The John Hancock Tower, a 62-story glass skyscraper in Boston’s Back Bay, was one of the first real estate trophies to run into trouble when the speculative property boom abruptly ended two years ago.
With the market in free fall, Normandy Real Estate Partners and Five Mile Capital Partners bought the building at a foreclosure auction 18 months ago for $660.6 million, or about half the price in 2006.
At 4 p.m. on Wednesday, Normandy and Five Mile officially sold the Hancock Tower to Boston Properties for $930 million.
“It is an epic conclusion for an iconic landmark,” said Finn Wentworth, a founding partner at Normandy, a real estate firm based in Morristown, N.J. “It’s due to a combination of real estate savvy and capital savvy.”
Wednesday’s deal reflects the current optimism coursing through the industry. Commercial buildings have recovered some of their value, and investors are looking to buy solid properties with good cash flow. Commercial mortgage securities also look healthier — although many experts warn that billions of dollars of loans are coming due in the next couple of years.
The turnaround of the Hancock Tower began with a risky plan in 2008 to buy pieces of the mezzanine debt, a junior debt that is less likely to be repaid. The goal of Normandy and Five Mile was to take control through foreclosure if the owner defaulted on the loans.
At the time no one knew if it would work, or even how much the building was worth.
Now, the strategy provides a template for other commercial real estate deals.
In 2009, the owner, Broadway Partners, defaulted on $472.1 million in secondary loans, but a senior mortgage remained current. Normandy and Five Mile bought more than $200 million in mezzanine loans from Lehman Brothers, the Royal Bank of Scotland and Greenwich Capital for about 30 cents on the dollar.
At the foreclosure auction on March 31, 2009, Normandy and Five Mile were the sole bidders, offering $20 million and taking on the senior mortgage.
“It was a pretty bold move, a calculated risk,” said Kevin O’Shea, the partner at Allen & Overy who represented Normandy. “They were rewarded when property values stabilized and core properties like the Hancock regained their value.”
Not everyone who has pursued the strategy has been so lucky.
William A. Ackman of Pershing Square Capital Management and Michael L. Ashner of Winthrop Realty Trust failed to gain control of the sprawling Stuyvesant Town and Peter Cooper Village this year. The two partners bought a $300 million swath of secondary loans on the Manhattan complexes for $45 million.
But their plan was foiled when the courts ruled that Mr. Ackman had to pay off the $3 billion senior mortgage before he could foreclose. Today, the 11,200-apartment properties are controlled by CW Capital, which represents the senior lenders.
“I have learned from prior experience that sometimes the better part of valor in an investment situation is to move on,” Mr. Ackman said of the deal in his third-quarter investment letter.
The Hancock Tower, a Boston landmark since it was built in 1975, has been a barometer for the real estate boom and bust.
In the months before the merger of John Hancock and Manulife Financial of Canada, the American insurer sold the Hancock Tower and three related properties in 2003 for $926.8 million to Alan M. Leventhal, the founder of Beacon Capital Partners.
In a transaction typical of that period, Mr. Leventhal put up $304 million, or roughly one-third of the purchase price, and took on a $623 million mortgage on the four properties. Beacon valued just the Hancock Tower and a nearby garage at about $639 million, according to real estate executives familiar with the deal.
Three years later, the commercial real estate market was roaring, fed by billions of dollars from foreign investors, pension funds and insurers and cheap debt from Wall Street banks and hedge funds. Mortgages, in turn, were packaged with other loans into a securities and sold to investors — freeing even more money to make deals.
With the money flowing, developers, private equity firms and hedge funds were able to buy properties with increasingly less cash. Many borrowed up to 80 percent of the purchase price, adding sizable second mortgages or mezzanine debt.
As the market neared its peak, Scott Lawlor, founder of Broadway Partners, a highflying money manager, paid $3.4 billion for the Hancock Tower and nine other properties in December 2006. The deal valued Hancock Tower and the garage at $1.35 billion, more than double the price in 2003, according to people familiar with the deal. But it also loaded the property with debt, with a mortgage and secondary loans that covered about 82 percent of the purchase price.
“This is a significant group of marquee properties in highly desirable markets that we are confident will deliver strong risk-adjusted returns to our investors,” Mr. Lawlor said at the time.
By the time Lehman Brothers collapsed in September 2008, property values had plunged by a third in Boston and elsewhere, according to analysts. Corporate tenants, like the Hill Holiday ad agency at the Hancock Tower, balked at constantly rising rents and moved out.
Normandy and Five Mile took over in the spring of 2009. Along the way, they refurbished the lobby and created an underground parking garage for top executives, spending more than $40 million on improvements. They were also able to offer lower rents than previous owners. And they scored a major coup in May when Bain Capital signed a lease for seven floors, a tenant lured away from a building owned by Boston Properties.
“Besides navigating the debt stack,” said Mr. Wentworth, “we created value the old fashioned way.”
In October, the two firms put the Hancock Tower on the auction block. Boston Properties was the winner, agreeing to put up $289.5 million and assume the $640.5 million mortgage.
The deal closed on Wednesday.
Wednesday, December 29, 2010
Asian Stocks Fluctuate as Japanese Exporters Fall, Commodity Shares Climb
Asian stocks fluctuated as the dollar weakened to a seven-week low against the yen, damping the outlook for Japanese export earnings. Commodity companies rose.
Toyota Motor Corp., a Japanese carmaker that counts North America as its biggest overseas market, declined 0.6 percent in Tokyo. Nintendo Co., a Japanese maker of video-game machines, dropped 1.3 percent. BHP Billiton Ltd., the world’s biggest mining company, increased 0.7 percent in Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, climbed 0.6 percent.
“The yen’s appreciation will hang over the market” in Japan, said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “I don’t think people are rushing to sell stocks to lock in profits, because there are strong expectations that stocks will rise next year.”
The MSCI Asia Pacific Index rose 0.3 percent to 137.25 as of 9:44 a.m. in Tokyo, with more than three times as many stocks declining as advancing. The gauge has climbed 14 percent this year, and closed yesterday at its highest level since June 2008, on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb inflation and concern about the pace of the U.S. economic rebound.
Japan’s Nikkei 225 Stock Average lost 0.5 percent, South Korea’s Kospi Index gained 0.2 percent and Australia’s S&P/ASX 200 Index increased 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index climbed 0.1 percent. The index gained 0.1 percent yesterday, led by energy companies as crude oil remained above $90 a barrel for a fifth straight day.
Toyota, Honda, Nintendo
Toyota, Honda Motor Co. and Nintendo were among the heaviest drags on the MSCI Asia Pacific Index, and the largest contributors to the decline in Japan’s broad Topix index.
Toyota, the world’s biggest carmaker, dropped 0.6 percent to 3,230 yen. Honda, an automaker that receives 43 percent of its revenue from North America, slid 0.8 percent to 3,230 yen. Nintendo, the world’s largest maker of video-game players, lost 1.3 percent to 24,110 yen.
The dollar weakened against the yen for an eighth straight session yesterday, the longest streak since 2004. It depreciated to 81.40 yen today, the lowest intraday level since Nov. 9. A weaker dollar reduces the value of U.S. income at Japanese companies when converted into their home currency.
The yen is headed for its strongest annual average level against the dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
Toyota Motor Corp., a Japanese carmaker that counts North America as its biggest overseas market, declined 0.6 percent in Tokyo. Nintendo Co., a Japanese maker of video-game machines, dropped 1.3 percent. BHP Billiton Ltd., the world’s biggest mining company, increased 0.7 percent in Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, climbed 0.6 percent.
“The yen’s appreciation will hang over the market” in Japan, said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “I don’t think people are rushing to sell stocks to lock in profits, because there are strong expectations that stocks will rise next year.”
The MSCI Asia Pacific Index rose 0.3 percent to 137.25 as of 9:44 a.m. in Tokyo, with more than three times as many stocks declining as advancing. The gauge has climbed 14 percent this year, and closed yesterday at its highest level since June 2008, on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb inflation and concern about the pace of the U.S. economic rebound.
Japan’s Nikkei 225 Stock Average lost 0.5 percent, South Korea’s Kospi Index gained 0.2 percent and Australia’s S&P/ASX 200 Index increased 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index climbed 0.1 percent. The index gained 0.1 percent yesterday, led by energy companies as crude oil remained above $90 a barrel for a fifth straight day.
Toyota, Honda, Nintendo
Toyota, Honda Motor Co. and Nintendo were among the heaviest drags on the MSCI Asia Pacific Index, and the largest contributors to the decline in Japan’s broad Topix index.
Toyota, the world’s biggest carmaker, dropped 0.6 percent to 3,230 yen. Honda, an automaker that receives 43 percent of its revenue from North America, slid 0.8 percent to 3,230 yen. Nintendo, the world’s largest maker of video-game players, lost 1.3 percent to 24,110 yen.
The dollar weakened against the yen for an eighth straight session yesterday, the longest streak since 2004. It depreciated to 81.40 yen today, the lowest intraday level since Nov. 9. A weaker dollar reduces the value of U.S. income at Japanese companies when converted into their home currency.
The yen is headed for its strongest annual average level against the dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
Fee Squeeze Seen in 2011 by Top India Stock Arranger Citigroup
Fees for underwriting stock sales in India may remain near all-time lows as investment banks battle for market share, according to an executive at Citigroup Inc., the top-ranked adviser on equity offerings in the country.
Indian companies paid bankers 0.92 percent of the record $24 billion they raised locally this year in initial public offerings and additional sales as fees, the lowest ratio since Bloomberg began compiling the data in 1999. That compares with 3.5 percent in the U.S. and 2.17 percent in Hong Kong, the largest markets for stock offerings in 2010, the data show.
“On the top end of the deal pyramid, there is serious competition,” Ravi Kapoor, head of Citigroup’s global banking operations in India, said in a Dec. 22 interview in Mumbai. “We will still see sub-optimal fees being charged just to gain market share.”
State-run enterprises that paid near-zero fees in 2010 will continue to dominate India’s equity capital market next year along with infrastructure, manufacturing and services companies, Kapoor said. Citigroup, ranked fifth in the world for share sales, and five rivals accepted fees of less than $6 each to arrange government-controlled Coal India Ltd.’s record IPO.
India was the world’s eighth-largest market for IPOs and secondary offerings this year, Bloomberg data show.
Government-led sales accounted for about half the total amount raised in domestic share offers in 2010, according to data compiled by Bloomberg. New York-based Citigroup maintained its share of local equity sales at almost 16 percent for a second year, the data show.
Halfway to Target
Steel Authority of India Ltd., the nation’s second-largest producer of the alloy, and Oil & Natural Gas Corp., India’s biggest energy explorer, are among companies in which the government plans to sell stock, according to the Department of Disinvestment’s website, as Prime Minister Manmohan Singh’s administration seeks to narrow the budget deficit.
JPMorgan Chase & Co., HSBC Holdings Plc and Deutsche Bank AG are among six banks that agreed to split a fee of less than 0.02 cent for managing a proposed sale of shares in Steel Authority, two people with knowledge of the matter said in September.
Banks must match the lowest fees to win work on state deals, according to government guidelines.
The government has raised 227.6 billion rupees, about half its target for the 12 months through March 31, according to a Dec. 22 statement on the disinvestment department’s website.
Splitting Fees
Goldman Sachs Group Inc. and JPMorgan, both based in New York, were among four banks that earned about 2 rupees each last month for managing a 74 billion rupee sale of shares in state- run Power Grid Corp. of India, the nation’s biggest transmission company.
Citigroup retained its spot at the top of the Indian equity league table after it agreed to split 1,548 rupees in fees with five banks including Bank of America Corp., Deutsche Bank AG and Morgan Stanley for managing Coal India’s 155 billion rupee IPO in October.
The U.S. bank managed 16 share sales in India including offers by Reliance Industries Ltd. and Tata Motors Ltd., compared with 26 by runner-up Kotak Mahindra Capital Co. and 27 for third-ranked Enam Securities Pvt., Bloomberg data show. The figures don’t include rights offers or convertible bonds.
Insurers may sell shares if the government amends rules, including raising the foreign ownership limit to 49 percent from 26 percent, said Kapoor, 48, declining to name any firms. The government’s proposal to raise the cap has been stuck in parliament for three years because of a lack of consensus.
Accelerating Growth
Economic growth of 8 percent to 9 percent would also force companies to seek funding to sustain expansion plans and prepare for acquisitions in India and abroad, Kapoor said. Asia’s third- largest economy may expand 9 percent in the fiscal year that starts April 1, Planning Commission Deputy Chairman Montek Singh Ahluwalia said Dec. 24.
“We will see a continued flow of debt and equity funds into Indian markets next year given the outlook for robust growth,” Kapoor said. Citigroup ranked first among underwriters of overseas bonds in India this year, accounting for 18 percent of the $11.2 billion of deals, according to Bloomberg data.
Stock underwriting and mergers advisory services generate a larger share of investment banking revenue than debt capital markets in India, Kapoor said. Frankfurt-based Deutsche Bank ranked second in managing bond sales, and Edinburgh-based Royal Bank of Scotland Group Plc was No. 3, Bloomberg data show.
Indian companies paid bankers 0.92 percent of the record $24 billion they raised locally this year in initial public offerings and additional sales as fees, the lowest ratio since Bloomberg began compiling the data in 1999. That compares with 3.5 percent in the U.S. and 2.17 percent in Hong Kong, the largest markets for stock offerings in 2010, the data show.
“On the top end of the deal pyramid, there is serious competition,” Ravi Kapoor, head of Citigroup’s global banking operations in India, said in a Dec. 22 interview in Mumbai. “We will still see sub-optimal fees being charged just to gain market share.”
State-run enterprises that paid near-zero fees in 2010 will continue to dominate India’s equity capital market next year along with infrastructure, manufacturing and services companies, Kapoor said. Citigroup, ranked fifth in the world for share sales, and five rivals accepted fees of less than $6 each to arrange government-controlled Coal India Ltd.’s record IPO.
India was the world’s eighth-largest market for IPOs and secondary offerings this year, Bloomberg data show.
Government-led sales accounted for about half the total amount raised in domestic share offers in 2010, according to data compiled by Bloomberg. New York-based Citigroup maintained its share of local equity sales at almost 16 percent for a second year, the data show.
Halfway to Target
Steel Authority of India Ltd., the nation’s second-largest producer of the alloy, and Oil & Natural Gas Corp., India’s biggest energy explorer, are among companies in which the government plans to sell stock, according to the Department of Disinvestment’s website, as Prime Minister Manmohan Singh’s administration seeks to narrow the budget deficit.
JPMorgan Chase & Co., HSBC Holdings Plc and Deutsche Bank AG are among six banks that agreed to split a fee of less than 0.02 cent for managing a proposed sale of shares in Steel Authority, two people with knowledge of the matter said in September.
Banks must match the lowest fees to win work on state deals, according to government guidelines.
The government has raised 227.6 billion rupees, about half its target for the 12 months through March 31, according to a Dec. 22 statement on the disinvestment department’s website.
Splitting Fees
Goldman Sachs Group Inc. and JPMorgan, both based in New York, were among four banks that earned about 2 rupees each last month for managing a 74 billion rupee sale of shares in state- run Power Grid Corp. of India, the nation’s biggest transmission company.
Citigroup retained its spot at the top of the Indian equity league table after it agreed to split 1,548 rupees in fees with five banks including Bank of America Corp., Deutsche Bank AG and Morgan Stanley for managing Coal India’s 155 billion rupee IPO in October.
The U.S. bank managed 16 share sales in India including offers by Reliance Industries Ltd. and Tata Motors Ltd., compared with 26 by runner-up Kotak Mahindra Capital Co. and 27 for third-ranked Enam Securities Pvt., Bloomberg data show. The figures don’t include rights offers or convertible bonds.
Insurers may sell shares if the government amends rules, including raising the foreign ownership limit to 49 percent from 26 percent, said Kapoor, 48, declining to name any firms. The government’s proposal to raise the cap has been stuck in parliament for three years because of a lack of consensus.
Accelerating Growth
Economic growth of 8 percent to 9 percent would also force companies to seek funding to sustain expansion plans and prepare for acquisitions in India and abroad, Kapoor said. Asia’s third- largest economy may expand 9 percent in the fiscal year that starts April 1, Planning Commission Deputy Chairman Montek Singh Ahluwalia said Dec. 24.
“We will see a continued flow of debt and equity funds into Indian markets next year given the outlook for robust growth,” Kapoor said. Citigroup ranked first among underwriters of overseas bonds in India this year, accounting for 18 percent of the $11.2 billion of deals, according to Bloomberg data.
Stock underwriting and mergers advisory services generate a larger share of investment banking revenue than debt capital markets in India, Kapoor said. Frankfurt-based Deutsche Bank ranked second in managing bond sales, and Edinburgh-based Royal Bank of Scotland Group Plc was No. 3, Bloomberg data show.
Tuesday, December 28, 2010
Wi-Fi Overload at High-Tech Meetings
SAN FRANCISCO — Internet entrepreneurs climb on stage at technology conferences and praise a world in which everyone is perpetually connected to the Web.
But down in the audience, where people are busy typing and transmitting this wisdom, getting a Wi-Fi connection is often downright impossible.
“I’ve been to 50 events where the organizer gets on stage and says, ‘It will work,’ ” said Jason Calacanis, chief executive of Mahalo, a Web search company. “It never does.”
Last month in San Francisco at the Web 2.0 Summit, where about 1,000 people heard such luminaries as Mark Zuckerberg of Facebook, Julius Genachowski, chairman of the Federal Communications Commission, and Eric E. Schmidt of Google talk about the digital future, the Wi-Fi slowed or stalled at times.
Earlier this year, Steven P. Jobs, Apple’s chief executive, had to ask the audience at his company’s developer conference to turn off their laptops and phones after his introduction of the iPhone 4 was derailed because of an overloaded Wi-Fi network.
And few of Silicon Valley’s technorati seem willing to forget one of the biggest Wi-Fi breakdowns, on the opening day of a conference in 2008 co-hosted by the technology blog TechCrunch. It left much of the audience steaming over the lack of Internet access. The next morning, the organizers — who included Mr. Calacanis — clambered onto the stage to apologize and announce that they had fired the company that installed the Wi-Fi.
Technology conferences are like revival meetings for entrepreneurs, deal makers and the digitally obsessed. Attendees compulsively blog, e-mail, text and send photos and video from their seats.
Some go so far as to watch a webcast of the event on their laptops rather than look up at the real thing right in front of them. Nearly all conferences make free Wi-Fi available to keep the crowd feeling connected and productive.
The problem is that Wi-Fi was never intended for large halls and thousands of people, many of them bristling with an arsenal of laptops, iPhones and iPads. Mr. Calacanis went to the extreme at the Web 2.0 Summit by bringing six devices to get online — a laptop, two smartphones and three wireless routers.
He explained — while writing e-mails on his laptop — that as a chief executive and investor, he needed dependable Internet access at all times. “You’ve still got to work,” Mr. Calacanis said.
Wi-Fi is meant for homes and other small spaces with more modest Internet demands, says Ernie Mariette, founder of Mariette Systems, which installs conference Wi-Fi. “You’re asking a technology to operate beyond its capability.”
Conference organizers and the Wi-Fi specialists they hire often fail to provide enough bandwidth. Many depend on the infrastructure that the hotels or convention centers hosting their events already have in place.
Companies that install Wi-Fi networks sometimes have only a day to set up their equipment in a hall and then test it. They must plan not only for the number of attendees, but also the size and shape of the room, along with how Wi-Fi signals reflect from walls and are absorbed by the audience.
“Every space is different and every crowd is different,” Mr. Mariette said.
What is good enough for a convention of podiatrists is woefully inadequate for Silicon Valley’s connected set.
“I’ve been to health care conferences where no one brings a laptop,” said Ross Mayfield, president of the business software company Socialtext and a technology conference regular.
Technology conferences are an anomaly. Some regulars joke, perhaps accurately, that the events are host to more Internet devices per square foot than anywhere in the world. All too often, the network freezes after becoming overwhelmed with all the nonstop streaming, downloading and social networking.
That was what happened this year at the RailsConf, a software conference in Baltimore, when attendees caused Wi-Fi gridlock by tuning in to a webcast of an unrelated event across the country. Nearly everyone, it turned out, wanted to watch Apple’s live unveiling of the iPhone 4, the very one that fell victim to a Wi-Fi crash.
Adding more Wi-Fi access points does not necessarily fix the problem, Mr. Mariette said. In fact, doing so may make the situation worse by creating more interference.
To avoid Wi-Fi gridlock, conference organizers sometimes ask attendees to turn off electronics they are not using and to refrain from downloading big files. Cooperation is generally mixed, however.
Last year, an attendee at Web 2.0 Expo in New York was so desperate to get online that he offered to pay Oren Michels, chief executive of Mashery, a Web services company, to share his mobile Internet connection. MiFi, as the device is called, enables users to create mini-Internet hot spots using a mobile carrier’s network, not conference Wi-Fi.
“He said, ‘Can I give you 20 bucks for access?’ ” Mr. Michels recalled. “It was just some random person sitting next to me.”
Even if Wi-Fi devices are not connected to the network, they constantly emit signals that create background noise, sometimes until it becomes impossible to get online. IPhones and most BlackBerrys, along with certain laptops, are more susceptible than other devices because they operate on 2.4 GHz, a part of the spectrum that offers only three channels.
The Wi-Fi curse also extends to tech industry press conferences. Google, for instance, once held a press day at its headquarters in Mountain View, Calif., during which the Wi-Fi failed for several hours, although it was restored during the event’s final minutes. The flub did not exactly build confidence that Google and its partner, EarthLink, could deliver on their plans — since abandoned — to blanket San Francisco with free Wi-Fi.
But down in the audience, where people are busy typing and transmitting this wisdom, getting a Wi-Fi connection is often downright impossible.
“I’ve been to 50 events where the organizer gets on stage and says, ‘It will work,’ ” said Jason Calacanis, chief executive of Mahalo, a Web search company. “It never does.”
Last month in San Francisco at the Web 2.0 Summit, where about 1,000 people heard such luminaries as Mark Zuckerberg of Facebook, Julius Genachowski, chairman of the Federal Communications Commission, and Eric E. Schmidt of Google talk about the digital future, the Wi-Fi slowed or stalled at times.
Earlier this year, Steven P. Jobs, Apple’s chief executive, had to ask the audience at his company’s developer conference to turn off their laptops and phones after his introduction of the iPhone 4 was derailed because of an overloaded Wi-Fi network.
And few of Silicon Valley’s technorati seem willing to forget one of the biggest Wi-Fi breakdowns, on the opening day of a conference in 2008 co-hosted by the technology blog TechCrunch. It left much of the audience steaming over the lack of Internet access. The next morning, the organizers — who included Mr. Calacanis — clambered onto the stage to apologize and announce that they had fired the company that installed the Wi-Fi.
Technology conferences are like revival meetings for entrepreneurs, deal makers and the digitally obsessed. Attendees compulsively blog, e-mail, text and send photos and video from their seats.
Some go so far as to watch a webcast of the event on their laptops rather than look up at the real thing right in front of them. Nearly all conferences make free Wi-Fi available to keep the crowd feeling connected and productive.
The problem is that Wi-Fi was never intended for large halls and thousands of people, many of them bristling with an arsenal of laptops, iPhones and iPads. Mr. Calacanis went to the extreme at the Web 2.0 Summit by bringing six devices to get online — a laptop, two smartphones and three wireless routers.
He explained — while writing e-mails on his laptop — that as a chief executive and investor, he needed dependable Internet access at all times. “You’ve still got to work,” Mr. Calacanis said.
Wi-Fi is meant for homes and other small spaces with more modest Internet demands, says Ernie Mariette, founder of Mariette Systems, which installs conference Wi-Fi. “You’re asking a technology to operate beyond its capability.”
Conference organizers and the Wi-Fi specialists they hire often fail to provide enough bandwidth. Many depend on the infrastructure that the hotels or convention centers hosting their events already have in place.
Companies that install Wi-Fi networks sometimes have only a day to set up their equipment in a hall and then test it. They must plan not only for the number of attendees, but also the size and shape of the room, along with how Wi-Fi signals reflect from walls and are absorbed by the audience.
“Every space is different and every crowd is different,” Mr. Mariette said.
What is good enough for a convention of podiatrists is woefully inadequate for Silicon Valley’s connected set.
“I’ve been to health care conferences where no one brings a laptop,” said Ross Mayfield, president of the business software company Socialtext and a technology conference regular.
Technology conferences are an anomaly. Some regulars joke, perhaps accurately, that the events are host to more Internet devices per square foot than anywhere in the world. All too often, the network freezes after becoming overwhelmed with all the nonstop streaming, downloading and social networking.
That was what happened this year at the RailsConf, a software conference in Baltimore, when attendees caused Wi-Fi gridlock by tuning in to a webcast of an unrelated event across the country. Nearly everyone, it turned out, wanted to watch Apple’s live unveiling of the iPhone 4, the very one that fell victim to a Wi-Fi crash.
Adding more Wi-Fi access points does not necessarily fix the problem, Mr. Mariette said. In fact, doing so may make the situation worse by creating more interference.
To avoid Wi-Fi gridlock, conference organizers sometimes ask attendees to turn off electronics they are not using and to refrain from downloading big files. Cooperation is generally mixed, however.
Last year, an attendee at Web 2.0 Expo in New York was so desperate to get online that he offered to pay Oren Michels, chief executive of Mashery, a Web services company, to share his mobile Internet connection. MiFi, as the device is called, enables users to create mini-Internet hot spots using a mobile carrier’s network, not conference Wi-Fi.
“He said, ‘Can I give you 20 bucks for access?’ ” Mr. Michels recalled. “It was just some random person sitting next to me.”
Even if Wi-Fi devices are not connected to the network, they constantly emit signals that create background noise, sometimes until it becomes impossible to get online. IPhones and most BlackBerrys, along with certain laptops, are more susceptible than other devices because they operate on 2.4 GHz, a part of the spectrum that offers only three channels.
The Wi-Fi curse also extends to tech industry press conferences. Google, for instance, once held a press day at its headquarters in Mountain View, Calif., during which the Wi-Fi failed for several hours, although it was restored during the event’s final minutes. The flub did not exactly build confidence that Google and its partner, EarthLink, could deliver on their plans — since abandoned — to blanket San Francisco with free Wi-Fi.
Mumbai Developers to Cut Record Home Prices as Sales Decline, IIFL Says
Mumbai developers may cut record- high home prices to revive flagging sales after banks curbed credit to the sector, according to IIFL Ltd.
Registrations for home sales, leases and property transfers fell 15 percent this quarter from the three months ended Sept. 30, the brokerage said in a note yesterday. “Selective price cuts” are expected in the quarter ending March, it said.
Real estate companies face rising borrowing costs and shrinking access to credit after a corruption probe into loans to some developers, according to Bank of America Corp.’s Merrill Lynch unit and Ambit Capital Pvt. Lenders may cut back on funds to the real estate industry for the next three to six months, Merrill Lynch said in a note to clients on Dec. 1.
“Fresh lending to real estate developers by state-run banks is taking longer than in the past,” Bhaskar Chakraborty and Avi Mehta, Mumbai-based analysts at IIFL, said in the note. “We see developers with debt refinancing requirement in the second half of the fiscal year ending 2011 increasingly coming under pressure to cut prices to monetize inventory.”
Property prices in Mumbai have climbed between 15 percent and 25 percent since April to all-time high levels, according to IIFL, ranked India’s third-best domestic brokerage in an Asiamoney poll this year.
The increase in home prices affected affordability and in turn sales volumes in a quarter that’s seasonally the strongest for real estate sales because of the holiday season, it said.
Registration data is a lagging indicator of demand as properties are registered two to three months after the actual purchase.
Registrations for home sales, leases and property transfers fell 15 percent this quarter from the three months ended Sept. 30, the brokerage said in a note yesterday. “Selective price cuts” are expected in the quarter ending March, it said.
Real estate companies face rising borrowing costs and shrinking access to credit after a corruption probe into loans to some developers, according to Bank of America Corp.’s Merrill Lynch unit and Ambit Capital Pvt. Lenders may cut back on funds to the real estate industry for the next three to six months, Merrill Lynch said in a note to clients on Dec. 1.
“Fresh lending to real estate developers by state-run banks is taking longer than in the past,” Bhaskar Chakraborty and Avi Mehta, Mumbai-based analysts at IIFL, said in the note. “We see developers with debt refinancing requirement in the second half of the fiscal year ending 2011 increasingly coming under pressure to cut prices to monetize inventory.”
Property prices in Mumbai have climbed between 15 percent and 25 percent since April to all-time high levels, according to IIFL, ranked India’s third-best domestic brokerage in an Asiamoney poll this year.
The increase in home prices affected affordability and in turn sales volumes in a quarter that’s seasonally the strongest for real estate sales because of the holiday season, it said.
Registration data is a lagging indicator of demand as properties are registered two to three months after the actual purchase.
Monday, December 27, 2010
Defying the Pessimists, Holiday Sales Rebound
Americans are splurging as though it’s 2007 again.
Shoppers spent more money this holiday season than even before the recession, according to preliminary retail data released on Monday.
After a 6 percent free fall in 2008 and a 4 percent uptick last year, retail spending rose 5.5 percent in the 50 days before Christmas, exceeding even the more optimistic forecasts, according to MasterCard Advisors SpendingPulse, which tracks retail spending.
The rise was seen in just about every retail category. Apparel led the way, with an increase of 11.2 percent. Jewelry was up 8.4 percent, and luxury goods like handbags and expensive department-store clothes increased 6.7 percent.
There was even a slight increase in purchases of home furniture, which had four consecutive years of declining sales. The figures include in-store and online sales, and exclude autos.
“For the past year or two, when I’ve seen growth in one area, it seems to come at the expense of another,” said Michael McNamara, vice president for research and analysis at SpendingPulse. “Here, things are actually all moving in the right direction.”
Of course, the broad increase was driven in part by higher spending on necessities like gas and food. And even with the across-the-board gains, some categories, like furniture and electronics, have still not climbed back to their prerecession levels.
Several retailers will report December sales in January, and they are trying to finish the month strong.
A blizzard on the East Coast may have kept away shoppers on Dec. 26, when stores typically try to capitalize on store traffic for exchanges, returns and gift cards. But analysts said that the stores would not lose those sales — they would just be pushed later in the month, or into January.
The MasterCard data suggests that the pre-Christmas sales increase was the biggest in five years. Spending reached about $584.3 billion, compared with $566.3 billion in that period in 2007.
The 5.5 percent rise beat even the retail industry’s projections. The National Retail Federation was expecting a 3.3 percent improvement, and the ShopperTrak research service anticipated a 4 percent increase (both excluded automobiles, gas and restaurants).
“In the face of 10 percent unemployment and persistent housing woes, the American consumer has single-handedly picked himself off the mat, brushed his troubles off and strapped the U.S. economy on his back,” Craig R. Johnson, the president of the consulting firm Customer Growth Partners, wrote in an e-mail.
Analysts offered several theories for the rebound in spending while the unemployment rate remained stubbornly high.
Stocks have soared to their highest levels in more than two years, giving those with higher incomes greater freedom to spend. Luxury stores like Tiffany and Saks Fifth Avenue, for example, have been posting big sales increases.
Pent-up demand is also showing up among middle-income shoppers: in government surveys, consumers have been expressing rising confidence for the last five months.
The luxury segment started heating up in late summer, said Joel Bines, a director in the global retail practice at AlixPartners.
“That trickled down to the upper- to midtier consumer, and then the midtier consumer,” he said. Once the luxury market stabilized, confidence seems to have spread, “in the media, at work, with your friends,” he said.
The sales figures were bolstered by improved inventory controls among many retailers. After two years of heavy discounting, retailers cut the number of products they held in stock rooms, in an attempt to train shoppers to buy items at full price rather than wait for sales. The strategy seems to have worked.
Shoppers browsing through after-Christmas sales said in interviews that they were still hunting for deals, but they were also feeling that the economy was stabilizing after three years of merciless uncertainty.
In Pontiac, Ill., Gwen Hilsabeck rose at 4 a.m. Sunday for a 90-minute drive through snow flurries from her house to the upstate Woodfield Mall in Schaumburg, northwest of Chicago.
“I bought two dresses on sale at Ann Taylor, and I bought four dresses on the clearance rack at Nordstrom,” said Ms. Hilsabeck, a manager at a hospice company who said she had spent $800 to $900 so far.
“I’m spending more on myself because I’m starting to feel a little more at ease,” she said, “and my 401(k) has stopped going down.”
Where the snowstorms were not a factor, stores prepared for a wave of shoppers using gift cards. At J. C. Penney, Dec. 26 is usually the second-biggest day of the year in volume of transactions, including returns, exchanges and new purchases, said Myron E. Ullman III, the company’s chairman and chief executive.
J. C. Penney tries to attract teenagers, who are frequent recipients of gift cards, on Dec. 26 by bringing in new merchandise. People “have got money in their hand if they’ve got a gift card,” Mr. Ullman said.
Indeed, gift cards continued to be popular this year, and some shoppers said they were trying to maximize their value by using them during after-Christmas sales.
“It lets you shop the day after Christmas, so you can save a lot of money,” Shelly Lara, 42, an in-home nurse from Ashtabula, Ohio, said on Sunday.
She said that even though her family was doing fine financially, the Cleveland Clinic, which owned her company, had announced some layoffs, and her husband’s company had stopped contributing to his 401(k) for six months.
“There were some scares,” Ms. Lara said. “We wanted to make sure we got the most for our money.”
Stores seemed to have planned for the holiday season appropriately, with few resorting to the huge price slashing of the last couple of years.
“There was a good match between inventory and demand,” Mr. McNamara of SpendingPulse said. “I didn’t see any evidence of unusual discounting.”
For shoppers, that meant that the hunt for deals was a bit harder after Christmas this year.
“I remember a few years ago when you could double your money if you went shopping the day after Christmas,” said Kim Rayburn, 40, a hairdresser who was looking at costume jewelry at Forever 21 at Polaris Fashion Place in Columbus, Ohio, with her daughter Samantha, 12. “It’s not like that anymore. Now it seems just like a regular shopping day.”
Shoppers spent more money this holiday season than even before the recession, according to preliminary retail data released on Monday.
After a 6 percent free fall in 2008 and a 4 percent uptick last year, retail spending rose 5.5 percent in the 50 days before Christmas, exceeding even the more optimistic forecasts, according to MasterCard Advisors SpendingPulse, which tracks retail spending.
The rise was seen in just about every retail category. Apparel led the way, with an increase of 11.2 percent. Jewelry was up 8.4 percent, and luxury goods like handbags and expensive department-store clothes increased 6.7 percent.
There was even a slight increase in purchases of home furniture, which had four consecutive years of declining sales. The figures include in-store and online sales, and exclude autos.
“For the past year or two, when I’ve seen growth in one area, it seems to come at the expense of another,” said Michael McNamara, vice president for research and analysis at SpendingPulse. “Here, things are actually all moving in the right direction.”
Of course, the broad increase was driven in part by higher spending on necessities like gas and food. And even with the across-the-board gains, some categories, like furniture and electronics, have still not climbed back to their prerecession levels.
Several retailers will report December sales in January, and they are trying to finish the month strong.
A blizzard on the East Coast may have kept away shoppers on Dec. 26, when stores typically try to capitalize on store traffic for exchanges, returns and gift cards. But analysts said that the stores would not lose those sales — they would just be pushed later in the month, or into January.
The MasterCard data suggests that the pre-Christmas sales increase was the biggest in five years. Spending reached about $584.3 billion, compared with $566.3 billion in that period in 2007.
The 5.5 percent rise beat even the retail industry’s projections. The National Retail Federation was expecting a 3.3 percent improvement, and the ShopperTrak research service anticipated a 4 percent increase (both excluded automobiles, gas and restaurants).
“In the face of 10 percent unemployment and persistent housing woes, the American consumer has single-handedly picked himself off the mat, brushed his troubles off and strapped the U.S. economy on his back,” Craig R. Johnson, the president of the consulting firm Customer Growth Partners, wrote in an e-mail.
Analysts offered several theories for the rebound in spending while the unemployment rate remained stubbornly high.
Stocks have soared to their highest levels in more than two years, giving those with higher incomes greater freedom to spend. Luxury stores like Tiffany and Saks Fifth Avenue, for example, have been posting big sales increases.
Pent-up demand is also showing up among middle-income shoppers: in government surveys, consumers have been expressing rising confidence for the last five months.
The luxury segment started heating up in late summer, said Joel Bines, a director in the global retail practice at AlixPartners.
“That trickled down to the upper- to midtier consumer, and then the midtier consumer,” he said. Once the luxury market stabilized, confidence seems to have spread, “in the media, at work, with your friends,” he said.
The sales figures were bolstered by improved inventory controls among many retailers. After two years of heavy discounting, retailers cut the number of products they held in stock rooms, in an attempt to train shoppers to buy items at full price rather than wait for sales. The strategy seems to have worked.
Shoppers browsing through after-Christmas sales said in interviews that they were still hunting for deals, but they were also feeling that the economy was stabilizing after three years of merciless uncertainty.
In Pontiac, Ill., Gwen Hilsabeck rose at 4 a.m. Sunday for a 90-minute drive through snow flurries from her house to the upstate Woodfield Mall in Schaumburg, northwest of Chicago.
“I bought two dresses on sale at Ann Taylor, and I bought four dresses on the clearance rack at Nordstrom,” said Ms. Hilsabeck, a manager at a hospice company who said she had spent $800 to $900 so far.
“I’m spending more on myself because I’m starting to feel a little more at ease,” she said, “and my 401(k) has stopped going down.”
Where the snowstorms were not a factor, stores prepared for a wave of shoppers using gift cards. At J. C. Penney, Dec. 26 is usually the second-biggest day of the year in volume of transactions, including returns, exchanges and new purchases, said Myron E. Ullman III, the company’s chairman and chief executive.
J. C. Penney tries to attract teenagers, who are frequent recipients of gift cards, on Dec. 26 by bringing in new merchandise. People “have got money in their hand if they’ve got a gift card,” Mr. Ullman said.
Indeed, gift cards continued to be popular this year, and some shoppers said they were trying to maximize their value by using them during after-Christmas sales.
“It lets you shop the day after Christmas, so you can save a lot of money,” Shelly Lara, 42, an in-home nurse from Ashtabula, Ohio, said on Sunday.
She said that even though her family was doing fine financially, the Cleveland Clinic, which owned her company, had announced some layoffs, and her husband’s company had stopped contributing to his 401(k) for six months.
“There were some scares,” Ms. Lara said. “We wanted to make sure we got the most for our money.”
Stores seemed to have planned for the holiday season appropriately, with few resorting to the huge price slashing of the last couple of years.
“There was a good match between inventory and demand,” Mr. McNamara of SpendingPulse said. “I didn’t see any evidence of unusual discounting.”
For shoppers, that meant that the hunt for deals was a bit harder after Christmas this year.
“I remember a few years ago when you could double your money if you went shopping the day after Christmas,” said Kim Rayburn, 40, a hairdresser who was looking at costume jewelry at Forever 21 at Polaris Fashion Place in Columbus, Ohio, with her daughter Samantha, 12. “It’s not like that anymore. Now it seems just like a regular shopping day.”
U.S. Entices Big Banks in Canada
OTTAWA — The Bank of Nova Scotia is sometimes praised for having a nearly perfect record with its investments in the United States. But it is the only one of Canada’s five large banks that has largely avoided the American market.
Stephen Harper, the prime minister of Canada, is among the many Canadians who regularly remind the world that their country’s banking system was left largely unscathed by the global recession and credit market collapse because of its regulation and prudent management.
Now several of the banks are taking advantage of their solid balance sheets as well as the current revamping and consolidation of the American banking system to again look south for expansion. Last week, the Toronto-Dominion Bank agreed to pay $6.3 billion for Chrysler Financial. And earlier this month the Bank of Montreal bought Marshall & Ilsley, a bank based in Milwaukee, for $4.1 billion.
Given the uneven success of previous forays south of the border, however, few investors expect much good to come of either deal.
“We don’t think it’s a great idea for Canadian banks to be expanding into the American market,” said J. Bradley Smith, the head of research at Stonecap Securities in Toronto. “From a cultural perspective, we’re very similar. But from a management perspective, the American market is not an easy threshold to cross.”
Still, Canadian banks have few other options for expansion.
“The banks simply have no choice,” said Louis Gagnon, an associate professor of finance at Queen’s University in Kingston, Ontario. “They have to go beyond our borders to grow and the only market that makes sense is the United States.”
In their home market, Canada’s top five banks — the Royal Bank of Canada, the Toronto-Dominion Bank, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce and the Bank of Montreal — offer a complete range of banking, from retail to investment banking through a nationwide chain of branches. Changes in regulation have also allowed them to expand, on a limited basis, into insurance while most brokerage houses became bank subsidiaries.
That market dominance, and some regulatory restrictions, mean that competition from foreign-owned banks in Canada is limited. At the same time, the managers of Canadian banks are immune from takeover pressures because of federal laws that prohibit any person or company from owning more than 20 percent of a chartered bank.
While that has made for a orderly financial system for Canada that is very profitable for bank investors, the banks now find themselves accumulating substantial capital without effective ways to use it to increase their businesses within Canada.
The recent rise of consumer debt in Canada has added to the problem. Both Mark J. Carney, the governor of the Bank of Canada, suggested this month that it had become time for banks to restrict consumer lending, a proposal later echoed Jim Flaherty, Canada’s minister of finance.
The United States looks like an enticing market, but as Professor Gagnon said the results have historically been uninspiring.
By most estimates, the Canadian Imperial Bank of Commerce has fared poorest in the United States. In 2007, burdened by claims from Enron investors against its American unit, the bank sold the bulk of its United States operations to Oppenheimer Holdings.
The Royal Bank of Canada’s RBC Centura unit, which is mainly active in the southeastern United States, Toronto-Dominion’s TD Banknorth, which covers the Northeast, and the Bank of Montreal’s Harris Bank, based in Chicago, have not been similar experiences. But they are all consistent underperformers relative to their parent companies’ operations in Canada.
Toronto-Dominion has been the most aggressive in the United States recently. Ed Clark, its chief executive, has exported a formula that he used to substantially increase Toronto-Dominion’s lucrative retail business after it acquired Canada Trust, which he previously headed, in 2000. In short, it emphasizes improvements in customer service like longer business hours.
Whether that plan will succeed remains to be seen, but Canada’s banks are not the only Canadian companies that have found that their success at home do not necessarily translate to the large and more competitive environment of the United States.
For example, Tim Hortons, the doughnut and coffee shop chain, dominates Canada’s fast-food market to a degree without a parallel in the United States and successfully opens new stores rapidly. But continuing struggles with its American expansion forced the closing of 54 outlets in New England last month. Regardless, James L. Darroch, the director of the financial services program at the Schulich School of Business at York University in Toronto, said that the revamping of the American financial sector would most likely force Canadian banks to increase their investments in the United States.
“Either you’ve got to expand in the U.S. to become profitable or you’ve got to exit,” he said. “If you want to stay in that market, now’s the opportunity to shape it. The question is: ‘Can you do it right?’ ”
Uniquely, the Bank of Nova Scotia has looked outside of the United States for its growth and expansion, primarily to Latin America and China.
While that strategy has brought some missteps, particularly during Mexico’s currency crisis, it has generally been more fruitful than its competitors’ efforts in the United States.
The downside of Nova Scotia’s approach, said Professor Gagnon, who is a former senior manager at the Royal Bank, is that those markets usually take much longer to develop and do not afford the large takeover opportunities that are readily available in the United States.
While Mr. Smith, the analyst, is skeptical about further expansion by Canadian bankers in the United States, he has high praise for their skills, particularly in areas like risk management.
“I feel for the managers of Canadian banks because they’re under a lot of pressure from analysts and investors,” he said. “But the success of Canadian companies in general, even beyond banks, in expanding into the U.S. is pretty spotty over the long haul.”
Stephen Harper, the prime minister of Canada, is among the many Canadians who regularly remind the world that their country’s banking system was left largely unscathed by the global recession and credit market collapse because of its regulation and prudent management.
Now several of the banks are taking advantage of their solid balance sheets as well as the current revamping and consolidation of the American banking system to again look south for expansion. Last week, the Toronto-Dominion Bank agreed to pay $6.3 billion for Chrysler Financial. And earlier this month the Bank of Montreal bought Marshall & Ilsley, a bank based in Milwaukee, for $4.1 billion.
Given the uneven success of previous forays south of the border, however, few investors expect much good to come of either deal.
“We don’t think it’s a great idea for Canadian banks to be expanding into the American market,” said J. Bradley Smith, the head of research at Stonecap Securities in Toronto. “From a cultural perspective, we’re very similar. But from a management perspective, the American market is not an easy threshold to cross.”
Still, Canadian banks have few other options for expansion.
“The banks simply have no choice,” said Louis Gagnon, an associate professor of finance at Queen’s University in Kingston, Ontario. “They have to go beyond our borders to grow and the only market that makes sense is the United States.”
In their home market, Canada’s top five banks — the Royal Bank of Canada, the Toronto-Dominion Bank, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce and the Bank of Montreal — offer a complete range of banking, from retail to investment banking through a nationwide chain of branches. Changes in regulation have also allowed them to expand, on a limited basis, into insurance while most brokerage houses became bank subsidiaries.
That market dominance, and some regulatory restrictions, mean that competition from foreign-owned banks in Canada is limited. At the same time, the managers of Canadian banks are immune from takeover pressures because of federal laws that prohibit any person or company from owning more than 20 percent of a chartered bank.
While that has made for a orderly financial system for Canada that is very profitable for bank investors, the banks now find themselves accumulating substantial capital without effective ways to use it to increase their businesses within Canada.
The recent rise of consumer debt in Canada has added to the problem. Both Mark J. Carney, the governor of the Bank of Canada, suggested this month that it had become time for banks to restrict consumer lending, a proposal later echoed Jim Flaherty, Canada’s minister of finance.
The United States looks like an enticing market, but as Professor Gagnon said the results have historically been uninspiring.
By most estimates, the Canadian Imperial Bank of Commerce has fared poorest in the United States. In 2007, burdened by claims from Enron investors against its American unit, the bank sold the bulk of its United States operations to Oppenheimer Holdings.
The Royal Bank of Canada’s RBC Centura unit, which is mainly active in the southeastern United States, Toronto-Dominion’s TD Banknorth, which covers the Northeast, and the Bank of Montreal’s Harris Bank, based in Chicago, have not been similar experiences. But they are all consistent underperformers relative to their parent companies’ operations in Canada.
Toronto-Dominion has been the most aggressive in the United States recently. Ed Clark, its chief executive, has exported a formula that he used to substantially increase Toronto-Dominion’s lucrative retail business after it acquired Canada Trust, which he previously headed, in 2000. In short, it emphasizes improvements in customer service like longer business hours.
Whether that plan will succeed remains to be seen, but Canada’s banks are not the only Canadian companies that have found that their success at home do not necessarily translate to the large and more competitive environment of the United States.
For example, Tim Hortons, the doughnut and coffee shop chain, dominates Canada’s fast-food market to a degree without a parallel in the United States and successfully opens new stores rapidly. But continuing struggles with its American expansion forced the closing of 54 outlets in New England last month. Regardless, James L. Darroch, the director of the financial services program at the Schulich School of Business at York University in Toronto, said that the revamping of the American financial sector would most likely force Canadian banks to increase their investments in the United States.
“Either you’ve got to expand in the U.S. to become profitable or you’ve got to exit,” he said. “If you want to stay in that market, now’s the opportunity to shape it. The question is: ‘Can you do it right?’ ”
Uniquely, the Bank of Nova Scotia has looked outside of the United States for its growth and expansion, primarily to Latin America and China.
While that strategy has brought some missteps, particularly during Mexico’s currency crisis, it has generally been more fruitful than its competitors’ efforts in the United States.
The downside of Nova Scotia’s approach, said Professor Gagnon, who is a former senior manager at the Royal Bank, is that those markets usually take much longer to develop and do not afford the large takeover opportunities that are readily available in the United States.
While Mr. Smith, the analyst, is skeptical about further expansion by Canadian bankers in the United States, he has high praise for their skills, particularly in areas like risk management.
“I feel for the managers of Canadian banks because they’re under a lot of pressure from analysts and investors,” he said. “But the success of Canadian companies in general, even beyond banks, in expanding into the U.S. is pretty spotty over the long haul.”
Most Asian Stocks Rise; Japan Climbs on Tie-Ups as China Reverses Advance
Most Asian stocks climbed, with the regional benchmark near a 2 1/2-year high, as Japanese shares advanced after news reports of business alliances. Chinese stocks reversed earlier gains after the country’s official interest rates were raised over the weekend.
Elpida Memory Inc., the world’s third-largest maker of computer-memory chips, gained 1.6 percent after Kyodo news reported it is in talks with Taiwan semiconductor companies on a business tie-up. Canon Inc. and Hitachi Ltd. climbed at least 0.7 percent after the Nikkei newspaper said Taiwan’s Hon Hai Precision Industry Co. plans to acquire control of their liquid- crystal display venture. Industrial & Commercial Bank of China Ltd., the world’s No. 1 lender by market value, fell 0.7 percent after gaining as much as 1 percent in the wake of China’s decision to increase interest rates as it battles inflation.
The MSCI Asia Pacific Index gained 0.2 percent to 135.52 as of 7:33 p.m. in Tokyo, with four stocks gaining for every three that fell. The gauge earlier touched an intraday high of 135.72, its topmost level since July 24, 2008.
“There’s selective buying on company news,” Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd., which manages about $57 billion. “The business environment for manufacturers, especially semiconductor-related makers, is gradually getting better.”
Regional Benchmarks
Japan’s Nikkei 225 Stock Average gained 0.8 percent. South Korea’s Kospi Index slipped 0.4 percent. Taiwan’s Taiex index climbed 0.4 percent. India’s Sensex Index slipped 0.2 percent. Markets in Australia, New Zealand and Hong Kong are closed today for a holiday.
The Shanghai Composite Index fell 1.9 percent, reversing an earlier gain of as much as 1.5 percent. China raised interest rates for the second time in just over two months on Dec. 25 after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011.
The benchmark one-year lending rate will rise by a further 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, the People’s Bank of China said in a statement on its website on Dec 25. It became effective yesterday.
“There’s a realization setting in that perhaps China’s problems are a bit more serious, and this is the first of many increases and this is going to result in tighter liquidity, and tighter liquidity is bad for stock prices,” said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management Plc, which oversees about $281.6 billion.
S&P 500 Futures
Futures on the U.S. Standard & Poor’s 500 Index fell 0.4 percent today. The gauge declined on Dec. 23 after a five-day rally sent the average price to earnings ratio of stocks in the Standard & Poor’s 500 Index to the most expensive level since June, offsetting a rebound in orders for durable goods and a drop in unemployment claims. The measure was closed on Dec. 24.
The MSCI Asia Pacific index has risen 12 percent this year through Dec. 24 on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound. Stocks on the Asian benchmark trade at 14.8 times estimated earnings, compared with about 22 times at the beginning of the year.
Elpida gained 1.6 percent to 942 yen. The company is in talks with Powerchip Technology Corp. and other Taiwanese chip companies on business tie-ups including mergers and capital alliances, Kyodo news agency reported.
Hitachi, Hon Hai
Dai Nippon Printing Co., a provider of printing services, rallied 1.8 percent to 1,122 yen. The company will triple production of film used for lithium-ion batteries and solar cells, the Nikkei newspaper reported, without saying where it got the information.
Hitachi Ltd. rose 0.7 percent to 411 yen and Canon Inc. climbed 0.9 percent to 4,310 yen. The Nikkei newspaper said Taiwan’s Hon Hai Precision Industry Co. plans to acquire control of Hitachi and Canon’s liquid-crystal display venture for 100 billion yen ($1.2 billion). Hon Hai was unchanged at NT$117.
Daewoo Shipbuilding & Marine Engineering Co. advanced 2.9 percent to 37,400 won in Seoul. The shipyard said it estimates orders will reach $11 billion next year, with operating profit at 1 trillion won ($869 million) and sales at 10 trillion won.
Hero Honda Motors Ltd., India’s biggest motorcycle maker, gained 0.4 percent to 1,937.85 rupees, after the Mint reported Dec. 25 that Hero Group is considering a yen-denominated loan to fund a buyout of Honda Motor Co.’s holding in the venture. Hero Group’s spokesman Ashwani Sharma declined to comment. The report didn’t say where it obtained the information.
Beijing Car Curbs
Hyundai Motor Co., South Korea’s biggest automaker by market capitalization, declined 3.4 percent to 172,500 won. The stock fell for a second day after the city of Beijing decided to limit the number of new passenger vehicles in the Chinese capital to ease congestion. Affiliate Kia Motors Corp. declined 3.5 percent.
“Beijing’s move to limit the number of new cars as well as China’s fresh monetary tightening have raised some concern about demand there and are affecting sentiment today,” said Song Seong Yeob, a fund manager at KB Asset Management Co. in Seoul, which oversees the equivalent of $17 billion in assets.
ICBC fell 0.7 percent to 4.15 yuan in Shanghai. China Vanke Co., the country’s largest-listed property developer, fell 2.9 percent to 8.75 yuan in Shenzhen. Vanke earlier increased as much as 1.7 percent.
“Investors were initially relieved as this interest-rate increase has been priced into stocks for a long time,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “However they’re now thinking about the future; that one increase won’t be enough to bring inflation under control and more rate hikes will be needed. That’ll keep depressing valuations of stocks.”
Elpida Memory Inc., the world’s third-largest maker of computer-memory chips, gained 1.6 percent after Kyodo news reported it is in talks with Taiwan semiconductor companies on a business tie-up. Canon Inc. and Hitachi Ltd. climbed at least 0.7 percent after the Nikkei newspaper said Taiwan’s Hon Hai Precision Industry Co. plans to acquire control of their liquid- crystal display venture. Industrial & Commercial Bank of China Ltd., the world’s No. 1 lender by market value, fell 0.7 percent after gaining as much as 1 percent in the wake of China’s decision to increase interest rates as it battles inflation.
The MSCI Asia Pacific Index gained 0.2 percent to 135.52 as of 7:33 p.m. in Tokyo, with four stocks gaining for every three that fell. The gauge earlier touched an intraday high of 135.72, its topmost level since July 24, 2008.
“There’s selective buying on company news,” Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd., which manages about $57 billion. “The business environment for manufacturers, especially semiconductor-related makers, is gradually getting better.”
Regional Benchmarks
Japan’s Nikkei 225 Stock Average gained 0.8 percent. South Korea’s Kospi Index slipped 0.4 percent. Taiwan’s Taiex index climbed 0.4 percent. India’s Sensex Index slipped 0.2 percent. Markets in Australia, New Zealand and Hong Kong are closed today for a holiday.
The Shanghai Composite Index fell 1.9 percent, reversing an earlier gain of as much as 1.5 percent. China raised interest rates for the second time in just over two months on Dec. 25 after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011.
The benchmark one-year lending rate will rise by a further 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, the People’s Bank of China said in a statement on its website on Dec 25. It became effective yesterday.
“There’s a realization setting in that perhaps China’s problems are a bit more serious, and this is the first of many increases and this is going to result in tighter liquidity, and tighter liquidity is bad for stock prices,” said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management Plc, which oversees about $281.6 billion.
S&P 500 Futures
Futures on the U.S. Standard & Poor’s 500 Index fell 0.4 percent today. The gauge declined on Dec. 23 after a five-day rally sent the average price to earnings ratio of stocks in the Standard & Poor’s 500 Index to the most expensive level since June, offsetting a rebound in orders for durable goods and a drop in unemployment claims. The measure was closed on Dec. 24.
The MSCI Asia Pacific index has risen 12 percent this year through Dec. 24 on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound. Stocks on the Asian benchmark trade at 14.8 times estimated earnings, compared with about 22 times at the beginning of the year.
Elpida gained 1.6 percent to 942 yen. The company is in talks with Powerchip Technology Corp. and other Taiwanese chip companies on business tie-ups including mergers and capital alliances, Kyodo news agency reported.
Hitachi, Hon Hai
Dai Nippon Printing Co., a provider of printing services, rallied 1.8 percent to 1,122 yen. The company will triple production of film used for lithium-ion batteries and solar cells, the Nikkei newspaper reported, without saying where it got the information.
Hitachi Ltd. rose 0.7 percent to 411 yen and Canon Inc. climbed 0.9 percent to 4,310 yen. The Nikkei newspaper said Taiwan’s Hon Hai Precision Industry Co. plans to acquire control of Hitachi and Canon’s liquid-crystal display venture for 100 billion yen ($1.2 billion). Hon Hai was unchanged at NT$117.
Daewoo Shipbuilding & Marine Engineering Co. advanced 2.9 percent to 37,400 won in Seoul. The shipyard said it estimates orders will reach $11 billion next year, with operating profit at 1 trillion won ($869 million) and sales at 10 trillion won.
Hero Honda Motors Ltd., India’s biggest motorcycle maker, gained 0.4 percent to 1,937.85 rupees, after the Mint reported Dec. 25 that Hero Group is considering a yen-denominated loan to fund a buyout of Honda Motor Co.’s holding in the venture. Hero Group’s spokesman Ashwani Sharma declined to comment. The report didn’t say where it obtained the information.
Beijing Car Curbs
Hyundai Motor Co., South Korea’s biggest automaker by market capitalization, declined 3.4 percent to 172,500 won. The stock fell for a second day after the city of Beijing decided to limit the number of new passenger vehicles in the Chinese capital to ease congestion. Affiliate Kia Motors Corp. declined 3.5 percent.
“Beijing’s move to limit the number of new cars as well as China’s fresh monetary tightening have raised some concern about demand there and are affecting sentiment today,” said Song Seong Yeob, a fund manager at KB Asset Management Co. in Seoul, which oversees the equivalent of $17 billion in assets.
ICBC fell 0.7 percent to 4.15 yuan in Shanghai. China Vanke Co., the country’s largest-listed property developer, fell 2.9 percent to 8.75 yuan in Shenzhen. Vanke earlier increased as much as 1.7 percent.
“Investors were initially relieved as this interest-rate increase has been priced into stocks for a long time,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “However they’re now thinking about the future; that one increase won’t be enough to bring inflation under control and more rate hikes will be needed. That’ll keep depressing valuations of stocks.”
Sensitive Index Drops; Reliance Communications, Bharti Airtel Lead Decline
India’s benchmark stock index fell, led by telecommunications companies as investors sold after recent gains.
Reliance Communications Ltd., the nation’s second-largest mobile-phone operator, dropped 3.5 percent, its biggest loss in more than two weeks. The stock surged more than 10 percent on Dec. 24 amid speculation Reliance Industries Ltd. will buy a stake. Bharti Airtel Ltd., the largest mobile-phone operator, slid 1.9 percent after gaining 4.7 percent in the last three trading sessions.
“Investors took money off the table following recent gains in some stocks, especially in the telecom sector,” said Ambareesh Baliga, a Mumbai-based vice president at Karvy Stock Broking Ltd. “The markets overall seem lackluster as there are no fresh triggers for investors to act on”
The Bombay Stock Exchange’s key Sensitive Index, or Sensex, lost 44.73, or 0.2 percent, to 20,028.93 at the 3:30 p.m. close in Mumbai. Companies on the measure are valued at an average 19 times estimated earnings, compared with a recent peak of 20.1 times on Nov. 5. The gauge rose 1.1 percent last week.
The S&P CNX Nifty Index on the National Stock Exchange slid 0.2 percent to 5,998.10, while the BSE 200 Index retreated 0.3 percent to 2,476.12.
Reliance Communications fell the most since Dec. 9 to 137 rupees. Speculation that Reliance Industries may buy a stake made the phone company the second-biggest gainer on the Sensex last week. Manoj Warrier, a spokesman for Reliance Industries, denied the country’s biggest company by market value had bought a stake in the wireless carrier.
Bharti Airtel slid the most in a week to 341.90 rupees.
Metal Producers
Sterlite Industries (India) Ltd., the biggest copper producer, snapped a four-day winning streak, pacing declines among metal producers. It lost 3.1 percent to 179.30 rupees.
Hindalco Industries Ltd., the aluminum producer that controls Atlanta-based Novelis Inc., slid 0.8 percent to 237.65 rupees. Tata Steel Ltd., the nation’s largest producer of the alloy, retreated 1.5 percent to 662.55 rupees.
Foreign funds sold a net 999 million rupees ($22.1 million) of Indian equities on Dec. 23, paring this year’s record flows in equities to 1.3 trillion rupees, according to data on the website of the Securities and Exchange Board of India.
Reliance Communications Ltd., the nation’s second-largest mobile-phone operator, dropped 3.5 percent, its biggest loss in more than two weeks. The stock surged more than 10 percent on Dec. 24 amid speculation Reliance Industries Ltd. will buy a stake. Bharti Airtel Ltd., the largest mobile-phone operator, slid 1.9 percent after gaining 4.7 percent in the last three trading sessions.
“Investors took money off the table following recent gains in some stocks, especially in the telecom sector,” said Ambareesh Baliga, a Mumbai-based vice president at Karvy Stock Broking Ltd. “The markets overall seem lackluster as there are no fresh triggers for investors to act on”
The Bombay Stock Exchange’s key Sensitive Index, or Sensex, lost 44.73, or 0.2 percent, to 20,028.93 at the 3:30 p.m. close in Mumbai. Companies on the measure are valued at an average 19 times estimated earnings, compared with a recent peak of 20.1 times on Nov. 5. The gauge rose 1.1 percent last week.
The S&P CNX Nifty Index on the National Stock Exchange slid 0.2 percent to 5,998.10, while the BSE 200 Index retreated 0.3 percent to 2,476.12.
Reliance Communications fell the most since Dec. 9 to 137 rupees. Speculation that Reliance Industries may buy a stake made the phone company the second-biggest gainer on the Sensex last week. Manoj Warrier, a spokesman for Reliance Industries, denied the country’s biggest company by market value had bought a stake in the wireless carrier.
Bharti Airtel slid the most in a week to 341.90 rupees.
Metal Producers
Sterlite Industries (India) Ltd., the biggest copper producer, snapped a four-day winning streak, pacing declines among metal producers. It lost 3.1 percent to 179.30 rupees.
Hindalco Industries Ltd., the aluminum producer that controls Atlanta-based Novelis Inc., slid 0.8 percent to 237.65 rupees. Tata Steel Ltd., the nation’s largest producer of the alloy, retreated 1.5 percent to 662.55 rupees.
Foreign funds sold a net 999 million rupees ($22.1 million) of Indian equities on Dec. 23, paring this year’s record flows in equities to 1.3 trillion rupees, according to data on the website of the Securities and Exchange Board of India.
Sunday, December 26, 2010
Online Bazaar Builds on Its Base With Sense of Community
In technology circles, people talk about the merits of eating your own dog food — making sure your company is actually using the same products or services it is selling.
Etsy, an independent online marketplace for handmade products and vintage goods, is getting its fair share of dog food.
Most everything in the company’s sprawling offices in the Dumbo neighborhood of Brooklyn is from sellers on Etsy.com, from the long panels of gingham curtains covering the windows to the mismatched desks and work tables. An elaborate chandelier and a pair of six-foot-long wooden eyeglasses rest in the middle of one room; a rowboat is perched in the opposite corner.
Since it was founded in 2005 as a way for hobbyists and crafty types to sell their goods, Etsy has blossomed into a thriving e-commerce site and one of New York’s hottest start-ups. The company says it expects to bring in $30 million to $50 million in revenue this year and has been profitable for a year. It has seven million registered users, nearly twice what it had a year ago.
Robert Kalin, the co-founder and chief executive of Etsy, said the site was catching on because many people now want their buying habits to reflect their values, as indicated by the surging interest in farmers’ markets and local clothing designers.
“It’s not just ‘you are what you eat’ anymore,” he said. “You are what you buy, and these things define you.”
Mr. Kalin, 30, and his partners Chris Maguire and Haim Schoppik started Etsy in Mr. Kalin’s Brooklyn apartment after he was unable to find a good place online to sell his fully functional “inside-out computers,” which are encased in oak and covered with a transparent orange lid so the machine’s guts are visible.
Even now, Mr. Kalin is one of the site’s most prolific patrons, regularly snapping up items like custom three-piece suits, intricately woven wall tapestries and ceramic sculptures of doves.
Etsy says it is on track to handle close to $400 million in transactions this year, more than double last year’s figure. That pales in comparison to eBay, still the king of person-to-person online sales. Analysts say eBay could process as much as $15 billion in sales this year, excluding cars.
But eBay, which came to prominence in the dot-com boom, has gone from resembling an overflowing garage sale to being something closer to Wal-Mart in the eyes of many shoppers. It has struggled to reinvigorate its marketplace and alienated many of the smaller sellers that were once its lifeblood.
Comparing Etsy and eBay is like looking at “a toddler and a senior citizen, in terms of scale and scope of the business,” said Colin Gillis, an analyst with BGC Partners who keeps a close eye on eBay. But he said eBay’s troubles could offer cautionary lessons for Etsy as it grows.
“Be careful with sprawl,” Mr. Gillis advised. “Ultimately, eBay has come back to the conclusion that our ultimate goal is to connect buyers and sellers. EBay has to return to its roots of making itself a useful marketplace.”
If Etsy continues to charm younger, hipper and tech-savvier online shoppers, Mr. Gillis said, it could carve out a healthy slice of market share.
Kathy Chui, a spokeswoman for eBay, said that the company still had a healthy marketplace with about 93 million buyers and more than 200 million sale listings. In addition, she said, eBay “continues to lead and innovate in areas like mobile and on our core site with engaging shopping experiences like fashion.”
Mr. Kalin says his company’s focus on community and independent sellers will help it avoid eBay’s missteps. The troubles at eBay, he said, were caused by more than just bad business decisions. “It is a symptom of our times,” he said. “They looked to maximize profitability over community.”
Mr. Kalin points to the growing abundance of polished, high-end items from professional designers, furniture makers, confectioners and jewelry makers who are able to make a living by selling their wares through Etsy.
“You will find things on Etsy that you won’t anywhere else, things that are entirely unique,” he said.
Etsy is working to ensure that as the site gets bigger, it still feels more like a treasure trove of goodies than a chaotic sidewalk sale. The company sends out daily “Etsy Finds” e-mails that are usually put together by a staff member or a popular merchant. These display a handful of items arranged around a central theme or color scheme. A recent edition featured a pair of English riding boots, circular chalkboards, hand-stamped napkins, a chunky knitted cowl and a pair of midcentury, bright red mesh chairs.
The site is meant to resemble a funky boutique. Merchants can design the virtual storefronts of their shops, and many feature stylized photos and witty descriptions of their offerings.
The folksy appeal of Etsy’s site creates a kind of intimacy between buyers and sellers, said Rachel Botsman, co-author of the book “What’s Mine Is Yours: The Rise of Collaborative Consumption.” And shoppers can feel good about their purchases because the experience is similar to that of supporting an independent crafter or local artist at a flea market.
“Some people are more interested in buying an item or a good with a story behind it,” Ms. Botsman said. “There’s a backlash against anonymous mass-produced goods, and eBay feels as though it’s been taken over by mass-produced goods.”
Etsy’s virtual shops are brimming with nearly eight million items from more than 400,000 sellers. It charges sellers a small fee to list items, as well as a processing fee for transactions. Sellers can pay to promote goods in prominent areas of on the site, like the “Showcase” page.
Many who make a living or supplement their income by selling goods online say they like the tight-knit community feel of Etsy, which offers online forums and real-life gatherings for members.
“The vibe is like sitting in a room with crafters, drinking tea and laughing,” said Lori Hammond, a 49-year-old retired bakery manager living in Portland, Me.
Claire Ferrante, 28, who lives and works in Boston as a public relations manager for a software company by day and peddles her thrift-store finds by night, has been selling items on eBay for several years. She joined Etsy last year and said she preferred the younger site, which is devoid of the creaky technology and impersonal feel that plagues eBay.
“The process is so much easier,” she said. “You can pick an avatar, make your own masthead. The listings look better, and the browsing experience is better.”
“I don’t sell much of anything on eBay anymore,” she added.
Etsy, an independent online marketplace for handmade products and vintage goods, is getting its fair share of dog food.
Most everything in the company’s sprawling offices in the Dumbo neighborhood of Brooklyn is from sellers on Etsy.com, from the long panels of gingham curtains covering the windows to the mismatched desks and work tables. An elaborate chandelier and a pair of six-foot-long wooden eyeglasses rest in the middle of one room; a rowboat is perched in the opposite corner.
Since it was founded in 2005 as a way for hobbyists and crafty types to sell their goods, Etsy has blossomed into a thriving e-commerce site and one of New York’s hottest start-ups. The company says it expects to bring in $30 million to $50 million in revenue this year and has been profitable for a year. It has seven million registered users, nearly twice what it had a year ago.
Robert Kalin, the co-founder and chief executive of Etsy, said the site was catching on because many people now want their buying habits to reflect their values, as indicated by the surging interest in farmers’ markets and local clothing designers.
“It’s not just ‘you are what you eat’ anymore,” he said. “You are what you buy, and these things define you.”
Mr. Kalin, 30, and his partners Chris Maguire and Haim Schoppik started Etsy in Mr. Kalin’s Brooklyn apartment after he was unable to find a good place online to sell his fully functional “inside-out computers,” which are encased in oak and covered with a transparent orange lid so the machine’s guts are visible.
Even now, Mr. Kalin is one of the site’s most prolific patrons, regularly snapping up items like custom three-piece suits, intricately woven wall tapestries and ceramic sculptures of doves.
Etsy says it is on track to handle close to $400 million in transactions this year, more than double last year’s figure. That pales in comparison to eBay, still the king of person-to-person online sales. Analysts say eBay could process as much as $15 billion in sales this year, excluding cars.
But eBay, which came to prominence in the dot-com boom, has gone from resembling an overflowing garage sale to being something closer to Wal-Mart in the eyes of many shoppers. It has struggled to reinvigorate its marketplace and alienated many of the smaller sellers that were once its lifeblood.
Comparing Etsy and eBay is like looking at “a toddler and a senior citizen, in terms of scale and scope of the business,” said Colin Gillis, an analyst with BGC Partners who keeps a close eye on eBay. But he said eBay’s troubles could offer cautionary lessons for Etsy as it grows.
“Be careful with sprawl,” Mr. Gillis advised. “Ultimately, eBay has come back to the conclusion that our ultimate goal is to connect buyers and sellers. EBay has to return to its roots of making itself a useful marketplace.”
If Etsy continues to charm younger, hipper and tech-savvier online shoppers, Mr. Gillis said, it could carve out a healthy slice of market share.
Kathy Chui, a spokeswoman for eBay, said that the company still had a healthy marketplace with about 93 million buyers and more than 200 million sale listings. In addition, she said, eBay “continues to lead and innovate in areas like mobile and on our core site with engaging shopping experiences like fashion.”
Mr. Kalin says his company’s focus on community and independent sellers will help it avoid eBay’s missteps. The troubles at eBay, he said, were caused by more than just bad business decisions. “It is a symptom of our times,” he said. “They looked to maximize profitability over community.”
Mr. Kalin points to the growing abundance of polished, high-end items from professional designers, furniture makers, confectioners and jewelry makers who are able to make a living by selling their wares through Etsy.
“You will find things on Etsy that you won’t anywhere else, things that are entirely unique,” he said.
Etsy is working to ensure that as the site gets bigger, it still feels more like a treasure trove of goodies than a chaotic sidewalk sale. The company sends out daily “Etsy Finds” e-mails that are usually put together by a staff member or a popular merchant. These display a handful of items arranged around a central theme or color scheme. A recent edition featured a pair of English riding boots, circular chalkboards, hand-stamped napkins, a chunky knitted cowl and a pair of midcentury, bright red mesh chairs.
The site is meant to resemble a funky boutique. Merchants can design the virtual storefronts of their shops, and many feature stylized photos and witty descriptions of their offerings.
The folksy appeal of Etsy’s site creates a kind of intimacy between buyers and sellers, said Rachel Botsman, co-author of the book “What’s Mine Is Yours: The Rise of Collaborative Consumption.” And shoppers can feel good about their purchases because the experience is similar to that of supporting an independent crafter or local artist at a flea market.
“Some people are more interested in buying an item or a good with a story behind it,” Ms. Botsman said. “There’s a backlash against anonymous mass-produced goods, and eBay feels as though it’s been taken over by mass-produced goods.”
Etsy’s virtual shops are brimming with nearly eight million items from more than 400,000 sellers. It charges sellers a small fee to list items, as well as a processing fee for transactions. Sellers can pay to promote goods in prominent areas of on the site, like the “Showcase” page.
Many who make a living or supplement their income by selling goods online say they like the tight-knit community feel of Etsy, which offers online forums and real-life gatherings for members.
“The vibe is like sitting in a room with crafters, drinking tea and laughing,” said Lori Hammond, a 49-year-old retired bakery manager living in Portland, Me.
Claire Ferrante, 28, who lives and works in Boston as a public relations manager for a software company by day and peddles her thrift-store finds by night, has been selling items on eBay for several years. She joined Etsy last year and said she preferred the younger site, which is devoid of the creaky technology and impersonal feel that plagues eBay.
“The process is so much easier,” she said. “You can pick an avatar, make your own masthead. The listings look better, and the browsing experience is better.”
“I don’t sell much of anything on eBay anymore,” she added.
Consumer-Backed Bond Sales to Diminish After Fed Ends TALF: Credit Markets
Bond offerings tied to automobile loans and leases are poised to dominate sales of asset-backed debt for a third straight year in 2011 after issuance of all types of the securities plunged 31 percent in 2009.
Vehicle debt bundled into securities will likely total from $70 billion to $75 billion, up as much as 23 percent from 2010, as auto sales rebound from a 27-year low, according to Barclays Capital. Bond sales linked to auto and education loans, and credit cards may reach $115 billion in 2011, Barclays said.
Total issuance fell to $92 billion this year from $134 billion as banks relied more heavily on deposits to fund credit card lending and the Federal Reserve ended its Term Asset-Backed Securities Loan Facility, which financed investors buying asset- backed securities.
“The auto finance companies continue to originate good volumes of new loans,” Brian Wiele, a managing director at Barclays in New York, said in a telephone interview. “They are not banks, and securitization offers attractive funding.”
Automakers are tapping the so-called asset-backed bond market as they anticipate car and truck sales reaching 12.8 million next year. Dearborn, Michigan-based Ford Motor Co., the only one of the three Detroit-area automakers that didn’t take government aid during the financial crisis, was the biggest ABS issuer in 2010, Barclays data show, offering $9.8 billion.
Bond Spreads
More than 66 percent, or $61 billion, of this year’s asset- backed securities sales were connected to automobile debt.
Top rated securities linked to auto loans yield 56 basis points, or 0.56 percentage point, more than Treasuries , according to Bank of America/Merrill Lynch data. That compares with relative yields of 193 basis points for bonds backed by student loans and a spread of 68 basis points for credit cards.
Spreads for auto-backed debt narrowed 25 basis points from Dec. 31, 2009 through Dec. 24, the Bank of America index shows. Spreads for asset-backed securities linked to student loans shrank 3 basis points to 193, while bonds tied to credit card payments saw their relative yields contract 24 basis points.
Elsewhere in credit markets, corporate bond sales worldwide total $3.18 trillion this year, down from $3.877 trillion in 2009. The extra yield investors demand to own company debt instead of Treasuries finished last week at the lowest in a month. Prices of leveraged, or speculative-grade, loans rose for a third week, while emerging-market debt spreads narrowed.
Credit-Default Swaps
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.78 basis points to a mid-price of 85.53, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and declines as it improves.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
The extra yield investors demand to own corporate bonds worldwide instead of similar-maturity government debt was unchanged at 166 basis points, or 1.66 percentage points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields averaged 4.2 percent.
Corporate bonds have lost 1.01 percent in December, trimming this year’s gains to 6.81 percent, including reinvested interest. That compares with 3.42 percent for the firm’s Global Sovereign Broad Market Plus Index and 11.9 percent for the MSCI World Index of stocks, including reinvested dividends.
Loans Rally
The S&P/LSTA U.S. Leveraged Loan 100 Index ended Dec. 23 at 92.55 cents on the dollar, up from 87.68 cents on the dollar at the end of 2009. The index, which reached as high as 92.9 cents in April, tracks the 100 largest dollar-denominated first-lien leveraged loans.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debt shrank 14 basis points to 240 basis points as of Dec. 24, according to JPMorgan Chase & Co. index data. Spreads have ranged from as wide as 346 basis points in May to as narrow as 219 this month.
Sales of bonds tied to consumer and small-business loans plummeted 42 percent in 2008 as lending shriveled during the credit crisis, according to data compiled by Bloomberg.
The Fed’s Term Asset-Backed Securities Loan Facility, or TALF, helped revive sales temporarily by lending to investors seeking to buy asset-backed bonds. The program lasted from July 2009 through March.
Credit-Card Slump
While TALF bolstered the market, sales of asset-backed debt tied to household borrowing are falling primarily due to an 85 percent drop in sales of bonds tied to credit card payments, according to a Dec. 13 Barclays report.
Financial Accounting Standards Board rules that took effect in January require banks to hold loans that were bundled and sold to investors on the balance sheet, meaning they have to maintain capital against the debt.
Credit card companies are also enjoying cheaper funding from deposits, said the New York-based analysts at Barclays led by Joe Astorina.
“A majority of issuers are banks flush with deposits,” said Barclay’s Wiele. “Banks incentives to securitize credit cards aren’t what they used to be.”
Prices on bonds linked to credit-cards may get a temporary boost as supply remains muted before demand wanes, said James Grady of Deutsche Asset Management.
‘Orphan Sector’
“At some point this becomes an orphan sector,” said Grady, a managing director in New York at the firm, which manages $240 billion. “There will be less liquidity, and it can’t have a meaningful impact large investors’ portfolios.”
Issuance of securities tied to student borrowings fell to $17.8 billion in 2010 from $20 billion the previous year as the U.S. government eliminated the Federal Family Education Loan Program. The change cut private lenders out of the market for originating government-guaranteed loans, slashing the volume of debt available for companies to package into bonds, according to Barclays.
Sales will be between $12 billion and $15 billion in 2011, Barclays analysts said in the report earlier this month. Issuance of so-called esoteric asset-backed securities, or bonds tied to unusual or riskier assets, are set to climb in 2011, according to Barclays’ Wiele. Barclays and Morgan Stanley sold $253.75 million of bonds tied to revenue from billboards operated by Adams Outdoor Advertising LP on Dec. 3, Bloomberg data show.
“The market has recovered to the point where people are willing to look at these transactions and consider the risk and reward,” he said. “As spreads have tightened on other assets, investors have to look beyond those assets for yields.”
Vehicle debt bundled into securities will likely total from $70 billion to $75 billion, up as much as 23 percent from 2010, as auto sales rebound from a 27-year low, according to Barclays Capital. Bond sales linked to auto and education loans, and credit cards may reach $115 billion in 2011, Barclays said.
Total issuance fell to $92 billion this year from $134 billion as banks relied more heavily on deposits to fund credit card lending and the Federal Reserve ended its Term Asset-Backed Securities Loan Facility, which financed investors buying asset- backed securities.
“The auto finance companies continue to originate good volumes of new loans,” Brian Wiele, a managing director at Barclays in New York, said in a telephone interview. “They are not banks, and securitization offers attractive funding.”
Automakers are tapping the so-called asset-backed bond market as they anticipate car and truck sales reaching 12.8 million next year. Dearborn, Michigan-based Ford Motor Co., the only one of the three Detroit-area automakers that didn’t take government aid during the financial crisis, was the biggest ABS issuer in 2010, Barclays data show, offering $9.8 billion.
Bond Spreads
More than 66 percent, or $61 billion, of this year’s asset- backed securities sales were connected to automobile debt.
Top rated securities linked to auto loans yield 56 basis points, or 0.56 percentage point, more than Treasuries , according to Bank of America/Merrill Lynch data. That compares with relative yields of 193 basis points for bonds backed by student loans and a spread of 68 basis points for credit cards.
Spreads for auto-backed debt narrowed 25 basis points from Dec. 31, 2009 through Dec. 24, the Bank of America index shows. Spreads for asset-backed securities linked to student loans shrank 3 basis points to 193, while bonds tied to credit card payments saw their relative yields contract 24 basis points.
Elsewhere in credit markets, corporate bond sales worldwide total $3.18 trillion this year, down from $3.877 trillion in 2009. The extra yield investors demand to own company debt instead of Treasuries finished last week at the lowest in a month. Prices of leveraged, or speculative-grade, loans rose for a third week, while emerging-market debt spreads narrowed.
Credit-Default Swaps
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.78 basis points to a mid-price of 85.53, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and declines as it improves.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
The extra yield investors demand to own corporate bonds worldwide instead of similar-maturity government debt was unchanged at 166 basis points, or 1.66 percentage points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields averaged 4.2 percent.
Corporate bonds have lost 1.01 percent in December, trimming this year’s gains to 6.81 percent, including reinvested interest. That compares with 3.42 percent for the firm’s Global Sovereign Broad Market Plus Index and 11.9 percent for the MSCI World Index of stocks, including reinvested dividends.
Loans Rally
The S&P/LSTA U.S. Leveraged Loan 100 Index ended Dec. 23 at 92.55 cents on the dollar, up from 87.68 cents on the dollar at the end of 2009. The index, which reached as high as 92.9 cents in April, tracks the 100 largest dollar-denominated first-lien leveraged loans.
In emerging markets, the extra yield investors demand to own corporate bonds rather than government debt shrank 14 basis points to 240 basis points as of Dec. 24, according to JPMorgan Chase & Co. index data. Spreads have ranged from as wide as 346 basis points in May to as narrow as 219 this month.
Sales of bonds tied to consumer and small-business loans plummeted 42 percent in 2008 as lending shriveled during the credit crisis, according to data compiled by Bloomberg.
The Fed’s Term Asset-Backed Securities Loan Facility, or TALF, helped revive sales temporarily by lending to investors seeking to buy asset-backed bonds. The program lasted from July 2009 through March.
Credit-Card Slump
While TALF bolstered the market, sales of asset-backed debt tied to household borrowing are falling primarily due to an 85 percent drop in sales of bonds tied to credit card payments, according to a Dec. 13 Barclays report.
Financial Accounting Standards Board rules that took effect in January require banks to hold loans that were bundled and sold to investors on the balance sheet, meaning they have to maintain capital against the debt.
Credit card companies are also enjoying cheaper funding from deposits, said the New York-based analysts at Barclays led by Joe Astorina.
“A majority of issuers are banks flush with deposits,” said Barclay’s Wiele. “Banks incentives to securitize credit cards aren’t what they used to be.”
Prices on bonds linked to credit-cards may get a temporary boost as supply remains muted before demand wanes, said James Grady of Deutsche Asset Management.
‘Orphan Sector’
“At some point this becomes an orphan sector,” said Grady, a managing director in New York at the firm, which manages $240 billion. “There will be less liquidity, and it can’t have a meaningful impact large investors’ portfolios.”
Issuance of securities tied to student borrowings fell to $17.8 billion in 2010 from $20 billion the previous year as the U.S. government eliminated the Federal Family Education Loan Program. The change cut private lenders out of the market for originating government-guaranteed loans, slashing the volume of debt available for companies to package into bonds, according to Barclays.
Sales will be between $12 billion and $15 billion in 2011, Barclays analysts said in the report earlier this month. Issuance of so-called esoteric asset-backed securities, or bonds tied to unusual or riskier assets, are set to climb in 2011, according to Barclays’ Wiele. Barclays and Morgan Stanley sold $253.75 million of bonds tied to revenue from billboards operated by Adams Outdoor Advertising LP on Dec. 3, Bloomberg data show.
“The market has recovered to the point where people are willing to look at these transactions and consider the risk and reward,” he said. “As spreads have tightened on other assets, investors have to look beyond those assets for yields.”
India's Government Plans Hostile Riversdale Bid to Challenge Rio's Offer
India’s government is planning to make an unsolicited bid to counter a A$3.9 billion ($3.9 billion) offer from Rio Tinto Group for Riversdale Mining Ltd.
International Coal Ventures Ltd., a group of Indian state- run metal and energy companies, hired Citigroup Inc. yesterday to study a possible counterbid for the Sydney-based coal company with mines in Mozambique, the venture’s Chairman C.S. Verma said yesterday. London-based Rio yesterday bid A$16 a share, securing 14.9 percent of Riversdale in pre-bid agreements.
Indian companies are seeking coal mines overseas to secure raw material supplies for steel and electricity. Brazil’s Vale SA or Eurasian Natural Resources Corp. may also bid, according to Sanford C. Bernstein & Co. Tata Steel Ltd., Riversdale’s biggest shareholder, said it will consider Rio’s offer “in the context of other alternatives” available.
“Financially International Coal Ventures looks strong as it has the backing of cash-rich promoters,” Navin Vohra, a partner at Ernst & Young India Ltd. said by phone from New Delhi. “However, the tag of being state-owned and unsuccessful in securing mining assets so far may weigh on its chances.”
Coal India Ltd., world’s largest producer, and Steel Authority of India Ltd., the nation’s second-largest, own about 28 percent each in International Coal Ventures. NTPC Ltd., India’s biggest power generator, NMDC Ltd., the nation’s biggest iron-ore producer, and steelmaker Rashtriya Ispat Nigam Ltd. hold about 14 percent each.
Riversdale stock climbed 0.8 percent to A$16.70 at the close of trading on the Australian stock exchange. That’s 5.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, barring the director appointed by Tata Steel. Rio fell 1 percent to A$86.36.
Shareholder Support
A successful bid for control will need the support of at least one of Riversdale’s major shareholders, with the top-three investors owning about 51 percent. These shareholders, Tata Steel, Passport Capital LLC and Cia. Siderurgica Nacional SA, were kept informed during the talks with Rio and haven’t raised any objections, Riversdale Managing Director Steve Mallyon said in a phone interview yesterday.
“The A$16 cash offer is unlikely to secure acceptance from all of Riversdale’s shareholders,” analysts led by Hayden Bairstow at CLSA Asia-Pacific Markets, said yesterday in a report, raising his price target for Riversdale by 3 percent to A$18. Riversdale’s “Benga and Zambeze coal projects are world class and we believe other suitors may show an interest in Riversdale now a formal bid has been tabled,” he said.
Counter Bid
A counter bidder may have to pay as much as A$20.80 a share, Commonwealth Bank of Australia analysts led by Tomas Vasquez said in a report.
Riversdale hasn’t had approaches from any other company, Riversdale’s Mallyon said. Citigroup will submit its report in two weeks, Verma told reporters in New Delhi yesterday after a board meeting. ICVL hasn’t discussed Riversdale with Tata Steel, he said.
“The investment in the Benga project is strategic for Tata Steel, not the financial investment in the company,” said Giriraj Daga, an analyst who has a “buy” rating on the stock at Nirmal Bang Securities Ltd. in Mumbai. “Any decision to sell stake in the company will help Tata Steel’s balance sheet as well as its share price.”
China’s Wuhan Iron & Steel Corp. “could also show interest,” since Riversdale yesterday terminated a potential $800 million investment deal with the steelmaker, Dominic Kane, an analyst at Liberum Capital Ltd., said yesterday in a report.
International Coal Ventures Ltd., a group of Indian state- run metal and energy companies, hired Citigroup Inc. yesterday to study a possible counterbid for the Sydney-based coal company with mines in Mozambique, the venture’s Chairman C.S. Verma said yesterday. London-based Rio yesterday bid A$16 a share, securing 14.9 percent of Riversdale in pre-bid agreements.
Indian companies are seeking coal mines overseas to secure raw material supplies for steel and electricity. Brazil’s Vale SA or Eurasian Natural Resources Corp. may also bid, according to Sanford C. Bernstein & Co. Tata Steel Ltd., Riversdale’s biggest shareholder, said it will consider Rio’s offer “in the context of other alternatives” available.
“Financially International Coal Ventures looks strong as it has the backing of cash-rich promoters,” Navin Vohra, a partner at Ernst & Young India Ltd. said by phone from New Delhi. “However, the tag of being state-owned and unsuccessful in securing mining assets so far may weigh on its chances.”
Coal India Ltd., world’s largest producer, and Steel Authority of India Ltd., the nation’s second-largest, own about 28 percent each in International Coal Ventures. NTPC Ltd., India’s biggest power generator, NMDC Ltd., the nation’s biggest iron-ore producer, and steelmaker Rashtriya Ispat Nigam Ltd. hold about 14 percent each.
Riversdale stock climbed 0.8 percent to A$16.70 at the close of trading on the Australian stock exchange. That’s 5.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, barring the director appointed by Tata Steel. Rio fell 1 percent to A$86.36.
Shareholder Support
A successful bid for control will need the support of at least one of Riversdale’s major shareholders, with the top-three investors owning about 51 percent. These shareholders, Tata Steel, Passport Capital LLC and Cia. Siderurgica Nacional SA, were kept informed during the talks with Rio and haven’t raised any objections, Riversdale Managing Director Steve Mallyon said in a phone interview yesterday.
“The A$16 cash offer is unlikely to secure acceptance from all of Riversdale’s shareholders,” analysts led by Hayden Bairstow at CLSA Asia-Pacific Markets, said yesterday in a report, raising his price target for Riversdale by 3 percent to A$18. Riversdale’s “Benga and Zambeze coal projects are world class and we believe other suitors may show an interest in Riversdale now a formal bid has been tabled,” he said.
Counter Bid
A counter bidder may have to pay as much as A$20.80 a share, Commonwealth Bank of Australia analysts led by Tomas Vasquez said in a report.
Riversdale hasn’t had approaches from any other company, Riversdale’s Mallyon said. Citigroup will submit its report in two weeks, Verma told reporters in New Delhi yesterday after a board meeting. ICVL hasn’t discussed Riversdale with Tata Steel, he said.
“The investment in the Benga project is strategic for Tata Steel, not the financial investment in the company,” said Giriraj Daga, an analyst who has a “buy” rating on the stock at Nirmal Bang Securities Ltd. in Mumbai. “Any decision to sell stake in the company will help Tata Steel’s balance sheet as well as its share price.”
China’s Wuhan Iron & Steel Corp. “could also show interest,” since Riversdale yesterday terminated a potential $800 million investment deal with the steelmaker, Dominic Kane, an analyst at Liberum Capital Ltd., said yesterday in a report.
Thursday, December 23, 2010
Economists See Signs of Stronger Recovery
WASHINGTON — Eighteen months after the recession officially ended, the government’s latest measures to bolster the economy have led many forecasters and policy makers to express new optimism that the recovery will gain substantial momentum in 2011.
Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward.
Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week.
The Federal Reserve, which has kept short-term interest rates near zero since the end of 2008, has made clear it is sticking by its controversial decision to try to hold down mortgage and other long-term interest rates by buying government securities.
President Obama’s $858 billion tax-cut compromise with Congressional Republicans is putting more cash in the hands of consumers through a temporary payroll-tax cut and an extension of unemployment insurance for the long-term unemployed.
It is also trying to address one of the biggest impediments to the recovery — the reluctance of companies to invest their piles of cash in new plants and equipment — by granting tax incentives for business investment.
The measured optimism is reminiscent of the mood a year ago, when the economy seemed to be reviving, only to stall again in the spring amid widespread fears caused by the debt crisis in Greece and other European countries.
Even so, economists are increasingly upbeat about the outlook, saying that while the economy in 2011 will not be strong enough to drive unemployment down significantly, it should put the United States on its soundest footing since the financial crisis started an economic tailspin three years ago.
Phillip L. Swagel, who was the Treasury Department’s chief economist during the administration of George W. Bush and teaches at the University of Maryland, said, “The recovery in 2011 will be strong enough for us to see sustained job creation that will finally give Americans a tangible sense of an improving economy.”
A prominent forecaster, Mark Zandi of Moody’s Economy.com, predicted that the economy would be “off and running” next year. “The policy response, in its totality, has been very aggressive,” he said, “and I think ensures that the recovery will evolve into a self-sustaining expansion early in 2011.”
The recession officially ended in June 2009, when the economy started to grow again. Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of this year. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.
Jan Hatzius, the chief United States economist at Goldman Sachs, said the economy was likely to grow at an annualized rate of around 3 percent this quarter. Goldman projected last week that the growth rate would be 4 percent for most of 2011. Morgan Stanley, which raised its growth forecast for 2011 to 4 percent, is even more optimistic, forecasting a rate of 4.5 percent this quarter.
Administration officials, who have been burned by premature optimism in the past, were reluctant to make predictions for next year. But Austan D. Goolsbee, the chairman of the Council of Economic Advisers since September, said that a shift in sentiment quickly followed the news of the tax deal
“There aren’t many policies which, on the day Washington announces them, lead most private-sector forecasters to publicly and significantly revise their forecasts upward,” he said. “This one did.”
There are significant caveats to the more positive outlook. The housing market remains weak, and another sustained drop in prices could badly undercut the economy. Financial markets and the banking system remain vulnerable to a new round of jitters in Europe over the debt burdens of countries like Ireland and Spain. There is mounting concern about the tattered balance sheets of state and local governments.
While fiscal and monetary policy seems to be helping the economy in the short turn, the tax-cut compromise essentially deferred looming battles over how to cut federal spending and address the government’s huge debt burden.
The Fed’s bond-buying efforts have not prevented long-term interest rates from rising — a phenomenon that is interpreted by optimists as a reaction to higher growth and by pessimists as a demonstration of the ineffectiveness of the central bank’s efforts and the potential for inflation.
And for most of the roughly eight million Americans who have lost their jobs since the recession began in December 2007, it hardly feels like a recovery.
Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward.
Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week.
The Federal Reserve, which has kept short-term interest rates near zero since the end of 2008, has made clear it is sticking by its controversial decision to try to hold down mortgage and other long-term interest rates by buying government securities.
President Obama’s $858 billion tax-cut compromise with Congressional Republicans is putting more cash in the hands of consumers through a temporary payroll-tax cut and an extension of unemployment insurance for the long-term unemployed.
It is also trying to address one of the biggest impediments to the recovery — the reluctance of companies to invest their piles of cash in new plants and equipment — by granting tax incentives for business investment.
The measured optimism is reminiscent of the mood a year ago, when the economy seemed to be reviving, only to stall again in the spring amid widespread fears caused by the debt crisis in Greece and other European countries.
Even so, economists are increasingly upbeat about the outlook, saying that while the economy in 2011 will not be strong enough to drive unemployment down significantly, it should put the United States on its soundest footing since the financial crisis started an economic tailspin three years ago.
Phillip L. Swagel, who was the Treasury Department’s chief economist during the administration of George W. Bush and teaches at the University of Maryland, said, “The recovery in 2011 will be strong enough for us to see sustained job creation that will finally give Americans a tangible sense of an improving economy.”
A prominent forecaster, Mark Zandi of Moody’s Economy.com, predicted that the economy would be “off and running” next year. “The policy response, in its totality, has been very aggressive,” he said, “and I think ensures that the recovery will evolve into a self-sustaining expansion early in 2011.”
The recession officially ended in June 2009, when the economy started to grow again. Gross domestic product, the broadest measure of the country’s output, grew at an annualized rate of 3.7 percent in the first quarter of this year. But then it stalled, with the rate falling to a mere 1.7 percent in the second quarter and 2.6 percent in the third quarter.
Jan Hatzius, the chief United States economist at Goldman Sachs, said the economy was likely to grow at an annualized rate of around 3 percent this quarter. Goldman projected last week that the growth rate would be 4 percent for most of 2011. Morgan Stanley, which raised its growth forecast for 2011 to 4 percent, is even more optimistic, forecasting a rate of 4.5 percent this quarter.
Administration officials, who have been burned by premature optimism in the past, were reluctant to make predictions for next year. But Austan D. Goolsbee, the chairman of the Council of Economic Advisers since September, said that a shift in sentiment quickly followed the news of the tax deal
“There aren’t many policies which, on the day Washington announces them, lead most private-sector forecasters to publicly and significantly revise their forecasts upward,” he said. “This one did.”
There are significant caveats to the more positive outlook. The housing market remains weak, and another sustained drop in prices could badly undercut the economy. Financial markets and the banking system remain vulnerable to a new round of jitters in Europe over the debt burdens of countries like Ireland and Spain. There is mounting concern about the tattered balance sheets of state and local governments.
While fiscal and monetary policy seems to be helping the economy in the short turn, the tax-cut compromise essentially deferred looming battles over how to cut federal spending and address the government’s huge debt burden.
The Fed’s bond-buying efforts have not prevented long-term interest rates from rising — a phenomenon that is interpreted by optimists as a reaction to higher growth and by pessimists as a demonstration of the ineffectiveness of the central bank’s efforts and the potential for inflation.
And for most of the roughly eight million Americans who have lost their jobs since the recession began in December 2007, it hardly feels like a recovery.
Chairman of Hirco resigns over scandal
Niranjan Hiranandani has resigned as chairman of Hirco, the troubled Aim-quoted Indian property investment company, as he attempts to defend his name amid allegations of irregularities in the handling of employees’ provident funds for other Indian companies.
Mr Hiranandani has also resigned as a director of the company, “pending his name being cleared”.
The company said Mr Hiranandani had resigned following media speculation over inquiries made by the Indian Central Bureau of Investigation (CBI) into his dealings. But it said no formal charges had been laid by the CBI over alleged errors in contributions made to employee funds of companies unrelated to Hirco and noted “Mr Hiranandani’s public rebuttals on the matter”.
Hirco said it had accepted Mr Hiranandani’s resignation as he realised that press coverage of the probe “risks unwarranted damage to the reputation of the company”. It said it offered Mr Hiranandani its continued support.
The resignation is the latest in a wave of troubles to hit the company, set up to invest in landmark residential townships and commercial complexes in India and offer an “unsurpassed living environment” to India’s “large and growing middle class”.
Hirco launched the largest initial public offering on Aim in 2006, raising £383m ($591m) when it made its debut at 500p in December of that year. But its shares collapsed below 100p in 2008 and, in spite of a recovery back above the 200p mark last year, have since fallen back again.
Shares in the company, which have fallen 55 per cent over the past year, edged up ¾p at 71p on Thursday.
In August, Hirco disappointed shareholders by announcing that it expected to pay no dividends before 2013 at the earliest.
In September, following a review of its strategic direction, it also announced a streamlining of the board, which involved Mr Hiranandani’s daughter Priya, Sir Rob Young and Nigel McGowan leaving their posts.
Earlier this month, Hirco reported an annual loss of £13.6m for the year to September 30.
Mr Hiranandani’s resignation from his role as chairman follows attempts by activist investor Laxey Partners to force his departure last year. Laxey failed in an attempt to oust Mr Hiranandani and non-executive directors David Burton and Mr McGowan from the board at an extraordinary meeting in May.
On Thursday, Mr Burton was appointed interim chairman.
Mr Hiranandani has also resigned as a director of the company, “pending his name being cleared”.
The company said Mr Hiranandani had resigned following media speculation over inquiries made by the Indian Central Bureau of Investigation (CBI) into his dealings. But it said no formal charges had been laid by the CBI over alleged errors in contributions made to employee funds of companies unrelated to Hirco and noted “Mr Hiranandani’s public rebuttals on the matter”.
Hirco said it had accepted Mr Hiranandani’s resignation as he realised that press coverage of the probe “risks unwarranted damage to the reputation of the company”. It said it offered Mr Hiranandani its continued support.
The resignation is the latest in a wave of troubles to hit the company, set up to invest in landmark residential townships and commercial complexes in India and offer an “unsurpassed living environment” to India’s “large and growing middle class”.
Hirco launched the largest initial public offering on Aim in 2006, raising £383m ($591m) when it made its debut at 500p in December of that year. But its shares collapsed below 100p in 2008 and, in spite of a recovery back above the 200p mark last year, have since fallen back again.
Shares in the company, which have fallen 55 per cent over the past year, edged up ¾p at 71p on Thursday.
In August, Hirco disappointed shareholders by announcing that it expected to pay no dividends before 2013 at the earliest.
In September, following a review of its strategic direction, it also announced a streamlining of the board, which involved Mr Hiranandani’s daughter Priya, Sir Rob Young and Nigel McGowan leaving their posts.
Earlier this month, Hirco reported an annual loss of £13.6m for the year to September 30.
Mr Hiranandani’s resignation from his role as chairman follows attempts by activist investor Laxey Partners to force his departure last year. Laxey failed in an attempt to oust Mr Hiranandani and non-executive directors David Burton and Mr McGowan from the board at an extraordinary meeting in May.
On Thursday, Mr Burton was appointed interim chairman.
Mukherjee Seeks to `Soften Mood' in Political Standoff Over Telecom Probe
India’s Finance Minister Pranab Mukherjee offered to hold a special session of parliament to debate opposition demands for a cross-party probe of the 2008 sale of phone licenses, seeking to end a political standoff before a crucial budget vote early next year.
The Bharatiya Janata Party-led National Democratic Alliance wants a Joint Parliamentary Committee to investigate alleged impropriety after the nation’s chief auditor reported last month that the auction of airwaves may have cost the exchequer $31 billion. The opposition parties organized a rally in New Delhi yesterday to “expose widespread corruption” in Prime Minister Manmohan Singh’s Congress-led government.
“If they assure that there will be a debate, I’m ready to call a special session of parliament before the budget session so that this issue is debated,” Mukherjee said at a function in the capital yesterday.
The nation’s parliament saw 22 consecutive days of gridlock, with only four bills passed of the 36 planned, during its winter session that ended Dec. 13, making it the least productive in at least 25 years. Singh needs to resolve the impasse and seek opposition support for his government’s tax proposals and spending plans to be presented by Mukherjee in the budget session late February, and also to pass pending bills.
Mukherjee’s comments are “an olive leaf to the opposition to allow the budget” to get passed, said N. Bhaskara Rao, chairman of the Centre for Media Studies in New Delhi. “Before the start of the budget session in February, the government wants to soften the mood of the opposition.”
Answer or Quit
BJP leader Arun Jaitley yesterday told supporters that Singh must resign if he can’t answer queries on the phone permits. “The government can’t run in an atmosphere of suspicion.” The party will cooperate only if Singh meets its demands, spokesman Prakash Javadekar, said today.
The biggest crisis of Singh’s second term intensified after the publication of a Nov. 16 report by the Comptroller and Auditor General of India that the award of mobile-phone licenses at below-market prices. The CAG said local units of companies including Telenor ASA and Emirates Telecommunications Corp. suppressed facts and submitted fictitious documents to win permits.
Two days earlier, Telecommunications Minister Andimuthu Raja had resigned from Singh’s cabinet, denying any wrongdoing.
Singh told his party workers on Dec. 20 that he would punish anyone found guilty in multiple probes into the alleged scam and he offered to face the Public Accounts Committee, a panel of lawmakers examining the auditor’s auction report.
The Bharatiya Janata Party-led National Democratic Alliance wants a Joint Parliamentary Committee to investigate alleged impropriety after the nation’s chief auditor reported last month that the auction of airwaves may have cost the exchequer $31 billion. The opposition parties organized a rally in New Delhi yesterday to “expose widespread corruption” in Prime Minister Manmohan Singh’s Congress-led government.
“If they assure that there will be a debate, I’m ready to call a special session of parliament before the budget session so that this issue is debated,” Mukherjee said at a function in the capital yesterday.
The nation’s parliament saw 22 consecutive days of gridlock, with only four bills passed of the 36 planned, during its winter session that ended Dec. 13, making it the least productive in at least 25 years. Singh needs to resolve the impasse and seek opposition support for his government’s tax proposals and spending plans to be presented by Mukherjee in the budget session late February, and also to pass pending bills.
Mukherjee’s comments are “an olive leaf to the opposition to allow the budget” to get passed, said N. Bhaskara Rao, chairman of the Centre for Media Studies in New Delhi. “Before the start of the budget session in February, the government wants to soften the mood of the opposition.”
Answer or Quit
BJP leader Arun Jaitley yesterday told supporters that Singh must resign if he can’t answer queries on the phone permits. “The government can’t run in an atmosphere of suspicion.” The party will cooperate only if Singh meets its demands, spokesman Prakash Javadekar, said today.
The biggest crisis of Singh’s second term intensified after the publication of a Nov. 16 report by the Comptroller and Auditor General of India that the award of mobile-phone licenses at below-market prices. The CAG said local units of companies including Telenor ASA and Emirates Telecommunications Corp. suppressed facts and submitted fictitious documents to win permits.
Two days earlier, Telecommunications Minister Andimuthu Raja had resigned from Singh’s cabinet, denying any wrongdoing.
Singh told his party workers on Dec. 20 that he would punish anyone found guilty in multiple probes into the alleged scam and he offered to face the Public Accounts Committee, a panel of lawmakers examining the auditor’s auction report.
Bharat Forge Expects China Parts Venture to Post Annual Profit This Year
Bharat Forge Ltd., India’s biggest automotive forgings maker, expects its China venture to post an annual profit for the first time since it began four years ago.
“The Chinese joint venture has turned around completely,” Amit Kalyani, executive director at the Pune-based company, said in an e-mail interview. “We are looking at expanding its product portfolio and increasing the customer base.”
Bharat Forge’s billionaire chairman Baba Kalyani aims to tap demand for auto parts in China where car sales may climb by as much as 15 percent in 2011, according to estimates by General Motors Co. and Volkswagen AG. Next year, sales in the world’s largest automobile market may reach 20 million vehicles, according to Booz & Co. and Nomura Holdings Inc. analysts.
“Going by recent performance, I expect significant improvement in the profitability of the venture as future demand in China will continue to be high,” Suprit Nayak, a Noida, India-based analyst at Religare Technova Ltd., said by phone.
Sales of passenger cars to dealers in China increased 29.3 percent in November from a year earlier to a monthly record of 1.34 million units, according to the China Association of Automobile Manufacturers.
Bharat Forge, which makes parts for Toyota Motor Corp. and General Motors, has climbed 37 percent in Mumbai trading this year, outperforming the 14 percent gain in the Bombay Stock Exchange’s Sensitive Index. The shares fell 0.8 percent to 373.35 rupees at the 3.30 p.m. close of trading in the city.
Venture’s Loss
Faw Bharat Forge Changchun Co., 52 percent owned by the Indian company, posted a loss of 315 million rupees ($7 million) in 2009. The venture started operations in 2006.
“The China operations will make a profit for the full year,” said Bharat Forge spokesman, S. Rajhagopalan. “This is due to increase in capacity utilization, restructuring and improvement in efficiency parameters.”
The venture’s profits will be announced in May when Bharat Forge reports its full-year earnings, he said.
India and the Asia-Pacific region contributed 47 percent of Bharat Forge’s sales of 33 billion rupees in the year ended in March, Kalyani said.
“This is expected to increase on the back of strong growth in the domestic automotive market,” he said, without elaborating.
India’s domestic passenger car sales rose 21 percent in November from a year earlier, according to the Society of Indian Automobile Manufacturers. Rising incomes may help boost annual car sales to 3 million vehicles by 2015, according to the government’s estimates.
Bharat Forge also makes components for the power, oil and gas and construction industries. The company plans to double revenue from its non-automotive business to 40 percent by March 2012, Kalyani said.
“The Chinese joint venture has turned around completely,” Amit Kalyani, executive director at the Pune-based company, said in an e-mail interview. “We are looking at expanding its product portfolio and increasing the customer base.”
Bharat Forge’s billionaire chairman Baba Kalyani aims to tap demand for auto parts in China where car sales may climb by as much as 15 percent in 2011, according to estimates by General Motors Co. and Volkswagen AG. Next year, sales in the world’s largest automobile market may reach 20 million vehicles, according to Booz & Co. and Nomura Holdings Inc. analysts.
“Going by recent performance, I expect significant improvement in the profitability of the venture as future demand in China will continue to be high,” Suprit Nayak, a Noida, India-based analyst at Religare Technova Ltd., said by phone.
Sales of passenger cars to dealers in China increased 29.3 percent in November from a year earlier to a monthly record of 1.34 million units, according to the China Association of Automobile Manufacturers.
Bharat Forge, which makes parts for Toyota Motor Corp. and General Motors, has climbed 37 percent in Mumbai trading this year, outperforming the 14 percent gain in the Bombay Stock Exchange’s Sensitive Index. The shares fell 0.8 percent to 373.35 rupees at the 3.30 p.m. close of trading in the city.
Venture’s Loss
Faw Bharat Forge Changchun Co., 52 percent owned by the Indian company, posted a loss of 315 million rupees ($7 million) in 2009. The venture started operations in 2006.
“The China operations will make a profit for the full year,” said Bharat Forge spokesman, S. Rajhagopalan. “This is due to increase in capacity utilization, restructuring and improvement in efficiency parameters.”
The venture’s profits will be announced in May when Bharat Forge reports its full-year earnings, he said.
India and the Asia-Pacific region contributed 47 percent of Bharat Forge’s sales of 33 billion rupees in the year ended in March, Kalyani said.
“This is expected to increase on the back of strong growth in the domestic automotive market,” he said, without elaborating.
India’s domestic passenger car sales rose 21 percent in November from a year earlier, according to the Society of Indian Automobile Manufacturers. Rising incomes may help boost annual car sales to 3 million vehicles by 2015, according to the government’s estimates.
Bharat Forge also makes components for the power, oil and gas and construction industries. The company plans to double revenue from its non-automotive business to 40 percent by March 2012, Kalyani said.
Wednesday, December 22, 2010
High growth fails to feed India’s hungry
The toll booths on the expressway between New Delhi, India’s capital, and the satellite city of Gurgaon tell their own story of the country’s fast-paced economic growth.
Interactive map: India’s uneven growth
India's Varying Growth
This interactive map explores the disparity in growth rates between India’s states
When the toll road was built, its architects forecast that by now 120,000 vehicles would pass through its gates daily. Today, about 210,000 stream through in a torrent of commuter traffic.
India’s economic growth is forecast at 8.5 per cent this year, making it the fastest growing large economy after China.
Yet the benefits of that economic boom are far from universal: the rapid growth is concentrated in a handful of states, particularly in the south, and among a tight circle of businesses.
The uneven economic performances in a country of continental proportions, alongside an unhealthy fixation with the headline growth rate among policymakers, have become issues of concern.
On Tuesday, Amartya Sen, the Nobel laureate economist, issued a stark warning to New Delhi about how “stupid” it was to aspire to double-digit economic growth without addressing the chronic undernourishment of tens of millions of Indians.
The country’s emergence as a responsible power hangs on the quality of its growth, and whether it is transforming the lives of its 1.2bn people. A growth map that resembles a patchwork quilt has given rise to a debate about whether India is expanding as one country and tackling poverty.
India’s gathering success is less assured when highly populated states such as Uttar Pradesh, Madhya Pradesh and Chhattisgarh – where per capita incomes are considerably lower than the national average – continue to fall behind.
Undernourishment is a vital indicator. Despite rising growth, the average calorie intake among India’s poorest has been stagnant for more than a decade. Eleven out of 19 states have more than 80 per cent anaemia, and more than half of India’s children under the age of five suffer stunting and poor brain development from inadequate nutrition.
Rather than seeking to drive growth higher, Prof Sen recommends higher public spending on health and education, and to take notice of how China has fed its people better.
This month, Jagdish Bhagwati, another Nobel Prize-winning economist and a professor at Columbia University in New York, stirred up debate by arguing that rising incomes were felt widely across the country and were not bypassing the poor. “[Success in] denting poverty significantly, though nowhere near enough, is that poverty is now seen by India’s poor and underprivileged to be removable,” he said.India economy map Thumbnail
Other academics warn against celebrating the achievements of India’s higher rates of economic growth prematurely.
“The Forbes list of Indian millionaires lingers a lot less in my memory than the images of misery that stare at us when we, the luckier Indians, step out of the comfort of our apartments,” says G. Sabarinathan, of the Indian Institute of Management in Bangalore.
India’s 28 states present a mixed picture, and a largely unchanging one. At the one extreme India is an industrialised and wealthy country, on the other it is stubbornly poor.
The states of Maharashtra, Gujarat, Karnataka, Tamil Nadu and Delhi are the established economies driving India’s growth, with dynamic manufacturing and service sectors. They generate the bulk of exports and attract the most foreign investment. There, incomes are rising among large urbanised workforces.
Then there is the rural and populous hinterland of Uttar Pradesh, Madhya Pradesh, Orissa, Chhattisgarh, Bihar and Jharkhand, long characterised by low growth and some of the lowest per capita income. Of these, Bihar, with a population of 90m, has surprised many by recently recording higher rates of growth. But Uttar Pradesh, with a population similar to Brazil and notorious for social marginalisation, trails badly.
For decades, the rankings of states by income by the International Monetary Fund and others has changed little.
This year, the World Bank warned: “In 2000, the [Indian] state with the highest per capita income average was four and a half times the per capita income of the poorest state. In 2008, the difference ... was almost unchanged.”
Interactive map: India’s uneven growth
India's Varying Growth
This interactive map explores the disparity in growth rates between India’s states
When the toll road was built, its architects forecast that by now 120,000 vehicles would pass through its gates daily. Today, about 210,000 stream through in a torrent of commuter traffic.
India’s economic growth is forecast at 8.5 per cent this year, making it the fastest growing large economy after China.
Yet the benefits of that economic boom are far from universal: the rapid growth is concentrated in a handful of states, particularly in the south, and among a tight circle of businesses.
The uneven economic performances in a country of continental proportions, alongside an unhealthy fixation with the headline growth rate among policymakers, have become issues of concern.
On Tuesday, Amartya Sen, the Nobel laureate economist, issued a stark warning to New Delhi about how “stupid” it was to aspire to double-digit economic growth without addressing the chronic undernourishment of tens of millions of Indians.
The country’s emergence as a responsible power hangs on the quality of its growth, and whether it is transforming the lives of its 1.2bn people. A growth map that resembles a patchwork quilt has given rise to a debate about whether India is expanding as one country and tackling poverty.
India’s gathering success is less assured when highly populated states such as Uttar Pradesh, Madhya Pradesh and Chhattisgarh – where per capita incomes are considerably lower than the national average – continue to fall behind.
Undernourishment is a vital indicator. Despite rising growth, the average calorie intake among India’s poorest has been stagnant for more than a decade. Eleven out of 19 states have more than 80 per cent anaemia, and more than half of India’s children under the age of five suffer stunting and poor brain development from inadequate nutrition.
Rather than seeking to drive growth higher, Prof Sen recommends higher public spending on health and education, and to take notice of how China has fed its people better.
This month, Jagdish Bhagwati, another Nobel Prize-winning economist and a professor at Columbia University in New York, stirred up debate by arguing that rising incomes were felt widely across the country and were not bypassing the poor. “[Success in] denting poverty significantly, though nowhere near enough, is that poverty is now seen by India’s poor and underprivileged to be removable,” he said.India economy map Thumbnail
Other academics warn against celebrating the achievements of India’s higher rates of economic growth prematurely.
“The Forbes list of Indian millionaires lingers a lot less in my memory than the images of misery that stare at us when we, the luckier Indians, step out of the comfort of our apartments,” says G. Sabarinathan, of the Indian Institute of Management in Bangalore.
India’s 28 states present a mixed picture, and a largely unchanging one. At the one extreme India is an industrialised and wealthy country, on the other it is stubbornly poor.
The states of Maharashtra, Gujarat, Karnataka, Tamil Nadu and Delhi are the established economies driving India’s growth, with dynamic manufacturing and service sectors. They generate the bulk of exports and attract the most foreign investment. There, incomes are rising among large urbanised workforces.
Then there is the rural and populous hinterland of Uttar Pradesh, Madhya Pradesh, Orissa, Chhattisgarh, Bihar and Jharkhand, long characterised by low growth and some of the lowest per capita income. Of these, Bihar, with a population of 90m, has surprised many by recently recording higher rates of growth. But Uttar Pradesh, with a population similar to Brazil and notorious for social marginalisation, trails badly.
For decades, the rankings of states by income by the International Monetary Fund and others has changed little.
This year, the World Bank warned: “In 2000, the [Indian] state with the highest per capita income average was four and a half times the per capita income of the poorest state. In 2008, the difference ... was almost unchanged.”
Billionaire Ambani Turns to China to Cut Costs
Billionaire Anil Ambani’s companies borrowed $3 billion from lenders including China Development Bank Corp. to gain cheaper funding after rupee borrowing costs climbed the most in four years.
Reliance Communications Ltd., India’s second-largest mobile phone operator, will borrow a part of $1.9 billion from the state-owned bank, which lends to support China’s policy aims, using $1.3 billion to repay existing credits, the company said Dec. 15. Reliance Power Ltd. will borrow $1.1 billion to help fund an electricity plant. Neither disclosed the cost of the loans. The yield on India’s top-rated five-year rupee corporate debt rose 73 basis points to 8.95 percent this year, the biggest gain since 2006, according to data compiled by Bloomberg.
“Reliance has to repay the debt and the China loans are an immediate solution because interest rates there are 1 to 3 percent cheaper,” Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging-market stocks at Helsinki-based Fim Asset Management, including Indian stocks, said in an interview Dec. 21.
India has the highest 10-year government bond yields among Asia’s major economies, and the nation’s companies face rising borrowing costs in rupees and dollars. China Development Bank sold one-year debt last month at a 2.61 percent coupon, letting it support the global expansion of Chinese companies. The bank provided a $10 billion loan to Brazil’s state-run oil company Petroleo Brasileiro SA last year, and a $1 billion credit line in March to Russian bank VEB.
Average dollar yields in India have climbed to 5.17 percent from 4.27 percent in October, according to HSBC Holdings Plc indexes.
Chinese Equipment
The Reliance Anil Dhirubhai Ambani Group is increasing debt to generate 33 times more power and expand its phone connections nationwide. Anil, 51, gained control of telecoms, power and financial services and Mukesh Ambani, 53, kept the oil, gas and refinery and chemicals businesses after the brothers split Reliance Industries Ltd. in 2005. Both agreed to use the Reliance name.
Anil’s group plans to buy phone equipment from ZTE Corp. and Huawei Technologies Co. after India’s government allowed Chinese vendors to supply phone companies in July subject to security inspections.
Chinese companies signed $16 billion of deals with Indian businesses during Premier Wen Jiabao’s visit last week. Adani Power Ltd. placed orders for $3.6 billion of equipment with Chinese companies, while SRM Energy Ltd. gave $1.4 billion of contracts during the visit.
Rate Comparison
China Development Bank, which has lent more than $120 billion to fund China’s overseas projects, is expanding its loans to Reliance as Indian banks’ costs jump amid a cash crunch. The lender opened a Moscow branch in September after setting up an office in Cairo last year. Bank officials didn’t respond yesterday to two telephone calls and a faxed request.
Chinese banks pay less than half as much as their Indian counterparts to borrow even after lending rates more than doubled this year. The Shanghai interbank rate for three-month loans advanced 16 basis points, or 0.16 percentage point, to 4.11 percent yesterday, up from 1.83 percent at the start of 2010, according to the National Interbank Funding Center. Indian three-month rates rose 25 basis points to 9.06 percent on Dec. 21 after starting the year at 4.60 percent, according to the India National Stock Exchange. They fell 6 basis points yesterday.
Treasury Spread
India’s rupee has advanced 1.8 percent this month, the biggest gain among Asia’s 10 most-traded currencies outside the yen. The rupee rose to a one-week high of 45.10 per dollar yesterday. The central bank said Dec. 16 it will repurchase 480 billion rupees ($10.6 billion) of debt over the next month to ease the cash crunch.
The yield on India’s benchmark 10-year bonds climbed 35 basis points this year and reached a two-year high on Dec. 6. Yields on the 7.8 percent bonds maturing in May 2020 held near the lowest in two months yesterday at 7.94 percent.
The rate is 464 basis points more than U.S. Treasuries, compared with 375 at the end of last year.
The cost of protecting the debt of government-owned State Bank of India, which some investors use as a proxy for the nation, increased 1 basis point to 159 on Dec. 21. The cost dropped to an eight-month low of 155 basis points on Dec. 16, according to CMA prices.
Interest Rates
India’s central bank kept interest rates unchanged on Dec. 16 after six increases this year. Reserve Bank of India Governor Duvvuri Subbarao said Dec. 16 that inflation is above the “comfort level.” The RBI aims to slow inflation to 4 percent to 4.5 percent from an 11-month low of 7.48 percent in November, he said Dec. 9.
“The RBI will raise interest rates by 25 basis points in January as inflation will continue to be a problem next year,” Fim Asset’s Erajuuri said. “Banks are going to be very prudent next year with lending. Even if they lend they could demand high interest rates from companies with high debt.”
Reliance Communications, based in Mumbai, has 378 billion rupees in gross debt, its latest results show. Reliance Power, also based in Mumbai, has about 531 billion rupees of bonds and loans, with some maturing in 2049, data compiled by Bloomberg show.
Generator Order
The electricity producer ordered $10 billion of coal-fired generators from Shanghai Electric Group Co. for plants in India, where supply falls short, curtailing growth. For the deal, Reliance Power signed a $12 billion financing agreement with Chinese banks in Shanghai, according to an Oct. 28 statement.
China’s investment in power plants may fall “slightly” this year to 660 billion yuan ($99 billion) as the government invests in cleaner energy sources, the China Electricity Council said in an Oct. 29 statement.
Ambani’s plan to cut debt by selling Reliance Communications’ mobile-phone transmission towers to GTL Infrastructure Ltd. was derailed in September after the companies failed to reach a deal.
India’s telecommunications equipment market faces government scrutiny because of security concerns spurred by mobile phone companies’ growing reliance on Chinese manufacturers. India blocked Huawei and ZTE, both based in Shenzhen, from selling network equipment to domestic phone carriers this year and in July allowed them to sell network gear in India subject to security checks.
Reliance Communications’ relationship with China Development Bank has grown as it started a pan-India GSM network, said Vikas Aggarwal, an analyst at ICRA Ltd., an affiliate of Moody’s Investors Service in New Delhi.
“It was when they did their entire 2G rollout, their dependence on Chinese vendors increased because Chinese vendors are cost-competitive,” Aggarwal said. The company got better terms for refinancing its debt for third-generation spectrum from China Development Bank than from Indian banks, Aggarwal said.
Reliance Communications Ltd., India’s second-largest mobile phone operator, will borrow a part of $1.9 billion from the state-owned bank, which lends to support China’s policy aims, using $1.3 billion to repay existing credits, the company said Dec. 15. Reliance Power Ltd. will borrow $1.1 billion to help fund an electricity plant. Neither disclosed the cost of the loans. The yield on India’s top-rated five-year rupee corporate debt rose 73 basis points to 8.95 percent this year, the biggest gain since 2006, according to data compiled by Bloomberg.
“Reliance has to repay the debt and the China loans are an immediate solution because interest rates there are 1 to 3 percent cheaper,” Taina Erajuuri, who helps manage the equivalent of $1.2 billion of emerging-market stocks at Helsinki-based Fim Asset Management, including Indian stocks, said in an interview Dec. 21.
India has the highest 10-year government bond yields among Asia’s major economies, and the nation’s companies face rising borrowing costs in rupees and dollars. China Development Bank sold one-year debt last month at a 2.61 percent coupon, letting it support the global expansion of Chinese companies. The bank provided a $10 billion loan to Brazil’s state-run oil company Petroleo Brasileiro SA last year, and a $1 billion credit line in March to Russian bank VEB.
Average dollar yields in India have climbed to 5.17 percent from 4.27 percent in October, according to HSBC Holdings Plc indexes.
Chinese Equipment
The Reliance Anil Dhirubhai Ambani Group is increasing debt to generate 33 times more power and expand its phone connections nationwide. Anil, 51, gained control of telecoms, power and financial services and Mukesh Ambani, 53, kept the oil, gas and refinery and chemicals businesses after the brothers split Reliance Industries Ltd. in 2005. Both agreed to use the Reliance name.
Anil’s group plans to buy phone equipment from ZTE Corp. and Huawei Technologies Co. after India’s government allowed Chinese vendors to supply phone companies in July subject to security inspections.
Chinese companies signed $16 billion of deals with Indian businesses during Premier Wen Jiabao’s visit last week. Adani Power Ltd. placed orders for $3.6 billion of equipment with Chinese companies, while SRM Energy Ltd. gave $1.4 billion of contracts during the visit.
Rate Comparison
China Development Bank, which has lent more than $120 billion to fund China’s overseas projects, is expanding its loans to Reliance as Indian banks’ costs jump amid a cash crunch. The lender opened a Moscow branch in September after setting up an office in Cairo last year. Bank officials didn’t respond yesterday to two telephone calls and a faxed request.
Chinese banks pay less than half as much as their Indian counterparts to borrow even after lending rates more than doubled this year. The Shanghai interbank rate for three-month loans advanced 16 basis points, or 0.16 percentage point, to 4.11 percent yesterday, up from 1.83 percent at the start of 2010, according to the National Interbank Funding Center. Indian three-month rates rose 25 basis points to 9.06 percent on Dec. 21 after starting the year at 4.60 percent, according to the India National Stock Exchange. They fell 6 basis points yesterday.
Treasury Spread
India’s rupee has advanced 1.8 percent this month, the biggest gain among Asia’s 10 most-traded currencies outside the yen. The rupee rose to a one-week high of 45.10 per dollar yesterday. The central bank said Dec. 16 it will repurchase 480 billion rupees ($10.6 billion) of debt over the next month to ease the cash crunch.
The yield on India’s benchmark 10-year bonds climbed 35 basis points this year and reached a two-year high on Dec. 6. Yields on the 7.8 percent bonds maturing in May 2020 held near the lowest in two months yesterday at 7.94 percent.
The rate is 464 basis points more than U.S. Treasuries, compared with 375 at the end of last year.
The cost of protecting the debt of government-owned State Bank of India, which some investors use as a proxy for the nation, increased 1 basis point to 159 on Dec. 21. The cost dropped to an eight-month low of 155 basis points on Dec. 16, according to CMA prices.
Interest Rates
India’s central bank kept interest rates unchanged on Dec. 16 after six increases this year. Reserve Bank of India Governor Duvvuri Subbarao said Dec. 16 that inflation is above the “comfort level.” The RBI aims to slow inflation to 4 percent to 4.5 percent from an 11-month low of 7.48 percent in November, he said Dec. 9.
“The RBI will raise interest rates by 25 basis points in January as inflation will continue to be a problem next year,” Fim Asset’s Erajuuri said. “Banks are going to be very prudent next year with lending. Even if they lend they could demand high interest rates from companies with high debt.”
Reliance Communications, based in Mumbai, has 378 billion rupees in gross debt, its latest results show. Reliance Power, also based in Mumbai, has about 531 billion rupees of bonds and loans, with some maturing in 2049, data compiled by Bloomberg show.
Generator Order
The electricity producer ordered $10 billion of coal-fired generators from Shanghai Electric Group Co. for plants in India, where supply falls short, curtailing growth. For the deal, Reliance Power signed a $12 billion financing agreement with Chinese banks in Shanghai, according to an Oct. 28 statement.
China’s investment in power plants may fall “slightly” this year to 660 billion yuan ($99 billion) as the government invests in cleaner energy sources, the China Electricity Council said in an Oct. 29 statement.
Ambani’s plan to cut debt by selling Reliance Communications’ mobile-phone transmission towers to GTL Infrastructure Ltd. was derailed in September after the companies failed to reach a deal.
India’s telecommunications equipment market faces government scrutiny because of security concerns spurred by mobile phone companies’ growing reliance on Chinese manufacturers. India blocked Huawei and ZTE, both based in Shenzhen, from selling network equipment to domestic phone carriers this year and in July allowed them to sell network gear in India subject to security checks.
Reliance Communications’ relationship with China Development Bank has grown as it started a pan-India GSM network, said Vikas Aggarwal, an analyst at ICRA Ltd., an affiliate of Moody’s Investors Service in New Delhi.
“It was when they did their entire 2G rollout, their dependence on Chinese vendors increased because Chinese vendors are cost-competitive,” Aggarwal said. The company got better terms for refinancing its debt for third-generation spectrum from China Development Bank than from Indian banks, Aggarwal said.
Home-Stretch Buying Lifts Merchants’ Spirits
The last-minute holiday surge is heralding the return of the American consumer, who is shedding the recession’s thrifty ways and rediscovering the pleasure of shopping.
The malls are jammed, parking lots snarled and sales expected to stay strong in the few remaining days before Christmas.
With new figures showing in-store sales up 5.5 percent on the final weekend before Christmas compared with last year, this holiday season is on track to be the healthiest since 2006.
Separately, online shopping has been fueling growth in total sales, while spending in stores on this Thursday alone may rival the levels reached the Friday after Thanksgiving.
And Christmas Eve still beckons the procrastinators. Of those with the majority of their shopping left to do, about 10 percent plan to be in stores on Friday, one survey suggests.
From the Pacific Northwest to New Jersey, a few consumers rushing in and out of the mall madness this week gave the sense that a healing economy meant it was fine to splurge a little bit.
“The air alone makes me want to shop,” said Michaya Pollard, 29, who had accompanied her children’s elementary school to Westlake Center mall in downtown Seattle to see the Christmas decorations.
After a particularly good year at the barber shop and salons that she owns, Ms. Pollard said she had spent several hours over the weekend buying extra gifts like a Coach bag for her sister. “I didn’t plan on spending more this year,” she said, but “I’m excited about their faces on Christmas day.”
Some women’s apparel items were sold out, bolstering the notion that women were buying for themselves again. A Patagonia white-fleece jacket in medium was available only at a store in tropical Honolulu, while an Anthropologie sweater coat decorated with poppies was out of stock at the company’s online store but available on eBay at a huge markup.
Retailers have begun to change their approach to the holiday season after two years in which they have had to mark down items as Christmas neared. Retailers now manage their inventory better across sectors like women’s apparel, for instance, and avoid the last-minute price-slashing of Christmases past.
“Retailers have become much better at playing this game,” Sherif Mityas, a partner in the retail practice of the consulting firm A. T. Kearney, said in an e-mail.
Still, promotions were heavy, with Lord & Taylor offering 20 percent off almost the entire store, and Kohl’s giving its Kohl’s cardholders 15 to 30 percent off all purchases.
Many stores were running low on inventory, which was actually a good thing for the retailers, Mr. Mityas said.
“Retailers have learned painful lessons around the balance of inventory, versus margin-crushing fire sales the last days before Christmas,” he said.
“Getting more consumers to pay higher prices earlier in the holiday season in fear of missing out on certain items at the last minute will serve retailers well in subsequent holiday seasons.”
The recession forced stores to regroup after a dismal holiday year in 2008, and one that showed just slight improvement last year.
According to the International Council of Shopping Centers, which tracks sales at chain stores open at least a year, November and December sales rose 1.1 percent in 2007, then declined 5.6 percent in 2008 and rose 2.3 percent in 2009.
This year, the council has already revised its estimates upward, and now expects chain store sales to rise 3.5 to 4 percent. That would rival prerecession spending levels, and be the biggest increase in holiday spending since 2006.
ShopperTrak, which estimates total retail sales, said on Wednesday that dollars spent this last weekend had risen 5.5 percent, to $18.83 billion, from last year, while traffic increased 3 percent.
As for the online shopping, which has outpaced in-store sales this year, the marketing research company comScore indicated that online sales increased 12 percent in the first 49 days of the holiday season, to $28.36 billion, compared with the same period last year.
Over all, apparel sales were strong, up 9.8 percent from Oct. 31 to Dec. 11 compared with last year, according to MasterCard Advisors SpendingPulse, which tracks all forms of payment, including cash and check.
Michael McNamara, vice president for research and analysis at SpendingPulse, noted that women’s apparel was up about 4.4 percent in the early holiday shopping season. “They’re perking up even since Black Friday a little bit — it’s the most positive season we’ve seen there since 2007,” he said. “Women are starting to buy for themselves again.”
Other stores, including J. Crew and a few teenage-oriented retailers, appeared to have ordered too much and were trying to adjust, said John D. Morris, an analyst with BMO Capital Markets. J. Crew, for instance, has been resorting to offers that give 25 or 30 percent off the entire store.
“Not all retailers are crossing the finish line in fighting shape,” Mr. Morris said in an e-mail.
The malls are jammed, parking lots snarled and sales expected to stay strong in the few remaining days before Christmas.
With new figures showing in-store sales up 5.5 percent on the final weekend before Christmas compared with last year, this holiday season is on track to be the healthiest since 2006.
Separately, online shopping has been fueling growth in total sales, while spending in stores on this Thursday alone may rival the levels reached the Friday after Thanksgiving.
And Christmas Eve still beckons the procrastinators. Of those with the majority of their shopping left to do, about 10 percent plan to be in stores on Friday, one survey suggests.
From the Pacific Northwest to New Jersey, a few consumers rushing in and out of the mall madness this week gave the sense that a healing economy meant it was fine to splurge a little bit.
“The air alone makes me want to shop,” said Michaya Pollard, 29, who had accompanied her children’s elementary school to Westlake Center mall in downtown Seattle to see the Christmas decorations.
After a particularly good year at the barber shop and salons that she owns, Ms. Pollard said she had spent several hours over the weekend buying extra gifts like a Coach bag for her sister. “I didn’t plan on spending more this year,” she said, but “I’m excited about their faces on Christmas day.”
Some women’s apparel items were sold out, bolstering the notion that women were buying for themselves again. A Patagonia white-fleece jacket in medium was available only at a store in tropical Honolulu, while an Anthropologie sweater coat decorated with poppies was out of stock at the company’s online store but available on eBay at a huge markup.
Retailers have begun to change their approach to the holiday season after two years in which they have had to mark down items as Christmas neared. Retailers now manage their inventory better across sectors like women’s apparel, for instance, and avoid the last-minute price-slashing of Christmases past.
“Retailers have become much better at playing this game,” Sherif Mityas, a partner in the retail practice of the consulting firm A. T. Kearney, said in an e-mail.
Still, promotions were heavy, with Lord & Taylor offering 20 percent off almost the entire store, and Kohl’s giving its Kohl’s cardholders 15 to 30 percent off all purchases.
Many stores were running low on inventory, which was actually a good thing for the retailers, Mr. Mityas said.
“Retailers have learned painful lessons around the balance of inventory, versus margin-crushing fire sales the last days before Christmas,” he said.
“Getting more consumers to pay higher prices earlier in the holiday season in fear of missing out on certain items at the last minute will serve retailers well in subsequent holiday seasons.”
The recession forced stores to regroup after a dismal holiday year in 2008, and one that showed just slight improvement last year.
According to the International Council of Shopping Centers, which tracks sales at chain stores open at least a year, November and December sales rose 1.1 percent in 2007, then declined 5.6 percent in 2008 and rose 2.3 percent in 2009.
This year, the council has already revised its estimates upward, and now expects chain store sales to rise 3.5 to 4 percent. That would rival prerecession spending levels, and be the biggest increase in holiday spending since 2006.
ShopperTrak, which estimates total retail sales, said on Wednesday that dollars spent this last weekend had risen 5.5 percent, to $18.83 billion, from last year, while traffic increased 3 percent.
As for the online shopping, which has outpaced in-store sales this year, the marketing research company comScore indicated that online sales increased 12 percent in the first 49 days of the holiday season, to $28.36 billion, compared with the same period last year.
Over all, apparel sales were strong, up 9.8 percent from Oct. 31 to Dec. 11 compared with last year, according to MasterCard Advisors SpendingPulse, which tracks all forms of payment, including cash and check.
Michael McNamara, vice president for research and analysis at SpendingPulse, noted that women’s apparel was up about 4.4 percent in the early holiday shopping season. “They’re perking up even since Black Friday a little bit — it’s the most positive season we’ve seen there since 2007,” he said. “Women are starting to buy for themselves again.”
Other stores, including J. Crew and a few teenage-oriented retailers, appeared to have ordered too much and were trying to adjust, said John D. Morris, an analyst with BMO Capital Markets. J. Crew, for instance, has been resorting to offers that give 25 or 30 percent off the entire store.
“Not all retailers are crossing the finish line in fighting shape,” Mr. Morris said in an e-mail.
India's GDP Growth May Lure Record Foreign Fund Inflows, IDBI Federal Says
Indian stock purchases by foreign funds in 2011 could exceed this year’s record inflows as the nation’s robust economic and corporate earnings expansion lures investors, according to the local partner of Ageas, the insurer that groups the remains of Fortis.
“The stage is set for it,” Aneesh Srivastava, who manages about $352 million in assets as the Mumbai-based chief investment officer at IDBI Federal Life Insurance Co., said in an interview today. “Money chases growth. Returns in foreign economies are small and they have no other option but to look at growth opportunities outside.”
Foreign inflows into Indian equities have climbed to a record 1.3 trillion rupees ($28.8 billion) this year, according to data on the website of the Securities and Exchange Board of India, driving the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, up 15 percent in 2010, the most among key indexes in the world’s 10 largest stock markets. “We are substantially underestimating the appetite and desire of foreign investors to buy Indian assets.”
Srivastava, 41, predicts India’s $1.3 trillion economy to grow at 8.5 percent for the year through March 2012, accompanied by a 20 percent expansion in corporate earnings. Gross domestic product grew 8.9 percent for a second straight quarter in the three months through September, maintaining the fastest pace among the world’s major economies after China.
‘Crude a Dampener’
Srivastava sees a “high probability” that the Sensex will reach 23,000 by March 2012, a 14 percent gain from today, and is “bullish” on the banking and oil & gas sectors.
“On an average, our bias will be to build portfolios with banks and oil & gas stocks,” he said.
Rising crude oil prices are the biggest risk to markets, Srivastava said. India, which imports more than 75 percent of its crude oil needs, is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.
“Crude is a dampener. There is a severe winter in Europe, which is driving up demand for heating fuels and pushing prices up,” he said. If crude oil continues to rise, “economies like India could suffer and stock markets could correct.”
Thousands of airline and train passengers were marooned across Europe during a storm system that produced Britain’s worst early snowfall in 17 years this week.
Crude oil in New York trading reached $90.76 a barrel on Dec. 7, the highest level since 2008. Oil has gained 13 percent this year.
Credit Expansion
A pick-up in corporate demand and government spending will boost lending over the next 12 to 15 months, Srivastava said. He estimates loan growth of 22 percent for Indian lenders in the financial year 2012.
“The best way to play the banking theme is through large and clean private-sector banks,” Srivastava said, as they tend to do better in a rising interest-rate environment. He declined to comment on specific stocks.
Srivastava is also investing in oil companies’ stocks on expectations government policy changes may allow for market- driven fuel prices. India freed gasoline prices from state control in June, while continuing to set rates for other fuels, including diesel. The nation’s government will decide on a gas pricing policy in the next six to eight months, oil secretary S. Sundareshan said on Oct. 30.
“Policy direction is indicating that certain reforms could happen. If reforms clearly pan out, this is one sector that could outperform,” Srivastava said.
“The stage is set for it,” Aneesh Srivastava, who manages about $352 million in assets as the Mumbai-based chief investment officer at IDBI Federal Life Insurance Co., said in an interview today. “Money chases growth. Returns in foreign economies are small and they have no other option but to look at growth opportunities outside.”
Foreign inflows into Indian equities have climbed to a record 1.3 trillion rupees ($28.8 billion) this year, according to data on the website of the Securities and Exchange Board of India, driving the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, up 15 percent in 2010, the most among key indexes in the world’s 10 largest stock markets. “We are substantially underestimating the appetite and desire of foreign investors to buy Indian assets.”
Srivastava, 41, predicts India’s $1.3 trillion economy to grow at 8.5 percent for the year through March 2012, accompanied by a 20 percent expansion in corporate earnings. Gross domestic product grew 8.9 percent for a second straight quarter in the three months through September, maintaining the fastest pace among the world’s major economies after China.
‘Crude a Dampener’
Srivastava sees a “high probability” that the Sensex will reach 23,000 by March 2012, a 14 percent gain from today, and is “bullish” on the banking and oil & gas sectors.
“On an average, our bias will be to build portfolios with banks and oil & gas stocks,” he said.
Rising crude oil prices are the biggest risk to markets, Srivastava said. India, which imports more than 75 percent of its crude oil needs, is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.
“Crude is a dampener. There is a severe winter in Europe, which is driving up demand for heating fuels and pushing prices up,” he said. If crude oil continues to rise, “economies like India could suffer and stock markets could correct.”
Thousands of airline and train passengers were marooned across Europe during a storm system that produced Britain’s worst early snowfall in 17 years this week.
Crude oil in New York trading reached $90.76 a barrel on Dec. 7, the highest level since 2008. Oil has gained 13 percent this year.
Credit Expansion
A pick-up in corporate demand and government spending will boost lending over the next 12 to 15 months, Srivastava said. He estimates loan growth of 22 percent for Indian lenders in the financial year 2012.
“The best way to play the banking theme is through large and clean private-sector banks,” Srivastava said, as they tend to do better in a rising interest-rate environment. He declined to comment on specific stocks.
Srivastava is also investing in oil companies’ stocks on expectations government policy changes may allow for market- driven fuel prices. India freed gasoline prices from state control in June, while continuing to set rates for other fuels, including diesel. The nation’s government will decide on a gas pricing policy in the next six to eight months, oil secretary S. Sundareshan said on Oct. 30.
“Policy direction is indicating that certain reforms could happen. If reforms clearly pan out, this is one sector that could outperform,” Srivastava said.
Monday, December 20, 2010
For Air Cargo, a Screening Conundrum
Ever since 9/11, each new security threat to airlines has increased the rigor of passenger screening. They have to remove their shoes and carry liquids only in small containers. They have to take off their belts and take laptops out of their cases. Now, they have to submit to full-body scanning machines and intrusive pat-downs.
But since the discovery in October of explosives from Yemen hidden in ink cartridges on cargo planes, the $50 billion freight business has seen little of the same kind of escalating security.
Even in the midst of one of the air cargo industry’s busiest periods of the year, governments and aviation experts continue to struggle to come up with ways to strengthen cargo security without paralyzing a business essential to global trade.
Still, that could change. Cargo safety has suddenly emerged as one of the biggest topics in aviation security. Governments around the world have pledged to tackle the problem, while in Congress, lawmakers are calling for much tougher inspections of cargo.
The cargo industry has resisted one idea: screening all cargo. It argues that such a step is impractical since most airports do not have the space to screen all the packages shipped each day. And some goods, including perishable products and medical supplies, may not survive a long wait at the airport to be screened.
“It’s the old conundrum,” said Billie Vincent, a former security director for the Federal Aviation Administration. “Do you put the industry out of business in the process of making it safe?”
Screening passengers is far simpler than inspecting cargo. More than 1,600 airports worldwide are funneling passengers through security lines and metal detectors.
But air cargo can come from countless sources and comprises countless kinds of goods, including fresh produce, medical supplies and electronic devices. The cargo industry itself is fragmented, too, with door-to-door shippers like DHL, United Parcel Service and FedEx; all-cargo airlines; and shipping companies that rent cargo space on passenger planes. Air cargo represents about 40 percent of the value of global trade.
As a result, the Transportation Security Administration, which handles all passenger screening in the United States, has taken a different approach to air cargo. It mostly relies on the cargo industry to screen its own freight. And freight is inspected in factories or in warehouses, by shippers, freight operators or airlines, in this country or overseas.
Reflecting the T.S.A.’s focus on passenger safety, it received $5.2 billion for aviation security in the last fiscal year and just $123 million for cargo security.
And while new safety procedures were adopted for passengers almost immediately after 9/11, it wasn’t until 2007 that Congress passed a law requiring all cargo on passenger planes to be screened. The new requirement has been in effect since August.
But Representative Edward J. Markey, Democrat of Massachusetts, who wrote the mandate, said it still left a “safety loophole” because freight on cargo planes, which accounts for 85 percent of all air cargo, is not subject to the same screening. After the Yemen incident, Mr. Markey introduced a bill to extend the screening mandate to all cargo planes.
“As the terrorists are turning to cargo planes as a delivery device for their deadly plans, we now need to secure cargo planes,” Mr. Markey said recently. “We simply can’t afford to leave this vulnerability open.”
Cargo experts contend that it is far more effective to focus on packages coming from risky countries, or from unknown shippers with no track record of business or those who pay in cash. Well-established companies that ship goods regularly, the experts say, present much less of a safety risk and therefore require less scrutiny.
“Screening every piece of freight on every single freight aircraft coming or leaving the United States would be a tremendous challenge and would not equate to 100 percent air cargo security,” said Brandon Fried, the president of the Airforwarders Association, an industry trade group. “The focus should be on who is shipping what, and where.”
But since the discovery in October of explosives from Yemen hidden in ink cartridges on cargo planes, the $50 billion freight business has seen little of the same kind of escalating security.
Even in the midst of one of the air cargo industry’s busiest periods of the year, governments and aviation experts continue to struggle to come up with ways to strengthen cargo security without paralyzing a business essential to global trade.
Still, that could change. Cargo safety has suddenly emerged as one of the biggest topics in aviation security. Governments around the world have pledged to tackle the problem, while in Congress, lawmakers are calling for much tougher inspections of cargo.
The cargo industry has resisted one idea: screening all cargo. It argues that such a step is impractical since most airports do not have the space to screen all the packages shipped each day. And some goods, including perishable products and medical supplies, may not survive a long wait at the airport to be screened.
“It’s the old conundrum,” said Billie Vincent, a former security director for the Federal Aviation Administration. “Do you put the industry out of business in the process of making it safe?”
Screening passengers is far simpler than inspecting cargo. More than 1,600 airports worldwide are funneling passengers through security lines and metal detectors.
But air cargo can come from countless sources and comprises countless kinds of goods, including fresh produce, medical supplies and electronic devices. The cargo industry itself is fragmented, too, with door-to-door shippers like DHL, United Parcel Service and FedEx; all-cargo airlines; and shipping companies that rent cargo space on passenger planes. Air cargo represents about 40 percent of the value of global trade.
As a result, the Transportation Security Administration, which handles all passenger screening in the United States, has taken a different approach to air cargo. It mostly relies on the cargo industry to screen its own freight. And freight is inspected in factories or in warehouses, by shippers, freight operators or airlines, in this country or overseas.
Reflecting the T.S.A.’s focus on passenger safety, it received $5.2 billion for aviation security in the last fiscal year and just $123 million for cargo security.
And while new safety procedures were adopted for passengers almost immediately after 9/11, it wasn’t until 2007 that Congress passed a law requiring all cargo on passenger planes to be screened. The new requirement has been in effect since August.
But Representative Edward J. Markey, Democrat of Massachusetts, who wrote the mandate, said it still left a “safety loophole” because freight on cargo planes, which accounts for 85 percent of all air cargo, is not subject to the same screening. After the Yemen incident, Mr. Markey introduced a bill to extend the screening mandate to all cargo planes.
“As the terrorists are turning to cargo planes as a delivery device for their deadly plans, we now need to secure cargo planes,” Mr. Markey said recently. “We simply can’t afford to leave this vulnerability open.”
Cargo experts contend that it is far more effective to focus on packages coming from risky countries, or from unknown shippers with no track record of business or those who pay in cash. Well-established companies that ship goods regularly, the experts say, present much less of a safety risk and therefore require less scrutiny.
“Screening every piece of freight on every single freight aircraft coming or leaving the United States would be a tremendous challenge and would not equate to 100 percent air cargo security,” said Brandon Fried, the president of the Airforwarders Association, an industry trade group. “The focus should be on who is shipping what, and where.”
Asian Stocks Rise as Commodity Firms Gain; Korea Climbs as Tension Eases
Asian stocks rose as commodity prices advanced and a Federal Reserve official said U.S. economic growth next year may be stronger than some economists forecast, boosting confidence in a global economic recovery.
Komatsu Ltd., the world’s second-biggest maker of earthmoving machines, gained 1 percent Tokyo. BHP Billiton Ltd., the world’s No. 1 mining company and Australia’s top oil producer, climbed 0.9 percent in Sydney today. Hyundai Engineering & Construction Co. advanced 4 percent in Seoul after parent Hyundai Group’s bid to buy South Korea’s largest builder collapsed.
“Consensus is forming that the global economy is gradually getting better,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. “Growth in the world economy is boosting commodity prices, and surplus money is going into commodities and stocks.”
The MSCI Asia Pacific Index rose 0.3 percent to 133.73 as of 9:51 a.m. in Tokyo, with three stocks increasing for each that fell. The gauge climbed to a 2 1/2-year intraday high on Dec. 14 as U.S. economic reports boosted confidence in a global recovery, easing concerns that Europe’s debt crisis and China’s measures to slow inflation will hurt growth.
Japan’s Nikkei 225 Stock Average climbed 0.6 percent. Australia’s S&P/ASX 200 Index rose 0.5 percent and New Zealand’s NZX 50 Index both increased 0.3 percent.
South Korea’s Kospi Index gained 0.8 percent as tensions on the Korean peninsula eased after the North did not retaliate to military drills on a disputed island.
Futures on the Standard & Poor’s 500 Index were little changed today. The index climbed 0.3 percent yesterday in New York as Barclays Plc raised its share-price estimate on Amazon.com Inc. and energy shares rallied. The index is near its closing level on Sept. 12, 2008, the last trading day before the bankruptcy filing of Lehman Brothers Holdings Inc.
U.S. Data ‘Bodes Well’
Federal Reserve Bank of St. Louis President James Bullard said provision of stimulus is “reviewable and changeable” depending on economic growth, which may be stronger next year than some economists forecast. Bullard said in an interview with CNBC yesterday that while Europe’s fiscal crisis is “very serious” and may continue for “quite a while,” recent U.S. economic data “bodes well” for 2011.
Crude oil for January delivery increased 79 cents to settle at $88.81 a barrel in New York yesterday on speculation U.S. economic growth will accelerate next year, bolstering demand in the world’s biggest oil-consuming country. The London Metal Exchange Index of six metals including copper and aluminum climbed 1.1 percent yesterday, rising for second day.
The MSCI Asia Pacific Index increased 11 percent this year through yesterday, compared with gains of 12 percent by the S&P 500 and 9.6 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.7 times estimated earnings on average at yesterday’s close, versus 14.6 times for the S&P 500 and 12.3 times for the Stoxx 600.
Komatsu Ltd., the world’s second-biggest maker of earthmoving machines, gained 1 percent Tokyo. BHP Billiton Ltd., the world’s No. 1 mining company and Australia’s top oil producer, climbed 0.9 percent in Sydney today. Hyundai Engineering & Construction Co. advanced 4 percent in Seoul after parent Hyundai Group’s bid to buy South Korea’s largest builder collapsed.
“Consensus is forming that the global economy is gradually getting better,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. “Growth in the world economy is boosting commodity prices, and surplus money is going into commodities and stocks.”
The MSCI Asia Pacific Index rose 0.3 percent to 133.73 as of 9:51 a.m. in Tokyo, with three stocks increasing for each that fell. The gauge climbed to a 2 1/2-year intraday high on Dec. 14 as U.S. economic reports boosted confidence in a global recovery, easing concerns that Europe’s debt crisis and China’s measures to slow inflation will hurt growth.
Japan’s Nikkei 225 Stock Average climbed 0.6 percent. Australia’s S&P/ASX 200 Index rose 0.5 percent and New Zealand’s NZX 50 Index both increased 0.3 percent.
South Korea’s Kospi Index gained 0.8 percent as tensions on the Korean peninsula eased after the North did not retaliate to military drills on a disputed island.
Futures on the Standard & Poor’s 500 Index were little changed today. The index climbed 0.3 percent yesterday in New York as Barclays Plc raised its share-price estimate on Amazon.com Inc. and energy shares rallied. The index is near its closing level on Sept. 12, 2008, the last trading day before the bankruptcy filing of Lehman Brothers Holdings Inc.
U.S. Data ‘Bodes Well’
Federal Reserve Bank of St. Louis President James Bullard said provision of stimulus is “reviewable and changeable” depending on economic growth, which may be stronger next year than some economists forecast. Bullard said in an interview with CNBC yesterday that while Europe’s fiscal crisis is “very serious” and may continue for “quite a while,” recent U.S. economic data “bodes well” for 2011.
Crude oil for January delivery increased 79 cents to settle at $88.81 a barrel in New York yesterday on speculation U.S. economic growth will accelerate next year, bolstering demand in the world’s biggest oil-consuming country. The London Metal Exchange Index of six metals including copper and aluminum climbed 1.1 percent yesterday, rising for second day.
The MSCI Asia Pacific Index increased 11 percent this year through yesterday, compared with gains of 12 percent by the S&P 500 and 9.6 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.7 times estimated earnings on average at yesterday’s close, versus 14.6 times for the S&P 500 and 12.3 times for the Stoxx 600.
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