Like all bonds, agency bonds are sensitive to changes in interest rates—when interest rates increase, agency bond prices fall and vice versa.

However, in addition to fixed rate coupon and non callable agency bonds, agencies do structure their bond issues to meet different investor needs.

Variable or floating coupon rate agency bonds: so-called “floating rate” or “floaters” are agency bonds that have interest rates that adjust periodically. Adjustments are usually linked to an index such as U.S. Treasury bond yields or LIBOR according to a predetermined formula (with limits on how much the interest or coupon rate can change).

No-coupon agency bond notes or “discos”: no-coupon discount notes are issued by agencies to meet short-term financing needs and are issued at a discount to par value. Investors who sell such discos prior to maturity may lose money.

Callable agency bonds with “step up” coupon rates: callable agency bonds that have a pre set coupon rate “step up” that provides for increases in interest rates or coupon rate as the bonds approach maturity to minimize the interest rate risk for investors over time. Step ups are often called by issuers at a time of declining interest rates. Declining interest rates may accelerate the redemption of a callable bond, causing the investor’s principal to be returned sooner than expected. As a consequence, an investor might have to reinvest principal at a lower rate of interest.

The interest from most but not all agency bond issues is exempt from state and local taxes and it is important for investors to understand the tax consequences of agency bonds; some of the biggest agency bond issuers such as GSE entities Freddie Mac and Fannie Mae are fully taxable for example. Capital gains or losses when selling agency bonds are taxed at the same rates as stocks. Consult your financial advisor before determining whether agency bonds are a suitable investment for you.

For more information, please visit: http://www.investinginbonds.com/

Agency bonds are issued by two types of entities—1) Government Sponsored Enterprises (GSEs), usually federally-chartered but privately-owned corporations; and 2) Federal Government agencies which may issue or guarantee these bonds—to finance activities related to public purposes, such as increasing home ownership or providing agricultural assistance. Agency bonds are issued in a variety of structures, coupon rates and maturities.

Each GSE and Federal agency issues its own bonds, with sizes and terms appropriate to the needs and purposes of the financing. There are usually minimums to invest in agency bonds—$10,000 for the first investment and increments of $5,000 for additional investments. Investing in Ginnie Mae Federal Agency bonds requires a $25,000 minimum investment. The degree to which an agency bond issuer is considered independent from the federal government impacts the level of its default risk. The interest from most but not all agency bond issues is exempt from state and local taxes; some of the biggest issuers such as GSE entities Freddie Mac and Fannie Mae are fully taxable.

In general the agency bond market is considered a liquid market, in which investments can quickly and easily be bought and sold. However, as explained below, some agency bond issues have features that make the bond issues more “structured” and complex, which can reduce liquidity of these investments for investors and make them unsuitable for individual investors.

Agency Bonds issued by GSEs—Bonds issued by GSEs such as the Federal Home Loan Mortgage Association (Freddie Mac), the Federal Home Loan Mortgage Association (Fannie Mae) and the Federal Home Loan Banks provide credit for the housing sector. Federal Agricultural Mortgage Corporation (Farmer Mac); the Farm Credit Banks and the Farm Credit System Financial Assistance Corporation do the same for the farming sector. The bulk of all agency bond debt—GSEs and Federal Government agencies—is issued by the Federal Home Loan Banks, Freddie Mac, Fannie Mae and the Federal Farm Credit banks. GSEs are not backed by the full faith and credit of the U.S. government, unlike U.S. Treasury bonds. These bonds have credit risk and default risk and the yield on these bonds is typically slightly higher than on U.S. Treasury bonds.

Some GSEs such as Fannie Mae and Freddie Mac are publicly traded companies that register their stock with the SEC and provide publicly available documents such as annual reports on the SEC website.

Agency Bonds issued by Federal Government agencies—Bonds issued or guaranteed by Federal Government agencies such as the Small Business Administration, the Federal Housing Administration and the Government National Mortgage Association (Ginnie Mae) are backed by the full faith and credit of the U.S. government, just like U.S. Treasury bonds.* Full faith and credit means that the U.S. government is committed to pay interest and principal back to the investor at maturity. Because different bonds have different structures, bonds issued by federal government agencies may have call risk. In addition, agency bonds issued by Federal Government agencies are less liquid than Treasury bonds and therefore this type of agency bond may provide a slightly higher rate of interest than Treasury bonds.

For more information, please visit: http://www.investinginbonds.com

So much of our financial lives requires regular maintenance — whether it’s updating who’s going to inherit what, checking that you’re not paying too much for car insurance or making sure your investments, particularly your retirements savings, are still working for you.

As the markets ebb and flow, the mix of investments that you originally put into place will probably change shape over time. And if you let your portfolio roam free for too long, your long-term plan can be thrown off kilter. Your retirement savings could become too heavily invested in stocks, potentially magnifying your losses when the market takes its next dive. Or your savings could become too conservative, and that’s a problem, too.

You can solve all of this, though, by regularly rebalancing, the industry’s term for putting your investments back in the proportions you originally set. But unless you hand off the reins of your portfolio to a financial planner, you need to make the time to do this yourself (ditto for investors who periodically hire a professional and want to carry out the advice themselves).

So, in theory, the task should be as simple and as automated as possible. Otherwise, you probably won’t find the time to do it. And really, most of the time, you just need to do a little maintenance.

Going through the exercise should be as easy as it is at TIAA-CREF, the financial services organization. When I recently set up a new 403(b) there for a family member — 403(b)s are essentially another flavor of 401(k) plans — I was pleasantly surprised by one of the options presented: Would you like to rebalance your portfolio back to your original allocations on your birthday?

That’s genius, I thought, and so incredibly simple. Why doesn’t my 401(k) plan offer this? Why doesn’t everyone’s plan offer this? And what online brokerages offer similar types of automated services?

As it turns out, automatic rebalancing is a standard option in many, but not all, 401(k) plans. But it should be. There’s little downside as long as you’ve already set up the proper investment mix. It shouldn’t cost you anything, there are no tax implications and you’re simply keeping your risk level intact. Aon Hewitt, a giant retirement plan administrator, said that more than half the companies in its database that offer 401(k) plans — covering more than 12 million workers — offered employees the ability to rebalance last year. That’s a large increase from a decade earlier, when less than 15 percent offered the feature.

For more information, please visit: http://www.nytimes.com/

“THE test of a first-rate intelligence is the ability to hold two opposed strategies in the mind at the same time, and still retain the ability to function,” F. Scott Fitzgerald wrote in 1936. He might have been describing the difficulties faced by current analysts of the financial markets.

The stock market roared through the first quarter of this year, yet most people believe that the economy isn’t really healthy.

That may not be a contradiction, but making sense of it may require some awkward mental gymnastics.

Certainly, the market’s recent rise has been spectacular. While stocks have dithered in April, the Standard & Poor’s 500-stock index returned nearly 30 percent from its low of last Oct. 3 through March this year.

Yet the economic picture has been mixed at best, with unemployment still above 8 percent and the gross domestic product growing at an estimated annualized rate of only 2.5 percent in the first quarter, according to the Wall Street consensus. The latest New York Times/CBS News poll last week found that unemployment and the economy remain the main concerns of most voters, 70 percent of whom said the economy is “very” or “fairly” bad. That was an improvement over October, when 86 percent said the economy was “very” or “fairly” bad, but it’s hardly upbeat.

This kind of dichotomy — market returns that may not accurately reflect the underlying economy — actually occurs rather often, and it poses a ticklish problem, both for professional money managers and for the rest of us.

For example, if you focus on the economy and find that it’s weak, you might think it wise to lighten the risk in your portfolio and concentrate on protecting your assets. On the other hand, if you focus on the market’s momentum and believe stocks are likely to keep climbing, you might try to ride that wave until it crests.

But if you look at both the economy and the market, and believe both that the economy is weak and that the market’s momentum is upward, you may not be entirely comfortable with any course of action. Yet if you’re fortunate enough to have money to invest, you must do something. In a report last week, Ned Davis, founder of Ned Davis Research, an investment research firm in Venice, Fla., put the problem this way: What’s more important, he asked, “being right or making money?” He lands squarely on the side of making money, and says stocks are likely to rise over the next six months or so. But he acknowledged that he must balance his short-term views against his longer-term convictions about the state of the economy.

As a “secular bear,” he says he is convinced that the economy is plagued by deep-seated maladies that will take years to clear up and that, at some point, the stock market will resume a long-term downward trend. But as a close analyst of technical market indicators, he is advising clients that by year-end the market is likely to rise, though with some caveats.

There may well be a correction — a relatively modest decline — in the next few months, his firm has concluded. But it is telling clients that a cyclical bull market is in place — a strong upturn within the longer downward trend.

This may well seem confusing. Mr. Davis said as much, reassuring clients: “I remain a secular bear. I am concerned about the long-term consequences of the Fed’s zero interest rate and easy credit policies and exploding government deficits.”

Despite these worries, he also said that it didn’t make sense, at least right now, to “fight the Fed and fight the tape.”

In a telephone conversation, Ed Clissold, United States market strategist for Ned Davis Research, explained the firm’s analysis, which has a wide following among money managers. Much of the apparent paradox is a question of timing, he said. “Four years from now, you may find that the stock market is trading in the same range as it is today,” he said. But, he added, it is likely to cycle up and down in the interim. And over a much longer time frame, “global deleveraging still needs to be completed, and that will have negative effects for the stock market.”

While the market may consolidate in the weeks ahead, two main factors argue in favor of a continuing upward trend this year, the firm has concluded. The first of these is “the Fed” — meaning the Federal Reserve and other central banks around the world, which have adopted extraordinarily accommodative monetary policies and committed to redoubling their efforts if economic growth falters. The stock market generally responds favorably to loose money.

The second is “the tape,” the momentum of the market and its individual sectors, which continue to show favorable patterns. In essence, what goes up tends to keep going up — until it no longer does.

And there are certainly many factors weighing on the market, both technical and economic.

A short-term consolidation might be in order after a stock market rise as sharp as the recent one; in a benign forecast, a modest decline would prepare the way for a bigger run upward for several months, which Ned Davis Research sees as the likeliest outcome. Stock valuations are already elevated, the firm says, and while that may not be an immediate problem, it implies that some excesses will need to be wrung out of the market down the road.

ENORMOUS problems remain for the global economy. The European financial crisis has been contained but not solved; further flare-ups are quite possible and could derail the market. Longer term, Mr. Clissold said, reversing the credit expansion and reducing debt loads are likely to have negative effects on riskier assets.

Buy-and-hold investors who maintain diversified portfolios and rigorously reinvest dividends and interest can try to ride out these cycles, Mr. Clissold said, and “have what will probably be modest returns” in the years ahead. Market professionals who try to do better than that will need to be nimble indeed.

For more information, please visit: http://www.nytimes.com/

The primary reason that companies issue callable bonds rather than non-callable bonds is to protect them in the event that interest rates drop. For instance, if a company issues bonds that pay investors the going rate of 7% annually in interest, and then the going rate declines to 6%, the company may redeem its callable bonds, replacing them with new bonds paying 6% annually.

This is especially crucial for bonds with maturity dates 20 years or more into the future. Without callability, a company might issue bonds with a high interest rate and not be able to change the rate for 20 years. The company could find itself locked into a high rate for many years at a time when new bonds are being issued with much lower interest rates. The company would be at a competitive disadvantage if it continued to finance its debts at the old, higher rate.

Companies are often willing to pay a premium to redeem the bonds before maturity, to avoid the above scenario. Callability enables the company to respond to changing interest rates, refinance high-interest debts, and avoid paying more than the going rates for its long-term debts.

For more information, please visit:

A company that wishes to sell common stock must usually offer the new stock at 10 percent to 20 percent below the market price for the flotation to be a success. However, if warrants are sold for cash, exercisable at 20 percent to 50 percent above the market price of the common, the result will be equivalent to selling common stock at a premium rather than a discount; and if the warrants are never exercised, the proceeds from their sale will become a clear profit to the company.

There is something immediately suspicious about an argument like this. If the shareholder inevitably wins, the warrant holder must inevitably lose. But that doesn’t make sense. Surely there must be some price at which it pays to buy warrants. Suppose that your company’s stock is priced at $100 and that you are considering an issue of warrants exercisable at $120. You believe that you can sell these warrants at $10. if the stock price subsequently fails to reach $120, the warrants will not be exercised. You will have to sold warrants for $10 each, which with the benefit of hindsight proved to be worthless to the buyer. If the stock price reaches $130, say, the warrant will be exercised. Your firm will have received the initial payment of $10 plus the exercise price of $120. on the other hand, it will issued to the warrant holders stock worth $130 per share. The net result is a standoff. You have received a payment of $130 per share in exchange for a liability worth $130.

Think now what happens if the stock price rises above $130. Perhaps it goes to $200. in this case the warrant issue will end up producing a loss of $70. This is not a cash outflow but an opportunity loss. The firm receives $130, but in this case it would have sold stock for $200. on the other hand, the warrant holders gain $70: they invest $130 in cash to acquire stock that they can sell, if they like, for $200.

Our example is oversimplified- for instance, we have kept quiet about the time value of the money and risk- but we hope it has made the basic point. When you sell warrants, you are selling options and getting cash in exchange. Options are valuable securities. If they are properly priced, this is a fair trade- in other words; it is a zero NPV transaction.
Managers often use similar arguments to justify the sale of convertibles. For example, several surveys have revealed two main motives for their use. A large number of managers look on convertibles as “cheap debts”. A somewhat higher proportion regards them as a deferred sale of stock at an attractive price. The difference between the market value of the convertible and that of the straight bond is therefore the price investors place on the call option. The convertible is cheap only if this price overvalues the option.
A convertible bond gives you the right to but stock by giving a bond. Bondholders may decide to do this, but then again they may not. Thus issue of convertible bond may amount to a deferred stock issue. But if the firm needs equity capital, a convertible issue is an unreliable way of getting it.

Notice that convertibles tend to be issued by the smaller and more speculative firms. They are almost invariably unsecured and generally subordinated. Now put yourself in the position of a potential investor. You are approached by a small firm with an untried product line that wants to issue some junior unsecured debt. You know that if things go well, you will get your money back, but if they do not, you could easily be left with nothing. Since the firm is in the new line of business, it is difficult to assess the chances of trouble. Therefore you don’t know what the fair rate of interest is.
Convertible securities and warrants make sense whenever it is unusually costly to assess the risk of debt or whenever investors are worried that management may not act in the bondholder’s interest. You can also think of convertible issue as a contingent issue of equity. If a company’s investment opportunities expand, its stock price likely to increase, allowing the financial manager to call and force conversion of a convertible bond into equity. Thus the company gets fresh equity when it is most needed for expansion. Of course, it is also stuck with debt if the company does not prosper.

The relatively low coupon rate on convertible bonds may also be a convenience for rapidly growing firms facing heavy capital expenditures. They may be willing to give up the conversion option to reduce immediate cash requirements for debt service. Without the conversion option, lenders might demand extremely high (promised) interest rates to compensate for the probability of default. This would not only force the firm to raise still more capital for debt service but also increase the risk of financial distress. Paradoxically, lenders attempt to protect themselves against default may actually increase the probability of financial distress by increasing the burden of debt service on the firm.

Just as individuals have their own credit report and rating issued by credit bureaus, bond issuers generally are evaluated by their own set of ratings agencies to assess their creditworthiness. There are three main ratings agencies that evaluate the creditworthiness of bonds: Moody’s, Standard & Poor’s, and Fitch. Their opinions of that creditworthiness—in other words, the issuer’s financial ability to make interest payments and repay the loan in full at maturity—is what determines the bond’s rating and also affects the yield the issuer must pay to entice investors. Lower-rated bonds generally offer higher yields to compensate investors for the additional risk.

How bond ratings work

Ratings agencies research the financial health of each bond issuer (including issuers of municipal bonds) and assign ratings to the bonds being offered. Each agency has a similar hierarchy to help investors assess that bond’s credit quality compared to other bonds. Bonds with a rating of BBB- (on the Standard & Poor’s and Fitch scale) or Baa3 (on Moody’s) or better are considered “investment grade.” Bonds with lower ratings are considered “speculative” and often referred to as “high yield” or “junk” bonds.

Moody’s, Standard & Poor’s and Fitch append their ratings with an indicator to show a bond’s ranking within a category. Moody’s uses a numerical indicator. For example, A1 is better than A2 (but still not as good as Aa). Standard & Poor’s and Fitch use a plus or minus indicator. For example, A+ is better than A, and A is better than A-.

Remember that ratings aren’t perfect and can’t tell you whether or not your investment will go up or down in value. Before using ratings as one factor in your investment selection process, learn about the methodologies and criteria each ratings agency employs. You might find some methods more useful than others’.

Investment grade and high yield bonds
Investors typically group bond ratings into two major categories:
Investment grade refers to bonds rated Baa3/BBB- or better.
High Yield (also referred to as “non-investment grade” or “junk” bonds) pertains to bonds rated Ba1/BB+ and lower.
You need to have a high risk tolerance to invest in high yield bonds. Because the financial health of an issuer can change—no matter if the issuer is a corporation or a municipality—the rating services can downgrade or upgrade a company’s rating. It is important to monitor a bond’s rating regularly. If a bond is sold before it reaches maturity, any downgrades or upgrades in the bond’s rating can affect the price others are willing to pay for it

For more information, please visit: http://www.my-swiss-company.com/bonds_issue/bonds.php

Environmentally friendly consumption.

The FOEN is committed to promoting environmentally compatible and resource-conserving consumption patterns. Before they take environmentally friendly consumption decisions, however, consumers need sound information about the environmental impact of the goods and services they consume through all phases of their lives. This transparency should encourage them to adopt more environmentally friendly consumption behaviour.

Know the environmental impact of consumption and products
Main products and consumer decisions
Incentives and obstacles to environmentally friendly consumption
Know the environmental impact of consumption and products

Although their decisions have an impact on the environment and resource use, consumers frequently do not know the environmental impacts that are associated with their activities. For this reason all the key protagonists (manufacturers, distribution agents, those responsible for public purchasing decisions, retailers and also consumers) should make sound information available about the environmental impact of their products and of their consumption behaviour. This creates market transparency with regard to the environment.
Various methods of measuring the environmental impact of goods and services are available, for instance, life cycle assessments or the environmental footprint method. A reliable assessment method must take into account the whole life cycle of the good that is being investigated as well as all important environmental impacts.

For more information, please visit: http://www.bafu.admin.ch/

A Cleantech Innovation-Park aim at hosting research institutions and commercial enterprises dedicated to research and development as well as piloting installations and processes in sustainable technologies and services (‘Cleantech’). As part of a national network, FFGS has developed a specific plan for Switzerland’s most suited and attractive location for an Innovation-Park – the soon to be decommissioned military airbase of Dübendorf, a site of 250 hectares, located some 10 minutes from Zurich’s city center and at the same distance from Zurich’s International Airport. The Cleantech Innovation-Park shall in its entirety be developed as a lighthouse and reference standard for sustainable urban planning and construction.

By reaching the following specific goals, it will underpin Switzerland’s image as a sustainability leader:

Positioning and promoting of Switzerland as leading location for knowledge and economic activity in Cleantech – making it the country’s new economic pillar;
Strengthening the competitiveness of Switzerland in the megatrend of sustainability;
Actively fostering innovation within the fast growing global Cleantech markets by bringing universities and businesses with a Cleantech focus together in Dübendorf and actively promoting startups;
Systematically creating jobs and exports of Cleantech products and services.
Enabling firms to operate with a minimal ecological footprint by planning, building and operating the Innovation-Park in a sustainable manner (exclusive consumption of renewable energies, waste reduction/employ of cradle-to-cradle principle, CO2-neutrality, etc).

For more information, please visit: http://www.ffgs.org/