Tuesday, May 12, 2015

Why You Can't Count On the Plastic Bag Anymore

BOSTON (TheStreet) -- They can be found everywhere: in the hands of shoppers, blowing down the streets, entangled in trees and even congregating as part of massive makeshift islands floating around our oceans. They are the single-use plastic bags offered to us with every purchase, which we often take and discard without a second thought. The plastic bag is so prevalent it was even named "most ubiquitous consumer product" by Guinness World Records in 2009.

There is an indication the decades-long popularity of the plastic bag here may be waning, though.

This past summer Los Angeles, the second-most-populous U.S. city, became the largest municipality in the country to pass a ban on plastic bags, of which it reportedly uses and disposes of 2 billion annually. The ban will go into effect early next year for stores larger than 10,000 square feet and in June for smaller stores. The ban is a follow-up to a 2010 ordinance in Los Angeles County banning plastic bags in unincorporated areas with more than 1 million residents and requiring stores to charge 10 cents per paper bag. The American Progressive Bag Alliance, the lobbying arm of the plastic-bag industry, is fighting the ban.

Large cities such as Chicago and New York City are considering measures to restrict or ban plastic bags. New York City, for instance, is considering a measure that if passed would mandate that retail stores charge a dime per disposable bag (whether paper or plastic) distributed. About 100,000 tons of plastic bags are transferred from the city to landfills in other states annually, costing the city $10 million a year. New York City might be hoping to achieve what Dublin, Ireland, did when it implemented a tax on plastic bags in 2002: reduce plastic bags in the city by 94%, to the ultimate approval by retailers and their patrons. Many other towns and cities in the U.S. have outright banned plastic bags in the past several years, including San Francisco, Seattle, Aspen, Colorado, Southampton, New York and Brookline, Mass. (Nantucket, Mass., was the first town to ban plastic bags, back in 1990.)
 Also see: Why It Makes More Sense to Dump Your Fossil Fuel Stocks>> This momentum on the municipal level has translated to six states -- California, Massachusetts, New Jersey, Oregon, Rhode Island and Washington -- that are considering full-on bans. Another eight states - Hawaii, Louisiana, Maine, New Jersey, New York, Rhode Island, Vermont and Washington -- are considering more moderate legislation to charge for bags. In Massachusetts, state Rep. Lori Ehrlich sponsored a bill that would effectively ban disposable plastic bags in large retail shops and grocery stores statewide but allow business to use compostable bags instead. If it makes it out of Ways and Means, it could come to the floor for a vote this year.

Many store chains have taken initiative. In 2007, Ikea introduced its "bag the plastic bag" program to the U.S., charging a nickel for plastic bags and offering an alternative reusable bag for 59 cents. In 2008, after a 92% reduction in use, Ikea stopped offering plastic bags altogether. Likewise, organic food behemoth Whole Foods Market (WFM) banned plastic bags in 2008 and offers only paper bags made from 100% post-consumer content or a reusable bag for 99 cents.

Whatever one's opinion is on formal bans, it cannot be denied that plastic bags cause significant harm to wildlife and the environment.

Each year, between 500 billion to 1 trillion plastic bags are consumed worldwide, with billions winding up in landfills. We throw away almost 100 billion plastic bags in the U.S. every year.

Plastic bags can take up to 1,000 years to degrade, while plastic waste kills an estimated 100,000 marine creatures (including dolphins, sea turtles, seals and whales) and 1 million sea birds annually. These animals often are strangled or choke on the plastic when they ingest it, mistaking it for jellyfish or other food. Also see: How to Stop Spending $2B a Year Killing the Pets We Love>> Plastic bags also can contribute to carbon emissions, since they are petroleum products that require intensive energy to make and transport. It is estimated that 12 million barrels of oil are needed to make 30 billion plastic bags. Thrown-away plastic bags often wind up airborne and washing into waterways. The prevalence of plastic has led to two large islands of garbage in our oceans, known as the Great Pacific and the North Atlantic garbage patch, respectively. The Great Pacific garbage patch is twice the size of Texas; the North Atlantic garbage patch has at times waxed to a maximum length of 990 miles. It is estimated that we successfully recover and recycle only 1% to 3% of the plastic bags we use in the U.S. In those cases where plastic bags are "recycled," they are often done so improperly by people tossing them carelessly in with recyclables on trash pickup days, where they go on to jam and damage expensive sorting machines. Studies show that people often do not take the initiative to return plastic bags to stores for recycling even when the option is available, and even when plastic bags are returned to stores for recycling they are actually downcycled -- that is, converted to a product of much lower quality than its original form. So what's a good alternative? In addition to refusing plastic shopping bags for single items that can easily be carried by hand, consumers should buy and make use of reusable cloth shopping bags. Canvas bags are 14 times better than plastic bags and 39 times better than paper bags from an energy standpoint, and can be used up to 500 times during their life cycle, according to a study by Australia's government.

Sunday, May 10, 2015

Investors Become Complacent; Volatility Drops

Volatility in bond and equity markets is back down to levels that would have been familiar to investors back in 2007. Bond and share prices have all moved relentlessly higher, often into uncharted territory.

The only things that have changed for the worse are economic fundamentals.

Growth across developed economies remains subdued and though forecasters are hopeful next year turns out better than this one, that’s still a long way short of the unshakeable optimism most observers felt in the year or two before the financial crisis.

Economic gloom might support high sovereign debt prices, but it’s not so good for equities and corporate bonds. And yes it’s true that a greater share of GDP is accruing to companies than to workers, which at first light is supportive of both corporate debt and share prices. But ultimately the less money people earn the less there is to be recycled into demand, which is bad for firms generally.

Central banks are clearly stitching the whole web together. Weak economies mean central bank liquidity, which supports asset prices, fundamentals notwithstanding.

The problem is that investors have grown convinced nothing can possibly go wrong for them. The VIX, which measures S&P 500 volatility and is popularly called a fear index, is broadly back down to where it was during the boom years–if not quite to those lows. Ditto for the VStoxx volatility index which measures European equity market volatility.

The MOVE index, which measures bond market volatility, has dropped back from the summer’s highs when debt markets were rocked by fears the Federal Reserve would start trimming its bond purchase program by the autumn, and isn’t far off 2007 levels again.

To judge from central banks’ reaction functions, maybe investors have a point. The Fed relented on tapering when equities and bonds wobbled. In effect, the central bank was saying that it is putting a floor under asset prices. As long as investors believe this can be achieved, asset prices will keep climbing.

The key question then is to what degree can central banks achieve this promise? Eventually there will be enough growth to dictate higher interest rates for fear of inflationary consequences. Central banks have to consider where asset prices might be at that point if they maintain their current asymmetric response. Will they abandon price stability for fear of upsetting asset markets? Or will they accept another collapse on the assumption that it won’t be as catastrophic?

Recent history suggests that when asset markets spin out of control–in either direction–central banks find it hard to control them. What investors now have to consider is what might cause asset markets to lose control. Economic fundamentals might yet trump central banking liquidity and government interventions in pricing assets. As they’ve regularly done in Japan over the past two decades.