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MSN Money Investing Ideas (316 unread)
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The Economist (215 unread)
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Unread items (100)
The Economist
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Brazilian agriculture
Posted: August 27th, 2010, 5:13pm MDT by The Economist
Enclosure: [download]
The miracle of the cerrado
MSN Money Investing Ideas
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Fund manager touts the good side of vice
Posted: August 27th, 2010, 5:00pm MDT
So much for righteousness in tough economic times. Overall, stocks of companies peddling products that many of us associate with bad habits are beating the market. -
The next bubble is in punditry
Posted: August 27th, 2010, 4:00pm MDT
If a well-known economist couldn't spot the biggest equity bubble ever, I wouldn't put much faith in his prediction of a bursting bond bubble.
The Economist
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The week ahead: August 26th 2010
Posted: August 27th, 2010, 9:00am MDT by The Economist
Enclosure: [download]
The week ahead -
Sarkozy and the polls
Posted: August 27th, 2010, 8:00am MDT by The Economist
Enclosure: [download]
Talking tough -
Michael O'Hanlon on Iraq
Posted: August 27th, 2010, 8:00am MDT by The Economist
Enclosure: [download]
Hardly out of the woods
MSN Money Investing Ideas
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3 takeover targets to take aim at
Posted: August 26th, 2010, 5:30pm MDT
Deals are driving prices higher, so making money should be easy -- theoretically. Here are stocks (and target prices) that are worth watching.
The Economist: Finance and economics
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Economics focus: Bad circulation
Posted: August 26th, 2010, 4:50am MDT
There is more to America’s stubbornly high unemployment rate than just weak demand
AMERICANS are used to thinking of their job market as lithe and supple. Employment snaps back quickly after recessions. Workers routinely shuttle between industries and cities to wherever jobs are abundant. But in the past decade, the labour market has resembled an ageing athlete. Each new injury is more painful and takes longer to heal. More than a year into the current economic recovery the unemployment rate remains stuck close to 10%, raising concerns about the kind of sclerosis that continental Europe suffered in the 1980s.
The slow rehabilitation is in part because the economy suffered a trauma, not a scrape. The fall in GDP during the last recession was easily the largest of the post-war period, and output remains well below its potential. Few had expected a rapid return to full employment, but even modest expectations for jobs growth have not been met. Employment has actually fallen since the end of the recession; and unemployment would be even higher than it is were it not for discouraged would-be jobseekers quitting the workforce. Some economists now fret that other barriers besides weak demand stand between workers and jobs, and that high unemployment is partly “structural” in nature. ...
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Finance after the crisis: Pactual: The origins of a new species
Posted: August 26th, 2010, 4:50am MDT
The latest of our profiles of financial firms after the crisis looks at BTG Pactual, Brazil’s investment-banking powerhouse
IN RECENT years investment banks were supposedly hijacked by boffins who used their nuclear-physics doctorates to devastating effect. Yet the industry has long been slave to a different tribe of scientists: the bulge-bracket Darwinists. They reckon only giant global firms can survive.
Until last year, Pactual, a Brazilian outfit, had conformed to their doctrine. In 2006 it sold out to a big foreign firm, UBS, for $3.1 billion, making its partners some of Brazil’s richest men. But then in 2009 the Swiss bank, reeling from losses, unexpectedly sold Pactual back to BTG, a local investment fund co-founded by Andre Esteves, one of the bank’s former top brass, for $2.5 billion. Today the renamed BTG Pactual is owned again by its partners and led by Mr Esteves who has a 25-30% stake. ...
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Hedge funds: Bigger, safer but duller
Posted: August 26th, 2010, 4:50am MDT
A secretive industry opens up to meet the demands of investors and regulators
FOR much of the past two years hedge-fund managers have tried to convince queasy investors not to give up on them. Now it seems that some of the industry’s biggest names have given up on themselves. Stanley Druckenmiller, a celebrated hedge-fund manager and protege of George Soros, announced on August 18th that he would close his fund, Duquesne Capital Management, because he was “dissatisfied” with its performance. Two days later it emerged that another well-known manager, Paolo Pellegrini, plans to hand back investors their remaining money by the end of September, after making losses.
Messrs Druckenmiller and Pellegrini are not the only hedge-fund managers to have been humbled. Hedge funds used to boast of their ability to deliver “absolute returns”—to make money regardless of the ups and downs in financial markets. That illusion was shattered in 2008 when the funds’ average returns were -19%, according to data from Hedge Fund Research, which tracks the industry. Funds clawed back some of the losses last year but have struggled to build on that recovery. Returns were -0.2% in the first half of 2010 (although stockmarkets fell by much more). Capital losses and withdrawals by investors have left hedge-fund assets at around $1.6 trillion, down from a 2007 peak of almost $1.9 trillion (see chart). ...
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Emerging-market debt: A run for your money
Posted: August 26th, 2010, 4:50am MDT
Developing countries in Latin America and Asia can borrow for longer
PERU is not an obvious investment darling. For much of its existence, the country has been in a state of default. As recently as 1990 the inflation rate was 7,500%. Yet in the past few years Peru has persuaded creditors to lend it money for ever-longer periods in its own currency. It issued its first 20-year local-currency bond in 2006; its debut 30-year bonds followed a year later. Earlier this year Peru was able to issue 300m soles ($105.2m) of 32-year local-currency bonds. Investors in these bonds are compensated for the risk of inflation by yields of just 6.9%, a once unthinkable prospect.
Peru is not alone. Anxious to wean themselves off flighty foreign funding after the crises of the 1990s, many emerging-market governments sought to build up local-currency bond issuance. Extending the maturity of bonds is the next step. In 2007 around 40% of Peru’s local-currency debt was short-term (ie, maturing in less than a year). That had fallen to 30% by 2009, according to the Bank for International Settlements. In Mexico average maturities have gone from 1.5 years in 2000 to seven years a decade later, says Gerardo Rodriguez, who heads the country’s debt office. ...
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ShoreBank: Small enough to fail
Posted: August 26th, 2010, 4:50am MDT
The sorry end to a bold banking experiment
“LET’S change the world”: ShoreBank’s slogan shouted that the Chicago-based lender saw itself as not just a bank but the leader of a movement. Founded in 1973, it set out to prove that money could be lent profitably to poor people in poor neighbourhoods. For 35 years it thrived but the financial storm that hit in 2008, and the economic downturn that followed, proved its undoing. On August 20th the Federal Deposit Insurance Corporation (FDIC), the bank’s regulator, called time on its experiment in what became known as community-development finance.
Like many financial institutions, ShoreBank was hit hard by America’s housing bust. Yet in the first few months after the house-price bubble burst, Ron Grzywinski, a founder of the bank, was able to contrast the low default rates on ShoreBank’s mortgages with the higher ones of less responsible subprime lenders, such as Countrywide. The difference, he argued, was that ShoreBank did it the “old-fashioned way”—getting to know the borrower and securing a significant down payment against a realistically-valued property. ...
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Bank capital: Foundations of jelly
Posted: August 26th, 2010, 4:50am MDT
A lawsuit in Germany highlights the flaws of hybrid securities
“MORE capital, better capital” has been the chant of central bankers and regulators, as they strive to rebuild the banking system on more solid foundations. The debate about how much capital banks should hold against unexpected losses has captured much attention. But a lawsuit in Germany raises equally pressing questions about the sorts of capital banks hold.
The thinking behind the regulatory push for simplicity and solidity is that over the past few decades banks have been allowed to build complex capital structures made from inferior materials. The best sort of capital to ensure a stable banking system is equity, because it directly absorbs losses and can thus cushion against systemic shocks. It is, however, expensive, so banks have sought to dilute it with cheap fillers, such as the delightfully-named “hybrid capital” and other fancy instruments. One reason for their popularity with the banks that issued them was that they paid fixed interest, which was tax-deductible. Regulators, for their part, took comfort from the fact that hybrids were a bit like equity in that payments could be stopped to preserve capital should a bank run into trouble. ...
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European banks: A glow from the east
Posted: August 26th, 2010, 4:50am MDT
A slow fuse still burns on eastern Europe’s foreign-currency debts
AFTER firefighters extinguish a blaze they usually look carefully for glowing embers before rolling up their hoses and heading off. With the worst of the banking crisis now receding in most rich countries, it is tempting to send the financial firefighters home. But wafts of smoke from eastern Europe suggest the job of stabilising Europe’s banking system is not yet done.
In early August a number of banks operating in the region reported sometimes startling rises in loan losses. Among them were UniCredit, Erste Group and OTP. It had been hoped that loan losses would start falling. Instead they have continued to climb—alarmingly in some cases. In Kazakhstan more than a third of outstanding debt is non-performing. In Latvia, almost a fifth of debt is going bad. ...
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HSBC and Nedbank: Mutual attraction
Posted: August 26th, 2010, 4:50am MDT
HSBC learns to play the vuvuzela
THE closest HSBC traditionally got to sub-Saharan Africa was sending its Hong Kong-bound staff round the Cape of Good Hope before the Suez Canal opened in 1869. It is a sign of the region’s vastly improved prospects and the bank’s evolving strategy that HSBC is now in talks to buy a controlling stake in Nedbank, one of South Africa’s big four banks, with a market value of $9 billion.
As Africa gets richer and does more trade with Asia, foreign banks are becoming more interested. That was the logic cited in 2007 when China Development Bank bought a stake in Barclays, which owns a big African business, and a few months later when ICBC, China’s biggest bank, bought a 20% stake in Standard Bank, South Africa’s largest, which has operations in some neighbouring countries. Citigroup and Standard Chartered, which along with Barclays have the biggest pan-African networks, now talk more about their prospects there. Portugal’s banks, which dominate in Angola and Mozambique, view their operations there as jewels. ...
MSN Money Investing Ideas
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Should you buy gold coins?
Posted: August 25th, 2010, 6:00pm MDT
Many analysts shy away from the metal. But if you want to own gold you can touch, here's what to watch out for. -
Is America the next Japan?
Posted: August 25th, 2010, 5:40pm MDT
As if someone flipped a switch, Japan fell from economic powerhouse to long-term basket case. Is America doomed to suffer the same fate? -
The Glenn Beck school of investing
Posted: August 25th, 2010, 5:00pm MDT
Conservative talk-show host Glenn Beck doesn't claim to be a money expert, but he does dispense a lot of financial advice. Are gold and seeds good places to put your cash?
The Economist
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Books of the month: novels
Posted: August 25th, 2010, 9:00am MDT by The Economist
Enclosure: [download]
We've read them all
MSN Money Investing Ideas
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Time is on investors' side
Posted: August 23rd, 2010, 4:00pm MDT
The stock market is in short-term disarray, but big buying opportunities are emerging for long-term investors.
The Economist
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Money talks: August 23rd 2010
Posted: August 23rd, 2010, 11:00am MDT by The Economist
Enclosure: [download]
A structural jobless problem
MSN Money Investing Ideas
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Is another market crash coming?
Posted: August 20th, 2010, 5:00pm MDT
From jobs to housing to the "September effect," several economic and market indicators are warning investors to be cautious. -
Cost of this time down: Stagflation
Posted: August 20th, 2010, 2:30pm MDT
Bubbles burst, and no amount of clever labels can change that fact. Recovery is going to take a while, and we can expect low growth and inflation while we wait.
The Economist
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Doing business in Toronto
Posted: August 20th, 2010, 11:00am MDT by The Economist
Enclosure: [download]
Toronto is a safe and pleasant city. Just avoid comparing Canadians to Americans, and don't forget your sturdy overshoes -
The week ahead: August 19th 2010
Posted: August 20th, 2010, 8:00am MDT by The Economist
Enclosure: [download]
The week ahead -
Fairness and fiscal consolidation
Posted: August 20th, 2010, 8:00am MDT by The Economist
Enclosure: [download]
How realistic is it? -
The EU's immigration problem
Posted: August 20th, 2010, 7:00am MDT by The Economist
Enclosure: [download]
Dealing with the huddled masses
MSN Money Investing Ideas
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5 places to invest before you retire
Posted: August 19th, 2010, 5:00pm MDT
Companies in these countries will be in your portfolio a decade from now. So why not buy today, before they're big, and participate in their growth?
The Economist
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Wind power in Greece
Posted: August 19th, 2010, 8:00am MDT by The Economist
Enclosure: [download]
Not in my backyard
The Economist: Finance and economics
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Chinese banks: Circular logic
Posted: August 19th, 2010, 5:47am MDT
Chinese banks are undergoing an odd kind of bail-out
THE banks of China did their duty by supporting the government’s stimulus efforts last year. Lending soared by a frenetic 32% in 2009; growth has slowed this year, but remains a robust 18%. Now the government is standing by the banks.
A flurry of reports in the local Chinese press predicts that on August 24th Huijin, a branch of China Investment Corporation (CIC), the country’s sovereign-wealth fund and the holder of big stakes in all of its main banks, will issue the first of a series of bonds. Up to 187.5 billion yuan ($28 billion) should be raised in short order, with much of the demand coming from China’s state-controlled companies. These funds are expected to be used to support rights offerings by the big Chinese banks later in the year, as they seek to maintain capital ratios and protect against an expected wave of dud loans. ...
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Economics focus: Paper chains
Posted: August 19th, 2010, 5:47am MDT
Tight policies in surplus countries helped undo the gold standard, which is a lesson for the euro
CHRIS ROCK, a comedian, is a big fan of Oprah Winfrey, a television host and philanthropist. He recalls one of Ms Winfrey’s shows during which a woman confessed to her husband that she had frittered away $300,000 and as a consequence their home was about to be repossessed. “By the end of the show, it was all the guy’s fault,” a clearly impressed Mr Rock told David Letterman, another talk-show host. “He was apologising for not loving her enough—it was the greatest ‘Oprah’ of all time.”
This may seem an odd sort of blame-shifting. Yet reasoning of this kind is increasingly used to explain how spendthrift countries get into trouble. On this view America’s credit boom and bust owed as much to a savings glut in Asia as to laxity at home. A new paper* by Barry Eichengreen of the University of California, Berkeley, and Peter Temin of the Massachusetts Institute of Technology, adds a dash of subtlety and a generous slice of history to this sort of analysis. The authors examine the role of fixed exchange rates in booms and busts and draw parallels between the inter-war gold standard and contemporary schemes, such as the euro and China’s peg with the dollar. ...
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Finance after the crisis: Survival of the richest
Posted: August 19th, 2010, 5:47am MDT
Our continuing series of profiles of financial firms looks at the evolution of Blackstone, the most public private-equity outfit
BLACKSTONE is used to wowing people with the size of its deals. The firm has taken part in seven of the 25 largest leveraged buy-outs in history. In 2006 it bought Freescale Semiconductor, a chipmaker, for $17.6 billion, and Equity Office Properties for $38.9 billion; it forked out $25.8 billion for Hilton Hotels in 2007. Times have changed. On August 13th Blackstone announced it would buy Dynegy, an energy firm, for nearly $5 billion, the largest buy-out of the year so far but a sum that would scarcely have turned heads in the boom.
Back then Blackstone’s boss, Steve Schwarzman, was crowned the “new king of Wall Street” and “master of the alternative universe” for his firm’s ability to secure financing and do record-breaking deals. But since debt markets seized up in 2007 buy-out firms have had trouble making acquisitions. The failure to deploy the capital investors had already given them has made it harder for some to raise more. ...
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Government bonds: A bull market in pessimism
Posted: August 19th, 2010, 5:47am MDT
A lot has to go wrong to justify today’s rock-bottom bond yields
WHEN Japan slid into deflation in the mid-1990s bond investors were caught unawares. As late as 1995 yields on government bonds, a haven in times of deflation, were still approaching 5%. Investors today are not about to repeat that mistake. Inflation may be positive in America, Britain and Germany, but in all three countries government-bond yields have plunged to lows exceeded in recent times only by levels during the 2008 panic.
Since falling yields raise the value of bond principal, that has delivered bumper returns to investors. Government bonds have returned about 8% this year in local-currency terms in these three countries, according to Barclays Capital, outpacing equity returns. (Investors in weaker sovereign credits, such as Greece, have fared far worse). As go returns, so go investors. American equity mutual funds have seen net outflows this year of $7 billion, according to the Investment Company Institute, a trade group. Bond funds have had inflows of $191 billion. ...
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Freight derivatives: Boxing clever
Posted: August 19th, 2010, 5:47am MDT
Are container derivatives poised for bumper growth?
FORGET civil rights, sexual liberation and pop music. The swinging sixties also saw the advent of containerisation in shipping. Some 140m containers now carry around half of the world’s exports by value (see chart). And according to the brokers that are starting to offer container-freight derivatives, contracts based on the future price of renting containers, the way these boxes are financed is about to undergo another revolution.
Clarksons, the world’s biggest shipbroker, which pioneered derivatives for dry-bulk cargoes like iron ore and coal in the early 1990s, made its first container-derivative trade in January this year. Since then two other London-based brokers, ICAP and Freight Investor Services, have also started to offer derivatives settled against the Shanghai Containerised freight index, which is based on per-box rates on the world’s busiest container routes. Alex Gray of Clarksons admits that the market is tiny at the moment. But he reckons that container derivatives may be worth 5-10% of the physical market by the end of 2011. ...
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Ireland's banking mess: Money pit
Posted: August 19th, 2010, 5:47am MDT
Austerity is not enough to avoid scrutiny by the markets
IRISH businessmen like to say that the country has “first-mover advantage” when it comes to austerity. But that counts for little if the demands on the public purse keep getting bigger. New and direr estimates of losses amassed by the country’s biggest banks, many of which are now being borne by beleaguered taxpayers, have put the bond markets on edge. In an auction of government bonds on August 17th the extra interest, or spread, that Ireland had to pay relative to German bunds widened to its highest level since early May, just before European governments and the International Monetary Fund agreed to set up an emergency fund to help out struggling European economies.
The jitters were provoked by comments made earlier that day in Beijing by Patrick Honohan, Ireland’s unusually straight-talking central-bank governor, about the rising cost of bailing out Ireland’s banks. The prime culprit is Anglo Irish, a specialist-property-lender-turned-black-hole that now seems likely to have to write off almost half of every euro it loaned. Bailing out the bank will, Mr Honohan reckons, end up costing the government as much as €25 billion ($32 billion). Relative to the size of the country’s economy, that would make Anglo Irish more destructive by far than bigger blow-ups like Royal Bank of Scotland and UBS (see chart). ...
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China's currency: Wiggle it. Just a little bit
Posted: August 19th, 2010, 5:47am MDT
China's exchange-rate reform has so far been a letdown
“ADOPTING a more flexible exchange-rate regime serves China’s long-term interests as the benefits…far exceed the cost in reorganising industries and removing outdated capacities.” That is the kind of thing Tim Geithner, America’s treasury secretary, might say to his counterparts in Beijing as part of the strategic and economic dialogue between the two countries. But it is in fact a quote from Hu Xiaolian, deputy governor of the People’s Bank of China (PBOC), the country’s central bank.
In a series of speeches last month, Ms Hu argued that a freer exchange rate liberates China’s monetary policy; spurs innovation in China’s export industries; and channels investment to its service sector, where many of China’s new jobs will be found. China’s decision on June 19th to make its currency more flexible was therefore an “important move”. ...
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Bank-capital rules: Super model
Posted: August 19th, 2010, 5:47am MDT
The Basel club publishes new analysis on the impact of higher capital
WHEN asked, before the crisis, about the right level of capital they should have, the bankers’ answer was simple: “As little as possible”. Now that the world has changed, their response has morphed to “less than what the regulators want”. Lenders, they say, will have to hammer borrowers to recoup the costs of carrying bigger capital and liquidity buffers. The Institute of International Finance, a lobbying group, reckons the proposed “Basel 3” rules might knock 3% off the absolute level of rich-world GDP by 2015, a scary result. A study by the French Banking Federation concluded that the long-term level of GDP would be 6% lower in the euro area.
In fact, the bankers, like everyone else, have not had much clue what effect tighter rules would have. Calculating their impact is tricky. Not only is there much argument about the impact of credit on the economy, there is also no reliable theory governing banks’ balance-sheets. They are just too surreal. When banks fail, they devastate the economy. And unlike normal firms, the relationship between banks’ leverage and their cost of borrowing is distorted by their ability to rely on central banks, attract savings from naive depositors and benefit from implicit state backing. ...
MSN Money Investing Ideas
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10 great funds it pays to own
Posted: August 18th, 2010, 5:00pm MDT
Put more cash in your pocket and protect your portfolio with funds that pay dividends and interest. It's probably better than stuffing your money under a mattress (or in Treasurys).
The Economist
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Australia's election
Posted: August 18th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
An uninspiring race
MSN Money Investing Ideas
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Is investing (in companies) dead?
Posted: August 18th, 2010, 4:00pm MDT
The phenomenon of index investing driven by high-tech trading machines has turned finding great companies -- or even great funds -- into a near-impossible game. -
Why your bookstore is going out of business
Posted: August 17th, 2010, 3:00pm MDT
As e-book readers continue to improve in quality and come down in price, it's inevitable that Amazon.com will dominate the book market. -
The real key to investing? Luck
Posted: August 16th, 2010, 4:10pm MDT
There's no 'normal return.' So your best bet is to start early, save regularly and hope the market doesn't trip you up.
The Economist
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Money talks: August 16th 2010
Posted: August 16th, 2010, 1:00pm MDT by The Economist
Enclosure: [download]
Humbling news for Japan -
Fiscal fundamentalists
Posted: August 13th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Austerity or stimulus? -
Gavin Schmidt on climate change
Posted: August 13th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
We've changed the odds
MSN Money Investing Ideas
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The 5 biggest corporate flops
Posted: August 13th, 2010, 4:00pm MDT
Investors are working up an appetite for initial public offerings once again. But be warned: For some IPOs, dreams turn to dust quickly. -
A patently obvious way to add jobs
Posted: August 13th, 2010, 4:00pm MDT
Help on the employment front? All it should take is a little invention, and that help is waiting for us at the underfunded patent office. -
China feels global-market pain
Posted: August 12th, 2010, 6:00pm MDT
The worldwide network of getting goods made and sold is becoming even more complex. But here's how investors can benefit.
The Economist
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Radical Britain
Posted: August 12th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
A new test-tube for the Western world -
Palestinian democracy
Posted: August 12th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
A commission without an election -
The week ahead: August 12th 2010
Posted: August 12th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Australia's election, Japan's place in the world, Cameron's radical start and natural disasters in a host of countries
The Economist: Finance and economics
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Currencies: Race to the bottom
Posted: August 12th, 2010, 5:39am MDT
A weak economy and an active Federal Reserve have driven the dollar down since June. Will that last?
THREE months ago, when Europe’s debt crisis had markets panicking about sovereign risk, it seemed that all roads led to the dollar. The greenback was rising against the other big global currencies, the yen, pound and euro. Its role as the world’s reserve currency seemed an inestimable advantage when investors were unsure where they could safely park their cash. Within the rich world, America’s economy looked the best of a bad bunch. The stage seemed set for a dollar rally.
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American unemployment: Lower, not hire
Posted: August 12th, 2010, 5:39am MDT
How jobless is this recovery?
THE American economy is in unfamiliar territory. Not since records began has so deep a recession been followed by so shallow a recovery in employment. New jobs figures, released on August 6th, tell the tale. In July the economy added just 12,000 jobs after adjusting for temporary census work—too few to keep up with population growth or to reduce the unemployment rate. Slightly fewer Americans are working now, a full year into recovery, than when the recession ended in the middle of 2009.
A comparison with previous recoveries is unflattering (see chart). Hiring was weaker in the aftermath of the relatively mild downturns of 1990-91 and 2001, when the unemployment rate topped out at 7.8% and 6.3% respectively. But this recession, in which the unemployment rate hit 10.1%, was much more severe. From peak to trough more than 8m jobs were lost. As many Americans are working now as in November 1999. ...
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Buttonwood: A special case
Posted: August 12th, 2010, 5:39am MDT
The demand for financial assets is not like the demand for iPods
MARKETS work. A government would never have made a success of an iPod, iPhone or iPad whereas Steve Jobs at Apple was able to anticipate demand for such hand-held devices. Other companies quickly noted Apple’s success and produced rival devices, thereby driving down prices and widening their appeal to consumers.
Friedrich Hayek argued that markets were the most efficient mechanism for allocating resources because they represented the individual decisions of millions of consumers and thousands of producers—the wisdom of crowds, if you like. Bureaucrats and politicians would never have enough information to allocate resources as efficiently. ...
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Tax evasion: Dues and don’ts
Posted: August 12th, 2010, 5:39am MDT
Southern Europe will have trouble increasing its tax take
TELL a Greek or an Italian that the only certainties in life are death and taxes and they will laugh—and not because they believe in immortality. Southern European countries have long struggled to collect taxes. By their nature, of course, the data are difficult to collect but Greece, Italy, Portugal and Spain are thought to have some of the largest unofficial economies in the OECD (see chart).
Now that these countries are trying to get their finances in order, bringing down rates of tax evasion is a high priority. The Italian authorities miss out on an estimated €100 billion ($131 billion) annually in uncollected taxes. European and IMF officials warned Greece this month that curbing tax evasion, which costs the government €15 billion each year, would be vital in unlocking more bail-out money. ...
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Wheat: Straw man
Posted: August 12th, 2010, 5:39am MDT
High wheat prices reflect fires in Russia, not problems in world food markets
FOR a brief period it looked like “Food Crisis 2.0”, or another “great grain robbery”—the episode in 1973 when a Russian harvest failure sent commodity prices soaring. Spot prices for wheat rose by 24% in July, and by more than 50% between the start of June and August 6th. On August 2nd and 4th futures prices for September contracts on the Chicago Board of Trade rose by more than 5%, the biggest daily increases since the end of the 2007-08 food-price spike. Russia’s prime minister, Vladimir Putin, announced a ban on wheat exports from August 15th. Ukraine this week said it was considering export quotas. Shares in many food-processing firms slumped.
Yet it is the differences between today’s food-price spike and earlier ones that are striking, not the similarities. In 2007-08 prices rose continuously for months. In contrast, prices recently have been volatile. Weekly wheat-price rises in July were no larger, compared with four weeks previously, than those during May or November 2009. If you look at prices over 12-week periods, they rose more at the end of 2009 (before falling back) than in the past three months. Such volatility is within the normal range, reckons Manuel Hernandez of the International Food Policy Research Institute, a think-tank. True, the increase in futures prices for delivery in three months has been particularly steep. But futures prices for longer-term contracts are a better guide to overall market conditions—and have risen more slowly, suggesting a lack of panic. ...
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Economics focus: Fiscal fundamentalists
Posted: August 12th, 2010, 5:39am MDT
Austerity or stimulus? Some economists have much more extreme views than that
BY MOST people’s standards, George Osborne, Britain’s 39-year-old chancellor of the exchequer, is a fiscal hawk. In his first budget, announced in June, he promised to raise taxes and cut spending without flinching. As a result, Britain’s net public debt should peak at about 70% of GDP in March 2014. According to the Institute for Fiscal Studies, a think-tank, his spending proposals are even more mortifying than the hair shirt imposed on Britain in 1976 by the IMF.
But Mr Osborne’s efforts look dainty compared with the rigours some economists think necessary. For example, Christian Hagist and his colleagues at Freiburg University believe Britain’s fiscal condition is far worse than the official figures suggest. In 2005, a time of prosperity and tranquillity, the country’s “fiscal gap” already amounted to 505% of GDP, they calculate, almost 14 times its official net debt for that year. Mr Hagist is an exponent of “generational accounting”, a method pioneered by Larry Kotlikoff of Boston University, among others. Through this lens, the rich world’s public finances look dire indeed. Writing in the Financial Times last month, Mr Kotlikoff declared that America was in worse fiscal shape than Greece. ...
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Finance after the crisis: Citicorp redux
Posted: August 12th, 2010, 5:39am MDT
In the third of our profiles of financial institutions after the crisis, we look at Citigroup, a tarnished American icon
WALTER WRISTON liked to contend that banks needed little capital as long as they were run well. On several occasions since the legendary Citicorp boss retired in 1984, the bank and its successor, Citigroup—created in a merger in 1998—have been caught embarrassingly short of the stuff. The latest blow-up was the nastiest. Enormous mortgage losses confirmed fears that the group, which grew into a gigantic financial supermarket under Sandy Weill, one of Wriston’s successors, had become too complex to manage—a “frankenbank”, as an insider puts it. Citi almost drowned in the red ink. It ended up needing three bail-outs, the last of which saw the government take a 23% stake.
Citi must now show that it can thrive on its own. Critics argue that Vikram Pandit, who took over as chief executive in December 2007, has been too slow to pare Citi’s product offering and tighten its risk culture. To some, his survival owes more to obsequiousness—he rushed do the Obama administration’s bidding on mortgage modifications, for instance—than to managerial talent. Mr Pandit counters that he and his team are far along with what could be the largest bank restructuring ever, and that its fruits are already visible. ...
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High-frequency traders: Spread betting
Posted: August 12th, 2010, 5:39am MDT
High-speed traders set their sights on Asia and Latin America
THE merits of high-frequency trading (HFT) are under scrutiny in America, thanks to the “flash crash” of May 6th when the Dow Jones Industrial Average plunged by nearly 1,000 points in a matter of minutes. But high-speed traders are getting a warm welcome in emerging markets. When BM&FBovespa, Brazil’s main exchange, offered firms “co-location” slots to place their trading machines in the exchange’s data centre in February (giving them an additional edge on speed), they quickly sold out. The exchange plans to double the number of slots to meet demand. On Singapore’s exchange, the share of derivatives trades accounted for by HFT has risen from 10% to 30% in two years.
Satisfying the technical needs of these speed merchants is hard. High-frequency traders execute thousands of trades a second. Exchanges are required to process trades in microseconds (millionths of a second). They also need to increase the speed with which traders receive market data to feed into their algorithms. These upgrades are expensive. Singapore Exchange’s plan to build one of the fastest platforms in the world, capable of executing trades in just 90 microseconds, will cost an estimated S$250m ($185m). NASDAQ’s system is currently the fastest with trade times of 177 microseconds (see chart). ...
MSN Money Investing Ideas
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MasterCard or Visa: Which is a buy?
Posted: August 11th, 2010, 5:00pm MDT
While new regulations have challenged both credit card issuers and beaten down their stock prices, a close look reveals which is better positioned for a rebound. -
Is corporate America rusting away?
Posted: August 11th, 2010, 9:37am MDT
Businesses, like US consumers, have held on to their cash and avoided debt. It was a good short-term game plan, but it won't work forever (and won't create much-needed jobs). -
8 CEOs' total windfall: $250 million
Posted: August 10th, 2010, 6:00pm MDT
As stock prices tumbled in 2008-09, companies made huge options grants to their top execs, who then scored millions when the market recovered. See who's up $75 million. -
Are China's banks in trouble?
Posted: August 9th, 2010, 5:00pm MDT
Plans for a stricter test of the country's banking system look good on the surface, but they could really be a sign of problems ahead.
The Economist
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Money talks: August 9th 2010
Posted: August 9th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
In this week's finance podcast - currency markets, zombie banks rise again and wheat prices after Russia's export ban
MSN Money Investing Ideas
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Chipotle vs. Panera: Fast-casual clash
Posted: August 9th, 2010, 4:00pm MDT
Nutritionally and socially conscious eaters have boosted the fortunes of these 2 chain restaurants. But which of them is better positioned to boost investors' fortunes? -
Would automatic IRAs save retirement?
Posted: August 6th, 2010, 6:00pm MDT
Experts at think tanks on both ends of the political spectrum embrace the idea (which Democrats will soon propose), but businesses are balking.
The Economist
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James Manyika on industrial policy
Posted: August 6th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Global competitiveness -
Utah's immigration bill
Posted: August 6th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Carrots, sticks and the police -
The week ahead: August 5th 2010
Posted: August 6th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Floods in Pakistan, a new president for Colombia, elections in Rwanda and a crackdown on BlackBerrys in the Gulf
MSN Money Investing Ideas
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Stocks on the road to nowhere
Posted: August 6th, 2010, 4:00pm MDT
A tour through earnings season shows why the outlook for stocks is not compelling. Case in point: Microsoft's solid earnings and the market's ho-hum reaction. -
2 tests for Chinese giants
Posted: August 5th, 2010, 5:00pm MDT
In diverse fields -- trains and telecommunications -- we'll soon learn whether some of China's leading companies can win business on the global stage.
The Economist
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Spanish promise
Posted: August 5th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Battling the storm -
The church and the law
Posted: August 5th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Establishing primacy
The Economist: Finance and economics
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Trading cocoa: Sweet dreams
Posted: August 5th, 2010, 4:56am MDT
A hedge fund bets big on chocolate
SINCE Armajaro, a London-based hedge fund, took delivery of 7% of the world’s annual cocoa-bean production last month, there have been whispers about evil speculators. Sixteen cocoa companies complained to NYSE Liffe on July 2nd that the market had been manipulated and called for more regulation. Armajaro’s retort is that its position should not influence the market’s long-term fundamentals. But that has not stopped prices surging, nor the fund’s boss, Anthony Ward, being dubbed “Chocfinger” by British tabloids.
Far less attention has been paid to the fund’s thesis. Unusually it took physical control of the 240,100 tonnes it purchased in the cocoa-futures market for just over $1 billion. The beans now lie refrigerated in warehouses in undisclosed locations across Europe. They can stay there for up to 20 years, although Armajaro hopes to have taken profits long before that. ...
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Financial games: Another roll of the dice
Posted: August 5th, 2010, 4:56am MDT
New ways to take your friends and family to the cleaners
THE most famous board game of them all, “Monopoly”, was launched during the Depression. This crisis may not produce anything quite as successful, but it has also spawned a crop of new financial games.
“Billionaire Tycoon”, which will go on sale this autumn, is one engaging example. You are an entrepreneur who has been wiped out by the crash; you win when you have GBP1 billion on hand through the strategic acquisition of cash-generating firms, starting with car washes and pet shops and building up to oil rigs and private banks. Along the way, you can bargain, trade, steal, borrow and even engineer military coups to gain businesses and outfox opponents. Its co-creator, Shameek Upadhya, says his entrepreneur friends like to play—as do, apparently, their children. ...
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European banks: Letting the bottom line talk
Posted: August 5th, 2010, 4:56am MDT
Europe’s banks are making money hand over fist. How odd
A FEW weeks ago Europe’s banks were in real trouble. Many struggled to borrow from their peers or from capital markets amid concern that bad debts could soar or that faltering government finances in Europe could start toppling them like dominoes. Now investment analysts are falling over one another to raise their profit forecasts and slap “buy” recommendations on the stocks.
That has less to do with the results of the relatively lenient “stress tests” the banks were subjected to in July, although they clearly played a part, than with the revelations that the first half of 2010 was highly profitable. Among the firms that comfortably beat analysts’ forecasts were Deutsche Bank, UBS and BNP Paribas, the biggest banks in Germany, Switzerland and France respectively. ...
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Economics focus: The Himalayas of hiring
Posted: August 5th, 2010, 4:56am MDT
Three out of every ten of the world’s new workers will be Indian. Employing them won’t be easy
LABOUR is cheap in India: signage is painted by hand; bricks are piled nine-high on the crowns of construction workers; shops are more crowded with attendants than customers. As China’s workforce becomes older, costlier and stroppier, some firms will look to exit the dragon. Only India has the numbers to match it.
According to the International Labour Organisation, the number of Indians in the workforce will increase by almost 80m over the next decade. But that is an understatement, argues a new paper* by Tushar Poddar of Goldman Sachs and Pragyan Deb, now at the London School of Economics (LSE). Only a third of Indian women currently seek paid work, they point out (other estimates are even lower). If that figure rises to 38% by 2020, then the Indian workforce will swell by 110m, they reckon. Three out of every ten extra workers in the world will be Indian. ...
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Finance after the crisis: Out of the bush league
Posted: August 5th, 2010, 4:56am MDT
Our series of profiles of firms after the crisis continues with Australia’s ANZ
FOR its new headquarters in Melbourne, ANZ skipped the portraits of yesteryear’s leaders and the money museum that underpinned its lovely old cathedral of finance on Queen Street. Its new lobby is, in effect, an airport lounge, complete with showers and internet connections for travelling staff and clients. The architecture echoes the bank’s strategy: seize a moment when many of the world’s large financial institutions have been hopelessly distracted to carve out a franchise across Asia.
Australian banks have taken tentative steps in this direction before, with disheartening results. ANZ itself gave up on Grindlays, its Indian business, in 2000. Standard Chartered picked up what soon proved to be a jewel, and ANZ lost access to a market that has yet to be regained. It has set aside such disappointments. Since the end of 2007, just after Michael Smith arrived from HSBC (where he had run its Asian operations) to take charge at ANZ, the number of customers it has outside Australia and New Zealand has grown from 1m to 3m, and the amount of deposits has gone from $13 billion to $37 billion. Net profits from outside its home region have doubled to 13% of the total and the bank wants this to be 20% in 2012. ...
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The recovery in trade: Defying gravity and history
Posted: August 5th, 2010, 4:56am MDT
Despite dire predictions of a repeat of the 1930s, trade is bouncing back
DURING the Great Depression, America’s protectionist Smoot-Hawley Act of 1930 raised tariffs on more than 900 goods. A series of retaliatory actions by other countries followed. The effect on global commerce was devastating. In the three years to June 1932, the volume of world trade shrank by over a quarter. No wonder, then, that the spectre of the worst recession since the Depression led many to fear another descent into protectionism and a similar decline in trade.
At first, the recession did hit trade hard. Global GDP fell by 0.6% in 2009 while the volume of world exports dropped by 12.2%. But whereas the Depression saw trade decline for at least four years, this time the rebound has been quick, and sharp. By May this year, emerging-economy members of the G20 were importing and exporting around 10% more than their pre-crisis peaks (see chart). Rich-world trade has recovered from the trough too, though it has not yet made up all the ground lost since the credit crunch began. ...
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Buttonwood: Dodging defaults
Posted: August 5th, 2010, 4:56am MDT
The corporate-bond market has proved more resilient than feared
AS INVESTMENT banks toppled in the autumn of 2008, panic swept the corporate-bond market. With bank finance disappearing, company profits under grave threat and a slump apparently on the way, investors feared that a wide range of firms would be forced to renege on their debts.
In the spring of 2009, Jim Reid of Deutsche Bank says, the market was pricing in the prospect of more than half of American high-yield bonds defaulting over the next five years, assuming that investors recovered nothing from the bankruptcy process. On a more typical recovery rate (around 40 cents on the dollar), the markets were pricing in a 69% default rate. That compares with a peak five-year default rate of 45% during the 1930s. ...
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Brazil's development bank : Nest egg or serpent's egg?
Posted: August 5th, 2010, 4:56am MDT
Ahead of presidential elections, BNDES comes under scrutiny
EIKE BATISTA, Brazil’s richest man, calls BNDES, the country’s state-owned development bank, “the best bank in the world”. But a former BNDES chairman, Luiz Carlos Mendonca de Barros, says it is a serpent’s egg—a reference to a film about the origins of the Nazi party. And a former central-bank chief, Gustavo Loyola, dubs the bank “Jurassic” and reckons its links with the treasury recall one of the worst periods of military rule. The violence of the rhetoric reflects growing controversy over BNDES and over state interference in the economy.
BNDES’s rate of new lending now far exceeds that of the World Bank. Its gross disbursements reached 137 billion reais ($69 billion, see chart) in 2009, double the amount in 2007. Its political connections are impressive, too. The finance minister is a former head of the bank and the bank’s current head is favourite to succeed him if Dilma Rousseff, the candidate of the ruling Workers’ Party, becomes president. ...
MSN Money Investing Ideas
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What if the jobs don't come back?
Posted: August 4th, 2010, 6:00pm MDT
A lot of jobs fed by the housing bubble are gone, and it's not clear what will replace them or how long it will take. -
Why are the rich still whining?
Posted: August 3rd, 2010, 5:00pm MDT
While most Americans continue coping with diminished expectations, the wealthiest have seen their net worth bounce back sharply. Yet they keep complaining. -
3-D IPO and other hot new stocks
Posted: August 3rd, 2010, 2:00pm MDT
There's a boom under way among intriguing companies new to the market -- including the one that makes those glasses we couldn't see 'Avatar' in 3-D without. -
Fannie and Freddie must die
Posted: August 2nd, 2010, 6:00pm MDT
The taxpayer wards have gotten billions in bailouts in the name of preventing a mortgage meltdown and housing collapse. And now Congress is looking for a solution. Watch out. -
A sure way to invest and lose
Posted: August 2nd, 2010, 5:00pm MDT
Most investors do a good job of picking mutual funds but cancel that advantage with ill-timed buying and selling, a study indicates. Here are ways around the problem.
The Economist
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Money talks: August 2nd 2010
Posted: August 2nd, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Our Buttonwood columnist and banking editor on China's economy, European banking results and Alan Greenspan's recent comments
MSN Money Investing Ideas
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Game on: Number nonsense continues
Posted: July 30th, 2010, 5:00pm MDT
Wall Street has failed to grasp that consensus earnings estimates have no bearing on a company's financial health. Plus: Why mining stocks (wrongly) get the shaft.
The Economist
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China's labour market
Posted: July 30th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Worker power? -
Books of the month: biographies
Posted: July 30th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
We've read them all
MSN Money Investing Ideas
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Is this America's worst investment?
Posted: July 30th, 2010, 3:00pm MDT
Investors have poured billions into exchange-traded funds that attempt to track the prices of raw materials. But when commodities go up, commodity ETFs often don't.
The Economist
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The week ahead: July 29th 2010
Posted: July 29th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Kenya goes to the polls, Naomi Campbell testifies in The Hague, cluster bombs face a ban and the silly season begins -
Rolf-Dieter Heuer on new physics
Posted: July 29th, 2010, 5:00pm MDT by The Economist
Enclosure: [download]
Physics' fanciest toy
MSN Money Investing Ideas
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Did Exxon misplay its bet on China?
Posted: July 29th, 2010, 4:00pm MDT
If new estimates are right, China won't import as much liquefied natural gas as once thought, leaving big energy companies -- particularly Exxon Mobil -- in the lurch.
The Economist: Finance and economics
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Cerberus: Out of the doghouse?
Posted: July 29th, 2010, 4:55am MDT
After a few conspicuous flops, a private-equity firm gets back to its roots
“PEOPLE were prematurely writing the epitaph of our investments and our firm,” says Mark Neporent of Cerberus, a private-equity firm and hedge fund. “Hopefully it’s pretty apparent to people that we’re back.” The firm, named after the three-headed dog in Greek mythology that guards the gates of the underworld, has spent the past two years trying to claw its way out of hell. Two of its largest and best known investments tanked. Chrysler, a carmaker, filed for bankruptcy and GMAC, General Motors’ financing arm, had to be rescued by the American government, which now owns most of it. For Cerberus, an intensely private firm, these were very public embarrassments.
Some wondered whether the embattled firm would go the way of those two investments. But Cerberus’s flagship private-equity fund rebounded last year, making up for its 25% fall in 2008. (Its main hedge fund was still down by around 4% in 2009.) Its recent sale of Talecris Biotherapeutics, a blood-plasma company it bought in 2005 for $600m, to a Spanish health-care company for $3.4 billion has added to a sense of revival. Nor has the firm given up hope on Chrysler. Cerberus still has control of Chrysler Financial, the company’s finance arm, and there is talk of turning it into a diversified financial firm. Some say Cerberus may be able to recoup its money or even record a profit on its $7.4 billion investment in Chrysler if it plays its card right on Chrysler Financial. ...
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Correction: Big Mac index
Posted: July 29th, 2010, 4:55am MDT
Correction: Burger-lovers in Argentina were enjoying a special discount on Big Macs when we collected data for our index (July 24th 2010). At nornal prices the peso is undervalued by 5% not 52%. Sorry for the whopper. This has been corrected online.
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European banks: Judgment daze
Posted: July 29th, 2010, 4:55am MDT
Europe’s stress tests were a mixed affair. Many banks still face an uphill struggle to finance themselves
“IT’S an analyst’s wet dream,” says one banker of the European stress tests announced on July 23rd. If financial detail is what turns you on, then the exercise delivered in style with hundreds of pages of information on 91 banks’ solvency and their exposures to the bonds of under-siege governments in the euro zone. As a piece of organisation, if not quite a triumph, it was an impressive feat. But whether all that new disclosure or the tests’ conclusion—that seven European banks need a piffling €3.5 billion ($4.5 billion) of new capital—help the banks escape their funding problems remains to be seen.
The initial signs were modestly encouraging. Credit-default-swap (CDS) spreads, a proxy for banks’ borrowing costs, improved slightly across Europe, according to Markit, a research firm. Banks’ share prices rose too, although that had as much to do with the news on July 27th that the new Basel 3 rules on the sector’s capital and funding would be watered down. Still, wide differences remain. Five of the seven banks to fail were Spanish savings banks (see article): many of the cajas still face CDS spreads many times those of safer firms. On July 26th Bankinter, a midsized Spanish commercial bank that just scraped through the tests, paid a record spread of 240 basis points to issue a mortgage-backed bond. ...
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Spain's cajas: Thinking outside the box
Posted: July 29th, 2010, 4:55am MDT
Should the savings banks be embraced by investors, or avoided?
SPAIN’S savings banks, or cajas, have survived for nearly 200 years without the help of shareholders. But lots of these institutions, which are largely controlled by regional politicians, are now short of capital and on the hunt for private investors. A delegation from the Confederation of Spanish Savings Banks (CECA) toured European cities this week, touting what it called the “lighthouse of a new Spanish equity opportunity”.
Bad analogy. A lighthouse warns of dangers, and there are plenty of these in the cajas, chiefly political meddling and a high exposure to dud property loans. The state has already pumped €14.4 billion ($18.7 billion) into the sector, most of it from its Fund for Orderly Bank Restructuring (FROB). Five cajas failed the stress tests, and will require another €1.8 billion in capital. Another four came close, and may also need to raise funds. ...
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Finance after the crisis: Vigilante on the move
Posted: July 29th, 2010, 4:55am MDT
In the first in a series of profiles of financial institutions after the crisis we look at PIMCO, a giant fund manager
BILL GROSS has a dual passion for philately and philanthropy. In 2007 he gave to Doctors Without Borders the $9.1m he earned from an auction of his collection of British stamps. He has said he is happy to part with “old friends” for a good cause. But the 66-year-old shows no sign of parting ways with the company he co-founded in 1971, Pacific Investment Management Co (PIMCO), one of the world’s largest bond-fund managers and, since 2000, a unit of Allianz, a German insurer. As co-chief investment officer, he manages PIMCO Total Return, the world’s largest mutual fund with $234 billion of assets. It is as successful as it is big, returning an average 7.5% over the past five years—better than 98% of its peers, according to Bloomberg.
PIMCO itself, however, is changing. Having long marketed itself as “the global authority on bonds”, it recently switched to “your global investment authority”. It is too early to claim that crown. But the asset-management industry is sure to feel the effects of any effort by its most respected—and, by many, most feared—member to diversify its portfolio of offerings into equities, exchange-traded funds, risk hedging, valuation services and more. ...
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SKS comes to market: Microfight
Posted: July 29th, 2010, 4:55am MDT
Can microlenders serve shareholders and the poor?
THE loans that microfinance companies make may be tiny but their ambitions can be vaulting. Take SKS Microfinance. Already India’s biggest microlender, with 6.8m clients and 5.8m active borrowers in the year ending on March 31st (see chart), it intends to become the world’s largest by 2012, with 15m clients. To fund this growth, it hopes to raise nearly $350m by selling a 21.6% stake in an initial public offering (IPO) which got under way this week.
According to the Consultative Group to Assist the Poor (CGAP), a think-tank housed at the World Bank, the IPO is only the second by a pure microfinance institution, after the offer by Mexico’s Compartamos Bank in 2007. More may follow. CGAP reckons that SKS’s move “should set the stage for future IPOs in the sector.” The omens are good. On July 27th SKS announced that it had raised $64m from anchor investors, including JPMorgan Chase, Morgan Stanley, and India’s ICICI Prudential and Reliance Mutual Fund, at the top end of the expected price range. ...