(From The Independent (London), provided by LexisNexis)
Publication: The Independent (London)
HAMISH McRAE Business Communicator of the Year
It is that time of year when the professional make their customary predictions about the world economy and markets for the forthcoming year, and a pretty downbeat lot they are.
If one were to try to distil the main economic messages, these would be that there will be a slowdown in the US that may or may not turn into a recession, that this will depress growth in Europe, but that growth in Asia will race on.
The parallel messages for the markets are similarly sober: a year when shares and bonds move sideways and that opportunities will be in specific areas that at present look bombed out, including banks and property.
In other words, most of the comment is on the lines of "more of the same". To say that is vastly to over-simplify, and there are interesting shades of difference between the protagonists: for example, while the balance of opinion is that the US will not have a recession next year, quite a few commentators put the possibility at evens. But the tone is almost universally cautious, and I think the explanation for that is that the professional forecasters have been pretty battered over the past year by their failure to pick up the dangers that the markets were running and the mayhem in the second half of this year.
I cannot find a single reference, on an admittedly quick look at last year's crop of forecasts, to the possibility of a liquidity crisis. Nor was there much about the possibility of the oil price doubling or the dollar falling as sharply as it has done. There were references, including some on these pages, to the overvaluation of house prices worldwide, and some of us reckoned that the end of this economic cycle would in some way be associated with falling property prices. But I know I saw the explosive growth of the hedge funds as the major source of potential weakness in the financial system, rather than the antics of mainstream banks. Some of the hedge funds have run into problems, but they have not destabilised the system, while the banks have.
Why did we miss this? The best explanation I have heard is the barbell one. On one side of the barbell are the experts who constructed the complicated financial instruments that bundled together the sub-prime debts and then created the off-balance sheet entities that apparently relieved the banks of these debts. They were so close to the minutiae of what they were doing that they did not appreciate the dangers or see the links in the financial system. On the other side of the barbell were the generalists, the economists and bankers, who understood the system but did not know enough about the intricacies of these instruments to see how they might unravel. Hardly anyone was in the middle, understanding both sides.
Are there similar black holes in our understanding now, and how severe will the consequences of these past months of mayhem be?
I don't think there is anything analogous to the credit crunch just round the corner, aside from the usual suspects of the financial imbalances between the US and Asia leading to a collapse of the dollar rather than the slow slide so far experienced. I suppose the dangers of some financial disruption in China or India should trouble people, but I think the main theme of the coming year will be sorting out the consequences of the past year's excesses. There are several more months of disruption to come.
You can see quite how suddenly the money market chaos struck from the first graph. It shows the gap between the three-month dollar interbank rate and the US Fed Funds target rate. The gap was dead steady until August, then suddenly shot all over the place. It is particularly wide at the moment as banks scramble to garner enough cash to make the year-end balance sheets look all right. Gradually next year it will come down, but banks all over the world will be reluctant to lend money except on watertight terms. Credit may become cheaper, but it will not become more available. As a result, power will shift to entities that have lots of cash, cash-rich companies, sovereign investment funds and the like. It will also shift regionally, towards the Middle East and Asia, and away from the US, and to a lesser extent the UK.
The shift of power away from the US will also be associated with some sort of slowdown there. That has already begun. The second graph shows some assessments from Barclays Capital of the profile of US and world growth through the second half of this year and then on through 2008. You see the main message: a sharp slowdown in the US (though not a recession) but a slower one for the world as a whole.
It would be naïve to think that the UK will escape unscathed, but I have only seen one prediction that we too might slip into recession next year. That comes from Saxo Bank in Copenhagen, which deliberately sets out some "outrageous predictions" - things that it does not expect to happen but just might. Among these are oil to $175 a barrel and a fall in the Chinese stock market of 40 per cent by year end. Were oil to go to that level the rest might follow.
Perhaps the most interesting question next year will be the ability of the emerging world, and in particular Asia, to decouple from the slowdown in the developed world. Can they race on if we slow down? To some extent the answer must be "yes", but I do think it is right to flag up some warnings.
One of the most alarming features of the past year, alarming in particular for the emerging economies, has been the surge in the price of food. You can see what has happened in the final graph. Part of the reason for that has been misplaced eco-friendly policies: taking food crops and turning them into fuel. But part has also been rising demand in China and elsewhere, including rising demand for meat. As living standards continue to rise throughout Asia such demand will probably carry on increasing. This is good news for the farmers of North America and Brazil, but it is adding to global inflation, and is particularly hard on poorer people in poorer countries. Rising food prices could bring serious disruption, social as well as economic, to the world next year.
The big point here is that we all know there will be some sort of downturn in the next couple of years but we don't know the timing or the severity.
My own instinct is that the year to worry about is 2009 rather than 2008, because I think there is sufficient momentum in the world economy to carry us through most of next year. But that may underestimate the severity of a US downturn.
Our parochial concern in the UK must surely be that were a downturn to come it would not be easy to offset a fall in demand by increasing the budget deficit, for we are not in as strong a fiscal position as we were in the last cycle. That may appear to be Alistair Darling's problem, but of course it is also ours.
NEWS - Commodites, Agriculture, Green Investment - NEWS
12/21/2007
National Fuel wants state to investigate hedge fund: Energy firm questions investor's compliance
(From Buffalo News (New York), provided by LexisNexis)
Publication: Buffalo News (New York)
David Robinson, The Buffalo News, N.Y.
Dec. 20--National Fuel Gas Co. is asking New York's utility regulators to investigate whether the hedge fund that wants to change the way the Amherst-based energy company is run is complying with the state's utility laws.
National Fuel, mirroring a move it made in Pennsylvania more than a month ago, on Wednesday asked the state Public Service Commission to determine whether New Mountain Vantage, which controls 9.7 percent of the company's stock, is trying to acquire a controlling interest in the company.
If the PSC were to rule that was the case, New Mountain could be forced to obtain approval from the commission to hold the shares. Regulators also could hold hearings on whether New Mountain's acquisition of National Fuel stock is in the public interest.
"Public utility law is designed to protect utility companies," said Julie Coppola Cox, a National Fuel spokeswoman. "Any entity like this that's trying to influence, or take over, a utility should be observant of those laws."
New Mountain is nominating its own slate of three directors in the February shareholder vote on the three open seats on National Fuel's board. The company also has recommended that National Fuel sell several of its businesses, change the ownership structure of others and speed up the pace of its drilling operations on the nearly 1 million acres of land the company controls in New York and Pennsylvania.
"National Fuel's petition is without merit," said Nina Devlin, a New Mountain spokeswoman. The investors believe their plan would increase shareholder value for National Fuel's stock holders, while "preserving the reliability" of its utility operations.
The filing "is merely another tactic being employed by National Fuel's entrenched board to frustrate the federal securities laws and to disenfranchise shareholders from electing the board
representatives they desire," Devlin said.
National Fuel, in its petition, alleges that New Mountain and "other hedge funds and similar entities" it has been acting in concert with control more than 20 percent of the company's stock, topping the 10 percent threshold that would require PSC approval.
The petition asks the PSC to force New Mountain to disclose how much stock the hedge fund and its allies have accumulated while "advancing its scheme to gain control of National through the purchase of stock by allies that remain cloaked in anonymity."
Devlin said New Mountain already has disclosed its direct holdings, as required by the Securities and Exchange Commission, and would update that information if it were to change.
In addition to accelerating its Appalachian drilling, New Mountain has recommended that National Fuel sell its smaller energy marketing, timber and landfill gas businesses, along with its Gulf of Mexico oil and natural gas wells, using the proceeds to buy back stock or pay a special dividend to shareholders.
National Fuel said it believes New Mountain, whose plans would effectively break up the company, should have sought approval from the PSC before it positioned itself to have "substantial influence and control" over the way the utility business is run.
A similar petition still is pending before the Pennsylvania Public Utility Commission.
Publication: Buffalo News (New York)
David Robinson, The Buffalo News, N.Y.
Dec. 20--National Fuel Gas Co. is asking New York's utility regulators to investigate whether the hedge fund that wants to change the way the Amherst-based energy company is run is complying with the state's utility laws.
National Fuel, mirroring a move it made in Pennsylvania more than a month ago, on Wednesday asked the state Public Service Commission to determine whether New Mountain Vantage, which controls 9.7 percent of the company's stock, is trying to acquire a controlling interest in the company.
If the PSC were to rule that was the case, New Mountain could be forced to obtain approval from the commission to hold the shares. Regulators also could hold hearings on whether New Mountain's acquisition of National Fuel stock is in the public interest.
"Public utility law is designed to protect utility companies," said Julie Coppola Cox, a National Fuel spokeswoman. "Any entity like this that's trying to influence, or take over, a utility should be observant of those laws."
New Mountain is nominating its own slate of three directors in the February shareholder vote on the three open seats on National Fuel's board. The company also has recommended that National Fuel sell several of its businesses, change the ownership structure of others and speed up the pace of its drilling operations on the nearly 1 million acres of land the company controls in New York and Pennsylvania.
"National Fuel's petition is without merit," said Nina Devlin, a New Mountain spokeswoman. The investors believe their plan would increase shareholder value for National Fuel's stock holders, while "preserving the reliability" of its utility operations.
The filing "is merely another tactic being employed by National Fuel's entrenched board to frustrate the federal securities laws and to disenfranchise shareholders from electing the board
representatives they desire," Devlin said.
National Fuel, in its petition, alleges that New Mountain and "other hedge funds and similar entities" it has been acting in concert with control more than 20 percent of the company's stock, topping the 10 percent threshold that would require PSC approval.
The petition asks the PSC to force New Mountain to disclose how much stock the hedge fund and its allies have accumulated while "advancing its scheme to gain control of National through the purchase of stock by allies that remain cloaked in anonymity."
Devlin said New Mountain already has disclosed its direct holdings, as required by the Securities and Exchange Commission, and would update that information if it were to change.
In addition to accelerating its Appalachian drilling, New Mountain has recommended that National Fuel sell its smaller energy marketing, timber and landfill gas businesses, along with its Gulf of Mexico oil and natural gas wells, using the proceeds to buy back stock or pay a special dividend to shareholders.
National Fuel said it believes New Mountain, whose plans would effectively break up the company, should have sought approval from the PSC before it positioned itself to have "substantial influence and control" over the way the utility business is run.
A similar petition still is pending before the Pennsylvania Public Utility Commission.
12/20/2007
Nord Pool plans to start electricity futures index
Nord Pool ASA, Europe's biggest power exchange, plans to start the region's first index based on electricity futures, allowing investors to bet on the direction of prices. A ``raw version'' of the index is ready and is yet to be tested, company spokesman Lars Galtung said by phone from Oslo today. He declined to say when the index will be published. Nordic Commodity Funds AB, an electricity hedge fund manager, is ready to start two funds tracking the index.
Will 2008 Be a Year of Growth or Hardship?
By Stephen Clayson
19 Dec 2007 at 02:30 PM GMT-05:00
LONDON (ResourceInvestor.com) -- The past few years have been characterised by good times for the world economy. Despite soaring oil prices, growth has been robust and inflation has not been an issue. Thanks to the resurgence of China there is now a new engine of world growth, and the effects of this sea change are being felt in all corners of the globe.
The effect on world economic growth of China’s return has been such that the recession that could have followed the bursting of the dotcom bubble never really bit, and the first years of the new millennium have been economically pretty benign. But this year, there is a feeling in some quarters, although by no means all, that the economic plain sailing may have to come to an end, at least temporarily.
Good times for the mining industry seem set to roll on. Despite the pressure felt by base metal prices in the past few weeks, there will be no return to the bad old days of the 1990s just yet. The fundamental clash between years of underinvestment in producing capacity and extraordinary demand growth hasn’t gone away.
Despite the underwhelming performance of gold so far this month – the smaller than hoped for cut in U.S. interest rates earlier this month facilitated a mini-rally in the dollar and stymied my hope for US$900 an ounce gold by Christmas – next year could be a halcyon one for the yellow metal.
Economic weakness in the U.S. will persist into next year and the Federal Reserve will likely be forced into making further cuts in interest rates. Although rates may fall elsewhere too – they have already begun to fall in the U.K. and may begin to fall in the eurozone – it is the U.S. economy that ultimately is at the heart of the sub-prime mortgage crisis that has been the big short term economic story of the second half of 2007.
Falling U.S. home prices spurred by sub-prime mortgage defaults, which are followed by repossessions and rushed sales, will rattle the U.S. consumer. Further falls in the dollar, which will come despite the palliative effect that its depreciation to date has had on the U.S. trade deficit, has the potential to generate a great deal of inflationary pressure in the U.S., but with the economy still weak, the Fed will be stuck between a rock and a hard place.
On the one hand, the Fed needs to stimulate economic activity, but on the other it has to control inflation and combat a perception that cheap money courtesy of Alan Greenspan’s Fed contributed to the U.S. housing boom, and now to the bust.
Why must the dollar keep falling? Because though the depreciation of the greenback so far has made a dent in the U.S. trade deficit, the deficit is still running at an unsustainable level. Furthermore, the dollar has yet to fully adjust to the reduced importance of the U.S. in the world economy and the arrival of the new engine I mentioned in this article’s opening paragraph.
Ultimately, the dollar still retains the support, for now, of East Asian governments and of the major oil producers. Until there is a decisive shift in the attitudes of these parties, particularly the former group – who choose to prop up the dollar in order to safeguard U.S. demand for their imports - then the greenback can’t complete the adjustment it needs to make.
But the willingness of overseas governments to fund U.S. borrowing will diminish as the country becomes a smaller part of the global economy, and sooner or later, the big players in the dollar prop-up game will look for something smarter to do with their money. That shift, if it takes place in 2008, won’t just be the story of the year, but of the decade and beyond.
The expectation of this impending rebalancing remains the major driver of the gold market, while the base metals and many other commodities ultimately depend on the health of that new engine, although tough economic times in the U.S. are unhelpful.
The economic tenor of 2008 depends on whether that engine can keep pulling the rest of the world along even while another great engine, the U.S. economy, is spluttering. The need for the dollar to fall further just makes things harder.
19 Dec 2007 at 02:30 PM GMT-05:00
LONDON (ResourceInvestor.com) -- The past few years have been characterised by good times for the world economy. Despite soaring oil prices, growth has been robust and inflation has not been an issue. Thanks to the resurgence of China there is now a new engine of world growth, and the effects of this sea change are being felt in all corners of the globe.
The effect on world economic growth of China’s return has been such that the recession that could have followed the bursting of the dotcom bubble never really bit, and the first years of the new millennium have been economically pretty benign. But this year, there is a feeling in some quarters, although by no means all, that the economic plain sailing may have to come to an end, at least temporarily.
Good times for the mining industry seem set to roll on. Despite the pressure felt by base metal prices in the past few weeks, there will be no return to the bad old days of the 1990s just yet. The fundamental clash between years of underinvestment in producing capacity and extraordinary demand growth hasn’t gone away.
Despite the underwhelming performance of gold so far this month – the smaller than hoped for cut in U.S. interest rates earlier this month facilitated a mini-rally in the dollar and stymied my hope for US$900 an ounce gold by Christmas – next year could be a halcyon one for the yellow metal.
Economic weakness in the U.S. will persist into next year and the Federal Reserve will likely be forced into making further cuts in interest rates. Although rates may fall elsewhere too – they have already begun to fall in the U.K. and may begin to fall in the eurozone – it is the U.S. economy that ultimately is at the heart of the sub-prime mortgage crisis that has been the big short term economic story of the second half of 2007.
Falling U.S. home prices spurred by sub-prime mortgage defaults, which are followed by repossessions and rushed sales, will rattle the U.S. consumer. Further falls in the dollar, which will come despite the palliative effect that its depreciation to date has had on the U.S. trade deficit, has the potential to generate a great deal of inflationary pressure in the U.S., but with the economy still weak, the Fed will be stuck between a rock and a hard place.
On the one hand, the Fed needs to stimulate economic activity, but on the other it has to control inflation and combat a perception that cheap money courtesy of Alan Greenspan’s Fed contributed to the U.S. housing boom, and now to the bust.
Why must the dollar keep falling? Because though the depreciation of the greenback so far has made a dent in the U.S. trade deficit, the deficit is still running at an unsustainable level. Furthermore, the dollar has yet to fully adjust to the reduced importance of the U.S. in the world economy and the arrival of the new engine I mentioned in this article’s opening paragraph.
Ultimately, the dollar still retains the support, for now, of East Asian governments and of the major oil producers. Until there is a decisive shift in the attitudes of these parties, particularly the former group – who choose to prop up the dollar in order to safeguard U.S. demand for their imports - then the greenback can’t complete the adjustment it needs to make.
But the willingness of overseas governments to fund U.S. borrowing will diminish as the country becomes a smaller part of the global economy, and sooner or later, the big players in the dollar prop-up game will look for something smarter to do with their money. That shift, if it takes place in 2008, won’t just be the story of the year, but of the decade and beyond.
The expectation of this impending rebalancing remains the major driver of the gold market, while the base metals and many other commodities ultimately depend on the health of that new engine, although tough economic times in the U.S. are unhelpful.
The economic tenor of 2008 depends on whether that engine can keep pulling the rest of the world along even while another great engine, the U.S. economy, is spluttering. The need for the dollar to fall further just makes things harder.
Volatility Churns up Opportunities and Dangers in Ag Markets
By Jacob Bunge, Financial Correspondent and Michael S. Fischer, Senior Financial Correspondent
Wednesday, December 19, 2007 6:09:08 PM ET
CHICAGO and LONDON (HedgeWorld.com)—Commodity trading advisers see big possibilities in the agricultural markets for 2008, if investors can navigate the rising volatility that's rocked the markets in the past year.
For professional traders, 2007 has been a year of transition in the agricultural markets, as they adjust to the new and heightened level of volatility that might be their new reality. Emerging markets' demand for raw materials and government-mandated biofuel programs are tightening supplies and lifting prices of agricultural commodities, while electronic trading drives ever-growing volume and new players are drawn to the markets by contracts' record highs.
Doug Carper, president and head trader of Lincoln, Neb.-based DEC Capital Inc., said he's reminded of the changes faced by energy traders as they watched prices in those markets double, and in some cases, triple. "A lot of people in that area had a difficult time transitioning to a much higher price plane," he said. "I think it's a case where professionals have to be more sensitive to managing volatility risk than ever before."
Mr. Carper speaks from experience. His vehicle, the DEC Futures Fund, got off to "a pretty good start" in 2007 and was up sharply in the first quarter, only to suffer through a deep decline in the second. Recovery began in the late summer, he said, but the fund's performance remained negative until the fourth quarter. He said he's currently projecting the fund would end the year with a 10% gain. Since inception, the vehicle has returned an annualized 17%.
Another firm that weathered 2007's significant volatility is Milwaukee-based Brock Capital Management LLC. Its Discretionary Agricultural Program lost 17% over August and September, only to rebound with a 14.7% gain in October. That month the program benefited most from a long position in orange juice and especially a short position in wheat, which paid off nicely, according to the firm's principal and manager Richard A. Brock.
"In 2007, for the first six months, there was no persistent trend at all and very choppy markets in the grains—if you happened to catch the bull market in wheat, that was pretty much the only good opportunity, but you still could've lost it all in the choppiness of corn and beans," Mr. Brock said. "The opportunities came in the second half."
The program is currently sitting on a 1.1% return for the year, though December's performance would probably add to that total, Mr. Brock said. He also predicted that his program would see big gains over the next two to three months as grain markets reached their peaks. "Ags, I think, were some of the best opportunities across all the commodities these past couple months, and that's going to continue for the next six months," he said.
But with the continuing high level of volatility in these markets, not much is certain. This year's bull market in wheat, for example, came as a surprise to Mr. Brock, and he now attributes it to heavy buying by index funds. At the peak, he said, index funds' position amounted to 250% of the crop, and as such their buying power far exceeded many traders' expectations. On the other hand, when the index funds stop buying, traders face downside risk. This was what provided Brock Capital's October windfall in the wheat market.
"I think that's where the soybean market is right now," Mr. Brock said. "[Index funds] have large long positions in soybeans and corn now, and unless they have more cash coming in the next few months … it will start to wane a little bit. Bull markets need cash to keep coming in. We saw it in wheat."
Index Funds and Other Influences
These phenomena, however, reflect a deeper change in the agricultural markets brought about by the arrival of index fund money. The real impact became obvious late in the first quarter of 2007, Mr. Brock said, and agricultural traders have had to adapt quickly to the new environment.
"As long as you recognize [index funds' presence], it can work in your favor, but it's important to recognize it changes the fundamental structure of a market," said Mr. Brock. "Markets don't react the way they used to, and that's why a lot of technical trading systems have had difficulties in the past couple of years, particularly in ags, because the market doesn't trend that well anymore."
At DEC Capital, Mr. Carper said he sees another factor—much of the volume going into trading floors and listed exchanges is being driven by hedge funds and other vehicles hedging over-the-counter transactions. Many of these transactions, Mr. Carper said, are very complex and the risk is difficult to manage, while the transparency is nowhere near the level required of CTAs. "It's wild, very wild," he said. "I would say that's a dynamite situation that could just get completely out of control."
Meanwhile, the growing momentum behind biofuel is exacerbating an already tight supply for agricultural commodities both domestically and globally, according to Mr. Carper. "[Biofuel] sounds wonderful, and it's like pulling a rabbit out of a hat for some politicians, but naturally it's disrupting the supply dramatically," he said.
Food prices are far more inelastic than fuel, Mr. Carper said, but they cannot compete against mandated demand. "So we have what could turn out to be a spectacular story unfolding here, but it could be spectacularly more so with any kind of hiccup or disruption in supply," he said. "We're trading on some uncharted territory, not only on prices, but on policy."
Not everyone foresees soaring prices. Mr. Brock, who described himself as something of a contrarian, said he believes the markets are on the brink of a long-term downtrend in energies, as those markets have already discounted all the bullish news that's come their way. "In 2008, overall, we'll see the opposite of 2007," he said. "It was a year of inflationary trends in agriculture and energy commodities, and I think 2008 will bring bear markets for both. . . . We're short the world."
Ags in 2007 and a Look Ahead
In their year-end commodities review, analysts at London-based ETF Securities wrote that in 2007, the attention of many agricultural commodities, propelled by high oil prices, turned from food to fuel. As the year progressed, this became a political issue that resulted in some countries reducing their exports or implementing export taxes. Resulting increases in food prices caused unrest among the public and a number of countries.
Besides new sources of demand such as ethanol, many agricultural commodities suffered from weather extremes while record-low inventories have supported prices and added to the effect of any supply disruptions caused by weather, according to the report. In addition, many commodities felt rising input costs, which are driven by rising energy prices and in particular rising fertilizer costs owing to rising demand.
Following is ETF Securities' roundup of the 2007 performance of agricultural commodities and the outlook for 2008:
The DJ-AIG Cotton Total Return Sub-Index was just about flat over the past 12 months. The positive effects of U.S. acreage rotation from cotton to corn and expectations of further rotations to wheat and other grains have been largely negated by increasing yields and higher-than-expected production in the United States. Long term, rising wealth levels in emerging markets may bode well for cotton demand.
The DJ-AIG Sugar Total Return Sub-Index fell by 20% over the past 12 months. High sugar prices in 2006 led to production increases in three large exporters, Brazil, India and Thailand, and to a sizeable global market surplus in 2007. Positive factors going forward include higher energy prices that will increase demand for sugar-based ethanol in Brazil, and higher corn prices, which should encourage substitution away from high-fructose corn syrup to sugar.
The DJ-AIG Coffee Total Return Sub-Index decreased by 4.5% over the past 12 months. Looking ahead, positive portents include tightening of land availability in Brazil as coffee, soybeans and sugar compete for acreage. In addition, coffee consumption has steadily increased in Japan and China, traditionally tea-drinking countries.
The DJ-AIG Corn Total Return Sub-Index fell by 4% over the past 12 months. After surging in 2005 and 2006, driven by burgeoning demand from ethanol-producing facilities, corn prices stabilized in 2007 because of record production in both the United States and worldwide. China, the world's fourth-largest corn exporter in 2006, could soon become a net importer of corn for the first time in more than a decade. China also suspended approvals for corn-based ethanol projects in an attempt to keep food price inflation under control. World inventories for 2008 are forecast at 14% of global demand, the lowest level seen in more than three decades. Despite massive crop rotation toward corn acreage this year, the United States is expected to achieve only a modest surplus, and the world market is expected to remain in deficit.
The DJ-AIG Wheat Total Return Sub-Index increased by 56% over the past 12 months. Wheat prices hit a record high in October because of all-time low inventories and weather-related supply disruptions in various place around the world. Since October, prices have receded on expectations that high prices could reduce feed demand and increase incentives to plant more winter wheat acres.
The DJ-AIG Soybean Total Return Sub-Index and the DJ-AIG Soybean Oil Total Return Sub-Index increased by 53% and 48%, respectively, over the past 12 months. Soybean oil prices are highly correlated with soybean prices. The surge was driven on the supply side by a sharp decline in soybean acreage in 2007, a direct consequence of crop rotation from soybeans to corn, which will likely lead to a sharp drawdown in U.S. and world inventories. Prices also were supported by supply disruptions in wheat that motivated feed substitution toward corn and soybeans. The trend also was reinforced by market concerns over dry weather in Brazil. On the demand side, growth from Asia was strong, led by China's demand for feed. The strength of both soybean and soybean oil prices has also been associated with rapidly increasing demand from bio-diesel production facilities, which in turn has been supported by high energy prices.
Wednesday, December 19, 2007 6:09:08 PM ET
CHICAGO and LONDON (HedgeWorld.com)—Commodity trading advisers see big possibilities in the agricultural markets for 2008, if investors can navigate the rising volatility that's rocked the markets in the past year.
For professional traders, 2007 has been a year of transition in the agricultural markets, as they adjust to the new and heightened level of volatility that might be their new reality. Emerging markets' demand for raw materials and government-mandated biofuel programs are tightening supplies and lifting prices of agricultural commodities, while electronic trading drives ever-growing volume and new players are drawn to the markets by contracts' record highs.
Doug Carper, president and head trader of Lincoln, Neb.-based DEC Capital Inc., said he's reminded of the changes faced by energy traders as they watched prices in those markets double, and in some cases, triple. "A lot of people in that area had a difficult time transitioning to a much higher price plane," he said. "I think it's a case where professionals have to be more sensitive to managing volatility risk than ever before."
Mr. Carper speaks from experience. His vehicle, the DEC Futures Fund, got off to "a pretty good start" in 2007 and was up sharply in the first quarter, only to suffer through a deep decline in the second. Recovery began in the late summer, he said, but the fund's performance remained negative until the fourth quarter. He said he's currently projecting the fund would end the year with a 10% gain. Since inception, the vehicle has returned an annualized 17%.
Another firm that weathered 2007's significant volatility is Milwaukee-based Brock Capital Management LLC. Its Discretionary Agricultural Program lost 17% over August and September, only to rebound with a 14.7% gain in October. That month the program benefited most from a long position in orange juice and especially a short position in wheat, which paid off nicely, according to the firm's principal and manager Richard A. Brock.
"In 2007, for the first six months, there was no persistent trend at all and very choppy markets in the grains—if you happened to catch the bull market in wheat, that was pretty much the only good opportunity, but you still could've lost it all in the choppiness of corn and beans," Mr. Brock said. "The opportunities came in the second half."
The program is currently sitting on a 1.1% return for the year, though December's performance would probably add to that total, Mr. Brock said. He also predicted that his program would see big gains over the next two to three months as grain markets reached their peaks. "Ags, I think, were some of the best opportunities across all the commodities these past couple months, and that's going to continue for the next six months," he said.
But with the continuing high level of volatility in these markets, not much is certain. This year's bull market in wheat, for example, came as a surprise to Mr. Brock, and he now attributes it to heavy buying by index funds. At the peak, he said, index funds' position amounted to 250% of the crop, and as such their buying power far exceeded many traders' expectations. On the other hand, when the index funds stop buying, traders face downside risk. This was what provided Brock Capital's October windfall in the wheat market.
"I think that's where the soybean market is right now," Mr. Brock said. "[Index funds] have large long positions in soybeans and corn now, and unless they have more cash coming in the next few months … it will start to wane a little bit. Bull markets need cash to keep coming in. We saw it in wheat."
Index Funds and Other Influences
These phenomena, however, reflect a deeper change in the agricultural markets brought about by the arrival of index fund money. The real impact became obvious late in the first quarter of 2007, Mr. Brock said, and agricultural traders have had to adapt quickly to the new environment.
"As long as you recognize [index funds' presence], it can work in your favor, but it's important to recognize it changes the fundamental structure of a market," said Mr. Brock. "Markets don't react the way they used to, and that's why a lot of technical trading systems have had difficulties in the past couple of years, particularly in ags, because the market doesn't trend that well anymore."
At DEC Capital, Mr. Carper said he sees another factor—much of the volume going into trading floors and listed exchanges is being driven by hedge funds and other vehicles hedging over-the-counter transactions. Many of these transactions, Mr. Carper said, are very complex and the risk is difficult to manage, while the transparency is nowhere near the level required of CTAs. "It's wild, very wild," he said. "I would say that's a dynamite situation that could just get completely out of control."
Meanwhile, the growing momentum behind biofuel is exacerbating an already tight supply for agricultural commodities both domestically and globally, according to Mr. Carper. "[Biofuel] sounds wonderful, and it's like pulling a rabbit out of a hat for some politicians, but naturally it's disrupting the supply dramatically," he said.
Food prices are far more inelastic than fuel, Mr. Carper said, but they cannot compete against mandated demand. "So we have what could turn out to be a spectacular story unfolding here, but it could be spectacularly more so with any kind of hiccup or disruption in supply," he said. "We're trading on some uncharted territory, not only on prices, but on policy."
Not everyone foresees soaring prices. Mr. Brock, who described himself as something of a contrarian, said he believes the markets are on the brink of a long-term downtrend in energies, as those markets have already discounted all the bullish news that's come their way. "In 2008, overall, we'll see the opposite of 2007," he said. "It was a year of inflationary trends in agriculture and energy commodities, and I think 2008 will bring bear markets for both. . . . We're short the world."
Ags in 2007 and a Look Ahead
In their year-end commodities review, analysts at London-based ETF Securities wrote that in 2007, the attention of many agricultural commodities, propelled by high oil prices, turned from food to fuel. As the year progressed, this became a political issue that resulted in some countries reducing their exports or implementing export taxes. Resulting increases in food prices caused unrest among the public and a number of countries.
Besides new sources of demand such as ethanol, many agricultural commodities suffered from weather extremes while record-low inventories have supported prices and added to the effect of any supply disruptions caused by weather, according to the report. In addition, many commodities felt rising input costs, which are driven by rising energy prices and in particular rising fertilizer costs owing to rising demand.
Following is ETF Securities' roundup of the 2007 performance of agricultural commodities and the outlook for 2008:
The DJ-AIG Cotton Total Return Sub-Index was just about flat over the past 12 months. The positive effects of U.S. acreage rotation from cotton to corn and expectations of further rotations to wheat and other grains have been largely negated by increasing yields and higher-than-expected production in the United States. Long term, rising wealth levels in emerging markets may bode well for cotton demand.
The DJ-AIG Sugar Total Return Sub-Index fell by 20% over the past 12 months. High sugar prices in 2006 led to production increases in three large exporters, Brazil, India and Thailand, and to a sizeable global market surplus in 2007. Positive factors going forward include higher energy prices that will increase demand for sugar-based ethanol in Brazil, and higher corn prices, which should encourage substitution away from high-fructose corn syrup to sugar.
The DJ-AIG Coffee Total Return Sub-Index decreased by 4.5% over the past 12 months. Looking ahead, positive portents include tightening of land availability in Brazil as coffee, soybeans and sugar compete for acreage. In addition, coffee consumption has steadily increased in Japan and China, traditionally tea-drinking countries.
The DJ-AIG Corn Total Return Sub-Index fell by 4% over the past 12 months. After surging in 2005 and 2006, driven by burgeoning demand from ethanol-producing facilities, corn prices stabilized in 2007 because of record production in both the United States and worldwide. China, the world's fourth-largest corn exporter in 2006, could soon become a net importer of corn for the first time in more than a decade. China also suspended approvals for corn-based ethanol projects in an attempt to keep food price inflation under control. World inventories for 2008 are forecast at 14% of global demand, the lowest level seen in more than three decades. Despite massive crop rotation toward corn acreage this year, the United States is expected to achieve only a modest surplus, and the world market is expected to remain in deficit.
The DJ-AIG Wheat Total Return Sub-Index increased by 56% over the past 12 months. Wheat prices hit a record high in October because of all-time low inventories and weather-related supply disruptions in various place around the world. Since October, prices have receded on expectations that high prices could reduce feed demand and increase incentives to plant more winter wheat acres.
The DJ-AIG Soybean Total Return Sub-Index and the DJ-AIG Soybean Oil Total Return Sub-Index increased by 53% and 48%, respectively, over the past 12 months. Soybean oil prices are highly correlated with soybean prices. The surge was driven on the supply side by a sharp decline in soybean acreage in 2007, a direct consequence of crop rotation from soybeans to corn, which will likely lead to a sharp drawdown in U.S. and world inventories. Prices also were supported by supply disruptions in wheat that motivated feed substitution toward corn and soybeans. The trend also was reinforced by market concerns over dry weather in Brazil. On the demand side, growth from Asia was strong, led by China's demand for feed. The strength of both soybean and soybean oil prices has also been associated with rapidly increasing demand from bio-diesel production facilities, which in turn has been supported by high energy prices.
Grains Top Performing Commodity Class of 2007
By Jon A. Nones
19 Dec 2007 at 06:16 PM GMT-05:00
St. LOUIS (ResourceInvestor.com) -- The grains complex has had a stellar year, outperforming energies, precious metals and base metals in 2007. Although corn has gained just 16% this year, soybeans are up 56% while wheat is 95% higher! Only time will tell if the long-term supply / demand fundamentals of agriculture will remain strong throughout 2008, but analyst say bullish factors still remain.
“Metals, oil and gold are dependent on the outlook for economic growth and also the financial markets. On the other hand, the factors which have caused grains to rise spectacularly this year still remain,” said Nik Bienkowski, CFA, director of marketing and research at ETF Securities, in speaking to RI.
In its “Commodities Review 2007, ETF Securities notes that its broad grains indexes are up over 40% on average due to global warming, extreme weather and demand for ethanol. In comparison, the company’s petroleum indexes are up over 30% and precious metals indexes are up about 20% this year.
*
The DJ-AIG Grains Index [LSE:AIGG] and the DJ-AIG Grains 3 Month Forward Index [LSE:GRAF] increased by 36% and 48.8% respectively over the past twelve months.
*
DJ-AIG Petroleum Index [LSE:AIGO] and the DJ-AIG Petroleum 3 Month Forward Index [LSE:FPET] were up 32% and 35%.
*
The DJ-AIG Precious Metals Index [LSE:AIGP] and the ETFS Physical PM Basket [LSE:PHPM] were both up by 17% and 21%.
Looking at specific prices, gold has increased by 26% over the past 12 months, while silver is up only 7%. Likewise, platinum has gained 28%, while sister metal palladium is up just 6%. Crude prices have gained 48% and uranium prices are up 25%. Among base metals, lead is the big winner with a 50% gain; then tin at 45%, cobalt 40% and molybdenum 30%, while other industrial metals are down.
Gains in wheat, soybeans and, to a lesser extent, corn this year have been driven by demand from ethanol fuel, Chinese demand and imports especially for soybeans, low inventories that continue to fall, falling land availability, decreasing returns from yield enhancements, a growing population and the effects of extreme weather patterns such as flood, drought and frost, according to ETF Securities.
Wheat
The DJ-AIG Wheat Index [LSE:WEAT] increased by 56% over the past 12 months due to droughts, floods and low inventories. Wheat prices have soared to all-time highs, touching $9.80 per bushel this month, amid record low inventories and a series of weather-related supply disruptions in different areas of the globe.
Australia, previously the world’s second largest exporting country in 2005, had its harvest forecast reduced for the second consecutive year due to severe droughts, down from 25 million tonnes in 2005 to 10 million tonnes in 2006 and 13 million tonnes in 2007. At 18% of annual demand in 2008, global wheat inventories are expected to be at their lowest level in more than 40 years.
Earlier this month, the USDA lowered its estimate for 2007-08 U.S. ending stocks by 32 million bushels to 280 million bushels, a 10% drop, which would be the lowest level in 60 years. Inventories in storage will fall 32% from a year ago to 8.49 million tonnes by May 31.
Meanwhile, demand from India, the world's second-biggest consumer of the grain behind China, has risen substantially amid slumping global inventories. India had about 9 million tonnes in storage on Nov. 23, enough to meet domestic demand for nine months. The government said in October it wants to buy 1 million tonnes more in case of emergencies.
Matthew Sena, CFA at Castlestone Management LLC, told RI that demand for wheat has stayed strong in spite of high prices and should continue to grow at a moderate pace. But he said that high prices will spur increased planted acreage and this should ease the supply crunch, barring continued poor production.
“For 2008, I expect both soybeans and corn to outperform and for wheat to underperform,” he said.
Soybeans
The DJ-AIG Soybean Index [LSE:SOYB] and the DJAIG Soybean Oil Index [LSE:SOYO] increased by 53% and 48% respectively over the past 12 months due decreasing crop acreage and robust Chinese demand growth. Soybean and soybean oil prices are hitting all-time highs, approaching $11.60 per bushel and 50 cents per pound, respectively.
According to ETF Securities, the sharp decline in soybean acreage this year was a direct consequence of crop rotation from soybeans to corn, which is also expected to result in a sharp drawdown in U.S. and world inventories. This was further compounded by supply disruptions in wheat, which motivated feed substitution towards corn and soybeans.
On the demand side, Chinese demand has risen steadily since 1995 when the country turned into a net importer of soybeans. China’s share of world imports has increased rapidly to 45%. According to analysts, China's soybean imports may grow by 9.6% on an annual basis this year to 31 million tonnes and increase to 45 million tonnes by 2012.
Sena said soybeans lost acreage last year despite increased demand, and demand should continue to grow in China and other developing nations.
“As per-capital income increases in developing nations, people are consuming higher protein diets; the production of greater amounts of meat requires feed in the form of corn and soy meal,” he said. “More corn used for ethanol will likely translate into increased need for soy meal as livestock feed.”
Strength in soybean and soybean oil prices has also been associated with rapidly increasing demand from bio-diesel production facilities due to higher crude prices, currently close to $90 per barrel. Presently, the U.S. has 53 biodiesel plants operating, with 38 more under construction and 22 additional plants being planned.
According to the DOA Farm Service Agency, one bushel of soybeans yields approximately 1.4 gallons of bio-diesel. Soybeans contain about 20% oil, so it takes almost 7.3 pounds of soybean oil to produce a gallon of bio-diesel.
Corn
The DJ-AIG Corn Index [LSE:CORN] fell by 4% over the past 12 months due to record production. U.S. corn acreage increased 18.5% this year from 78.3 to 92.9 million acres - a level not seen since 1944.
But corn prices surged in 2006 by more than 360%, driven by rapidly increasing demand from ethanol-producing facilities. Prices only stabilized in 2007 after more acreage was allotted to corn by farmers to take advantage of high prices.
“The same increase in acreage, however, is impossible to repeat in the short term, and in fact corn is likely to lose acreage to both wheat and soybeans,” said Sena.
Despite the massive crop rotation towards corn acreage this year, the U.S. is expected to achieve only a modest surplus, and the world market is expected to remain in deficit. The market is predicting 88.9 million acres as compared to 93.6 million acres in 2007. World inventories for 2008 are forecast at 14% of global demand, their lowest level in more than 30 years.
There are also indications that China, the world’s fourth largest corn exporter in 2006, could soon become a net importer of corn for the first time in more than a decade. In 2005-2006, the country harvested 139.37 million tonnes of corn. The domestic corn market was balanced roughly with consumption totalling 137.4 million tonnes and the export of 3.79 million tonnes.
Furthermore, China announced plans this week to cancel the current 13% export tax rebate on corn on Dec. 20 this year. The new grain export policy is aimed at restraining China's grain exports and ensuring domestic supply in order to cool prices. China also suspended approvals for corn-based ethanol projects in an attempt to keep food price inflation under control.
On the other side of the world, President Bush earlier today signed into law the “Energy Independence and Security Act,” which includes a historic Renewable Fuels Standard (RFS) calling for at least 36 billion gallons of ethanol to be used nationwide by 2022. It calls for 15 billion gallons per year of corn-based ethanol and another 21 billion gallons from “advanced bio-fuels” that use materials other than food crops.
“The recent farm and energy legislation is protective of the American farmer and mandates increases in corn-ethanol use over the next decade plus,” Sena confirmed.
Ethanol fuel is consuming 20% of last year's corn crop and is expected to gobble up more than 25% of this year's crop. This is up drastically from 5% in 2004 and 6% in 2005. U.S. ending stocks to usage ratio for the 2006/2007 crop year is pegged at 10.2%, the 4th lowest on record.
U.S. ethanol production is up almost 30% over last year with new production facilities coming online regularly. There are over 100 ethanol plants in operation at present in the U.S., but 40 more are in the making. Right now, there are 900 gas stations selling 85% ethanol (E85).
Darin Newsom, DTN senior analyst, said demand was expected to grow even before the signing of the Energy Bill, with 2.115 billion bushels projected to be used in 2007-2008 for ethanol and 3.2 billion bushels in 2008-2009.
He said the corn market is poised to begin its third leg of the long-term uptrend that began in late 2005 when the front-month contract was trading near $1.86. The second leg ran from $2.64 1/4 to $4.37 1/4. He predicts the third leg will push prices to between $6.10 and $6.50, most likely occurring in the last quarter of 2008.
“The corn market does indeed look like it will make the next big move - as far as grain markets are concerned,” concluded Newsom.
March corn rose 2.75 cents to settle at $4.3475 a bushel today on the Chicago Board of Trade, while March wheat advanced 21.5 cents to $9.7350 a bushel and January soybeans climbed 9.25 cents to close at $11.59 a bushel.
Gold steady around $800, platinum near record
Thu Dec 20, 2007 2:01am EST
(Adds closing in Tokyo)
Lewa Pardomuan
SINGAPORE, Dec 20 (Reuters) - Gold was steady around $800
an ounce on Thursday despite a firming U.S. dollar, while
platinum dropped but held near a record high on supply
concerns.
Thin market conditions meant platinum was prone to sharp
fluctuations after it hit an all-time high of $1,519 an ounce
on Tuesday on worries of a likely market deficit in 2008.
Spot gold rose as high as $803 an ounce before
slipping to $800.00/800.80 an ounce, down from $801.10/801.80
late in New York on Wednesday.
Gold was likely to trade in a volatile $780 and $820 range
until the end of the year, said some dealers, but may challenge
last month's 28-year high when players return from holidays in
early 2008.
"Given the movements in the U.S. dollar in the past week, I
actually think the gold price is surprisingly resilient," said
David Moore, a commodity analyst at the Commonwealth Bank of
Australia in Sydney.
"One of the key supports, which you know is the fragility
of the U.S. dollar, has been less apparent," he said.
Expectations of further U.S. rate cuts, record-high crude
oil CLc1 and uncertainty in the U.S. credit market propelled
gold to above $845 last month -- a whisker away from the record
peak of $850 hit in 1980.
"Many have already taken their Christmas holidays. I would
expect the situation to remain like this until the end of the
year. I would say $790 and $815 is the range for the rest of
the year," Peter Tse, a dealer at Scotia Mocatta in Hong Kong,
said.
The dollar eased to 113.19 yen but stayed in a range
of 113.60 yen hit last week for the first time since early
November, aided by short covering before investors close their
books at the end of the year.
The euro hardly moved at $1.4385 , having
fallen to $1.4325 the previous day, its lowest since late
October. A firmer dollar makes dollar-priced gold more
expensive for holders of other currencies.
Platinum hit a high of $1,515 an ounce but then
dropped to $1,504/1,509 an ounce, down from $1,516/1,521 in New
York on Wednesday.
Johnson Matthey (JMAT.L: Quote, Profile, Research), the world's main platinum refiner
and fabricator, said in November the market would change course
in 2007 and see a deficit of 265,000 ounces. It had a surplus
of 65,000 ounces in 2006 after seven successive years of
deficits.
Platinum was bolstered by a rising lease rate, triggered by
buying from commodity funds and banks.
Tokyo dealers said investments banks appeared to have
tapped the lease market because they wanted to avoid holding
short positions in platinum at times when credit concerns
stayed in the financial market.
Recent strength in Japanese platinum futures <0#JPL:>,
which are in a steep backwardation, provided overall support.
The most active December 2008 contract ended 16 yen per gram
lower at 5,245 yen after hitting a high of 5,282 yen.
Palladium fell to $352/356 an ounce from $355/360 in
New York. Silver edged down to $14.03/14.08 an ounce
from $14.09/14.14 late in New York.
Precious metals prices at 0642 GMT
Metal Last Change Pct chg YTD pct chg
Turnover
Spot Gold 800.30 -1.60 -0.20 25.89
Spot Silver 14.04 -0.07 -0.50 9.26
Spot Platinum 1505.00 -11.00 -0.73 32.95
Spot Palladium 352.00 0.00 +0.00 6.02
TOCOM Gold 2937.00 -8.00 -0.27 20.12
45013
TOCOM Platinum 5245.00 -16.00 -0.30 23.30
39722
TOCOM Silver 516.80 0.90 +0.17 4.76
786
TOCOM Palladium 1307.00 -20.00 -1.51 4.14
875
Euro/Dollar 1.4369
Dollar/Yen 113.20
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Additional reporting by Chikafumi Hodo in Tokyo; Editing
by Michael Urquhart)
(Adds closing in Tokyo)
Lewa Pardomuan
SINGAPORE, Dec 20 (Reuters) - Gold was steady around $800
an ounce on Thursday despite a firming U.S. dollar, while
platinum dropped but held near a record high on supply
concerns.
Thin market conditions meant platinum was prone to sharp
fluctuations after it hit an all-time high of $1,519 an ounce
on Tuesday on worries of a likely market deficit in 2008.
Spot gold
slipping to $800.00/800.80 an ounce, down from $801.10/801.80
late in New York on Wednesday.
Gold was likely to trade in a volatile $780 and $820 range
until the end of the year, said some dealers, but may challenge
last month's 28-year high when players return from holidays in
early 2008.
"Given the movements in the U.S. dollar in the past week, I
actually think the gold price is surprisingly resilient," said
David Moore, a commodity analyst at the Commonwealth Bank of
Australia in Sydney.
"One of the key supports, which you know is the fragility
of the U.S. dollar, has been less apparent," he said.
Expectations of further U.S. rate cuts, record-high crude
oil CLc1 and uncertainty in the U.S. credit market propelled
gold to above $845 last month -- a whisker away from the record
peak of $850 hit in 1980.
"Many have already taken their Christmas holidays. I would
expect the situation to remain like this until the end of the
year. I would say $790 and $815 is the range for the rest of
the year," Peter Tse, a dealer at Scotia Mocatta in Hong Kong,
said.
The dollar eased to 113.19 yen
of 113.60 yen hit last week for the first time since early
November, aided by short covering before investors close their
books at the end of the year.
The euro
fallen to $1.4325 the previous day, its lowest since late
October. A firmer dollar makes dollar-priced gold more
expensive for holders of other currencies.
Platinum
dropped to $1,504/1,509 an ounce, down from $1,516/1,521 in New
York on Wednesday.
Johnson Matthey (JMAT.L: Quote, Profile, Research), the world's main platinum refiner
and fabricator, said in November the market would change course
in 2007 and see a deficit of 265,000 ounces. It had a surplus
of 65,000 ounces in 2006 after seven successive years of
deficits.
Platinum was bolstered by a rising lease rate, triggered by
buying from commodity funds and banks.
Tokyo dealers said investments banks appeared to have
tapped the lease market because they wanted to avoid holding
short positions in platinum at times when credit concerns
stayed in the financial market.
Recent strength in Japanese platinum futures <0#JPL:>,
which are in a steep backwardation, provided overall support.
The most active December 2008 contract ended 16 yen per gram
lower at 5,245 yen after hitting a high of 5,282 yen.
Palladium
New York. Silver
from $14.09/14.14 late in New York.
Precious metals prices at 0642 GMT
Metal Last Change Pct chg YTD pct chg
Turnover
Spot Gold 800.30 -1.60 -0.20 25.89
Spot Silver 14.04 -0.07 -0.50 9.26
Spot Platinum 1505.00 -11.00 -0.73 32.95
Spot Palladium 352.00 0.00 +0.00 6.02
TOCOM Gold 2937.00 -8.00 -0.27 20.12
45013
TOCOM Platinum 5245.00 -16.00 -0.30 23.30
39722
TOCOM Silver 516.80 0.90 +0.17 4.76
786
TOCOM Palladium 1307.00 -20.00 -1.51 4.14
875
Euro/Dollar 1.4369
Dollar/Yen 113.20
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Additional reporting by Chikafumi Hodo in Tokyo; Editing
by Michael Urquhart)
12/19/2007
Calvert Portfolio Manager Sees Strong Year for Alternative Energy Opportunities Abroad
PR Newswire
December 12, 2007: 11:00 AM EST
Expert Focuses on Prospects for Companies Advancing Solar, Wind, and Other Clean Energy in Germany, Denmark and Norway
BETHESDA, Md., Dec. 12 /PRNewswire/ -- With rising oil prices, increasing regulatory/legislative constraints on carbon, and growing consumer demand for action, alternative energy companies are likely to experience strong growth in 2008. However, much of the benefit may flow to non-U.S. companies, according to Jens Peers, the Dublin-based portfolio manager of the Calvert Global Alternative Energy Fund (CGAEX). The Fund was launched on May 31, 2007 and is advised by Calvert Asset Management Company, Inc., investment advisor for Calvert, the first family and broadest array of socially and environmentally responsible mutual funds.
In highlighting the prospects of specific non-U.S. and U.S. companies, Jens Peers, head of ECO Investing at Dublin-based KBC Asset Management International Ltd. and lead portfolio manager of the Calvert Global Alternative Energy Fund, said: "Non-U.S. companies and markets will benefit from the improving prospects for alternative energy in 2008 because Europe, Asia and other regions are further along than the U.S in addressing climate change and oil dependency by embracing alternative energy technologies."
Bennett Freeman, Senior Vice President for Social Research and Policy, Calvert, said: "Calvert believes that companies--in all industries--must acknowledge and act now to address the climate change crisis. Global warming is at the forefront of Calvert's company analysis and environmental advocacy. With the Calvert Global Alternative Energy Fund, we are aligning our investment strategies and policy goals by offering our shareowners the opportunity to invest directly in climate change solutions. We are particularly proud that we have been able to do this with a truly global approach to focusing on the best solutions around the world."
Earlier this year, Calvert named KBC Asset Management International Ltd. as sub-advisor to the new fund. KBC's investment professionals have strong expertise in the fast growing, nascent alternative energy sector, a long history in socially responsible investing, and a strong reputation in multi-cap global investing. KBC, which launched one of the first global mutual funds with an alternative energy focus in 2000, has $28 billion in assets under management (Dublin office as of 11/30/07), and $6.5 billion in socially screened assets, and has $750 million in assets under management in the alternative energy sector.
ALTERNATIVE ENERGY INVESTING IN 2008
Vestas Wind Systems A/S (Nordic Exchange Copenhagen: VWS). Copenhagen-based Vestas is the world leader in delivering wind energy. Vestas already has installed over 33,500 wind turbines in 63 countries and on five continents - a rate of a new turbine every five hours. In fact, Vestas turbines generate more than 50 million megawatt hours (MWh) a year or enough power to supply millions of households. Vestas also has helped to design and deliver major improvements in wind turbine technology.
Q-Cells AG . Photovoltaic leader Q-Cells AG is located in Thalheim, Germany. In 2005, it became the world's second largest producer of solar cells with a 9 percent market share. A key to Q-Cells growth is a contracted and secured supply of silicon and silicon wafers. Q-Cells AG has already contracted for wafer and silicon supplies for a total capacity of 256 MWp in 2006. Q-Cells' core business is the development, production and sale of mono- and polycrystalline, silicon-based solar cells.
Renewable Energy Corporation ASA . Based in Hovik, Renewable Energy Corporation is a Norwegian solar energy company established in 1996. It is the world's largest producer of solar grade polysilicon, the world's largest producer of wafers for solar applications and a major producer of solar cells and modules. REC produces wafers in its ScanWafer subsidiary, cells in its ScanCell subsidiary, and modules in its ScanModule subsidiary. REC partnered with Q-Cells and Evergreen Solar in the EverQ company which converts polysilicon into modules. REC supplies polysilicon, Q-Cells provides manufacturing know how, and Evergreen provides a string ribbon manufacturing technology that uses much less silicon than traditional manufacturing technologies.
On the U.S. side of the alternative energy equation, Peers highlighted:
Nova Biosource Fuels, Inc. . Houston-based Nova Biosource Fuels, Inc., formerly Nova Oil, Inc., is an energy company that refines and markets biodiesel. The company owns a biodiesel refinery in Butte, Montana, which has a production capacity of 80,000 gallons of biodiesel per year. Nova is now focused on the operation of its 10 million gallon per year biodiesel refinery in Clinton, Iowa and on the construction and operation of three biodiesel refineries with production capacity of between 180 to 220 million gallons of biodiesel fuel on an annual basis. Nova's business strategy for the next three years includes building up to seven biodiesel refineries with production capacities ranging from 20 to 100 million gallons each per year. All of Nova's refineries will use its proprietary, patented process technology, which enables the use of a broader range of lower cost feedstocks.
SunPower Corporation . Based in San Jose, CA, SunPower designs, manufactures and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers. SunPower high-efficiency solar cells and solar panels generate up to 50 percent more power than conventional solar technologies. SunPower has offices in North America, Europe and Asia. SunPower is a majority-owned subsidiary of Cypress Semiconductor Corp. . Recently, SunPower announced that it had signed a five-year agreement with Jiawei SolarChina Co. Ltd. to secure a supply of monocrystalline silicon ingots and silicon wafers. SunPower said it will purchase sufficient silicon in ingot and wafer forms to satisfy production requirements and will provide Jiawei with polysilicon during the life of the agreement. Jiawei is affiliated with SunEnergy, SunPower's solar panel assembly partner.
As of November 30, 2007, these companies were held in the following Calvert socially-screened funds: Calvert Global Alternative Energy Fund held Vestas Wind Systems (5.2% of fund assets), Q-Cells AG (3.7%), Renewable Energy Corporation (4.3%), Nova Biosource Fuels (0.4%), and SunPower Corporation (5.2%); and Calvert Large Cap Growth Fund held SunPower Corporation (0.8%).
ABOUT THE FUND
Calvert launched the Calvert Global Alternative Energy Fund to meet growing investor demand for alternative energy both as a global investment opportunity and as an essential response to the climate change crisis. The Fund invests in a broad universe of U.S. and non-U.S. stocks, seeking out companies that are alternative energy market leaders as well as those building a significant presence in the sector.
Over the long term, Calvert believes that alternative energy technologies will become an increasingly significant solution to the global energy and climate change challenges. The firm believes it will take multiple strategies to address climate change and therefore advocates a broad range of solutions, such as greater energy efficiency and aggressive development of renewable energy sources.
Calvert Global Alternative Energy Fund is subject to risks because the stocks that comprise the energy sector may decline in value, and prices of energy (including traditional sources such as oil, gas or electricity) or alternative energy may decline. The stock markets in which the Fund invests may also experience periods of volatility and instability. In addition, shares of the companies involved in the energy industry have been more volatile than shares of companies operating in other, more established industries. Consequently, the Fund may tend to be more volatile than other mutual funds. Lastly, foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.
ABOUT CALVERT
Calvert is one of the nation's largest socially responsible mutual fund firms with approximately $16 billion in assets under management. Calvert offers 41 funds that allow individual and institutional investors to pursue a broad range of investment objectives within a single fund family. Calvert launched the Calvert Social Index (R), a benchmark for measuring the performance of large, U.S.-based socially responsible companies. For more information, visit http://www.Calvert.com on the Web.
ABOUT KBC ASSET MANAGEMENT INTERNATIONAL LTD.
KBC Asset Management International Ltd. employs a three-step investment process in selecting stocks for the fund. Through this highly disciplined approach to stock selection, KBC creates a universe of stocks, then establishes fund sub-sector target allocations, and finally creates the portfolio though stock analysis, weighting, and application of risk controls. The creation of the universe involves tapping numerous sources, including the firm's Environmental Advisory Committee, consisting of a diverse range of European experts on alternative energy and general energy issues.
For more information on any Calvert fund, please contact your financial advisor or call Calvert at (800) 368-2748 for a free prospectus. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The prospectus contains this and other information. Read it carefully before you invest or send money.
Calvert mutual funds are underwritten and distributed by Calvert Distributors Inc., member FINRA, a subsidiary of Calvert Group Ltd.
December 12, 2007: 11:00 AM EST
Expert Focuses on Prospects for Companies Advancing Solar, Wind, and Other Clean Energy in Germany, Denmark and Norway
BETHESDA, Md., Dec. 12 /PRNewswire/ -- With rising oil prices, increasing regulatory/legislative constraints on carbon, and growing consumer demand for action, alternative energy companies are likely to experience strong growth in 2008. However, much of the benefit may flow to non-U.S. companies, according to Jens Peers, the Dublin-based portfolio manager of the Calvert Global Alternative Energy Fund (CGAEX). The Fund was launched on May 31, 2007 and is advised by Calvert Asset Management Company, Inc., investment advisor for Calvert, the first family and broadest array of socially and environmentally responsible mutual funds.
In highlighting the prospects of specific non-U.S. and U.S. companies, Jens Peers, head of ECO Investing at Dublin-based KBC Asset Management International Ltd. and lead portfolio manager of the Calvert Global Alternative Energy Fund, said: "Non-U.S. companies and markets will benefit from the improving prospects for alternative energy in 2008 because Europe, Asia and other regions are further along than the U.S in addressing climate change and oil dependency by embracing alternative energy technologies."
Bennett Freeman, Senior Vice President for Social Research and Policy, Calvert, said: "Calvert believes that companies--in all industries--must acknowledge and act now to address the climate change crisis. Global warming is at the forefront of Calvert's company analysis and environmental advocacy. With the Calvert Global Alternative Energy Fund, we are aligning our investment strategies and policy goals by offering our shareowners the opportunity to invest directly in climate change solutions. We are particularly proud that we have been able to do this with a truly global approach to focusing on the best solutions around the world."
Earlier this year, Calvert named KBC Asset Management International Ltd. as sub-advisor to the new fund. KBC's investment professionals have strong expertise in the fast growing, nascent alternative energy sector, a long history in socially responsible investing, and a strong reputation in multi-cap global investing. KBC, which launched one of the first global mutual funds with an alternative energy focus in 2000, has $28 billion in assets under management (Dublin office as of 11/30/07), and $6.5 billion in socially screened assets, and has $750 million in assets under management in the alternative energy sector.
ALTERNATIVE ENERGY INVESTING IN 2008
Vestas Wind Systems A/S (Nordic Exchange Copenhagen: VWS). Copenhagen-based Vestas is the world leader in delivering wind energy. Vestas already has installed over 33,500 wind turbines in 63 countries and on five continents - a rate of a new turbine every five hours. In fact, Vestas turbines generate more than 50 million megawatt hours (MWh) a year or enough power to supply millions of households. Vestas also has helped to design and deliver major improvements in wind turbine technology.
Q-Cells AG . Photovoltaic leader Q-Cells AG is located in Thalheim, Germany. In 2005, it became the world's second largest producer of solar cells with a 9 percent market share. A key to Q-Cells growth is a contracted and secured supply of silicon and silicon wafers. Q-Cells AG has already contracted for wafer and silicon supplies for a total capacity of 256 MWp in 2006. Q-Cells' core business is the development, production and sale of mono- and polycrystalline, silicon-based solar cells.
Renewable Energy Corporation ASA . Based in Hovik, Renewable Energy Corporation is a Norwegian solar energy company established in 1996. It is the world's largest producer of solar grade polysilicon, the world's largest producer of wafers for solar applications and a major producer of solar cells and modules. REC produces wafers in its ScanWafer subsidiary, cells in its ScanCell subsidiary, and modules in its ScanModule subsidiary. REC partnered with Q-Cells and Evergreen Solar in the EverQ company which converts polysilicon into modules. REC supplies polysilicon, Q-Cells provides manufacturing know how, and Evergreen provides a string ribbon manufacturing technology that uses much less silicon than traditional manufacturing technologies.
On the U.S. side of the alternative energy equation, Peers highlighted:
Nova Biosource Fuels, Inc. . Houston-based Nova Biosource Fuels, Inc., formerly Nova Oil, Inc., is an energy company that refines and markets biodiesel. The company owns a biodiesel refinery in Butte, Montana, which has a production capacity of 80,000 gallons of biodiesel per year. Nova is now focused on the operation of its 10 million gallon per year biodiesel refinery in Clinton, Iowa and on the construction and operation of three biodiesel refineries with production capacity of between 180 to 220 million gallons of biodiesel fuel on an annual basis. Nova's business strategy for the next three years includes building up to seven biodiesel refineries with production capacities ranging from 20 to 100 million gallons each per year. All of Nova's refineries will use its proprietary, patented process technology, which enables the use of a broader range of lower cost feedstocks.
SunPower Corporation . Based in San Jose, CA, SunPower designs, manufactures and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers. SunPower high-efficiency solar cells and solar panels generate up to 50 percent more power than conventional solar technologies. SunPower has offices in North America, Europe and Asia. SunPower is a majority-owned subsidiary of Cypress Semiconductor Corp. . Recently, SunPower announced that it had signed a five-year agreement with Jiawei SolarChina Co. Ltd. to secure a supply of monocrystalline silicon ingots and silicon wafers. SunPower said it will purchase sufficient silicon in ingot and wafer forms to satisfy production requirements and will provide Jiawei with polysilicon during the life of the agreement. Jiawei is affiliated with SunEnergy, SunPower's solar panel assembly partner.
As of November 30, 2007, these companies were held in the following Calvert socially-screened funds: Calvert Global Alternative Energy Fund held Vestas Wind Systems (5.2% of fund assets), Q-Cells AG (3.7%), Renewable Energy Corporation (4.3%), Nova Biosource Fuels (0.4%), and SunPower Corporation (5.2%); and Calvert Large Cap Growth Fund held SunPower Corporation (0.8%).
ABOUT THE FUND
Calvert launched the Calvert Global Alternative Energy Fund to meet growing investor demand for alternative energy both as a global investment opportunity and as an essential response to the climate change crisis. The Fund invests in a broad universe of U.S. and non-U.S. stocks, seeking out companies that are alternative energy market leaders as well as those building a significant presence in the sector.
Over the long term, Calvert believes that alternative energy technologies will become an increasingly significant solution to the global energy and climate change challenges. The firm believes it will take multiple strategies to address climate change and therefore advocates a broad range of solutions, such as greater energy efficiency and aggressive development of renewable energy sources.
Calvert Global Alternative Energy Fund is subject to risks because the stocks that comprise the energy sector may decline in value, and prices of energy (including traditional sources such as oil, gas or electricity) or alternative energy may decline. The stock markets in which the Fund invests may also experience periods of volatility and instability. In addition, shares of the companies involved in the energy industry have been more volatile than shares of companies operating in other, more established industries. Consequently, the Fund may tend to be more volatile than other mutual funds. Lastly, foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.
ABOUT CALVERT
Calvert is one of the nation's largest socially responsible mutual fund firms with approximately $16 billion in assets under management. Calvert offers 41 funds that allow individual and institutional investors to pursue a broad range of investment objectives within a single fund family. Calvert launched the Calvert Social Index (R), a benchmark for measuring the performance of large, U.S.-based socially responsible companies. For more information, visit http://www.Calvert.com on the Web.
ABOUT KBC ASSET MANAGEMENT INTERNATIONAL LTD.
KBC Asset Management International Ltd. employs a three-step investment process in selecting stocks for the fund. Through this highly disciplined approach to stock selection, KBC creates a universe of stocks, then establishes fund sub-sector target allocations, and finally creates the portfolio though stock analysis, weighting, and application of risk controls. The creation of the universe involves tapping numerous sources, including the firm's Environmental Advisory Committee, consisting of a diverse range of European experts on alternative energy and general energy issues.
For more information on any Calvert fund, please contact your financial advisor or call Calvert at (800) 368-2748 for a free prospectus. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The prospectus contains this and other information. Read it carefully before you invest or send money.
Calvert mutual funds are underwritten and distributed by Calvert Distributors Inc., member FINRA, a subsidiary of Calvert Group Ltd.
Cashing In on the Global Economic Boom
By Jane Louis
18 Dec 2007 at 04:30 PM GMT-05:00
St. LOUIS (ResourceInvestor.com) -- The global population has grown by 300% since the stock market crashed in 1929. The world is booming, and emerging economies are leading the way. China and India together account for 2.45 billion of the world’s estimated 6.6 billion people - equalling nearly 40%. As these economies boom, the rate of infrastructure construction has exploded as well. And because infrastructure is growing, investors can count on resources to rally.
Investing in the global market is becoming an increasingly important theme in the commodities game - just consider the massive profit Warren Buffett made in China. In the presentation “The Year in Resources, Infrastructure and Emerging Markets”, U.S. Global Investors CEO Frank Holmes and his worldwide investment team discussed how this global investment theme is likely to take off, especially now that investors can see the growth in these emerging economies.
Economists have been calling for the global bubble to pop for several years now, according to Holmes, but it has yet to happen. In fact, the U.S. Global Investors team thinks there is much room to grow in the worldwide economic boom.
The proof can be seen in the success stories of global investments, particularly Buffett’s profits, Holmes said.
“I think it’s important to see that top investors have embraced this global theme,” he said.
The population boom in the past 80 years is driving infrastructure expansion in the top emerging economies - Brazil, Russia, India and China - and demand for resources to build that infrastructure is likely to continue to grow in those countries.
“The economic activities of these countries are phenomenal,” Holmes said. Oil and gold particularly have much room to rise during the industrialization of emerging countries, he pointed out.
“Since the turn of the millennium there has been a strong correlation between the economic growth in China and India, and the price of oil and the price of gold,” Holmes said. The correlation with China’s quarterly GDP data is 0.86 for oil and 0.89 for gold, while the correlation with India’s quarterly GDP data is 0.67 for oil and 0.72 for gold.
The price of copper is also highly correlated to industrialization in emerging markets, he said. As market players become aware of this, Holmes predicted that more and more investors will shift their portfolios to include global plays.
“I think there’s going to be a change now,” he said. Because commodities like oil and gold are priced in dollars, volatility in the U.S. dollar will give investors a chance to get in on the dips.
“This is your opportunity to explore how to use this volatility in your favour,” he said.
Emerging Markets: Investing at a Premium
“There’s a huge upside” to investing in emerging markets, according to Julian Mayo, manager of the Eastern European Fund and Global Emerging Markets Fund for U.S. Global Investors.
“Emerging markets together have 84% of the world’s population,” Mayo said. They also account for two-thirds of the world’s FX reserves and almost two-fifths of the world economy, PPP adjusted.
“But the sector still only accounts - despite the bull market for the past few years - for 12% of global market capitalisation,” he said, indicating that there is much room for these countries’ markets to grow.
Along with “virtually no fiscal deficit in emerging markets,” they are great investment choices because their currencies are inexpensive, their households and corporations are unleveraged and they have attractive balances of earnings and valuations, according to Mayo.
“We fully expect…that at some stage in the not-so-distant future, global emerging markets will trade at a premium,” he said.
Global Commodities Outlook
Volatility continues to dominate the commodities market, but playing the dips could result in big gains, according to Brian Hicks, co-manager of the U.S. Global Investors’ Global Resources Fund.
Copper, for instance, saw some prolonged weakness this year, but China pushed prices up by increasing consumption on the metal’s lows. “We think that scenario could happen again,” Hicks said.
Crude had a similar story, he said, with China restocking inventories when oil was trading at $50 a barrel. Despite the current prices above $90, Hicks said consumption will continue to stay strong and the global crude supply-demand balance will remain tight.
Global oil supply is an increasing important issue, he said, but he and fellow co-manager Evan Smith said they are “agnostic” about the idea of peak oil.
“We think the real issue is access to proven reserves,” Hicks said. “We think that’s the major restraint in respect to bringing about more oil supply.”
But the tight market - compounded by the possibility that OPEC could reduce output - is bullish for crude, especially since global emerging market demand will likely offset lower consumption in developed countries.
“Production is going to be capped at around 85 million barrels a day,” according to Hicks. “We’re still very constructive going forward.”
All in all, the commodities boom has “plenty more distance to go,” Smith said.
Infrastructure Growth Set the Explode
The commodities boom has strong support from increasing infrastructure construction in both emerging and developed countries. The U.S. Global Investors estimate worldwide infrastructure needs will be between $30 trillion and $41 trillion by 2030 - including $1.6 trillion in the U.S.
“Any way you look at it, the opportunities are amazing,” said Jack Dzierwa, global strategist for U.S. Global Investors.
Dzierwa noted that China has earmarked $420 billion and India has allocated $500 billion-$600 billion for infrastructure development under their current five-year plans. He said politicians are very supportive of infrastructure growth because their electorates’ quality of life is at stake.
“Infrastructure has become a popular topic both between investors and policy makers,” Dzierwa said. He said the U.S. Global Investors team is looking for different ways to expose investors to the opportunities infrastructure development offers. “We are looking for companies that have capacity to participate in the theme on a global scale.”
The trick to making big gains off the global markets play is to stay updated on macro-economic themes, according to Holmes.
“The secret is following government policies,” he said. “Government policies are the precursor to the global capex.” After identifying the global capex, investors should then look at sectors and stocks.
Right now, Holmes said, there is a huge capex for global infrastructure building and energy. And according to the U.S. Global Investors, now is the take to advantage.
Outlook 2008: Gold Investments Will Continue to Glitter in the New Year
Posted By admin On December 19, 2007 @ 12:21
By Mike Caggeso
Associate Editor
There’s no fancy way to say it: Gold investors made a killing in 2007. Year-to-date, gold’s spot price is up 25%.
For some better perspective, consider the year-to-date gains of the three major U.S. stock indices: The blue-chip [1] Dow Jones Industrial Average (6.17%), the tech-laden [2] NASDAQ Composite Index (7.48%), and the broad-based [3] Standard & Poor’s 500 Index (2.59%).
Gold eclipsed them all.
Gold hasn’t punched out the broad equity-indices like this since the late 1970s - a period still remembered reverently by gold bugs and institutional investors alike, when the "yellow metal" surged to record highs during an inflation-fueled economic malaise.
"The best one can say is that in the past several years gold’s been going from the bottom left of the screen to the top right," said Dennis Gartman, editor of the daily investment newsletter, [4] the Gartman Letter.
Gold investors have several causes to thank for such a leap - the U.S. subprime mortgage crisis, three interest rate cuts from the U.S. Federal Reserve, [5] China’s appetite for commodities and, of course, the declining dollar.
For gold investors, there’s more good news to come: None of those catalysts that made 2007 such a grand year for gold are expected to be absent in 2008. Major lenders aren’t expecting a [6] full recovery from the housing market until 2009, which will keep pressure on U.S. Federal Reserve Chairman Ben S. Bernanke to keep interest rates low.
And we all know economic growth China and India won’t be slowing down anytime soon.
But gold bugs shouldn’t rejoice too much. A flood of new investors came into gold in 2007 - especially after the subprime mortgage meltdown - and they enjoyed a trifecta of blessings this year: Gold’s reputation for safety in potentially inflationary environments, scorching growth abroad, and the unlikely event of 25% gains.
There’s no guarantee 2008 will be as favorable as 2007, but that doesn’t mean gold’s going to cool either.
When asked to forecast where gold prices will go in 2008, Gartman had a simple but powerfully bullish answer: "Higher," he said.
[Gartman said he doesn’t publicly forecast price targets for the simple reason that being off by $10 makes one’s prediction inaccurate - even if one’s correct about the direction and magnitude of the price changes in gold.]
However, it is worth noting that gold prices have increased every year since 2001 [See Table I Below].
Table I:
Gold Gains/(Losses) 2001-2007
The so-called "yellow metal" has gained in value every year since 2001.
Year
However, Money Morning Investment Director [8] Keith Fitz-Gerald notes that gold’s story actually has a much more complicated plot than most investors understand.
"On an inflation-adjusted basis, that price is flat. That’s the part that people don’t get," Fitz-Gerald explained in an interview. "The trick is that you really should be buying gold to protect the principal on your bonds."
With U.S. inflation creeping steadily higher, gold will likely touch $1,000 later in 2008, after experiencing a slight decline early in the year, Fitz-Gerald said.
To understand how to invest in gold without breaking even, one needs to look at the underlying global economic outlook, currency trends and other key factors that dictate gold’s value, while also determining demand for the yellow metal.
Gold Investors Don’t Have to Dig Anymore
The [9] World Gold Council reports that central banks and "supranational organizations" hold around one-fifth of the aboveground stocks of gold as reserve assets. But that figure is decreasing.
More gold has been trickling into the market yet demand hasn’t been sated. However, the economic conditions that sent gold prices soaring this year aren’t the same as those that were at play at the start of the decade.
Though gold has historically performed well when the dollar was in decline, 2007’s subprime-fueled credit crash may have created economic woes for consumers on a scale not seen since the late 1970s, an era of "[10] stagflation" in which gold hit its all-time high of $850. Stagflation describes a period of economic stagnation that’s also rife with inflation - a combination that had been thought impossible prior to its appearance in the United States during the Richard Nixon Administration.
"Now gold is coming back because it’s a proxy for conflict. If gold reaches $2,000, we’ll have [much] bigger things to worry about," Fitz-Gerald said.
But, deeper than that, gold’s rise is "driven part-and-parcel by China’s need to diversify its currency reserves and the emergence of gold-backed [11] dinars in the Middle East. The euro does not have enough liquidity to absorb this and China isn’t likely to purchase additional Japanese yen. This leaves gold and - by implication - the new gold-based assets as likely beneficiaries of this process," Fitz-Gerald said.
Another factor that is different this time around involves the methods of buying gold. Investors now have the choice of buying shares of any of the dozens of publicly traded mining companies, buying one of many gold-oriented exchange-traded funds (ETFs), buying coins and bullion bars through banks that hold your gold for you, or picking up gold coins and gold bars at specialty collectors’ shows.
With more avenues for investors to buy gold, it became easier to invest in the precious metal. And when the souring economics of 2007 sobered Wall Street, those avenues were flooded with a new throng of gold investors.
"Since the price is up, that’s the only thing one can say," Gartman said.
Actually, there’s still more to say. Demand for gold is escalating in a big way in China, India and other emerging markets. Asia’s booming economies and populations are producing hundreds of millions of new consumers, adding to the middle-class of each country. And those consumers - like their more-experienced counterparts in the West - want to do one thing: Spend more than before.
Too Many Gold Fans Could Cool the Hot Metal
In early December, a telling story came out of India, the world’s largest consumer of gold.
[12] Gold imports to India significantly plummeted for two consecutive months. November purchases fell drastically from 59 metric tons in 2006 to 12 tons during the same month this year. Likewise, year-over-year purchases for October fell from 68 tons in 2006 to 14 tons this year.
Some of that occurred during India’s prime wedding season, as well as the [13] Diwali festival holiday - which combine to mark the peak gold-buying season for that country.
Why the slump? Gold became too pricey. Not just too pricey, but too pricey for a country in which gold ownership is embedded as a cultural norm.
Gartman said investors would be wise to heed India’s counsel, and wait for prices to fall before investing. In doing so, investors are more likely to get in at a better price.
Capturing Gold’s Gains While Downsizing Risk
If there is a lesson, it’s this: Even though economic conditions for 2008 are expected to closely resemble those of 2007, investors should never see gold as an investment that can only rise in price. Viewed as a hedge, and purchased at the right time, gold will provide a sound addition to many investment portfolios. And if the yellow metal also manages to produce massive gains, even better.
That said, though, there are gold investments out there that combine safety and performance.
The StreetTracks Gold ETF ([14] GLD) offers bullion-based pricing without the storage problems and liability of delivery.
Another possibility is the Prudent Global Income Fund ([15] PSAFX). While it’s not a gold investment per se, it gives you exactly what gold investors look for - protection against a falling dollar.
Shares prices of Toronto-based gold-mining company Barrick Gold Corp. ([16] ABX) - the biggest gold producer in the world - performed about in line with gold itself during 2007. But be wary of mining companies. They face the same inflationary pressures that everybody else does. And gold bugs aren’t inherently risk takers.
If you want gains most accurately - and safely - tied to gold’s value, another possibility worth a look is a pooled precious metals account, where you can buy gold and silver for as low as 1% above market price, but storage and maintenance fees are lowered by spreading the cost out amongst a pool of investors.
By Mike Caggeso
Associate Editor
There’s no fancy way to say it: Gold investors made a killing in 2007. Year-to-date, gold’s spot price is up 25%.
For some better perspective, consider the year-to-date gains of the three major U.S. stock indices: The blue-chip [1] Dow Jones Industrial Average (6.17%), the tech-laden [2] NASDAQ Composite Index (7.48%), and the broad-based [3] Standard & Poor’s 500 Index (2.59%).
Gold eclipsed them all.
Gold hasn’t punched out the broad equity-indices like this since the late 1970s - a period still remembered reverently by gold bugs and institutional investors alike, when the "yellow metal" surged to record highs during an inflation-fueled economic malaise.
"The best one can say is that in the past several years gold’s been going from the bottom left of the screen to the top right," said Dennis Gartman, editor of the daily investment newsletter, [4] the Gartman Letter.
Gold investors have several causes to thank for such a leap - the U.S. subprime mortgage crisis, three interest rate cuts from the U.S. Federal Reserve, [5] China’s appetite for commodities and, of course, the declining dollar.
For gold investors, there’s more good news to come: None of those catalysts that made 2007 such a grand year for gold are expected to be absent in 2008. Major lenders aren’t expecting a [6] full recovery from the housing market until 2009, which will keep pressure on U.S. Federal Reserve Chairman Ben S. Bernanke to keep interest rates low.
And we all know economic growth China and India won’t be slowing down anytime soon.
But gold bugs shouldn’t rejoice too much. A flood of new investors came into gold in 2007 - especially after the subprime mortgage meltdown - and they enjoyed a trifecta of blessings this year: Gold’s reputation for safety in potentially inflationary environments, scorching growth abroad, and the unlikely event of 25% gains.
There’s no guarantee 2008 will be as favorable as 2007, but that doesn’t mean gold’s going to cool either.
When asked to forecast where gold prices will go in 2008, Gartman had a simple but powerfully bullish answer: "Higher," he said.
[Gartman said he doesn’t publicly forecast price targets for the simple reason that being off by $10 makes one’s prediction inaccurate - even if one’s correct about the direction and magnitude of the price changes in gold.]
However, it is worth noting that gold prices have increased every year since 2001 [See Table I Below].
Table I:
Gold Gains/(Losses) 2001-2007
The so-called "yellow metal" has gained in value every year since 2001.
Year
However, Money Morning Investment Director [8] Keith Fitz-Gerald notes that gold’s story actually has a much more complicated plot than most investors understand.
"On an inflation-adjusted basis, that price is flat. That’s the part that people don’t get," Fitz-Gerald explained in an interview. "The trick is that you really should be buying gold to protect the principal on your bonds."
With U.S. inflation creeping steadily higher, gold will likely touch $1,000 later in 2008, after experiencing a slight decline early in the year, Fitz-Gerald said.
To understand how to invest in gold without breaking even, one needs to look at the underlying global economic outlook, currency trends and other key factors that dictate gold’s value, while also determining demand for the yellow metal.
Gold Investors Don’t Have to Dig Anymore
The [9] World Gold Council reports that central banks and "supranational organizations" hold around one-fifth of the aboveground stocks of gold as reserve assets. But that figure is decreasing.
More gold has been trickling into the market yet demand hasn’t been sated. However, the economic conditions that sent gold prices soaring this year aren’t the same as those that were at play at the start of the decade.
Though gold has historically performed well when the dollar was in decline, 2007’s subprime-fueled credit crash may have created economic woes for consumers on a scale not seen since the late 1970s, an era of "[10] stagflation" in which gold hit its all-time high of $850. Stagflation describes a period of economic stagnation that’s also rife with inflation - a combination that had been thought impossible prior to its appearance in the United States during the Richard Nixon Administration.
"Now gold is coming back because it’s a proxy for conflict. If gold reaches $2,000, we’ll have [much] bigger things to worry about," Fitz-Gerald said.
But, deeper than that, gold’s rise is "driven part-and-parcel by China’s need to diversify its currency reserves and the emergence of gold-backed [11] dinars in the Middle East. The euro does not have enough liquidity to absorb this and China isn’t likely to purchase additional Japanese yen. This leaves gold and - by implication - the new gold-based assets as likely beneficiaries of this process," Fitz-Gerald said.
Another factor that is different this time around involves the methods of buying gold. Investors now have the choice of buying shares of any of the dozens of publicly traded mining companies, buying one of many gold-oriented exchange-traded funds (ETFs), buying coins and bullion bars through banks that hold your gold for you, or picking up gold coins and gold bars at specialty collectors’ shows.
With more avenues for investors to buy gold, it became easier to invest in the precious metal. And when the souring economics of 2007 sobered Wall Street, those avenues were flooded with a new throng of gold investors.
"Since the price is up, that’s the only thing one can say," Gartman said.
Actually, there’s still more to say. Demand for gold is escalating in a big way in China, India and other emerging markets. Asia’s booming economies and populations are producing hundreds of millions of new consumers, adding to the middle-class of each country. And those consumers - like their more-experienced counterparts in the West - want to do one thing: Spend more than before.
Too Many Gold Fans Could Cool the Hot Metal
In early December, a telling story came out of India, the world’s largest consumer of gold.
[12] Gold imports to India significantly plummeted for two consecutive months. November purchases fell drastically from 59 metric tons in 2006 to 12 tons during the same month this year. Likewise, year-over-year purchases for October fell from 68 tons in 2006 to 14 tons this year.
Some of that occurred during India’s prime wedding season, as well as the [13] Diwali festival holiday - which combine to mark the peak gold-buying season for that country.
Why the slump? Gold became too pricey. Not just too pricey, but too pricey for a country in which gold ownership is embedded as a cultural norm.
Gartman said investors would be wise to heed India’s counsel, and wait for prices to fall before investing. In doing so, investors are more likely to get in at a better price.
Capturing Gold’s Gains While Downsizing Risk
If there is a lesson, it’s this: Even though economic conditions for 2008 are expected to closely resemble those of 2007, investors should never see gold as an investment that can only rise in price. Viewed as a hedge, and purchased at the right time, gold will provide a sound addition to many investment portfolios. And if the yellow metal also manages to produce massive gains, even better.
That said, though, there are gold investments out there that combine safety and performance.
The StreetTracks Gold ETF ([14] GLD) offers bullion-based pricing without the storage problems and liability of delivery.
Another possibility is the Prudent Global Income Fund ([15] PSAFX). While it’s not a gold investment per se, it gives you exactly what gold investors look for - protection against a falling dollar.
Shares prices of Toronto-based gold-mining company Barrick Gold Corp. ([16] ABX) - the biggest gold producer in the world - performed about in line with gold itself during 2007. But be wary of mining companies. They face the same inflationary pressures that everybody else does. And gold bugs aren’t inherently risk takers.
If you want gains most accurately - and safely - tied to gold’s value, another possibility worth a look is a pooled precious metals account, where you can buy gold and silver for as low as 1% above market price, but storage and maintenance fees are lowered by spreading the cost out amongst a pool of investors.
Double blow puts wheat at record peak
By Javier Blas in London FT
Published: December 18 2007 02:19 | Last updated: December 18 2007 02:19
Wheat prices on Monday surged to fresh all-time highs above $10-a-bushel amid fears that strong demand from emerging countries will eat into depleted global cereal inventories.
The market gained additional support after Argentina confirmed that its wheat crop had suffered heavy losses after frosts last month hit the Buenos Aires region, which makes up more than 60 per cent of the country’s production.
Argentina is the world’s sixth largest wheat exporter, accounting for about 7 per cent of the market, according to Deutsche Bank.
Extreme weather this year damaged the crops of other leading exporters, including Australia and Ukraine.
The CBOT March 2008 futures contract, that on Monday became the market’s benchmark after the expiration of the December contract, jumped to an all-time high of $10.09½ a bushel, after hitting its 30 cents daily trading limit.
It was later trading at $9.80 a bushel, up ½ cent on the day.
Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney, said that the seriously depleted harvest in Argentina had acted as a “catalyst” for the price jump.
“There is not an obvious stop for the price. The market is very tight,” Mr Gorey said.
Strong demand and tight supplies have nearly depleted cereal stocks.
US wheat inventories are set to fall to a 60-year low at the end of the current crop season, while global stocks, at 9.3 weeks of consumption, have not been so low since at least 1960, according to the US Department of Agriculture.
Rising agricultural commodity prices are boosting inflation worldwide, constraining the ability of central banks to mitigate the slowdown in their countries’ economies.
Forward prices for the 2008 summer crop fell because of hopes that current record prices will push farmers to seed more wheat at the expense of other agriculture crops. CBOT July 2008 was at $7.95 a bushel and September 2008 was at $7.85 a bushel.
Analysts say rising consumption in emerging countries, particularly in China and India, will support prices well above the past five years’ average of about $4 a bushel.
Christopher Brodie, of commodities hedge fund Krom River Partners in London, said that the wheat price rise reflected a structural change in demand for agricultural commodities from emerging countries.
“The rise in poor countries’ income from $1 to $2 per capita per day triggers the largest increase in an individual’s calorific intake – what is known as the second dollar theory,” Mr Brodie said, referring to the large increase in demand in countries such as Vietnam that have reduced poverty significantly in the past few years.
Rising incomes in emerging countries have boosted meat and dairy consumption, increasing demand for agricultural feedstock.
The UN’s Food and Agriculture Organisation estimates that China’s meat consumption per capita per year has risen from 31 kilogrammes in 1990 to about 60kg.
Copyright The Financial Times
Published: December 18 2007 02:19 | Last updated: December 18 2007 02:19
Wheat prices on Monday surged to fresh all-time highs above $10-a-bushel amid fears that strong demand from emerging countries will eat into depleted global cereal inventories.
The market gained additional support after Argentina confirmed that its wheat crop had suffered heavy losses after frosts last month hit the Buenos Aires region, which makes up more than 60 per cent of the country’s production.
Argentina is the world’s sixth largest wheat exporter, accounting for about 7 per cent of the market, according to Deutsche Bank.
Extreme weather this year damaged the crops of other leading exporters, including Australia and Ukraine.
The CBOT March 2008 futures contract, that on Monday became the market’s benchmark after the expiration of the December contract, jumped to an all-time high of $10.09½ a bushel, after hitting its 30 cents daily trading limit.
It was later trading at $9.80 a bushel, up ½ cent on the day.
Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney, said that the seriously depleted harvest in Argentina had acted as a “catalyst” for the price jump.
“There is not an obvious stop for the price. The market is very tight,” Mr Gorey said.
Strong demand and tight supplies have nearly depleted cereal stocks.
US wheat inventories are set to fall to a 60-year low at the end of the current crop season, while global stocks, at 9.3 weeks of consumption, have not been so low since at least 1960, according to the US Department of Agriculture.
Rising agricultural commodity prices are boosting inflation worldwide, constraining the ability of central banks to mitigate the slowdown in their countries’ economies.
Forward prices for the 2008 summer crop fell because of hopes that current record prices will push farmers to seed more wheat at the expense of other agriculture crops. CBOT July 2008 was at $7.95 a bushel and September 2008 was at $7.85 a bushel.
Analysts say rising consumption in emerging countries, particularly in China and India, will support prices well above the past five years’ average of about $4 a bushel.
Christopher Brodie, of commodities hedge fund Krom River Partners in London, said that the wheat price rise reflected a structural change in demand for agricultural commodities from emerging countries.
“The rise in poor countries’ income from $1 to $2 per capita per day triggers the largest increase in an individual’s calorific intake – what is known as the second dollar theory,” Mr Brodie said, referring to the large increase in demand in countries such as Vietnam that have reduced poverty significantly in the past few years.
Rising incomes in emerging countries have boosted meat and dairy consumption, increasing demand for agricultural feedstock.
The UN’s Food and Agriculture Organisation estimates that China’s meat consumption per capita per year has risen from 31 kilogrammes in 1990 to about 60kg.
Copyright The Financial Times
Are commodities a bubble ready to burst?
By Ambrose Evans-Pritchard
Last Updated: 1:34am GMT 18/12/2007
Peak oil, peak metals, and this year peak food. Every bookshop has a corner warning that mankind will soon outrun the basic resources of the globe.
# Digging out the truth behind mining mergers
A combine harvester works its way through a field of barley in the chalk downlands south of Salisbury, England. Digging out the truth behind mining mergers
Come a cropper: grain stocks are at their lowest in 60 years
and wheat prices have risen by 145 per cent since April
It was ever thus. Variants of the theme emerge at the top of each commodity super-cycle, only to be deferred for another 20 years or so as new supply comes on-stream and technology outwits the pessimists. Shortage can turn to glut very fast once inflation forces central banks to hit the brakes.
Some will remember Limits to Growth, published by the Club of Rome in the 1970s. It said the world's oil reserves would run dry in 30 years. Gold supply would last nine years.
The report spoke of the "sudden and uncontrollable collapse" of economic life. What in fact collapsed were oil and gold prices. We can see now that the 1970s was a central bank monetary bubble.
The question for investors who have sunk $150bn into commodity index funds - and trillions in mining and energy stocks - is whether the roaring boom of the last five years is another bubble, or whether the Malthusians are closer to the mark this time.
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Has the Asian renaissance - the "Great Doubling" of the world's consumer base - changed the balance for ever? The jury is out.
Charles Dumas, global strategist for Lombard Street Research, says the bulls are deluding themselves. "The long-run real return on commodities is negative, except for oil where it has been nil for one and a half centuries.
"Smart investors have made huge profits at various times trading commodities. The price cycles can be violent. But it is a tough, cyclical game, fraught with risk. Portfolio positions can't just be comfortably locked away," he said.
Graphs showing changing price of Oil. Wheat and Copper per tonne
Base metals are creatures of the industrial cycle. The US is already in the grip of the worst housing crash since the Slump. It is exporting a manufacturing crunch to Europe through the dollar slide and the banking crisis. Japan is slipping into recession, says Morgan Stanley. No surprise that copper is down 23 per cent since early October after quadrupling in five years. Lead is off 42 per cent. Nickel has dropped 53 per cent since May.
What is striking is that long-term futures contracts continue to set all-time highs, a sharp break with earlier patterns. "The message is simple: markets are looking past the short-term," said Barclays Capital.
Oil refuses to buckle at all. Brent crude is hovering near $93 a barrel despite a shock report by the US intelligence concluding that Iran halted nuclear weapons work in 2003. It has left White House hawks beakless. The alleged war premium on oil has vanished, yet prices have barely flinched.
"Will oil get to $100 a barrel? Yes, it's a done deal," says Paul Horsnell, commodities chief at Barclays Capital. Goldman Sachs have raised their forecast to $105 by the end of 2008, citing a chronic lack on investment.
Who would want to invest in Russia, Venezuela, Ecuador or the "Stans" if expropriation were on the menu?
Oil output has been flat for two years, with the non-Opec trio of Britain, Norway, and Mexico in relentless decline.
"Even at this price the oil companies still can't find any supply, which tells you that they are catching a serious crab," says Horsnell.
"Oil has been going up a dollar a month for four years. It's a gradual upping of the pressure and I don't see anything to stop it," he says.
The peak oil theory claims that the world is depleting crude at 30bn barrels each year, but adding just 10bn in discoveries. Depletion is running at 4 per cent a year (official) or 6 per cent (peakists).
"A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out," said the International Energy Agency in its Outlook report.
China's annual demand is growing at 0.4m barrels per day (bpd). It may reach 8m next year, or 9 per cent of world output. Global needs are expected to rise 50 per cent to 130m barrels by 2030, yet the heads of both Total and Conoco doubt whether output will ever reach 100m barrels before tipping over in 12 years or so.
"Peak oil is the secret that everybody knows in the oil industry but has refused to talk about until now," says Chris Skrebowski, editor of Petroleum Review.
"If you look at all the big projects out there, oil output will peak in three years before gently declining thereafter. If there is any slippage, we may have reached the peak already," he says.
The counter view is that there are vast reserves of oil sand or shale in Canada, Colorado, and Venezuela worth extracting at $60 prices and above.
BP says it has used 3D seismic imaging and other tricks to raise extraction from its Prudhoe Bay field in Alaska from 40pc to 60pc of reserves. If replicated across the world's reserve base, it could add 1.4 trillion barrels, or 45 years' global supply at current demand.
Big if. For now, soaring prices are spilling over into food. Grains stocks are at their lowest in 60 years. Wheat prices have risen by 145 per cent since April.
The culprits are biofuel crops, expected to take 12 per cent of global arable cropland within 12 years, according to Credit Suisse.
The UN says the amount of ethanol - or "dethanol" to critics - needed to fill a medium car tank can feed a child for a year. Those driving Chelsea Tractors or over-powered BMWs are directly causing hunger - or worse - in poor food-importing countries.
The UN food rapporteur Jean Ziegler has called for a five-year ban on ethanol. "It's a total disaster for those who are starving," he says.
The big unknown for commodities in 2008 is whether the supply crunch will eclipse a likely US recession and all its knock-on effects.
Rate cuts in the US have caused a fresh surge of liquidity in East Asia and the Mid-East, flooding those countries with dollar pegs or semi-pegs - led by China. Inflation has reached 6.9pc in China, 9.5pc in Vietnam, and risks spiralling out of control in the Gulf.
All will have to ration credit or break their pegs. Either way, the game is nearly up.
Once the emerging market boil is lanced we will find out where the core equilibrium price for oil, coal, iron, zinc, and soya beans really lies. Then we can strap up for the second leg super-cycle. Next time to the peaks.
DEC chief predicts N.Y. CO2 trading by next year
By MICHAEL VIRTANEN
Associated Press Writer
— ALBANY -- New York's trading market in carbon dioxide emissions, meant to help curb global warming and establish a model for the nation, should start next year, state Department of Environmental Conservation Commissioner Pete Grannis said.
"It's a very aggressive time line but we're on it now," Grannis said last week. "Our plan is to have an auction the end of the second quarter, beginning of the third quarter 2008, barring legal impediments."
The agency has proposed CO2 emissions ceilings for New York power plants at about 64 million tons annually from 2009 through 2014, selling that level of pollution allowances at auction, using proceeds for clean energy projects, then lowering the limit 2.5 percent a year through 2019.
"That's the top priority for the governor, the climate change issue," Grannis said. The rule, part of a collaborative effort now involving 10 Eastern states, is subject to public comment. The state is also seeking bidders to run the auction. "We believe this is a very good model, and our expectation is the next (presidential) administration will pick up a large part of what we're doing as a national program," he said.
Power producers have expressed concerns about access to allowances, means for recovering additional costs under their long-term supply contracts, and retrofit technology that doesn't exist yet.
"We'd like to see more clear prioritization to ensure generators have the first opportunity to secure the allowances they need in the auction," said Radmila Miletich of the Independent Power Producers of New York. "They are ones that have to comply with the rules requirement."
"We as an organization would support a properly constructed program to reduce greenhouse gases and C02 emissions," Miletich said. "We think a federal program is the way to go."
Reviewing his first year heading the DEC for the Spitzer administration, the former Manhattan assemblyman said cracking down on major polluters is also high on the list, an area where he says the Pataki administration was more passive, and that message got filtered down through the agency.
His role is to encourage and back up the DEC staff so they can do their jobs, he said. The agency has reconstituted its former Bureau of Environmental Crimes Investigations.
DEC data show 56 pollution cases referred to the attorney general's office this year, up from 52 last year and only 31 in 2005. The current group include $1.575 million in penalties against Altaire Pharmaceuticals in Riverhead, Suffolk County. The agency also is in federal court against ExxonMobil, which is now at the negotiating table over what Grannis called a huge, centurylong spill of millions of gallons of oil at Greenpoint in Brooklyn by the company and its predecessors.
"My primary objective is cleaning up the environment," Grannis said. "I'm prepared to work with any violator or polluter to achieve that objective as expeditiously as possible," but also willing to enforce against those "dragging their heels."
Among other notable pollution issues are New York City's sewage treatment plants, Grannis said. Other DEC priorities include solid waste reduction, and another attempt to enact broader mandatory bottle recycling is coming. The agency has added inspection staffing for the state's 5,000 dams and large agriculture operations including, those with large manure lagoons that pose serious environmental threats if they burst their banks.
In land acquisition, Pataki announced more than 1 million acres of open space preservation deals during his tenure. Grannis said they are closing the deals -- for 266,000 acres for $50 million so far -- while not yet adding any rangers or conservation officers.
The agency has about 3,600 total staff, having lost about 700 over a decade, and is filling all 109 new civil service positions in its current budget, including 12 at the new office on climate change that's working on Regional Greenhouse Gas Initiative, Grannis said. He declined to discuss any internal proposals to add more.
"There are lots of other properties on our list in the master plan of acquisitions should the money come available," he said.
Other policy items include a 15 percent reduction in state use of electricity by 2015 through alternative energy sources.
`Open Source` scientists carry out largest ever future modelling of portfolios for climate risk and reward,
`Open Source` scientists carry out largest ever future modelling of portfolios for climate risk and reward, provide intelligence for investors: Forestry will be key
The London Accord is a unique collaboration between investment banks, research houses, academics and NGOs. The London Accord has produced the first ‘open source’ research resource for investors in climate change solutions.
The papers in the London Accord show that attractive and sensible investment opportunities exist. Modest technology improvements and policy changes will create more opportunities. The portfolio analysis shows there are good reasons to believe attractive returns are available for portfolios near the ‘efficient frontier’. Infrastructure changes can happen quickly and have repercussion throughout the economy. Savvy investors may want to act now. The London Accord report provides a starting point for the construction of investment portfolios by investors who believe that demographics, climate science and other factors are leading to significant prices of greenhouse gas emissions.
In every large-scale infrastructure change there are winners and losers. Early entrants with a portfolio of investment in the infrastructure change achieve high returns. The London Accord provides a combined appraisal of who these winners and losers might be.
How to create a portfolio: The London Accord papers provide the necessary ingredients for investors. Analysis of the individual solutions, their sustainability implications and the regulatory environment are presented, as well as papers showing the political backdrop for the policy debates. We also present a view of the methodology for constructing and analysing portfolios in D5: A Portfolio Approach to Climate Change Investment and Policy, from which the following conclusions are taken.
* The underlying data is based on relatively low energy prices (~30 $ oil). Under higher fossil fuel prices, renewables and efficiency look much better while carbon capture and sequestration (CCS), and forestry looks worse. The following are highlights from the analysis:
* The efficient frontier implies an abatement cost of about 15 $/tonne. This suggests either normal estimates of marginal abatement costs are on the high side, or, more likely, there is a lot of money to be made if an efficient portfolio is selected.
* The range of average abatement costs in portfolios is 15 - 75 $/tonne, i.e. it is possible to construct very bad portfolios. For investors this implies rewards for careful portfolio construction. For policy makers it implies that trying to pick winners, rather than markets driving efficient investment, could result in unnecessarily high costs and risk erosion of public support and lower economic growth.
* Forestry is by far the biggest contributor to the portfolios on the efficient frontier, as it has the largest abatement potential. There seems to be an unusually large spread for estimates of forestry's potential...
The London Accord is a unique collaboration between investment banks, research houses, academics and NGOs. The London Accord has produced the first ‘open source’ research resource for investors in climate change solutions.
The papers in the London Accord show that attractive and sensible investment opportunities exist. Modest technology improvements and policy changes will create more opportunities. The portfolio analysis shows there are good reasons to believe attractive returns are available for portfolios near the ‘efficient frontier’. Infrastructure changes can happen quickly and have repercussion throughout the economy. Savvy investors may want to act now. The London Accord report provides a starting point for the construction of investment portfolios by investors who believe that demographics, climate science and other factors are leading to significant prices of greenhouse gas emissions.
In every large-scale infrastructure change there are winners and losers. Early entrants with a portfolio of investment in the infrastructure change achieve high returns. The London Accord provides a combined appraisal of who these winners and losers might be.
How to create a portfolio: The London Accord papers provide the necessary ingredients for investors. Analysis of the individual solutions, their sustainability implications and the regulatory environment are presented, as well as papers showing the political backdrop for the policy debates. We also present a view of the methodology for constructing and analysing portfolios in D5: A Portfolio Approach to Climate Change Investment and Policy, from which the following conclusions are taken.
* The underlying data is based on relatively low energy prices (~30 $ oil). Under higher fossil fuel prices, renewables and efficiency look much better while carbon capture and sequestration (CCS), and forestry looks worse. The following are highlights from the analysis:
* The efficient frontier implies an abatement cost of about 15 $/tonne. This suggests either normal estimates of marginal abatement costs are on the high side, or, more likely, there is a lot of money to be made if an efficient portfolio is selected.
* The range of average abatement costs in portfolios is 15 - 75 $/tonne, i.e. it is possible to construct very bad portfolios. For investors this implies rewards for careful portfolio construction. For policy makers it implies that trying to pick winners, rather than markets driving efficient investment, could result in unnecessarily high costs and risk erosion of public support and lower economic growth.
* Forestry is by far the biggest contributor to the portfolios on the efficient frontier, as it has the largest abatement potential. There seems to be an unusually large spread for estimates of forestry's potential...
Guinness Asset Management plans alternative energy fund
Thu Dec 13, 2007 7:43am GMT
By Laurence Fletcher
LONDON (Reuters) - Guiness Asset Management said on Wednesday it plans to launch an alternative energy fund for UK and European investors, which it sees benefitting from strong oil prices and from value in the sector.
Valuations of alternative energy stocks, while above the market average, did not appear too high relative to the firms' forecast earnings growth, fund co-manager Edward Guinness said.
"At the moment we still see valuations in the realms of reasonability. Companies with 35 percent-plus growth rates, on 30-40 times earnings multiples for 2008 -- it's not crazy. They are companies with real revenues and real earnings," he told Reuters.
The Guinness Alternative Energy fund, to be launched next month, will invest in listed firms with a market capitalisation of more than $100 million (50 million pounds) and with at least half of their business coming from developing renewable energy generation or improving energy use efficiency.
It will be managed by Tim Guinness, who runs the $1.7 billion Investec GSF Global Energy fund, as well as Edward Guinness and Matthew Page.
"2007 has seen the fundamentals in the oil market drive prices to a new $70-$100 trading range, with a growing likelihood that in the next five years we see oil over $150. This provides huge support to the alternative energy sector," Tim Guinness in a note.
"The scale of the challenge of mo
By Laurence Fletcher
LONDON (Reuters) - Guiness Asset Management said on Wednesday it plans to launch an alternative energy fund for UK and European investors, which it sees benefitting from strong oil prices and from value in the sector.
Valuations of alternative energy stocks, while above the market average, did not appear too high relative to the firms' forecast earnings growth, fund co-manager Edward Guinness said.
"At the moment we still see valuations in the realms of reasonability. Companies with 35 percent-plus growth rates, on 30-40 times earnings multiples for 2008 -- it's not crazy. They are companies with real revenues and real earnings," he told Reuters.
The Guinness Alternative Energy fund, to be launched next month, will invest in listed firms with a market capitalisation of more than $100 million (50 million pounds) and with at least half of their business coming from developing renewable energy generation or improving energy use efficiency.
It will be managed by Tim Guinness, who runs the $1.7 billion Investec GSF Global Energy fund, as well as Edward Guinness and Matthew Page.
"2007 has seen the fundamentals in the oil market drive prices to a new $70-$100 trading range, with a growing likelihood that in the next five years we see oil over $150. This provides huge support to the alternative energy sector," Tim Guinness in a note.
"The scale of the challenge of mo
Commodity markets brace for dramatic price swings
http://archive.gulfnews.com
12/17/2007 08:29 PM | Reuters
London: Economic gloom and financial turmoil will dominate the mood in commodity markets this week, despite efforts by major central banks to relieve the money market crisis.
Some commodities may see dramatic price swings as traders tidy up their portfolios or stay out of the market before the end of the year and as several futures contracts expire.
"Waves of nervousness are going through the market," said Frances Hudson, strategic investment director at Standard Life Investments.
As a hedge against financial uncertainty, gold should find some support but industrial metals such as copper could see further losses due to fresh signs that the global economy may be deteriorating.
However, robust demand for agricultural products and worries about supply shortages will help buttress grains and oil prices against any panic sell-offs.
Commodity markets are on alert for signs of damage to global demand for natural resources. They are feeling a cold wind from credit markets and are worried about the possibility of recession in the US, the world's largest economy.
Interest rate cuts by major central banks including the US Federal Reserve and the Bank of England have done little to ease anxieties and an attempt to stop the rot with large injections of money this week only briefly boosted confidence.
"The measures are too little and to late. But I do expect US central bankers to do everything they can to keep the good ship America afloat," said David Murrin, chief investment officer at Emergent Asset Management.
"In 2008 I would expect interest rates to move back to 2003 levels, and a sequence of apparently innovative measures that arrive too late to prevent recession/depression taking hold in the US."
US rates hit a historic low of just one per cent in June 2003.
Uncertainly creates volatility and risk aversion, one reason why gold hit a 28-year high of $845.40 a troy ounce in November. On Friday afternoon, it traded at $791 an ounce.
"Precious metals investors are quiet observers of the spectacle," said Markus Bachmann a fund manager at Craton Capital. "There might be no final curtain for some time to come, but the upcoming acts could be conducive to our taste in music."
Analysts expect oil prices at above $90 a barrel to be reinforced by robust demand and supply concerns after a decision on December 5 by the Organisation of the Petroleum Exporting Countries not to increase oil production.
Agriculture
Agricultural product prices such as grains are churning higher. European wheat prices, at around 261 euros a tonne, are gaining ground as markets focus on poor crops and higher demand from a more affluent population in emerging countries.
"Agricultural commodities are just going higher and higher and higher," said Edward Hands, a senior portfolio manager at Commerzbank Alternative Investments.
"The supply/demand dynamics are so strong that investors, producers and consumers are almost immune to what's going on with credit markets - people still need to eat and there's less and less food around in the world."
12/17/2007 08:29 PM | Reuters
London: Economic gloom and financial turmoil will dominate the mood in commodity markets this week, despite efforts by major central banks to relieve the money market crisis.
Some commodities may see dramatic price swings as traders tidy up their portfolios or stay out of the market before the end of the year and as several futures contracts expire.
"Waves of nervousness are going through the market," said Frances Hudson, strategic investment director at Standard Life Investments.
As a hedge against financial uncertainty, gold should find some support but industrial metals such as copper could see further losses due to fresh signs that the global economy may be deteriorating.
However, robust demand for agricultural products and worries about supply shortages will help buttress grains and oil prices against any panic sell-offs.
Commodity markets are on alert for signs of damage to global demand for natural resources. They are feeling a cold wind from credit markets and are worried about the possibility of recession in the US, the world's largest economy.
Interest rate cuts by major central banks including the US Federal Reserve and the Bank of England have done little to ease anxieties and an attempt to stop the rot with large injections of money this week only briefly boosted confidence.
"The measures are too little and to late. But I do expect US central bankers to do everything they can to keep the good ship America afloat," said David Murrin, chief investment officer at Emergent Asset Management.
"In 2008 I would expect interest rates to move back to 2003 levels, and a sequence of apparently innovative measures that arrive too late to prevent recession/depression taking hold in the US."
US rates hit a historic low of just one per cent in June 2003.
Uncertainly creates volatility and risk aversion, one reason why gold hit a 28-year high of $845.40 a troy ounce in November. On Friday afternoon, it traded at $791 an ounce.
"Precious metals investors are quiet observers of the spectacle," said Markus Bachmann a fund manager at Craton Capital. "There might be no final curtain for some time to come, but the upcoming acts could be conducive to our taste in music."
Analysts expect oil prices at above $90 a barrel to be reinforced by robust demand and supply concerns after a decision on December 5 by the Organisation of the Petroleum Exporting Countries not to increase oil production.
Agriculture
Agricultural product prices such as grains are churning higher. European wheat prices, at around 261 euros a tonne, are gaining ground as markets focus on poor crops and higher demand from a more affluent population in emerging countries.
"Agricultural commodities are just going higher and higher and higher," said Edward Hands, a senior portfolio manager at Commerzbank Alternative Investments.
"The supply/demand dynamics are so strong that investors, producers and consumers are almost immune to what's going on with credit markets - people still need to eat and there's less and less food around in the world."
World food price rises to hit consumers
By Javier Blas and Chris Giles in London and Hal Weitzman in Chicago
Published: December 16 2007 22:08 | Last updated: December 17 2007 07:45
Global food prices were under further pressure on Monday as benchmark prices for cereals at much higher levels came into operation, making it almost inevitable that a second wave of food price inflation will hit the world’s leading economies.
In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time record, soyabean prices are at a 34-year high and corn prices at an 11-year peak.
Knock-on price rises are set to hit consumers in coming months, raising inflationary pressure and constraining the ability of central banks to mitigate the slowdown in their economies.
A first wave of surging cereal prices hit the wholesale market during the summer and has fed through the supply chain and contributed to rising inflation.
The increase of eurozone food price inflation to 4.3 per cent in November was one of the main reasons for the jump in the zone’s annual inflation rate from 2.6 per cent in October to 3.1 per cent, the highest in six years. In the US, annual food price inflation of 4.8 per cent in November contributed to a rise in the inflation rate to 4.3 per cent.
In the UK, food inflation was already running at an annual 5.1 per cent in October and analysts expect higher food prices to push overall inflation up in November. The UK figures are due to be published tomorrow.
In early trading on Monday, the new benchmark price of wheat for March delivery rose 30 cents to $10.09½ a bushel, more than 7.5 per cent higher than the expiring December contract of $9.39 and first time it has traded over $10 a bushel. The December contract expired on Friday and the March 2008 contract became the market’s benchmark on Monday.
New benchmark prices for corn are also more than 5 per cent higher than previously. Corn for March 2008 rose to $4.43¼ a bushel, the highest level in 11 years for a front-month contract.
The benchmark prices for soyabeans delivered in January rose on Friday to a fresh 34-year high of $11.92¼ a bushel.
Rice, also for January, has jumped to an all-time high of $13.310 a hundredweight.
Bill Lapp, analyst at US consultancy Advanced Economic Solutions, said: “We’ve already seen food prices increase this year at their fastest pace since the early 1980s, but the full brunt of those increases will begin in earnest in 2008.”
The agricultural commodities price rises are the result of high demand, poor harvests and low stockpiles of food. Emerging economies, where rising incomes are boosting consumption of meat and dairy products, have added to pressures already generated by the biofuel industry.
Cereal supply was this season lower than expected as several countries suffered weather-related losses. Jean Bourlot, head of agriculture commodities at Morgan Stanley in London, said: “High cereals prices are here to stay.”
The US Department of Agriculture has predicted that global corn stocks will fall to a 33-year low of just 7.5 weeks of consumption, while global wheat stocks will plunge to their lowest level in at least 47 years at 9.3 weeks.
Published: December 16 2007 22:08 | Last updated: December 17 2007 07:45
Global food prices were under further pressure on Monday as benchmark prices for cereals at much higher levels came into operation, making it almost inevitable that a second wave of food price inflation will hit the world’s leading economies.
In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time record, soyabean prices are at a 34-year high and corn prices at an 11-year peak.
Knock-on price rises are set to hit consumers in coming months, raising inflationary pressure and constraining the ability of central banks to mitigate the slowdown in their economies.
A first wave of surging cereal prices hit the wholesale market during the summer and has fed through the supply chain and contributed to rising inflation.
The increase of eurozone food price inflation to 4.3 per cent in November was one of the main reasons for the jump in the zone’s annual inflation rate from 2.6 per cent in October to 3.1 per cent, the highest in six years. In the US, annual food price inflation of 4.8 per cent in November contributed to a rise in the inflation rate to 4.3 per cent.
In the UK, food inflation was already running at an annual 5.1 per cent in October and analysts expect higher food prices to push overall inflation up in November. The UK figures are due to be published tomorrow.
In early trading on Monday, the new benchmark price of wheat for March delivery rose 30 cents to $10.09½ a bushel, more than 7.5 per cent higher than the expiring December contract of $9.39 and first time it has traded over $10 a bushel. The December contract expired on Friday and the March 2008 contract became the market’s benchmark on Monday.
New benchmark prices for corn are also more than 5 per cent higher than previously. Corn for March 2008 rose to $4.43¼ a bushel, the highest level in 11 years for a front-month contract.
The benchmark prices for soyabeans delivered in January rose on Friday to a fresh 34-year high of $11.92¼ a bushel.
Rice, also for January, has jumped to an all-time high of $13.310 a hundredweight.
Bill Lapp, analyst at US consultancy Advanced Economic Solutions, said: “We’ve already seen food prices increase this year at their fastest pace since the early 1980s, but the full brunt of those increases will begin in earnest in 2008.”
The agricultural commodities price rises are the result of high demand, poor harvests and low stockpiles of food. Emerging economies, where rising incomes are boosting consumption of meat and dairy products, have added to pressures already generated by the biofuel industry.
Cereal supply was this season lower than expected as several countries suffered weather-related losses. Jean Bourlot, head of agriculture commodities at Morgan Stanley in London, said: “High cereals prices are here to stay.”
The US Department of Agriculture has predicted that global corn stocks will fall to a 33-year low of just 7.5 weeks of consumption, while global wheat stocks will plunge to their lowest level in at least 47 years at 9.3 weeks.
Nostradamus Sees $10 Million FOF Allocation
By Jacob Bunge, Financial Correspondent
Friday, December 14, 2007 7:21:02 PM ET
NEW YORK (HedgeWorld.com)—Finvest Asset Management, the fund of funds operation of Finvest Capital Markets LLC, allocated $10 million to the Nostradamus All Gold Fund IV, the most recent launch by gold trading veteran Irv Arenberg's Nostradamus Funds LLC.
The $10 million may be the first tranche of several from Finvest; up to $50 million may eventually be allocated to the All Gold Fund IV, contingent upon its performance, according to Mr. Arenberg. The fund, which launched Oct. 1, is a follow-on to the Nostradamus All Gold Fund III, now closed Previous HedgeWorld Story.
Currently the fund counts a mix of institutions and high-net-worth individuals in its investor base, but it is possible that will change in the future. For Mr. Arenberg, portfolio manager and founder of Nostradamus, the allocation is evidence of rising institutional interest in gold. "You'll see a noticeable pickup over the next several months," he said.
Mr. Arenberg cited the continuing weakness of the dollar as a major factor driving institutional hunger for gold, the current dollar rebound notwithstanding. "The dollar strength that we're seeing right now is a dead cat bounce," he said. "There is no significant fundamental reason it should [rise], but it's been down so much that technically it was due for a correction, and that's what we're seeing right now."
The Nostradamus All Gold Fund IV invests primarily in gold mining stocks and options, which make up approximately 85% of its portfolio. Ten percent is allocated toward silver stock and options, and the remainder is allocated toward similar investments in copper, platinum and palladium. According to Mr. Arenberg, the fund offers investors greater depth and diversity than can be found in exchange-traded funds, with the option for a more conservative risk profile than investors would get through futures. Nostradamus offers investors the ability to allocate across four separate internal strategies, ranging from aggressive to risk-averse.
Kalman Gabriel, who joined as risk manager of Nostradamus from Morgan Stanley around the time of the fund's launch last fall, said that the firm hedges its risk in other ways. Specifically, the fund is denominated in currencies other than the U.S. dollar, such as the Japanese yen, the Canadian dollar, the Australian dollar and the Swiss franc. On a weekly basis the firm evaluates its currency standing and will more heavily weight the stronger currencies. "We feel currency diversification helps us mitigate the currency risk inherent in many portfolios," Mr. Gabriel said.
Friday, December 14, 2007 7:21:02 PM ET
NEW YORK (HedgeWorld.com)—Finvest Asset Management, the fund of funds operation of Finvest Capital Markets LLC, allocated $10 million to the Nostradamus All Gold Fund IV, the most recent launch by gold trading veteran Irv Arenberg's Nostradamus Funds LLC.
The $10 million may be the first tranche of several from Finvest; up to $50 million may eventually be allocated to the All Gold Fund IV, contingent upon its performance, according to Mr. Arenberg. The fund, which launched Oct. 1, is a follow-on to the Nostradamus All Gold Fund III, now closed Previous HedgeWorld Story.
Currently the fund counts a mix of institutions and high-net-worth individuals in its investor base, but it is possible that will change in the future. For Mr. Arenberg, portfolio manager and founder of Nostradamus, the allocation is evidence of rising institutional interest in gold. "You'll see a noticeable pickup over the next several months," he said.
Mr. Arenberg cited the continuing weakness of the dollar as a major factor driving institutional hunger for gold, the current dollar rebound notwithstanding. "The dollar strength that we're seeing right now is a dead cat bounce," he said. "There is no significant fundamental reason it should [rise], but it's been down so much that technically it was due for a correction, and that's what we're seeing right now."
The Nostradamus All Gold Fund IV invests primarily in gold mining stocks and options, which make up approximately 85% of its portfolio. Ten percent is allocated toward silver stock and options, and the remainder is allocated toward similar investments in copper, platinum and palladium. According to Mr. Arenberg, the fund offers investors greater depth and diversity than can be found in exchange-traded funds, with the option for a more conservative risk profile than investors would get through futures. Nostradamus offers investors the ability to allocate across four separate internal strategies, ranging from aggressive to risk-averse.
Kalman Gabriel, who joined as risk manager of Nostradamus from Morgan Stanley around the time of the fund's launch last fall, said that the firm hedges its risk in other ways. Specifically, the fund is denominated in currencies other than the U.S. dollar, such as the Japanese yen, the Canadian dollar, the Australian dollar and the Swiss franc. On a weekly basis the firm evaluates its currency standing and will more heavily weight the stronger currencies. "We feel currency diversification helps us mitigate the currency risk inherent in many portfolios," Mr. Gabriel said.
Precious Metal ETFs Capture Investors' Fancy
By Michael S. Fischer, Senior Financial Correspondent
Friday, December 14, 2007 5:23:50 PM ET
LONDON (HedgeWorld.com)—ETF Securities this week reported growth in assets under management in its five physical precious metal exchange-traded commodities, to $800 million from just $65 million six months earlier. This growth in the ETCs was beyond the forecasts of precious metal analysts, according to the firm.
ETF Securities' total assets have grown by $2 billion in 2007, with physical precious metals kicking in more than 40% of the new money, according to a statement. In a statement, it said that because of significant investor demand for easy access to commodities and more recently precious metals, the firm has listed all five of its physical precious metal ETCs on the London, Amsterdam, Frankfurt, Paris and Milan bourses.
Most recently, according to the statement, ETFS Physical Platinum and ETFS Physical Silver have attracted the greatest interest from investors. It said Physical Platinum is now the largest platinum ETC in the world, with more than $150 million in assets, the result of a growth spurt of 650% in the past six months and quadrupling in the past six weeks.
Moreover, Physical Silver is the fastest-growing silver ETC in world, it said, after having grown by 1,400% in the last half year, and quadrupling in the last six weeks. This product can also boast of being the largest silver ETC in Europe, exceeding 10 million ounces.
It said that the firm's ETFS Physical Gold has grown 4.5 times faster than any other similar gold product in Europe in the past six months. Significant interest is coming from investors in Germany, Austria and Britain. The gold ETC now exceeds $470 million, an increase of more than 575,000 ounces over the six-month period.
Good Fundamentals
"There has been significant increase in demand for ETCs linked to the price of commodities and particularly precious metals," said Nik Bienkowski, head of listing and research at ETF Securities. In an interview, Mr. Bienkowski said that exchange-traded funds provide investors with a mechanism to buy gold and other precious metals safely and easily. In addition, precious metals are attractive to investors because they have a low correlation with other asset classes, and they are relatively liquid compared with other alternative assets.
Real estate, for example, is looking "toppy," he said, and it's not as liquid. Some real estate funds have cut their NAVs 20% over the last month, he noted, and some are freezing redemptions for the next 12 months. As for hedge funds, some are doing well, while others have gone under; a few have closed down redemptions.
Mr. Bienkowski said that fundamentals for precious metals look good for at least the next year, but cautioned that even so, prices could fall because of overbuying, which would cause price momentum to abate. After overshooting to the upside, the price could overshoot to the downside, he said.
He said that ETFs, which are basically securitized futures, are the simplest vehicle for most investors, including larger ones, seeking exposure to precious metals and other commodities, because these people don't want to manage rolling futures, margin calls and the like. He acknowledged that very sophisticated investors might be better off trading futures because they can do so at a slightly reduced cost compared with ETFs.
According to ETF Securities, all of the firm's physical precious metal ETCs are backed by allocated metal, uniquely identifiable bars that carry no bank credit risk. The bars and ingots are held in trust in London by the custodian HSBC Bank USA N.A., which is the world's leading custodian for ETCs with approximately $20 billion of precious metals being held for such products.
The metal held with the custodian has to conform to the rules for good delivery of the London Bullion Market Association and London Platinum Palladium Market. Securities are issued only after metal is confirmed as having been deposited into the ETF Securities' bullion account with the custodian.
ETF Securities started out by creating gold bullion securities in Australia in 2002. The next year it listed the world's first gold exchange-traded fund on the Australian Stock Exchange. In September 2006, the firm listed an entire platform of ETCs, consisting of 19 individual commodities and 10 different baskets of those commodities. Today, the firm offers 50 or so ETFs that track baskets or individual commodities.
Friday, December 14, 2007 5:23:50 PM ET
LONDON (HedgeWorld.com)—ETF Securities this week reported growth in assets under management in its five physical precious metal exchange-traded commodities, to $800 million from just $65 million six months earlier. This growth in the ETCs was beyond the forecasts of precious metal analysts, according to the firm.
ETF Securities' total assets have grown by $2 billion in 2007, with physical precious metals kicking in more than 40% of the new money, according to a statement. In a statement, it said that because of significant investor demand for easy access to commodities and more recently precious metals, the firm has listed all five of its physical precious metal ETCs on the London, Amsterdam, Frankfurt, Paris and Milan bourses.
Most recently, according to the statement, ETFS Physical Platinum and ETFS Physical Silver have attracted the greatest interest from investors. It said Physical Platinum is now the largest platinum ETC in the world, with more than $150 million in assets, the result of a growth spurt of 650% in the past six months and quadrupling in the past six weeks.
Moreover, Physical Silver is the fastest-growing silver ETC in world, it said, after having grown by 1,400% in the last half year, and quadrupling in the last six weeks. This product can also boast of being the largest silver ETC in Europe, exceeding 10 million ounces.
It said that the firm's ETFS Physical Gold has grown 4.5 times faster than any other similar gold product in Europe in the past six months. Significant interest is coming from investors in Germany, Austria and Britain. The gold ETC now exceeds $470 million, an increase of more than 575,000 ounces over the six-month period.
Good Fundamentals
"There has been significant increase in demand for ETCs linked to the price of commodities and particularly precious metals," said Nik Bienkowski, head of listing and research at ETF Securities. In an interview, Mr. Bienkowski said that exchange-traded funds provide investors with a mechanism to buy gold and other precious metals safely and easily. In addition, precious metals are attractive to investors because they have a low correlation with other asset classes, and they are relatively liquid compared with other alternative assets.
Real estate, for example, is looking "toppy," he said, and it's not as liquid. Some real estate funds have cut their NAVs 20% over the last month, he noted, and some are freezing redemptions for the next 12 months. As for hedge funds, some are doing well, while others have gone under; a few have closed down redemptions.
Mr. Bienkowski said that fundamentals for precious metals look good for at least the next year, but cautioned that even so, prices could fall because of overbuying, which would cause price momentum to abate. After overshooting to the upside, the price could overshoot to the downside, he said.
He said that ETFs, which are basically securitized futures, are the simplest vehicle for most investors, including larger ones, seeking exposure to precious metals and other commodities, because these people don't want to manage rolling futures, margin calls and the like. He acknowledged that very sophisticated investors might be better off trading futures because they can do so at a slightly reduced cost compared with ETFs.
According to ETF Securities, all of the firm's physical precious metal ETCs are backed by allocated metal, uniquely identifiable bars that carry no bank credit risk. The bars and ingots are held in trust in London by the custodian HSBC Bank USA N.A., which is the world's leading custodian for ETCs with approximately $20 billion of precious metals being held for such products.
The metal held with the custodian has to conform to the rules for good delivery of the London Bullion Market Association and London Platinum Palladium Market. Securities are issued only after metal is confirmed as having been deposited into the ETF Securities' bullion account with the custodian.
ETF Securities started out by creating gold bullion securities in Australia in 2002. The next year it listed the world's first gold exchange-traded fund on the Australian Stock Exchange. In September 2006, the firm listed an entire platform of ETCs, consisting of 19 individual commodities and 10 different baskets of those commodities. Today, the firm offers 50 or so ETFs that track baskets or individual commodities.
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