Ruiji's MFRE Blog ❤

Here is the case of New Zealand’s Carbon Policy. New Zealand has been following the United National Framework Convention on Climate Change (UNFCCC) and been a member of the Kyoto Protocol since 2002, and the government of New Zealand started its nation-wild Emission Trading Scheme (ETS) in 2008 due to its commitments to this international agreement.  Based on the climate change information available on the official website of New Zealand ministry for the environment, ETS was chosen because they believe it is the most cost-effective method to meet their goal: aiming to reduce greenhouse emissions back to the level in 1990 by 2050 and to take its responsibility in global climate change, and this is generally consistent with the Kyoto Protocol. The government of New Zealand says that ETS is adopted under the principle of liability and it ensures that those who cause environmental damages will be held accountable for the cost occurred.  ETS provides businesses and consumers with financial incentives to change their behaviors because it creates a market of trading emissions and sets a price for emissions. Financial incentives will help New Zealand residents to decrease the amount of emissions as well as to make investments in discovering clean and renewable energy.

New Zealand Unites (NZUs) are defined by the Ministry for the environment of New Zealand as “carbon credits, allowance or offset credits”, and these emission units are measured in metric tonne of carbon dioxide. There are six greenhouse gases covered: carbon dioxide (CO₂), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). Under the Emission Trading Scheme, NZUs can be traded among participants. The majority of participants is from Forestry, Energy Liquid fossil fuels and industry. The Ministry for the environment shows that there are three ways to participate: surrendering NZUs to the Government, earning NZUs FROM the Government and being given NZUs by the Government. Participating groups with spare units are able to sell them to those who need extra units.   The climate information package supplied by the ministry for environment states that Most New Zealand residents do not participate directly and there could a small rise in energy prices.  The package also claims that the over impact of ETS on New Zealand’s economy is very minor because the transition period could be extended infinitely and the price of emission for each sector is fixed  and relatively low during the transition period. For example, the Carbon price for business from non-forestry sectors cannot be higher than $12.50 per unit.

The Global Warning Policy Foundation (GWPF) states in the article NZ Emissions Trading Scheme More or Less Dead, written by the University of Canterbury in 2013, that one reason that the ETS has not worked well is that the government of New Zealand put no restrictions on import of credits, and this made Zealand becoming as a “dumping ground” for worthless credits from elsewhere”. The main point of this article is that the EST has failed because it treats all greenhouse gases as neutral and thus not generates the appropriate incentives. This also implies that the ETS program is not as cost-effective as the government of New Zealand previously claimed. According to an office report, The Sixth National Communication on Climate Change, prepared by the United Nations climate change institute, Generation Zero, the difference between New Zealand’s targets and its projected emissions will be getting larger in the next 20 years.  This report works as an overall assessment for New Zealand’s emission trading scheme and reveals that the total gross emissions are expected to increase from 72,834.9 Gg in 2013 to 82, 2442.2 Gg in 2030. This is an indication that the ETS might have failed on its original purpose. In 2013, the Gemanwatch and Climate Action Network ranked New Zealand no.41 on its Climate Change Performance Index, and this position is generally considered as “doing poorly” on climate changes. Another point this report contains is that the EST program has not, in fact, hold those who make environmental damages, accountable for the cost of emissions. The profitability of their business has not changed much.  However, there are also some evidences available for New Zealand‘s success. An article, NZ trading scheme slashes carbon emissions, released by The Age National suggests that the emission trading scheme has generated motivations for investing in renewable energy, and a survey done by The Age National shows that in 2011, around 63% of businesses supported for the program while this number was only 27% in 2008. The article also points out that almost 80% of the energy consumed in New Zealand is from renewable sources, and this is the highest in 12 years. Evidences form the forestry sectors are also mentioned in this article: in 2007, there was a net loss of 18,000 hectares of trees; however, in 2011, New Zealand actually had a net gain of 5700 hectares of trees.

The emission trading scheme is not a popular policy among all the countries involved in climate changes due to the doubts in its effectiveness, and New Zealand is one of a few countries who implement it.   New Zealand’s five years of experience provide us with some insights how ETS works and what possible results it will generates. It is difficult to conclude whether ETS has worked well or not for New Zealand and what developing countries can learn from New Zealand’s case. In other words, different countries may have very different situation and individual characteristics, especially in the case of developing countries. The road of dealing with climate changes is long, and a long-term effect is what people should focus on. Data collected from the past five years may not be significant enough to draw any long-term conclusion about the impact of ETS on climate changes.

References

“Climate Changes Information” ministry for the environment. n.d. Web.10 Mar 2014. <www.climatechange.govt.nz>.

“ NZ Emissions Trading Scheme More or Less Dead.” Global Warning Policy Fundation. GWPF, 2013

“The Sixth National Communication on Climate Change.” Generation Zero. UNFCCC,2013

 

A busy week again, isn’t it? Hope everyone getting a great mark on their midterms and assignments=>

This is the last week of our online trading game. I really appreciate it and learned a lot from these six weeks, not only for trading strategies, but also life lessons. Let start from look at my overall portfolio summary first:

Overall Trade and Portfolio Summary:

My portfolio value ending this week is $124687 ($.$ notice I ended up gaining $24687 in total, NICE!) with an overall  24.69% return(much much higher than interest rate, mutual fund, etc!) and 4/27 ranking. So far,  I have traded three types of commodities, namely, maize, wheat and soybean. Both corn and soybean led to losses, while the price of wheat spiked, giving me a positive portfolio return.

Below is my detailed portfolio summary this week.(click to enlarge the picture)

Personal Reflection:

If the my weekly portfolio returns are graphed:

And also for the S&P500 during six weeks:

We can see that they move almost in the same direction. Personal efficiency and market index has a clear linkage, the vast majority of the futures can’t get out differences with the market efficiency curve.

Highlight Events This Week:

1. Natural Gas Prices with Boost in Demand

The front month contract for natural gas priced at Henry Hub closed at $3.76 per MMBtu (millions of British thermal units) on October 18—nearly unchanged from the prior week’s close of $3.78 per MMBtu. Natural gas prices are especially important for domestic independent upstream names whose production largely includes natural gas such as Chesapeake Energy (CHK), Southwestern Energy (SWN), Comstock Resources (CRK), and Quicksilver Resources (KWK).Natural gas price movement is also relevant for commodity ETFs such as the US Natural Gas Fund (UNG), an exchange-traded fund designed to track the price of Henry Hub natural gas (the standard benchmark for domestic natural gas prices). Looking ahead, weather may be an important factor. And the if the natural gas prices soar according to higher demand in cold weather, our commodes will potentially being affected.

2. North Sea Oilfields Offer New Prospects

For three decades the UK, Norway and Netherlands have feasted on the large volumes of oil and gas discovered in the North Sea.

But as production in the prolific basin declines, a multibillion dollar clean-up operation is required to return an area of sea pockmarked with ageing platforms, wells and networks of pipes back, as far as possible, to the way it was found.

        Technical and Lifelong Strategies Learnt:

1. Protect yourself & Concentration

Futures trading, like all other trading, does involve a certain degree of risk. To sell or buy stops to limit losses to a relatively comfortable level, does minimize your losses and maximize your gain at the same time. Learn the way to protect yourself is indeed a lifelong technique.

2.Keep calm & Carry on/Emotion Management

Try to calm down and get rid out the frustration no matter how bad the situation is. As I mentioned before, no impulse transactions and try to believe in yourself , i.e. your personal research results.

3.Hedging

This is a technical one. I suppose we all got this from our FRE501 class. A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization. For our trading game, we could always buy short term and short long term to minimize potential risks.

4. It’s impossible for you to trade(or do other things)at the perfect point.

I learnt this from fourth week corn’s price. When you see there is a upward/downward trend, you’d better make up your mind to sell/buy. I was being greedy that Monday, otherwise, I could successfully sell my corn at a loss of only $2000! This happens to be the same moral in our life. I always believe in karma that you get what you deserve to. Try not be greedy, and all satisfaction and happiness will come from the effort that you’ve spent.

At last, wish everyone had a great time doing their online trading(hopefully gained$$) and good luck on the rest of the term!

I’m feeling blue this week=<, especially yesterday. I had a serious stomachache and missed FRE501 midterm plus my credit card was restricted for security reasons. Okay, so much about the down side, there’s still things going on pretty nice, for instance, my online trading game!

I have been kept checking Stocktrak in order to find a good time to sell my corn since the week before last week, eventually I sold all of my corns this week, 5 units at a loss of $2389 and 5 at a loss of $1889. I also found a chance to sell my soybean, which has been a nightmare since first week of trading started, at a loss of $15187. This might still seem to be a huge loss(hey, it actually is…), but it’s a not-bad price compared to last week’s loss of approximately $20000! The most important thing is that I felt relax after I sold to close those two commodities since their prices fluctuate a lot compared to wheat. I am kinda of a risk-averse person. Here’s my portfolio summary this week.

Trade and portfolio summary:

My portfolio value ending this week is $123,472.73 (notice a gain of approx. $20000 compared to last week!) with an overall 4.07%(last week) to 23.47% (this week) return and 5/26 ranking. So far, I only have 15 units of wheat. This week, I made three transactions, sold to close corn, sold to close soybean, respectively. As before, soybean gives me largest loss(which cannot be true any more for next week!) and wheat makes up most part of my gain. I will find a good point to sell the 15 units of wheat next week to close my six week online trading game. I expect a nearly $50000 gain from that=>. Below is the detailed summary of my portfolio this week.(click to enlarge the picture)

Personal reflection & lessons learnt:

As we can see from above, this weeks’s S&P500 was pleasant, with a little valley bottom on Wednesday but overall strong upward trend. Since there should be a positive correlation between market index and future profitability, I will say the result of my portfolio did perform well in the sense that I chose a correct time to sell. I was thinking hard whether to sell 15 units of wheat today or not. I ended up with leaving it to next week. Hence, the tasks left for the following week is to: 1) sell wheat to close  2) overall summary of the successes and failures through the trading game, taking a macro(6 weeks) point of view.

The other lesson learnt is that crop price can have a significant impact on fertilizer companies’ earnings and share prices. When crop prices are high, farmers feel encouraged to use more fertilizers in order to take advantage of high crop prices and earn more money. Plus, high crop prices make fertilizers more affordable for farmers, which will increase farmers’ income and the amount of fertilizers they can purchase for the next planting season. This will ultimately increase fertilizer demand and prices, which will support the earnings and share prices of fertilizer producers.

Highlight events this week:

1.USDA is still closed.

1.Brent oil on the rise

At the end of September 30, a barrel of Brent crude (the international benchmark price) settled at $108.37 at ICE Europe—the largest regulated energy futures exchange in Europe. Prices for Brent crude have been on the rise since April this year due to improving economic activity across the globe. As we can see from the graph below, there exists a strong positive correlation between wholesale ammonia prices and Brent Oil.

2.Strong relationship between Brent oil and BDTI

Continued from last news. Commodity prices and shipping rates are like twins: when prices like oil are rising, they often reflect a faster increase in demand than supply—and higher demand often correlates with trade activity. As vessels like crude tankers can take up to five years to build, they also mean higher shipping rates. Conversely, when prices are falling, they can portray a negative impact on the price of shipping oil ac ross water.

Strategy for the week ahead:

1. manage your emotions (Really got this from Mark)

This is not only for online trading game, study, work,etc. It could be a lifelong asset. I indeed admire those people who can well manage their emotions and keep calm, carry on. I am pretty much a very emotional person, sensitive and sentimental.

So, lots to learn. Cheer up! >”<

A busy week, isn’t it? Hope everyone getting along well with their assignments and midterms!

 This week’s market is pretty stable, nothing surprising. I was keeping checking Stocktrak in order to find a good time to sell my corn as I mentioned last week, however, I missed it! On Monday morning, I could sell my corn at a loss of $2000+, and I hesitated, thinking the loss could go under $2000 since there was an upward trend of corn that morning. Then, it turned out to be that was the highest point of corn this week=< Okay, I admitted I was a little greedy. Here’s my portfolio summary this week.

Trade and portfolio summary:

My portfolio value ending this week is $104069.09 (notice a further loss of approx. $5000 compared to last week!) with an overall  4.07% return and 8/26 ranking( ranking’s not bad, thanks to my wheat!). So far, I have 15 units of wheat, 10 units of maize and 5 units of soybean in my portfolio. This week, I made one transaction to cover my impulse shorting of 5 units of soybean last week. The price was not bad, I only paid an approx.$2000 tuition of my impulse transaction. As before, soybean gives me largest loss and wheat makes up most part of my gain. The further $6000 loss compared to last week comes from dropping price of corn, sadly. Below is the detailed summary of my portfolio this week.(click to enlarge the picture)

Personal reflection & lessons learnt:

As we can see from above, this weeks’s S&P500 was a nice V-trend, with the valley bottom on Wednesday and ended Friday at a slightly higher point than its opening this week. Since there should be a positive correlation between market index and future profitability, I will say the result of my portfolio did not perform well.

Why I covered soybean this Friday is because I realized from last week(actually just after I made the transaction!) that I did not short soybean at a good price. You always want to enter at a HIGH point for short position as opposed to LOW point for long position. I somewhat shorted soybean at a relatively low price which means there is not too much opportunity for me to earn profit from that since the price was already low. So, I covered soybean this Friday and lost $2375.

Highlight events this week:

1.Still, USDA will not release monthly crop reports on Friday as the partial government shutdown paralyses Washington.The Energy Information Administration– a crucial source of oil market information – has operating funds to last through Friday.The lack of government information from satellites and weather services makes it hard for our research. So, take a wait and see position should be most appropriate.

2.Battered by a host of complaints from refiners and blenders, the U.S. Environmental Protection Agency (EPA) is reported to be considering a reduction to the amount of ethanol required to be blended with gasoline in 2014. If the proposed reduction is adopted, it would be a huge win for oil refiners and a nasty blow to ethanol producers and farmers. This will dramatically impact the price of corn as corn is considered as main source of making ethanol. I anticipate a further dropping price of corn as the news came out. I’d better sell my corns next week.(No more hesitation, man!)

Strategy for the week ahead:

1.Hedging

I really got this from our FRE501 class. A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization. For our trading game, we could always buy short term and short long term to minimize potential risks.

2. It’s impossible for you to trade at the perfect point.

I learnt this from corn’s price this week. When you see there is a upward/downward trend, you’d better make up your mind to sell/buy. I was being greedy this Monday, otherwise, I could successfully sell my corn at a loss of only $2000 as opposed to current loss of $9000!

Have a nice Thanksgiving & Good luck on your midterm preparation!

Third week’s trading turns out to be a totally nightmare for me=< soybean is down as expected, corn is also down which made my portfolio value drops from $123110.24 to $109,874.78, overall return from 23.11% to 9.87%>.< Here’s details about my portfolio summary this week.

Trade and portfolio summary:

My portfolio value ending this week is $109,874.78 (notice a loss of approx. $13000 within a week’s time!) with an overall  9.87% return and 5/24 ranking(okay, ranking’s not bad. It seems almost everybody lost their money from corn last week). So far, I brought 15 units of wheat, 10 units of maize and 5 units of soybean and shorted soybean of 5 unit. I made two transactions.First is  a sell of 3 units of maize at a price of $4.45 on Sept.30th morning which I just bought from the previous week at a price of $4.5. It turns out my last week’s decision making is somewhat wrong since I did not expect corn to suddenly drop this week.  Soybeans, without any surprise=<, kept down and gave me a negative return of  $12812. I made an impulse short of 5 units of soybeans this Monday which is absolutely a failure because I should have noticed it was not a good time to enter longterm short market for soybean as its price was low enough in the past a few weeks. Below is the detailed summary of my portfolio this week.(click to enlarge the picture)

Personal reflection & lessons learnt:

As we can see from above, this weeks’s S&P500 was a moderately upward trend, followed by mainly three downward fluctuations, and ended Friday at a slightly higher point than its opening this week. With a positive correlation between market index and future profitability, I will say the result of my portfolio did not perform well.

Why I sold corn this Monday is because I got panic when I saw corn price dropped sharply this Monday and I kept hearing bad news and predictions for its future price. I decided to sell 3 units first at that time and wait for a slightly higher price for selling more units. It turns out to be a correct decision even though I lost around $3000 on it.

For the soybeans, I was totally frustrated. I was always looking for a good price to sell them all. Tragically, I haven’t find a chance to do so till now. Hence, without giving it a second thinking, I shorted 5 units of soybeans at a price of $11.78! And right after I placed the order, I realized that it was NOT a good time to short those since the price is already low. So, the primary lesson I learnt this week was NO IMPULSE TRANSACTION just as I mentioned in my presentation this Tuesday. Yes, I paid my tuition for learning that at a cost of $4437.5, not cheap, just wanna you guys to avoid making the same mistake like me.

Highlight events this week:

1.USDA Report came out this Monday. The corn futures plunged to a 3 year low closing at 441.5 USDA boosted its inventory estimates by 25%. There are talks of corn hitting a low of almost $400 or even below! It seems I really need to find a better price to sell my 10 units of corn next week.

2.The U.S. is overtaking Russia as the world’s largest producer of oil and natural gas with U.S. imports of natural gas and crude oil have fallen 32% and 15%, respectively, in the past five years.(Attached below is the current production facts between the U.S. and Russia) This will definitely impact the oil market and there should be related fluctuations in the crop future market, well, let’s wait and see!

Strategy for the week ahead:

1.Keep calm & carry on

I really need to calm down and get rid out the frustration! It is only half way of our trading game, isn’t it? As I mentioned before, no impulse transactions and try to believe in my research results.

2. Find a good time to sell & cover

No more greedy. No one can buy at the lowest point and sell at the highest one. I will get up early next week just in case I miss any early opportunities to trade.

New resources used & found:

Speaking of the new resources found this week, I will say not too much. I was focusing on Yahoo Finance, Bloomberg and The CME Group. Sina Finance which is a Chinese website has the latest prices information for the futures as Amanda said and it is!

Can’t wait to next week’s trading…well, I actually mean SELLING!

Starting from this week’s title, shouldn’t there be a factor called”Skills”?

Michael L. Hartzmark has a very interesting paper on luck v.s forecasting ability as determinants of trader’s performance in future markets which brings out a conclusion that returns of traders are the result of luck. Well, I guess here I am!

Trade and portfolio summary:

My portfolio value ending this week is$123,110.24 (notice a gain of approx. $23000!) with an overall  23.11% return and 1/24 ranking(!?). So far, I brought 15 units of wheat, 13 units of maize and 5 units of soybean. I only made one transaction this week for a purchase of 3 units of maize at a price of $4.5 on Tuesday morning. This moderately contributes to my portfolio gain along with an overwhelming win from wheat. Soybeans, without any surprise=<, still gives me a negative return of nearly $7000.

Personal reflection & lessons learnt:

As we can see from above, this weeks’s S&P500 was with a moderate opening, followed by fluctuations with an overall decline trend and ended Friday at a slightly lower point. With a positive correlation between market index and future profitability, I will say the result of my portfolio return looks good.

Why I brought corn this Tuesday is definitely based on my forecast. Noticing the  long term trend of corn prices,as shown in the following figure, I felt that I entered the market at a somewhat relatively low point, and there’s great opportunity to sell high in the following months. Again, due to the busy MFRE period, I obviously do not have the opportunity to do short term trades(need to check market performances all the time). Thus, long term trends make more sense to me.

 

For the soybeans, I am considering short them all at a good price next week cause I researched the USDA reports and I found soybean’s harvest season is coming which will ideally  drop  the price down even more!

Strategy for the week ahead:

1. Still, information matters

I did my research on Monday and brought corns on the following day, which does give me a gain! More research needed next week and knowing more about the market you are dealing with is always a beneficial tool.

2. Historical data may also help

Although I am dealing with Futures, historical data will help me identify potential trends and improve my performance. I will try to include this in my research next week.

New sources found:

Bloomberg L.P.:This is a financial software which provides useful financial tools such as an analytics and equity trading platform, data services and news to financial companies and organizations.

Fingers crossed for staying in this position next week or… the rest of the term! 

 

Trade and portfolio summary:

Tragically my portfolio value ending this week was $93607.84 (a loss of nearly $7000!) with an overall  -6.39% return and 18/24 ranking=<  So far, I brought 15 units of wheat, 10 units of maize and 5 units of soybean. The price of soybean dropped dramatically, from $13.47 to $13.16, which made up most part of my first week’s loss. 

Personal reflection & lessons learnt:

As we can see from above, S&P500 was with a high opening, rendered after shock decline trend, markets wait-and-see atmosphere concentration, effective strategies be limited. With a positive correlation between market index and future profitability, I will say the result of losing money this week is somewhat fair(?).

First week’s trading is more like gambling, to be honest. I was more like trying things out with a little rationality back in my mind, saying”hey, you need to diversify your portfolio to limit potential risks.” That’s why I got all of the three items to fill up my portfolio.

Strategy for the week ahead:

1. Get to know your market

After I brought my futures in a rush on Wednesday morning, I started browsing useful sources(absolutely wrong order). CME group definitely helps, along with yahoo business news.Knowing more about the market is key to improve the odds of success and avoid endless stream of losses.

2. Protect yourself & Concentration

Futures trading, like all other trading, does involve a certain degree of risk. To sell or buy stops to limit losses to a relatively comfortable level, does minimize your losses and maximize your gain at the same time. I saw corn has been down sharply on Thursday morning, when I still winning money on my portfolio if I would sell corn at that time.(I was dealing with Kuhn Tucker in FRE501 class!)

New sources found:

1.New York Times Business: Breaking news & business news on Wall Street, media & advertising, internationalbusiness, banking, interest rates, the stock market, currencies & funds.

2.The Economists: Authoritative weekly newspaper focusing on international politics and business news and opinion.

Looking forward for the following week with fingers crossed!

 

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