259 (6 April 2016)

Welcome to week 259!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(31 March 2016): “Soft-Drink Makers Have New Secret Ingredient” Sugar!” (http://www.wsj.com/articles/soft-drink-makers-have-new-secret-ingredient-sugar-1459350546)

——–[This is the A-Hed, quirky, article.] “Soft-drink makers have a new way to pitch their sweet beverages: They contain sugar. . . . The goal for soda companies is to spritz up fizzling soft-drink sales.  The appeal: Sugar is natural.”  Part of this development is the desire for a set of food product ingredients that could conceivably be found in one’s own kitchen.  Lu Ann Williams of Innova Market Insights notes, “The number one fixation on food companies’ minds is ‘clean label’: natural ingredients and shorter ingredient lists that look like you made it at home.”

********The term ‘clean label’ is new to me.  One of the interesting elements of the article is its discussion of the sweetness profiles of sugar and high fructose corn syrup.  As it turns out, the two “perform somewhat differently as sweeteners.    The sweetness intensity in high fructose corn syrup peaks a litter earlier than sucrose which helps it enhance fruit and spice flavors . . . Sugar has a more rounded profile than lingers.”  In effect, different sweeteners for different purposes.  You can see some examples of sweetness profiles at: http://www.brenntag-nordic.com/fi/downloads/Intensiivimakeuttajat.pdf.  Take a look at page 3.

(1 April 2016): “Regulators Examine Financial Risks of Climate Change” [SR](http://www.wsj.com/articles/regulators-examine-financial-stability-risks-to-climate-change-oil-exposure-1459444688)

——–“Regulators around the globe are researching potential risks to financial stability from a failure to contain climate change or a sudden collapse in the value of fossil-fuel assets.  Institutions such as the Bank of England, the Financial Stability Board and the European Systemic Risk Board are examining how banks, insurers and pensions funds would cope if policies designed to reduce carbon-dioxide emissions led to a sharp drop in the share price of oil, gas and coal companies. . . . The regulators’ concerns rest on scientific assessments that much of the world’s known fossil-fuel reserves would have to stay underground if governments want to limit global warming to 2 degrees Celsius above preindustrial levels.”

********Interestingly, the online article is substantially longer than that in newsprint.  I’m not sure I’ve seen that before for the WSJ.  The article mentions a Report to be released on Friday and I believe that I have found it.  It is the Phase 1 Report of the Taskforce on Climate-related Financial Disclosure.  You can learn more about the Taskforce, which is headed by Michael Bloomberg and grew out of the Paris climate talks of December 2015, at: https://www.fsb-tcfd.org/.  You can read the Executive Summary of the Report at: https://www.fsb-tcfd.org/phase1report/.  Some additional reporting that relates to the above (and is readily viewable) can be found at: http://www.climatechangenews.com/2016/03/31/bloomberg-climate-risk-initiative-to-release-first-report/.

(2 April 2016): “Shareholder value: Analyse this” (http://www.economist.com/news/business/21695940-enduring-power-biggest-idea-business-analyse)

——–One strong candidate for “the most influential contemporary books about the world economy” is Valuation, a “825-page manual on corporate finance and shareholder value.  Some 700,000 copies of it encumber the bookshelves of MBA students, investors and chief executives around the globe.”  The sixth edition of the book, “published last year, a quarter of a century after the first, is a reminder of why shareholder value is still the most powerful idea in business . . . The origins of the doctrine lie in the 1950s and 1960s, when Franco Modigliani and Merton Miller, two scholars, showed that a firm’s value is independent of its capital structure and dividend policy.  That inspired a new framework for analysis, popularized in the 1980s by Joel Stern, a consultant, Alfred Rappaport, another scholar, and McKinsey & Co, a consultancy, among others.  Company analysis was antediluvian until then.”  Stockholder value has its critics.  One basic criticism is that it is “a licence for bad conduct.”  Another, weightier, criticism hold that “firms should be run for all stakeholders, not just shareholders.”  Regarding the second criticism, “The trouble is identifying a goal that could replace the pursuit of a shareholder value.”

********You can learn more about Valuation: Measuring and Managing the Value of Companies, 6th ed. at: http://www.amazon.com/Valuation-Measuring-Managing-Companies-Finance/dp/111887370X/.  As John Maynard Keynes wrote in The General Theory of Employment, Interest, and Money, Book VI, “The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood” (https://en.wikipedia.org/wiki/The_General_Theory_of_Employment,_Interest_and_Money).  The idea of valuation is certainly one of those powerful ideas.  No longer limited to the financial sphere, witness educational programs that “add value,” it is ubiquitous in contemporary language.

(3 April 2016): “The Tampon of the Future” (http://www.nytimes.com/2016/04/03/opinion/sunday/the-tampon-of-the-future.html)

——–“Is it possible to extract blood from people without causing pain?  For decades, this problem has stumped the medical industry.  In an effort to replace the old-fashioned needle, companies are trying to deploy laser beams and tiny vacuums to draw blood.  In 2014, an engineer at Harvard named Ridhi Tariyal hit on a far simpler workaround.  ‘I was trying to develop a way form women to monitor their own fertility at home,’ she told me, and ‘those kinds of diagnostic tests require a lot of blood.  So I was thinking about women and blood.  When you put those words together, it becomes obvious.  We have an opportunity every single month to collect blood from women, without needles.’”  What enabled Ms. Tariyal to see a “possibility that eluded so many engineers before her” was her gender.  Because she lives in a female body, she had experiences that just wouldn’t be available to her male colleagues.”  Tariyal’s experience seems to be consistent with the work of Eric von Hippel, a scholar of innovation at MIT, who holds that “People who suffer from a problem are uniquely equipped to solve it.”  Still, even when women have had an undeniable advantage in terms of experience and knowledge, they “have not had the power to push forward their ideas.”  In a recent study by scholars from Babson College it was found that “more than 90 percent of the partners in venture-capital firms are male.  So Ms. Tariyal and [business partner] Mr. [Stephen] Gire often sat across the table from a man, trying to sell him on a tampon machine.”

********It is hard to argue with the statement made by intellectual property lawyer Annette Kahler that “Opportunities are being missed . . . because the ideas, inventions, perspectives and proposed solutions of women are missed.”  JSTOR Daily http://daily.jstor.org/menstrual-literacy/) picked up on this article and connected it with a variety of earlier stories in JD, as well as academic papers relating to menstrual literacy.  As Annette Kahler so aptly stated, we miss out on a lot when we fail to include (or actively exclude) others.

********An article that caught my attention last week now seems appropriate to mention: “Johnson & Johnson Has a Baby Powder Problem” (http://www.bloomberg.com/features/2016-baby-powder-cancer-lawsuits/).  It discusses the suits of more than 1,000 women against J&J for covering up the risk of ovarian cancer.  In addition, it shows that marketing attempts to focus on a particular demographic group—in this case “black and Hispanic women”—can lead to problems.  As Robin Means Coleman, a professor at the University of Michigan notes, “Some people might say, ‘What’s wrong with companies recognizing women of color as important consumer?’ . . . We do want that.  But we do not want companies to market potentially carcinogenic products.’”

(5 April 2016): “Restaurant Wine Prices: They’re Either Too High or Too Low” (http://wineeconomist.com/2016/04/05/wine-prices/)

********Economist Mike Veseth continues to write about wine prices—in an economics-oriented way—this week, even bringing in graphs as he discusses the role of the price elasticity of demand in relation to wine prices in restaurants.  He draws upon the first-hand experience of those in the restaurant business to show that it is much more to pricing wine than simply seeking to maximize wine revenue.  Among other points raised, Veseth notes that some customers will refuse to buy a wine that is priced too low.  Consequently, if a particular wine variety is by its nature inexpensive, its price will need to be raised in order to attract attention.

(5 April 2016): “Mining Dams Grow to Colossal Heights, and So Do the Risks” (http://www.wsj.com/articles/brazils-samarco-disaster-mining-dams-grow-to-colossal-heights-and-so-do-the-risks-1459782411)

——–Thirty minutes from the colonial town of Mariana, Brazil “trees suddenly give way to what looks like a desert salt flat.  It is a 2-mile-wide valley filled with mine waste.  On Nov. 5, an earthen dam holding back this sea of sludge collapsed, releasing a deluge that killed 19 people, destroyed villages and traveled more than 400 miles to the Atlantic Ocean, where it left a reddish-brown plume visible from space.  As tall as a 30-story building and holding enough refuse to fill 19 Dallas Cowboys stadiums, the dam was the largest structure of its kind ever to give way.  It won’t be the last.”  Mining companies, seeking economies of scales, are digging “larger and deeper pits, creating record volumes of waste.  To house all that detritus, they have constructed some of the most colossal man-made structures on the planet.  Known as tailings dams, these earthen embankments hold back sprawling reservoirs of mud, finely ground rock and water—what is left after a mill separates metals from ore.”  The largest such dams, in the Peruvian Andes, “are already as tall as the Hoover Dam and have permits to rise even further.”  Andrew Robertson, who consults on such dams, notes that “Our dams and dumps are among the highest-risk structures on Earth.”  Contributing to the riskiness of such dams is the fact that “Regulation and enforcement vary wildly among different jurisdictions, often leaving mining companies to police themselves.”  The paucity of information about them is another factor: tailings dams are not included in the “58,000-entry World Register of Dams due to . . . concern that their high failure rates would tarnish the reputation of all dams.”  Engineer Michael Davies estimates that “the failure rate for tailings dams was approximately 10 times that of water-retention dams.”  In a 2002 he indicated that there were “somewhat more than 3,500 tailings dams world-wide.”

********The article includes a 10-minute video that puts into view the devastation following the dam failure in Brazil.  As the article points out, there are three conventional methods for constructing tailings dams, the cheapest of which is also the most likely to fail.  The World Register of Dams is the product of The International Commission on Large Dams.  You can learn more about it at: http://www.icold-cigb.org/GB/World_register/world_register.asp.

********You can learn more about tailings dams in the article “Tailings Dams: Where Mining Waste is Stored Forever” (http://www.pbs.org/wgbh/frontline/article/tailings-dams-where-mining-waste-is-stored-forever/).  It also includes access to a 54-minute Frontline broadcast “Alaska Gold,” which “probes the fault lines of a growing battle in Alaska’s Bristol Bay region, home to the world’s last, great sockeye salmon fishery—and mineral deposits estimated to be worth up to $500 billion.”

May you have a good week!

Bruce

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