Owning Nashville

For some insight on Owning Nashville…a new Exchange Traded Fund based upon equity in Nashville based corporations.

First, the NPR Article

Next, the Wikipedia Definition of an Exchange Traded Fund (I did not include the citations, but the link):

ETFs offer public investors an undivided interest in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on a securities exchange through a broker-dealer. Unlike traditional mutual funds, ETFs do not sell or redeem their individual shares at net asset value, or NAV. Instead, financial institutions purchase and redeem ETF shares directly from the ETF, but only in large blocks, varying in size by ETF from 25,000 to 200,000 shares, called “creation units”. Purchases and redemptions of the creation units generally are in kind, with the institutional investor contributing or receiving a basket of securities of the same type and proportion held by the ETF, although some ETFs may require or permit a purchasing or redeeming shareholder to substitute cash for some or all of the securities in the basket of assets.[4]

The ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares. Existing ETFs have transparent portfolios, so institutional investors will know exactly what portfolio assets they must assemble if they wish to purchase a creation unit, and the exchange disseminates the updated net asset value of the shares throughout the trading day, typically at 15-second intervals.[4]

If there is strong investor demand for an ETF, its share price will (temporarily) rise above its net asset value per share, giving arbitrageurs an incentive to purchase additional creation units from the ETF and sell the component ETF shares in the open market. The additional supply of ETF shares reduces the market price per share, generally eliminating the premium over net asset value. A similar process applies when there is weak demand for an ETF and its shares trade at a discount from net asset value.

In the United States, most ETFs are structured as open-end management investment companies (the same structure used by mutual funds and money market funds), although a few ETFs, including some of the largest ones, are structured as unit investment trusts. ETFs structured as open-end funds have greater flexibility in constructing a portfolio and are not prohibited from participating in securities lending programs or from using futures and options in achieving their investment objectives.[5]

Under existing regulations, a new ETF must receive an order from the Securities and Exchange Commission, or SEC, giving it relief from provisions of the Investment Company Act of 1940 that would not otherwise allow the ETF structure. In 2008, however, the SEC proposed rules that would allow the creation of ETFs without the need for exemptive orders. Under the SEC proposal, an ETF would be defined as a registered open-end management investment company that:

Issues (or redeems) creation units in exchange for the deposit (or delivery) of basket assets the current value of which is disseminated per share by a national securities exchange at regular intervals during the trading day;
Identifies itself as an ETF in any sales literature;
Issues shares that are approved for listing and trading on a securities exchange;
Discloses each business day on its publicly available web site the prior business day’s net asset value and closing market price of the fund’s shares, and the premium or discount of the closing market price against the net asset value of the fund’s shares as a percentage of net asset value; and
Either is an index fund, or discloses each business day on its publicly available web site the identities and weighting of the component securities and other assets held by the fund.[4]

The SEC rule proposal would allow ETFs either to be index funds or to be fully transparent actively managed funds. Historically, all ETFs in the United States have been index funds. In 2008, however, the SEC began issuing exemptive orders to fully transparent actively managed ETFs. The first such order was to PowerShares Actively Managed Exchange-Traded Fund Trust,[6] and the first actively managed ETF in the United States was the Bear Stearns Current Yield Fund, a short-term income fund that began trading on the American Stock Exchange under the symbol YYY on 25 March 2008.[7] The SEC rule proposal indicates that the SEC may still consider future applications for exemptive orders for actively managed ETFs that do not satisfy the proposed rule’s transparency requirements.[4]

Some ETFs invest primarily in commodities or commodity-based instruments, such as crude oil and precious metals. Although these commodity ETFs are similar in practice to ETFs that invest in securities, they are not “investment companies” under the Investment Company Act of 1940.[4]

Publicly traded grantor trusts, such as Merrill Lynch’s HOLDRs securities, are sometimes considered to be ETFs, although they lack many of the characteristics of other ETFs. Investors in a grantor trust have a direct interest in the underlying basket of securities, which does not change except to reflect corporate actions such as stock splits and mergers. Funds of this type are not “investment companies” under the Investment Company Act of 1940.[8]

As of 2009, there were approximately 1,500 exchange-traded funds traded on US exchanges.[9] This count uses the wider definition of ETF, including HOLDRs and closed-end funds.

GDP: Measuring the American Economy

Finally, personal vindication on claims for sustainable intellectual property!

The Commerce Department tomorrow will adjust GDP numbers…all the way back to the Great Depression…to account for human creations (artistic endeavors, intellectual property) that, by their analysis, have enduring value.

Let’s see how the accountants react.

Here’s the article.

Paula Deen and Smithfield Farms

…just went up to CNN for a news break from my writing and saw Smithfield Farms is dropping their sponsorship of Paula Deen with the statement:

Smithfield condemns the use of offensive and discriminatory language and behavior of any kind. Therefore, we are terminating our partnership with Paula Deen. Smithfield is determined to be an ethical food industry leader and it is important that our values and those of our spokespeople are properly aligned.

I just three weeks ago drove from Raleigh Durham, North Carolina to Wilmington, North Carolina. In the middle is a small town named Wallace.

Our visit took us to a friend’s home and meal at a gated community and country club named River Landing…on the edge of Wallace.

Evidently River Landing was developed by the Murphy family. I was told the Murphy’s were large hog producers …and that the Murphy’s had sold their hog operations to Smithfield Farms.

I would suggest folks might want to take a look at Wallace, North Carolina and the surrounding area.

Where to put your money/savings/investments?

I’m getting more and more chatter on the street from folks who are unhappy with their investment options.

John Phipps, Illinois farmer/friend, recently posted ‘there aren’t many attractive (safe, rewarding, understandable) places to put cash these days’.

It appears that a broader segment of the American public – those folks with pensions and savings accounts – are seeing either minimal returns (less than 1%) or risking ‘investment black holes’ (abstract ‘what the heck is this really invested’ investment products).

Perhaps Mitt Romney’s business/personal life is also aiding the public awareness of how special privilege makes ‘making money on money’ a rich persons’ sport.

Anywho….it seems there is an opportunity in there! Can local communities structure and manage ‘knowable’ regional investments with low risks and sustainable returns? Can we also change investment and banking law to make community based investing legally practical?

Environmental Finance

Bunge, the agri-business ‘giant’, recently acquired Climate Change Capital…leading to a change in focus toward ‘impact investing’.

I always end up confused…particularly when they talk of CCC holding $1.4 B in ‘committments’. I know what they mean by committments, but I do not know (and they do not explain) how that translates to Company balance sheet.

Big numbers…impact investing….does this make sense?

The Article

Facebook’s IPO and Ephemera

I was reading an article on Facebook’s IPO and it brought up childhood memories. My father had a small printing and publishing company…and I grew up surrounded by the work and language of publishing and printing.

One of those terms – ‘ephemera’ – was a term we constantly used for flyers, brochures, catalogs…all the printed matter that existed only briefly. It was advertising.

The financial substance of Facebook – their business model – is currently based upon what businesses are willing to pay for ephemera (advertising). Their content – what we called books and publications in my father’s shop – is personal/insitutional information, primarily a stream of brief communications over time.

Facebook technology is a communication tool, like a cell phone or written letter. It seems the wealth creation potential of Facebook depends on how meaningfully that tool is used. High on the meaning meter is the Arab Spring, low on the meaning meter is personal gossip. The attractiveness of the tool has been explosive…whether it remains, and how high barriers to entry are for others, depends on how meaningfully Facebook develops added services and additional tools.

It will also be a test of the motivation of the Founders. Instant enormous wealth will have a profound psychological impact.


In doing some Internet research I came across an agribusiness company that was new to me.


It caught my eye because I’ve not spent much time looking at agribusinesses…and their website was like visiting a foreign land.

Yes, I work with farmers. Yes, I care about ‘the environment’.

But I do not understand? What are they, Bunge, doing? They have all of this information about corporate responsibility, sustainability, etc.  While reading, you realize they have enormous negative impacts…and they are ‘feeling good’ about starting to change those impacts.