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Download Lesson 2 Are Commodities Back?
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Lesson 2 Are Commodities Back? I.Teaching Points: 1. the direct investment and indirect investment 2. panel discussion 3. the viewpoints of the four investment experts on “Are Commodities Back?” 4. the terms: the consumer economy, hedging benefit, investment portfolio 5. the difficult sentences in the text II. Teaching Aim: 1. understand the differences between the direct investment and indirect investment 2. understand what the panel discussion is 3. understand the viewpoints of the four investment experts on “Are Commodities Back?” 4. understand the terms in the text 5. understand the difficult sentences in the text III. Teaching Process 1. Introduction to the Text 1). The classification of investment: direct investment and indirect investment. 2). What does the title mean? ------"commodities" here refers to "commodities as the investment target, to invest in commodities, that is, the direct investment" , so the title just means" Can we still invest in commodities in 1995?", "Are commodities a good investment again?" or, "Can we still make direct investment in 1995?". 3). Understand the term "commodity" (Note 1), "futures" (Note 4), and "hedging" (Note 5). 4). This text is a Panel Discussion (专人之主题讨论), the interviewer is U.S. News assistant managing editor Jack Egan, and the four guests are the four investment experts: Strongin, Masters, Clough, and Markman. Jack Egan hosted this panel discussion, and the four investment experts express their different views on "Are commodities back?", and we should try to find their different views on direct investment in 1995 and try to understand the reasons why they held these different views. 5). The general question " Are Commodities Back?" is subdivided into three interrelated questions. ①. Is it wise to make long-term investment in commodities? Strongin thinks it is. Why so? (P.14) ②. Are commodities a good investment for the year of 1995? Masters fells they are. Why so? (P. 14) Clough holds it is best to buy stocks and bonds of commodity producers, Why? What problems does he see in investing in commodities? (P.15) Strongin thinks it is better to combine commodities with stocks and bonds. (PP. 15-16) Markman thinks financial assets are going to be the main beneficiaries. (P.16) ③. Is inflation going to be a problem in 1995? Strongin only talks about the necessity for rises in commodity prices.(P.17) Masters doesn't think there is an inflation. But there might be such a danger. (P. 17) Clough thinks there is no major inflation cycle, though prices will go up to a higher level. (P.17) 2. Reading for gist Read the text with about 15 minutes, and then try to answer the following questions: 1. Does Strongin think it is wise to make long term investments in commodities? Why (not)? 2. What makes Masters feel commodities remain a good investment for next year? 3. What problem does Clough see in investing in commodities? 4. Why does Clough think the best investment is to buy stocks and bonds of commodity producers? 5. Strongin holds it is better to combine investments in commodities and bonds. Why? 6. What makes Markman think financial assets are going to be the main beneficiaries? 7.What kinds of stocks does Markman favor to buy? Why? 3. Detailed Study of the Text In a recent panel discussion hosted by U.S. News assistant managing editor Jack Egan, four investment experts consider whether hard assets (Note 2) are the place to be (are their right place to be, are the fields we can invest in ). Egan: What’s the long-term case ( situation) for commodities, Steve (Steve Strongin)? Strongin: The reindustrialisation of Europe and the growth of the consumer economy (Note 3) in the United States powered (propeled) the world economy after World War II; today, the development of the emerging economies (the economies of the newly emerging counties) is duplicating (repeating) that experience (process, history). We’re talking about 15,20,30 years’ worth (value, achievement, accomplishment) of industrialisation—new power grids(高压输电网), roads, factories—across South America, Southeast Asia, China, Eastern Europe. With that kind of driving growth (rapid growth) comes far greater use of resources, sharply rising incomes and large increases in consumption of food, of apparel (clothes), of metals and so forth. // Egan: Is the climb (increase) in prices still in its early stages, or will prices level off (reach a level and then remain it) in 1995? Masters: There is still lots of room for commodity prices to go higher, in my view. We don’t do official price forecasts at J.P. Morgan (a forum for international economy), but I expect there could be another rise in industrial-commodities prices in 1995 on the order of (AmE, somewhat like, similar to, echo back to the call / order of ) last year’s gain. Egan: So you feel commodities remain a good investment for next year? Masters: Emphatically (definitely, absolutely, completely) so, both in absolute terms and relative (terms) to stocks and bonds (both in terms of the value of commodities themselves and in terms of their values compared with those of stocks and bonds). Clough: I’m not so sure. A year ago commodities would have definitely looked best from a relative-value standpoint (the viewpoint above--Masters) because prices were so depressed. But we’ve had some pretty good rallies (a rise following a drop in prices) since then, and most of the price disparity (differences) between commodities and financial assets has disappeared. Some commodity prices have risen so much, in fact, they’re beginning to look risky. Aluminium, for example, is up 70% from its lows. Meanwhile, some financial assets have been so battered (hit hard, here means its price is rather low) that they are beginning seem attractive. In terms of values, I’d be looking hardest at (would be looking hardest at, look best at, I'd be keeping a close eyes on bonds) bonds, now that (bonds) long-term rates are around 8%. Egan: Chunk (Chunk Clough), are you saying individual investors should avoid commodities? Clough: It’s not that (case) I think (the prices of) hard assets have no more potential to go up. But it’s difficult for most individuals to invest directly in commodities. Futures are too risky. The best way for someone to participate in (join) any surge of global demand (any great increase in world demand) might be to buy the stocks of commodity producers. Strongin: The problem with that approach is that an investor won’t get the same hedging benefit (Note 5) from buying stocks as from investing in the actual commodities. Egan: Could you explain? Strongin: Commodities and financial assets like stocks and bonds tend to offset each other (to balance / compensate each other) . By combining them (commodities investment and financial assets investment ) in an investment portfolio (investment mix, 投资总额, 投资 组合, See Note 6), you reduce risk in difficult markets (market full of fierce competition) through diversification (through the diversification of investment, through the combination of various kinds of investment to avoid risks; through the combination of commodities investment and financial assets investment to avoid losing money). This past year provides (gives) an excellent example (a good / perfect example). While a strengthening (developing, price-rising) economy (the economy that develops fast / that produces great demands of commodities which in turn leads to the increase of commodities' prices, and in this case, investment in commodities is attractive) has increased demand for commodities, it also has caused (led to) interest rates to climb (to increase. Here, Reasons: If one country's national economy develops too fast, even to a stage of over-heated economy, then this fastdeveloping-economy will hurt the healthy development of its economy. Then there will be some macro-regulation measures to intervene the development of economy. These measures include the increase of interests rates to prevent too much hard assets investment.), which hurt bonds and made equities less attractive (in this situation, more people wanted to put their money in the banks to get bank interests instead of buying stocks to get dividends, or less people wanted to borrow money from banks to buy stocks). That includes shares of many natural resource companies (strengthening economy → increase of demands for commodities → increase of the commodities' prices → increase of commodities investment / direct investment →→ increase of interest rates → decrease of the purchase of stocks → decrease of the purchase of the stocks of "many natural resources companies"/ commodities-investing companies→ in turn, this will influence the development of commodities investment / direct investment------the meaning of the word "offset" in the first sentences). Egan: Bob, where do you stand (what's your standpoint?)? Markman: I also see a dynamic, global economic expansion (prosperity, development) over the next five to 10 years, but I think financial assets—mainly stocks—are going to be the main beneficiaries (n. One that receives a benefit, 受益人. Some phrases with the word "beneficiary": final beneficiary 最终受益人;n first beneficiary 第一受益人; immediate beneficiary 直接受益人; original beneficiary 原受益人; young-generation beneficiary下一代的受益人). By comparison, commodity price changes are going to seem like mere blips (to seem to be very small. Blips: tiny spots of light as found on a rada screen). What’s being overlooked (overlook: to be not noticed) is the ability of increasing productivity to counteract (to act against, to make less) concerns (worries) about inflation (This sentence means: Increasing productivity will make people less worried about inflation). Continued advances in technology (this increases productivity. Increased productivity leads to more output at lower production costs, and finally lower selling prices of products) and the unleashing of one third of the world’s population (the release of the population from the control of central-planned economy. This suggests that there is a large supply of cheap labor, which will not only lower labor cost but also increase job competition.) that was previously under socialist or communist economic domination (under domination: under control of...) will dampen (reduce) price and wage pressures (will dampen price and wage pressures: will reduce pressures from rising prices and pressures from demand for wage increase from workers in western countries). I therefore question whether global growth will necessarily lead to a continued sharp rise in commodity prices. Back in the early’80s, every forecaster was talking about the inevitability (the things must happen in future) of oil prices going to $100 a barrel. What happened instead is that we discovered a lot more oil and the price fell. Egan: Given your scenario (suppose things are like what you describe. scenario: the outline of a play, an opera, or a film, giving the main facts about the scenes), what kinds of investments do you favor (support / prefer / like better)? Markman: I’m looking at companies such as telecommunications firms that are helping to build the infrastructure (see note 7) in the emerging markets (newly-born markets). There’s the Montgomery Global Communications Fund, for example, which I’m buying for my clients. About a third of its portfolio (bonds, stocks, securities) is in the emerging markets, a third is in the developed international markets and a third of its portfolio is in the United States. So it’s well diversified both within the telecommunications sector and geographically. Egan: Is technological innovation going to limit the rise in commodity prices, Steve? Strongin: It’s more a question of what incentives are required to bring forth needed supplies of raw materials. Without significant commodity price appreciation (rise in prices. appreciation: increase in value of currency, land, goods, etc. . the opposite word is depreciation), the great returns (returns on investment, income gained from investment) Bob talks about getting from investing in the emerging markets won’t be there. Take the case of energy. It seems clear that foreign companies will not invest in developing the oil fields (油田) in the Pacific Rim nations (nations surrounding the Pacific Ocean) unless they can expect to generate returns (returns on investment, income gained from investment,投资回报) to justify doing so (to prove it is right to do so). // Egan: If commodity prices continue to rise, does that mean inflation at some point becomes a problem? Masters: We're really not there (in that situation) yet. Recent statistics indicate that both here in the United States and in the rest of the world, we're experiencing strong and rising growth without any significant inflationary pressures. But there is a school of thought—and we believe it's quite credible (a way of thinking shared by a group of scholars(学派), which is believable)—that says inflation will be at some point (time / situations / degree) a natural consequence of the buoyancy in the global economy (the growth of the world economy. buoyancy: the power to float or keep things floating, and here means "the continued economic growth"). And once an inflationary psychology gets going (when people have the feeling that inflation will occur, ------and then it may occur.), that will drive commodity prices even higher. Egan: Chunk, you said earlier that investors should look at bonds (consider to make investment in). You must not think (你肯 定不会认为...) inflation is going to be a problem next year. Clough: I don't think we face a major inflation cycle during this expansion. The government's producer price index (see note 8), which is around 1 % currently, might rise to 4% annual rate, but then it will back right down (back down: lower, decrease). The consumer price index (see note 8), now running at around 2.7%, will probably peak at between 3.5% and 4%, but again won't stay there very long. And I'm guessing we might be very, very close to both of those highs (high points), perhaps seeing them in the first Part of 1995. Egan: Let’s agree to disagree. Homework 1. Exercise II, V. 2. Oral Work: Five students as one group, one student is the interviewer---Egan, and the other four are the investment experts---Strongin, Masters, Clough, and Markman, and then act this panel discussion out.