Junk Food, But Not Junk Stocks

A report from FT talks about the fact that Britons are filling up on buckets of fried chicken and takeaway pizza as the recession deepens, turning their backs on the fashionable restaurants and gourmet food that boomed as incomes peaked.



The growing popularity of fast food has been driven by economics, as people trim their budgets and stay at home more in the face of rising unemployment in the UK.

On the other hand, while supermarkets say people are also cooking more from scratch, there is some indication that fresher food is falling out of favour. Sales of fresh fruit and vegetables rose by 3 per cent last year, according to data provider Nielsen, less than the growth of the food market as a whole. Organic food sales have declined.

Sales of tinned goods, meanwhile, rose 8.2 per cent and frozen food sales rose 5.6 per cent after several years of stagnation.

Meanwhile, fast food chains dominate the £12.4bn franchising industry in the UK. More people have become interested in running franchises since the economy turned sour, in part because they are considered a safer form of start-up, says the British Franchising Association.

The change of living habbits will probably have some significant positive effects on those industries that are ready and are able to capitalize on these trends, such as:

1. fast food business, as people will prefer to eat at home with take-aways rather than eat out expensively in a restaurant;

2. convinient food producers, as people will prefer to those cheaper can-tin long-life products compared to other more expensive fresh food products;

3. businesses provide renting services on major home appliances, such as big screen TV, on demand movie/sports viewing compared to traditional contractual viewing;

4. alcohol retailing as people would prefer to drink at home rather thank drink more expensively in a pub;

5. home entertainments business to exploit the trend of staying at home cheaply but still having funs;

Shippng Index Bounce Back

An interesting chart today depicts the strong relationship between the Baltic Dry Index (a global gauge of raw-material shipping costs) and the value of those three resource-rich countries' currencies, including Norway's kroner, Australian dollar, and Canadian dollar.

The commodities prices are very depressed currently as the ecnomic crisis deepened and the gloomy outlook for the global growth. However, the underlying fundamentals related to the supply and demand side of commodities have not changed much, which should provide a long-term support for commodities. Since the beginning of the year, the Baltic Dry Index have jumped by more than 100 percent. if the trend is sustainable and resilient in the next three months, then we should expect the bounce back of the commodities prices from their current extremely low levels compared to historical standard and benefits the currencies linked to them.

Where have all the corn gone?

Credit Suisse Says Cheap Crops Won’t Last

Corn, soybean and wheat prices are trading at discounts to their inflation-adjusted averages, and all three are likely to rally because output won’t keep pace with demand for crops to make food, animal feed and alternative fuels, said Eliane Tanner at Credit Suisse Group.

The CHART OF THE DAY shows corn futures on the Chicago Board of Trade, adjusted for inflation, are 32 percent below their monthly average price since 1972. Corn fell to an 18-month low on the CBOT in December. Soybeans futures are 27 percent cheaper than their monthly inflation-adjusted average, and wheat is at a 25 percent discount.

“Prices have fallen too low,” Tanner, a commodity analyst in Zurich, said in a Feb. 2 note to clients. She didn’t provide price forecasts when contacted by e-mail on Feb. 3. Prices “are significantly below historical average in real terms,” Tanner said in the report.

Rising global population growth, particularly in the emerging markets, has increased demand for food and animal feed. Food supply will have to grow by 50 percent by 2030 to meet the projected demand, as climate change, water scarcity and competition for land limit the growth of crop production, according to World Bank forecasts.

World grain and oilseed production this year will fall below record harvests in 2008, Tanner said. The weather won’t be as favorable as a year ago, and farmers are planting fewer acres and using less high-cost fertilizer after crop prices dropped by more than 40 percent from last year’s records, she said.

“The weak supply-side outlook is likely to keep inventories tight and thus we expect grain prices to be vulnerable to weather-related supply shortages,” Tanner said. “Demand for agricultural commodities is relatively immune to developments in the business cycles compared to that of energy or base metals.”

What's the wind behind this sail?

I have recently produced a research paper on fund selection factors. While published literature has largely concentrated on the performance persistence phenomenon, research is sparse in regards to the determinants of investment performance.

In this paper, I makes a strong effort to establish robust results by comparing the performance of different fund portfolios formed based upon qualitative and quantitative fund factors, and providing an economically meaningful measure of the magnitude of the relation between performance and attributes.

On the qualitative factors side, for developed equities and bonds funds, larger funds tend to outperform smaller funds as economies of scale dominates market liquidity. Funds with lower expense ratios tend to provide better risk-adjusted performance compared to their higher expense counterparts.

On the quantitative factors side, Jensen alpha and information ratio tend to do the best job in predicting future fund performance.

Superior performance is a short-lived phenomenon that is observable only when funds are selected and sampled frequently. Therefore, fund selection framework should focus more on finding an appropriate mix of factors that successfully predict fund outperformance over shorter time periods, rather than focus on finding fund managers that consistently outperform over longer time periods.

http://www2.standardandpoors.com/spf/pdf/index/Fund_Factors_2009Jan.pdf

Consolidation in oil industry likely in 2009

Oil price continued to fall on concern that further economic contraction in the U.S., the world's biggest energy consumer, may limit fuel demand. However, it might not be a good time to buy oil but it might be a good time to look into those small to mid cap oil exploration companies as their share prices have slid more than half since last summer and quite a few bargain opportunities emerge.

Major oil companies are sitting on enormous piles of cash after posting record profits in recent quarters, while crumbling stock and crude prices have made many smaller oil and gas companies potential targets. Exxon Mobil, the world’s largest publicly traded oil company, said recently that it has $37 billion in cash.

Exxon Mobil Corp., BP Plc. and other oil giants are having increasing trouble securing new sources of fossil fuels the old-fashioned way — exploring and drilling.

Smaller producers that lack huge capital reserves have been stung by a credit crisis that’s severely limited or even paralyzed their ability to finance new exploration and production.