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The past few years there has been a lot of attention on the news about different ways to go green and make a difference in the environment. Even with all this focus on creating a greener way of life, large energy companies like ExxonMobil continue to make record profits. Something does not seem quite right here. As an environmentally conscious investor, one may focus the dilemma of choosing between a profitable company like ExxonMobil that will surely make them money, or searching high and low for some obscure environmentally friendly company. Once you do find that company, chances are they won’t even be profitable.

Portfolio 21 has taken the guesswork out of this for you. This investment company is based out of Portland, Oregon, which is the greenest city in the United States according to Popular Science Magazine. Simply put, Portfolio 21 only invests in companies that meet its stringent standards for being or working to become green companies.

The official strategy from their website reads, “Portfolio 21 invests in companies designing ecologically superior products, using renewable energy, and developing efficient production methods. Portfolio 21 companies seek to prosper in the 21st Century by recognizing environmental sustainability as a fundamental human challenge and a tremendous business opportunity.”

Besides looking for companies with strong balance sheets and income statements, Portfolio 21 also requires that companies have “ecologically superior product lines, . . . evolving product lines, investments in renewable energy, innovative transportation and distribution strategies, and efficient use of resources with respect to meeting human needs.” If a company starts to shy away from its green operations, Portfolio 21 will take action through what they call “Shareholder Activism.” Through this, they essentially file a complaint with the company to try to get them to return to their green ways. If this does not work, they will divest their funds. “If a company no longer meets our selection criteria, we divest. By divesting these companies we hope to send a clear signal to management regarding the importance of maintaining a focus on sustainable business strategies and improving performance in these areas on an ongoing basis.”

In the past year, Portfolio has rejected some very notable companies as investment opportunities based on their lack of greenness. Some companies of note are:

• UPS
• News Corp
• Royal Bank of Scotland
• Yahoo!
• Bank of America
• Texas Instruments
• Corning

As of 3/31/2008, the companies Top 5 holdings are

• Novartis (3.1%)
• Novo Nordisk (2.7%)
• Nokia (2.4%)
• Staples (2.3%)
• IBM (2%)

Some other noteworthy companies were Google, Siemens, Canon, HSBC Holdings, Intel, Nike, HP, Briston-Meyers Squibb, Dell, & Whole Foods.

The fund is currently trading at $34.34 under the symbol PORTX. If you invest directly through the company, the minimum investment is $5,000, or $1,000 if you choose to set up a retirement account. It is also offered through many brokers as well where the minimum may vary. As of 12/31/2008, the fund managed $266M allocated over 115 different positions. Its’ annual return has been 17.39% over the past 5 years. Another thing that I like about the fund is that the managers of it have been managing it since its’ inception.

If green investing is something that you would like to start doing, but lack the time or research capabilities to do it, a fund like this may be appropriate for you. As always, make sure to look over the entire funds past performance and investment objectives and always remember that past performance is never an indicator of future returns.

According to a Wall Street Journal article written by David Enrich, bank fees continue to rise even thought the economy slumps.

Many large national banks have begun to raise their fees across the board in order to boost revenues. Banks make money through two different sources. The traditional way they make money is by lending out money at a higher rate than they are paying to have access to it. The second way is through various fees. When a large number of loans start to default, it makes it so that the banks have to rely more on fees to make up for the lost profit.

“Earlier this month, for example, J.P. Morgan Chase & Co. started charging customers of other banks $3 nearly every time they use one of the bank’s 9,100 ATMs. Before that, the fee ranged from $1.50 to $2.” Assuming ATM use remains constant, J.P. Morgan Chase & Co. can raise their ATM income by 50-100%. There are not a lot of investments out there that earn those kinds of returns. $3 to use their ATM may seem high, but if you consider the cost of tracking down your own ATM it may end up being quite the bargain.

If gas costs $3 per gallon and your vehicle gets 20 MPG, the most you would be willing to travel to avoid the fee is 20 miles round trip, or a 10 mile radius from your current location. If you consider how much your time is worth to you, you would be willing to travel far less. This is one reason why banks can get away with these relatively high fees.

While some consumers may wonder if J.P. Morgan’s fees are a bit excessive, J.P. Morgan has an alternate viewpoint. They claim that “ATMs are a convenience for its customers. ‘If you’re not a customer, you have to pay for that convenience.’” Others say that the higher fees give consumers incentives to join that particular institution. J.P. Morgan does not charge its customers to use their ATMs, so joining their company would be a good way to avoid those obnoxious fees.

How high can bank fees go? They can go as high as the market will bear. Once consumers start to say that enough is enough, then fees should start to level out, but in the meantime they will continue to rise to offset their loan losses.

If you don’t want to join these fee happy institutions, but still need the cash, there are ways around the fees. For example, don’t spend $3 on fees to take $20 out of the ATM. Withdrawal up to your daily maximum, and live off that money until it is gone. You could also use the money that you need and then redeposit it at your institution when you have used all that you need. If you take $20 at a time, it will cost you $15 per $100 taken out. This is like paying a 15% tax on your withdrawals. Another way out of the ATM fees is to get a debit card and make all of your purchases on debit. Transactions on debit cards are typically free, and the transaction will also show up on your monthly statement. With cash, if you forgot what happened to $60 of that $200 that you took out, you will have to rely on your own receipts to find out.

While ATM fees are here to stay, there are ways to get around them and save some money. Remember, if you did only one ATM transaction per month, it would cost you $156 in ATM fees over the course of a year assuming the ATM fees were $3 per transaction.

After being in the toilet for the past six months or so, the banking sector is starting to show a little promise again. After months of watching banks write off bad debts, investors are starting to show some hope for our financial institutions. This newfound hope and optimism can’t be attributed to the vision of bank CEO’s. Bank executives just received a temporary bailout from their new best friend Ben Bernanke at the Federal Reserve. Although it is not the job of the Fed to bail out banks from their poor decisions, it is their responsibility to ensure that the economy keeps running smoothly. When thousands of banks around the country all follow each other’s lead like a bunch of lemmings and made poor loans we suddenly have a large problem on our hands. When banks start to do bad people worry. Just the other day an older gentleman came into our credit union and asked to liquidate his entire account into cash. It came out to about $64,000. He also insisted that each bill be marked with a counterfeit pen to ensure that he was getting real currency. Obviously these actions come from someone who has lived through the depression, but if you get enough people acting irrationally like this because they feel their money is in jeopardy, then suddenly the banks will start to face some real problems.

So what exactly are the responsibilities of the Federal Reserve you may ask?

Taken straight from the Federal Reserve’s Web Site:

“Today, the Federal Reserve’s responsibilities fall into four general areas:

• conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
• supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems.”

If they don’t take care of the majority of the banks, then they are not taking care of their responsibilities. So what have they done exactly to take care of the banks? On January 22nd, 2008 they came out with a surprise announcement that they would be cutting the federal funds rate by 75 basis points (1% =100 basis points) from 4.25% to 3.5%. The federal funds rate is the rate that banks make overnight loans to each other. The market for loans and savings products typically follows the movement of the federal funds rate. Since they lowered the rates, this means that mortgage rates will drop and savings products like money market accounts and CDs will drop as well.

The Federal Reserve states that “while strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

Let’s examine what effects this rate cut will have.

Lower rates decrease the cost of borrowing funds. A borrower can save a ton of money by borrowing at 5% instead of 7%. This means that many businesses will take advantage of the lower rates to borrow money to expand their operations. With expanded operations, they will likely need more employees to run this new operation. This satisfies the Fed’s first responsibility of “pursuing full employment.”

Mortgage rate will drop and with that comes a wave of refinancing. Many people got in on the real estate boom with loans they didn’t fully understand and weren’t fully qualified for. You can blame both parties for this problem. Lenders should have fully explained the drawbacks of the loans they were putting people into. When borrowers low introductory payments reset to higher levels, many homeowners were shocked to find that their monthly mortgage payment had almost doubled. According to an article in the Boston Globe “a record $375 billion of subprime loans reset to higher payments in 2007 and another $340 billion will reset this year.” The lower rates could be able help qualified credit borrowers refinance their loans to a lower fixed payment that they might have a higher probability of affording. Another option that troubled borrowers may have is selling their home to pay off the mortgage and either move into a cheaper home or rent. According to the National Association of Realtors, “the median price of an existing single-family home dropped 1.8 percent in 2007.”  In many markets this figure is much lower, meaning that the sale of the home is not enough to cover the outstanding balance on the mortgage. This sad reality is what has led to the 75% increase in foreclosures in 2007.

Savings rates will drop. According to Bankrate.com, the national average for 1 year CDs is a measly 3.66%, down from last week’s 4.12% average. This has a very negative effect on those using CDs and other safe investment products for income. If inflation is at 3% you are hardly making any real gains in your net worth. You are just maintaining your purchasing power. When rates are low, savers tend to take their money out of CDs and money market accounts and put them into the stock market or mutual funds where they can make a better return. This could explain why the Dow Jones Industrial Average has increased from a low of 11,508.74 on January 22nd to a closing price of 12,480.30 on January 29th. That is an 8.4% return for one week. That sure beats 3.66% for an entire year!

The Fed also stated in their January 22nd announcement that “appreciable downside risks to growth remain.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.” This statement is referring to the January 29th and 30th meetings that the Fed in having. In this meeting they will be deciding whether or not their 75 basis point rate cut was sufficient. We should be expecting an announcement sometime on the 30th. Bank stocks and the stock market in general should react inversely to the decision made by the Fed.

In conclusion, I think that the Fed will go ahead and cut rates another 25 basis points. If this cut is made it will probably be the last for a long time and should help to restore some faith and stability to the financial sector. I think a 25 basis point rate cut is necessary for the psychology and mindset of investors. It should be interesting to see how this all plays out over the coming months.

Since I work in the Banking industry, I decided to create a short little survey about your experiences with your financial institutions. For this survey, do not include any of your brokerage firms as financial institutions. Once a statistically significant number of surveys have been completed I will write a little analysis of the results.

Here is a link to the survey