Barron's: Ukraine Farmers Stockpile Grain

By SIMON CONSTABLE

Here's something to chew on: Ukraine's farmers are using wheat and corn to hedge against the risk of a currency crisis. What's more, the uncertainty in Crimea has the potential to drive prices even higher in markets already worried about supplies from the major grain exporter. See original story here.

Photo by Igor Karimov on Unsplash

MarketWatch: The Cost of Dumbness

By SIMON CONSTABLE 

We all know there’s a price for being dumb. The problem is quantifying it.

But now some researchers have an estimate of the cost of America’s failure to make the grade in the classroom. It will cost the U.S. economy close to $15 trillion through the year 2050.

That’s trillion, with a T. It’s enough money to wipe out nearly all of America’s debt. Read more here.

Photo by Museums Victoria on Unsplash

Barron's: Tide Rising For Shipping Market

By SIMON CONSTABLE

Get ready for a gust of wind—freight futures look ready to set sail. The recently becalmed dry-bulk sector is likely to get a lift from surging demand for raw materials, particularly from China, which is expected to outpace freight capacity over the next two years.

The Baltic Dry Index, which measures the cost to move freight such as coal, iron ore, and grain across the world's oceans, plunged over the past few weeks, sinking more than 50% from its Dec. 12 peak. Still, at 1106, the index is more than 300 points above its lows from last year. See original story here.

WSJ: How Scotland Can Keep the Pound

By SIMON CONSTABLE

If UK chancellor George Osborne wants to come down hard on Scottish hopes of independence, he should at least get things right. The problem is he hasn’t.

This week Osborne, who holds a cabinet position roughly equivalent to Treasury Secretary, said “If Scotland walks away from the U.K., it walks away from the U.K. pound.”

If the Scots believe him, his pronouncement sounds like a scary proposition. Or it would be, if only he was correct.

“Osborne is just wrong,” says Steve Hanke, professor of economics at the Johns Hopkins University. “There is a viable option that is easy to implement.” See original post here.

Photo by Charlie Seaman on Unsplash

WSJ: Checking the Vital Signs of a Jittery Market

By SIMON CONSTABLE

The housing market is weakening. Job growth is stalling. Emerging markets are teetering. And U.S. stocks are struggling.

Despite a strong rally late last week, the Dow Jones Industrial Average is down 4.7% from its all-time high, set just over a month ago on New Year's Eve. See original post here.

WSJ: Understanding a Mutual Fund's Average Annual Return

By SIMON CONSTABLE

What does it mean when a mutual fund reports its average annual return over a period of, say, three or five years? It isn't exactly what you might think. What's more, computing the figure yourself will require more than the general arithmetic you use in other areas of your life.

Consider a person who invests $100 and has a 10% loss one year and a 10% gain the next. That might seem to be an average return of zero. But the investment would actually be down one dollar in value—dropping 10% to $90 the first year, then growing 10% to $99 the next.Specifically, average annual return can't be determined by calculating the simple average of three or five one-year returns—the way you would calculate the average height of two people who are 5 and 6 feet tall, respectively. That's because investment returns are volatile and the results compound year after year, says Paul Justice, director of data methodology at Morningstar Inc.

So fund companies and data providers typically report multiyear returns as "compounded average annual returns," or geometric returns, which reflect how a series of returns affect an initial investment. The annualized return in our example is about negative 0.5%.

The details of the calculation aren't important because fund companies will do the sums for you.

What is important to remember is that even seemingly small differences in annual returns compound over many years to create big dollar differences in how an investment grows. If you started with $10,000 and invested it for a couple of decades, a difference in average annual return of, say, half a percentage point could easily mean a difference of a few thousand dollars at the end of the period.

Quoted fund returns generally include the reinvestment of dividends and capital-gains distributions. They are net of operating expenses, but typically not of any sales charges.

See original story here.

WSJ: Roubini -- Twitter Value "Ridiculous."

By SIMON CONSTABLE

Valuations among tech startups are looking frothy, and that includes Wall Street darling Twitter Inc., according to the man known as Dr. Doom.

“Tech is a bit ridiculous in terms of the deals being done,” said Nouriel Roubini, founder of Roubini Global Economics. He was speaking with The Wall Street Journal at the World Economic Forum in Davos. “Startups with barely any profits are selling for sixty times expected forward earnings.”

He also said there were some examples of firms with no revenue selling for huge sums.
“Take Twitter,” he said. “Based on current revenue and earnings the valuation is totally ridiculous.”

It’s not that Roubini doesn’t like Twitter. Quite the contrary, he “loves” it and uses it multiple times every day.

The problem, as he sees it, is how the company can build a “revenue base” to justify the value.
It’s a useful tool, he says, but he doesn’t see the company growing bigger than Facebook Inc. or Google Inc.

It’s not just Twitter that has a crazy value, he says, pointing to some companies with zero revenue being acquired based purely on their “option value.” Or put in more simple terms, the purchase price is based on the small chance that one day the company builds a successful and profitable business.

Famously, close to two years ago Facebook purchased Instagram, which had zero revenue at the time, for $1 billion in cash and stock.

He also pointed to “flops” in the startup space, naming Groupon as an example of the risks inherent in the space.


To be sure, there are some “amazing” tech firms” and “some will be successful,” he said. Just not all of them.

See original story here.