Easy Money Investing

When it comes to high energy prices, OPEC is quickly losing its status as Public Enemy No. 1. Alongside Big Oil, where profits are fattening as gas prices rise, a new bogeyman has emerged: the oil speculator. With the stock market in retreat so far this year and the dollar crumbling, these investors have flooded the commodities markets in hopes of cashing in on (BusinessWeek.com, 1/17/07). High oil prices are creating a ripple effect of inflation that’s angering consumers; gasoline prices topped yet another new record on May 14, an average of $3.76 per gallon.

“We are witnessing a substantial influx of speculative money into energy markets,” Senator Jeff Bingaman (D-N.M.) said May 12 on the Senate floor. “It is bidding up the price of oil beyond any reasonable level. Every consumer can see it at the pump. But we do not have any serious effort to regulate that speculation, or even to notice it.” Tighter Regulation on Onions

Now Bingaman and other members of Congress say they’re ready to shed regulatory light on the international oil market. On May 7, Senate Majority Leader Harry Reid (D-Nev.), Bingaman, and others unveiled the Consumer-First Energy Act, which they say addresses the oil price spike at its root. The proposal would mandate higher cash collateral for energy-futures trading and call for greater oversight of overseas trading. The bill, which contains four other provisions, could come to a vote by Memorial Day.

Would U.S. legislation to curb oil futures accomplish its goal? With so little information not only on oil trading but also (BusinessWeek, 5/14/08), it’s impossible to say exactly what impact the legislation could have. But considering the vast size and scope of the global oil market, it’s unlikely the bill would significantly rein in prices. Still, debate about the bill and Congressional investigations on speculation may offer more data on a market that is both poorly understood and immensely important to the global economy.

“We regulate the trading of onions much more closely than the trading of oil,” says Mark Cooper, research director for the Consumer Federation of America, a nonprofit advocacy group, referring to federal rules covering agricultural commodities. “Regulation will bring some discipline to this raw speculation.” Changed Market, New Fundamentals

The explosion in the number of financial players in the energy markets has occurred especially in the past two years, which also happened to be a period of soaring energy prices. There are now 634 energy hedge funds, up from just 180 in October, 2004, says Peter Fusaro, founder of the «investing.businessweek.com», an energy-trading information firm. Of the total funds now, 210 are strictly energy commodity funds trading oil or oil futures and options, as opposed to the stocks of energy companies such as ExxonMobil («www.businessweek.com») and Chevron («www.businessweek.com»). Large financial institutions such as Goldman Sachs («www.businessweek.com») and Morgan Stanley («www.businessweek.com») have also stepped up their participation in the energy markets.

More money has flowed into commodities as a hedge against the falling value of the dollar and as an investment alternative to a rocky stock market. These fund flows have influenced oil prices heavily, leading some analysts to conclude that the dollar’s value and interest rates are the new fundamentals in the oil markets, replacing supply and demand.

Trading takes place on exchanges such as the New York Mercantile Exchange («www.businessweek.com») and the London-based Intercontinental Exchange («www.businessweek.com»). The New York Mercantile Exchange is regulated by the U.S. Commodity Futures Trading Commission (CFTC), and ICE is regulated by the «investing.businessweek.com». Neither NYMEX nor ICE disclose the proportion of oil futures trades they oversee. Philip Verleger, an energy economist and president of Aspen, (Colo.)-based consulting firm PKVerleger LLC, estimates that the global futures market in petroleum is currently valued at about $500 billion. Trading also occurs in the electronic or over-the-counter (OTC) market, which neither the U.S. nor the U.K. regulates. Verleger estimates the OTC market for petroleum is valued at between $1.5 and $3 trillion.

January 1, 2008 — Underwriting

Citigroup and Merrill Lynch were the world’s top underwriters of stocks and bonds in 2007, mea sured by volume and re ported fees. While Citi re mained the top underwriter by volume for an eighth-straight year, it ceded its fee crown to Merrill, according to data released by Thomson Fin ancial. Citigroup arranged $617.6 billion of offerings, with an 8.2 percent share. JPMorgan Chase was sec ond with $554.1 billion of offerings and a 7.4 percent share. Merrill, fourth in underwriting volume, dis placed Citigroup in fee rankings, with a 9.7 per cent market share. Citi group commanded 9.3 percent, and JPMorgan followed with 8.6 percent.

Nasdaq-OMX

Nasdaq Stock Market obtained clearance from the Committee on For eign Investment in the US for Borse Dubai to take a stake in the com pany, paving the way for its acquisition of OMX AB. Once Borse Dubai owns at least 67 percent of OMX, it will transfer all the shares to Nasdaq. Borse Dubai will simulta neously make a minority investment in Nasdaq, and Nasdaq will make a minority investment in Dubai International Fin ancial Exchange.

Kirk buys

Kirk Kerkorian’s Tra cinda agreed to buy a 35 percent stake in Delta Petroleum for $684 mil lion. Delta agreed to sell Tracinda 36 million shares at $19 each, a 23 percent premium to its Dec. 28 closing price.

Home sales

US sales of existing homes unexpectedly rose in November to a level that still suggests the housing slump will be a drag on economic growth. Purchases rose 0.4 percent to an an nual rate of 5 million from a 4.98 million pace in October, the National Association of Realtors said. Sales were down 20 percent from November 2006.

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Copyright 2008 Reuters. Click For Restrictions

BOSTON: At age 77, Edward “Ned” Johnson 3rd cannot keep this pace up forever. But it sometimes seems the chief of Fidelity Investments hopes to.

Johnsons tenure running the largest U.S. mutual fund company has spanned three decades - the only other change of leadership in 61 years at Fidelity was when Johnson took over from his father. But the job has become increasingly complex as Johnson tries to fend off rivals gains and streamline operations, while outsiders calls for governance reform grow louder.

“He hasnt missed a beat, and a lot of people have crumbled while hes still going 100 miles per hour,” said Eric Kobren, a former Fidelity employee who edits the independent money advice newsletter Fidelity Insight. He suspects Johnson “isnt going anywhere soon.”

The notoriously insular company is not publicly offering a timeline for leadership change, or disclosing details of a succession plan it says it has in place, even amid some suggestions that the uncertainty could be hurting Fidelitys ability to compete.

The heir apparent - Johnsons 46-year-old daughter, Abigail Johnson - has not been confirmed as such, and some observers question whether she even wants the job. And a flurry of management and organizational changes this year eliminated two other successor candidates from contention.

Outsiders still regard Abigail Johnson as an odds-on favorite for the top job, by virtue not only of her bloodline, but the diversity of management positions she has held overseeing Fidelitys increasingly far-flung financial services.

But her father is still firmly in charge - and by all accounts, apparently healthy.

“Nothing has told me that hes anxious to pass the baton very quickly, unless something were to develop with his health, or some family issue,” said Patrick McGovern, a friend who occasionally dines with Johnson and is founder and chairman of IDG Group, a Boston-based technology research and publishing firm.

Fidelity rarely makes executives available for interviews, and declined requests from The Associated Press. A recent statement issued by Ned Johnson on succession planning described a continuing process to “pass the corporation on in good operating order to the next generation of executives at the appropriate time.”

Whoever eventually succeeds Johnson, big changes are expected at the Boston-based company that is a huge force on Wall Street, as the largest provider of Americans workplace retirement savings plans and a manager of nearly $1.6 trillion in assets.

Observers say Johnsons successor will not have as much power as he has wielded filling the chairman and chief executive roles since 1977 - posts that could be split between two people when his replacement is named. And the private firm will face increasing pressure to operate more like a publicly held company, with greater attention to open governance, cost-cutting and short-term financial results.

“Whoever follows Ned Johnson cant run it the way he has - the old model doesnt work anymore,” said Bruce Raynor, co-chairman of the Council of Institutional Investors, representing public, labor, and corporate pension funds, and general president of Unite Here, a union of hospitality and textile workers.

Fidelity has recently diversified from its core mutual fund business into areas like individual retirement planning and employee benefit management, after seeing only middling returns in recent years from key mutual funds that fueled rapid growth in the late 1980s and early 90s.

Today, 46,400 Fidelity employees provide financial services to 23 million individuals.

Meanwhile, Vanguard Group and Capital Groups American Funds have recently enjoyed greater success attracting investor money amid rising popularity of low-cost index and exchange-traded funds.

Those investments do not play off Fidelitys strength as an active manager of funds that capitalize on the hottest stocks from day to day.

At Fidelity, Johnson family members hold 49 percent of Fidelitys voting stock - key managers control the rest - and the companys board consists solely of current or former company executives and Johnson family members.

The structure has come under criticism not only from activists like Raynor, but from Moodys Investors Service. A November report on Fidelitys creditworthiness questioned whether Ned Johnson and his family wield too much power, and said Johnson and other managers have not adequately defended the companys once-dominant position in mutual funds.

Moodys also said unresolved questions about leadership succession and recent management changes had created uncertainty that could hurt efforts to draw top talent to Fidelity.

Among its competitors, American Funds manages just 30 large funds compared with Fidelitys assortment of 431, and avoids mainstream media advertising in favor of brokers recommendations to clients about fund performance. Like Fidelity, American Funds is privately owned by employees, but without a dominant family like the Johnsons. Teams of “portfolio counselors” manage individual funds, adding more counselors as funds grow in size. In contrast, Fidelity typically closes funds to new investors when they get too big. Fidelity traditionally gives an individual manager broad oversight to run a fund, although it recently launched new team-managed funds.