Thursday, September 3, 2015

California Lawmakers Vote To Have CalPERS; CalSTRS Divest From Coal

Following up on yesterday's "The 17 Foundations Yanking Their Assets From The Fossil Fuel Industry And The Folly Of Divestment".

It's nice that California absorbed as much of the loss as they did, the Coal ETF is down more than 80% in the last 4 1/2 years:

KOL Market Vectors Coal ETF monthly Stock Chart
Here's an idea.

The market cap of Peabody, the world's largest private sector coal company is down to $595 million, with around $6 Billion in debt.

Why not ask George Soros to cover the whole enterprise value of BTU? With less than a quarter of his net worth he could buy it and just shut the whole thing down. Coincidentally, the cost almost exactly equals the back taxes he owes.

With 7.5 billion tons of proven and probable reserves-and grabbing the trusty TRS-80-multiply by 2.86-that's 21.45 billion tons of avoided CO2 at a cost of-wait for it-less than 31 cents per ton.

Take that European Emissions Trading Scheme.

BTU $2.12 down 2 cents.
KOL $9.00 down 2 cents.

From Reuters:
UPDATE 2-Coal divestment bill passes California state legislature
Adds quotes from bill author, opponent and asset management company) 
By Rory Carroll
(Reuters) - A bill requiring California's state pension funds Calpers and CalSTRS to sell their investments in coal companies passed the Assembly on Wednesday, a major step for legislation that backers hope will inspire other funds to address climate change. 
The bill, which passed by a vote of 43 to 27, would require CalPers and CalSTRS - public employee pension funds that manage a combined $476 billion in assets - to liquidate holdings in companies that generate at least half of their revenue from coal mining by July 2017. 
CalPers invests in about 20 to 30 thermal coal mining companies valued at approximately $100 million to $200 million, a spokesman said. Coal companies it invests in include Peabody Energy and Arch Coal, according to its latest investment report. Neither company was immediately available for comment. 
CalSTRS has holdings of around $40 million, a spokesman said. Both Calpers and CalSTRS did not take a formal position on the legislation and both declined comment after the vote. 
"Coal is losing value quickly and investing in coal is a losing proposition for our retirees," said Senate President pro Tempore Kevin de León, the bill's author....MORE
Meaning it may finally be time to implement Plan VICE!

From April 2007 (hey, we're nothing if not patient):

Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors

That's the headline of a press release from the University of British Columbia's Sauder School of Business announcing the release of a draft paper by the school's Prof. Marcin Kacperczyk and Princeton Economics Prof. Harrison Hong.

Prof. Hong lists his research interests as:
 "Asset pricing with less-than-fully-rational investors; differences of opinion, short-sales constraints and asset prices; social interaction and financial markets; career concerns, biased forecasts and security analysts; organization, performance and mutual funds; asset pricing with asymmetric information and other market imperfections."
Hey! Mine too!

A quote from page 4 (of 50):
"In contrast to institutional investors, individual investors can keep their stock positions out of the view of enforcers of societal norms, and therefore we expect individual investors to be more willing than institutional investors to hold sin stocks."
The fact that an individual investor (or hedgie) won't be elbowed away from the trough by CALPERS means your entry price into a name won't carry a societal approval premium. On the other hand your exit price will be lower to the extent your universe of buyers is limited to vice-savvy investors (hedgies).

And what does this have to do with global warming investments?

One-as social pressure builds to be perceived as green, see Yahoo yesterday ("Our numbers suck but we're carbon neutral!) we should see an expanding green premium.

Two-as the dirtiest, filthiest, vilest, Hitlerian energy sources are shunned (at least in polite company) their risk premia will shrink. At least until I join my brother Greenshirts in a Night of the Long knives at BTU headquarters, 701 Market St., St. Louis, MO 63101.

Ahem. Excuse me. Got carried away.

See you at the face-painting booth Sunday, Earth Day!

Here's the Kacperczyk/Hong paper, "The Price of Sin: The Effects of Social Norms on Markets".