fund flows

As a comment on the previous post highlighted, you’d better do your own research when dealing with any trade from flippe-floppe-flye, although that is true of any trade.

WNR as disclosed in their 10Q have numerous tidbits that should your thesis for a trade be the crack spread, really need to be looked at. As KTB in the comments indicated, WNR, for all intents and purposes do not hedge the crack spread – they wing it.

Refining. Our net sales fluctuate significantly with movements in refined product prices and the cost of crude oil and other feedstocks, all of which are commodities. The spread between crude oil and refined product prices is the primary factor affecting our earnings and cash flows from operations.

Another factor impacting our margins in recent years is the narrowing of the heavy light crude oil differential. Since the second quarter of 2009, the heavy light crude oil differential has narrowed significantly, particularly impacting our Yorktown refinery which, when operating, can process up to 100% of heavy crude oil. Narrowing of the heavy light crude oil differential can have significant negative impact on our Yorktown refining margins, as was the case during 2009 and 2010.

Other factors that impact our overall refinery gross margins are the sale of lower value products such as residuum and propane, particularly when crude costs are higher. In addition, our refinery gross margin is further reduced because our refinery product yield is less than our total refinery throughput volume

Our results of operations are also significantly affected by our refineries’ direct operating expenses, especially the cost of natural gas used for fuel and the cost of electricity. Natural gas prices have historically been volatile. Typically, electricity prices fluctuate with natural gas prices

The nature of our business requires us to maintain substantial quantities of crude oil and refined product inventories. Because crude oil and refined products are commodities, we have no control over the changing market value of these inventories. Our inventory of crude oil and the majority of our refined products are valued at the lower of cost or market value under the last-in, first-out, or LIFO, inventory valuation methodology. If the market values of our inventories decline below our cost basis, we would record a write-down of our inventories resulting in a non-

cash charge to our cost of products sold. Market value declines during the year ended December 31, 2008 resulted in non-cash charges to our cost of products sold of $61.0 million. Under the LIFO inventory valuation method, this write-down is subject to recovery in future periods to the extent the market values of our inventories equal our cost basis relative to any LIFO inventory valuation write-downs previously recorded. Based on 2009 market conditions, we recorded non-cash recoveries of $61.0 million related to the 2008 LCM charges. In addition, due to the volatility in the price of crude oil and other blendstocks, we experienced fluctuations in our LIFO reserves between 2008 and 2009. We also experienced LIFO liquidations based on decreased levels in our inventories. These LIFO liquidations resulted in decreases in cost of products sold of $16.9 million and $9.4 million for the years ended December 31, 2010 and 2009, respectively, and an increase of $66.9 million in cost of products sold for the year ended December 31, 2008. See Note 5, Inventories , in the Notes to Consolidated Financial Statements included in this annual report for detailed information on the impact of LIFO inventory accounting

Inventories. Crude oil, refined product, and other feedstock and blendstock inventories are carried at the lower of cost or market. Cost is determined principally under the LIFO valuation method to reflect a better matching of costs and revenues. Ending inventory costs in excess of market value are written down to net realizable market values and charged to cost of products sold in the period recorded. In subsequent periods, a new lower of cost or market determination is made based upon current circumstances. We determine market value inventory adjustments by evaluating crude oil, refined products, and other inventories on an aggregate basis by geographic region. Aggregated LIFO costs were less than the current cost of our crude oil, refined product, and other feedstock and blendstock inventories by $173.5 million at December 31, 2010.

Retail refined product (fuel) inventory values are determined using the first-in, first-out, or FIFO, inventory valuation method. Retail merchandise inventory value is determined under the retail inventory method. Wholesale finished product, lubricant, and related inventories are determined using the FIFO inventory valuation method. Finished product inventories originate from either our refineries or from third-party purchases.

This is the kicker: WNR use LIFO for accounting for the oil inventory, and FIFO for the gasoline/other products. So not only do you have a crack spread that is constantly fluctuating, you have an accounting convention that creates a further volatility.

In addition, as I’ve been looking, trying to follow exactly the LIFO position is not a 5min undertaking, and most certainly is not taken into account via flippe-floppe’s rather lame ppt screening tool.

It looks, on first blush, if oil falls [and gasoline follows to some extent] the LIFO markdowns will be recorded as a non-cash charge to COG thus reducing reported earnings. FIFO accounting leverages to price changes or falls, thus any weakness in gasoline and other products, has a higher impact [either way] on earnings. None of this really has anything to do with crack spreads, which simply adds in a further layer of complexity to the analysis.

Have gasoline prices reached a tipping point?

According to the NYTimes, Prices for a gallon of regular unleaded gas are topping $4 at more service stations nationwide, revisiting the bleak territory of three years ago, when the average price for a gallon of regular gas reached a peak of $4.11 on July 17, 2008. A survey of about 100,000 stations showed gas prices were now averaging $3.77 a gallon nationwide. The average is already more than $4 in California, Hawaii and Alaska, and analysts at the oil information service said drivers were paying more than $4 at some stations in at least three other states — Illinois, Connecticut and New York.

Pension crisis: nothing new here, this news has been out for a while. Look at the scale of the problem however, it’s huge.

Real Estate investment constitutes $978 billion or 57% of the total assets under management. The crash of the residential real estate markets, combined with the collapse of the commercial markets, will have decimated these investments that are pension related 45% of the total.

The only bright point is found in commodities, which is still involved in a secular bull market. Of course, volatility, may well have shaken a few loose, as no-one really likes too much volatility.


LONDON — The race for the door at hedge funds isn’t letting up.

With financial markets in disarray and the alleged fraud by money manager Bernard Madoff casting a pall on the industry, investors have been demanding their money back at a relentless rate in the first weeks of 2009. That is forcing some of the world’s best-known hedge-fund managers, who had hoped that massive withdrawals in December would be the worst of it, to brace for another wave.

Among the managers expecting withdrawals are New York-based D.E. Shaw & Co. and Och-Ziff Capital Management Group LLC, which together manage …

When will it end? Who knows, but end it will, and eventually, the market will recover. Ya gotta be in to win!

Hedge fun
Posted by: Economist

WHAT, exactly, is going on? This whole global bail-out thing was supposed to turn the crash into a soothing gradual bear market, and yet volatility indexes remain off the charts, and 10% swings are, if anything, increasing. What’s the deal?

One important issue that we continue to mention is that credit market normalcy isn’t going to happen immediately, and neither is it a sure thing. Calculated Risk has put together a list of credit indicators and begun tracking them, and progress on those fronts is slow and halting. This is a source of significant uncertainty.

But another story—one that’s likely to grow in importance—is the stress we’re seeing on hedge funds. The news today includes reports that Citadel’s biggest hedge fund has lost perhaps 30% of its value this year. Hedge funds, ostensibly aimed at profiting in all circumstances, have followed the market down in 2008, unnerving some of their investors.

How much so? Well, the Financial Times (via Yves Smith), notes that $43 billion was withdrawn from American hedge funds in September alone. As Ms Smith mentions, America’s hedge fund industry is smaller than London’s, suggesting the global flight could be much worse. But here’s the really fun part:

JPMorgan Chase has estimated that hedge fund outflows could total up to $150bn over the coming year. As investors take their money out of hedge funds, the funds have to sell assets.

But because they use so much borrowed money, the amount of potential asset sales is far larger. For example, JPMorgan expects that an outflow of $150bn will lead to sales of about $400bn.

Ah, leverage. Perhaps the move out of hedge funds will be calm and orderly. Stranger things have happened, no? But the stage certainly seems set for yet another non-bank bank run, with a flight to security generating asset dumps that depress prices and produce an even faster flight to security.


Highland Capital Management LP will close its flagship Highland Crusader Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt, according to a person with knowledge of the decision.

Highland, whose total assets under management has shrunk to about $33 billion from $40 billion in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next three years, said the person, who declined to be named because the decision isn’t public. The hedge funds had combined assets of more than $1.5 billion.

The story also notes that September was the worst month for hedge funds since LTCM went down in 1998.

Equity Fund Outflows -$1.1 Bil; Taxable Bond Fund Inflows $2.3 Bil
xETFs – Equity Fund Inflows $1.5 Bil; Taxable Bond Fund Inflows $1.4 Bil


Including ETF activity, Equity funds report net cash outflows totaling -$1.063 billion in the week ended 5/21/08 with Domestic funds reporting net outflows of -$2.865 billion and Non-domestic funds reporting net inflows of $1.802 billion;

Excluding ETF activity, Equity funds report net cash inflows totaling $1.475 billion with Domestic funds reporting net inflows of $1.040 billion and Non-domestic funds reporting net inflows totaling $436 million;

Exchange Traded (Equity) funds report net outflows of -$2.538 billion with the largest flows:
-$1.26 Bil from the SPDR Tr Series I fund;
-$1.2 Bil from the iShares S&P 500 Index fund;
-$933 Mil from the PowerShr QQQ fund;
-$624 Mil from the iShares Russell 2000 Index fund;

Excluding ETF activity International funds report net inflows of $321 million as Emerging Markets Equity funds report net inflows of $262 million;

Excluding ETFs Real Estate funds report net inflows ($196 Mil) for the eighth consecutive week with more funds reporting net inflows (150) and fewer funds reporting net outflows (78) than any week since 2/21/2007;

Excluding ETF activity Taxable Bond funds report net inflows totaling $1.391 billion as net inflows are reported to all sectors except Government Bond funds investing in Mortgage-backed securities;

Excluding ETFs High Yield funds report net inflows ($179 Mil) for the eighth consecutive week for the first time since 2/21/2007;

Money Market funds report net cash inflows totaling $21.971 billion;

Municipal Bond funds report net cash inflows of $815 million.