THE ECONOMIST

The Paradise Papers shed new light on offshore finance

Thu, 11/09/2017 - 16:48

THIS week was uncomfortable for a host of well-heeled figures. In the frame were U2’s Bono, America’s commerce secretary, Wilbur Ross, and Britain’s Queen Elizabeth, as well as some of the world’s most valuable companies, including Apple and Nike. All these, and many more, feature in the “Paradise Papers”, a trove of more than 13m documents, many of them stolen from Appleby, a leading offshore law firm. The International Consortium of Investigative Journalists (ICIJ) and its 95 press partners, including the BBC and the New York Times, began publishing stories based on the papers on November 5th. Dozens appeared this week, with more to follow after The Economist went to press.

The ICIJ’s last big splash, the Panama Papers in April 2016, shed light on some of the darkest corners of offshore finance. In contrast, many of the activities highlighted by this leak are legal. But they would be widely seen as flouting the spirit of national tax laws by exploiting the gaps that open...Continue reading

Categories: FINANCIAL NEWS

America’s Republicans take aim at mortgage subsidies

Thu, 11/09/2017 - 16:48

IN THE 1980s Margaret Thatcher and Ronald Reagan were both proud of their efforts to expand home ownership. In Britain, Thatcher presided over a fire sale of state-owned homes to tenants. In America, Reagan deregulated financial markets and expanded mortgage lending. At the time both countries provided generous mortgage-related tax breaks, making it easier to flog homes to the masses.

Britain’s 1980s housing boom turned to bust; the mortgage subsidies that helped to fuel it were abolished. America still subsidises mortgages to the tune of $64bn a year, by allowing homeowners to deduct interest costs from their tax liabilities. But a tax plan unveiled by Republicans on November 2nd proposes to limit the subsidy.

Twelve European Union countries also include some form of mortgage-interest deduction (MID) in their tax code. The average European subsidy, however, is around a tenth of America’s—about 0.05% of GDP. The Netherlands is much the most generous, at 2% of...Continue reading

Categories: FINANCIAL NEWS

ING, a Dutch bank, finds a winning digital strategy

Thu, 11/09/2017 - 16:48

GERMANY’S third-biggest retail bank has no branches. It is also Dutch. And it is highly profitable. ING-DiBa, an online bank owned by ING, the Netherlands’ biggest lender, looks after €133bn ($154bn) of deposits for over 8m customers. In a fragmented market—most Germans entrust their savings to small, local banks—that means a share of around 6%. ING-DiBa’s lack of branches keeps costs down, allowing it to resist charging for current accounts and offer savers a tad more than rivals, despite a recent cut; and it has won a name for good service in a country not renowned for it. While other banks struggle after years of ultra-low interest rates, ING-DiBa thrives. Its return on equity exceeds 20%.

ING as a whole is in fair shape, too. On November 2nd it reported net third-quarter earnings of €1.4bn, slightly more than a year earlier. The group’s return on equity was a healthy 11%, nearly two percentage points up. Since 2014 the number of “primary” customers (with an active current account and another product) has...Continue reading

Categories: FINANCIAL NEWS

Activist shareholders take on the London Stock Exchange

Thu, 11/09/2017 - 16:48

Rolet: who knows?

ACTIVIST hedge funds like Elliott Management, Cevian Capital or The Children’s Investment Fund (TCI) are famed for pushing for change at the companies they buy into. A favoured tactic is to install a new chief executive at a floundering firm. So it is odd to find a fund lobbying for an existing boss to stay on, as TCI has done in a spat with the London Stock Exchange (LSE).

In over eight years at the LSE, Xavier Rolet has transformed it from a share-trading venue to a clearing and data-services powerhouse, through acquisitions such as Russell, an index-maker, and a majority stake in LCH, a clearing-house. His hope of merging with the LSE’s big German rival, Deutsche Börse, fell through, largely because of Britain’s vote to leave the EU. But Mr Rolet remains widely respected. So eyebrows were raised when the LSE’s announcement on October 19th that Mr Rolet would leave in 2018 gave no reason.

In a fiery letter penned on...Continue reading

Categories: FINANCIAL NEWS

Venezuela seeks the restructuring of its massive foreign debts

Thu, 11/09/2017 - 16:48

Maduro has a cunning plan. Maybe

INVESTORS have long seen a default on Venezuelan sovereign debt as a question of when, not if. Its bonds have been priced at levels implying imminent bankruptcy, but somehow the cash-strapped oil exporter has stayed afloat. Until now. On November 2nd Nicolás Maduro, the country’s authoritarian president, announced that he would order a “refinancing and restructuring” of foreign debt worth about $105bn. The prices of government bonds fell by up to half. Markets braced themselves for one of history’s most complex sovereign-debt renegotiations.

Mr Maduro’s brief statement was cryptic as to the concrete steps he will take. He invited “everyone involved in foreign debt” to talks in Caracas, the capital, on November 13th. Many creditors want a neutral venue. Moreover, Mr Maduro appears to have pre-emptively dashed any hope of a voluntary agreement by naming his vice-president, Tareck El Aissami, as head of his debt-restructuring committee. America’s Treasury...Continue reading

Categories: FINANCIAL NEWS

Equity valuations are high. But other options look even worse

Thu, 11/09/2017 - 16:48

EVERY investor would like to find the perfect measurement tool to tell them when to get into, and out of, the stockmarket. The cyclically adjusted price-earnings ratio (CAPE), as calculated by Robert Shiller of Yale University, averages profits over ten years and is used by many as an important valuation indicator. Currently it shows that American shares have hitherto been more highly valued only in 1929 and the late 1990s, periods that were followed by big crashes.

That seems ominous. But as a paper by Dylan Grice and Gregor Obrecht of Calibrium, a Zurich-based private-investment office, makes clear, it is far from conclusive. The CAPE is not much use as a short-term indicator; it has been well above its long-term average for several years now, as it was in the late 1990s.

The main argument for the CAPE is a long-term one. If you divide all past CAPE values into quintiles, the annual returns earned over the subsequent decade by investing in equities when the CAPE was in its...Continue reading

Categories: FINANCIAL NEWS

The New York Fed’s president announces his retirement

Wed, 11/08/2017 - 18:33

APPLICATIONS sought for leading Wall Street post. Perks: lovely office in Italianate palace; large staff. Duties: important role in setting interest rates (some vaguely defined other responsibilities). Requirements: eligibility for highest-level security clearance; tacit support in Washington, DC. Desirable but optional: broad knowledge of banking.

This week the New York Federal Reserve Bank announced that its president, Bill Dudley, will retire next year. He will leave a mixed legacy. He is thought to have given important help to Janet Yellen, the outgoing chair of the Federal Reserve. But he also presided over a steep decline in his institution’s influence over the banks that used to revere and fear it.

Located in America’s financial centre, the New York Fed has powers not vested in the country’s 11 other reserve banks. Its president has a permanent seat on the Fed committee that sets interest rates. Its trading desk puts board policies into effect. And it is the regulator responsible for many of the world’s largest...Continue reading

Categories: FINANCIAL NEWS

Why Qatar Airways has bought 9.6% of Cathay Pacific

Mon, 11/06/2017 - 19:19

THIS morning’s news that Qatar Airways, a national carrier with global ambitions, has bought nearly 10% of Cathay Pacific, Hong Kong’s flag-carrier, came as a shock for financial markets. Shares in Cathay Pacific dropped in value by around 5% in the minutes after trading resumed first thing today. But the idea that Qatar Airways was the market for another acquisition came as no surprise for analysts in the aviation industry. Since 2015 Qatar has acquired 20% of IAG, a European group of airlines that flies 100m passengers a year, 10% of LATAM, Latin America’s biggest carrier, and 49% of Meridiana, an Italian carrier. It has even been invited by the Indian government to start up a new airline there with 100 jets. So why has Akbar al-Baker, Qatar Airways’ outspoken chief executive, gone on a shopping spree worth billions of dollars? 

On the face...Continue reading

Categories: FINANCIAL NEWS

A massive trove of data on offshore transactions is leaked

Mon, 11/06/2017 - 18:38

IN APRIL 2016, the International Consortium of Investigative Journalists (ICIJ) dropped a bombshell. Its articles about the “Panama Papers”, a leaked trove of documents which had been stolen from Mossack Fonseca, a Panama-based law firm, sent shock waves round the world—felling the leaders of Pakistan and Iceland, leading to multiple arrests and pushing several countries to tighten laws related to offshore financial dealings. The revelations also caused a further hardening in public attitudes towards offshore finance, which had been souring since the global financial crisis.

Now the ICIJ and its 95 media partners around the world—including the BBC and the New York Times—are back with another cache of pilfered files, this time dubbed the “Paradise Papers”. This latest batch of revelations, the organisation’s sixth substantial leak investigation, began on November 6th and will be rolled out over a week. It shines light on offshore transactions linked to hundreds of wealthy clients of Appleby, a Bermuda-based law...Continue reading

Categories: FINANCIAL NEWS

Where economic power goes, political power will follow

Mon, 11/06/2017 - 16:23

BACK in 1992, in his book "The End Of History and the Last Man", Francis Fukuyama argued that liberal democracy had triumphed. The return of authoritarianism in Russia, and the growing power of absolutist China, has undermined the argument at the geopolitical level. And events in recent years have caused questions on the ability of liberal democracy to flourish in some countries where it seemed established. The new nationalists that have emerged in Turkey, Poland and Hungary tend to regard disagreement with their policies as unpatriotic and are quick to brand opponents as being in the pay of foreign powers. 

What used to be called "the Whig theory of history" saw civilisation steadily moving in a more open, liberal direction. In the late 19th century and early 20th centuries, countries became more democratic, first allowing most men and then women to vote. There were setbacks in the 1920s...Continue reading

Categories: FINANCIAL NEWS

Southwest Airlines tries to bring music concerts to the skies

Fri, 11/03/2017 - 19:10

LAST week brought some good news for those who are fans of both flying and country music. Warner Music Nashville, a record label, and Southwest Airlines announced that they will be bringing concerts to the skies. The scheme is an expansion of the airline’s existing “Live at 35” series, in which bands surprise passengers by playing a few songs in the plane’s cabin. Devin Dawson (pictured), an artist on the label, marked the occasion with a performance on a flight from Nashville to Philadelphia. He told Billboard, a music publication, that:

Some people don’t really enjoy flying; some people get very nervous and don’t like it. I hope that something like this [performance] is just a cool surprise for some [passengers] that helps them forget about their everyday woes, and I’ll just play a couple of songs to make them smile.

However, Mr Dawson’s enthusiasm was not...Continue reading

Categories: FINANCIAL NEWS

Smoking rooms are disappearing from hotels

Thu, 11/02/2017 - 17:52

TO THE list of endangered travel facilities—which includes pay phones, communal aeroplane screens and concierges—there is one more to add: smoking rooms. Even a few years ago, guests were routinely asked whether they would prefer a smoking room or not. But today fewer hotels are offering smoking rooms and those that do have a vanishingly small supply.

According to the latest report from the American Hotel and Lodging Association, a trade group, the share of hotel rooms that are non-smoking has steadily risen from 74% to 97% over the last decade. And the proportion of hotels that only offer non-smoking rooms has jumped from 38% in 2008 to 85% last year.

For a business traveller with a tobacco habit, then, there are few options. Those seeking a dash of glamour will struggle, as 97% of luxury hotels do not have smoking rooms. Only among budget-hotel category—the lowest price segment of five listed in the survey—do the majority of...Continue reading

Categories: FINANCIAL NEWS

As the global economy picks up, inflation is oddly quiescent

Thu, 11/02/2017 - 16:51

A FEW years ago, the news about the euro-zone economy was uniformly bad to the point of tedium. These days, it is the humdrum diet of benign data that prompts a yawn. Figures this week show that GDP rose by 0.6% in the three months to the end of September (an annualised rate of 2.4%). The European Commission’s economic-sentiment index rose to its highest level in almost 17 years. Yet when the European Central Bank’s governing council gathered on October 26th, it decided to keep interest rates unchanged, at close to zero, and to extend its bond-buying programme (known as quantitative easing, or QE) for a further nine months.

The central bank said it would slow down the pace of bond purchases each month, to €30bn ($35bn) from January. But Mario Draghi, the bank’s boss, declined to set an end-date for QE. A hefty dose of easy money will be necessary, he argued, until inflation durably converges on the ECB’s target of just below 2%. It shows few signs of doing so, despite the...Continue reading

Categories: FINANCIAL NEWS

Investors call the end of the government-bond bull market (again)

Thu, 11/02/2017 - 16:51

FOR the umpteenth time in the past decade, a great turning-point has been declared in the government-bond market. Bond yields have risen across the world, including in China, where the yield on the ten-year bond has come close to 4% for the first time since 2014. The ten-year Treasury-bond yield, the most important benchmark, has risen from 2.05% in early September to 2.37%, though that is still below its level of early March (see chart).

Investors have been expecting bond yields to rise for a while. A survey by JPMorgan Chase found that a record 70% of its clients with speculative accounts had “short” positions in Treasury bonds—ie, betting that prices would fall and that yields would rise. Meanwhile a poll of global fund managers by Bank of America Merrill Lynch (BAML) in October found that a net 85% thought bonds overvalued. In addition, 82% of the managers expected short-term interest rates to rise over the next 12 months—something that tends to push bond yields...Continue reading

Categories: FINANCIAL NEWS

Catalonia and the perils of fiscal redistribution

Thu, 11/02/2017 - 16:51

POPULISM is the weapon not just of the downtrodden. As the crisis in Catalonia demonstrates, the rich have economic anxieties of their own. Catalonia has an identity distinct, in important ways, from that of the rest of Spain. But the recent drive for independence has been energised by anger over the flow of fiscal redistribution from rich Catalans to their countrymen: people seen, in parts of the restless north-east, as thankless and lazy as well as alien. Paradoxically, globalisation has inflamed separatism around the world by raising the question Catalans now confront: to whom, exactly, do we owe a sense of social responsibility?

Every country or restive region has its own idiosyncratic history. Yet over the long run national borders are surprisingly malleable. Some circumstances offer better prospects for the small and newly independent than others. The smaller the country, the more easily its government can satisfy its people’s political preferences. A broadly satisfying compromise...Continue reading

Categories: FINANCIAL NEWS

Asian households binge on debt

Thu, 11/02/2017 - 16:51

ONE of the more persistent beliefs about the global economy is that Asians are more frugal than others. Explanations have drawn on culture (the self-discipline of Confucianism), history (memories of privation) and public policy (flimsy social safety-nets forcing people to save). For Lee Kuan Yew, the founding father of Singapore, and other theorists of “Asian values”, thrift was one of them. Whatever the true reason, data long supported the basic claim that Asian households were indeed careful with their cash. But over the past few years consumers across the region have done their best to prove that prudence was perhaps just a passing phase.

Household debt in advanced economies has generally declined as a percentage of GDP since the 2008 global financial crisis, according to the Bank for International Settlements. In a number of Asian countries, however, it has been going in the opposite direction (see chart). The biggest increase has been in China, where households have borrowed about $4.5trn over the past decade. But Chinese...Continue reading

Categories: FINANCIAL NEWS

October 30th marked the 70th birthday of the WTO’s precursor

Thu, 11/02/2017 - 16:51

Britain signs up

SUPERLATIVES surrounded the General Agreement on Tariffs and Trade (GATT) when it was signed on October 30th 1947. A press release heralded it as “the most far-reaching negotiation[s] ever undertaken in the history of world trade.” The Economist grumbled it was “one of the longest and most complicated public documents ever issued—and one of the hardest to comprehend.” The Daily Express, a British newspaper, growled: “The big bad bargain is sealed.”

The agreement’s complexity matched the tangle of global trade affairs. In the preceding decades a thicket of protectionism had strangled commerce and slowed recovery from the Depression of the 1930s. The GATT’s length matched its scope. It included both tariff cuts and promises to forswear new duties. Covering 23 countries responsible for 70% of world trade, it came to embody the rules-based multilateral system.

After 48...Continue reading

Categories: FINANCIAL NEWS

Increasingly, hunting money-launderers is automated

Thu, 11/02/2017 - 16:51

KEEN, no doubt, to stay alive, drug traffickers tend to be prompter payers than most. For software firms, this is just one of many clues that may hint at the laundering of ill-gotten money. Anti-money-laundering (AML) software, as it is called, monitors financial transactions and produces lists of the people most likely to be transferring the proceeds of crime.

Spending on this software is soaring. Celent, a research company, estimates that financial firms have spent roughly $825m on it so far this year, up from $675m last year. Technavio, another research firm, reckons the market is even bigger and will grow at more than 11% annually in coming years. This is partly because authorities are increasingly quick to punish institutions that let down their guard. Deutsche Bank, for example, has been hit with fines worth at least $827m this year alone. Governments, eager to appear tough on crime, are urging prosecutors to go after not just institutions, but also their employees.

The...Continue reading

Categories: FINANCIAL NEWS

Jerome Powell is poised to be named chairman of the Fed

Thu, 11/02/2017 - 16:51

Heir to the chair?

YOU could forgive Janet Yellen, the chair of the Federal Reserve, for feeling peeved. With unemployment at just 4.2%, and inflation at 1.6%, she is close to achieving the Fed’s two goals of curbing joblessness and pinning price rises at 2%. Ms Yellen is a Democrat appointed by Barack Obama in 2014. The tenures of past three Fed chairs were all extended by presidents from the other party. Yet as we went to press, President Donald Trump was expected to nominate Jerome Powell, a Republican on the Fed’s board, to replace Ms Yellen.

If picked, Mr Powell—also an Obama appointee—would stand out from recent incumbents. He would be the first Fed chairman since William Miller, who left office in 1979, with no formal economics training; and, according to the Washington Post, the richest since the 1940s.

Mr Powell, who is 64, is a lawyer-turned-banker. His first role in Washington was at the Treasury during the...Continue reading

Categories: FINANCIAL NEWS

In Japan, the move from cash to plastic goes slowly

Thu, 11/02/2017 - 16:51

BIC CAMERA, a Japanese electronics retailer, accepts payments in so many ways that the list nearly obscures the till: credit, debit and pre-paid cards; mobile wallets; ApplePay and Alipay; and, in some stores since April, bitcoin too.

Efforts are under way to wean Japan off genkin, or cash. Handling notes and coins is expensive for businesses; many operate on tight margins because a persistent lack of inflation has inhibited price rises. The government reckons more cashless payments could help the economy, too, encouraging people, including a growing number of tourists, to spend more. (And help it collect more tax.) Entrepreneurs think the data that come with cashless methods could promote new business.

Yet cash still dominates. Thank a preponderance of ATMs in ubiquitous konbini (convenience stores), safe cities where people are happy to carry wads of cash, and wariness about handing over personal data. Last year cash accounted for 62% of consumer transactions by value,...Continue reading

Categories: FINANCIAL NEWS

Japan Inc gingerly embraces more foreigners

Thu, 11/02/2017 - 16:51

MICHAEL WOODFORD, the first non-Japanese president of Olympus, likened the camera-maker’s board members who sacked him in 2011 to “children in a classroom”. Mr Woodford had confronted Tsuyoshi Kikukawa, the company’s imperious chairman, over a $1.7bn hole in its finances. Mr Kikukawa responded by orchestrating a show of hands in a boardroom coup that sent the Englishman packing. It all fitted a cliché of Japan’s boardrooms as an all-Japanese, all-male club where wizened bosses ruthlessly enforce wa, or harmony.

Gradually, the serenity is being disrupted. Nearly 15% of companies in the Nikkei 225 stock index now have at least one non-Japanese on their boards. That is still less than half the share in Britain’s FTSE 100, but it is up from 12% in 2013 and the trajectory seems set. Japan’s biggest bank, Mitsubishi UFJ, and Takeda, its largest pharmaceuticals company (which in 2015 appointed its first foreign chief executive, a Frenchman) announced the appointment of foreign directors this year. Of...Continue reading

Categories: FINANCIAL NEWS

IKEA undertakes some home improvements

Thu, 11/02/2017 - 16:51

You snooze, you lose

ON A Sunday afternoon, just beyond London’s M25 ring road, shoppers participate in the ritual that is a trip to IKEA. Fuelled by a lunch of Swedish meatballs, they negotiate their way around the 400,000-square-foot maze of a store, past children playing hide and seek and couples arguing over the merits of a PAX over a HEMNES wardrobe. Hours later, they emerge, wearily pushing trolleys loaded with flat-pack furniture and far more tea lights than they had intended to buy. The joy of assembly still awaits them.

This experience has changed remarkably little since the late 1950s, when IKEA, which is still privately owned, set up its first store in southern Sweden and found that people would travel long distances for low-cost, self-assembled goods. IKEA has become the world’s largest seller of furniture, with over 400 shops around the world and €38bn ($42bn) of revenue.

But now it is acknowledging that customers might want to...Continue reading

Categories: FINANCIAL NEWS

Many Japanese-made cars enjoy an afterlife in Myanmar, but not for much longer

Thu, 11/02/2017 - 16:51

Gridlock in Yangon

THE Japanese make cars that last but replace them relatively quickly. The average car in Japan is three years younger than in America. This combination of durable manufacturing and dutiful consumption of a prized national product works out well for the rest of the world; many countries import older Japanese cars in bulk. Secondhand vehicles fill vast parking lots in Japan’s port cities, awaiting shipment to New Zealand, the United Arab Emirates and elsewhere.

The third-most-popular destination is Myanmar, which imported over 80,000 used Japanese vehicles in the first nine months of this year, according to Japan’s International Auto Trade Association. Drivers believe that Toyotas, Hondas and Nissans can stand up to the country’s pockmarked roads, a faith not yet shown in South Korean and Chinese cars.

There is only one problem, which is that Japan drives on the left, Myanmar on the right. As a consequence, most of Myanmar’s...Continue reading

Categories: FINANCIAL NEWS

A merger between CVS Health and Aetna could be what the doctor ordered

Thu, 11/02/2017 - 16:51

STANLEY and Sidney Goldstein would scarcely recognise their creation. In 1963 the brothers opened a humble storefront in Lowell, Massachusetts, selling health and beauty products. Determined to put customers first, they named their enterprise Consumer Value Stores. Today the Goldsteins’ startup, soon afterwards sold to a bigger firm, is nothing short of a health-care Goliath.

Revenues at CVS Health reached $177bn last year, riches which come from 9,700 retail pharmacies and from its operations in mail-order drugs and sales of more expensive speciality medicines. The firm commands nearly a quarter of the American market for prescription drug sales (see chart). It is also the biggest pharmacy-benefit manager (PBM) in America, a type of middleman that negotiates bulk discounts on drugs with large pharmaceutical firms on behalf of employers and insurers.

Continue reading

Categories: FINANCIAL NEWS

The airline industry’s most outspoken boss goes global

Thu, 11/02/2017 - 16:51

AIRLINE bosses are often household names due to their attention-seeking behaviour—from the foul-mouthed rants of Michael O’Leary, chief executive of Ryanair, to the model-flanked antics of Richard Branson of Virgin Atlantic. But even in an industry filled with characters, Akbar al-Baker, Qatar Airways’ chief executive, stands out. He is known in the industry for behaving unpredictably at press conferences and for his colourful attacks on rival airlines. The word “crap” often comes up, as a description for new jets from Airbus and Boeing, and also (in a quote from July): “there is no need to travel on these crap American carriers” on which “you will be served by grandmothers”.

Mr Baker could do with some allies just now. Since June, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt have imposed a blockade on Qatar, banning its flag carrier’s jets from their skies. That has resulted in the cancellation of over 50 daily flights to these countries,...Continue reading

Categories: FINANCIAL NEWS

The bitcoin bubble

Wed, 11/01/2017 - 15:31

PUT the word Bitcoin into Google and you get (in Britain, at least) four adverts at the top of the list: "Trade Bitcoin with no fees", "Fastest Way to Buy Bitcoin", "Where to Buy Bitcoins" and "Looking to Invest in Bitcoins.". Travelling to work on the tube this week, your blogger saw an ad offering readers the chance to "Trade Cryptos with Confidence". A lunchtime BBC news report visited a conference where the excitement about Bitcoins (and blockchain) was palpable).

All this indicates that Bitcoin has reached a new phase. The stockmarket has been trading at high valuations, based on the long-term average of profits, for some time. But there is nothing like the same excitement about shares as the was in the dotcom bubble of 1999-2000. That excitement has shifted to the world of cryptocurrencies like Bitcoin and Ethereum. A recent column focused on the rise of initial coin offerings, a way for...Continue reading

Categories: FINANCIAL NEWS

Dark tourism spooks its way into the mainstream

Tue, 10/31/2017 - 23:46

ONE recent morning in Salem in the state of Massachusetts, a witch ran out of wands. Teri Kalgren, the owner of Artemisia Botanicals, an apothecary and magic shop, attributed the shortage to a witch-inspired boom. People have long flocked to Salem to learn about the infamous witch trials of 1692, in which Puritan hysteria led to the executions of 20 people (and two dogs). But since 1982 when the city introduced Haunted Happenings, a daylong Halloween festival for local families, the event has expanded to a commercial celebration lasting a month that attracts 500,000 tourists.

Last year tourism pumped $104m into Salem and funded some 800 jobs. The revenues have been increasing by 5-6% every year, says Kate Fox of Destination Salem, the city’s marketing arm. Tourists can buy a spell kit, visit a witch museum, take a walking tour (ghostly, feminist or literary-themed) and have their fortune told. On the opposite coast, Scott Michaels has watched his...Continue reading

Categories: FINANCIAL NEWS

A black-rights group warns would-be passengers about American Airlines

Mon, 10/30/2017 - 17:11

TRAVEL advisory notices, which alert passengers to the risks of going to certain places, are standard business for frequent flyers. But last week brought an unusual one. The National Association for the Advancement of Coloured People (NAACP), America’s oldest civil-rights organisation, warned black flyers about the dangers of travelling with American Airlines.

The NAACP says that  “a pattern of disturbing incidents” has been reported by black passengers specifically about American Airlines. Such incidents “suggest a corporate culture of racial insensitivity and possible racial bias”. Of the four incidents that the NAACP cite, two involved prominent black activists, PR Lockhart notes at Vox, a news site. Although the NAACP does not mention them by name, one is thought to be Rev William Barber, a former NAACP leader in North Carolina. He was removed from a flight from Washington, DC, after he responded to rude comments...Continue reading

Categories: FINANCIAL NEWS

Military and civil-aviation bosses are stepping up their efforts to recruit new pilots

Fri, 10/27/2017 - 12:34

FOR MANY people, the Hollywood blockbuster “Top Gun” captures the allure of becoming a pilot. In it, fighter-pilot trainees don aviator sunglasses and flight suits, and zipp about the skies to a soaring 1980s soundtrack. But despite such pop-culture appeal, America’s Air Force is struggling to capture the imagination of would-be recruits. This year it will be short of around 900 new airmen.

To counter this, the Air Force is stepping up its efforts to recruit new cadets. This month they introduced a $35,000 signing-on bonus for newly hired military airmen, the first new incentive of its kinds since 1999. Commercial carriers, too, are trying to entice more newcomers with better financial rewards. The average pay for new pilots in that sector has nearly tripled from $20,000 to $59,000 in the past three years.

One of the main barriers for would-be pilots is training. To become a pilot requires an investment of $200,000, often more than student loans will cover. In addition trainees are required by law to fly 1,500 hours...Continue reading

Categories: FINANCIAL NEWS

Millennials are doing better than the baby-boomers did at their age

Thu, 10/26/2017 - 16:47

ALL men are created equal, but they do not stay that way for long. That is one message of a report this month by the OECD, a club of 35 mostly rich democracies. Many studies show how income gaps have evolved over time or between countries. The OECD’s report looks instead at how inequality evolves with age.

As people build their careers, or don’t, their incomes tend to diverge. This inequality peaks when a generation reaches its late 50s. But it tends to fall thereafter, as people draw redistributive public pensions and quit the rat race, a contest that tends to give more unto every one that hath. Old age, the OECD notes, is a “leveller”.

Will it remain so? Retirement, after all, flattens incomes not by redistributing from rich seniors to poor, but by transferring money to old people from younger, working taxpayers. There will be fewer of them around in the future for every retired person, reducing the role of redistributive public pensions.

One logical response to the diminishing number of workers per pensioner is to raise the retirement age. But that will exacerbate old-age inequality, if mildly. Longer careers will give richer workers more time to compound their advantages. And when retirement eventually arrives, the poor, who die earlier, will have less time to enjoy their pensions.

Today’s youngsters may resent having to provide...Continue reading

Categories: FINANCIAL NEWS

Will corporate tax cuts boost workers’ wages?

Thu, 10/26/2017 - 16:47

THE president’s tax promise has always been clear: he will reduce the amount middle-earners, but not rich Americans, must pay. Yet every time Donald Trump releases a plan, analysts say it does almost the opposite. The Tax Policy Centre, a think-tank, recently filled in the blanks in the latest Republican tax proposals and concluded that more than half of its giveaways would go to the top 1% of earners. Their incomes would rise by an average of $130,000; middle-earners would get just $660. The White House maintains that tax reform will deliver a much heftier boost to workers’ pay packets. Who is right?

The disagreement boils down to who benefits when taxes on corporations fall. The Tax Policy Centre says it is mainly rich investors. But in a report released on October 16th, Mr Trump’s Council of Economic Advisers (CEA) claimed that cutting the corporate-tax rate from 35% to 20%, as Republicans propose, would eventually boost annual wages by a staggering $4,000-9,000 for the average household.

The claim has sparked a debate among economists that is as ill-tempered as it is geeky. Left-leaning economists are incredulous. Writing in the Wall Street Journal, Jason Furman, who led the CEA under Barack Obama, pointed out that if the report is right, wage increases would total about three to six times the cost of the tax cut. Larry...Continue reading

Categories: FINANCIAL NEWS

Silicon speculators

Thu, 10/26/2017 - 16:47

Nail-biting decisions

EXCHANGE-TRADED funds (ETFs) were supposed to make investing easy. Instead of spending hours researching individual stocks and bonds or paying an expert fund manager, investors could simply buy a few ETFs. But now there are too many to choose from. BlackRock offers 346 in America alone. Some investors need help allocating their money between different funds. Many companies now offer “automated wealth managers” (AWMs) that perform this service.

AWMs have been around for less than ten years, but they have proliferated, offering different services in different countries. Often, they are called “robo-advisers”, but this term can be misleading. Some offer clients detailed advice about how to save. For example, Wealthfront, an American AWM, predicts the cost of sending a student to a given college, taking into account increases in tuition fees and likely financial aid. It then suggests how parents can save in a tax-efficient way. Other...Continue reading

Categories: FINANCIAL NEWS

How leading American newspapers got people to pay for news

Thu, 10/26/2017 - 16:47

Past ...

SOMETIMES it feels like the 1970s in the New York Times and Washington Post newsrooms: reporters battling each other to break news about scandals that threaten to envelop the White House and the presidency of Donald Trump. Only now their scoops come not in the morning edition but in a tweet or iPhone alert near the end of the day.

It is like old times in another way: both newspapers are getting readers to pay, offsetting advertising revenue relinquished to the internet. After years of giving away scoops for nothing online, and cutting staff, the Times and Post are focusing on subscriptions—mostly digital ones—which now rake in more money than ads do.

Their experiences offer lessons for the industry in America, although only a handful of newspapers have a chance at matching their success. A subscription-first approach relies on tapping a...Continue reading

Categories: FINANCIAL NEWS

Reports of the MBA’s demise are exaggerated

Thu, 10/26/2017 - 16:47

THE MBA is both revered and reviled. To boosters it has advanced the science of management and helped firms, and countries, to grow. Detractors say it offers little of practical value and instils in students a sense of infallibility that can sink companies, and knock economies sideways. The critics are currently the louder of the two, claiming that particularly the full-time, campus-based MBAs have reached saturation point, with too many mediocre courses chasing too few candidates. The Financial Times recently likened them to “the Grand Tour of business education in an age of Airbnb”.

There is a widespread feeling that full-time MBAs are on their last legs, concedes Sangeet Chowfla, the president of the Graduate Management Admission Council (GMAC), a business-school association. Decline is allegedly hastened by competing qualifications, such as the Masters in Management. MiMs have much the same syllabus as MBAs, but unlike them, take students...Continue reading

Categories: FINANCIAL NEWS

India recapitalises its state-owned banks

Thu, 10/26/2017 - 16:47

Pillars to be reinforced

ONE of the perks of owning a bank is the ability to tap it when you need money. The Indian government, which has majority stakes in 21 lenders, is no exception. As it happens, it needs to finance a bail-out of the banks it owns, most of which are in trouble. So under a cunning plan unveiled on October 24th, the ailing banks will lend the government 1.35trn rupees ($21bn), about a third of their combined market value. The government will reinvest this money in bank shares, thus ensuring they no longer need a bail-out.

Steadying a tottering financial system is never a graceful exercise, as American and European authorities discovered after the financial crisis. India’s lenders withstood the meltdown of 2007-08 well, but then embarked on an ill-advised lending spree, backing lots of infrastructure projects that got snarled in bureaucracy. Bad loans piled up. State-owned lenders, which account for around two-thirds of the sector, now have...Continue reading

Categories: FINANCIAL NEWS

Italy’s fourth-biggest bank returns to the stockmarket

Thu, 10/26/2017 - 16:47

A TELEVISION advertisement for Monte dei Paschi di Siena begins with a toddler tumbling and a gymnast stumbling. “Falling is the first thing we learn,” declares the voice-over. “The second is getting up again.” Italy’s fourth-biggest bank and the world’s oldest, which was bailed out by the Italian government in July, has had several bruising falls over the years. On October 25th it returned to the stockmarket after a ten-month hiatus—the latest stage of its plan to get back on its feet. The shares closed higher on the day, at €4.55 ($5.37), but still far below the €6.49 the government paid.

Trading was suspended last December, after a failed private-sector attempt to save the bank through a share issue. The government said it would get involved. In July the European Commission approved a €8.1bn “precautionary recapitalisation”. European rules say banks receiving such aid must be solvent, the capital injection must not distort competition and the capital...Continue reading

Categories: FINANCIAL NEWS

Firms should make more information about salaries public

Thu, 10/26/2017 - 16:47

SWEDES discuss their incomes with a frankness that would horrify Britons or Americans. They have little reason to be coy; in Sweden you can learn a stranger’s salary simply by ringing the tax authorities and asking. Pay transparency can be a potent weapon against persistent inequities. When hackers published e-mails from executives at Sony Pictures, a film studio, the world learned that some of Hollywood’s most bankable female stars earned less than their male co-stars. The revelation has since helped women in the industry drive harder bargains. Yet outside Nordic countries transparency faces fierce resistance. Donald Trump recently cancelled a rule set by Barack Obama requiring large firms to provide more pay data to anti-discrimination regulators. Even those less temperamentally averse to sunlight than Mr Trump balk at what can seem an intrusion into a private matter. That is a shame. Despite the discomfort that transparency can cause, it would be better to publish more...Continue reading

Categories: FINANCIAL NEWS

Sauce for a Brussels goose

Thu, 10/26/2017 - 16:47

DIVORCES are rarely easy. In the 16 months since Britain voted to leave the EU in a referendum, the negotiations have made little progress. One of the trickiest aspects is the amount that Britain should pay to meet its existing spending commitments for EU programmes.

This is not analogous to dividing up the bill in a restaurant, and deciding who had the lobster and who stuck to the mixed green salad. Take the cost of EU officials’ pensions. The tricky bit in calculating it is that pensions are long-term commitments; a bureaucrat who starts work in Brussels today might still be collecting a pension 70 years from now. Working out the cost is fiendishly complicated, requiring estimates of how much wages will rise (if the pension is linked to salary) and how long employees will live. Then the sum of future benefits has to be discounted at some rate to work out the current cost; the higher the discount rate, the lower the presumed expense.

The EU doesn’t pre-fund pensions for...Continue reading

Categories: FINANCIAL NEWS

For American Express, competition will only intensify

Thu, 10/26/2017 - 16:47

HE IS leaving with the share price rising and the announcement, on October 18th, of earnings that were largely well received. Better still, Kenneth Chenault, American Express’s chief executive for 16 years, accomplished a feat rare in the upper reaches of American finance: to stand down without an obvious helping shove. No grandstanding senators hounded him out (see Wells Fargo). No boardroom coup hastened the end (Citigroup). The financial crisis left him untouched (take your pick). His successor, Stephen Squeri, promoted from within and apparently groomed for the job, takes over in February.

For all that, Mr Chenault’s long tenure has not been an unequivocal triumph. Though generating strong returns on assets and equity, American Express has continued its slide within the fast-changing and competitive payments industry. According to Nilson, an industry bible, in 1974 the amount of money for purchases channelled through American Express was equivalent to 50% of what went through...Continue reading

Categories: FINANCIAL NEWS

Aldi and Lidl grow despite ignoring the internet

Thu, 10/26/2017 - 16:47

THE aisles are wide, the lights bright and shelves low. Most obviously, however, the apples shine and the broccoli beckons. For those used to the cramped, dimly lit Aldi stores of yore, all expense spared, the new supermarket in Herten, Germany, is almost shocking.

Opened in April this is the prototype for a vast new renovation and expansion programme across Europe, Britain and America. It is the discount giant’s big bet on the future of shopping, all the more daring as the money is going almost entirely on bricks and mortar. Defying the conventional wisdom that customers want both in-store and online shopping (“omnichannel” in the jargon) Aldi wants to conquer the retail world by ignoring the internet. As too, to a lesser extent, does its great German rival Lidl. Plenty of other grocers reckon this may be the miscalculation that eventually brings them down.

Founded in 1945 and 1973 respectively, Aldi (split into two legally separate companies, Aldi Nord and Aldi Süd)...Continue reading

Categories: FINANCIAL NEWS

American business schools dominate our MBA ranking

Thu, 10/26/2017 - 16:47

American business schools dominate The Economist’s 2017 Which MBA? ranking, taking 16 of the top 20 places. Northwestern University’s Kellogg School of Management returns to the top spot for the first time since 2004. Kellogg students praise its facilities and collaborative culture. Their career opportunities are among the best, thanks in part to one of the largest alumni networks in the world; 97% of students find a job within three months of graduation, pocketing a 72% pay bump. All of the top ten slots in the ranking are now occupied by large, prestigious American schools, for which students are happy to pay extra. Their average tuition fee is $134,600, and has risen quickly in recent years. Employers, too, are willing to shell out for the best students. Their average basic salary was $127,300, a 70% increase on their pre-MBA pay cheques. But life, like rankings, isn’t just about money. So we weight data according to what students tell us is important. The four categories covered are: opening new career...Continue reading

Categories: FINANCIAL NEWS

Apple should shrink its finance arm before it goes bananas

Thu, 10/26/2017 - 16:47

IT IS fashionable to say that tech firms will conquer the financial services industry. Yet in the case of Apple, it seems that the opposite is happening and finance is taking over tech by stealth. Since the death of Steve Jobs, its co-founder, in 2011, the world’s biggest firm by market value has sold hundreds of millions of phones with bionic chips and know-it-all digital assistants. But it has also grown a financial operation that is already, on some measures, roughly half the size of Goldman Sachs.

Apple does not organise its financial activities into one subsidiary, but Schumpeter has lumped them together. The result—call it “Apple Capital”—has $262bn of assets, $108bn of debt, and has traded $1.6trn of securities since 2011. It appears to be run fairly cautiously and is part of a thriving firm, but it still deserves scrutiny. Companies have a history of being hurt by their financial arms; think General Electric (GE) or General Motors (GM).

Apple Capital has lots...Continue reading

Categories: FINANCIAL NEWS

India’s new aviation policies are breathing life into a once-ailing sector

Thu, 10/26/2017 - 14:39

WHY would one of the world’s fastest-growing airlines buy a ten-seat propeller plane, when most of its customers fly on 200-seat jets? Switching to smaller, less efficient aircraft defies commercial logic. But it is an appealing thought for those living in isolated communities far from big airports. That is what India’s new regional connectivity scheme, Ude Desh Ka Aam Nagrik (UDAN) or “let the common man fly”, promises to offer. It uses subsidies to improve the commercial viability of seldom-used routes. It also caps half of the fares on such routes at 2,500 rupees ($38) per hour of travel. If properly implemented and funded, the scheme could become a powerful tool for spreading India’s economic wealth more evenly.

When Gulliver last reported on the aviation policies of Narendra Modi, India’s prime minister, there was little cause for optimism. At the time, Mr Modi was stonewalling a new policy aimed at resuscitating the ailing sector. Airlines...Continue reading

Categories: FINANCIAL NEWS

Fears that Xi Jinping is bad for private enterprise are overblown

Wed, 10/25/2017 - 17:32

FOR a moment it seemed China was reverting to Maoist economic management. On the sidelines of the Communist Party congress this month, an official told Xi Jinping that her village distillery sells baijiu, a potent spirit, for 99 yuan ($15) a bottle. Mr Xi, China’s most powerful leader since Mao, remarked that this seemed a bit dear. The chastened official thanked him and pledged to follow his guidance. But Mr Xi gestured her to stop. “This is a market decision,” he chuckled. “Don’t cut the price to 30 yuan just because I said so.” The audience, perhaps relieved that Mr Xi had no intention of dictating the price of booze, broke into laughter.

This rare spot of levity at the dreary five-yearly congress was telling. The occasion cemented Mr Xi’s unrivalled position at China’s apex. For companies, the question is what he will do with it. His vision can seem ominous. “North, south, east and west—the party is leader of all,” he intoned in a speech laying out his...Continue reading

Categories: FINANCIAL NEWS

The financial markets are not the whole economy

Wed, 10/25/2017 - 16:44

DONALD TRUMP is fond of pointing out that the stockmarket has reached many record highs under his Presidency. It is a capricious measure to boast about, and one that may not fully reflect the concerns of those who voted for him and probably care more about real wage growth. And a look at the ratio of stockmarket capitalisation relative to GDP shows that this measure is close to a record high. And that led me to reflect on a sentence I wrote a few years ago: we are better at creating new claims on wealth than at creating wealth itself.

That sentence was written in the context of the huge rise in debt in the 40 years leading up to the 2008 crisis, and on the multiplication of obscure financial instruments that preceded it. It reflected the huge rise in the economic role of  the finance sector, and the wages of those who work within it. But it also relates to the way that the...Continue reading

Categories: FINANCIAL NEWS

Public-relations woes may be catching up with Uber

Tue, 10/24/2017 - 09:08

UBER has had a tough year. It has fired staff on the back of sexual-harassment allegations and faced reports of a hostile workplace culture. It has been sued for allegedly stealing self-driving-car technology.  It lost customers when it flouted a New York taxi boycott in protest of President Donald Trump’s travel ban. And, amid all the turmoil, its boss resigned. But despite all this, the company continued to win more and more customers, including business travellers.

Now, however, there are signs that the tide may be turning. Certify, an expense-management software company, has released its latest quarterly report on business-travel spending in America. And for the first time since it started collecting data in 2013, Uber has seen a decline in use among business travellers.

Uber and other ride-hailing apps still dominate the business-travel market for ground transport, accounting for around two-thirds of it. And they are growing at the expense of traditional services. The market share of taxis and rental cars...Continue reading

Categories: FINANCIAL NEWS

Hotels are employing fewer concierges

Fri, 10/20/2017 - 17:41

IF BUSINESS travellers need to reserve a table at a restaurant, they may use OpenTable, a website. If they wish to find a nearby museum, a Google search will probably be their first port of call. And if they want transport into town, they can easily hail an Uber. Given that so many services are just one swipe away, is there a need for a hotel concierge anymore?

Increasingly hoteliers think that there is not. The share of American hotels with concierges has fallen from 27% in 2010 to 20% last year, according to a report by the American Hotel and Lodging Association, a trade group. Since 2014 the number of luxury hotels that employ a concierge has declined by 20%.

Though concierges are not extinct quite yet, those that remain tend to work in upmarket establishments. In America 82% of luxury hotels employ concierges, as do 76% of “upper upscale” hotels, the second most glamourous category. After that concierges are a much rarer sight. Just 16% of “upscale” hotels have them. For...Continue reading

Categories: FINANCIAL NEWS

A geopolitical row with China damages South Korean business further

Thu, 10/19/2017 - 16:57

Closing time came suddenly

IN A cosmetics emporium in central Seoul, rows of snail-slime face-masks sit untouched. Not long ago, visiting Chinese tourists would snap these up as avidly as a designer handbag in New York or anything from London featuring the Queen. Yet now their rejuvenating properties are failing to lure the country’s shoppers. Seo Sung-hae, a salesman, says business has slowed to a snail’s pace, because of a drop in the number of Chinese visitors. “We used to have 100 customers a day, but after THAAD, there are almost none,” he says.  

THAAD, or Terminal High Altitude Area Defence, is an American missile-defence system designed to guard against North Korea that was installed in South Korea starting in March. Chinese authorities protest that its radar could be used to spy on its territory. Chinese newspapers have encouraged consumers to boycott South Korean goods. The plan was to “bully” Korea into ditching...Continue reading

Categories: FINANCIAL NEWS

A property billionaire rescues Harvey Weinstein’s studio

Thu, 10/19/2017 - 16:57

AS DISTRESSED assets go, the Weinstein Company (TWC) is uniquely distressing. Much of its value was bound up in the brands of its eponymous founding brothers, one of whom, Harvey Weinstein, has been accused of sexual harassment and of assault by dozens of women in the film industry in America and elsewhere. Amazon Studios, Apple and some television networks have hastened to cut ties with the studio, unwind production deals and remove Mr Weinstein’s name from credits. Mr Weinstein’s accusers may well sue the company. It was already heavily indebted after a recent string of box-office flops.

Who would see an opportunity? Aside from TWC’s particular troubles, independent films are a tough business, and the studio has had to haggle with creditors. But for a vulture investor some of the studio’s assets hold value. On October 16th Thomas Barrack (pictured above), chairman of Colony Capital, a private-equity firm, said he would immediately put an undisclosed sum of cash into TWC and look...Continue reading

Categories: FINANCIAL NEWS

Saudi Aramco’s IPO is a mess

Thu, 10/19/2017 - 16:57

THE proposal to sell shares in Saudi Aramco, the world’s biggest oil company, stunned the financial markets last year. Muhammad bin Salman, now Saudi Arabia’s crown prince, promised that it would be the biggest initial public offering (IPO) of all time, valuing Aramco at $2trn. It was to be the centrepiece of his plan to transform the Saudi economy, reducing its dependence on oil. It was meant to foster financial transparency and accountability in one of the world’s most hermetic kingdoms. Above all, it would cement the young prince’s image as a bold moderniser soon to inherit the throne.

Alas, youthful impatience appears to have got the better of him. His tendency to micromanage the IPO and vacillate over where Aramco should be listed has caused delay and confusion. Matters came to a head this week when advisers, speaking anonymously, and company executives doing the same, gave conflicting reports, suggesting a mutinous atmosphere.

The kingdom’s advisers say...Continue reading

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Why Airbus’s tie-up with Bombardier is so damaging for Boeing

Thu, 10/19/2017 - 16:57

Alabama bound

LIKE an airliner in service, Bombardier’s C-Series programme has had multiple highs and lows. In 2008 the Canadian firm began its attempt to break Airbus and Boeing’s duopoly on smaller jets, spooking the pair into upgrading their own models. Costs and delays pushed it near bankruptcy in 2015, followed by a bail-out from the Quebec government worth C$2.8bn ($2.2bn). The next year an order for 75 C-Series jets from Delta, the world’s third-biggest carrier, kept the programme aloft. But decisions in September and October by America’s Commerce Department to agree to demands by Boeing, an aerospace giant, to impose a total tariff of 300% on importing those planes into America risked the C-Series project crashing once and for all.

On October 16th came a surprise surge. Bombardier said it would hand over half the project to Airbus, a European aerospace firm, free of charge. Bombardier and Investissement Québec, the province’s...Continue reading

Categories: FINANCIAL NEWS

An Indian aviation visionary runs into bureaucratic turbulence

Thu, 10/19/2017 - 16:57

But India’s not rolling out the red carpet

ALL great aviation ventures start with mavericks willing to defy both the laws of physics and the scepticism of their peers. William Boeing, Oleg Antonov and Howard Hughes are some of the best-known examples. Next, perhaps, is Amol Yadav, who for much of the past decade has been building aeroplanes on the roof of the Mumbai flat he shares with 18 family members, and battling the Indian authorities to let him fly them.

Admittedly, only experts would be able to distinguish the six-seater propeller plane (pictured) Mr Yadav has designed from scratch from a run-of-the-mill Cessna. But his plane is the only one in decades with wholly Indian credentials, he says. Much larger outfits have tried but struggled to get an indigenous craft certified for production, including National Aerospace Laboratories, one of several state-owned aviation mastodons.

Self-identified visionaries are commonplace in...Continue reading

Categories: FINANCIAL NEWS

How should recessions be fought when interest rates are low?

Thu, 10/19/2017 - 16:57

ONE day, perhaps quite soon, it will happen. Some gale of bad news will blow in: an oil-price spike, a market panic or a generalised formless dread. Governments will spot the danger too late. A new recession will begin. Once, the response would have been clear: central banks should swing into action, cutting interest rates to boost borrowing and investment. But during the financial crisis, and after four decades of falling interest rates and inflation, the inevitable occurred (see chart). The rates so deftly wielded by central banks hit zero, leaving policymakers grasping at untested alternatives. Ten years on, despite exhaustive debate, economists cannot agree on how to handle such a world.

During the next recession, the “zero lower bound” (ZLB) on interest rates will almost certainly bite again. When it does, central banks will reach for crisis-tested tools, such as quantitative easing (creating money to buy bonds) and promises to keep rates low for a long time. Such...Continue reading

Categories: FINANCIAL NEWS

IBM lags in cloud computing and AI. Can tech’s great survivor recover?

Thu, 10/19/2017 - 16:57

TECHNOLOGY giants are a bit like dinosaurs. Most do not adapt successfully to a new age—a “platform shift” in the lingo. A few make it through two and even three. But only a single company spans them all: IBM, which is more than a century old, having started as a maker of tabulating machines that were fed with punch cards.

Yet after 21 quarters with falling year-on-year revenues (see chart), doubts had been growing about whether IBM would manage the latest big shifts: the move into the cloud, meaning computing delivered as an online service; and the rise of artificial intelligence (AI), which is a label for...Continue reading

Categories: FINANCIAL NEWS

Multilateral lenders vow openness about their carbon footprints

Thu, 10/19/2017 - 16:57

THE World Bank gets a lot of flak. Developing countries clamour for a bigger role in its management. President Donald Trump’s administration lambasts it for lending too much to China. Employees are in open rebellion against their boss, Jim Yong Kim. Now the embattled institution faces criticism from a traditionally friendlier quarter: environmentalists. They accuse it and other multilateral development banks (MDBs) of not being upfront about their true carbon footprint.

That must hurt. After all, MDBs pioneered climate-friendly finance. Ten years ago the European Investment Bank issued the world’s first green bond to bolster renewables and energy-efficiency schemes. The World Bank has not backed a coal-fired plant since 2010. In 2011-16 it and the five big regional lenders in the Americas, Asia, Africa and Europe offered developing countries a total of $158bn to help combat climate change and adapt to its effects. They disclose the amount of carbon dioxide emitted by their day-to-day...Continue reading

Categories: FINANCIAL NEWS

A Lloyd’s report urges insurers to ask “what if?”

Thu, 10/19/2017 - 16:57

ON JULY 7th disaster was narrowly averted when an Air Canada passenger plane, trying to land on a full taxiway at San Francisco airport, pulled up just in time. Five seconds longer, and it might have crashed into fully loaded planes and killed over 500 people, in potentially the deadliest aviation disaster ever. Instead, the incident became a non-event—not just in collective memory but also in insurance. With no losses, there was nothing to log. Yet ignoring such near-misses, argues a report published this week by Lloyd’s of London, an insurance market, and RMS, a risk-modeller, is a missed opportunity.

Counterfactual “what if” thinking may be an enjoyable pastime for historians—“What if Hitler had been assassinated?” being one favourite—but is not common among underwriters. They prefer to base estimates of future risk—and hence premiums—on hard data of what happened in the past, eg, the number of aeroplanes that crashed and the total losses incurred. Since actual...Continue reading

Categories: FINANCIAL NEWS

A rash of bankruptcies hits Chinese lenders backed by state firms

Thu, 10/19/2017 - 16:57

THE Communist Party dominates China’s economy and uses state-run companies, which it controls with an iron fist, to enforce its diktats. Or so the theory goes. Reality is messier: the party often struggles to monitor state-owned enterprises (SOEs), let alone to get them to toe its line. As it convenes its five-yearly congress, one of the financial system’s dodgiest corners has served up a reminder of the limits to its power.

In the past two months at least seven online lenders backed by SOEs have collapsed. It was a business none should have been in, far removed from the industries they were supposed to focus on. The money potentially lost is trivial—roughly 1bn yuan ($150m), compared with government assets worth more than 100trn yuan. Still, these cases highlight how hard it is for the party to stamp its authority on the vast state sector.

The troubled SOEs include distant subsidiaries of the national nuclear company, an aviation company and a big energy company in...Continue reading

Categories: FINANCIAL NEWS

Workers are not switching jobs more often

Thu, 10/19/2017 - 16:57

EVERYBODY knows—or at least thinks he knows—that a millennial with one job must be after a new one. Today’s youngsters are thought to have little loyalty towards their employers and to be prone to “job-hop”. Millennials (ie, those born after about 1982) are indeed more likely to switch jobs than their older colleagues. But that is more a result of how old they are than of the era they were born in. In America at least, average job tenures have barely changed in recent decades.

Data from America’s Bureau of Labour Statistics show workers aged 25 and over now spend a median of 5.1 years with their employers, slightly more than in 1983 (see chart). Job tenure has declined for the lower end of that age group, but only slightly. Men between the ages of 25 and 34 now spend a median of 2.9 years with each employer, down from 3.2 years in 1983.

It is middle-aged men whose relationship with their employers has changed most dramatically. Partly because of a collapse in the...Continue reading

Categories: FINANCIAL NEWS

Private jets are getting cheaper

Thu, 10/19/2017 - 13:15

ONE of the first corporate jets was owned by Harry Ogg, the president of a washing-machine company. Bought in 1929, the four-passenger plane was named “Smilin’ Thru” and was decked out with a desk, a typewriter and space for washing machines. On sales trips Ogg told the pilot to fly low over a town, with the plane’s siren wailing. The commotion drew residents to the airport, where Ogg demonstrated the benefits of his white goods in a slick sales pitch.

Most aspects of corporate jet setting have changed since Ogg’s day. Planes are more likely to be owned by a hedge-fund manager than a white-goods salesman. They are kitted out with televisions rather than typewriters. Moreover, they tend to be too costly for entrepreneurs to use as clever marketing tools. Yet even though such stunts remain a dream for many, their revival may be edging slightly closer. That is because the price of private jets has tumbled in the last few years, Continue reading

Categories: FINANCIAL NEWS

Companies that burn up $1bn a year are sexy, dangerous, and statistically doomed

Thu, 10/19/2017 - 11:48

YVES SAINT LAURENT, Lady Gaga, David Bowie. Some people do not operate by the same rules as everyone else. Might the same be true of companies? Most bosses complain of being slaves to short-term profit targets. Yet a few flout the orthodoxy in flamboyant fashion. Consider Tesla, a maker of electric cars. This year, so far, it has missed its production targets and lost $1.8bn of free cashflow (the money firms generate after capital investment has been subtracted). No matter. If its founder Elon Musk muses aloud about driverless cars and space travel, its shares rise like a rocket—by 66% since the start of January. Tesla is one of a tiny cohort of firms with a licence to lose billions pursuing a dream. The odds of them achieving it are similar to those of aspiring pop stars and couture designers.

Investing today for profits tomorrow is what capitalism is all about. Amazon lost $4bn in 2012-14 while building an empire that now makes money. Nonetheless, it is rare for big companies to...Continue reading

Categories: FINANCIAL NEWS

On NAFTA, America, Canada and Mexico are miles apart

Thu, 10/19/2017 - 10:48

THESE are troubling times for Roberto Santana Flores, a Mexican maker of charro shirts, a modern take on the Mexican cowboy aesthetic. He recalls life before the North American Free-Trade Agreement (NAFTA), a trade deal linking Mexico with America and Canada. He remembers his shirts incurred a whopping 37.5% tariff if exported to America. Now they cross the border duty-free. But his dream of expanding his factory and his American customer base is under threat. He scours the newspapers daily for news of the NAFTA negotiations. They tell of conflict. Some even warn the deal may collapse. Since it covers trade worth more than $1trn a year, that is alarming for many more than Mr Flores.

On October 17th trade representatives of the three countries gathered to mark the end of the fourth round of talks. A collapse does not seem imminent. Robert Lighthizer, the United States Trade Representative (pictured, centre), denied that abandoning the deal was even being discussed,...Continue reading

Categories: FINANCIAL NEWS

When the revolution eats itself

Wed, 10/18/2017 - 13:49

WHEN a revolution happens, the consequences are not obvious straight away. The British referendum on EU membership in June 2016 was seen as a revolt of ordinary people against a globalised elite. The politicians who led the Leave campaign did not seem to expect to win; as wags remarked, they were like "the dog that caught the car".

This helps to explain the general chaos that has enveloped British policy since the result. The Leave campaign had contained two contradictions. The first was that Britain could have all the advantages of EU membership without the bother of actually belonging; the country could "have its cake and eat it" as Boris Johnson, Leave campaigner and now foreign secretary put it. The second was the split between the free market, Liberal brexiters, who envisaged Britain as open to the world, and the nativist camp led by Nigel Farage.

Theresa...Continue reading

Categories: FINANCIAL NEWS

Economic optimism drives stockmarket highs

Tue, 10/17/2017 - 16:05

BARELY a day goes by at the moment without Wall Street hitting a new record high. The market has kept marching upwards despite all the headlines about the North Korean nuclear threat, a potential break-up of NAFTA, and natural disasters like hurricanes.

If you want to know why the market keeps rising, just look at the latest poll of global fund managers by Bank of America Merrill Lynch. Almost half of all the managers now expect above-trend growth and below-trend inflation, what is dubbed the Goldilocks economy (she wanted porridge that was not too hot, or too cold, but just right). That is the highest proportion recorded in the history of the survey. Indeed, for the last six years, a plurality of managers have taken the view that both inflation and growth would be below trend.

A net 41% of those managers think global growth will strengthen over the next 12 months. Putting their money behind those beliefs, a net 45% are overweight (have a higher holding than usual) in equities. A remarkable 85% of managers think bond...Continue reading

Categories: FINANCIAL NEWS

More airlines are offering free Wi-Fi for messaging services

Tue, 10/17/2017 - 13:03

AT A time when all aspects of air travel seem to come with a price tag, one service quite suddenly has become free. And it is not in-flight dining or checking in a bag or securing an exit-row seat. 

The increasingly common free service is onboard messaging. Earlier this month, Delta Airlines began allowing passengers to use its Wi-Fi system to send free messages on third-party apps, such as iMessage, WhatsApp, and Facebook Messenger. Passengers can do so on their smartphones, laptops or tablets. (Mobile-network services, like 4G, tend to be unreliable after lift off). Delta is following the lead of Alaska Airlines, which rolled out a similar service earlier this year, as the Los Angeles Times reports, and American Airlines which announced its own plans to offer messaging in the near future.

Sadly, this is still a far cry from a free internet service. Airlines still charge for browsing and they have a...Continue reading

Categories: FINANCIAL NEWS

Carriers in America are doubling down on budget airfares

Fri, 10/13/2017 - 17:37

GLEN HAUENSTEIN, the president of Delta, is optimistic about the future of basic economy. On a conference call this week, he boasted that the stripped-down airfares actually act as an incentive for passengers to upgrade to the more expensive standard economy tickets. Despite Mr Hauenstein describing it as a product that “people don’t really want”, the airline says it will expand the revenue-boosting basic-fares system in 2018.

Delta was the first carrier to roll out basic economy fares—sometimes called “last class”—in America in 2012. Since then the model has caught on. Both American and United quickly introduced similar services on some domestic routes. By taking away a perk here and adding another there, each airline has created a unique version of the same miserable experience.

The new fare system is not without its critics. Many have Continue reading

Categories: FINANCIAL NEWS

Taxing the rich

Thu, 10/12/2017 - 17:35

FOR once, The Daily Mail and the Guardian, British newspapers of the right and left, agree. In the former, Alex Brummer says "IMF's new line of thinking of tax should please Corbyn & co" while the latter says that the IMF "analysis supports tax strategy of Labour in UK". Both are responding to the IMF's fiscal monitor which does indeed say that

 there would appear to be scope for increasing the progressivity of income taxation without significantly hurting growth for countries wishing to enhance income redistribution.

The report details how income tax progressivity in advanced economies declined in the 1980s and 1990s and that the tax system has done little to reduce inequality in...Continue reading

Categories: FINANCIAL NEWS

Kobe Steel admits falsifying data on 20,000 tonnes of metal

Thu, 10/12/2017 - 16:51

THE port city of Kobe, on the southern side of Japan’s main island, is known for luxury beef from pampered cattle, fine sake and precision engineering. Its reputation for the last of those products took a blow on October 8th when one of its oldest industrial firms, Kobe Steel, admitted that that it had falsified data on many of its aluminium, copper and steel products. By October 11th, the company’s shares had fallen by a third, reducing its market value by ¥180bn ($1.6bn).

 Kobe Steel has admitted to falsification over the past year relating to large quantities of four types of material; 19,300 tonnes of aluminium sheets and poles; 19,400 aluminium components; 2,200 tonnes of copper products and an unspecified amount of iron powder that was supplied to over 200 customers. These items were certified as having properties—such as a level of tensile strength, meaning stiffness—that they did not in fact possess.

No deaths or accidents have yet resulted, but the...Continue reading

Categories: FINANCIAL NEWS

Crafty app developers are ripping off big-name brands

Thu, 10/12/2017 - 16:51

THE new app for an upmarket British department store certainly looks the part. Released on Google Play, a shop for Android software, on September 5th, it has the right logo, the correct vibrant colour and offers fashionable clothes and accessories. But the app is not authorised by the brand, is littered with pop-up ads and is painfully slow (furious users gave it one-star ratings). Its developer, Style Apps, has also launched apps for other clothing brands that are household names in America.

Such fake apps are designed by crafty developers to trick inattentive users. Google and Apple police their app stores but many impostors get through. In third-party app stores, unofficial platforms run by someone other than the two tech giants, the problem is even worse. Users are tricked in two ways. Some apps fill a gap in the market. Selfridges, a chain of British fashion stores, for instance, has a legitimate app for Apple devices but not for Android ones. RadioShack, an American electronics...Continue reading

Categories: FINANCIAL NEWS

An epic but inconsequential proxy vote at Procter & Gamble

Thu, 10/12/2017 - 16:51

SHAREHOLDER meetings in Ohio are not usually the stuff of high drama, but a recent gathering was a nail-biter. Nelson Peltz of Trian Fund Management, an activist hedge fund, sought a seat on the board of Procter & Gamble (P&G), the world’s largest consumer-goods company, in a proxy vote on October 10th. It was the biggest such battle ever. In the weeks leading up to P&G’s shareholder meeting, the fight resembled a political contest, complete with carefully crafted videos, lengthy white papers, mass mailings and tens of thousands of phone calls urging shareholders to vote blue (P&G) or white (Trian).

As The Economist went to press, P&G said it had won and Mr Peltz was contesting the tally. “Everybody but [P&G’s] current employees voted for us,” he said after P&G declared victory. “Maybe that’s why they keep so much overhead.” So the brawl is not over. Yet the outcome may not matter much. Mr Peltz will push P&G for...Continue reading

Categories: FINANCIAL NEWS

The internationalisation of China’s currency has stalled

Thu, 10/12/2017 - 16:51

ON OCTOBER 18TH, President Xi Jinping will preside in Beijing over the most important political event in five years. At the Communist Party’s 19th congress much will be made of the triumphs achieved in nearly four decades of reform and opening up. So expect a glossing over of one part of that process where progress has largely stalled: the “internationalisation” of China’s currency, the yuan.

This seems odd. Just a year ago, the yuan became the fifth currency in the basket that forms the IMF’s Special Drawing Right (SDR). This marked, in the words of Zhou Xiaochuan, China’s central-bank governor, in a recent interview with Caijing, a financial magazine, “historic progress”. Symbolically, China’s monetary system had been awarded the IMF’s seal of approval. A further boost to prestige was the announcement in June this year that some Chinese shares would be included in two stockmarket benchmarks from MSCI.

Yet the yuan’s international reach has in fact fallen in the past two years. It has regained its ranking as the world’s fifth most active for international payments, after slipping to sixth in 2016. But its share of this market has slipped from 2.8% in August 2015 to 1.9% now (see chart). Use of the yuan in global bond markets over this period has fallen by half, as companies have instead raised funds within...Continue reading

Categories: FINANCIAL NEWS

In dirt-poor Myanmar, smartphones are transforming finance

Thu, 10/12/2017 - 16:51

For chats and kyats

MYANMAR’S democratic transition sometimes seems marked as much by continuity as by change. Depressingly, the army continues its bloody persecution of Rohingya Muslims in the west, for example (see article). But elsewhere moves to open the country’s markets, started by the preceding military regimes, have gathered pace. New commercial and financial services are springing up.

Take Khin Hlaing, who owns Global Mobile Shop, a small store surrounded by tarpaulin-covered stalls selling fresh fruit in Hlaing Tharyar, an industrial area outside Yangon, the biggest city. He is one of almost 12,000 agents for Wave Money, Myanmar’s largest mobile-money transfer platform. Most days about 20 people use his shop to send funds to friends or family elsewhere in the country. One...Continue reading

Categories: FINANCIAL NEWS

The finance industry ten years after the crisis

Thu, 10/12/2017 - 16:50

MANY people complain that the finance industry has barely suffered any adverse consequences from the crisis that it created, which began around ten years ago. But a report from New Financial, a think-tank, shows that is not completely true.

The additional capital that regulators demanded banks should take on to their balance-sheets has had an effect. Between 2006 and 2016, the return on capital of the world’s biggest banks has fallen by a third (by more in Britain and Europe). The balance of power has shifted away from the developed world and towards China, which had four of the largest five banks by assets in 2016; that compares with just one of the biggest 20 in 2006.

The swaggering beasts of the investment-banking industry have also been tamed. The industry’s revenues have dropped by 34% in real terms, with profits falling by 46%. Return on equity has declined by two-thirds. Staff are still lavishly remunerated, but pay is down by 52% in real terms. (Perhaps...Continue reading

Categories: FINANCIAL NEWS

Why McKinsey is under attack in South Africa

Thu, 10/12/2017 - 16:50

An unfamiliar sight for McKinseyites

MCKINSEY, a global management consultancy known for its discreet profile and rarefied air, is unused to the sort of tub-thumping popular revolt it is experiencing in South Africa. Such is public outrage over the Guptas, an Indian-born business dynasty accused of growing rich off their relationship with President Jacob Zuma, that a few professional-services firms linked to the family, including McKinsey—as well as SAP, a German software giant—have become targets of Twitter storms and protest banners.

Anti-corruption groups and the opposition Democratic Alliance (DA) have drawn blood in the case of Bell Pottinger, a British public-relations firm accused of orchestrating a racially divisive public-relations campaign on behalf of the Guptas. A complaint by the DA to a British PR industry association set in motion Bell Pottinger’s swift implosion in September. At KPMG, a global audit firm, eight senior executives in South...Continue reading

Categories: FINANCIAL NEWS

American factories could prosper if they find enough skilled workers

Thu, 10/12/2017 - 16:50

Another way to see the factory floor

“WE ARE always short ten to 20 people,” says Jack Marshall, the manager of PPG’s plant in Oak Creek, Wisconsin. The company makes coatings, paint and speciality materials for customers such as Harley Davidson, a motorcycle manufacturer based in the state, with a palette ranging from black denim to candy orange. His factory employs 550 people, many of whom must work overtime. It is hard to fill jobs, he explains, because many still think factory work involves repetitive assembly-line tasks, as in the candy factory on the old TV sitcom “I Love Lucy”.

As part of trying to shed this outdated image, America’s manufacturing industry has for the past five years celebrated the first Friday in October as National Manufacturing Day. Some 2,800 events across the country were organised this time round, ranging from factory tours to banquets. Intel, a chip giant, displayed its wafer-fabrication equipment at its enormous...Continue reading

Categories: FINANCIAL NEWS

BBVA, a Spanish bank, reinvents itself as a digital business

Thu, 10/12/2017 - 16:50

OUTSIDE, a patch of grass affording a spectacular view of the Sierra de Guadarrama is littered with cartridge casings. Inside the Club de Tiro de Madrid (Madrid Shooting Club), on the city’s northern edge, over 400 people are fixing their sights for the next three months. Their business is not shooting but banking. Teams sit at 27 tables working on specific projects—to improve the global mobile platform, say, or to share information about job applicants. At another 12 tables are data specialists, in-house lawyers and others whose expertise the teams will need. The targets are on the walls: white boards that are soon covered in yellow and pink Post-it notes, listing tasks for the weeks ahead.

BBVA, Spain’s second-largest bank, began quarterly planning sessions like this three years ago, in its Mexican subsidiary. This is the fourth global gathering. The idea, explains Derek White, head of global customer solutions, is to replicate the nimbleness of financial-technology startups (“fintechs”) at large scale. When a project is conceived, a small group is assembled to work on it within three days. A prototype is created in six weeks. The finished article should be “en las manos de los clientes”—in customers’ hands—within nine months. The quarterly cycle starts with a planning session to thrash out priorities. It ends with a demo...Continue reading

Categories: FINANCIAL NEWS

Brexit will give the derivatives market a nasty headache

Thu, 10/12/2017 - 16:50

FOR all the talk of banks deserting London as Britain’s departure from the EU looms, relatively little attention has been paid to the derivatives market. Yet this is a crucial area of business for British-based banks. The City handles a big chunk of the market, including 39% of the market in interest-rate derivatives alone, where global daily turnover averages $3trn. The rest of the EU accounts for just 9%. Brexit seems sure to cause significant disruption. Mark Carney, the governor of the Bank of England, recently warned that the very “legal validity” of pre-existing derivatives contracts could be put into question.

Brexit-related discussion of derivatives has tended to focus on the role of clearing-houses, which ensure that a contract can be honoured even if one side goes bust. Since the financial crisis, most countries have made it mandatory to clear derivatives trades. LCH, a clearing-house in London, clears over 50% of interest-rate swaps across all currencies; London houses...Continue reading

Categories: FINANCIAL NEWS

An assessment of the White House’s progress on deregulation

Thu, 10/12/2017 - 11:18

DEREGULATION, along with tax cuts and trade reform, is one of the three pillars of President Donald Trump’s economic agenda. Republicans promise that, freed of red tape, American firms will invest more and unleash faster economic growth. And while Mr Trump has yet to unite his party around a major piece of legislation, the White House has plenty of sway over regulatory policy. For a start, the government agencies Mr Trump commands can regulate and deregulate on their own (subject only to the instructions that Congress has given them in the past). How much red tape have they managed to tear down since Mr Trump took office?

Regulation is difficult to measure precisely, but the long-term trend towards excessive rulemaking has been obvious. In 1970 there were about 400,000 prescriptive words such as “shall” or “must” in the code of federal regulations, according to the Mercatus Centre, a libertarian-leaning think-tank. Today there are 1.1m (see chart). Wonks of many stripes agree...Continue reading

Categories: FINANCIAL NEWS

American politicians’ efforts to control Chinese firms amount to a dangerous game

Thu, 10/12/2017 - 11:03

WARS are fought with weapons, but also with money. To understand the global balance of power in the coming decades, it helps to pay attention to the commercial subplot of the North Korean crisis. For the first time, America is attempting to use its full legal and financial might to change the behaviour of Chinese companies and banks, which it believes are propping up North Korea by breaking UN and American sanctions. Some American politicians have concluded that, as China’s firms have integrated with the global economy, they have become more vulnerable to Uncle Sam’s wrath. America has potent weapons, but the trouble is that China can retaliate in devastating fashion.

North Korea is highly dependent on China. Some 60-90% of its trade is with its northern neighbour. China’s state-run energy giant, CNPC, is thought to have sold it oil in recent years—and is the parent of PetroChina, which has depositary receipts listed in New York. North Korean banks and firms operate in China, and...Continue reading

Categories: FINANCIAL NEWS

Airlines are trying to cram ever-more seats onto planes

Wed, 10/11/2017 - 16:03

AIRLINES use all sorts of clever tricks to make more money from passengers. They charge extra for bags, for food and for selecting where you sit. Now they are embracing another strategy: packing more seats onto each plane. Last month American Airlines announced that it will insert 12 more seats, or two rows, into its economy class on its Boeing 737-800 fleet and an extra nine seats into its Airbus A321s. Similarly, JetBlue recently said it will cram 12 additional seats into its A320s.

But flyers do not like being packed ever-more tightly into the sardine tins that planes have become. This summer American Airlines announced that it would reduce the distance between rows—known as seat pitch—from 30 to 29 inches on some of its new planes. The public outcry was so heated that the carrier scrapped its plans, as Gulliver has previously reported. This February a member of Congress Continue reading

Categories: FINANCIAL NEWS

Richard Thaler’s work demonstrates why economics is hard

Wed, 10/11/2017 - 14:37

RICHARD THALER has won the Nobel prize in economic sciences this year for his contributions to behavioural economics. It's a well-deserved prize and a clarifying one, as far as economics is concerned. For a very long time, economists hoped to treat individuals a bit like particles in physics, whose activity can be described by a few well-understood rules, which allow researchers to model and understand complex interactions between particles. The rules, they reckoned, were things like perfect information, forward-looking reasoning and rationality. Of course economists understood that individuals didn't always behave according to those rules, but the idea was that, in aggregate, the rules would allow for a pretty good approximation of reality.

Then came the behavioural economists, who made it their task to find ways in which human activity systematically diverges from models using those basic assumptions. For many of them, the goal was probably to come...Continue reading

Categories: FINANCIAL NEWS

Richard Thaler wins the Nobel prize for economic sciences

Tue, 10/10/2017 - 16:50

THE credit-card bill arrives. You have enough money in a savings account to pay it off—the sensible thing to do, arithmetically speaking, since the interest rate on the credit-card balance far exceeds that earned on the savings. Yet you leave the savings untouched, and pay only as much of the bill as your current-account balance allows. What looks a daft choice to most economists made perfect sense to Richard Thaler, who on October 9th was awarded the Nobel prize for economics for his work in behavioural economics. Mr Thaler helped demonstrate how human reasoning diverges from that of the perfectly rational homo economicus used in most economic modelling. The world, and the field of economics, is better for his contributions.

Economists mostly recognise that normal people—their friends and family—fall short of omniscience and perfect rationality in making day-to-day decisions. Economic modelling requires simplification, however, and economists generally suppose that...Continue reading

Categories: FINANCIAL NEWS

When investors get stuck in the past

Tue, 10/10/2017 - 15:29

THE award of the Nobel economics prize to Richard Thaler is a reminder that economics has been struggling, in the past 30 years, to adapt its models to the real-life decision-making processes of actual humans. The problem applies as much in investment as anywhere else.

One of the biggest problems is the tendency to assume that the future will resemble the past. Despite all the warnings inserted by regulators, investors often believe that fund management performance will persist, but the evidence is against it. Another issue is the assumption that overall market returns will persist. 

This issue may be one of the factors explaining the big deficits at state and local pension funds in the US. Those funds are allwoed to make their own...Continue reading

Categories: FINANCIAL NEWS

All-you-can-fly membership models are slowly catching on

Tue, 10/10/2017 - 13:01

LONDON’s Luton airport is not renowned for its quick boarding. But now it is possible to show up there and in 15 minutes be on a plane bound for Zurich. That is thanks to the recent expansion of Surf Air, a small carrier. Though its name may be unfamiliar, its business model is, in fits and starts, catching on.

Surf Air claims to be the world’s first all-you-can-fly airline. For a monthly fee, members can travel for free on as many flights as they want among the airline’s growing list of destinations. The airline was founded in 2013 in California, where it serves 12 cities. This summer it launched a service in Europe, where it flies from London, Cannes, Ibiza and Zurich. Milan, Munich, and Luxembourg are scheduled to join the roster later this year.

This flexibility comes with a hefty price tag, however. A membership for the airline’s American network starts at $1,950 a month for a limited plan, rising to $2,950 for the highest tier, which allows unlimited flying in the network and includes periodic free hotel...Continue reading

Categories: FINANCIAL NEWS

The Nobel in economics rewards a pioneer of “nudges”

Mon, 10/09/2017 - 15:43

NOT long ago, the starting assumption of any economic theory was that humans are rational actors who maximise their utility. Economists summarily dismissed anyone insisting otherwise. But over the past few decades, behavioural economists like Richard Thaler have progressively chipped away at this notion. They combine economics with insights from psychology to show how heavily economic decisions are influenced by cognitive biases. On September 9th Mr Thaler’s work was recognised at the highest level when the Nobel Committee awarded him this year’s prize in economics. Mr Thaler thus becomes only the second behavioural economist to win the prize (after Daniel Kahneman, a laureate in 2002).

Mr Thaler’s has been a prolific career, spanning over four decades, the last two of them at the University of Chicago’s Booth School of Business. His research has touched on subjects as varied as asset prices, personal savings and property crime. For example, Mr Thaler developed a theory of mental accounting, which explains how people making...Continue reading

Categories: FINANCIAL NEWS

Flyers rarely complain even when they have cause to

Fri, 10/06/2017 - 12:15

BUSINESS travellers are hardy souls. It goes with the territory. Theirs is a life of jet lag, cramped seating and reheated meals, all washed down with a weak cup of coffee. Small wonder, then, that a recent study by Clarabridge, a technology firm, suggests that few travellers ever actually lodge a complaint about their flights. It surveyed almost 2,500 passengers in Britain and America and found that about two-thirds of respondents have never aired a grievance, even when they had good reason to. This is despite the fact that complaints are on the rise overall, as Gulliver has previously reported.

Why are so many reluctant to complain? One concerning reason is that passengers think airlines will ignore them. This explanation was given by about a third of those who have never complained, according to Clarabridge’s study.

This should worry...Continue reading

Categories: FINANCIAL NEWS

Can you afford to retire?

Thu, 10/05/2017 - 16:55

HOW much money do you need to retire? Depending on your age, it is a question you think about a lot (if retirement is imminent) or barely at all. For younger people, the subject is a combination of too far away, too complex and too boring, and too depressing. When you consider that you might live for 20, 25 or even 30 years after you stop working, it is a pretty important issue.

Say you want to retire on £20,000 a year (not a fortune) and you are 65. The best annuity rate at the moment in the UK is just under 5.2% which means you would need a pot of £385,000 to afford this. But hold on a minute. That is a flat £20,000 which does not account for inflation; if prices rise at 3% a year, the value of that pension will halve by your 90th birthday. To get an income of £20,000 that is guaranteed to rise in line with prices, you would need a pot of £619,000. (For American readers, the dollar amounts won't be exactly the same, but they will be in the ballpark). 

These are very big sums and explain why private sector...Continue reading

Categories: FINANCIAL NEWS

Mergers and acquisitions often disappoint

Thu, 10/05/2017 - 16:54

WHEN you are the chief executive of a public company, the temptation to opt for a merger or acquisition is great indeed. Many such bosses may get a call every week or so from an investment banker eager to offer the kind of deal that is sure to boost profits.

Plenty of those calls are proving fruitful. In the first three quarters of 2017, just over $2.5trn-worth of transactions were agreed globally, according to Dealogic, a data provider. The total was virtually unchanged from the same period in 2016, but the number in Europe, the Middle East and Africa was up by 21%.

It is easy to understand why an executive opts for a deal. Buying another business looks like decisive action, and is a lot easier than coming up with a new, best-selling product. Furthermore, being the acquirer is far more appealing than being the prey; better to be the butcher than the cattle. A takeover may keep activist hedge funds off the management’s back for a while longer. And being in charge of a much bigger company is a more demanding task that will surely justify (ahem) a larger salary for the executives in charge.

But these temptations, good and bad, should generally be resisted. S&P Global Market Intelligence, a research arm of the ratings agency, has updated a study on the impact of deals on the acquiring company’s share price. The study looked at M&A deals done...Continue reading

Categories: FINANCIAL NEWS

Tech giants are building their own undersea fibre-optic networks

Thu, 10/05/2017 - 16:54

Only 6,599km to go

WHEN Cyrus Field, an American businessman, laid the first trans-Atlantic cable in 1858, it was hailed as one of the great technological achievements of its time and celebrated with bonfires, fireworks and 100-gun salutes. Alas, the reason for the festivities soon went away. Within weeks the cable failed.

On September 21st the completion of another trans-Atlantic cable was welcomed with much less ado. But it is remarkable nevertheless: dubbed Marea, Spanish for “tide”, the 6,600km bundle of eight fibre-optic threads, roughly the size of a garden hose, is the highest-capacity connection across the ocean. Stretching from Virginia Beach, Virginia, to Bilbao, Spain, it is capable of transferring 160 terabits of data every second, the equivalent of more than 5,000 high-resolution movies. It is jointly owned by Facebook and Microsoft.

Such ultra-fast fibre networks are needed to keep up with the torrent of...Continue reading

Categories: FINANCIAL NEWS

Ford has a clear plan to fix its present failings

Thu, 10/05/2017 - 16:54

Hackett plays it safe

LIKE any mechanic with a misfiring car, Ford’s new boss has had his head under the bonnet working out what needs attention. Jim Hackett emerged on October 3rd with a checklist of repairs to present to investors, who have been awaiting his diagnosis since he took over in May. The list is short but the engineering is complicated: restore Ford’s competitiveness while preparing for a future of electric vehicles (EVs), self-driving cars and transport services. But those expecting a radical overhaul were probably disappointed.

Mr Hackett’s predecessor, Mark Fields, was shown the door by Bill Ford, the firm’s chairman, for failing to make a persuasive case that he was reinventing Ford as a mobility firm at the forefront of automotive technology. Despite acknowledging to investors that he and Mr Ford agreed that his new job was “about the future not the past”, Mr Hackett was clearest about how to make Ford fit for the...Continue reading

Categories: FINANCIAL NEWS

The bosses of two famous French firms struggle to keep customers

Thu, 10/05/2017 - 16:54

You see her after the third glass

ALEXANDRE RICARD wants to talk boxing. He runs Pernod Ricard, a firm that sells Chivas whisky and Absolut vodka, among other drinks. Formed by his grandfather in 1975, with roots in a Pernod distiller set up in 1805, it is the world’s second-largest seller of wine and spirits, with a market capitalisation of €32bn ($37bn). He brags that Floyd Mayweather, an American pugilist with 19m Instagram followers, recently endorsed one of the company’s tequila brands. Such a “key influencer” on a digital channel “gives us speed and scale”, says Mr Ricard.

Celebrity endorsements are an old ploy: French singers, actors and racing drivers used to push Pernod Ricard’s liquor. But with 90% of sales in markets outside of France, punchier efforts are needed. Two years ago the firm commissioned a global study of boozing habits, which totted up all “moments of consumption” for drinkers, identifying 20 important ones in...Continue reading

Categories: FINANCIAL NEWS

Dara Khosrowshahi is off to a strong start but there are miles to go

Thu, 10/05/2017 - 16:54

 

HERE’S the job spec. Unite a deeply divided board. Keep a strong-willed founder under control. Immediately recruit a new chief financial officer. Negotiate with angry local regulators intent on closing down the business in their city. Convince courts that the company does not have to provide its contract workers with the benefits due to full-time employees. Change a cut-throat culture without curbing employees’ drive. On top of all this, deal not only with an intellectual-property (IP) lawsuit that could cost the firm nearly $2bn, but also cope with a criminal investigation by the FBI that could see some managers end up in prison.

No one sane, you would think, would even apply for such misery. But after some hesitation Dara Khosrowshahi (pronounced cause-ro-SHAH-hee), until recently the chief executive of Expedia, an online travel agency, returned the headhunter’s call. Now he is boss of Uber, which, at $68bn, is the world’s most highly valued privately-held company. Can he...Continue reading

Categories: FINANCIAL NEWS

A Chinese carmaker agrees to buy a Danish investment bank

Thu, 10/05/2017 - 16:54

A COMPANY that moves up the value chain from refrigerator parts to cars is impressive but not that surprising. A car company that buys an investment bank is audacious. But Zhejiang Geely Holding Group, a conglomerate based in Hangzhou, China, did not become big by paring its ambitions. Having successfully made the fridge-parts-to-cars transition at home, it went global in 2010. It acquired Volvo, a Swedish carmaker, from Ford of America. Now Geely is back in Scandinavia for another acquisition. This time it is buying one of Denmark’s biggest banks.

Saxo Bank announced on October 2nd that Geely would acquire 51.5% of its shares. It will spend over $800m on the deal, which still requires regulatory approval. Sampo Group, a Finnish insurance company, will acquire 19.9% of Saxo shares for €265m ($311m), and Kim Fournais, Saxo’s co-founder and chief executive, will retain 25.7%. The sellers are Sinar Mas, an Indonesian conglomerate, and TPG, an American private-equity firm.

Saxo was an early adopter of online securities trading and still invests heavily in financial technology. It makes a substantial portion of its profits from selling trading platforms to other firms. Daniel Donghui Li, Geely’s chief financial officer, says Geely hopes to expand Saxo’s technologies into Asia. Besides facilitating this expansion, Geely does not intend to change how...Continue reading

Categories: FINANCIAL NEWS

A new study details the wealth hidden in tax havens

Thu, 10/05/2017 - 16:54

SWITZERLAND, which developed cross-border wealth-management in the 1920s, was once in a league of its own as a tax haven. Since the 1980s, however, tax-dodgers have been spoilt for choice: they can hide assets anywhere from the Bahamas to Hong Kong. The percentage of global wealth held offshore has increased dramatically. But it has been hard to say how much that is, and who owns it.

Few offshore centres used to disclose such data. But in 2016 many authorised the Bank for International Settlements (BIS) to make banking statistics publicly available. Using these data, a new study by Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman, three economists, concludes that tax havens hoard wealth equivalent to about 10% of global GDP. This average masks big variations. Russian assets worth 50% of GDP are held offshore; countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60-70% range. Britain and continental Europe come in at 15%, but Scandinavia at only a few per cent.

One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.

Proximity to Switzerland also remains a good indicator. But assets held there have declined since the financial...Continue reading

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Dirt-cheap mobile data is a thrill for Indian consumers

Thu, 10/05/2017 - 16:54

A swami gets the religion

THE security guards at the foot of Antilia, a 27-floor private residence in Mumbai, while away the days just as all bored Indians have been doing in recent months—watching movies on their phone. Using a mobile network to stream endless Bollywood epics would until recently have been an unthinkable luxury, even in the rich world. In India it now costs less than a cup of street-side chai.

Thank the tycoon lording it in the skyscraper’s upper reaches. As boss of Reliance Industries, Mukesh Ambani, India’s richest man, has spent more than $25bn on building Jio, a state-of-the-art mobile-telecoms network. The delight of the guards at Antilia, and of the roughly 130m Indians who have signed up to the service since it launched in September 2016, is matched only by the misery of Mr Ambani’s rivals.

Jio’s rise is nothing short of spectacular. It took less than a year for it to be delivering more data than any other mobile...Continue reading

Categories: FINANCIAL NEWS

How protectionism sank America’s entire merchant fleet

Thu, 10/05/2017 - 16:54

IN APRIL 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.

Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fuelled calls to repeal the law completely.

Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport....Continue reading

Categories: FINANCIAL NEWS

Taxing fat and subsidising healthy eating widens inequality

Thu, 10/05/2017 - 16:54

IN RICH countries, people’s diets are getting worse and they are getting fatter. Hence the increasing popularity of a “fat tax”, to make unhealthy food cost more. Since Hungary led the charge in 2011 with a “chip tax” on fatty and sugary foods, other countries have followed. Britain is to join a long list next year.

Since the poor both spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of such taxes. In France, for instance, adult obesity is seen in over 20% of households with monthly incomes under €1,500 ($1,765) compared with less than 10% of those who earn over €3,000.

Punishing consumers, however, is politically painful. So “thin subsidies” have been gaining ground. But data on the impact of such policies are scarce. A recent study on the distributional impacts of fat taxes and thin subsidies from researchers at the universities of Oklahoma and Grenoble suggests policymakers should be...Continue reading

Categories: FINANCIAL NEWS

Unequal at work, men and women are even more so in retirement

Thu, 10/05/2017 - 16:54

“THE retirement-savings crisis is a women’s crisis,” says Sallie Krawcheck, co-founder of Ellevest, a financial-advice firm for women in America. When it comes to retirement income, women are far worse-off than men. The gender pension-gap may be less well-known than the gender pay-gap, but it is in fact far larger.

Among those retired in the EU, women on average receive 39% less in pension income—from state and workplace pensions—than men do (see chart). This puts women at greater risk of old-age poverty. The European Institute for Gender Equality, a think-tank, warned in a study in 2015 that it also makes them more likely to stay with abusive partners. Reforms to European pensions, tying benefits even closer to individual contributions and thus income, mean the gap may widen further.

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Categories: FINANCIAL NEWS

Manias, panics and Initial Coin Offerings

Thu, 10/05/2017 - 10:48

EVERY market mania reaches a point when pitches to would-be investors enter the realm of the surreal. So it goes for “initial coin offerings”, or ICOs. A new one by a firm called POW invites Facebook users to claim tokens for nothing; when they later become convertible into other tokens, the first to take advantage of the offer could “become worth $124bn…making them the richest person on Earth”, the blurb says. Not a bad return for no money invested and no risk borne. However bizarre, bubbles are hard to resist: no one wants to be the only one of their friends left out. They can also be financially ruinous. But gambling on a craze, even a highly dubious one, can be about more than blind greed.

The ICO boom is an outgrowth of the emerging, occasionally inscrutable world of cryptocurrencies. These are a form of money (bitcoin and ether are examples) used in transactions which are recorded on a distributed public ledger called a blockchain. An ICO is a scheme to raise funds for an...Continue reading

Categories: FINANCIAL NEWS

After a bite of Apple, Margrethe Vestager targets the e-commerce giant

Wed, 10/04/2017 - 17:09

MARGRETHE VESTAGER’S assault on technology firms she deems to have improperly massaged down their tax bills continued this week with a tilt at Amazon. The internet retailer faces a bill of €250m ($293m) for back taxes over what the European Union’s competition commissioner considers to have been an illegal sweetheart deal with Luxembourg.

The order requiring the Grand Duchy to recover the money follows a well-publicised three-year investigation. It is the latest in a series of tax-avoidance cases brought by the European Commission against multinationals, most of them American. Last year, Ireland was ordered to recover €13bn from Apple—smashing all past records for EU corporate-tax cases.

As with Apple, the commission concluded that Amazon received illegal state aid—in the retailer’s case between 2006 and 2014—through a tax-cutting arrangement that was unavailable to its rivals. This came in the form of a ruling from Luxembourg’s tax authority,...Continue reading

Categories: FINANCIAL NEWS

Concerns over charges for checked bags in America miss the point

Tue, 10/03/2017 - 13:32

FEES for checked luggage are working exactly as intended. That is the main thrust of a new report from America’s Government Accountability Office (GAO) on the recent rise of charges for checking a bag onto a plane when flying. But not everyone is interpreting the study in such a positive light.

Critics are crying foul because these fees cost some passengers more money. Bill Nelson, a Democratic senator who requested the study and sits on the committee that oversees the airline industry, has described the charges as a “last-minute shakedown”. William McGee of Consumer Reports, a non-profit organisation that reviews products, told USA Today that “consumers should be able to shop for airline seats without being nickel-and-dimed.”

Media outlets are also making the same point. When the Associated Press Continue reading

Categories: FINANCIAL NEWS

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