Imagine traders walking hand-in-hand with buy-and-hold investors, analysts snuggling with economists, bulls and bears living in perfect harmony. Suddenly, the world is a beautiful place to live. It's the month of February, and that means it's time for love. In keeping with the romance in the air, let's look at some love-related terms that would warm even the coldest Wall Street heart.
Sweetheart Deal
It's not quite two corporations at a diner table, sipping the same milkshake through separate straws while holding hands, but the sweetheart deal may be the Wall Street equivalent. In a sweetheart deal, one company offers very attractive terms and conditions to another company or individual. It can be an acquisition or an attempt to lure in a new CEO.
A sweetheart deal can be a bad thing for shareholders because, if their company is being taken over, management may receive benefits (for example, buyout packages) while shareholders take a loss. If a sweetheart deal is obviously unethical and not in the interests of shareholders, legal action can be taken. (To read more about mergers and acquisitions, see The Wacky World of M&As and The Basics Of Mergers And Acquisitions.)
Risk Lover
If you spent your formative years as your neighborhood's daredevil, you may be a risk lover. Risk lovers in the investment world don't necessarily try to jump the school bus during recess, but they do make investments with uncertain outcomes. This type of investor doesn't love risk just for its own sake, but because the risk/return tradeoff dictates that with a greater exposure to risk comes a greater possibility of payout. This means that the return is huge when it happens, but that the chance that it will happen may be slimmer. The risk lover's opposite is the investor who is risk averse - he or she prefers investments with a more guaranteed payout, even if it's smaller. (Love the risk? Then check out Risk And Diversification and Determining Risk And The Risk Pyramid.)
Sensitivity Analysis
No, we're not talking about whether you write poetry and bring your sweetheart flowers and chocolates "just because". Sensitivity analysis is a technique used to determine how a projected outcome is affected if one of the key predictions proves false. For example, you might try to determine how sensitive a movie's box office profits are to lower-than-expected numbers during its opening weekend.
Friendly Hands
In the investing world, companies view friendly hands in a favorable light. This term refers to investors who buy a stock at the IPO and hold onto it for the long term, looking for long-term rewards rather than short-term gain. Friendly hands help the company create a sense of stability right off the bat. Angel investors usually double as friendly hands. (Find out more about IPOs in The Murky Waters Of The IPO Market and IPO Basics Tutorial.)
Love Money
Love money is the money that startup businesses get from angel investors, who usually are friends and family. They may give money as a result of the strength of their love for the business owner, rather than the strength of his or her business plan. This type of money is hard to come by and can be very fickle in its affections. A business that gets it should be glad.
Teddy Bear Hug
A teddy bear hug can occur when a takeover company warns its target company in advance about the offer it's about to make on its shares. If the price per share is extremely generous, and if the target company accepts, the deal is referred to as a bear hug. The target company, however, may turn down the offer in the hope of a higher price. If the acquiring company is a teddy bear, it will usually give in and raise the value of the offer. The idea is that the acquiring firm is soft like a teddy bear and wants to make everyone happy.
Happy Valentines Day
There is plenty of love on Wall Street, even if it's just in the romance language that's lavished on many of the complex relationships and business deals that happen there. Whether it's a sweetheart deal, love money or a teddy bear hug, these terms suggest that there's a softer side to Wall Street's cut-throat, competitive - even if only on the surface.
by Andrew Beattie, (Contact Author | Biography)
Andrew Beattie is a freelance writer and self-educated investor. He worked for Investopedia as an editor and staff writer before moving to Japan in 2003. Andrew still lives in Japan with his wife, Rie. Since leaving Investopedia, he has continued to study and write about the financial world's tics and charms. Although his interests have been necessarily broad while learning and writing at the same time, perennial favorites include economic history, index funds, Warren Buffett and personal finance. He may also be the only financial writer who can claim to have read "The Encyclopedia of Business and Finance" cover to cover.
Edit by MR Zhang
Wednesday, February 18, 2009
Coca-Cola zahlt Milliarden für Safthersteller in China
Hongkong (Reuters) - Der US-Getränkegigant Coca-Cola will für 2,5 Milliarden Dollar den chinesischen Safthersteller Huiyuan übernehmen.
Die Übernahme gilt als die bisher größte eines ausländischen Unternehmens in China. Um seine Position auf dem boomenden Markt Chinas zu festigen, greift der weltgrößte Getränkekonzern aus Atlanta tief in die Tasche: Die Bar-Offerte übersteigt den Unternehmenswert von China Huiyuan Juice um das Dreifache. Die Avancen der Amerikaner lösten bei Huiyuan ein wahres Kursfeuerwerk aus: Die Aktie verteuerte sich am Mittwoch um 170 Prozent.
Nach der Übernahme will Coca-Cola den Safthersteller von der Börse nehmen. Huiyuan gehört zu 23 Prozent dem französischen Lebensmittelgiganten Danone und zu knapp sieben Prozent der US-Beteiligungsgesellschaft Warburg Pincus & Co. Alle drei Aktionäre, denen zusammen 66 Prozent gehören, hätten der Offerte zugestimmt, erklärte Coca-Cola. Für die umlaufenden Aktien, Anleihen und Optionen werde nun ein Gebot vorgelegt.
"Huiyuan Juice ist eine seit langem etablierte und erfolgreiche Saftmarke in China", sagte Coca-Cola-Chef Muhtar Kent. Das Unternehmen ergänze das China-Geschäft von Coca-Cola ausgezeichnet. Auf dem im vergangenen Jahr um 15 Prozent auf zwei Milliarden Dollar gewachsenen Gesamtmarkt für Obst- und Gemüsesäfte hält Huiyuan mehr als zehn Prozent, dicht gefolgt von Coca-Cola mit 9,7 Prozent.
"Der Schritt ist eine große Überraschung für den Markt, und das Angebot supergroßzügig", sagte Lawrence Chor von Tai Fook Securities. Experten zufolge ist Coca-Cola vor allem am Markennamen und dem Vertriebsnetz der Chinesen interessiert. Coca-Cola dominiert in China zwar bereits den Markt für verdünnte Säfte, Huiyuan kontrolliert aber zu rund 43 Prozent den Markt für reine Säfte. "Coca-Cola versucht, den Markt für reine Säfte anzuzapfen, wo Huiyuan der Marktführer ist", erklärte Emma Liu von Nomura Securities. "Obwohl das in der Getränkeindustrie nur ein relativ kleiner Markt ist, ist er wegen der steigenden Privateinkommen in China und des zunehmenden Gesundheitsbewusstseins ein Markt mit hohen Wachstumsraten."
Der chinesische Markt für Säfte und Nektare wird nach Einschätzung von Analysten in den kommenden Jahren um mehr als zehn Prozent wachsen. Huiyuan Juice machte 2006 einen Umsatz von zwei Milliarden Yuan (rund 203 Millionen Euro) und wollte diesen binnen drei bis fünf Jahren auf rund zehn Milliarden Yuan (rund eine Milliarde Euro) verfünffachen.
Übernahmen in China gelten bei ausländischen Investoren als schwierig, da der Staat noch immer viele Branchen dominiert und Regulierungsbehörden strenge Maßstäbe anlegen. Heimische Markenhersteller wollen sich zudem in der Regel ausländischer Kontrolle widersetzen.
Die Übernahme durch Coca-Cola ist die größte eines ausländischen Unternehmens auf dem chinesischen Festland, wie aus Statistiken von Thomson Reuters hervorgeht. Zudem belegt die Transaktion den vierten Platz auf der Rangliste der Top-Investitionen aus dem Ausland in China, auf der sonst nur Minderheitenbeteiligungen an chinesischen Banken zu finden sind. Den Spitzenplatz hält hier die Allianz zusammen mit Goldman Sachs und American Express, die vor zwei Jahren gemeinsam rund 3,8 Milliarden Dollar bei der Industrial and Commercial Bank of China (ICBC) investierten.
Edit by Mr Zhang
Die Übernahme gilt als die bisher größte eines ausländischen Unternehmens in China. Um seine Position auf dem boomenden Markt Chinas zu festigen, greift der weltgrößte Getränkekonzern aus Atlanta tief in die Tasche: Die Bar-Offerte übersteigt den Unternehmenswert von China Huiyuan Juice um das Dreifache. Die Avancen der Amerikaner lösten bei Huiyuan ein wahres Kursfeuerwerk aus: Die Aktie verteuerte sich am Mittwoch um 170 Prozent.
Nach der Übernahme will Coca-Cola den Safthersteller von der Börse nehmen. Huiyuan gehört zu 23 Prozent dem französischen Lebensmittelgiganten Danone und zu knapp sieben Prozent der US-Beteiligungsgesellschaft Warburg Pincus & Co. Alle drei Aktionäre, denen zusammen 66 Prozent gehören, hätten der Offerte zugestimmt, erklärte Coca-Cola. Für die umlaufenden Aktien, Anleihen und Optionen werde nun ein Gebot vorgelegt.
"Huiyuan Juice ist eine seit langem etablierte und erfolgreiche Saftmarke in China", sagte Coca-Cola-Chef Muhtar Kent. Das Unternehmen ergänze das China-Geschäft von Coca-Cola ausgezeichnet. Auf dem im vergangenen Jahr um 15 Prozent auf zwei Milliarden Dollar gewachsenen Gesamtmarkt für Obst- und Gemüsesäfte hält Huiyuan mehr als zehn Prozent, dicht gefolgt von Coca-Cola mit 9,7 Prozent.
"Der Schritt ist eine große Überraschung für den Markt, und das Angebot supergroßzügig", sagte Lawrence Chor von Tai Fook Securities. Experten zufolge ist Coca-Cola vor allem am Markennamen und dem Vertriebsnetz der Chinesen interessiert. Coca-Cola dominiert in China zwar bereits den Markt für verdünnte Säfte, Huiyuan kontrolliert aber zu rund 43 Prozent den Markt für reine Säfte. "Coca-Cola versucht, den Markt für reine Säfte anzuzapfen, wo Huiyuan der Marktführer ist", erklärte Emma Liu von Nomura Securities. "Obwohl das in der Getränkeindustrie nur ein relativ kleiner Markt ist, ist er wegen der steigenden Privateinkommen in China und des zunehmenden Gesundheitsbewusstseins ein Markt mit hohen Wachstumsraten."
Der chinesische Markt für Säfte und Nektare wird nach Einschätzung von Analysten in den kommenden Jahren um mehr als zehn Prozent wachsen. Huiyuan Juice machte 2006 einen Umsatz von zwei Milliarden Yuan (rund 203 Millionen Euro) und wollte diesen binnen drei bis fünf Jahren auf rund zehn Milliarden Yuan (rund eine Milliarde Euro) verfünffachen.
Übernahmen in China gelten bei ausländischen Investoren als schwierig, da der Staat noch immer viele Branchen dominiert und Regulierungsbehörden strenge Maßstäbe anlegen. Heimische Markenhersteller wollen sich zudem in der Regel ausländischer Kontrolle widersetzen.
Die Übernahme durch Coca-Cola ist die größte eines ausländischen Unternehmens auf dem chinesischen Festland, wie aus Statistiken von Thomson Reuters hervorgeht. Zudem belegt die Transaktion den vierten Platz auf der Rangliste der Top-Investitionen aus dem Ausland in China, auf der sonst nur Minderheitenbeteiligungen an chinesischen Banken zu finden sind. Den Spitzenplatz hält hier die Allianz zusammen mit Goldman Sachs und American Express, die vor zwei Jahren gemeinsam rund 3,8 Milliarden Dollar bei der Industrial and Commercial Bank of China (ICBC) investierten.
Edit by Mr Zhang
Dead End in Detroit for White-Collar Workers
DETROIT — For all the ups and downs, and more downs, that white-collar workers here have lived through, they have always managed to put on a brave face, assuring one another that the American auto industry will come back stronger than ever.
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For White-Collar Auto Workers, Life Without a Job
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Union Talks Seen as Key as G.M. Makes Case for Funds (February 17, 2009)
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But now that resolve has given way to grim resignation, as General Motors, Ford Motor and Chrysler have announced wave upon wave of job cuts.
After closing plants and shrinking their blue-collar work force, Detroit’s troubled Big Three are cutting white-collar jobs in their hometown at an unprecedented pace — more than 15,000 in the last year, with more to come.
Unlike union workers laid off from idled factories, salaried workers have no safety net of health care or guaranteed income for a year. At best, it’s a small severance or buyout, and a voucher for a discount on one of the hundreds of thousands of unsold cars that G.M. or Chrysler has sitting in inventory.
White-collar workers who walk out of the headquarters of the auto companies face few prospects in the Michigan economy. And with G.M. and Chrysler surviving on federal loans, facing a deadline Tuesday to submit new and broader restructuring plans to the government, the outlook grows only more bleak.
The market for the skills of auto engineers or designers in the prime of their careers has evaporated, with no hope in sight for a turnaround. Moving to another city is hardly an option when there are so few buyers for the suburban homes that would have to be sold first.
“I know it’s not great everywhere, but this is probably the worst place to find a job,” said Doug Zupan, a designer who took a buyout in November after working at Chrysler for six years. He was one of 5,000 salaried workers who accepted a buyout the day before Thanksgiving from his job at the Chrysler Technical Center in Auburn Hills, Mich.
Mr. Zupan, a 35-year-old father of three preschool-age children, said he was stunned by the sudden and rapid decline in an industry suffering through its worst sales in more than 25 years. “I am going to do my best to get out of the auto industry,” he said.
G.M., Ford and Chrysler have eliminated a total of 120,000 manufacturing jobs in the last three years. And now the cuts are drastically thinning the ranks of white-collar professionals, turning the once-bustling office towers of the companies into half-empty monuments to better days.
G.M. delivered another blow last week when it said it would reduce its global salaried work force by 14 percent, or 10,000 workers this year. In the Detroit area, that could mean an additional 3,000 workers will be out of a job by May 1. G.M.’s next round of white-collar cuts will not include buyouts. Chrysler has not said whether it plans more cuts.
The Detroit area housing market, already deeply depressed, has plummeted since the buyouts. In January, the foreclosure rate increased 102 percent from the same month a year earlier in Oakland County, Mich., home to a huge number of G.M. and Chrysler employees.
The state’s unemployment rate was 10.6 percent in December and continues to climb. Job fairs routinely create mob scenes, drawing thousands of out-of-work employees of the Big Three and their suppliers.
Jim Badhorn was a Chrysler engineer for 21 years before he took the buyout. Among his accomplishments was designing the rear doors of the Chrysler 300 sedan, one of the company’s last hit products.
Recently, he attended a job fair held by a military contractor but was quickly disappointed. So many people showed up that the police blocked off the parking lot, he said. “You couldn’t even find the end of the line.”
He considers himself fortunate to be a renter in the Detroit area, where the “for sale” signs are multiplying. “I have friends whose houses have lost 40 percent of their value,” said Mr. Badhorn, who lives in the suburb of Birmingham.
Last November, every white-collar worker in the company was offered a one-time buyout — $75,000 for those with 10 years or more and $50,000 for those with fewer than 10 years. With Chrysler on the brink of collapse without more federal loans, Mr. Badhorn grabbed the buyout and put much of his $75,000 into a college fund for two of his daughters.
Frustrated by the tight job market, Mr. Badhorn works off his stress by hitting the gym every day. He’s lost 15 pounds since November, but it hasn’t made him feel any better about his circumstances. “I’ve pretty much come to the conclusion that I’m going to have to move if I want to earn what I made before, or close to it,” he said.
The cuts are extending to the vast network of employees who worked on contract to the Detroit companies. Craig Meyer, employed by a supplier named Aerotek, was told by phone that his seven years as a contract designer at Chrysler were over as he was driving to the home of his in-laws the night before Thanksgiving.
Mr. Meyer has been collecting unemployment since, although the $362 he gets a week is less than half what he was making at Chrysler. “We’re just about able to pay the bills each month,” he said. “Food and gas is when we need to start to dip into savings.”
The prospects are getting worse for Detroit, not better. Last year, United States car sales dropped 18 percent, to 13.2 million, and industry executives expect just 10 million car sales in 2009 and possibly for years to come.
“Those white-collar jobs aren’t going to come back any more than the blue-collar jobs are,” said Kevin Boyle, a Detroit native and author of historical books on the city. “As bad as it is everywhere, it’s not as bad as it is in Detroit right now.”
The unemployment rate for white-collar occupations in Michigan was 5.4 percent in the fourth quarter of 2008, a full percentage point higher than the national average for those jobs, according to Department of Labor estimates.
Mr. Zupan’s $50,000 buyout from Chrysler is supporting him, his wife and his three children — ages 4, 2, and 6 months — while he looks for work. He’s finishing a master’s degree in business administration at the University of Michigan, paid for until last semester by Chrysler, when it could afford to invest in the education of its white-collar staff. He recently took out loans to have an additional financial cushion.
His last nest egg is the 300C he bought with his $25,000 buyout voucher. Mr. Zupan said he might sell it if he needed the money.
Catherine Rampell contributed reporting.
Edit by Mr zhang
Skip to next paragraph
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Slide Show
For White-Collar Auto Workers, Life Without a Job
Related
Union Talks Seen as Key as G.M. Makes Case for Funds (February 17, 2009)
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General Motors Corp
Ford Motor Co
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But now that resolve has given way to grim resignation, as General Motors, Ford Motor and Chrysler have announced wave upon wave of job cuts.
After closing plants and shrinking their blue-collar work force, Detroit’s troubled Big Three are cutting white-collar jobs in their hometown at an unprecedented pace — more than 15,000 in the last year, with more to come.
Unlike union workers laid off from idled factories, salaried workers have no safety net of health care or guaranteed income for a year. At best, it’s a small severance or buyout, and a voucher for a discount on one of the hundreds of thousands of unsold cars that G.M. or Chrysler has sitting in inventory.
White-collar workers who walk out of the headquarters of the auto companies face few prospects in the Michigan economy. And with G.M. and Chrysler surviving on federal loans, facing a deadline Tuesday to submit new and broader restructuring plans to the government, the outlook grows only more bleak.
The market for the skills of auto engineers or designers in the prime of their careers has evaporated, with no hope in sight for a turnaround. Moving to another city is hardly an option when there are so few buyers for the suburban homes that would have to be sold first.
“I know it’s not great everywhere, but this is probably the worst place to find a job,” said Doug Zupan, a designer who took a buyout in November after working at Chrysler for six years. He was one of 5,000 salaried workers who accepted a buyout the day before Thanksgiving from his job at the Chrysler Technical Center in Auburn Hills, Mich.
Mr. Zupan, a 35-year-old father of three preschool-age children, said he was stunned by the sudden and rapid decline in an industry suffering through its worst sales in more than 25 years. “I am going to do my best to get out of the auto industry,” he said.
G.M., Ford and Chrysler have eliminated a total of 120,000 manufacturing jobs in the last three years. And now the cuts are drastically thinning the ranks of white-collar professionals, turning the once-bustling office towers of the companies into half-empty monuments to better days.
G.M. delivered another blow last week when it said it would reduce its global salaried work force by 14 percent, or 10,000 workers this year. In the Detroit area, that could mean an additional 3,000 workers will be out of a job by May 1. G.M.’s next round of white-collar cuts will not include buyouts. Chrysler has not said whether it plans more cuts.
The Detroit area housing market, already deeply depressed, has plummeted since the buyouts. In January, the foreclosure rate increased 102 percent from the same month a year earlier in Oakland County, Mich., home to a huge number of G.M. and Chrysler employees.
The state’s unemployment rate was 10.6 percent in December and continues to climb. Job fairs routinely create mob scenes, drawing thousands of out-of-work employees of the Big Three and their suppliers.
Jim Badhorn was a Chrysler engineer for 21 years before he took the buyout. Among his accomplishments was designing the rear doors of the Chrysler 300 sedan, one of the company’s last hit products.
Recently, he attended a job fair held by a military contractor but was quickly disappointed. So many people showed up that the police blocked off the parking lot, he said. “You couldn’t even find the end of the line.”
He considers himself fortunate to be a renter in the Detroit area, where the “for sale” signs are multiplying. “I have friends whose houses have lost 40 percent of their value,” said Mr. Badhorn, who lives in the suburb of Birmingham.
Last November, every white-collar worker in the company was offered a one-time buyout — $75,000 for those with 10 years or more and $50,000 for those with fewer than 10 years. With Chrysler on the brink of collapse without more federal loans, Mr. Badhorn grabbed the buyout and put much of his $75,000 into a college fund for two of his daughters.
Frustrated by the tight job market, Mr. Badhorn works off his stress by hitting the gym every day. He’s lost 15 pounds since November, but it hasn’t made him feel any better about his circumstances. “I’ve pretty much come to the conclusion that I’m going to have to move if I want to earn what I made before, or close to it,” he said.
The cuts are extending to the vast network of employees who worked on contract to the Detroit companies. Craig Meyer, employed by a supplier named Aerotek, was told by phone that his seven years as a contract designer at Chrysler were over as he was driving to the home of his in-laws the night before Thanksgiving.
Mr. Meyer has been collecting unemployment since, although the $362 he gets a week is less than half what he was making at Chrysler. “We’re just about able to pay the bills each month,” he said. “Food and gas is when we need to start to dip into savings.”
The prospects are getting worse for Detroit, not better. Last year, United States car sales dropped 18 percent, to 13.2 million, and industry executives expect just 10 million car sales in 2009 and possibly for years to come.
“Those white-collar jobs aren’t going to come back any more than the blue-collar jobs are,” said Kevin Boyle, a Detroit native and author of historical books on the city. “As bad as it is everywhere, it’s not as bad as it is in Detroit right now.”
The unemployment rate for white-collar occupations in Michigan was 5.4 percent in the fourth quarter of 2008, a full percentage point higher than the national average for those jobs, according to Department of Labor estimates.
Mr. Zupan’s $50,000 buyout from Chrysler is supporting him, his wife and his three children — ages 4, 2, and 6 months — while he looks for work. He’s finishing a master’s degree in business administration at the University of Michigan, paid for until last semester by Chrysler, when it could afford to invest in the education of its white-collar staff. He recently took out loans to have an additional financial cushion.
His last nest egg is the 300C he bought with his $25,000 buyout voucher. Mr. Zupan said he might sell it if he needed the money.
Catherine Rampell contributed reporting.
Edit by Mr zhang
Don't Buy USO (Buy USL Instead)
I have nothing against people wanting to buy oil at $40/barrel. That's a cheap price, and there's reason to believe that spot crude may rise over the next six-to-twelve months. OPEC appears to be sticking by its production cuts, overall supply is down and it feels like the global economy may be leveling off. Oil could easily go to $50/barrel, which would be a 25% jump from here. Where else in today's market are you going to get that kind of return?
But if you want to profit from that rise, USO isn't the way to do it.
This is a big deal. According to the Wall Street Journal, investors poured $3.46 billion in new money into the U.S. Oil Fund (NYSE Arca:USO) in December and January. That makes my hair stand on end, because those investors have gotten crushed. And if things stay the way they are today, they're going to continue to get crushed.
The reason, as I've written about time and time again, is contango. The oil market is in violent contango right now. All else being equal, any strategy that focuses on buying the front-month futures contract and rolling it forward is going to lose money. A lot of money.
This is simple mathematics, and it pains me that people are missing the story.
Here are the current prices for oil contracts with expirations in the next six months. Notice how every contract is more expensive than the one that preceded it. USO follows a simple strategy of buying the current contract and then rolling into the next contract before the current one expires.
March 2009
$40.42
April 2009
$46.22
May 2009
$48.88
June 2009
$50.45
July 2009
$51.28
August 2009
$52.70
Source:NYMEX. Data as of 2/9/08.
Until last Friday, USO owned the March 2009 contract. Specifically, it owned 84,378 March contracts, entitling it to 84.4 million barrels of oil.
But on Friday, it sold all those contracts and bought the April contract instead. But because the April contract cost $6/barrel more than the March contract, it couldn't afford as many contracts. In fact, if you exclude new inflows into the fund, it could only buy 73,444 April contracts.
Whammo presto, the holders of USO lost 13.4% of their exposure to crude oil. They now control less oil. If the spot price stays near $40/barrel, the value of those April contracts will decay back to $40/barrel over the next month and investors will lose their shirts. If the price of oil jumps 15% in the next month—before USO rolls again into the May contract—investors will only break even.
This contango effect killed oil investors in January, according to Standard and Poor's, which runs the most important commodity index in the world.
"The steep contango in the WTI crude oil futures market (when further-out futures trade at a premium) was the primary factor causing the S&P GSCI Crude Oil Index to decline 18.90% in January. The spot price of crude oil dropped 6.55% on the month, but rolling from the February to the March future contacts accounted for most of the remaining 12.35% of the decline in the component index."
Got it? Contango cost you 12% in January. And it's worse now.
What's so horrible about watching people plow their money into an investment that they don't understand is that there are so many nice, viable alternatives out there.
The same company that offers USO offers a great little fund called the U.S. 12-Month Oil Fund (NYSE Arca:USL). Rather than simply holding the near-month futures contract, USL holds equal positions in each of the next 12 months' worth of futures contracts. Spreading out its bets like that helps minimize contango, which tends to be worse in the near-month contract, and gives you more direct exposure to the spot price of crude.
Not surprisingly, over the past three months, USL has outperformed USO by 13%.
Edit by Mr zhang
But if you want to profit from that rise, USO isn't the way to do it.
This is a big deal. According to the Wall Street Journal, investors poured $3.46 billion in new money into the U.S. Oil Fund (NYSE Arca:USO) in December and January. That makes my hair stand on end, because those investors have gotten crushed. And if things stay the way they are today, they're going to continue to get crushed.
The reason, as I've written about time and time again, is contango. The oil market is in violent contango right now. All else being equal, any strategy that focuses on buying the front-month futures contract and rolling it forward is going to lose money. A lot of money.
This is simple mathematics, and it pains me that people are missing the story.
Here are the current prices for oil contracts with expirations in the next six months. Notice how every contract is more expensive than the one that preceded it. USO follows a simple strategy of buying the current contract and then rolling into the next contract before the current one expires.
March 2009
$40.42
April 2009
$46.22
May 2009
$48.88
June 2009
$50.45
July 2009
$51.28
August 2009
$52.70
Source:NYMEX. Data as of 2/9/08.
Until last Friday, USO owned the March 2009 contract. Specifically, it owned 84,378 March contracts, entitling it to 84.4 million barrels of oil.
But on Friday, it sold all those contracts and bought the April contract instead. But because the April contract cost $6/barrel more than the March contract, it couldn't afford as many contracts. In fact, if you exclude new inflows into the fund, it could only buy 73,444 April contracts.
Whammo presto, the holders of USO lost 13.4% of their exposure to crude oil. They now control less oil. If the spot price stays near $40/barrel, the value of those April contracts will decay back to $40/barrel over the next month and investors will lose their shirts. If the price of oil jumps 15% in the next month—before USO rolls again into the May contract—investors will only break even.
This contango effect killed oil investors in January, according to Standard and Poor's, which runs the most important commodity index in the world.
"The steep contango in the WTI crude oil futures market (when further-out futures trade at a premium) was the primary factor causing the S&P GSCI Crude Oil Index to decline 18.90% in January. The spot price of crude oil dropped 6.55% on the month, but rolling from the February to the March future contacts accounted for most of the remaining 12.35% of the decline in the component index."
Got it? Contango cost you 12% in January. And it's worse now.
What's so horrible about watching people plow their money into an investment that they don't understand is that there are so many nice, viable alternatives out there.
The same company that offers USO offers a great little fund called the U.S. 12-Month Oil Fund (NYSE Arca:USL). Rather than simply holding the near-month futures contract, USL holds equal positions in each of the next 12 months' worth of futures contracts. Spreading out its bets like that helps minimize contango, which tends to be worse in the near-month contract, and gives you more direct exposure to the spot price of crude.
Not surprisingly, over the past three months, USL has outperformed USO by 13%.
Edit by Mr zhang
Profiting from happiness
Good companies to work for may also be good companies to invest in
ARE firms with cheery workers more likely to make investors smile? According to Alex Edmans of Wharton, a business school, choosing to invest in a portfolio comprising companies that have happy employees (as measured using Fortune's “100 best companies to work for”, most recently published in January this year) is likely to bring rewards. Mr Edmans suggests that such investors enjoy gains beyond what can be explained by the risks they take. From 1999 to 2008 the Fortune portfolio has provided a 4.1% annual return above that of the broader CRSP index (which includes all shares traded on Nasdaq, the New York Stock Exchange and American Stock Exchange). But advocates of corporate social responsibility should be cautious about inferring that employee satisfaction brings high returns. Other variables, such as good management, may be at work.
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Edit by Mr zhang
How to Barter Online
Bartering is a great way to make new friends and to get your goods or abilities out to the public and or whoever might want or need it. To get the most traffic for your bartering you should barter online.
Step 1:Start off by sending a mass email to your friends and family. Let the email contain what you have and or what you can do in return for something else.
I do this all of the time with my own family and friends. For instance if I need a ride because my car is in the shop, we usually set up a return favor like babysitting or doing their grocery shopping for them.
Step 2:Networking online at web sites like Facebook can really get you a ton of traffic for bartering. Setting up blogs is really great for bartering. Myspace is also a great way to get traffic for your bartering. Craigslist is a excellent website as well for bartering
Step 3:Financially people are unable to pay for stuff that they need. But they have things to give beside money. And I have a closet full of things that I really don't need or want. So I will exchange somethings that I have for a babysitting favor. So instead of paying a babysitter that I cannot afford I will give them my extra DVD player.
edit by Mr zhang
Step 1:Start off by sending a mass email to your friends and family. Let the email contain what you have and or what you can do in return for something else.
I do this all of the time with my own family and friends. For instance if I need a ride because my car is in the shop, we usually set up a return favor like babysitting or doing their grocery shopping for them.
Step 2:Networking online at web sites like Facebook can really get you a ton of traffic for bartering. Setting up blogs is really great for bartering. Myspace is also a great way to get traffic for your bartering. Craigslist is a excellent website as well for bartering
Step 3:Financially people are unable to pay for stuff that they need. But they have things to give beside money. And I have a closet full of things that I really don't need or want. So I will exchange somethings that I have for a babysitting favor. So instead of paying a babysitter that I cannot afford I will give them my extra DVD player.
edit by Mr zhang
Thursday, July 17, 2008
Financials are cheap: Do you buy?
Durban - Financial shares moved up encouragingly on the JSE on Wednesday. But it looks like the share prices of banks and insurers were buoyed by positive news from overseas, where in the US more emergency lending was promised to banks caught in the credit squeeze.
European markets also took a more favourable view on banks, and the sentiment spread to the local stock exchange.
It has been a strange week for financials in SA, with indices riding a see-saw up and down with resource counters sitting on the other side.
There's little doubt SA-based banks and insurance companies are cheap - but are they worth buying?
"We're on a tightrope with resources versus financials," says Nigel McKenzie, head of research and financials at Stanlib Asset Management.
"Financials are probably the most difficult call to make at this stage. The view on resources is probably the clearest; our team remains bullish. The big challenge is when do we make the obvious switch into financials."
McKenzie emphasises this is a short-term consideration, and doesn't really change the asset manager's long-term outlook. But he adds there's been a lot of "table-banging" over financial share valuations - it's clearly occupying the minds of Stanlib analysts and fund managers.
In an earlier presentation Paul Hansen, Stanlib's director of retail investments, took a look at the SA market, including the perplexing question of when financial shares would re-rate.
Second-quarter numbers show the divergence in the market: resources up 13.4%, financial and industrials down 6.4%, within which the banking index lost 14.8%.
Local banks follow the downtrend overseas, where banks in the UK, Europe and US look very cheap. Median earnings multiples on banks range from around three times in the UK to just under eight times in Germany and the US.
But Stanlib's forecast for earnings growth one year out (which over the longer term should be reflected in share prices) has financials up by 11%, against 18% for industrials and 61% for resources.
Hansen warns short-term risks (for financials and industrials) are rising. "Headwinds of inflation, high wage increases, interest rates and the global slowdown are all risks to the downside."
However he adds bank shares are presenting a once-in-20-years opportunity. The dividend yield for Standard Bank, for instance, is at its highest level in 19 years.
Hansen's conclusion is to remain sceptical about financial and industrial shares "for the next year or so in the climate of rising interest rates, although some value is clearly emerging".
He feels investors could follow a "gradual buying programme" in bombed-out sectors like property, financials, many industrials and small cap funds.
Being underweight in financials, he's following his own advice for his personal portfolio, saying he?s easing money into the Stanlib Financials unit trust fund on a monthly basis.
McKenzie also feels there's too much uncertainty about future earnings of banks, and he sees the possibility of negative house prices as a risk as it could become the largest component of banks' bad debts. "The only time bank shares have traded below book valuations was in 1984 when house prices were negative," he says. What should investors do? Phasing money into a financial fund seems a sound idea, taking advantage of low share prices (that could fall further) but being placed in the market for the upturn. Buying individual counters is a tougher decision.
Investors with a longer-term view might consider dipping into selected counters now. You can wait for signs of a sustained upturn, but by the time you get in you might have lost 10% to 20% of the re-rating.
- Fin24.com
European markets also took a more favourable view on banks, and the sentiment spread to the local stock exchange.
It has been a strange week for financials in SA, with indices riding a see-saw up and down with resource counters sitting on the other side.
There's little doubt SA-based banks and insurance companies are cheap - but are they worth buying?
"We're on a tightrope with resources versus financials," says Nigel McKenzie, head of research and financials at Stanlib Asset Management.
"Financials are probably the most difficult call to make at this stage. The view on resources is probably the clearest; our team remains bullish. The big challenge is when do we make the obvious switch into financials."
McKenzie emphasises this is a short-term consideration, and doesn't really change the asset manager's long-term outlook. But he adds there's been a lot of "table-banging" over financial share valuations - it's clearly occupying the minds of Stanlib analysts and fund managers.
In an earlier presentation Paul Hansen, Stanlib's director of retail investments, took a look at the SA market, including the perplexing question of when financial shares would re-rate.
Second-quarter numbers show the divergence in the market: resources up 13.4%, financial and industrials down 6.4%, within which the banking index lost 14.8%.
Local banks follow the downtrend overseas, where banks in the UK, Europe and US look very cheap. Median earnings multiples on banks range from around three times in the UK to just under eight times in Germany and the US.
But Stanlib's forecast for earnings growth one year out (which over the longer term should be reflected in share prices) has financials up by 11%, against 18% for industrials and 61% for resources.
Hansen warns short-term risks (for financials and industrials) are rising. "Headwinds of inflation, high wage increases, interest rates and the global slowdown are all risks to the downside."
However he adds bank shares are presenting a once-in-20-years opportunity. The dividend yield for Standard Bank, for instance, is at its highest level in 19 years.
Hansen's conclusion is to remain sceptical about financial and industrial shares "for the next year or so in the climate of rising interest rates, although some value is clearly emerging".
He feels investors could follow a "gradual buying programme" in bombed-out sectors like property, financials, many industrials and small cap funds.
Being underweight in financials, he's following his own advice for his personal portfolio, saying he?s easing money into the Stanlib Financials unit trust fund on a monthly basis.
McKenzie also feels there's too much uncertainty about future earnings of banks, and he sees the possibility of negative house prices as a risk as it could become the largest component of banks' bad debts. "The only time bank shares have traded below book valuations was in 1984 when house prices were negative," he says. What should investors do? Phasing money into a financial fund seems a sound idea, taking advantage of low share prices (that could fall further) but being placed in the market for the upturn. Buying individual counters is a tougher decision.
Investors with a longer-term view might consider dipping into selected counters now. You can wait for signs of a sustained upturn, but by the time you get in you might have lost 10% to 20% of the re-rating.
- Fin24.com
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