THE ECONOMIST

Combustible cigarettes kill millions a year. Can Big Tobacco save them?

Tue, 12/19/2017 - 17:50

BESIDE a serene lake in Switzerland sits a modern glass building called the Cube. Wide-leafed tobacco plants grow in the lobby. In one room machines that can “smoke” more than a dozen cigarettes at a time dutifully puff away, measuring the chemicals that consumers would inhale. The research centre is run by Philip Morris International (PMI), which sells Marlboro and other brands around the world. The facility’s purpose is not to assess the risks of smoking, but to determine whether this huge cigarette-maker might get out of selling cigarettes altogether.

André Calantzopoulos, PMI’s chief executive, talks about moving to a “smoke-free future”, with the firm’s business comprised entirely of alternatives to cigarettes. “We are crystal clear where we are going as a company: we want to move out of cigarettes as soon as possible,” he says. Mr Calantzopoulos has the boldest goals in this regard, but he is not the only tobacco executive to tout a new direction. Nicandro Durante, chief...Continue reading

Categories: FINANCIAL NEWS

A vote on “net neutrality” has intensified a battle over the internet’s future

Tue, 12/19/2017 - 17:50

A DAY before the Federal Communications Commission (FCC) voted to rescind “net neutrality” regulations designed to ensure that internet-service providers do nothing to favour some types of online content over others, Ajit Pai, its chairman, tweeted a short video reassuring Americans. “You can still post photos of cute animals,” he says in it, posing with a dog. He also wields a light sabre, which prompted Mark Hamill, the actor who portrays Luke Skywalker in the “Star Wars” films, to criticise Mr Pai on Twitter for siding with giant corporations. Ted Cruz, a Republican senator, then asserted in Mr Pai’s defence that Darth Vader supported government regulation of the web; further jabs followed.

It made for a silly treatment of an arcane subject. But net neutrality is a serious business. The state of New York’s attorney-general said he would lead a multi-state suit against the FCC; in Congress Democrats and Republicans are expected to propose competing bills on the subject in 2018. Broadband and wireless companies such as AT&T responded to fears about their increased power by questioning whether internet firms like Google have too much. Google, Facebook, Amazon and other platform companies in turn put out statements in support of an open internet. So rather than end the struggle over how the internet is regulated in America, the FCC’s vote has...Continue reading

Categories: FINANCIAL NEWS

Hard lines

Tue, 12/19/2017 - 17:50

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Categories: FINANCIAL NEWS

Have yourself a dismal Christmas

Tue, 12/19/2017 - 17:50

ONLY an economist would think to ask whether Christmas is efficient. In 1993 Joel Waldfogel, then a professor at Yale University, turned a lunchtime conversation with colleagues into a paper entitled “The deadweight loss of Christmas”, which argued that, no, it is not. That gift-giving might actually be bad is the kind of opinion which breeds a deep mistrust of economists—loathing is perhaps too strong—among those not schooled in the dismal science. It is also just the sort of analytical insight on which economists pride themselves: counterintuitive, irreverent and interesting. But they should perhaps be less pleased with themselves. The way they think about the most festive time of the year reveals something important about the shortcomings of the field’s approach to human behaviour.

Mr Waldfogel’s notion was a clever one. Massive amounts of money are spent on holiday presents; it makes sense to ask whether such spending leaves the world better off. In buying gifts, people do their best...Continue reading

Categories: FINANCIAL NEWS

Countries rarely default on their debts

Tue, 12/19/2017 - 17:50

VENEZUELA is an unusual country. It is home to the world’s largest reserves of oil and its highest rate of inflation. It is known for its unusual number of beauty queens and its frightening rate of murders. Its bitterest foe, America, is also its biggest customer, buying a third of its exports.

In defaulting on its sovereign bonds last month (it failed to pay interest on two dollar-denominated bonds by the end of a grace period on November 13th), Venezuela is also increasingly unusual. The number of governments in default to private creditors fell last year to its lowest level since 1977, according to the Bank of Canada’s database. Of the 131 sovereigns tracked by S&P Global, a rating agency, Mozambique is the only other country in default, having missed payments on its Eurobond (and failed to make good on guaranteed loans to two state-owned enterprises). Walter Wriston, a former chairman of Citibank, earned ridicule for once declaring that “countries don’t go bust”. But they don’t...Continue reading

Categories: FINANCIAL NEWS

Intangible assets are changing investment

Tue, 12/19/2017 - 17:50

WHEN you work as an equity analyst at an investment bank, your task is clear. It is to comb all the statements made by corporate executives, to scour the industry trends and arrive at an accurate forecast of the company’s profits. Achieve this and your clients will be happy and your bonus cheque will have many digits.

But is all this effort worthwhile? Not as much as it used to be, according to Feng Gu and Baruch Lev, writing in a recent issue of Financial Analysts Journal*. The authors imagined that investors could perfectly forecast the next quarter’s earnings for all companies. They then assumed that investors bought all the stocks that they expected to meet or beat the consensus of analysts’ forecasts; and that investors could short (ie, bet on a declining price) the stocks of those that were predicted not to reach their estimates. They made their investment two months before the end of a quarterly reporting period and got out of their positions one month after the...Continue reading

Categories: FINANCIAL NEWS

Ryanair stops Christmas strikes, but at a cost

Tue, 12/19/2017 - 12:05

AIRLINES respond to greater demand for travel around Christmas by increasing fares. But this year, Ryanair has found that it is not the only one taking advantage of the desire to be home for the holidays. To avert proposed strikes by pilots across Europe, the Dublin-based carrier offered on December 15th to recognise pilot unions for the first time in its history. The offer came just in time to avert a four-hour strike by Italian pilots scheduled that afternoon. Pilots in Ireland and Portugal also called off a strike they had planned for December 18th. Ryanair may have saved Christmas, but its stock price fell by 8% on the day of the announcement.

Michael O’Leary, Ryanair’s chief executive, acknowledged that union recognition marked a “significant change” for the company. During a dispute with baggage handlers in 1998, Mr O’Leary said that Ryanair would recognise unions “when a majority of our people wishes to do so.” Nonetheless, Ryanair has strongly resisted attempts by its employees to join independent unions, preferring to...Continue reading

Categories: FINANCIAL NEWS

The China syndrome

Mon, 12/18/2017 - 11:29

WHAT is in store for economies and markets in 2018? Around this time of year, a large number of analysts and fund managers are giving their views. Among the most interesting and thoughtful approaches can be found at Absolute Strategy Research (ASR), an independent group founded by David Bowers and Ian Harnett.

ASR adds extra depth to its analysis by contrasting its own views with those of the consensus. To do so, the group polled 229 asset allocators, managing around $6trn of assets, for their views on the outlook for economies and markets. They found a groundswell of optimism; the probability of equities being higher by the end of 2018 was 61%, and that shares will beat bonds is 70%. The allocators think there is only a 27% chance of a global recession. And they are not worried about the prospect of the Federal Reserve pushing up interest rates.

There are some disconnects within the consensus view. The first is that investors expect volatility (as measured by the Vix) to rise next year. Usually, equities struggle in such...Continue reading

Categories: FINANCIAL NEWS

Donald Trump holds off hitting the Gulf carriers with sanctions

Fri, 12/15/2017 - 15:57

WHEN Donald Trump became America’s president nearly a year ago, lobbyists campaigning for protection for the country’s airlines against competition from the Middle East were overjoyed. But they were less happy on December 13th when it was revealed that Donald Trump has decided to hold off on imposing sanctions against the three big Gulf carriers—Emirates of Dubai, Etihad of Abu Dhabi, and Qatar Airways—for what America’s big airlines allege are unfair subsidies that they receive from their governments. For now, the administration will continue discussions with the UAE and Qatar, the trio’s home countries. But it has not taken off the table the possibility in the future of amending or terminating its Open Skies agreements that allow the Gulf carriers to fly to any American airport they want. A document from an administration meeting in September, obtained by Politico, a news website, states that “additional...Continue reading

Categories: FINANCIAL NEWS

Not even “The Last Jedi” will reverse Americans’ retreat from cinemas

Thu, 12/14/2017 - 16:50

THE new “Star Wars” film opens this week. “The Last Jedi” arrives in cinemas in time to boost expected ticket sales for the year to about $11bn in America, only slightly down from last year’s record. But the American film industry is in trouble. Tickets sold per person have declined to their lowest point since the early 1970s, before the introduction of the multiplex. Expensive flops have prompted studio executives to complain that Rotten Tomatoes, a ratings website, is killing off films before their opening weekends. The studios count on remakes and sequels to attract fans; such films account for all of this year’s top ten at the box office.

It may get worse. Americans are losing the film-going habit as new sources of entertainment seize their attention. Netflix and other streaming services have made it more convenient to watch movies and TV programmes anywhere, on internet-connected TVs, tablets and smartphones. Apps such as Facebook and YouTube are fine-tuned to...Continue reading

Categories: FINANCIAL NEWS

The Santa clause

Thu, 12/14/2017 - 16:50

DEAR Team, I trust you are looking forward to your vacations and that the spirit of love and generosity infuses your family gatherings. I also hope that this spirit will be left next to the Christmas tree when you return to work at this incredible company on January 2nd. Because 2018 is going to be the year when America Inc loses its head after a decade of iron financial self-control. And I am not going to make that mistake. Let me drop some festive wisdom: when everyone else is throwing money around like Santa, it is best to behave like Scrooge.

During my workout at 5.10am this morning my trainer played U2. I love Bono for his personal advice on charitable giving, but he is also a perceptive lyricist. “It’s a beautiful day” captures the mood in business. Third-quarter results blew the roof off. Earnings per share for the S&P 500 are 23% above the last peak in 2007. The world economy is rocking. At this week’s digital town halls our sales teams in Houston and Guangzhou reported...Continue reading

Categories: FINANCIAL NEWS

America’s Public Company Accounting Oversight Board gets a new boss

Thu, 12/14/2017 - 16:50

THE collapses of Enron and WorldCom in the early years of this century turned book-cooking into front-page news. Investors lost over $200bn; in 2002 the stockmarket fell by over a fifth between April and July. In response, America’s Sarbanes-Oxley Act set up a new body, the Public Company Accounting Oversight Board (PCAOB), to supervise auditors.

Its quest to give auditors more teeth continues, with the introduction of new rules that James Doty, its outgoing chairman, bills as the most significant changes to reporting by auditors in over 70 years. The question now is whether Mr Doty’s successor, who was announced by the Securities and Exchange Commission (SEC) on December 12th along with four new PCAOB board members, will keep heading in the same direction.

New disclosures on auditors’ tenure and independence take effect this week. And from 2019 auditors must go above and beyond the low bar they have historically set themselves, which is a pass or fail “opinion” on...Continue reading

Categories: FINANCIAL NEWS

Companies in the region vote with their feet against political uncertainty

Thu, 12/14/2017 - 16:50

Employees, customers, separatists

“WE ARE used to dealing with political crises, but not a break in the rule of law,” says the boss of a big Barcelona cement firm, of Catalonia’s constitutional crisis. Fearing separatists in the region would declare independence, as they did on October 27th, he shifted its headquarters to Madrid. That ended decades of family tradition, but there is no plan to return. “It was a painful decision, but we had no alternative,” he says.

Catalonia accounts for roughly a fifth of Spain’s GDP and a quarter of its exports, but only a sixth of the country’s population. Its diversified economy is the envy of much of Spain, notes Jordi Alberich Llaveria of Cercle d’Economia, a business lobby in Barcelona, thanks to flourishing medium-sized, family-run industrial, textile and perfume-making firms. It has become a hub for multinationals, carmakers, pharmaceutical firms, fashion boutiques and hundreds of...Continue reading

Categories: FINANCIAL NEWS

The global property business tries to adapt to e-commerce

Thu, 12/14/2017 - 16:50

Stores of value

FIFTH AVENUE in New York is the most expensive stretch of retail property in the world, now festooned with lights in the approach to Christmas. The pavements heave with crowds eager to see the diamonds sparkling at Tiffany & Co, a jeweller, and festive displays at Saks Fifth Avenue, a department store. But storefronts further downtown in once-thriving shopping districts remain vacant.

The global retail property business is having to adapt as consumers spend more online. Consolidation is in vogue. On December 12th two retail property companies, France’s Unibail-Rodamco and Australia’s Westfield, agreed to merge in a deal worth $24.7bn to form the world’s second-biggest owner of shopping malls by market value. Westfield earns about 70% of its revenues from property holdings in America.

In November, Brookfield Property Partners, another mall owner, bid $14.8bn for the 66% of GGP, a rival, that it did not already...Continue reading

Categories: FINANCIAL NEWS

American business has concerns on tax reform

Thu, 12/14/2017 - 16:50

PRESIDENT DONALD TRUMP’S effort to change America’s tax code is approaching the finishing line. Republican negotiators from the Senate and the House of Representatives this week hashed out a consensus bill behind closed doors. On December 13th, Mr Trump expressed confidence that he would be able to sign the reform into law before Christmas.

The key provision is the slashing of the corporate tax rate, from 35% to 21%. Big business in America uniformly cheers this reduction. The US Chamber of Commerce calls it a measure to “grow the economy, create jobs, and increase paychecks”. The Tax Foundation, a right-leaning think-tank, claims that reducing the corporate rate to 20%, just one percentage point lower, would increase the size of the economy by 2.7% over the long run. Yet big firms are less enamoured of controversial international provisions that may make it into the final law. Both the Senate bill and the House bill try to stop the shifting of profits by American...Continue reading

Categories: FINANCIAL NEWS

An accounting scandal sends Steinhoff plummeting

Thu, 12/14/2017 - 16:50

Steinhoff goes on special offer

THE scale is staggering, even by the standards of scandal-worn South Africa. Steinhoff, a retailer that is one of the country’s best-known companies, admitted to “accounting irregularities” on December 6th when it was due to publish year-end financial statements. Its chief executive, Markus Jooste, resigned, and the firm announced an internal investigation by PwC. Within days Steinhoff had lost €10.7bn ($12.7bn) in market value as its share price fell by more than 80% (see chart). Much is unclear, but it is shaping up to be the biggest corporate scandal that South Africa has ever seen. The company has said it is reviewing the “validity and recoverability” of €6bn in non-South African assets.

Steinhoff traces its roots to West Germany, where it found a niche sourcing cheap furniture from the communist-ruled east. The company merged with a South African firm in 1998 and is based in Stellenbosch, near Cape Town—a...Continue reading

Categories: FINANCIAL NEWS

A decade after it hit, what was learnt from the Great Recession?

Thu, 12/14/2017 - 16:50

TEN years ago this month, America entered the “Great Recession”. A decade on, the recession occupies a strange space in public memory. Its toll was clearly large. America suffered a cumulative loss of output estimated at nearly $4trn, and its labour markets have yet to recover fully. But the recession was far less bad than it might have been, thanks to the successful application of lessons from the Depression. Paradoxically, that success spared governments from enacting bolder reforms of the sort that might make the Great Recession the once-a-century event economists thought such calamities should be.

Good crisis response treats its symptoms; the symptoms of a disease, after all, can kill you. On that score today’s policymakers did far better than those of the 1930s. Government budgets have become a much larger share of the economy, thanks partly to the rise of the modern social safety net. Consequently, public borrowing and spending on benefits did far more to stabilise the economy than they did during the Depression. Policymakers stepped in to prevent the extraordinary collapse in prices and incomes experienced in the 1930s. They also kept banking panics from spreading, which would have amplified the pain of the downturn. Though unpopular, the decision to bail out the financial system prevented the implosion of the global economy.

But the success...Continue reading

Categories: FINANCIAL NEWS

Cars, jewels, wine and watches have been good investments

Thu, 12/14/2017 - 16:50

DIAMONDS, they say, are for ever. They can be pricey, too. On December 5th 173 lots of jewels auctioned by Sotheby’s raised $54m. They included several pieces belonging to Sean Connery, known for playing James Bond. The following day a car favoured by Bond, the Aston Martin DB5, was auctioned for $2.7m. It was among 24 classic vehicles that together fetched $45m. The sales in New York last week by the world’s two biggest auction houses, Sotheby’s and Christie’s, also involved fine wines, watches and other luxuries. Between them they sold $200m-worth.

The Economist has compiled price indices for many of these items—diamonds, classic cars, fine wine, art, watches and other curios—and grouped them in a “passion” index. The index is weighted according to the holdings of high-net-worth individuals (HNWI)—defined as people with more than $1m of investable assets—as reported by Barclays. Our passion index has dropped by 2% a year, on average, for the past...Continue reading

Categories: FINANCIAL NEWS

The markets’ apparent calm over Brexit is deceptive

Thu, 12/14/2017 - 16:50

FOR all the sound and fury of the Brexit negotiations, it has seemed at times as if the financial markets have been barely affected. But as with the swans that glide on the Thames, a serene surface conceals some frantic paddling underneath.

The pound is the most reliable indicator of the Brexit mood. A rule of thumb is that, if the headlines point to a “hard” Brexit (creating trade barriers with the EU), sterling will fall; signs of a “soft” Brexit (something that is close to the current relationship) will cause it to rise.

But some feedback processes are at work. The big fall in the pound in the immediate aftermath of the referendum has led to a gradual rise in imported inflation. The annual inflation rate hit 3.1% in November, requiring Mark Carney, governor of the Bank of England, to write to Philip Hammond, the chancellor, to explain why the target (of 2%) had been missed. The bank has already raised interest rates once. More rises may follow, and expectation of such rises supports the pound.

The need for monetary tightening is not simply a result of higher import costs, which might prove temporary. More worryingly, the Bank thinks that the trend rate of growth of the British economy has fallen (a view it shares with the Office for Budget Responsibility, the government’s forecasting arm). In part, this is because Britain faces a more...Continue reading

Categories: FINANCIAL NEWS

Oil and gas supply disruptions ripple around the world

Thu, 12/14/2017 - 16:50

The Baumgarten blast

CALL it the hydrocarbon equivalent of the butterfly effect. As oil and gas supplies tighten during the northern winter, disruptions as remote as a hairline fracture on a piece of Scottish pipeline, and an explosion in an Austrian natural-gas plant, have repercussions felt around the world.

Start with the pipeline. After Ineos, a chemicals company, detected a growing crack on a piece of pipe near Aberdeen, on December 11th it said it would shut the main Forties pipeline carrying North Sea oil and gas to Britain for weeks. The suspension of a pipeline carrying 450,000 barrels a day (b/d) of crude, in a global market of almost 98m b/d, would not normally be disruptive. Yet Brent crude, the benchmark for pricing much of the world’s seaborne crude, is itself partly priced on the flow of crude from 80 fields that feed the Forties pipeline, magnifying the impact.

Futures prices for Brent crude delivered in February and...Continue reading

Categories: FINANCIAL NEWS

The WTO remains stuck in its rut

Thu, 12/14/2017 - 16:50

“THERE is life after Buenos Aires,” soothed Susana Malcorra, chair of the 11th ministerial meeting of the World Trade Organisation (WTO). Multilateralism may not be dead, but it has taken a kicking. Expectations were low as the meeting began in the Argentine capital. They sank even lower as it progressed. Delegates failed to agree on a joint statement, let alone on any new trade deals.

Many arrived with a culprit already in mind. Robert Lighthizer, the United States Trade Representative, was the face of an administration that is both questioning the benefits of multilateralism and jamming the WTO’s process of settling disputes. As negotiations progressed, some delegates groused that American leadership was lacking. Some even speculated that the Americans might be happy if multilateral talks foundered. What better proof, after all, that the system is broken?

Ms Malcorra, without mentioning the Americans by name, warned against creating scapegoats out of those...Continue reading

Categories: FINANCIAL NEWS

The revised Basel bank-capital standards are complete at last

Thu, 12/14/2017 - 16:50

HOWEVER long a storm lasts, clearing up takes longer. On December 7th Mario Draghi, president of the European Central Bank and head of the committee that approves global bank-capital standards, declared that revisions to Basel 3, the version drawn up after the financial crisis of 2007-08, were complete. The overhaul of the previous rules, which were blown away in the tempest, began eight years ago. The revised set, informally called Basel 4, will not take full effect until 2027.

That lengthy period of adjustment is one way in which Basel 4 is less demanding than banks, notably in Europe, had feared. Several other tweaks mean that the standards banks must eventually meet will be less exacting than first proposed. Already forced to bolster their balance-sheets with lots more equity—of which the crisis showed them to be woefully short—banks may deny that they have got off lightly. But they probably have.

Basel 4 was supposed to be settled a year ago. It wasn’t, because of a...Continue reading

Categories: FINANCIAL NEWS

China’s leading economists are in high demand and short supply

Thu, 12/14/2017 - 16:50

EVERGRANDE, a Chinese property firm, is a big spender. It was until recently the country’s most indebted developer. It also owns a football club with one of the highest payrolls in China. It has extended its largesse to a new field: economics. Having founded an economic-research institute, Evergrande last month poached Ren Zeping, a star analyst with a big brokerage, to serve as its first chief economist. His annual salary of 15m yuan ($2.3m) is, based on available information, the highest ever for an economist in China. Not bad for a country where forecasting the official growth figures accurately has for years required little more research than reading the official growth targets.

Yet Evergrande is not alone in splashing cash in China, whether in property, football or, lately, economics. Competition for the best—or, rather, best-known—economists is fierce. The past half year alone has resembled a frenzied transfer window for their services. Besides Mr Ren, half a dozen...Continue reading

Categories: FINANCIAL NEWS

Ivanka Trump’s brand repositions at home, soars in Asia

Wed, 12/13/2017 - 19:11

LAUREN, a Democrat from Maryland, makes an impassioned case for not shopping at Ivanka Trump, the business founded by Donald Trump’s daughter. First comes a predictable argument; she abhors supporting any brand that uses the Trump name. Second, the sparkly sandals she bought back when Ms Trump was a tabloid celebrity, not an adviser to the president, fell apart within a year. Shoppers will soon be able to take such complaints directly to sales staff: the brand is about to open its first standalone store, in Trump Tower in New York.

Floral frocks, stilettoes and bangles aimed at the mid-market customer do not often inspire strong reactions, but Ms Trump’s fashion line is divisive. Though Ms Trump distanced herself from her company in January, she owns it and receives money through a trust. Some consumers are boycotting it. Others have purged their wardrobes of items they already own. Thredup, a second-hand fashion site, says users listed double the number of Ivanka items for sale in the first five months of 2017 than in the same period last year. But lots of Trump fans have also spent to express their support.

Ms Trump started her firm in 2007 as a...Continue reading

Categories: FINANCIAL NEWS

When politicians and executives get caught out

Wed, 12/13/2017 - 16:53

POLITICIANS and executives are held to different standards. That is pretty clear when it comes to issues such as sexual harassment despite the resignation of Al Franken or the rejection by voters of Roy Moore. As others have pointed out, the tweets and remarks of Donald Trump would have seen him forced out of the leadership of a S&P 500 company long ago.

There are also big differences when it comes to the consequences of their regular actions. Politics is about making choices. Should public money be spent on defence of welfare benefits? Should taxes be cut for one type of voter and raised for another? The problem for politicians is that making those choices explicit may not be a vote-winning strategy. The losers will be more resentful than the winners will be grateful. So politicians get round this problem by making their promises very generic - tax cuts will go to hard-working families, public spending will be reduced through cutting waste and the like. 

The executives who run quoted companies face a different sort of...Continue reading

Categories: FINANCIAL NEWS

Why the Trump administration has enraged flyers across America

Mon, 12/11/2017 - 21:04

FOR a president elected on a populist campaign message, Donald Trump is not doing much to make himself popular with flyers in America. On December 7th, the Trump administration announced that it was withdrawing a regulation proposed under Barack Obama to require airlines and other plane-ticket sellers to disclose baggage fees when customers begin the process of buying tickets. Airlines already have to display checked baggage fees on their websites. But the Obama administration’s proposal would have forced them to do so up front in the shopping process, so that travellers could compare the fees for various airlines and routes when choosing their itineraries. Mr Trump is also scrapping another Obama-era proposal to require airlines to report to regulators how much money they make from add-ons such as paid carry-on bags and seat selection.

Continue reading

Categories: FINANCIAL NEWS

British Airways’ franchisee in South Africa throws off two black passengers

Sat, 12/09/2017 - 12:03

IN THE latest—and possibly most alarming—in a recent string of allegations of racism against airlines, two black musicians claim they were downgraded from business class on a British Airways-branded flight in South Africa to make room for a white woman. Thabo Mabogwane and Bongani Mohosana, a South African musical duo known as Black Motion, purchased business-class tickets for a flight on December 4th from Cape Town to Johannesburg on the South African-based Comair, branded in British Airways’ colours. They wrote on Instagram, a social-media website, that a white woman in business class complained that her seat was broken, and they “happened to be the only two young black men in the British airline business class.” They were asked to move to economy class, and when they complained they were told to leave the plane, both claim.

The airline denied to the Continue reading

Categories: FINANCIAL NEWS

Putting a price on Bitcoin

Fri, 12/08/2017 - 15:09

SCENE: A pet shop with a bored looking proprietor. A customer approaches

CUSTOMER: I'd like to buy a parrot.

OWNER: Certainly, sir. How about this one? It's a Norwegian Blue. Beautiful plumage.

CUSTOMER: It's not moving much

OWNER: It is tired and shagged out after a long squawk

CUSTOMER: Fair enough. How much is it?

OWNER: $20,000

CUSTOMER: I'll pay with this bitcoin

OWNER: Sorry, sir. On WavesDEX, the bitcoin is only worth $13,500

CUSTOMER: But on LocalBitcoins, it is over $21,500! Look at the news headlines. 

OWNER: Sorry, sir, but I can't afford the risk. But my rent, heat and light are all payable in dollars.

CUSTOMER: But the dollar has ceased to be, it has shuffled off this mortal coil, it is an ex-currency

OWNER: So you say, sir. But at least it's a reliable means of exchange. It doesn't move much from minute to minute

CUSTOMER: Like this parrot

If ever Bitcoin were widely adopted as a trading currency, this scene would be played out in...Continue reading

Categories: FINANCIAL NEWS

Hedge funds embrace machine learning—up to a point

Thu, 12/07/2017 - 16:57

ARTIFICIAL intelligence (AI) has already changed some activities, including parts of finance like fraud prevention, but not yet fund management and stock-picking. That seems odd: machine learning, a subset of AI that excels at finding patterns and making predictions using reams of data, looks like an ideal tool for the business. Yet well-established “quant” hedge funds in London or New York are often sniffy about its potential. In San Francisco, however, where machine learning is so much part of the furniture the term features unexplained on roadside billboards, a cluster of upstart hedge funds has sprung up in order to exploit these techniques.

These new hedgies are modest enough to concede some of their competitors’ points. Babak Hodjat, co-founder of Sentient Technologies, an AI startup with a hedge-fund arm, says that, left to their own devices, machine-learning techniques are prone to “overfit”, ie, to finding peculiar patterns in the specific data they are trained on that...Continue reading

Categories: FINANCIAL NEWS

Western companies are getting creative with their Chinese names

Thu, 12/07/2017 - 16:57

MCDONALD’S drew ridicule in China when it changed its registered name there to Jingongmen, or “Golden Arches”, in October, after it was sold to a Chinese consortium. Some on Weibo, a microblogging site, thought it sounded old-fashioned and awkward, others that it had connotations of furniture. The fast-food chain was quick to reassure customers that its restaurants would continue to go by Maidanglao, a rough transliteration that has, over the years, become a recognisable brand name. But for most companies now entering Chinese markets, transliterations are a thing of the past, says Amanda Liu, vice-president of Labbrand, a consultancy based in Shanghai that advises firms on brand names.

Companies are instead choosing Chinese names with meanings that capture people’s imagination. That often involves going beyond a direct translation. New entrants are taking inspiration from BMW, which is the evocative Baoma, or...Continue reading

Categories: FINANCIAL NEWS

The beast of Bentonville battles Amazon, the king of the e-commerce jungle

Thu, 12/07/2017 - 16:57

A BOA constrictor swallowing capitalism. A cyclone dragging the economy into its vortex. If you look back at how people described Walmart a decade ago, it is eerily similar to how Amazon is viewed now. The supermarket chain has “a scale of economic power we haven’t encountered before”, warned “The Walmart Effect”, a best selling book in 2006. But capitalism never stands still. The world’s largest company by sales is now the perceived underdog in an escalating grocery war with Amazon to fill 320m American bellies. The struggle will probably end in a messy stalemate. That will mean mediocre returns for investors—and happy days for consumers.

Just when Walmart’s aura was at its most intimidating, in 2006, stagnation beckoned. Its reputation for bullying its suppliers and staff became toxic. Over the next decade it hit saturation point. About 95% of Americans shop at Walmart at least once a year. It has three square feet of shop space for every adult in the country and has sunk...Continue reading

Categories: FINANCIAL NEWS

Video games could fall foul of anti-gambling laws

Thu, 12/07/2017 - 16:57

Four-sided bandit

A DECADE ago the idea of paying real money for virtual items was strange and exotic. These days many video-game publishers build their business models around it. Some of the world’s biggest games, such as “League of Legends”, cost nothing to buy. Instead they rely for their revenue on players buying things for use in the game, such as new characters to play with or costumes to put them in.

A new twist on that model has been attracting the attention of regulators in recent weeks. “Loot boxes” are yet another type of “in-game” item that gamers buy with currency. Unlike the usual sort of purchase, however, players do not know in advance what they are buying, for the contents of a loot box are generated randomly. Sometimes they might be desirable, and therefore valuable; prized items include new gestures or “emotes” for a character, or a pearl handle for an automatic weapon. If less alluring, well, players can pay a bit more money...Continue reading

Categories: FINANCIAL NEWS

Rio Tinto puts its faith in driverless trucks, trains and drilling rigs

Thu, 12/07/2017 - 16:57

Data-mine ore

FOR millennia, man has broken rocks. Whether with pickaxe or dynamite, their own or animal muscle, in a digger or a diesel truck, thick-necked miners have been at the centre of an industry that supplies the raw materials for almost all industrial activity. Making mining more profitable has long involved squeezing out more tonnes of metal per ounce of brawn. Now robots, not man, are settling themselves into the driving seat.

Rio Tinto, one of the world’s largest mining firms, is leading that transformation in its vast iron-ore operations in the Pilbara region of Western Australia. It is putting its faith in driverless trucks and unmanned drilling rigs and trains, overseeing them from the office equivalent of armchairs about 1,000km (625 miles) south, in Perth. Jean-Sébastien Jacques, Rio’s chief executive, says it is ten years ahead of mining rivals in autonomous technology. For him and for Simon Thompson, a new chairman appointed on December...Continue reading

Categories: FINANCIAL NEWS

African countries are building a giant free-trade area

Thu, 12/07/2017 - 16:57

“AFRICA must unite,” wrote Kwame Nkrumah, Ghana’s first president, in 1963, lamenting that African countries sold raw materials to their former colonisers rather than trading among themselves. His pan-African dream never became reality. Even today, African countries still trade twice as much with Europe as they do with each other (see chart). But that spirit of unity now animates a push for a Continental Free-Trade Area (CFTA), involving all 55 countries in the region. Negotiations began in 2015, aimed at forming the CFTA by the end of this year. In contrast to the WTO, African trade talks are making progress.

At a meeting on December 1st and 2nd in Niamey, the capital of Niger, African trade ministers agreed on final tweaks to the text. Heads of state will probably sign it in March, once an accompanying protocol on goods has been concluded (agreement on services has already been reached). But trade barriers will not tumble overnight. The CFTA will come into force only when 15 countries...Continue reading

Categories: FINANCIAL NEWS

The markets believe in Goldilocks

Thu, 12/07/2017 - 16:57

ANOTHER week, another record. The repeated surge of share prices on Wall Street is getting monotonous. The Dow Jones Industrial Average has passed another milestone—24,000—and the more statistically robust S&P 500 index is up by 17% so far this year. Emerging markets have performed even better, as have European shares in dollar terms (see chart).

Political worries about trade disputes, the potential for war with North Korea and the repeated upheavals in President Donald Trump’s White House: all have caused only temporary setbacks to investors’ confidence. No wonder the latest quarterly report of the Bank for International Settlements asked whether markets are complacent, noting that “according to traditional valuation gauges that take a long-term view, some stockmarkets did look frothy”, and pointing out that “some froth was also present in corporate-credit markets”.

The authors of the BIS report are not the only ones to worry that markets look expensive. The...Continue reading

Categories: FINANCIAL NEWS

Europe is seeing more collective lawsuits from shareholders

Thu, 12/07/2017 - 16:57

LIKE the ghosts that haunted Ebenezer Scrooge, the scandals of years past—summoned up by angry shareholders—will not let companies rest. In Britain this year, the Royal Bank of Scotland (RBS) paid £900m ($1.2bn) to settle a long-running investor lawsuit related to the bank’s behaviour at the time of the financial crisis of 2007-08. Also in Britain, Lloyds Banking Group faces litigation. And it is not just banks. Investors in Britain sued Tesco, a supermarket chain, for losses caused by an accounting scandal in 2014. In Germany and the Netherlands investors are seeking compensation from Volkswagen (VW), a carmaker, for failing to disclose its manipulation of diesel-emissions tests.

Securities litigation is on the rise in Europe for two main reasons. The first is that America is less hospitable than it was to such cases. Until 2010 harm suffered by foreign investors could be included in American lawsuits. That changed with a Supreme Court ruling on Morrison v...Continue reading

Categories: FINANCIAL NEWS

A full-scale Venezuelan default could push up oil prices

Thu, 12/07/2017 - 16:57

Who believes in Nicolás?

ON NOVEMBER 30th, as oil tsars from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia met in Vienna, Venezuela’s former oil minister, Eulogio del Pino, once one of their number, was seized by armed guards at dawn in Caracas, and taken to jail. His arrest was not publicly acknowledged in Vienna. His replacement, Manuel Quevedo, a general in the national guard, attended OPEC and was received with the usual deference.

Also unmentioned was how Venezuela, embroiled in a massive, messy debt default, is doing plenty of OPEC’s dirty work. Since November 2016, when OPEC first agreed with Russia to cut output to push up oil prices, Venezuela’s has fallen by 203,000 barrels a day (b/d), to 1.86m b/d in October. That is more than twice the cut it agreed with OPEC of 95,000 b/d.

If its production continues to fall—some analysts say it could be down to 1.6m b/d in 2018—it could either drive up...Continue reading

Categories: FINANCIAL NEWS

As WTO members meet in Argentina, the organisation is in trouble

Thu, 12/07/2017 - 16:57

“EVERYBODY meets in Buenos Aires,” said Cecilia Malmstrom, the European Union’s trade commissioner, days before heading there for the World Trade Organisation’s (WTO) biennial gathering of ministers, which opens on December 10th. Some non-governmental organisations have been blocked by the protest-averse Argentine authorities, but a meeting of people will indeed take place. One of minds is another matter.

Most participants can agree on one thing. The WTO, which codifies the multilateral rules-based trading system, needs help. President Donald Trump has railed against it and threatened to pull America out. Without American leadership, there is little hope of reaching new deals. And even as the WTO’s dealmaking arm is paralysed, the Trump administration is weakening its judicial one by starving it of judges.

Despite Mr Trump’s threats, America does not seem on the verge of crashing out of a system it helped to construct, to rely entirely on bilateral trade deals and...Continue reading

Categories: FINANCIAL NEWS

Are digital distractions harming labour productivity?

Thu, 12/07/2017 - 16:57

FOR many it is a reflex as unconscious as breathing. Hit a stumbling-block during an important task (like, say, writing a column)? The hand reaches for the phone and opens the social network of choice. A blur of time passes, and half an hour or more of what ought to have been productive effort is gone. A feeling of regret is quickly displaced by the urge to see what has happened on Twitter in the past 15 seconds. Some time after the deadline, the editor asks when exactly to expect the promised copy. Distraction is a constant these days; supplying it is the business model of some of the world’s most powerful firms. As economists search for explanations for sagging productivity, some are asking whether the inability to focus for longer than a minute is to blame.

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Categories: FINANCIAL NEWS

Contraception does even more good in poor countries than thought

Thu, 12/07/2017 - 16:57

Happier families

FEW tasks in developing countries are as tricky—or as important—as convincing parents to keep their daughters in school longer. One way of doing so is to make contraceptives available, concludes a new working paper by Kimberly Singer Babiarz at Stanford University and four other researchers.

Conducted in Malaysia, the study used a happy coincidence of surveys going back decades and family-planning programmes rolled out in a way that made it possible to measure their effect. Starting in the 1960s, these programmes were introduced in some areas a few years earlier than in others. So researchers could compare what happened to girls in areas where contraceptives became available when they were very young with girls from the same cohorts in areas with no contraceptives.

The girls in places with contraceptives stayed in school six months longer, or about a year longer if they were born after the programmes began. Similar effects have...Continue reading

Categories: FINANCIAL NEWS

Marijuana businesses, excluded from finance, face unusual risks

Wed, 12/06/2017 - 21:17

MANY marijuana growers in northern California, America’s biggest source of the stuff, had expected this autumn’s harvest to be the largest ever. After all, recreational marijuana becomes legal in the state in January. Instead, wildfires in October—spreading so fast they killed 43 people—burned up half the marijuana growing in the area’s tri-county “Emerald Triangle” alone. Some reckon the fires set a record not just for burnt pot, but also for the value of banknotes turned to ash.

Although 29 American states allow sales of marijuana for medical use (or medical and recreational use), federal law still classifies it as a “schedule 1” drug like heroin. Firms handling marijuana proceeds can be prosecuted for money laundering. Ned Fussell of CannaCraft, a maker of marijuana products, says that a few firms open a bank account under an alternative identity. But banks almost always find out. So cannabis businesses operate almost exclusively in cash. Many pot farmers...Continue reading

Categories: FINANCIAL NEWS

How airlines are squeezing more seats onto their planes

Wed, 12/06/2017 - 17:36

WHEN Gary Leff, a prominent travel blogger, took his first flight on one of the new “no legroom” planes operated by American Airlines, he found that the experience was not nearly as bad as he feared. American had drawn howls of protest from customers when it announced it was reducing the distance between rows of seats—“seat pitch”, in industry jargon—on its new Boeing 737 Max planes to 29 inches, compared with the 31-inch pitch on its existing 737-800s. So in June it capitulated, and settled on 30 inches. Mr Leff tried out these new seats last week and was pleasantly surprised to find that “the seats themselves are no worse than” in American’s current layout in economy. That may seem counterintuitive, but aircraft-interior designers had come to...Continue reading

Categories: FINANCIAL NEWS

Republicans grouse about tax models they once supported

Fri, 12/01/2017 - 18:11

THEY have been at this a long time. In 1994 Republicans, newly in charge of Congress, held hearings on what would come to be called “dynamic scoring”. Bills, they said, should be evaluated using the predictive power of macroeconomic models. If the model predicts more GDP growth, then it could be inferred that the growth would produce more tax revenue. During the hearings, however, came an awkward moment. Alan Greenspan, then in charge of the Federal Reserve, told Congress that macroeconomic models were “deficient”. That is, their predictive power, though interesting, was not good enough to rely on. Last year, after the election of Donald Trump, your blogger contacted Mr Greenspan to see whether the models were good enough yet. Mr Greenspan, his office responded, had not yet changed his opinion.

Neither have Republicans. Over the past two decades, in and out of control of Congress, the party has nudged dynamic scoring successively closer to the official policy process until we arrived, yesterday evening, at as dramatic a moment...Continue reading

Categories: FINANCIAL NEWS

Digital news outlets are in for a reckoning

Thu, 11/30/2017 - 16:56

GREAT expectations attended digital journalism outfits. Firms such as BuzzFeed and Mashable were the hip kids destined to conquer the internet with their younger, advertiser-friendly audience, smart manipulation of social media and affinity for technology. They seemed able to generate massive web traffic and, with it, ad revenues. They saw the promise of video, predicting that advertising dollars spent on television would migrate online. Their investors, including Comcast, Disney and General Atlantic, an investment firm, saw the same, pouring hundreds of millions of dollars each into Vice Media, BuzzFeed and Vox (giving them valuations of $5.7bn, $1.7bn and over $1bn, respectively).

They have had successes. Some became ninjas in “SEO” long before most print journalists knew it stood for “search engine optimisation”. They introduced “clickbait” to the lexicon. Some, like BuzzFeed and Vice, worked out that fortunes were to be made in brand-supported viral hits—or “native advertising” that looks similar to the sites’...Continue reading

Categories: FINANCIAL NEWS

Tech giants will likely dominate speakers and headphones

Thu, 11/30/2017 - 16:56

MUSIC lovers do not typically go to the opera to buy a speaker. But at the Palais Garnier in Paris they now can: Devialet, a local maker of high-end speakers, on November 29th opened a store in the 19th-century music venue to sell its most sophisticated product, called Phantom. Looking like a dinosaur egg, this supercomputer for sound (priced at $3,000) is considered one of the best wireless speakers available. It also comes with a dedicated streaming service for live performances, including some at the Palais Garnier.

This Phantom at the opera is the latest example of how digital technology is transforming speakers, headsets and other audio devices. Once mostly tethered to hi-fi systems, they are now wireless, increasingly intelligent and capable of supporting other services. As a result, the industry’s economics are changing.

Only a few years ago the audio industry was highly fragmented, says Simon Bryant of Futuresource, a market-research firm. Hundreds of brands offered...Continue reading

Categories: FINANCIAL NEWS

Plant-based “meat” is so tasty that Europe’s meat industry has to bite back

Thu, 11/30/2017 - 16:56

Carroticide

THE “kapsalon” is a healthy mix of chips, melted Gouda cheese, shawarma, lettuce and garlic sauce and is a tried and tested hangover cure in the Netherlands. So naturally, a butcher’s shop on the Spui, in The Hague, put it on its takeaway menu, alongside burgers and sausage rolls. As two young women walk out, tucking into their steaming kapsalons, an elderly gentleman asks how to prepare the steak he has just bought. The scene would have most carnivores fooled. For this butcher deals only in meatless “meat”.

“We want to become the biggest butcher in the world without ever slaughtering an animal,” says Jaap Korteweg, a ninth-generation farmer and founder of The Vegetarian Butcher. Since opening its first shop in The Hague in 2010 the company has been developing plant-based products that look, smell and taste like meat. “This shouldn’t just taste like real chorizo, it should leave the same red stains on your fingers,” says Maarten...Continue reading

Categories: FINANCIAL NEWS

The euro zone’s boom masks problems that will return to haunt it

Thu, 11/30/2017 - 16:56

“WHAT does not kill me makes me stronger,” wrote Nietzsche in “Götzen-Dämmerung”, or “Twilight of the Idols”. Alternatively, it leaves the body dangerously weakened, as did the illnesses that plagued the German philosopher all his life. The euro area survived a hellish decade, and is now enjoying an unlikely boom. The OECD, a club of mostly rich countries, reckons that the euro zone will have grown faster in 2017 than America, Britain or Japan. But, sadly, although the currency bloc has undoubtedly proven more resilient than many economists expected, it is only a little better equipped to survive its next recession than it was the previous one.

Europe’s crisis was brutal. Euro-area GDP is roughly €1.4trn ($1.7trn)—an Italy, give or take—below the level it would have reached had it grown at 2% per year since 2007. Parts of the periphery have yet to regain the output levels they enjoyed a decade ago (see chart). The damage was exacerbated by deep flaws within Europe’s monetary union. Three shortcomings loomed particularly large. First, the union centralised money-creation but left national governments responsible for their own fiscal solvency. So markets came to understand that governments could no longer bail themselves out by printing money to pay off creditors. The risk of default made markets panic in response to bad news, pushing up...Continue reading

Categories: FINANCIAL NEWS

As bitcoin’s price passes $10,000, its rise seems unstoppable

Thu, 11/30/2017 - 16:56

MOST money these days is electronic—a series of ones and zeros on a computer. So it is rather neat that bitcoin, a privately created electronic currency, has lurched from $1,000 to above $10,000 this year (see chart), an epic journey to add an extra zero.

On the way, the currency has been controversial. Jamie Dimon, the boss of JPMorgan Chase, has called it a fraud. Nouriel Roubini, an economist, plumped for “gigantic speculative bubble”. Ordinary investors are being tempted into bitcoin by its rapid rise—a phenomenon dubbed FOMO (fear of missing out). Both the Chicago Mercantile Exchange, America’s largest futures market, and the NASDAQ stock exchange have seemingly added their imprimaturs by planning to offer bitcoin-futures contracts.

It is easy to muddle two separate issues. One is whether the “blockchain” technology that underpins bitcoin becomes more widely adopted. Blockchains, distributed ledgers that record transactions securely, may prove very useful in...Continue reading

Categories: FINANCIAL NEWS

China’s largest online publisher enchants investors and readers alike

Thu, 11/30/2017 - 16:56

WeChat, we read

WHENEVER Xu Jie goes to the cinema to watch mystery and detective films, she leaves disappointed: to help stamp out superstition, China’s censors excise ghosts and zombies from the screens. So for her fill of phantoms, she turns to the flourishing online-literature scene. There, authors are allowed to take liberties from which most of China’s state-owned publishing houses would recoil. Homophones stand in for forbidden words. Danmei, a new online class of homoerotic story, is especially popular among young women. Readers can choose from over 200 established genres such as xianxia, a fantasy world of deities and martial arts.

The corporate prince of this virtual realm is China Literature, a spin-off from Tencent, a gaming and social-media giant. The four-year-old online publisher listed on Hong Kong’s stock exchange on November 8th, raising just over $1bn. The offering was a huge success; at...Continue reading

Categories: FINANCIAL NEWS

In the Trump era, big business is becoming more political

Thu, 11/30/2017 - 16:56

AT THE start of Donald Trump’s presidency bosses rushed onto his business councils, hoping to influence policies in their favour. Their ardour has cooled. When Mr Trump banned travel from Muslim-majority countries, withdrew from the Paris agreement on climate change and equivocated on racist protesters in Charlottesville, to name but a few occasions, chief executives roared their protest.

“Un-American,” declared Reed Hastings, Netflix’s chief executive, of the immigration ban. Sergey Brin, a co-founder of Google, told a reporter, “I am here because I am a refugee” as he joined protesters against the ban at San Francisco’s airport. “I feel a responsibility to take a stand against intolerance and extremism,” wrote Kenneth Frazier, boss of Merck, a pharma giant, after Charlottesville. “Isolate those who try to separate us,” added Lloyd Blankfein of Goldman Sachs. Other executives have joined lawsuits to overturn Mr Trump’s policies and condemned his actions in memos to...Continue reading

Categories: FINANCIAL NEWS

Two more illustrious Japanese firms admit to falsifying quality data

Thu, 11/30/2017 - 16:56

AKIO MORITA, co-founder of Sony, liked to recall his first trip to Germany in 1953, when a waiter stuck a small paper parasol in his ice-cream and sneered: “This is from your country.” Like many of his post-war compatriots, Mr Morita was ashamed that Japan was known for shoddy goods. The fierce drive to reverse that reputation resulted in the Deming Prize, a quality-control award named after an American business guru so revered in Japan that he received a medal from the emperor for contributing to its industrial rebirth. All that hard work is under threat.

Toray Industries, a textiles and chemicals giant, is the latest pillar of corporate Japan to admit to quality problems. This week a subsidiary said it had faked inspections on reinforcement cords used to strengthen car tyres. Sadayuki Sakakibara, a former president of Toray, said he was “ashamed” and apologised on behalf of Keidanren, the powerful business lobby he now heads. On November 23rd, Mitsubishi Materials sheepishly confessed (during a public holiday) that its subsidiaries had falsified data, on aluminium and other products used in aircraft and cars, given to customers in Japan, America, China and Taiwan. Those customers include Japan’s air force, earning a rebuke from Itsunori Onodera, the defence minister.

Kobe Steel, which was founded in 1905, recently revealed that it had sold...Continue reading

Categories: FINANCIAL NEWS

What cheese can tell you about international barriers to trade

Thu, 11/30/2017 - 16:56

Slicely does it

BEN SKAILES, a British cheesemaker, is busy as Christmas ripens demand for his Stilton. Foreigners make up a third of demand for his dairy, Cropwell Bishop Creamery. This exporting achievement is not to be sniffed at when one considers the barriers to the cheese trade.

Some are natural. Perishable food goes better with wine than long journeys. At least Mr Skailes’s Stilton can survive the three-week trip to America. (His is best eaten within 16 weeks.) Softer cheeses struggle, giving American producers an advantage.

Other hurdles are man-made. Tariffs and quotas are supposed to support domestic dairy industries, and are more onerous than in other sectors. The European Union protects its dairy industry with a 34% average duty, compared with an overall average of 5%. In America it is 17%, compared with 3.5%. Stilton escapes American quotas, but full “loaves” are taxed at a 12.8% rate, or 17% if they arrive sliced. (Unprocessed...Continue reading

Categories: FINANCIAL NEWS

A flattening yield curve argues against higher interest rates

Thu, 11/30/2017 - 16:56

CENTRAL bankers may control short-term interest rates, but long-term ones are mostly free to wander. They do not always behave. When Alan Greenspan, then chairman of the Federal Reserve, was raising short rates in 2005, he described a simultaneous decline in long rates as a “conundrum”. His successor-to-be, Ben Bernanke, blamed foreign investments in American assets because of a “global saving glut”.

Janet Yellen, today’s (outgoing) Fed chair, faces a similar puzzle. Ms Yellen’s Fed has raised rates twice this year, and will probably make it three times in December. In October the Fed began to reverse quantitative easing (QE), purchases of financial assets with newly created money. Despite all this monetary tightening, yields on ten-year Treasury bonds have fallen from around 2.5% at the start of 2017 to about 2.3% today. As a result, the “yield curve” is flattening. The difference between ten-year and two-year interest rates is at its lowest since November 2007 (see chart).

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Categories: FINANCIAL NEWS

What if the unwashed masses got to vote on companies’ strategies?

Thu, 11/30/2017 - 16:56

ANGLO-SAXON capitalism has had a bad decade. It is accused of stoking inequality and financial instability. A relentless pursuit of shareholder value has led big firms to act in ways that often seem to make the world a worse place. Aeroplane seats get smaller, energy firms pollute the air, multinationals outsource jobs and Silicon Valley firms avoid tax. Some people think that governments should exert more control over private enterprise. But what if the answer to a deficit of corporate legitimacy was to give shareholders even more—not less—power?

That is the intriguing possibility raised by a new paper by Oliver Hart of Harvard University and Luigi Zingales of the University of Chicago. Their argument has two parts. First, the concept of shareholder capitalism should be expanded, so that firms seek to maximise shareholders’ welfare, not just their wealth. Second, technology might allow firms to make a deeper effort to discover what their true owners want. Over 100m Americans invest...Continue reading

Categories: FINANCIAL NEWS

India’s new bankruptcy code takes aim at delinquent tycoons

Thu, 11/30/2017 - 16:56

A SMOOTH bankruptcy process is akin to reincarnation: a company at death’s door gets to shuffle off its old debts, often gain new owners, and start a new life. Might the idea catch on in India? A first wave of cadaverous firms are seeking rebirth under a bankruptcy code adopted in December 2016. In a hopeful development, tycoons once able to hold on to “their” businesses even as banks got stiffed seem likely to be forced to cede control.

India badly needs a fresh approach to insolvent businesses. Its banks’ balance-sheets sag under 8.4trn rupees ($130bn) of loans that will probably not be repaid—over 10% of their outstanding loans. But foreclosure is fiddly: it currently takes over four years to process an insolvency, and recovery rates are a lousy 26%. Partly as a result, bankers have often turned a blind eye to firms they ought to have foreclosed on.

This is bad for the banks and worse for the economy, which has slowed markedly, in part as credit to companies has dried up. The problem festered for years, not...Continue reading

Categories: FINANCIAL NEWS

Brazil puts its state development bank on a diet

Thu, 11/30/2017 - 16:56

Lula spots an Anglo-Saxon

IN 2009, as Brazil was buffeted by the global financial crisis, its president, Luiz Inácio Lula da Silva, was seething. The mess, he complained, was the fault of “blue-eyed white people, who previously seemed to know everything, and now demonstrate they know nothing at all”. For him the crisis was a repudiation of Anglo-Saxon liberalism and a vindication of state capitalism. Like many countries, Brazil cut interest rates and increased spending. Unlike many other governments, however, Brazil’s used its state development bank, BNDES, to funnel subsidised credit to Brazil’s largest companies. Thanks to cheap loans from the Treasury, the bank doubled its lending, which reached a peak of 4.3% of GDP in 2010. For most loans the interest rates were half the level of Selic, the central bank’s benchmark.

The plan worked, for a while. Brazil emerged from the crisis relatively unscathed: after a short recession in 2009 the economy...Continue reading

Categories: FINANCIAL NEWS

A regulatory tempest lashes China’s markets

Thu, 11/30/2017 - 16:56

IT IS is the kind of company that for years was a safe bet for investors. China City Construction is big, government-owned and focused on building basic infrastructure such as sewers. But the bet, it turns out, was not so safe after all. In November China City missed interest payments on three separate bonds, after failing to refinance its hefty debts. It is one of a growing number of victims of the government’s clean-up of the financial system, or what is known in China as the “regulatory storm”.

The storm has been gathering strength for the better part of a year but its intensity over the past couple of weeks has caught many off-guard. The government wasted little time after an important Communist party meeting in October before taking on some of the riskier parts of the financial system. As a result, China’s risk-free interest rate—ie, the yield on government bonds— has shot up. Overall, it has risen by a percentage point since the start of 2017.

For firms, even those closely tied to the state, the rise in borrowing costs has been even steeper. The yield on ten-year bonds issued by China Development Bank, a “policy bank” that finances state projects at home and abroad, has soared to nearly 5%, the highest in three years (see chart).

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American Airlines risks 15,000 flight cancellations after a rostering mishap

Thu, 11/30/2017 - 16:13

IT IS a challenge for many organisations when too many employees request time off around the Christmas period. But it is a headache for a lot more than just company staff when this happens at airlines. In September, Ryanair had to announce the cancellation of more than 20,000 flights after it messed up its system for allocating pilots’ leave. Due to regulatory changes, the airline changed its holiday schedule from the calendar year to April to December, and then persuaded pilots to take fewer days off during the peak travel season in the summer. The result was that far too many pilots requested time off between September to December, forcing the airline to scrap 20,000 flights and angering hundreds of thousands of customers who had booked tickets.

A one-time goof? Not quite. On November 29th, a similar embarrassment struck American...Continue reading

Categories: FINANCIAL NEWS

How to spot the next crisis

Thu, 11/30/2017 - 15:44

WHILE the world of geopolitics looks as risky as ever, the markets seem to go on their sweet way, recording new highs for equity indices. In large part, of course, this is down to signs of an improving global economy and sense that politics doesn't really matter, despite the tweets of President Trump (defending Vladimir Putin and attacking Theresa May is a first for American diplomacy).

Where might trouble first emerge? The most likely venue is the corporate bond market. This has changed a lot over the last 10 years. As late as 2008, more than 80% of non-financial corporate bond issuance was rated A or above, according to Torsten Slok of Deutsche Bank; in the last five years, the proportion has been consistently under 60%. That means the average corporate bond is riskier than before. At the same time, the reforms that followed the crash of 2008 mean that banks have to hold more capital (quite rightly). But this also means they are less willing to devote capital to market-making; as a result, the bond market is less liquid than before....Continue reading

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Why scan-reading artificial intelligence is bad news for radiologists

Wed, 11/29/2017 - 19:47

THE better artificial intelligence gets, the greater the popular concern that smart machines will soon usher in a labour-market catastrophe. In Chandler, Arizona, Americans can at this moment hail a ride from a car without a human at the wheel. Web users can read high-quality, instant translations of foreign-language newspapers—no professional translation service needed. And developers of machine-learning technologies are moving rapidly to apply their tools across a vast array of medical tasks.

Despite this, economists, with rare exceptions, are relatively sanguine about the possible labour-market effects of AI. Technological change always raises fears of mass unemployment, after all, and yet there are more people working worldwide than ever. Count me among those who reckon this approach is a bit too dismissive of the threat. On the one hand, while the very broad story of technological progress over the past two centuries has been one in which employment has grown massively, across...Continue reading

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Unilever dodges the Brexit crossfire

Wed, 11/29/2017 - 19:11

IN 1929 the Lever Brothers, a British soapmaker, merged with Margarine Unie, a Dutch margarine manufacturer, to form Unilever. The company has an annual turnover of over €50bn ($59bn), and a portfolio of brands that is recognisable worldwide, from its Flora spread to its Persil detergent. It has retained dual nationality for nearly 90 years, with holding companies and share listings in both Britain and the Netherlands.

Now Unilever says that for the sake of its business, it needs to pick a side. But it is hesitating. On November 28th, ahead of its annual investor meeting, the board provided an update on an ongoing review of its corporate structure. Unifying the company’s share structure, it said, would offer “strategic flexibility” and be in the best interests of both the company and its shareholders—but the announcement left unanswered whether the firm’s new headquarters would be in London or Rotterdam. Paul Polman, its Dutch chief executive, told the Financial Times that he was recommending that the decision be...Continue reading

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Germans get little in reward for booking their flights early

Mon, 11/27/2017 - 17:57

HOW far in advance should you book a flight to get the best price? That is a question that many travellers agonise about. Yet people around the world do not respond in the same way to the incentives they are given.

New data from Concur, a travel-software firm, compared flight-booking trends from five countries. Their researchers found that the penalty for booking at the last minute is by far the greatest in America. For domestic flights in America, tickets booked fewer than eight days in advance of travel tended to cost 39% more last year than those purchased at least 15 days ahead of time. The equivalent figure for France was 27%, 19% for Canada and 16% for Germany. In Britain (where there are comparatively few domestic flights), waiting to buy a ticket until the final eight days actually saved travellers an average of 3%.

Economists, then, would expect Americans to be the most careful about booking flights ahead of time, and German and British people to be the most lax. But this is not the case. In the average month...Continue reading

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Google can no longer count on political goodwill at home

Thu, 11/23/2017 - 16:52

“WE USED to be so dismissed,” says Jeremy Stoppelman, the boss of Yelp, an online-review site which has waged a six-year-long battle against Google over how the online giant ranks its search results. Now American regulators are taking concerns about Google more seriously. On November 13th, Josh Hawley, Missouri’s attorney-general, launched an investigation into the search giant to determine whether it had violated the state’s antitrust and consumer-protection laws. Other entrepreneurs, too, congratulate Mr Stoppelman for speaking out about Google; they would not have done so before.

Until then it had been chiefly in Europe where Google had trouble. In June the European Commission announced a record-breaking €2.4bn ($2.7bn) fine against it for anticompetitive behaviour, concluding it had suppressed online-shopping results from rivals in its search results. Other investigations into Google’s behaviour in European countries are ongoing. America has taken a more benign view of its...Continue reading

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Japan is embracing nursing-care robots

Thu, 11/23/2017 - 16:52

AT SHINTOMI nursing home in Tokyo, men and women sit in a circle following exercise instructions before singing along to a famous children’s song, “Yuyake Koyake” (“The Glowing Sunset”). They shout out and clap enthusiastically even though the activities are being led, not by a human fitness guru, but by Pepper, a big-eyed humanoid robot made by SoftBank, a telecoms and internet giant.

Japan leads the world in advanced robotics. Many of its firms see great potential in “carerobos” that look after the elderly. Over a quarter of the population is over 65, the highest proportion of any country in the OECD. Care workers are in desperately short supply, and many Japanese have a cultural affinity with robots.

For now the market is small. Although the government expects it will more than triple between 2015 and 2020, to ¥54.3bn ($480m), that is a long way below the revenues from industrial and service robots. One big reason for that is expense; few individuals can afford their own robots. Private firms partly rely...Continue reading

Categories: FINANCIAL NEWS

Australia is the new frontier for battery minerals

Thu, 11/23/2017 - 16:52

Recession proofer

FORGET the “resource curse”. Australia is blessed with the stuff. For more than a quarter of a century it has not had a recession, thanks largely to Chinese demand for its raw materials. It is only a few years since the end of one such China-led boom, in base metals such as iron ore. A new speculative flurry has started in minerals such as lithium, cobalt and nickel to feed another China-related craze—making batteries for electric vehicles (EVs).

Ken Brinsden, an Australian mining engineer, says he pinches himself over these remarkable turns of fortune. Until 2015 he was a boss at Atlas Iron, which shipped low-grade iron ore to China. In 2011, at the height of the China-led supercycle, it had a valuation of A$3.5bn ($3.8bn). This has now shrunk to A$167m. But he now heads Pilbara Minerals, whose Pilgangoora lithium mine in the outback of Western Australia lies so close to two of Atlas’s former iron-ore mines that he can see them from...Continue reading

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China’s bicycle-sharing giants are still trying to make money

Thu, 11/23/2017 - 16:52

Shades of cycling joy

STEVE JOBS liked to describe computers as “bicycles for the mind”—tools that let humans do things faster and more efficiently than their bodies would allow. The internet-connected bikes flooding the streets of urban China could be called “computers for the road”. Networked, trackable and data-generating, they are ones and zeros in aluminium form.

The cycles belong to Ofo and Mobike, two startups that, taken together, have raised $2.2bn of capital and are valued at more than $4bn. Each has between 7m and 10m bikes in China, averages 30m-35m rides a day and, having entered more than 100 Chinese cities, is expanding abroad. At the start of 2016 neither firm had a single bike on a public road. Ofo’s canary-yellow cycles and Mobike’s silver-and-orange ones can now be found in cities from Adelaide to London and Singapore to Seattle.

Most city bike-sharing systems, such as the Vélib scheme in Paris, depend on fixed...Continue reading

Categories: FINANCIAL NEWS

Italy’s new savings accounts fuel a boom in stockmarket listings

Thu, 11/23/2017 - 16:52

ITALY seems an unlikely place to be enjoying a boom in new listings on the stockmarket. It is full of family-run small and medium-sized enterprises (SMEs) that mostly rely for their finance on banks; and Italy’s banks are notorious for the bad debts still lingering on their balance-sheets. But Borsa Italiana, Milan’s stock exchange, has already seen 33 share issues so far this year, of which 24 have been full-fledged initial public offerings (IPOs). The number of listings so far already equals that seen in previous boom years in 2007 or 2015. With more expected before January, the exchange is likely to achieve the highest number of listings since the height of the dotcom bubble in 2000 (see chart).

A big reason for the surge is the Italian government’s roll-out in February of new individual savings accounts, known as PIRs, which offer favourable tax treatment. These have done better than expected. Asset managers have amassed €7.5bn ($8.3bn) in new PIR funds in the first three quarters of...Continue reading

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The tumultuous career of Patrick Drahi

Thu, 11/23/2017 - 16:52

WHAT does France’s corporate establishment make of the change in fortunes of Patrick Drahi, a telecoms billionaire who achieved brief greatness before crashing to earth? In August he was reported to be planning a $185bn bid for Charter Communications, America’s second-largest cable operator, which is part-owned by John Malone, a famous cable investor. This month the market value of his indebted firm, Altice, collapsed by half, removing much of his personal wealth.

Mr Drahi’s empire is centred on his control, since 2014, of SFR, France’s second-largest telecoms operator and a big cable firm. It was not his only acquisition; in recent years the Franco-Israeli dealmaker went on a shopping spree, buying dozens of firms and building a transatlantic telecom-and-media empire. He typically sacked 30% of the acquired firms’ employees and squeezed salaries and other costs. Customer service often tended to worsen. In doing so Altice amassed a debt burden of over €50bn ($59bn), far bigger than the value of the firm itself. That made it vulnerable: investors dumped its shares after poor third-quarter figures at SFR.

Mr Drahi is not entirely untypical in France, even if the extent of his activity is. Other swashbuckling dealmakers exist: Vincent Bolloré, a media investor with wide interests, for example, or Xavier Niel, owner of Iliad, another mobile-phone...Continue reading

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A purge of Russia’s banks is not finished yet

Thu, 11/23/2017 - 16:52

Elvira’s mad again

WHEN Elvira Nabiullina took over the governorship of the Russian Central Bank (CBR) in 2013, she faced a bloated and leaky finance sector with over 900 banks. Since then, more than 340 have lost their licences. Another 35 have been rescued, including, in recent months, Otkritie, once the country’s biggest private lender by assets, and B&N Bank, its 12th largest. The costs have been steep. According to Fitch, a ratings agency, over 2.7trn roubles ($46bn, some 3.2% of GDP in 2016) have been spent on loans to rescued banks and payments to insured depositors. Fitch reckons another few hundred banks could go before the clean-up concludes. More large private banks are whispered to be among them.

The CBR has rightly been praised for preventing a wider crisis and undertaking a clean-up during a punishing recession. Non-performing loans are at a manageable level, of around 10%. Bringing Otkritie and B&N under CBR stewardship calmed panicked markets. Yet nationalisation also raises...Continue reading

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Sustainable investment joins the mainstream

Thu, 11/23/2017 - 16:52

IN 2008, when she was in her mid-20s and sitting on a $500m inheritance, Liesel Pritzker Simmons asked her bankers about “impact investing”. They fobbed her off. “They didn’t understand what I meant and offered to screen out tobacco,” recalls the Hyatt Hotels descendant, philanthropist and former child film star. So she fired her bankers and advisers and set up her own family office, Blue Haven Initiative. It seeks investments that both offer market-rate returns and have a positive impact on society and the environment. “Financially it’s sensible risk mitigation,” she says. “Our philanthropy becomes far more efficient if we don’t need to undo damage done in our investment management.”

Such ideas are gaining ground, particularly among the young. Fans of “socially responsible investment” (SRI) hope that millennials, the generation born in the 1980s and 1990s, will drag these concepts into the investment mainstream. SRI is a broad-brush term, that can be used to...Continue reading

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The last media mogul stuns his industry with talk of selling

Thu, 11/23/2017 - 16:52

THE only media mogul still bestriding his industry in old-fashioned style is used to being a predator rather than prey, a builder of empires, not a dismantler of them. So Rupert Murdoch’s reported willingness to sell off much of 21st Century Fox, whether to a rival such as Disney or to a distribution firm like Comcast or Verizon, has come as a shock to many. It should not.

If Fox does follow through with selling the assets—its film and TV studio, its stake in Sky, a European satellite broadcaster, and many of its cable networks—it may well be remembered as one of his cleverest moves. Mr Murdoch would have correctly judged a shifting media and regulatory landscape and sold high (perhaps for $50bn or more; see chart). He would retain lucrative assets in news and sports broadcasting, notably Fox News Channel, which could serve as the base for a new fief of a different sort. Mr Murdoch would also retain plenty of political sway through his newspaper businesses, housed at separately...Continue reading

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How tech giants are ruled by control freaks

Thu, 11/23/2017 - 16:52

THIS month Schumpeter visited the Barnes Foundation, a gallery in Philadelphia full of paintings by Picasso, Matisse and Van Gogh. Albert Barnes, born in 1872, is notable for two things. He made a fortune from an antiseptic that cured gonorrhoea. And he stipulated exactly how his art collection should be posthumously displayed. The result is hundreds of paintings jammed together nonsensically, often in poky rooms, and the creepy feeling of a tycoon controlling you from the grave.

Barnes’s string-pulling comes to mind when considering today’s prominent tycoons, who often hail from technology, e-commerce and media. At the moment they seem omnipotent. But many founders are gradually cashing in shares in their companies. The consequences will vary by firm, with some tycoons gradually ceding control, and others clinging on to it.

A flurry of selling activity has been in evidence of late. On September 13th Jack Ma and Joe Tsai, co-founders of Alibaba, a Chinese e-commerce...Continue reading

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Wealth inequality has been widening for millennia

Thu, 11/23/2017 - 16:52

THE one-percenters are now gobbling up more of the pie in America—that much is well known. This trend, though disconcerting, is not unique to the modern era. A new study, by Timothy Kohler of Washington State University and 17 others, finds that inequality may well have been rising for several thousand years, at least in some parts of the world. The scholars examined 63 archaeological sites and estimated the levels of wealth inequality in the societies whose remains were dug up, by studying the distributions of house sizes.

As a measure they used the Gini coefficient (a perfectly equal society would have a Gini coefficient of zero). It rose from about 0.2 around 8000BC in Jerf el-Ahmar, on the Euphrates in modern-day Syria, to 0.5 in around 79AD in Pompeii. Data on burial goods, though sparse, point to similar trends.

The researchers suggest agriculture is to blame. The nomadic lifestyle is not conducive to wealth accumulation. Only when humans switched to farming did people...Continue reading

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Does Hong Kong’s Octopus card have too many tentacles?

Thu, 11/23/2017 - 16:52

Your extensible friend

IN 1997, two months after Hong Kong reverted to Chinese sovereignty, it acquired a cutting-edge payment technology. People could rush through turnstiles with a wave of their colourful Octopus cards—stored-value cards pre-loaded with cash. Its latest advance, however, is risibly low-tech. On October 30th Octopus launched an extensible pole with a plastic hand to help drivers pay at toll booths. Critics of Hong Kong’s cautious approach to fintech snorted in derision. Meanwhile, a government official was quoted as blaming Octopus for stifling the city’s shift to cashlessness. Both criticisms are unfair. Hong Kongers enthusiastically embrace electronic payments and do well from the fierce competition between different platforms.

The Octopus card, designed for journeys on Hong Kong’s trains, buses, trams and ferries, soon stretched its tentacles into shops. In 2016 the company generated revenues of HK$956m ($122m) for its owners (mostly...Continue reading

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America’s culture wars are spreading to hotels

Mon, 11/20/2017 - 19:03

CHOOSING a hotel for a trip is generally seen as an apolitical decision. In contrast, restaurants and cafes have sometimes taken on an ideological tinge, with conservatives mocking liberals for their latte coffees, and liberals ribbing conservatives for their deep-fried everything and well-done steaks. But for most hotel users, location and good wi-fi matter more than the ideology of the owners. In some places that now appears to be changing: a trend turbocharged since the arrival of Donald Trump, an owner of an international hotel brand, in politics.

Suddenly the new Trump International Hotel in Washington, DC—on the same street as the White House and Capitol building—became the most politically-charged building in the city, if not the country. Celebrity chefs scrapped their plans to open restaurants there after Mr Trump made incendiary comments about Mexicans. Meanwhile, organisations such as the Kuwaiti embassy Continue reading

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Timelier provisions may make banks’ profits and lending choppier

Thu, 11/16/2017 - 16:58

IN THE first quarter of 2018 thousands of banks will look a little less profitable. A new international accounting standard, IFRS 9, will oblige lenders in more than 120 countries, including the European Union’s members, to increase provisions for credit losses. In America, which has its own standard-setter, IFRS 9 will not be applied—but by 2019 banks there will also have to follow a slightly different regime.

The new rule has its roots in the financial crisis of 2007-08, in the wake of which the leaders of the G20 countries declared that accounting standards needed an overhaul. Among their other shortcomings, banks had done too little, too late, to recognise losses on wobbly assets. Under existing standards they make provisions only when losses are incurred, even if they see trouble coming. IFRS 9, which comes into force on January 1st, obliges them to provide for expected losses instead.

Under IFRS 9 bank loans are classified in one of three “stages”. When a loan is made—stage one—banks must make a...Continue reading

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ABP, a Dutch pension giant, is more admired abroad than at home

Thu, 11/16/2017 - 16:58

EUROPE’S largest pension fund, a scheme for Dutch public-sector workers called ABP, is much feted abroad for its efforts in “sustainable” investing. At home, however, where it provides pensions to one in six families and manages nearly one-third of pension wealth, it is suffering a crisis of confidence.

By international standards, Dutch pensions are extremely generous overall, offering 96% of career-averagesalaries (adjusted for inflation), compared with an OECD mean of 63%. And they are solid. Thanks to mandatory, tax-deductible saving, the Dutch have stored up a collective pension pot of nearly €1.4trn ($1.6trn), roughly double GDP. Mercer, a consultancy, marks the country as second only to Denmark in a global ranking of schemes.

Yet Dutch people’s faith in their pensions has sunk as low as their trust in banks and insurers. In March a political party for older voters, 50+, won four seats in the Dutch parliament, largely thanks to its promise to “stop the pension raid”. ABP’s own members mark it at just...Continue reading

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What annual reports say, or do not, about competition

Thu, 11/16/2017 - 16:58

What explains the remarkable strength of corporate profits and the sluggish growth of real wages in recent years? One explanation is that industries are getting less competitive. Work by The Economist found that two-thirds of American industries were more concentrated in the hands of a few firms in 2012 than in 1997.

Research by AXA Investment Managers Rosenberg Equities into the language used in American annual reports points in the same direction. Sherlock Holmes famously talked of the significance of the dog that did not bark in the night. It may be similarly important that companies refer to rivals much less than they did; usage of the word “competition” in annual reports has declined by three-quarters since the turn of the century. Business is less cut-throat than it used to be.

Categories: FINANCIAL NEWS

The rules on allocating take-off and landing slots favour incumbents

Thu, 11/16/2017 - 16:58

LAST year nearly 3.7bn passengers took to the sky on commercial jets. Few would have given much thought to exactly why their flight was scheduled at the time it was. Even fewer know about the tussles between regulators and airlines over how landing and take-off slots are allocated.

For the past 70 years the business of thrashing out timetables at international airports has been the job of the Slot Conference, a semi-annual meeting of airlines and airport co-ordinators run by the International Air Transport Association (IATA), an airline trade group. The 141st meeting, held last week in Madrid to set next summer’s schedule, attracted over 1,300 representatives from 250 airlines and nearly 300 airports around the world. Sitting around tables (with one for each country’s airports) in a massive hall, airlines negotiate and reschedule their slots to maximise their network’s efficiency. It is like “speed dating for airlines”, says Lara Maughan, the conference...Continue reading

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The rich get richer, and millennials miss out

Thu, 11/16/2017 - 16:58

Early contender for the 2047 list

BUOYANT financial markets meant that global wealth rose by 6.4% in the 12 months to June, the fastest pace since 2012. And the ranks of the rich expanded again, with 2.3m new millionaires added to the total, according to the Credit Suisse Research Institute’s global wealth report.

The report underlines the sharp divide between the wealthy and the rest. If the world’s wealth were divided equally, each household would have $56,540. Instead, the top 1% own more than half of all global wealth. The median wealth per household is just $3,582; if you own more than that, you are in the richest 50% of the world’s population.

America continues to dominate the ranks of millionaires with 43% of the global total. Both Japan and Britain had fewer dollar millionaires than they did in June 2016, thanks to declines in the yen and sterling. Emerging economies have been catching up in the millionaire stakes; they now have 8.4%...Continue reading

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Internship

Thu, 11/16/2017 - 16:58

Applications are invited for a Marjorie Deane internship in our New York bureau. The award is designed to provide work experience for a promising journalist or would-be journalist, who will spend three to six months at The Economist writing about economics, business and finance. Applicants are asked to write a covering letter and an article of no more than 500 words, suitable for publication in The Economist. Applications should be sent by December 14th to deaneinternny@economist.com.

Categories: FINANCIAL NEWS

Fuelled by Middle East tension, the oil market has got ahead of itself

Thu, 11/16/2017 - 16:58

ONLY one thing spooks the oil market as much as hot-headed despots in the Middle East, and that is hot-headed hedge-fund managers. For the second time this year, record speculative bets on rising oil prices in American and European futures have made the market vulnerable to a sell-off. “You don’t want to be the last man standing,” says Ole Hansen of Saxo Bank.

On November 15th, the widely traded Brent crude futures benchmark, which had hit a two-year high of $64 a barrel on November 7th, fell below $62. America’s West Texas Intermediate also fell. The declines coincided with a sharp drop across global metals markets, owing to concern about slowing demand in China, which has clobbered prices of nickel and other metals that had hit multi-year highs. (In a sign of investor nervousness after a sharp rally this year in global stock and bond markets, high-yield corporate bonds also weakened significantly this week.)

The reversal in the oil markets put a swift end to talk of crude shooting above $70 a barrel, which had gained strength after the detention in Saudi Arabia of dozens of princes and other members of the elite, and increasing tension between the Gulf states and Iran over Yemen and Lebanon. The International Energy Agency (IEA), which forecasts supply and demand, said on November 14th that it doubted $60 a barrel had become a new floor for oil....Continue reading

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A new class of startup is upending America’s consumer-goods industry

Thu, 11/16/2017 - 16:58

Tommy John’s got the consumer covered

IN MANY ways, Tommy John, a startup based in Manhattan, resembles a tech company straight out of Silicon Valley. On its website the venture-backed firm touts its innovative materials and patented designs. When recruiting talent, it describes itself as “disruptive” and “revolutionary”. But Tommy John does not deal in computer hardware, software or any other kind of technology. It makes men’s underwear.

Following the example of successful e-commerce brands such as Warby Parker, a glasses firm, and Casper, a mattress-maker, a growing number of startups are reimagining everyday household items—from pants and socks to toothbrushes and cookware. These “direct-to-consumer” (DTC) companies bypass conventional retailers and bring their products straight to customers via their online stores. They began several years ago to catch the attention of venture-capital (VC) firms, which have poured in more than $3bn since...Continue reading

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Who needs America?

Thu, 11/16/2017 - 16:58

REVIVING the original Trans-Pacific Partnership (TPP), a trade deal between 12 countries around the Pacific Rim, is technically impossible. To go into force, members making up at least 85% of their combined GDP had to ratify it. Three days into his presidency, Donald Trump announced that America was out. With 60% of members’ GDP gone, that deal was doomed.

But on November 11th, another began to rise in its place, crowned with a tongue-twisting new name: the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Ministers from its 11 members issued a joint statement saying that they had agreed on its core elements, and that it demonstrated their “firm commitment to open markets”. The political symbolism was powerful. As America retreats, others will lead instead.

The CPTPP is still far from finished, however. This inconvenient truth is unsurprising. Resuscitating the deal without its biggest member was always going to be hard. Without America, uncomfortable concessions made in the old TPP...Continue reading

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What is the purpose of tax reform?

Thu, 11/16/2017 - 16:58

IF MAKING America great again is the aim, you could do worse than bring back the economic growth rates of the late 1990s. President Donald Trump’s team reckons that the Republican tax plan making its way through Congress will do just that. “We are creating a model that creates economic growth in this country,” says Gary Cohn, the director of Mr Trump’s National Economic Council. Kevin Hassett, who runs the Council of Economic Advisers, reckons the bill should push growth above 4% per year.

Such heights are not beyond the realm of possibility, but if America reaches them tax reform will have little to do with it. That is not because of the specifics of the plan. Rather, it reflects an underappreciated reality: tax reform can accomplish many things, but raising long-run growth is not generally among them.

Most assessments of the Republican tax proposals, like most analyses of most tax plans, conclude their effects on growth will be small. The Penn Wharton Budget Model, a non-partisan public-policy initiative, projects that GDP in 2027 will be between 0.4% and 0.9% higher as a result of the bill.

Nonsense, say the adherents of the supply-side school of thinking. Economic growth can be broken down into changes in the supply of labour and in labour productivity. Supply-siders reckon that lower tax rates on labour income should raise its supply;...Continue reading

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Toutiao, a Chinese news app that’s making headlines

Thu, 11/16/2017 - 16:58

WHEN rumours swirled in August that Baidu, a Chinese online-search giant, was buying Toutiao, the scrappy news-aggregation platform reportedly quipped in response that reports had mistaken the buyer for the seller. The firm is proud with good reason. Toutiao’s growth since its launch in 2012 has been stellar: it says it has already drawn 700m users to the personalised newsfeeds on its smartphone app. Its valuation has shot up, to $22bn in its latest funding round (see chart).

Toutiao’s parent company, Bytedance, is definitely a buyer now. This month it snapped up Musical.ly, a lip-syncing video platform that has captivated American teens, for a reported $1bn. It looks like a good match. Musical.ly, based in Shanghai, is the first Chinese firm to build an app that has been so admired in the West; Bytedance, which has developed sophisticated artificial-intelligence (AI) technology to customise Toutiao’s newsfeeds, can provide it with winning algorithms.

Those algorithms are...Continue reading

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Indian firms make the best of coerced do-goodery

Thu, 11/16/2017 - 16:58

CHARITY begins at home—or, if you are an Indian boss, in the boardroom. Since 2014 firms there by law must spend 2% of profits on corporate social responsibility (CSR), loosely defined as doing good in the community. After some griping, businesses are trying to make the best of their obligation, while keeping politicians happy by funding their pet projects.

The idea of compulsory charity had a mixed reception. Ratan Tata, who heads the charitable trusts that own much of Tata Group, India’s biggest conglomerate, was among those likening it to another tax on business. In fact, the law is more a nudge than an edict. Only large companies—those with domestic profits consistently over 50m rupees (about $780,000), or 5bn rupees in net assets, or turnover over 10bn rupees—are affected, and they can opt to give nothing, as long as they explain why.

In practice, most comply, at least in part. A study of listed firms by CRISIL, a credit-rating agency, found that over 1,100 firms...Continue reading

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Flannery unveils his strategy to revive GE

Thu, 11/16/2017 - 16:58

“NUMBER one, cash is king…number two, communicate…number three, buy or bury the competition.” These rules were laid out by Jack Welch, a brash but brilliant former boss of General Electric (GE). The American industrial conglomerate, founded by Thomas Edison, has operations ranging from health care and aviation to lighting and energy. During Mr Welch’s tenure, from 1981 to 2001, his company’s market value rose from about $15bn to over $400bn. Today, it barely tops $150bn. Having fallen by more than two-fifths this year, GE is the worst-performing stock in the Dow Jones Industrial Average, a composite index that has risen by nearly a fifth since January 1st.

Jeffrey Immelt, Mr Welch’s amiable successor, violated all three rules. To be fair, he did steer GE through a sharp downturn in aviation following the September 11th 2001 terrorist attacks and unwound its risky financial arm after the global financial crisis. But on his watch GE’s core power business deteriorated to the...Continue reading

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What five years of Abenomics has and has not achieved

Thu, 11/16/2017 - 16:58

IN TOKYO’S Iidabashi district, north of the Imperial Palace, young salarymen and women gather after work to enjoy grilled chicken and a drink at Torikizoku, a chain of budget restaurants. They tap out their orders on touch-screen terminals, which the company has installed on many tables in an effort to economise on waiters, whose wages are hard to contain. Last month the company was forced to raise its price by over 6%, to ¥298 (about $2.60) plus tax, for two skewers of locally reared chicken yakitori. It was the firm’s first price increase in 28 years.

Chicken skewers are not commonly seen as a macroeconomic indicator. But Torikizoku’s decision exemplifies the underlying logic of “Abenomics”, a campaign to revive Japan’s economy, named after Shinzo Abe, its prime minister. His economic strategy aimed to stimulate spending and investment through vigorous monetary easing. That would create jobs, driving up wages. Higher wages, in turn, would push up prices. Success would be measured by the defeat of deflation, which had...Continue reading

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Allergan’s unusual legal tactic attracts political scrutiny

Thu, 11/16/2017 - 16:58

“BRAZEN” and “absurd”: Allergan certainly drew a reaction from American lawmakers when it transferred its patents for Restasis, a dry-eye drug, to the Saint Regis Mohawk Tribe in September. Last week a congressional committee held a hearing on the deal, which, if recognised as valid, risks undermining the American patent-review system.

As entities granted sovereign status, Native American tribes enjoy legal immunity and so, Allergan hopes, can ward off challenges to the patents by rival drugmakers. The tribe, which is based in New York state, wants to reduce its reliance on revenues from its local casino. It received $14m when it acquired the patents, and will relicense them to Allergan for a yearly fee of $15m.

Tribes are targeting other industries, too. The Mohawk tribe holds patents for SRC Labs, a tech firm, and says it expects to earn a “significant amount of money” by suing other firms for infringement. It has already sued Amazon and Microsoft. Another patent-holding company, owned by three Native...Continue reading

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Britain's 1970s retread

Wed, 11/15/2017 - 16:49

THE strange 1970s revival in Britain has another twist. The main focus has been on the Labour party which, under Jeremy Corbyn, wants to return to the era marked by nationalisation and higher taxes. But in a sense the Brexiteers want to take Britain back to the 1970s too; to the "golden era" before 1973 when the country was outside the EU. 

In fact, the early 1970s were marked by strikes, power cuts and rapid inflation. They were presided over by Edward Heath (pictured left), the prime minister whose main achievement was to take Britain into what was then the European Economic Community. And it is striking how many similarities he had with the current prime minister, Theresa May (pictured right).

Both PMs were/are (Heath died in 2005) loners with few friends in the party and rather "buttoned-up" personalities. Both were uncomfortable on the campaign trail, finding it hard to connect with voters. Both talked of relaunching their party's political philosophies but struggled to turn their principles into practical...Continue reading

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Hotels are finding out what amenities guests really want

Wed, 11/15/2017 - 09:34

IT HAS been more than once that Gulliver has found himself putting the incorrect electrical plug into the wrong socket or dock at a hotel—whether it be for a smartphone, laptop or shaver. Since such gadgets have proliferated, the hotel industry too has been confused about what facilities they should offer to service weary travellers. But after much trial and error, hotels finally seem to be figuring out which amenities guests truly value—and which ones are little more than gimmicks.

The latest survey of American hotels from the American Hotel and Lodging Association, an industry group, reveals a plethora of shifts in the hospitality industry, including the rapid disappearance of smoking rooms. But when it comes to gadgets, the trends are particularly interesting, since they are not always in the direction of more technology.

Continue reading

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Criticism of index-tracking funds is ill-directed

Tue, 11/14/2017 - 18:47

INDEX funds were devised in the 1970s as a way of giving investors cheap, diversified portfolios. But they have only become very popular in the past decade. Last year more money flowed into “passive” funds (those tracking a benchmark like the S&P 500) than into “active” funds that try to pick the best stocks.

In any other industry, this would be universally welcomed as a sign that innovation was delivering cheaper products to the benefit of ordinary citizens. But the rise of index funds has provoked some fierce criticism.

Two stand out. One argues that passive investing is, in the phrase of analysts at Sanford C. Bernstein, “worse than Marxism”. A key role of the financial markets is to allocate capital to the most efficient companies. But index funds do not do this: they simply buy all the stocks that qualify for inclusion in a benchmark. Nor can index funds sell their stocks if they dislike the actions of the management. The long-term result will be bad for capitalism, opponents argue.

A second...Continue reading

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Proposed changes to frequent-flyer programmes may be bad news for budget travellers

Sun, 11/12/2017 - 12:50

ALONGSIDE Eurocrats, straight bananas and anyone who opposes Brexit, Britain's tabloid press has found something new to hate this year: British Airways (BA). Britain’s flag carrier has been criticised for cutting legroom in economy, axeing free food and drink on short-haul flights and—horror of horror—the amuse bouche that used to be served before dinner in first class. To save face, this week BA's chief executive, Alex Cruz, who has come under sustained criticism for the cuts to service quality, announced that the carrier would be tarting up its offer. This would include more free meals, better wi-fi and 72 new planes. "We're bringing back the glory days", Mr Cruz proudly crowed. But not all of the improvements may be as good for frequent flyers as he advertised.

Among the changes planned for 2018, BA is moving to so-called "dynamic award pricing" in Executive Club, its loyalty programme. This means that tickets paid for with points from the programme will be no longer calculated in distance, but the cost BA is...Continue reading

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Japan’s top two lavatory-makers are at last making inroads overseas

Thu, 11/09/2017 - 16:48

WHEN staff at the Louvre in Paris head to the bathroom, the toilet lid opens as they approach, a warm seat heats their derrières, and, once done, their nether regions are washed and dried precisely. Selling the equipment is a coup for Toto, Japan’s biggest producer of “shower toilets”.

Toto and its rival Lixil carve up the Japanese market for fancy, multi-function loos between them. At home they have market shares of 60% and 30% respectively, according to Nomura Securities, a brokerage. Yet they have struggled to win foreign bottoms over to luxuries enjoyed in Japan for many decades.

Today 26% of Toto’s and 30% of Lixil’s revenues come from abroad (much of it from products other than shower toilets). The Japanese market is profitable, but their loos are already ubiquitous there (including in public facilities, from Tokyo’s metro system to remote hiking trails); the majority of domestic sales come from the renovation of private homes and hotels. And whereas Japan’s population is...Continue reading

Categories: FINANCIAL NEWS

Trouble for the AT&T-Time Warner deal

Thu, 11/09/2017 - 16:48

In the eye of a storm

THE titans of media in America have decided this is an opportune moment to join together in mega-mergers, the better to take on the giants of Silicon Valley. The problem for them is that the Department of Justice (DoJ), and President Donald Trump himself, are less keen.

On November 8th reports surfaced that the DoJ is preparing to block a proposed $109bn acquisition by AT&T of Time Warner, owner of CNN, HBO and the Warner Brothers film studio—a deal that was announced a year ago and which had been expected to win approval by the end of 2017. The DoJ have reportedly told AT&T executives that to get the merger through they would have to sell off assets: either Time Warner’s Turner Broadcasting division, including CNN, which Mr Trump has repeatedly attacked as “fake news”, or DirecTV, the wireless giant’s satellite-TV business. Randall Stephenson, AT&T’s chief executive, said on November 8th he would not sell CNN to...Continue reading

Categories: FINANCIAL NEWS

A German hardware giant tries to become an ultra-secure tech platform

Thu, 11/09/2017 - 16:48

Bosch mobilises

BOSCH is everywhere. It has 440 subsidiaries and employs 400,000 people in 60 countries. Its technology opens London’s Tower Bridge and closes packets of crisps and biscuits in factories from India to Mexico. Analysts call it a car-parts maker: it is the world’s largest, making everything from fuel-injection pumps to windscreen wipers. Consumers know it for white goods and power tools synonymous with “Made in Germany” solidity.

The company itself prefers to be called a “supplier of technology and services”, or “the IoT [internet-of-things] company”. On a hill overlooking Stuttgart, robotic lawnmowers whizz around its headquarters and a window displays dishwashers and blenders. Inside are signs of a company in transition: posters call on staff to rip off ties, celebrate “error-culture” and “just do it” opposite a quote from Robert Bosch, the founder: “Whatever is made in my name must be both first-class and faultless.”

The 130-year-old giant’s...Continue reading

Categories: FINANCIAL NEWS

Publishers are wary of Facebook and Google but must work with them

Thu, 11/09/2017 - 16:48

IN RECENT months Google and Facebook have made changes that may escape the notice of most of their billions of users, but not of news organisations. Facebook began displaying the logos of publishers in some of its posts, so readers can identify the news source. And Google for the first time gave publishers the ability to control how many times the search engine’s users can visit news sites free of charge. Both will directly help papers to sell subscriptions.

To critics of the social-media giants, that might look like wolves offering to help the sheep while still feasting on the herd. The business of both Facebook and Alphabet, parent of Google and YouTube, is to occupy people’s time and attention with their free services and content, and to sell ads against those eyeballs. For them, quality journalism is just another hook.

Facebook calls its “News Feed” offering its most important product, but in recent years it has tweaked the feed in ways that de-emphasise actual...Continue reading

Categories: FINANCIAL NEWS

Regulators begin to tackle the craze for initial coin offerings

Thu, 11/09/2017 - 16:48

“I’M GONNA make a $hit t$n of money on August 2nd on the Stox.com ICO.” Written in July on Instagram, these words made Floyd Mayweather, a boxer, the first big celebrity to endorse an “initial coin offering”, a form of crowdfunding that issues cryptographic coins, or “tokens”. Stox, an online prediction market, went on to raise more than $30m, some of which seems to have gone directly into Mr Mayweather’s pocket. Other VIPs, including Paris Hilton, a socialite, followed suit and endorsed ICOs. But this source of easy cash may now be drying up: on November 1st America’s Securities and Exchange Commission (SEC) warned that such promotions may be unlawful, if celebrities fail to disclose what they receive in return.

The endorsements and the SEC’s attempt to rein them in are the latest episodes of token mania. Virtually unknown a year ago, ICOs are now more celebrated than initial public offerings (IPOs), the conventional way of floating a firm. Over the past 12 months...Continue reading

Categories: FINANCIAL NEWS

3G Capital, magicians of the consumer industry, need to learn a new act

Thu, 11/09/2017 - 16:48

OCCASIONALLY a business idea emerges that is so simple you cannot believe it works. Consider the five founders of 3G Capital, an investment firm. Warren Buffett co-invests with them and calls them “among the best businessmen in the world”. They use debt to buy consumer-product firms, then they revamp their brands and slash costs. In total, since 1997, they have launched $470bn of deals, through 3G Capital or earlier entities (for simplicity this article lumps these all together and calls them “3G”). That makes 3G the second most acquisitive organisation in modern history. It sells every Budweiser slurped, Whopper burger munched and bottle of Heinz ketchup squirted on the planet.

Yet despite its superb long-term record, 3G is losing steam. In the past two years its total portfolio has lagged slightly behind the S&P 500 index, Schumpeter estimates. Its two biggest firms, AB InBev, a beer giant, and Kraft Heinz, a food company, have returned 6% and 16% respectively, well behind...Continue reading

Categories: FINANCIAL NEWS

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