| This is an excerpt from our Special Report: The State of Green Investing 2009, produced by our green investment newsletter, Progressive Investor. You can purchase the report for $89 or receive it as part of a 5 month ($112) or a year ($185) subscription. See the Table of Contents. We included this excerpt to give you some insight into how we fold recommended green investments into the larger view of current market conditions. |
The following interview is with Patrick McVeigh, president of Reynders, McVeigh Capital Management, a green/social portfolio management firm. We talked about his impression of market conditions, the impact of the stimulus plan on cleantech, and how they are managing porfolios under these circumstances.
PI: What's your impression of current market conditions?
Patrick McVeigh:
We're open to the idea that this isn't a decade long mess we're staring into, but the problems caused by too much debt in the world will not be easy to correct. We're looking for early indicators of change in the economy, and will increase our equity positions when we have more confidence we're at a turning point. There are still risks. We're still at an early stage of working off the excess leverage in the economy. The financial system has been doing that over the past year, but U.S. consumers have started reducing debt only in the past couple of months, and it's a long process.
Clean energy stocks dropped even further than the overall market and there will be a sorting out. Last year everything went down - it was a period of de-leveraging. Hedge funds and institutions had too much illiquid money. When clients needed money, they had to sell their best stocks because they had the most liquidity. This year, the leading companies will start outperforming the mediocre ones.
PI: What do you look for as early indicators that the worst is over?
Patrick McVeigh:
We look for the news to go from all bad to a little less bad, and then OK. In every recession, people tend to ignore early signals that suggest positive change is happening. For example, lost among all the bad news is that in December, housing sales rose significantly in California, and housing prices are up in 60% of U.S. cities.
We look at the leading economic indicators - they've been narrowly up for two months in a row in the US and Europe, but people are writing them off. They say, ‘It's just a small increase and only in few areas, and the economy still feels awful.' Historically, this is a good indicator for what will transpire in three to six months. We're looking for the indicators to be up for three months in a row.
Job losses are a lagging indicator because layoffs occur even after things start to improve. It takes time for businesses to feel comfortable hiring again. When continuing unemployment claims peak that's the best sign the worst is past - that we've hit the bottom of the recession. Since we're still early in the layoff cycle, we expect unemployment to get worse.
The other measure I use is the manufacturing index (ISM Index). Although it improved last month, it still signals economic decline. It's important to see further improvements in the next 1-2 months.
These indicators will show whether the stimulus plans around the world are actually helping economic growth. We think they will, but maybe not as much as some expect.
