MacroMarkets launches new oil trusts on Amex
By Cal Mankowski
NEW YORK, July 1 (Reuters) - MacroMarkets LLC on Tuesday launched its latest investment products that allow investors to bet on the price of oil without influencing the market.
The MacroShares $100 Oil Up UOY.A and MacroShares $100 Oil Down DOY.A made their debut on the American Stock Exchange. They succeed two similar products that were launched in November 2006, but were liquidated after the relentless rise in the price of oil triggered termination parameters in April.
At the time of the liquidation last week the products had more than $1.5 billion in assets. The products are exchange-traded trusts which trade independently but are linked to one another. Assets are transferred on a dollar-for-dollar basis between the Up and Down trusts in accordance with moves in the futures contract on the NYMEX.
While the funds hold short-term Treasuries, overnight repurchase agreements or cash, investors make a profit or lose money according to moves in benchmark oil futures traded on the New York Mercantile Exchange.
Investors who bought the original MacroShares Oil Up UCR.A around the time of the launch on Nov. 30, 2006, when oil futures were about $60 per barrel, captured all of the upward move to $120 per barrel. Those who bought the MacroShares Oil Down DCR.A product and held it until the termination wound up with nothing.
Some users of the products have been institutions who were hedging long exposure to the price of oil.
The new products use a "reference value" for oil of $100 per barrel and have a termination trigger which occurs in the event that the futures close at or above $185 per barrel for three consecutive business days.
"We put a reference value in there based on market feedback as to where people would have interest on two sides," Sam Masucci, MacroMarkets president and chief executive, said in a telephone interview. "Although oil is significantly higher than that, lot of them do not think that price is sustainable."
The futures have been trading at record levels above $140.
The Macro products are based on the ideas of Yale University economics professor Robert Shiller and colleague Allan Weiss.
The unique design of the products, which is patented, would seem to give comfort to critics who argue that speculators in the futures market have been pushing the price of oil higher.
"We're not increasing the trading volume in futures, we're not storing barrels of oil, we have a passive involvement in the oil market. We're not affecting the price of oil," Masucci said.
The rise in the oil price has been a subject of debate, with many market participants insisting that supply and demand fundamentals, not speculators, have been driving the price.
Shiller, a co-founder of Madison, New Jersey-based MacroMarkets, is known for his book "Irrational Exuberance" published in 2000, four years after Federal Reserve Chairman Alan Greenspan popularized the term.
More recently, Shiller has become know for the S&P/Case-Shiller Home Price Indices which are published monthly and track housing prices.
Masucci said MacroMarkets has filed with the Securities and Exchange Commission MacroShares products that will allow people to invest in or hedge exposure to medical price inflation and to the largest U.S. housing markets.
"We don't buy oil and we won't buy houses and we won't buy medical companies," Masucci said. The products will provide hedging and access to those markets using "nothing more than Treasuries and cash benchmarked to reliable indexes." (Editing by Andrea Ricci)
