For months, they alternately ache for it and dread it. They shake. They lose sleep.
Methamphetamine addicts? Hardly. It is the thousands of people who take the Chartered Financial Analyst exams, a multi-year series of financial industry tests that require nearly a whole summer of waiting after each exam for the results, creating a nerve-wracking period of limbo right now after a grueling year of studying.
"I didn't pick up a fiction book for three years," recalls Beth Hamilton-Keen, an investment counselor at CIBC Private Wealth Management in Calgary, Canada, of her time cramming for the three required CFA exams in the late 1990s. "When you work a twelve-hour day, then you have to fit it into your nights and weekends. Taking long plane rides helps a lot. You can't do anything else on a plane."
Ask any academic, analyst or portfolio manager awaiting the CFA results, and they will tell you: The wait for results is almost as bad as the test itself, which quizzes participants on everything from accounting to ethics.
The tests, administered by the non-profit CFA Institute in the U.S., are given worldwide in 89 countries on the same day in early June. Results come out in late July for people who took the first-year test level, and later in August for the following two test levels. CFA candidates are currently in the thick of the waiting period, mulling over the questions they think they flubbed.
There has even been a liquor commercial made about it: In a reality spot that was aired in South Africa last year, Bells Scotch Whiskey's cameras followed equity analyst Johan de Bruijn as he logged on to a computer to find out if he had passed the final level of the exam. The 28-year-old Cape Town resident, who hadn't slept the night before, jumped out of his chair and screamed when he found out he had passed.
"I've made it!" he bellowed as the logo for Bell's whiskey appeared. "Ah, I'm shivering!"
Bruijn recalls that day, nearly a year later. "I was shivering because I was so relieved. It was more like shaking," he said. Immediately after the commercial was filmed, he went to his office and told everyone there he had completed the third level.
"There is huge pressure on the candidate to pass, especially from colleagues, some of whom have already received their charter," he said.
Where Exams Outnumber Residents
While CFA exams takers may know how to evaluate the trickiest equity derivatives, few claim to understand the long wait required before they receive their results. The answer lies in Charlottesville, Va., population 40,000, home to the CFA Institute, which changed its name from the Association for Investment Management and Research in May.
From June 5, when the exam was given this year, until late August, when the final grades are reported, the institute does little else besides organize, grade and double-check grades on the 83,000 exam booklets that CFA candidates filled out. While the first-year level of the test is a multiple-choice exam that can be machine-graded - and thus delivered to those exam takers about a month earlier - the final two years' exams include essay questions that must be read and evaluated by hand.
The initial grading process takes place over a two-week period in which 750 people who already hold CFA designations descend upon Charlottesville, located at the foothills of the Blue Ridge Mountains about 70 miles northwest of Virginia's state capital of Richmond. The influx of people fills seven area hotels and generates an estimated $1 million in revenue for the local economy.
An entire high school is taken over for the grading process, its library shelves cleared out and turned into a massive storage area for exams in various stages of grading. Test graders are assigned to teams of 20, who focus on one exam question at a time, and their efforts are tracked and bar-coded by a group of temporary workers. The graders, who are flown in from 30 countries and fed two meals a day in the school cafeteria, emerge at the end of each day blinking in the sunlight, and board shuttle buses that take them back and forth between their hotels and the high school.
A mix of academics, retirees and active money managers and analysts, many CFA holders use their vacation time to grade the tests, receiving a stipend of $300 a day. Most, like CIBC's Hamilton-Keen, think the conference helps them network and stay abreast of new trends in the investment management industry.
The test-grading process also reminds them of the intensity of the exams. It takes an average of four years to complete all the exams, all of it self-study using textbooks. Of the 83,284 who enrolled for the exams in 2004, only a little more than half can expect to pass. About 25% never even show up for their tests after getting a gander at the study guides. Nearly 80% of the people who enroll in the program never get a CFA designation.
Jim Galloway, who taught finance and investment courses at the Rochester Institute of Technology in upstate New York, said decades ago when he was preparing for the exams, fellow faculty members would sit for the test at a location outside of Rochester, to avoid taking it at the same site as their graduate students. Their fear: A student would ask how they did later, and they would have to admit they flunked.
"I would have had no confidence at all if I hadn't passed," said Galloway, who has been grading tests for 21 years.
"I Didn't Study...But I Had To Show Up"
After Galloway and his fellow charter holders complete the two-week initial grading process, the test grades are re-checked, tallied and re-checked some more. When the process is over, the results are posted online.
In some circles, particularly outside the U.S., holding a CFA is considered more important than where a prospective job candidate attended college, and carries more cachet than advanced degrees like a master's in business administration. In the U.S., the only way a Wall Street analyst can bypass taking the practical knowledge portion of a new mandated exam by next April is if he or she has passed the first two levels of the CFA.
The CFA exams have been taken by Securities and Exchange Commission Chairman William Donaldson, Goldman Sachs Group Inc. (GS) investment strategist Abby Joseph Cohen, famed asset manager Mario Gabelli, Nobel prize-winning economist Robert C. Merton and Sir John Templeton.
It has also been taken by a few lesser-knowns, including one candidate who scrawled on his booklet, "I didn't study for this exam, but my boss is sitting behind me so I had to show up" before doodling pages of nonsense for hours in the exam room, waiting for the day to end. Yet another wrote in his book, "What I'd rather have been doing today was golfing," and proceeded to fill his booklet with a description of the various holes of his favorite course.
Those who have failed must try, try again, as was the case for CFA Institute President and Chief Executive Tom Bowman, who flubbed his first attempt at the first level in the 1970s because he was so confident he would pass without studying. Bowman isn't alone; it takes the average successful candidate four exam sittings to earn a CFA.
"I had been managing money for five or six years," and thought there couldn't possibly be any unknowns on the exam, said Bowman. "I opened the study guide about a week before they exam and said, "There's no way I'm going to be able to do this." Sure enough, I failed. At the time, I almost wished I never opened the study guide."
Friday, October 26, 2007
The Toast of Roasts - Bryn Nelson
When the auction began on the afternoon of May 29, six cartels had set their sights on 500 pounds of an almost mythical Panamanian product. For eight hours, they bid and counterbid online, with one determined group lodging a total of 27 separate offers—all in vain. After a frenzied tit-for-tat between the final two contenders, the price for the juggernaut known as La Esmeralda Special steamrolled past the record set the year before, fetching an astonishing $130 per pound. The winning bid was more than 11 times the price of the auction’s next-highest-earning coffee bean.
Yes, coffee beans.
Anything described as “explosively floral on the palate” by the Specialty Coffee Association of America might be expected to attract a certain amount of attention, especially after being named the world’s best coffee by the association for three years running. A judge from Kansas City scored it a perfect 100 in this year’s Best of Panama competition. A Seattle coffee executive blogged that “its aroma practically sings to you from between endless rows of other exemplary coffees.” A New York barista dubbed it the “undisputed heavyweight champion of coffee.”
La Esmeralda Special is all the more remarkable given that, a decade ago, the spindly trees that produced the beans were little more than windbreaks owned by the family of a prominent American banker. But while the hefty price may be a curiosity, Esmeralda’s popularity signals a broader shift in an industry where quantity, not quality, has long reigned supreme. In a post-Starbucks world, specialty coffee has become a hot commodity, and La Esmeralda Special is far from alone in the upper echelons.
“I think we’re seeing a fundamental shift in the coffee industry in terms of making coffee much more of a personal and exciting beverage than it ever has been,” says Susie Spindler, executive director of the Alliance for Coffee Excellence, an organization in Missoula, Montana, that runs the Cup of Excellence competitions and online auctions in eight countries.
The most recent rush of excitement has been over a roasted bean variety called Geisha. Originally from Ethiopia, the relatively low-yielding but disease-resistant Geisha trees were transplanted to Central America in the 1950s. They were soon yanked from coffee farms, however, as the market shifted to mass production in response to exploding demand.
In 1964, Swedish-born Rudolph Peterson, then chief executive of Bank of America, bought Hacienda La Esmeralda, a dairy and beef farm in Panama’s Chiriqui highlands. The property was eventually passed on to his son Price, who in 1996 expanded the family’s holdings, buying a nearby farm with a “mish-mash” of coffee trees on its upper reaches, according to Price’s son Daniel. Almost immediately, the family could smell and taste something special in the cups of coffee produced from the farm’s beans.
When they isolated the taller Geishas and planted more at a slightly higher altitude for the 2003 to 2004 season, the coffee really blossomed, Daniel says. In 2004, La Esmeralda Special swept the intense Best of Panama and Rainforest Alliance cupping competitions—at which the few dozen entrants with the best aroma, sweetness, mouthfeel, flavor, aftertaste, and balance are identified—and set the first of its auction records with an online price of $21 a pound. “This is a flavor that had not been found in the Americas,” Daniel says. It can now be found at high-end online retailers and some of the best coffeehouses in the U.S. and Canada.
At a basic level, industry insiders are increasingly defining well-regarded specialty coffees by what they are not: blended or—Sacre bleu!—French roasted. Jeff Taylor, co-owner of PT’s Coffee Roasting Co., in Topeka, Kansas, says top buyers, wholesalers, and retailers are more interested in single-origin coffees and lighter roasts that highlight a bean’s best features.
Like a vineyard’s grand reserve wine, the finest coffee beans are often found in microlots, or small subsets of farms like Hacienda La Esmeralda, where, as Taylor puts it, “all of the stars align.” In the partial shade of the higher-elevation lot, Esmeralda’s Geisha trees may not be models of productivity, but the slower cycles let them pack more sugars and oils into their beans and turn heads in coffee competitions.
Coffee enthusiasts also make comparisons with the wine industry’s success in marketing nuanced vintages; some boast that chemists have identified about 850 natural compounds contributing to the flavor of roasted coffee—many more than in a classic Bordeaux. An Ethiopian coffee called Biloya Selection One is acclaimed by PT’s Coffee for its “syrupy pineapple sweetness that’s supported with deep blueberry overtones,” while an offering from Panama’s Bambito Estate is lauded by Groundwork Coffee Co., a Los Angeles firm, for its “juicy, apple-cider-like texture and sweetness that pairs decadently with tones of dark chocolate, pepper, and clove.”
On a leafy side street in New York’s Chelsea neighborhood, other discoveries are showcased at Café Grumpy, where cheerful baristas preside over steady sales of individually brewed, single-origin coffees and espressos. Coffeehouse co-owner Caroline Bell says she secured a bag of the prized Esmeralda beans before May’s recordbreaking auction, through a roaster who had a direct relationship with the farm. A 16-ounce cup of the famous java was the most expensive item on her August menu and, at $8, was far closer to what nearby restaurants were charging for a glass of pinot noir.
With its notes of Italian bergamot, orange rind, lavender, and jasmine, the coffee was worth every cent, according to Café Grumpy barista Jay Murdock. Customers apparently agreed, snapping up about 80 pounds of the café’s 100-pound allotment before Labor Day. (The café is saving the rest for the holidays.) Bell says that ultra-discriminating coffee drinkers are akin to those who shop at farmers markets: It’s the difference between buying waxy tomatoes in a supermarket and springing for a Brandywine heirloom cultivar. Or perhaps it’s the difference between the aroma of a boxed wine and the toast-and-cherry-tinged nose of a ’95 Shafer cabernet sauvignon.
Yes, coffee beans.
Anything described as “explosively floral on the palate” by the Specialty Coffee Association of America might be expected to attract a certain amount of attention, especially after being named the world’s best coffee by the association for three years running. A judge from Kansas City scored it a perfect 100 in this year’s Best of Panama competition. A Seattle coffee executive blogged that “its aroma practically sings to you from between endless rows of other exemplary coffees.” A New York barista dubbed it the “undisputed heavyweight champion of coffee.”
La Esmeralda Special is all the more remarkable given that, a decade ago, the spindly trees that produced the beans were little more than windbreaks owned by the family of a prominent American banker. But while the hefty price may be a curiosity, Esmeralda’s popularity signals a broader shift in an industry where quantity, not quality, has long reigned supreme. In a post-Starbucks world, specialty coffee has become a hot commodity, and La Esmeralda Special is far from alone in the upper echelons.
“I think we’re seeing a fundamental shift in the coffee industry in terms of making coffee much more of a personal and exciting beverage than it ever has been,” says Susie Spindler, executive director of the Alliance for Coffee Excellence, an organization in Missoula, Montana, that runs the Cup of Excellence competitions and online auctions in eight countries.
The most recent rush of excitement has been over a roasted bean variety called Geisha. Originally from Ethiopia, the relatively low-yielding but disease-resistant Geisha trees were transplanted to Central America in the 1950s. They were soon yanked from coffee farms, however, as the market shifted to mass production in response to exploding demand.
In 1964, Swedish-born Rudolph Peterson, then chief executive of Bank of America, bought Hacienda La Esmeralda, a dairy and beef farm in Panama’s Chiriqui highlands. The property was eventually passed on to his son Price, who in 1996 expanded the family’s holdings, buying a nearby farm with a “mish-mash” of coffee trees on its upper reaches, according to Price’s son Daniel. Almost immediately, the family could smell and taste something special in the cups of coffee produced from the farm’s beans.
When they isolated the taller Geishas and planted more at a slightly higher altitude for the 2003 to 2004 season, the coffee really blossomed, Daniel says. In 2004, La Esmeralda Special swept the intense Best of Panama and Rainforest Alliance cupping competitions—at which the few dozen entrants with the best aroma, sweetness, mouthfeel, flavor, aftertaste, and balance are identified—and set the first of its auction records with an online price of $21 a pound. “This is a flavor that had not been found in the Americas,” Daniel says. It can now be found at high-end online retailers and some of the best coffeehouses in the U.S. and Canada.
At a basic level, industry insiders are increasingly defining well-regarded specialty coffees by what they are not: blended or—Sacre bleu!—French roasted. Jeff Taylor, co-owner of PT’s Coffee Roasting Co., in Topeka, Kansas, says top buyers, wholesalers, and retailers are more interested in single-origin coffees and lighter roasts that highlight a bean’s best features.
Like a vineyard’s grand reserve wine, the finest coffee beans are often found in microlots, or small subsets of farms like Hacienda La Esmeralda, where, as Taylor puts it, “all of the stars align.” In the partial shade of the higher-elevation lot, Esmeralda’s Geisha trees may not be models of productivity, but the slower cycles let them pack more sugars and oils into their beans and turn heads in coffee competitions.
Coffee enthusiasts also make comparisons with the wine industry’s success in marketing nuanced vintages; some boast that chemists have identified about 850 natural compounds contributing to the flavor of roasted coffee—many more than in a classic Bordeaux. An Ethiopian coffee called Biloya Selection One is acclaimed by PT’s Coffee for its “syrupy pineapple sweetness that’s supported with deep blueberry overtones,” while an offering from Panama’s Bambito Estate is lauded by Groundwork Coffee Co., a Los Angeles firm, for its “juicy, apple-cider-like texture and sweetness that pairs decadently with tones of dark chocolate, pepper, and clove.”
On a leafy side street in New York’s Chelsea neighborhood, other discoveries are showcased at Café Grumpy, where cheerful baristas preside over steady sales of individually brewed, single-origin coffees and espressos. Coffeehouse co-owner Caroline Bell says she secured a bag of the prized Esmeralda beans before May’s recordbreaking auction, through a roaster who had a direct relationship with the farm. A 16-ounce cup of the famous java was the most expensive item on her August menu and, at $8, was far closer to what nearby restaurants were charging for a glass of pinot noir.
With its notes of Italian bergamot, orange rind, lavender, and jasmine, the coffee was worth every cent, according to Café Grumpy barista Jay Murdock. Customers apparently agreed, snapping up about 80 pounds of the café’s 100-pound allotment before Labor Day. (The café is saving the rest for the holidays.) Bell says that ultra-discriminating coffee drinkers are akin to those who shop at farmers markets: It’s the difference between buying waxy tomatoes in a supermarket and springing for a Brandywine heirloom cultivar. Or perhaps it’s the difference between the aroma of a boxed wine and the toast-and-cherry-tinged nose of a ’95 Shafer cabernet sauvignon.
Thursday, October 18, 2007
Carlsberg, Heineken move on U.K. brewer - AMY WILSON AND MEERA BHATIA
Carlsberg AS, the biggest Nordic brewer, has teamed up with Heineken NV to make a hostile offer for Scottish & Newcastle PLC, the U.K. maker of Kronenbourg and Foster's lager.
Scottish & Newcastle shares surged 19 per cent, valuing Britain's largest brewer at £7.2-billion ($14.3-billion). Carlsberg would gain control of Baltic Beverages Holding AB, its Russian venture with the Edinburgh-based company, while Heineken would get the U.K. brands.
The approach is "unsolicited and unwelcome," Scottish & Newcastle said. Baltic Beverages, which owns Russia's largest brewer, had £724-million in sales last year and would increase Carlsberg's emerging market profit as Western European growth slows. Larger rival SABMiller PLC agreed to combine its U.S. assets last week with Molson Coors Brewing Co. to cut costs and widen distribution.
"Carlsberg is desperate to get its hands on BBH and control over the biggest-growth part of its business, which has been half-owned," said Bruce Davidson of Blue Oar Securities in London, who has a "sell" rating on Scottish & Newcastle. "The driving force is the need to get into emerging markets."
Any offer is likely to be made in cash, and there's no certainty a bid will proceed, the companies said.
The British company's stock rose 12 per cent in the 12 months before today, partly on speculation that Valby, Denmark-based Carlsberg would bid. Amsterdam-based Heineken, Carlsberg and Scottish and Newcastle are the third-, fourth- and fifth-largest brewers headquartered in Europe, respectively.
Marcel Hooijmaijers of Kepler Landsbanki in Amsterdam said the offer could be more than £8 a share and Carlsberg may have to sell new stock. He said the offer may be worth as much as £10-billion, including £1.9-billion of debt, and Carlsberg may have to contribute £5.4-billion to a bid.
Scottish & Newcastle shares advanced £1.195 to £7.56, the biggest gain since at least 1988. Carlsberg shares climbed 1.7 per cent to 770 kroner ($143) in Copenhagen, and Heineken stock was up 52 cents or 1.1 per cent to €46.49 ($64.40).
The U.K. brewer said it's "confident in its future as an independent group" and urged investors to take no action.
"I am surprised Scottish & Newcastle already rejected it," said Nikolaas Faes, an analyst at Exane BNP Paribas in London. "The share price has come up from below 500 pence. Does the company want it to drop back to that level?"
Heineken would gain the assets elsewhere in Europe, and become the top brewer in the U.K., where Scottish & Newcastle has about 26 per cent of the market.
The SAB-Molson U.S. merger announced last week has spurred speculation Anheuser-Busch Cos. may come under pressure to combine with larger rival InBev NV, uniting the world's two biggest brewers.
Scottish & Newcastle shares surged 19 per cent, valuing Britain's largest brewer at £7.2-billion ($14.3-billion). Carlsberg would gain control of Baltic Beverages Holding AB, its Russian venture with the Edinburgh-based company, while Heineken would get the U.K. brands.
The approach is "unsolicited and unwelcome," Scottish & Newcastle said. Baltic Beverages, which owns Russia's largest brewer, had £724-million in sales last year and would increase Carlsberg's emerging market profit as Western European growth slows. Larger rival SABMiller PLC agreed to combine its U.S. assets last week with Molson Coors Brewing Co. to cut costs and widen distribution.
"Carlsberg is desperate to get its hands on BBH and control over the biggest-growth part of its business, which has been half-owned," said Bruce Davidson of Blue Oar Securities in London, who has a "sell" rating on Scottish & Newcastle. "The driving force is the need to get into emerging markets."
Any offer is likely to be made in cash, and there's no certainty a bid will proceed, the companies said.
The British company's stock rose 12 per cent in the 12 months before today, partly on speculation that Valby, Denmark-based Carlsberg would bid. Amsterdam-based Heineken, Carlsberg and Scottish and Newcastle are the third-, fourth- and fifth-largest brewers headquartered in Europe, respectively.
Marcel Hooijmaijers of Kepler Landsbanki in Amsterdam said the offer could be more than £8 a share and Carlsberg may have to sell new stock. He said the offer may be worth as much as £10-billion, including £1.9-billion of debt, and Carlsberg may have to contribute £5.4-billion to a bid.
Scottish & Newcastle shares advanced £1.195 to £7.56, the biggest gain since at least 1988. Carlsberg shares climbed 1.7 per cent to 770 kroner ($143) in Copenhagen, and Heineken stock was up 52 cents or 1.1 per cent to €46.49 ($64.40).
The U.K. brewer said it's "confident in its future as an independent group" and urged investors to take no action.
"I am surprised Scottish & Newcastle already rejected it," said Nikolaas Faes, an analyst at Exane BNP Paribas in London. "The share price has come up from below 500 pence. Does the company want it to drop back to that level?"
Heineken would gain the assets elsewhere in Europe, and become the top brewer in the U.K., where Scottish & Newcastle has about 26 per cent of the market.
The SAB-Molson U.S. merger announced last week has spurred speculation Anheuser-Busch Cos. may come under pressure to combine with larger rival InBev NV, uniting the world's two biggest brewers.
Hot job market for commodity traders - SAIJEL KISHAN
JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and BNP Paribas SA say oil, wheat and metals traders are Wall Street's hottest commodities.
Banks and securities firms hired a record 450 people for commodities this year, up 33 per cent from 2006, according to Options Group, the New York-based recruitment and consulting firm that has tracked the industry since 2002.
While the increase is equal to only 3.4 per cent of the 13,100 new hires in the securities industry last year, commodities traders are so coveted that headhunters are turning to fired mortgage bond salesmen to fill the help wanted.
Lehman doubled its commodity unit to 200, and JPMorgan added 45 to bring its total to 170, including Foster Smith from Deutsche Bank AG as head of U.S. power and gas, and Andrew Harrison from Goldman Sachs Group Inc., where he traded oil.
The subprime mortgage defaults that led to $21-billion (U.S.) in losses at securities firms, according to data compiled by Bloomberg, are having no impact in commodities, where hiring is increasing faster than ever, said Blythe Masters, the global head of commodities at JPMorgan.
Revenue from commodities may rise 20 per cent this year to a total of $15-billion at the world's 10 largest securities firms, said Ethan Ravage, a financial services industry consultant in San Francisco. Rising prices for oil, grains and metals are stoking demand for traders even as Wall Street firms eliminate more than 2,300 jobs because of slowing U.S. growth and the worst housing slump in 16 years.
"There's no question that competition for talent over the last few years has increased and is peaking right now," said Charles Watson, 57, the co-head of global commodities at New York-based Lehman, and former Dynegy Inc. chairman.
Lehman, the largest U.S. arranger of mortgage-backed bond sales, this year hired Jeff Frase and Roy Salameh, two energy traders from Goldman Sachs. Lehman said this month it's firing 850 people at its Aurora Loan mortgage business.
Trading in oil and gas is growing twice as fast as in the 1990s, when Enron Corp., then the world's largest energy-trading company, led a boom in demand for energy contracts, data on the New York Mercantile Exchange website show.
Oil has advanced 44 per cent this year on the Nymex, topping $88 a barrel.
Agricultural commodities trading at the 159-year-old Chicago Board of Trade has increased 26 per cent this year.
Headhunters say they expect people who lose jobs in fixed-income departments to seek employment in commodities. Paul Chrispin, a recruiter at Principal Search Ltd., who has been placing traders in the industry for eight years, said in an interview from London he's never been busier.
To be sure, commodities profits are unlikely to make up for all the losses in fixed income.
The $15-billion revenue from natural resources forecast for the biggest firms this year barely surpasses Goldman Sachs's $14.3-billion of revenue last year from fixed income, currencies and commodities, according to data compiled by Bloomberg.
Profit at Goldman Sachs will rise 16 per cent in 2007 to $11.1-billion, the slowest rate of growth since 2002, according to analysts' estimates.
Morgan Stanley's profit will increase 13 per cent to $8.4-billion, beating the 10 per cent gain in 2005, according to estimates compiled by Bloomberg. Both firms are based in New York.
Morgan Stanley said Oct. 2 that it's eliminating 600 jobs, or 25 per cent, of the positions in its residential mortgage origination and servicing unit in the wake of the subprime collapse.
The company hired 40 to 50 people through July this year in commodities, bringing the total to about 320, according to Marc Mourre, global head of commodities marketing in London.
UBS, Europe's largest bank, announced 1,500 job cuts on Oct. 1 because of hedge fund losses and writedowns related to subprime securities.
The Zurich-based firm has expanded its commodities group 60 per cent during the past two years, mainly by transferring people from other teams, Peter Ghavami, 39, global head of the unit, said in an e-mailed response to questions. He declined to say how many people UBS employs for commodities.
Deutsche Bank, Germany's biggest bank, doubled its commodities team this year, according to David Silbert, the global head of commodities who joined the bank this year from Merrill Lynch & Co.
Commodities traders are taking more control at the firms, where the top positions are typically held by the people who bring in the most profit.
David Sobotka, 51, the global head of commodities at New York-based Merrill, was put in charge of fixed income, currencies and commodities this month.
Neal Shear, 53, a former energy trader, was given the same role two years ago at Morgan Stanley, the second-largest securities firm by market value.
The chief executive officer at Goldman Sachs, the biggest investment bank, is Lloyd Blankfein, 53, who started his career as a gold salesman at J. Aron & Co., the commodities unit.
Compensation has swelled along with commodities prices. Mr. Shear earned $35- million at Morgan Stanley in 2006, more than the $30-million paid to his boss, co-president Zoe Cruz, 52, according to the company's proxy statement filed with the U.S. Securities and Exchange Commission. Only chairman and CEO John Mack's $41.4-million compensation was higher.
Banks and securities firms hired a record 450 people for commodities this year, up 33 per cent from 2006, according to Options Group, the New York-based recruitment and consulting firm that has tracked the industry since 2002.
While the increase is equal to only 3.4 per cent of the 13,100 new hires in the securities industry last year, commodities traders are so coveted that headhunters are turning to fired mortgage bond salesmen to fill the help wanted.
Lehman doubled its commodity unit to 200, and JPMorgan added 45 to bring its total to 170, including Foster Smith from Deutsche Bank AG as head of U.S. power and gas, and Andrew Harrison from Goldman Sachs Group Inc., where he traded oil.
The subprime mortgage defaults that led to $21-billion (U.S.) in losses at securities firms, according to data compiled by Bloomberg, are having no impact in commodities, where hiring is increasing faster than ever, said Blythe Masters, the global head of commodities at JPMorgan.
Revenue from commodities may rise 20 per cent this year to a total of $15-billion at the world's 10 largest securities firms, said Ethan Ravage, a financial services industry consultant in San Francisco. Rising prices for oil, grains and metals are stoking demand for traders even as Wall Street firms eliminate more than 2,300 jobs because of slowing U.S. growth and the worst housing slump in 16 years.
"There's no question that competition for talent over the last few years has increased and is peaking right now," said Charles Watson, 57, the co-head of global commodities at New York-based Lehman, and former Dynegy Inc. chairman.
Lehman, the largest U.S. arranger of mortgage-backed bond sales, this year hired Jeff Frase and Roy Salameh, two energy traders from Goldman Sachs. Lehman said this month it's firing 850 people at its Aurora Loan mortgage business.
Trading in oil and gas is growing twice as fast as in the 1990s, when Enron Corp., then the world's largest energy-trading company, led a boom in demand for energy contracts, data on the New York Mercantile Exchange website show.
Oil has advanced 44 per cent this year on the Nymex, topping $88 a barrel.
Agricultural commodities trading at the 159-year-old Chicago Board of Trade has increased 26 per cent this year.
Headhunters say they expect people who lose jobs in fixed-income departments to seek employment in commodities. Paul Chrispin, a recruiter at Principal Search Ltd., who has been placing traders in the industry for eight years, said in an interview from London he's never been busier.
To be sure, commodities profits are unlikely to make up for all the losses in fixed income.
The $15-billion revenue from natural resources forecast for the biggest firms this year barely surpasses Goldman Sachs's $14.3-billion of revenue last year from fixed income, currencies and commodities, according to data compiled by Bloomberg.
Profit at Goldman Sachs will rise 16 per cent in 2007 to $11.1-billion, the slowest rate of growth since 2002, according to analysts' estimates.
Morgan Stanley's profit will increase 13 per cent to $8.4-billion, beating the 10 per cent gain in 2005, according to estimates compiled by Bloomberg. Both firms are based in New York.
Morgan Stanley said Oct. 2 that it's eliminating 600 jobs, or 25 per cent, of the positions in its residential mortgage origination and servicing unit in the wake of the subprime collapse.
The company hired 40 to 50 people through July this year in commodities, bringing the total to about 320, according to Marc Mourre, global head of commodities marketing in London.
UBS, Europe's largest bank, announced 1,500 job cuts on Oct. 1 because of hedge fund losses and writedowns related to subprime securities.
The Zurich-based firm has expanded its commodities group 60 per cent during the past two years, mainly by transferring people from other teams, Peter Ghavami, 39, global head of the unit, said in an e-mailed response to questions. He declined to say how many people UBS employs for commodities.
Deutsche Bank, Germany's biggest bank, doubled its commodities team this year, according to David Silbert, the global head of commodities who joined the bank this year from Merrill Lynch & Co.
Commodities traders are taking more control at the firms, where the top positions are typically held by the people who bring in the most profit.
David Sobotka, 51, the global head of commodities at New York-based Merrill, was put in charge of fixed income, currencies and commodities this month.
Neal Shear, 53, a former energy trader, was given the same role two years ago at Morgan Stanley, the second-largest securities firm by market value.
The chief executive officer at Goldman Sachs, the biggest investment bank, is Lloyd Blankfein, 53, who started his career as a gold salesman at J. Aron & Co., the commodities unit.
Compensation has swelled along with commodities prices. Mr. Shear earned $35- million at Morgan Stanley in 2006, more than the $30-million paid to his boss, co-president Zoe Cruz, 52, according to the company's proxy statement filed with the U.S. Securities and Exchange Commission. Only chairman and CEO John Mack's $41.4-million compensation was higher.
Wednesday, October 17, 2007
Sin stocks: Take a shot and roll the dice - ANDREW ALLENTUCK
Casinos and weapons are the high-tech components of the sin stocks sector. After all, gambling combines elements of mathematics and showmanship, architecture and technology while weapons -- from pistols to machine guns to warplanes -- embody varying amounts of advance technology. For the investor, the appetite of the two sectors for capital creates opportunities and risks.
Casinos are not what they used to be. The hoods that once owned them are gone. Food at giveaway prices and free floor shows are memories. The gambling palazzos of Las Vegas have become combo shopping malls, entertainment extravaganzas and, of course, places at which the luckless can be fleeced. Now customers pay for the fringe benefits that go with a chance to lose money at the tables. The result is a high-margin business, said Nico Cape, a vice-president and analyst at Sceptre Investment Counsel Ltd. in Toronto. "With the growth of casinos into entertainment businesses, the net spend per customer has gone up considerably."
Casino stock prices have also been pushed up by technical factors in the sector. A wave of mergers and acquisitions has reduced the number of major casinos that trade publicly. But that trend has been good for casino stock prices.
Las Vegas Sands Corp. (LVS-NYSE) owns a casino empire that includes The Venetian, internet gambling company Venetian Interactive, and Venetian Macao in China. The stock trades at nearly 65 times 2006 earnings of $1.25 (U.S.) a share, up 50.6 per cent from 83 cents in 2005. The market expects Sands to do in Macao what it took the company 50 years to do in Nevada, Mr. Cape said.
MGM Mirage Inc. (MGM-NYSE) owns the MGM Grand Hotel & Casino, Bellagio, Mirage, New York-New York and other properties in Nevada. It trades at 28.4 times 2006 earnings of $2.29 a share, up from $1.56 a year earlier. The stock is a more U.S. play than Sands.
Harrah's Entertainment Inc. (HET-NYSE) is a purer casino play than other major industry operators. At 25.5 times trailing earnings of $3.29 a share, it is due to be taken over by private equity investors led by Texas Pacific Group and Apollo Management LP, subject to an April vote by shareholders.
Great Canadian Gaming Corp. (GCD-TSX) operates casinos in British Columbia and Washington state. Revenue for the 12 months ended Sept. 30, 2006, rose 44.8 per cent from a year earlier, but the company ended the period with a loss of 18 cents (Canadian) a share. Casino growth in Canada appears to be limited, said Sebastian van Berkom, an institutional fund manager in Montreal. "Governments across Canada have put moratoria on new casinos," he said.
Weapons makers can be divided into traditional manufacturers of hunting weapons and other firms that make military weapons. For the investor interested in buying the stocks, the problem is finding relatively focused, pure plays.
Boeing Co. (BA-NYSE) is a massive aerospace company that makes passenger planes, fighter jets, combat helicopters and military cargo planes. The company has been going through a difficult period, with profit dropping 13.9 per cent in 2006. For those who want to invest in defence, the company is a mixed blessing, for its civilian operations dilute military sales.
General Dynamics Corp. (GD-NYSE) is a major defence contractor. It makes submarines that carry guided missiles, land warfare information systems, naval vessels and data systems that are used throughout the U.S. armed forces and its allies. Revenue rose 13.4 per cent in 2006 while profit per share gained 26 per cent.
Sturm Ruger & Co. Inc. (RGR-NYSE) makes pistols and rifles. Analysts expect 2007 profit to rise to 36 cents (U.S.) a share from 20 cents last year. That would represent a turnaround for the company, which has gone through a period of slumping earnings.
Smith & Wesson Holding Corp. (SWHC-NASDAQ) makes handguns and handcuffs for the U.S. military and police forces. With military engagements up and crime thriving, business ought to be good. Smith & Wesson trades at a lofty multiple of 40 times estimated 2007 earnings.
Ceramic Protection Corp. (CEP-TSX) is a Calgary-based company that makes anti-weapons, that is, ballistic inserts for bulletproof vests used by police and soldiers. Earnings are climbing, with analysts projecting a profit gain to $1.98 (Canadian) a share from $1.31 a year earlier. Call this an anti-weapon business and it's hard to see a moral objection.
Casinos are not what they used to be. The hoods that once owned them are gone. Food at giveaway prices and free floor shows are memories. The gambling palazzos of Las Vegas have become combo shopping malls, entertainment extravaganzas and, of course, places at which the luckless can be fleeced. Now customers pay for the fringe benefits that go with a chance to lose money at the tables. The result is a high-margin business, said Nico Cape, a vice-president and analyst at Sceptre Investment Counsel Ltd. in Toronto. "With the growth of casinos into entertainment businesses, the net spend per customer has gone up considerably."
Casino stock prices have also been pushed up by technical factors in the sector. A wave of mergers and acquisitions has reduced the number of major casinos that trade publicly. But that trend has been good for casino stock prices.
Las Vegas Sands Corp. (LVS-NYSE) owns a casino empire that includes The Venetian, internet gambling company Venetian Interactive, and Venetian Macao in China. The stock trades at nearly 65 times 2006 earnings of $1.25 (U.S.) a share, up 50.6 per cent from 83 cents in 2005. The market expects Sands to do in Macao what it took the company 50 years to do in Nevada, Mr. Cape said.
MGM Mirage Inc. (MGM-NYSE) owns the MGM Grand Hotel & Casino, Bellagio, Mirage, New York-New York and other properties in Nevada. It trades at 28.4 times 2006 earnings of $2.29 a share, up from $1.56 a year earlier. The stock is a more U.S. play than Sands.
Harrah's Entertainment Inc. (HET-NYSE) is a purer casino play than other major industry operators. At 25.5 times trailing earnings of $3.29 a share, it is due to be taken over by private equity investors led by Texas Pacific Group and Apollo Management LP, subject to an April vote by shareholders.
Great Canadian Gaming Corp. (GCD-TSX) operates casinos in British Columbia and Washington state. Revenue for the 12 months ended Sept. 30, 2006, rose 44.8 per cent from a year earlier, but the company ended the period with a loss of 18 cents (Canadian) a share. Casino growth in Canada appears to be limited, said Sebastian van Berkom, an institutional fund manager in Montreal. "Governments across Canada have put moratoria on new casinos," he said.
Weapons makers can be divided into traditional manufacturers of hunting weapons and other firms that make military weapons. For the investor interested in buying the stocks, the problem is finding relatively focused, pure plays.
Boeing Co. (BA-NYSE) is a massive aerospace company that makes passenger planes, fighter jets, combat helicopters and military cargo planes. The company has been going through a difficult period, with profit dropping 13.9 per cent in 2006. For those who want to invest in defence, the company is a mixed blessing, for its civilian operations dilute military sales.
General Dynamics Corp. (GD-NYSE) is a major defence contractor. It makes submarines that carry guided missiles, land warfare information systems, naval vessels and data systems that are used throughout the U.S. armed forces and its allies. Revenue rose 13.4 per cent in 2006 while profit per share gained 26 per cent.
Sturm Ruger & Co. Inc. (RGR-NYSE) makes pistols and rifles. Analysts expect 2007 profit to rise to 36 cents (U.S.) a share from 20 cents last year. That would represent a turnaround for the company, which has gone through a period of slumping earnings.
Smith & Wesson Holding Corp. (SWHC-NASDAQ) makes handguns and handcuffs for the U.S. military and police forces. With military engagements up and crime thriving, business ought to be good. Smith & Wesson trades at a lofty multiple of 40 times estimated 2007 earnings.
Ceramic Protection Corp. (CEP-TSX) is a Calgary-based company that makes anti-weapons, that is, ballistic inserts for bulletproof vests used by police and soldiers. Earnings are climbing, with analysts projecting a profit gain to $1.98 (Canadian) a share from $1.31 a year earlier. Call this an anti-weapon business and it's hard to see a moral objection.
Saturday, October 13, 2007
FP Trading Desk - Jonathan Ratner
Uranium One, SNC Lavalin and Fortis considered most likely candidates to replace Alcan in TSX 60
Relative to the S&P/TSX composite index, which is most heavily weighted in financials and energy, and underweighted in health care and utilities stocks, the TSX 60 index's most underweighted sector is industrials.
But that doesn't mean S&P will look for more balance when it chooses a replacement for Alcan Inc. (AL/TSX) if and when the aluminum company's takeover by Rio Tinto Plc is complete by the end of 2007.
CIBC World Markets strategist Yin Luo says its replacement could come from either the energy, industrials or utilities sector. Uranium One Inc. (UUU/TSX) is the most likely energy name because of its high level of liquidity, he said in a note to clients. Uranium One would also boost the TSX 60's energy weighting, which is underweight relative to the TSX composite, he added.
Among industrial names, Mr. Luo points to SNC-Lavalin Group Inc. (SNC.TSX) as the most likely candidate given that it has the largest market cap ($6.6-billion) in the TSX completion index.
Fortis Inc. (FTS/TSX) is his pick from the utilities sector due to its underweighting in the benchmark index. There is currently only one utilities stock in the TSX 60, Mr. Luo noted.
Relative to the S&P/TSX composite index, which is most heavily weighted in financials and energy, and underweighted in health care and utilities stocks, the TSX 60 index's most underweighted sector is industrials.
But that doesn't mean S&P will look for more balance when it chooses a replacement for Alcan Inc. (AL/TSX) if and when the aluminum company's takeover by Rio Tinto Plc is complete by the end of 2007.
CIBC World Markets strategist Yin Luo says its replacement could come from either the energy, industrials or utilities sector. Uranium One Inc. (UUU/TSX) is the most likely energy name because of its high level of liquidity, he said in a note to clients. Uranium One would also boost the TSX 60's energy weighting, which is underweight relative to the TSX composite, he added.
Among industrial names, Mr. Luo points to SNC-Lavalin Group Inc. (SNC.TSX) as the most likely candidate given that it has the largest market cap ($6.6-billion) in the TSX completion index.
Fortis Inc. (FTS/TSX) is his pick from the utilities sector due to its underweighting in the benchmark index. There is currently only one utilities stock in the TSX 60, Mr. Luo noted.
Do Stocks Dance to the Dollar's Tune? - Sam Stovall
Year to date through the end of September, the dollar index, representing the value of the U.S. dollar vs. a trade-weighted basket of foreign currencies, closed near 77 (a discount of 23% to 100, or parity, with the basket), registering a 6-percentage-point fall from the 83 level at the end of 2006, and equal to the forecasted average value of the dollar for all of 2007, according to Standard & Poor's Chief Economist David Wyss. He predicts the dollar will fall further in the year ahead, averaging 71 in 2008 and bottoming at 68 in 2011.
For American tourists venturing abroad, that's not good news. For U.S. exporters, however, that's very good news. Indeed, Wyss expects U.S. exports to rise 9.5% in 2008, as compared with the projected gain of 7.3% in 2007. Exports should increase another 8.4% in 2009, says Wyss, which could aid earnings per share for U.S. multinationals that don't hedge their currency exposure.
Slight Influence
Specifically, S&P Index Services estimates that 45% of 2006 sales for companies in the S&P 500-stock index came from overseas (using the 236 member firms that provided global revenue breakdowns). This figure is up substantially from the 32% estimated in 2001. Companies in the S&P 500 Energy and Information Technology sectors showed the greatest overseas revenue exposure at 56% each, followed closely by the Consumer Staples group at 47%. The sectors with the least exposure included Financials at 30% and Consumer Discretionary at 32%. No data was available for companies in the S&P 500 Telecommunications Services group.
Investors might wonder whether the price changes of these standout sectors were helped or hurt by a falling dollar. In other words, have the S&P 500 and its sectors and subindustries showed any strong correlation with movements in the dollar? Since Dec. 31, 1989 (which is as far back as S&P 500 sector data extend), the monthly percentage change in the S&P 500 index posted a 0.03 correlation with the monthly change in the value of the trade-weighted dollar, indicating that the dollar and "500" had almost no correlation over this extended period.
Selecting five periods over the past 17 years of identifiable weakness in the dollar (6/91–8/92, 12/93–4/95, 7/98–10/98, 2/02–12/04, and 12/05–9/07), however, the correlation was more pronounced at –0.27, indicating that the market's rise during these periods was, at least partly, explained by the dollar's weakness, in our view.
Info tech surprise
In addition to the overall market showing an increase in correlation to the dollar during these selected periods, the S&P 500's growth and value components also saw more pronounced negative correlations, as each fell to or below –0.2 from a prior reading equal to or above zero. What's more, small-cap stocks (as seen in the Russell 2000 for 1990-94 and the S&P SmallCap 600 index since 1995), also showed rising negative correlations.
On a sector level, the results were fairly similar to those for the overall market. The correlation between monthly performances for S&P 500 sectors and the dollar since 1990 were highest for Financials and Consumer Discretionary (indicating a slightly positive correlation with the dollar—meaning as the dollar fell, so did they) and lowest for Energy. All other sector correlations appeared too small to be of consequence, in our opinion. Surprising, however, was Info Tech's relatively high correlation, in light of its large overseas revenue exposure.
During the selected periods, however, even though all 10 S&P 500 sectors registered negative correlations, the S&P 500 Energy, Utilities, Materials, Consumer Staples, and Industrials sectors showed the highest negative correlations, at –0.46, –0.34, –0.29, –0.21, and –0.21, respectively, while the Info Tech and Consumer Discretionary sectors registered the lowest correlations, at –0.07 and –0.08.
Conclusions
We think subindustry leadership corroborated sector-level patterns. Six of the eight S&P 500 subindustries with the highest negative correlations (Oil & Gas Drilling, Oil & Gas Exploration & Production, Oil & Gas Equipment & Services, Integrated Oil & Gas, Electric, and Gas Utilities) were from the Energy and Utilities sectors. Yet only 6 of 81 subindustries that participated in all five periods registered positive correlations, with three of these six coming from the S&P 500 Consumer Discretionary sector. Only three of the six had correlations that were above 0.10: Movies & Entertainment (0.14), Hotels & Cruise Lines (0.12), Office Services & Supplies (0.10).
One might think that dollar weakness usually coincided with falling interest rates, yet two of the five periods observed occurred during Fed rate-tightening cycles.
In conclusion, we think there are three conclusions that can be taken from this study:
1) Past performance is no guarantee of future results. The interrelationship of global economies and equity markets evolves continuously.
2) There are many factors that affect share prices. There was almost no correlation between the U.S. dollar and the S&P 500 from 1990 to 2007. In the long run, we recommend that investors focus more on a company's fundamental improvements than in trying to anticipate which will benefit from changes in the value of the dollar.
3) Should the dollar continue to weaken and history repeat itself, the greatest share-price opportunities may be found in the S&P 500 Energy, Utility, and Materials sectors.
Industry Momentum List Update
Here is this week's list of the industries in the S&P 1500 with Relative Strength Rankings of 5 (price performances in the past 12 months that were among the top 10% of subindustries in the S&P 1500), along with a stock with the highest S&P STARS (tie goes to the highest market value).
For American tourists venturing abroad, that's not good news. For U.S. exporters, however, that's very good news. Indeed, Wyss expects U.S. exports to rise 9.5% in 2008, as compared with the projected gain of 7.3% in 2007. Exports should increase another 8.4% in 2009, says Wyss, which could aid earnings per share for U.S. multinationals that don't hedge their currency exposure.
Slight Influence
Specifically, S&P Index Services estimates that 45% of 2006 sales for companies in the S&P 500-stock index came from overseas (using the 236 member firms that provided global revenue breakdowns). This figure is up substantially from the 32% estimated in 2001. Companies in the S&P 500 Energy and Information Technology sectors showed the greatest overseas revenue exposure at 56% each, followed closely by the Consumer Staples group at 47%. The sectors with the least exposure included Financials at 30% and Consumer Discretionary at 32%. No data was available for companies in the S&P 500 Telecommunications Services group.
Investors might wonder whether the price changes of these standout sectors were helped or hurt by a falling dollar. In other words, have the S&P 500 and its sectors and subindustries showed any strong correlation with movements in the dollar? Since Dec. 31, 1989 (which is as far back as S&P 500 sector data extend), the monthly percentage change in the S&P 500 index posted a 0.03 correlation with the monthly change in the value of the trade-weighted dollar, indicating that the dollar and "500" had almost no correlation over this extended period.
Selecting five periods over the past 17 years of identifiable weakness in the dollar (6/91–8/92, 12/93–4/95, 7/98–10/98, 2/02–12/04, and 12/05–9/07), however, the correlation was more pronounced at –0.27, indicating that the market's rise during these periods was, at least partly, explained by the dollar's weakness, in our view.
Info tech surprise
In addition to the overall market showing an increase in correlation to the dollar during these selected periods, the S&P 500's growth and value components also saw more pronounced negative correlations, as each fell to or below –0.2 from a prior reading equal to or above zero. What's more, small-cap stocks (as seen in the Russell 2000 for 1990-94 and the S&P SmallCap 600 index since 1995), also showed rising negative correlations.
On a sector level, the results were fairly similar to those for the overall market. The correlation between monthly performances for S&P 500 sectors and the dollar since 1990 were highest for Financials and Consumer Discretionary (indicating a slightly positive correlation with the dollar—meaning as the dollar fell, so did they) and lowest for Energy. All other sector correlations appeared too small to be of consequence, in our opinion. Surprising, however, was Info Tech's relatively high correlation, in light of its large overseas revenue exposure.
During the selected periods, however, even though all 10 S&P 500 sectors registered negative correlations, the S&P 500 Energy, Utilities, Materials, Consumer Staples, and Industrials sectors showed the highest negative correlations, at –0.46, –0.34, –0.29, –0.21, and –0.21, respectively, while the Info Tech and Consumer Discretionary sectors registered the lowest correlations, at –0.07 and –0.08.
Conclusions
We think subindustry leadership corroborated sector-level patterns. Six of the eight S&P 500 subindustries with the highest negative correlations (Oil & Gas Drilling, Oil & Gas Exploration & Production, Oil & Gas Equipment & Services, Integrated Oil & Gas, Electric, and Gas Utilities) were from the Energy and Utilities sectors. Yet only 6 of 81 subindustries that participated in all five periods registered positive correlations, with three of these six coming from the S&P 500 Consumer Discretionary sector. Only three of the six had correlations that were above 0.10: Movies & Entertainment (0.14), Hotels & Cruise Lines (0.12), Office Services & Supplies (0.10).
One might think that dollar weakness usually coincided with falling interest rates, yet two of the five periods observed occurred during Fed rate-tightening cycles.
In conclusion, we think there are three conclusions that can be taken from this study:
1) Past performance is no guarantee of future results. The interrelationship of global economies and equity markets evolves continuously.
2) There are many factors that affect share prices. There was almost no correlation between the U.S. dollar and the S&P 500 from 1990 to 2007. In the long run, we recommend that investors focus more on a company's fundamental improvements than in trying to anticipate which will benefit from changes in the value of the dollar.
3) Should the dollar continue to weaken and history repeat itself, the greatest share-price opportunities may be found in the S&P 500 Energy, Utility, and Materials sectors.
Industry Momentum List Update
Here is this week's list of the industries in the S&P 1500 with Relative Strength Rankings of 5 (price performances in the past 12 months that were among the top 10% of subindustries in the S&P 1500), along with a stock with the highest S&P STARS (tie goes to the highest market value).
Thanks to Mao, Zhang Yin's a billionaire - Will Hutton
It was one of China's proverbs that Mao loved to quote; women, he would say, hold up half the sky. But until the communist revolution of 1949 the Chinese had not meant it. The Chinese imperial system, famously, had been one of the most anti-feminist societies on Earth. Women had no rights, existing only to have babies and please men, the richer forced to hobble and disfigure themselves by binding their feet from birth to affirm their essential purpose - decorative daintiness.
But last week it was reported that China's richest billionaire is now a woman - 49-year-old Zhang Yin is worth a cool $3.4bn (£1.8bn). The tycoon is the world's richest self-made woman, having built China's largest paper recycling business, Nine Dragons Paper, which was floated on the Hong Kong stock market just six months ago. She seems an eloquent symbol of the new China; a capitalist whose success and wealth was unthinkable before Deng Xiaoping freed China from the embrace of Maoism in 1978. It is capitalists such as her who are proof that paradoxically it is communist China that is home to the globe's most vigorous capitalism. And she is a woman.
In China, though, beware. Nothing is quite what it seems. Zhang Yin owes her success both to pro-market Deng Xiaoping and ardent communist Mao. As the eldest daughter of a family with eight children, her expectation before the communist revolution would have been to grow up illiterate before becoming her husband's chattel. Mao's radical egalitarianism may have given China the murderous mayhem of the Cultural Revolution. But he also transformed the role, expectations and education of women.
In 1949 female illiteracy in rural China was 99 per cent. In 1976 when Mao died it was 45 per cent and today it is 13 per cent. One of Mao's first acts was to give women the same rights in divorce as men, and for all his other barbarism he consistently championed the equality of women.
China is still a sexist society, but compared with the rest of Asia it is light years ahead. Female illiteracy in rural India, for example, is still 55 per cent. The change has gone deep into the marrow of Chinese society. One survey recently revealed that Chinese girls between 16 and 19 name becoming president, chief executive or senior manager of a company as their top career choices; Japanese girls between 16 and 19 say they want to become housewives, flight attendants or child-care workers. One of China's most formidable economic and social resources has become its women.
As the daughter of an officer in the People's Liberation Army, Zhang Yin also understands the corrupt and controlling pathology of Chinese communism well - and has understood the imperative to keep ownership and direction of her company as distant as possible from Beijing. In China the party controls, or has the capacity to control, everything; the number of companies forced into decline or even bankruptcy because they were compelled to support party aims - bailing out an endemically loss-making company to protect jobs or buying a state-owned company at an astronomic price to feather the nest of a senior official - is beyond counting. Indigenous Chinese capitalism is a form of hit-and-run guerrilla economic warfare in a constant battle with the world's greediest and most corrupt officialdom. Survival depends upon paying tribute. It is no accident that two thirds of China's six million private businesses are owned and run by ex-communist officials. Almost every private businessperson in China is either a party member or applying to join.
Zhang has avoided much of that - courtesy of Hong Kong, a Taiwanese husband and managing to get out of China in the months after Tiananmen Square when repression was at its height and the prospects for any kind of private enterprise seemed nil. Her cleverest moves were her first; incorporating her company in Hong Kong in 1985 and then marrying a Taiwanese with a non Chinese passport. In exile in Los Angeles in 1990 the pair founded America Chung Nam - a company specialising in scrap paper brokerage as she had been doing in Hong Kong.
Scrap paper is one of the few industries the party considers non-strategic and which it indulges - another smart choice for an ambitious woman. In December 1991 the Soviet Union collapsed, and in January 1992 the ageing Deng Xiaoping declared in a tour of Guangdong, China's most pro-capitalist province, that as international communism was dead the only way for Chinese communism to survive was to embrace pro-market reform. In particular it should welcome inward investment from foreign companies with know-how and technology. It was glorious, he said, to be rich.
There was an avalanche of inward investment, including America Chung Nam building a paper and board mill in the very same Guangdong- a foreign investor even if owned by a Chinese living abroad. After all, China's booming exports would need to be wrapped in paper and paperboard. Guangdong's exports have grown phenomenally; so have sales of paper and board.
And six months ago Zhang Yin and her husband cashed in - floating their shares not in one of China's stock markets on the mainland, but in Hong Kong. Here a private company can keep its distance from the party; if there is a dispute with the communists it gets settled in Hong Kong's still independent legal system - legacy of the British - and not in one of the mainland's rigged courts.
The extent of China's reform, and its subsequent growth, is stunning. It is also true that Ms Zhang could not have made her money if China had not opened to the world. But nobody should believe that somehow her fortune means that China has made the full transition to capitalism. Rather she has exploited the system's fault lines. This remains a one-party state, in which every institution - from the media to its companies - is constructed to sustain its monopoly of power.
Entrepreneurs such as Zhang Yin only succeed if they find ways around the system; they can only push the economy so far. One day the party will have to let go properly. The issues are only how and when.
But last week it was reported that China's richest billionaire is now a woman - 49-year-old Zhang Yin is worth a cool $3.4bn (£1.8bn). The tycoon is the world's richest self-made woman, having built China's largest paper recycling business, Nine Dragons Paper, which was floated on the Hong Kong stock market just six months ago. She seems an eloquent symbol of the new China; a capitalist whose success and wealth was unthinkable before Deng Xiaoping freed China from the embrace of Maoism in 1978. It is capitalists such as her who are proof that paradoxically it is communist China that is home to the globe's most vigorous capitalism. And she is a woman.
In China, though, beware. Nothing is quite what it seems. Zhang Yin owes her success both to pro-market Deng Xiaoping and ardent communist Mao. As the eldest daughter of a family with eight children, her expectation before the communist revolution would have been to grow up illiterate before becoming her husband's chattel. Mao's radical egalitarianism may have given China the murderous mayhem of the Cultural Revolution. But he also transformed the role, expectations and education of women.
In 1949 female illiteracy in rural China was 99 per cent. In 1976 when Mao died it was 45 per cent and today it is 13 per cent. One of Mao's first acts was to give women the same rights in divorce as men, and for all his other barbarism he consistently championed the equality of women.
China is still a sexist society, but compared with the rest of Asia it is light years ahead. Female illiteracy in rural India, for example, is still 55 per cent. The change has gone deep into the marrow of Chinese society. One survey recently revealed that Chinese girls between 16 and 19 name becoming president, chief executive or senior manager of a company as their top career choices; Japanese girls between 16 and 19 say they want to become housewives, flight attendants or child-care workers. One of China's most formidable economic and social resources has become its women.
As the daughter of an officer in the People's Liberation Army, Zhang Yin also understands the corrupt and controlling pathology of Chinese communism well - and has understood the imperative to keep ownership and direction of her company as distant as possible from Beijing. In China the party controls, or has the capacity to control, everything; the number of companies forced into decline or even bankruptcy because they were compelled to support party aims - bailing out an endemically loss-making company to protect jobs or buying a state-owned company at an astronomic price to feather the nest of a senior official - is beyond counting. Indigenous Chinese capitalism is a form of hit-and-run guerrilla economic warfare in a constant battle with the world's greediest and most corrupt officialdom. Survival depends upon paying tribute. It is no accident that two thirds of China's six million private businesses are owned and run by ex-communist officials. Almost every private businessperson in China is either a party member or applying to join.
Zhang has avoided much of that - courtesy of Hong Kong, a Taiwanese husband and managing to get out of China in the months after Tiananmen Square when repression was at its height and the prospects for any kind of private enterprise seemed nil. Her cleverest moves were her first; incorporating her company in Hong Kong in 1985 and then marrying a Taiwanese with a non Chinese passport. In exile in Los Angeles in 1990 the pair founded America Chung Nam - a company specialising in scrap paper brokerage as she had been doing in Hong Kong.
Scrap paper is one of the few industries the party considers non-strategic and which it indulges - another smart choice for an ambitious woman. In December 1991 the Soviet Union collapsed, and in January 1992 the ageing Deng Xiaoping declared in a tour of Guangdong, China's most pro-capitalist province, that as international communism was dead the only way for Chinese communism to survive was to embrace pro-market reform. In particular it should welcome inward investment from foreign companies with know-how and technology. It was glorious, he said, to be rich.
There was an avalanche of inward investment, including America Chung Nam building a paper and board mill in the very same Guangdong- a foreign investor even if owned by a Chinese living abroad. After all, China's booming exports would need to be wrapped in paper and paperboard. Guangdong's exports have grown phenomenally; so have sales of paper and board.
And six months ago Zhang Yin and her husband cashed in - floating their shares not in one of China's stock markets on the mainland, but in Hong Kong. Here a private company can keep its distance from the party; if there is a dispute with the communists it gets settled in Hong Kong's still independent legal system - legacy of the British - and not in one of the mainland's rigged courts.
The extent of China's reform, and its subsequent growth, is stunning. It is also true that Ms Zhang could not have made her money if China had not opened to the world. But nobody should believe that somehow her fortune means that China has made the full transition to capitalism. Rather she has exploited the system's fault lines. This remains a one-party state, in which every institution - from the media to its companies - is constructed to sustain its monopoly of power.
Entrepreneurs such as Zhang Yin only succeed if they find ways around the system; they can only push the economy so far. One day the party will have to let go properly. The issues are only how and when.
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