INFORMATION overload is a headache for individuals and a huge challenge for businesses. Companies are swimming, if not drowning, in wave after wave of data — from increasingly sophisticated computer tracking of shipments, sales, suppliers and customers, as well as e-mail, Web traffic and social-network comments. These Internet-era technologies, by one estimate, are doubling the quantity of business data every 1.2 years.
Yet the data explosion is also an enormous opportunity. In a modern economy, information should be the prime asset — the raw material of new products and services, smarter decisions, competitive advantage for companies, and greater growth and productivity.
Is there any real evidence of a “data payoff” across the corporate world? It has taken a while, but new research led by Erik Brynjolfsson, an economist at the Sloan School of Management at the Massachusetts Institute of Technology, suggests that the beginnings are now visible.
Mr. Brynjolfsson and his colleagues, Lorin Hitt, a professor at the Wharton School of the University of Pennsylvania, and Heekyung Kim, a graduate student at M.I.T., studied 179 large companies. Those that adopted “data-driven decision making” achieved productivity that was 5 to 6 percent higher than could be explained by other factors, including how much the companies invested in technology, the researchers said.
In the study, based on a survey and follow-up interviews, data-driven decision making was defined not only by collecting data, but also by how it is used — or not — in making crucial decisions, like whether to create a new product or service. The central distinction, according to Mr. Brynjolfsson, is between decisions based mainly on “data and analysis” and on the traditional management arts of “experience and intuition.”
A 5 percent increase in output and productivity, he says, is significant enough to separate winners from losers in most industries.
The companies that are guided by data analysis, Mr. Brynjolfsson says, are “harbingers of a trend in how managers make decisions.”
“And it has huge implications for competitiveness and growth,” he adds.
The research is not yet published, but it was presented at an academic conference this month. The conclusion that companies that rely heavily on data analysis are likely to outperform others is not new. Notably, Thomas H. Davenport, a professor of information technology and management at Babson College, has made that point, and his most recent book, with Jeanne G. Harris and Robert Morison, is “Analytics at Work: Smarter Decisions, Better Results” (Harvard Business Press, 2010).
And companies like Google, whose search and advertising business is based on exploiting and organizing online information, are testimony to the power of intelligent data sifting.
But the new research appears to be broader and to apply economic measurement to the impact of data-led decision making in a way not done before.
“To the best of our knowledge,” Mr. Brynjolfsson says, “this is the first quantitative evidence of the anecdotes we’re been hearing about.”
Mr. Brynjolfsson emphasizes that the spread of such decision making is just getting started, even though the data surge began at least a decade ago. That pattern is familiar in history. The productivity payoff from a new technology comes only when people adopt new management skills and new ways of working.
The electric motor, for example, was introduced in the early 1880s. But that technology did not generate discernible productivity gains until the 1920s. It took that long for the use of motors to spread, and for businesses to reorganize work around the mass-production assembly line, the efficiency breakthrough of its day.
The story was much the same with computers. By 1987, the personal computer revolution was more than a decade old, when Robert M. Solow, an economist and Nobel laureate, dryly observed, “You can see the computer age everywhere but in the productivity statistics.”
It was not until 1995 that productivity in the American economy really started to pick up. The Internet married computing to low-cost communications, opening the door to automating all kinds of commercial transactions. The gains continued through 2004, well after the dot-com bubble burst and investment in technology plummeted.
The technology absorption lag accounts for the delayed productivity benefits, observes Robert J. Gordon, an economist at Northwestern University.
“It’s never pure technology that makes the difference,” Mr. Gordon says. “It’s reorganizing things — how work is done. And technology does allow new forms of organization.”
Since 2004, productivity has slowed again. Historically, Mr. Gordon notes, productivity wanes when innovation based on fundamental new technologies runs out. The steam engine and railroads fueled the first industrial revolution, he says; the second was powered by electricity and the internal combustion engine. The Internet, according to Mr. Gordon, qualifies as the third industrial revolution — but one that will prove far more short-lived than the previous two.
“I think we’re seeing hints that we’re running through inventions of the Internet revolution,” he says.
STILL, the software industry is making a big bet that the data-driven decision making described in Mr. Brynjolfsson’s research is the wave of the future. The drive to help companies find meaningful patterns in the data that engulfs them has created a fast-growing industry in what is known as “business intelligence” or “analytics” software and services. Major technology companies — I.B.M., Oracle, SAP and Microsoft — have collectively spent more than $25 billion buying up specialist companies in the field.
I.B.M. alone says it has spent $14 billion on 25 companies that focus on data analytics. That business now employs 8,000 consultants and 200 mathematicians. I.B.M. said last week that it expected its analytics business to grow to $16 billion by 2015.
“The biggest change facing corporations is the explosion of data,” says David Grossman, a technology analyst at Stifel Nicolaus. “The best business is in helping customers analyze and manage all that data.”
Saturday, April 23, 2011
BBC, Under Criticism, Struggles to Tighten Its Belt
DAVID CAMERON, the British prime minister, was in Brussels meeting the press last October when he took a few moments to make fun of the British Broadcasting Corporation.
“Good to see that costs are being controlled everywhere,” Mr. Cameron said as he directed a mocking glance at three BBC correspondents, each from a different BBC program, covering his news conference.
The implication: Considering that the BBC has agreed to freeze most of its public funding for six years, effectively sentencing itself to a 16 percent budget cut through 2017, it surely could have looked harder at its staffing needs for the event.
“We’re all in this together,” Mr. Cameron said sarcastically, reciting his government’s favorite austerity slogan, and then added, “including, deliciously, the BBC.”
Why would the British premier celebrate the financial woes of the BBC? The corporation is the biggest, oldest and most revered public broadcasting company in the world, a centerpiece of the British brand, as essential to Britain’s view of itself as the National Health Service or the royal family.
The BBC’s news broadcasts, whether on the radio or on television, exude authority and command respect around the globe. The corporation has also made extraordinary cultural contributions to Britain over the decades, through nurturing talent, sponsoring major musical events and broadcasting television shows like “I, Claudius,” “Monty Python’s Flying Circus” and “Fawlty Towers.” Britons call it, affectionately, the Beeb, and sometimes “Auntie,” for its traditional role as the last word on everything.
But despite all that, or perhaps because of it, the BBC seems at times to be an all-purpose whipping boy, an easy target for casual joking and at times naked derision from the country’s political establishment.
As Mr. Cameron’s Conservative-led coalition government embarks on a grueling austerity program, it has accused the BBC of “extraordinary and outrageous waste.” Media companies — especially those of the Rupert Murdoch media empire, the BBC’s chief competitor — have been quick to join the critical chorus.
Much of the criticism has to do with the license fee of £145.50 (about $240) that is levied annually on every British household with a television set. The fee brings in £3.6 billion a year, about 80 percent of the BBC’s total income.
The mandatory charge makes Britons feel, rightly, that they own the BBC, and emboldens them to complain loudly and often — as thousands did recently about a storyline in the soap opera “EastEnders.” In the show, a character whose baby dies of sudden infant death syndrome secretly swaps the body with her neighbor’s live baby. The writers rewrote the script so that she finally gives the baby back.
Just as Republicans in the United States have complained that National Public Radio has a left-wing bias, so do conservatives in Britain complain about the BBC’s political leanings. (A threat to remove NPR’s federal funding has remained only that so far.)
Members of Parliament are outraged at BBC executives’ high salaries, like the 2010 compensation package of £838,000, or about $1.4 million, for the director general, Mark Thompson; that total is set to drop to £619,000 this year. Its employees — it had more than 21,300 at the end of 2010 — are worried for their jobs, angry about a plan to relocate many of them from London to a suburb of Manchester, and unhappy about cuts in their pension plans.
The BBC’s many detractors, led by Mr. Murdoch’s corporation, say the licensing fee has allowed it “to get too big, too smug, too unanswerable,” as The Sun, a tabloid owned by Mr. Murdoch, declared in an editorial last year.
The BBC is not permitted to accept advertising for its broadcasting activities or Web sites within Britain, but it does accept ads and generates revenue through some of its international arms. Rivals complain that it behaves increasingly like a profit-making company, despite its public subsidy.
THE licensing fee is an anachronism, put in place in 1922, when the BBC was founded as a monopoly. Such was its reverence for the seriousness of its own mission, to “inform, educate and entertain,” that its news anchors habitually wore dinner jackets during radio broadcasts. It got its first television competitor, ITV, in the 1950s.
Today’s media landscape, with scores of television and radio channels available via satellite, cable or over the air, is unrecognizable from the one envisioned all those years ago. As those channels fight for audiences and advertising, the BBC’s guaranteed income is, more than ever, a source of envy.
“If you look at the dynamic marketplace that exists in this country, and someone came along and said, ‘This is a market that needs three and a half billion pounds’ worth of public intervention,’ they would be laughed out of court,” said Michael Grade, a former chairman of both the BBC and of ITV, the biggest commercial TV company in Britain. Like many Britons, both friends and foes of the BBC, Mr. Grade believes that the corporation has been allowed to grow too big and too unwieldy, offering too much to too many people.
Every week, more than 97 percent of the British population watches, reads or listens to something produced by the BBC, which operates 10 TV channels and 16 radio stations domestically. Through its World Service radio network, it has a weekly global audience of 180 million.
“Good to see that costs are being controlled everywhere,” Mr. Cameron said as he directed a mocking glance at three BBC correspondents, each from a different BBC program, covering his news conference.
The implication: Considering that the BBC has agreed to freeze most of its public funding for six years, effectively sentencing itself to a 16 percent budget cut through 2017, it surely could have looked harder at its staffing needs for the event.
“We’re all in this together,” Mr. Cameron said sarcastically, reciting his government’s favorite austerity slogan, and then added, “including, deliciously, the BBC.”
Why would the British premier celebrate the financial woes of the BBC? The corporation is the biggest, oldest and most revered public broadcasting company in the world, a centerpiece of the British brand, as essential to Britain’s view of itself as the National Health Service or the royal family.
The BBC’s news broadcasts, whether on the radio or on television, exude authority and command respect around the globe. The corporation has also made extraordinary cultural contributions to Britain over the decades, through nurturing talent, sponsoring major musical events and broadcasting television shows like “I, Claudius,” “Monty Python’s Flying Circus” and “Fawlty Towers.” Britons call it, affectionately, the Beeb, and sometimes “Auntie,” for its traditional role as the last word on everything.
But despite all that, or perhaps because of it, the BBC seems at times to be an all-purpose whipping boy, an easy target for casual joking and at times naked derision from the country’s political establishment.
As Mr. Cameron’s Conservative-led coalition government embarks on a grueling austerity program, it has accused the BBC of “extraordinary and outrageous waste.” Media companies — especially those of the Rupert Murdoch media empire, the BBC’s chief competitor — have been quick to join the critical chorus.
Much of the criticism has to do with the license fee of £145.50 (about $240) that is levied annually on every British household with a television set. The fee brings in £3.6 billion a year, about 80 percent of the BBC’s total income.
The mandatory charge makes Britons feel, rightly, that they own the BBC, and emboldens them to complain loudly and often — as thousands did recently about a storyline in the soap opera “EastEnders.” In the show, a character whose baby dies of sudden infant death syndrome secretly swaps the body with her neighbor’s live baby. The writers rewrote the script so that she finally gives the baby back.
Just as Republicans in the United States have complained that National Public Radio has a left-wing bias, so do conservatives in Britain complain about the BBC’s political leanings. (A threat to remove NPR’s federal funding has remained only that so far.)
Members of Parliament are outraged at BBC executives’ high salaries, like the 2010 compensation package of £838,000, or about $1.4 million, for the director general, Mark Thompson; that total is set to drop to £619,000 this year. Its employees — it had more than 21,300 at the end of 2010 — are worried for their jobs, angry about a plan to relocate many of them from London to a suburb of Manchester, and unhappy about cuts in their pension plans.
The BBC’s many detractors, led by Mr. Murdoch’s corporation, say the licensing fee has allowed it “to get too big, too smug, too unanswerable,” as The Sun, a tabloid owned by Mr. Murdoch, declared in an editorial last year.
The BBC is not permitted to accept advertising for its broadcasting activities or Web sites within Britain, but it does accept ads and generates revenue through some of its international arms. Rivals complain that it behaves increasingly like a profit-making company, despite its public subsidy.
THE licensing fee is an anachronism, put in place in 1922, when the BBC was founded as a monopoly. Such was its reverence for the seriousness of its own mission, to “inform, educate and entertain,” that its news anchors habitually wore dinner jackets during radio broadcasts. It got its first television competitor, ITV, in the 1950s.
Today’s media landscape, with scores of television and radio channels available via satellite, cable or over the air, is unrecognizable from the one envisioned all those years ago. As those channels fight for audiences and advertising, the BBC’s guaranteed income is, more than ever, a source of envy.
“If you look at the dynamic marketplace that exists in this country, and someone came along and said, ‘This is a market that needs three and a half billion pounds’ worth of public intervention,’ they would be laughed out of court,” said Michael Grade, a former chairman of both the BBC and of ITV, the biggest commercial TV company in Britain. Like many Britons, both friends and foes of the BBC, Mr. Grade believes that the corporation has been allowed to grow too big and too unwieldy, offering too much to too many people.
Every week, more than 97 percent of the British population watches, reads or listens to something produced by the BBC, which operates 10 TV channels and 16 radio stations domestically. Through its World Service radio network, it has a weekly global audience of 180 million.
Asian Currencies Gain This Week on Speculation Rates to Rise
Asian currencies strengthened this week, with Singapore’s dollar reaching a record and Malaysia’s ringgit a 13-year high, on speculation regional central banks will keep raising borrowing costs to curb inflation.
The Bloomberg-JPMorgan Asia Dollar index rose to its highest level since 1997 as overseas investors bought a combined $1.7 billion more stocks than they sold in India, South Korea, Taiwan and Thailand this week, according to exchange data. The Bank of Thailand lifted interest rates on April 20 for the sixth time in less than a year, and signaled more tightening is likely. Malaysia reported the same day that consumer prices rose 3 percent in March from a year earlier, the most since April 2009.
“Inflation pressure raises the possibility of a rate increase next month, which supports the ringgit,” said Suresh Kumar Ramanathan, foreign-exchange strategist at Kuala Lumpur- based CIMB Investment Bank Bhd. “U.S. dollar funding costs are still low, and investors are going long Asian currencies.”
Singapore’s dollar gained 1 percent for the week to S$1.2333 against its U.S. counterpart and touched S$1.2329, the strongest level since at least 1981. The ringgit rose 0.6 percent to 3.0045 in Kuala Lumpur and reached 3.0034, the highest level since October 1997.
Asian currencies also gained after rising earnings at companies including Apple Inc. boosted confidence in the global economic recovery and U.S. spending.
Apple, the maker of the iPhone, said this week that second- quarter profit almost doubled. Of the 76 companies in the Standard & Poor’s 500 Index that posted earnings since April 11, 75 percent have beaten analyst estimates for per-share profit, according to data compiled by Bloomberg.
Intervention Concern
The won slipped 0.1 percent yesterday to 1,080.80 per dollar on speculation the central bank would intervene to curb appreciation. Gains halted at 1,078.30 on April 21, matching the highs set on Sept. 8, 2008, and Aug. 28, 2008, creating resistance for the local currency, or a level at which sell orders are clustered. For the week, the won appreciated 0.8 percent.
“The won benefitted this week mainly as improved earnings and the global economic outlook boosted investment into higher- risk assets,” said Byeon Ji Young, a currency analyst at Woori Futures Co. in Seoul. “Concerns that authorities may step in to curb the won’s appreciation are limiting further gains.”
Finance Minister Yoon Jeung Hyun said yesterday the government will step up monitoring of financial markets as global capital flows into South Korea may see more volatility with U.S. quantitative easing nearing an end. Yoon also said an increase in short-term external debt at some financial companies led to a probe into foreign-exchange derivatives trading.
Yuan Appreciation
China’s yuan climbed to the highest level since 2007 on speculation the central bank will allow faster currency gains to help temper inflation.
The currency appreciated 0.2 percent to 6.5067 per dollar in the spot market yesterday and touched a 17-year high of 6.5067, according to the China Foreign Exchange Trade System.
More rapid appreciation may be a tool for curbing prices, Wang Yong, a professor at the People’s Bank of China’s training center in the city of Zhengzhou, wrote in a commentary published in yesterday’s Securities Times newspaper. The central bank set the yuan’s reference rate 0.11 percent stronger at 6.5156 per dollar, the highest level since July 2005.
“The frequent record highs in the reference rate are pushing up appreciation bets in the offshore market,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. “There won’t be any one-off move in the foreseeable future, especially when the trade surplus narrows.”
Record Export Orders
Taiwan’s dollar rose to the strongest level in more than two months after the government reported April 20 export orders climbed 13.4 percent to a record $38.9 billion in March as a drop in shipments to Japan was compensated for by increases to the U.S. and China.
“The export orders figures showed Taiwan’s exports remain competitive,” said Henry Lin, a Taipei-based foreign-exchange trader at Taiwan Shin Kong Commercial Bank. “The appreciating trend will probably continue next week, and the currency may test the NT$28.7 level.”
Taiwan’s dollar strengthened 0.4 percent this week to NT$28.930, according to Taipei Forex Inc. The currency touched NT$28.860 yesterday, the strongest level since Feb. 10.
Elsewhere, Indonesia’s rupiah gained 0.5 percent this week to 8,623 per dollar and Thailand’s baht strengthened 0.7 percent to 29.94. India’s rupee and the Philippine peso were little changed at 44.3675 and 43.285.
The Bloomberg-JPMorgan Asia Dollar index rose to its highest level since 1997 as overseas investors bought a combined $1.7 billion more stocks than they sold in India, South Korea, Taiwan and Thailand this week, according to exchange data. The Bank of Thailand lifted interest rates on April 20 for the sixth time in less than a year, and signaled more tightening is likely. Malaysia reported the same day that consumer prices rose 3 percent in March from a year earlier, the most since April 2009.
“Inflation pressure raises the possibility of a rate increase next month, which supports the ringgit,” said Suresh Kumar Ramanathan, foreign-exchange strategist at Kuala Lumpur- based CIMB Investment Bank Bhd. “U.S. dollar funding costs are still low, and investors are going long Asian currencies.”
Singapore’s dollar gained 1 percent for the week to S$1.2333 against its U.S. counterpart and touched S$1.2329, the strongest level since at least 1981. The ringgit rose 0.6 percent to 3.0045 in Kuala Lumpur and reached 3.0034, the highest level since October 1997.
Asian currencies also gained after rising earnings at companies including Apple Inc. boosted confidence in the global economic recovery and U.S. spending.
Apple, the maker of the iPhone, said this week that second- quarter profit almost doubled. Of the 76 companies in the Standard & Poor’s 500 Index that posted earnings since April 11, 75 percent have beaten analyst estimates for per-share profit, according to data compiled by Bloomberg.
Intervention Concern
The won slipped 0.1 percent yesterday to 1,080.80 per dollar on speculation the central bank would intervene to curb appreciation. Gains halted at 1,078.30 on April 21, matching the highs set on Sept. 8, 2008, and Aug. 28, 2008, creating resistance for the local currency, or a level at which sell orders are clustered. For the week, the won appreciated 0.8 percent.
“The won benefitted this week mainly as improved earnings and the global economic outlook boosted investment into higher- risk assets,” said Byeon Ji Young, a currency analyst at Woori Futures Co. in Seoul. “Concerns that authorities may step in to curb the won’s appreciation are limiting further gains.”
Finance Minister Yoon Jeung Hyun said yesterday the government will step up monitoring of financial markets as global capital flows into South Korea may see more volatility with U.S. quantitative easing nearing an end. Yoon also said an increase in short-term external debt at some financial companies led to a probe into foreign-exchange derivatives trading.
Yuan Appreciation
China’s yuan climbed to the highest level since 2007 on speculation the central bank will allow faster currency gains to help temper inflation.
The currency appreciated 0.2 percent to 6.5067 per dollar in the spot market yesterday and touched a 17-year high of 6.5067, according to the China Foreign Exchange Trade System.
More rapid appreciation may be a tool for curbing prices, Wang Yong, a professor at the People’s Bank of China’s training center in the city of Zhengzhou, wrote in a commentary published in yesterday’s Securities Times newspaper. The central bank set the yuan’s reference rate 0.11 percent stronger at 6.5156 per dollar, the highest level since July 2005.
“The frequent record highs in the reference rate are pushing up appreciation bets in the offshore market,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. “There won’t be any one-off move in the foreseeable future, especially when the trade surplus narrows.”
Record Export Orders
Taiwan’s dollar rose to the strongest level in more than two months after the government reported April 20 export orders climbed 13.4 percent to a record $38.9 billion in March as a drop in shipments to Japan was compensated for by increases to the U.S. and China.
“The export orders figures showed Taiwan’s exports remain competitive,” said Henry Lin, a Taipei-based foreign-exchange trader at Taiwan Shin Kong Commercial Bank. “The appreciating trend will probably continue next week, and the currency may test the NT$28.7 level.”
Taiwan’s dollar strengthened 0.4 percent this week to NT$28.930, according to Taipei Forex Inc. The currency touched NT$28.860 yesterday, the strongest level since Feb. 10.
Elsewhere, Indonesia’s rupiah gained 0.5 percent this week to 8,623 per dollar and Thailand’s baht strengthened 0.7 percent to 29.94. India’s rupee and the Philippine peso were little changed at 44.3675 and 43.285.
Indian Bank Plans to Raise $1 Billion Selling Debt, Boost Sri Lanka Loans
Indian Bank (INBK), a state-owned lender, plans to raise as much as $1 billion selling medium-term notes and use the proceeds to boost loans in Sri Lanka and Singapore.
The bank will sell the 5 ½-year debt overseas in two phases, Executive Director V. Rama Gopal told reporters today in Chennai, where the company is based. The sale may start after three months, he said.
The 103-year-old bank is betting the fastest pace of growth in more than three decades in Sri Lanka will boost demand for loans. The lender also expects low interest rates in Singapore to attract Indian companies to borrow in the city-state. Indian Bank’s profit rose 10 percent, the slowest pace in six years, in the 12 months ended March 31.
“Almost all Indian corporates are setting up offices in Singapore,” and they want to borrow in the city, Chairman and Managing Director T.M. Bhasin said in an interview today. In Sri Lanka there’s demand to borrow to build infrastructure and gain from economic growth in the nation, he said.
Indian Bank’s rose 0.2 percent to 239.35 rupees on April 21 in Mumbai. The shares have declined 3 percent this year, compared with a 1 percent gain in the Bombay Stock Exchange’s Bankex index.
Indian Bank expects its balance sheet to almost triple to 5 trillion rupees ($112.6 billion) in the next four years, Bhasin said.
Sri Lanka’s economy expanded 8 percent in 2010 from a year earlier, which is the most since 1978 and compares with a 3.5 percent gain in 2009.
Tamil Tigers
Companies including Shangri-La Asia Ltd., Nestle Lanka Plc and India’s Delta Corp. are boosting investments after President Mahinda Rajapaksa’s government ended the Liberation Tigers of Tamil Eelam’s quest for a separate homeland in 2009, bringing an end to conflict.
Bharti Airtel Ltd., India’s biggest mobile-phone services company, and Shapoorji Pallonji & Co. are among companies that have approached Indian Bank to borrow in Singapore, Bhasin said. The prime lending rate in Singapore is 5.38 percent, while the minimum rate at State Bank of India, the nation’s biggest, is 8.5 percent, according to data compiled by Bloomberg.
The lenders’ profit in the three months ended March 31 rose 7.3 percent to 4.39 billion rupees, the lender said in a filing to the Bombay Stock Exchange today. Total income rose to 28.65 billion rupees from 23.17 billion rupees.
The bank will sell the 5 ½-year debt overseas in two phases, Executive Director V. Rama Gopal told reporters today in Chennai, where the company is based. The sale may start after three months, he said.
The 103-year-old bank is betting the fastest pace of growth in more than three decades in Sri Lanka will boost demand for loans. The lender also expects low interest rates in Singapore to attract Indian companies to borrow in the city-state. Indian Bank’s profit rose 10 percent, the slowest pace in six years, in the 12 months ended March 31.
“Almost all Indian corporates are setting up offices in Singapore,” and they want to borrow in the city, Chairman and Managing Director T.M. Bhasin said in an interview today. In Sri Lanka there’s demand to borrow to build infrastructure and gain from economic growth in the nation, he said.
Indian Bank’s rose 0.2 percent to 239.35 rupees on April 21 in Mumbai. The shares have declined 3 percent this year, compared with a 1 percent gain in the Bombay Stock Exchange’s Bankex index.
Indian Bank expects its balance sheet to almost triple to 5 trillion rupees ($112.6 billion) in the next four years, Bhasin said.
Sri Lanka’s economy expanded 8 percent in 2010 from a year earlier, which is the most since 1978 and compares with a 3.5 percent gain in 2009.
Tamil Tigers
Companies including Shangri-La Asia Ltd., Nestle Lanka Plc and India’s Delta Corp. are boosting investments after President Mahinda Rajapaksa’s government ended the Liberation Tigers of Tamil Eelam’s quest for a separate homeland in 2009, bringing an end to conflict.
Bharti Airtel Ltd., India’s biggest mobile-phone services company, and Shapoorji Pallonji & Co. are among companies that have approached Indian Bank to borrow in Singapore, Bhasin said. The prime lending rate in Singapore is 5.38 percent, while the minimum rate at State Bank of India, the nation’s biggest, is 8.5 percent, according to data compiled by Bloomberg.
The lenders’ profit in the three months ended March 31 rose 7.3 percent to 4.39 billion rupees, the lender said in a filing to the Bombay Stock Exchange today. Total income rose to 28.65 billion rupees from 23.17 billion rupees.
Friday, April 22, 2011
Camouflaging Price Creep
The Easter special at many retailers this year involves higher price tags.
As retailers have been warning, their costs are rising as cotton and other materials get more expensive, laborers in China demand higher wages and fuel prices go up. By this fall, many have said, they must charge customers more. Because retailers pay for items about six months in advance, spring merchandise on the shelves for a few months was ordered and paid for in late summer, before costs soared. And when costs first started creeping up, clothing makers used an array of tactics to keep prices flat, whether by moving production to lower-cost countries like Bangladesh, using cheaper fabrics or ordering early to lock in prices.
By this time, though, retailers are running out of ways to avoid passing on the higher expenses. An uptick has quietly begun.
Companies are “raising prices, but are trying not to broadcast it for competitive reasons, and it also doesn’t look good for public relations reasons,” said John D. Morris, an analyst with BMO Capital Markets.
“They’re doing it before they’re actually incurring some of the higher costs,” Mr. Morris said, adding that steeper increases will mainly occur in the fall and winter.
Several stores have couched recent increases inside promotions, or nudged price tags up by a little under 10 percent, the point at which many shoppers’ radar picks up on the move. For example, at American Eagle Outfitters, the price of striped polo shirts was raised about a week ago to $34.50, up from $29.50. At Brooks Brothers, a wrinkle-free shirt is $88, up from $79.50 in January.
The increases have not been imposed from rack to rack. Retailers and analysts say stores are testing to see where customers will accept higher prices. Will shoppers accept more expensive jeans, but revolt if the price of T-shirts rises? Will they stop buying socks if the price goes up by 50 cents? What about $3?
Gauging customers’ reactions could help retailers avoid errors in pricing when they make widespread changes in the autumn. At American Eagle, “there are areas within the categories that we do believe that we can take prices up,” said Roger S. Markfield, vice chairman and executive creative director, in the company’s March conference call. “In the right items, the customer responds as though there was no price increase.”
“In the areas where we have tested and it is not possible, we will not do that,” he said.
Aéropostale, too, has begun increasing prices selectively, executives said on its fourth-quarter conference call.
“Like us, some of our peers are testing different things and testing higher prices, and primarily in preparation for the back half of the year,” Thomas P. Johnson, the chief executive of Aéropostale, said. “However, there is still uncertainty surrounding the macroeconomic environment and the consumers’ response to higher prices.” Right now, a long-sleeved Ralph Lauren men’s shirt costs $95, up from $89, an increase of about 7 percent, while a women’s gingham oxford at J. Crew costs $72, up from $69.50 a year ago, an increase of nearly 4 percent.
Janney Capital Markets follows prices and promotions at a group of specialty retailers. In mid-April of last year, it noted that Charlotte Russe was selling swimwear at $14.50 and up. Now, swimsuits sell for $16.50 and up.
Flip-flops at The Children’s Place had been two for $5, and now are two for $6.
Bullhead-brand jeans for girls at Pacific Sunwear were two for $55 last year, Janney said. Now, they are two for $59.
And cotton underwear at Soma Intimates, once five for $25, now sell for five for $25.50.
Like Soma, other retailers are hiding higher prices in complicated promotions. The teenage retailer Zumiez, for instance, went from an offer of three T-shirts and two pairs of jeans for $85, to two T-shirts and two pairs of jeans for $80. (Hopefully its customers have already taken algebra.)
While virtually all retailers have said that prices will climb in 2011, across-the-board price increases have not yet been reflected in the Consumer Price Index. In March, apparel and jewelry prices were 0.5 percent below where they had been in February, the Bureau of Labor Statistics said.
Though retailers were expecting more outrage, shoppers so far do not seem put off by the increases.
“A number of them seemed encouraged that customers weren’t backing away as of yet,” said John Long, a retail strategist at the consulting firm Kurt Salmon Associates. “They hadn’t encountered much in the way of resistance, which they found surprising.”
At The Children’s Place, which recently changed the standard ending on its items from X.50 to X.95, customers “didn’t really even notice in these early rounds,” Mr. Morris of BMO Capital Markets said.
Although shoppers are taking the hit on the higher prices for now, Mr. Morris said the tactic could be smart for the retailers.
“In a way, that’s not a bad strategy because their customer is less likely to have sticker shock when they really have to ratchet up come the third quarter,” he said.
As retailers have been warning, their costs are rising as cotton and other materials get more expensive, laborers in China demand higher wages and fuel prices go up. By this fall, many have said, they must charge customers more. Because retailers pay for items about six months in advance, spring merchandise on the shelves for a few months was ordered and paid for in late summer, before costs soared. And when costs first started creeping up, clothing makers used an array of tactics to keep prices flat, whether by moving production to lower-cost countries like Bangladesh, using cheaper fabrics or ordering early to lock in prices.
By this time, though, retailers are running out of ways to avoid passing on the higher expenses. An uptick has quietly begun.
Companies are “raising prices, but are trying not to broadcast it for competitive reasons, and it also doesn’t look good for public relations reasons,” said John D. Morris, an analyst with BMO Capital Markets.
“They’re doing it before they’re actually incurring some of the higher costs,” Mr. Morris said, adding that steeper increases will mainly occur in the fall and winter.
Several stores have couched recent increases inside promotions, or nudged price tags up by a little under 10 percent, the point at which many shoppers’ radar picks up on the move. For example, at American Eagle Outfitters, the price of striped polo shirts was raised about a week ago to $34.50, up from $29.50. At Brooks Brothers, a wrinkle-free shirt is $88, up from $79.50 in January.
The increases have not been imposed from rack to rack. Retailers and analysts say stores are testing to see where customers will accept higher prices. Will shoppers accept more expensive jeans, but revolt if the price of T-shirts rises? Will they stop buying socks if the price goes up by 50 cents? What about $3?
Gauging customers’ reactions could help retailers avoid errors in pricing when they make widespread changes in the autumn. At American Eagle, “there are areas within the categories that we do believe that we can take prices up,” said Roger S. Markfield, vice chairman and executive creative director, in the company’s March conference call. “In the right items, the customer responds as though there was no price increase.”
“In the areas where we have tested and it is not possible, we will not do that,” he said.
Aéropostale, too, has begun increasing prices selectively, executives said on its fourth-quarter conference call.
“Like us, some of our peers are testing different things and testing higher prices, and primarily in preparation for the back half of the year,” Thomas P. Johnson, the chief executive of Aéropostale, said. “However, there is still uncertainty surrounding the macroeconomic environment and the consumers’ response to higher prices.” Right now, a long-sleeved Ralph Lauren men’s shirt costs $95, up from $89, an increase of about 7 percent, while a women’s gingham oxford at J. Crew costs $72, up from $69.50 a year ago, an increase of nearly 4 percent.
Janney Capital Markets follows prices and promotions at a group of specialty retailers. In mid-April of last year, it noted that Charlotte Russe was selling swimwear at $14.50 and up. Now, swimsuits sell for $16.50 and up.
Flip-flops at The Children’s Place had been two for $5, and now are two for $6.
Bullhead-brand jeans for girls at Pacific Sunwear were two for $55 last year, Janney said. Now, they are two for $59.
And cotton underwear at Soma Intimates, once five for $25, now sell for five for $25.50.
Like Soma, other retailers are hiding higher prices in complicated promotions. The teenage retailer Zumiez, for instance, went from an offer of three T-shirts and two pairs of jeans for $85, to two T-shirts and two pairs of jeans for $80. (Hopefully its customers have already taken algebra.)
While virtually all retailers have said that prices will climb in 2011, across-the-board price increases have not yet been reflected in the Consumer Price Index. In March, apparel and jewelry prices were 0.5 percent below where they had been in February, the Bureau of Labor Statistics said.
Though retailers were expecting more outrage, shoppers so far do not seem put off by the increases.
“A number of them seemed encouraged that customers weren’t backing away as of yet,” said John Long, a retail strategist at the consulting firm Kurt Salmon Associates. “They hadn’t encountered much in the way of resistance, which they found surprising.”
At The Children’s Place, which recently changed the standard ending on its items from X.50 to X.95, customers “didn’t really even notice in these early rounds,” Mr. Morris of BMO Capital Markets said.
Although shoppers are taking the hit on the higher prices for now, Mr. Morris said the tactic could be smart for the retailers.
“In a way, that’s not a bad strategy because their customer is less likely to have sticker shock when they really have to ratchet up come the third quarter,” he said.
Labor Board Case Against Boeing Points to Fights to Come
For businesses, it was the type of action they have feared from a National Labor Relations Board dominated by Democrats. For labor unions, it was the type of action they have hoped for. And for both, it may be a sign of things to come.
These fears and hopes were stirred this week when the labor board’s top lawyer filed a case against Boeing, seeking to force it to move airplane production from a nonunion plant in South Carolina to a unionized one in Washington State. Boeing executives had publicly said they were making the move to avoid the kind of strikes the airplane maker had repeatedly faced in Washington; Lafe Solomon, the labor board’s acting general counsel, said the company’s motive constituted illegal retaliation against workers for exercising their right to strike.
The agency’s unusually bold action angered business groups and some politicians, who said it was an unwarranted attempt by the government to interfere with a fundamental corporate decision.
But under President Obama’s appointees, the agency, including Mr. Solomon and his staff, has sought to reinterpret and more vigorously enforce the rules governing employers and employees, from what workers can say about their bosses on Twitter to the use of Internet and phone voting in union elections.
How much ultimately changes will depend in large part on the decisions made by the five-member board, led by Wilma Liebman, that sits atop the agency. That panel hears cases brought by the board’s regional offices — overseen by Mr. Solomon — after employers, workers or unions file complaints.
Democratic-dominated boards often tilt toward unions and reverse the decisions of Republican-leaning boards, which usually tilt toward management, and vice versa. The current board — made up of three Democrats and one Republican, with one vacancy — is expected to reverse a Bush-era decision that stripped graduate teaching assistants at private universities of their right to bargain collectively. Labor experts also predict that the board will adopt a policy that makes it easier to organize nursing home workers by allowing unions to go after smaller units of workers inside those homes.
The biggest surprise has been the activist stance taken by Mr. Solomon, a career civil servant at the board for 39 years. He became acting general counsel in June 2010, and President Obama nominated him to be the permanent general counsel last January. The Senate has not yet confirmed him to the post.
In the Boeing case, Mr. Solomon charged that the company had illegally moved some production work of the 787 Dreamliner passenger plane to South Carolina to punish workers for past strikes and to avoid future ones. The remedy proposed by Mr. Solomon has been denounced as extreme by many business leaders: that Boeing move the work back to its unionized Puget Sound facilities, after it made a $2 billion investment and hired 1,000 nonunion workers in South Carolina.
Outraged, the National Association of Manufacturers warned that if the agency won this case, “no company will be safe from the N.L.R.B. stepping in to second-guess its business decisions on where to expand.”
Senator Jim DeMint, a South Carolina Republican, complained, “This is nothing more than a political favor for the unions who are supporting President Obama’s re-election campaign.”
The Boeing case was not the first time that Mr. Solomon has riled the business community and its Republican allies. Saying it is the domain of the federal government, he recently threatened to sue four Republican-heavy states — Arizona, South Carolina, South Dakota and Utah — in an effort to invalidate recent constitutional amendments that prohibit private sector workers from choosing a union by signing cards, a process known as card check.
He has also sought to extend the labor board’s reach into the world of the Internet. He approved requests from regional labor board officials to bring complaints against businesses that punished employees for Facebook and Twitter posts, including one case against Reuters. Mr. Solomon has also proposed that electronic voting be used when workers decide whether they want to unionize their workplace — a proposal that business groups maintain will make it easier for unions to coerce workers.
In an interview, Mr. Solomon, a 61-year-old Arkansas native, insisted that he was no radical.
“My goal is to enforce the National Labor Relations Act,” he said. That law, enacted in 1935, governs private sector workers’ right to unionize as well as relations between tens of thousands of companies and employees.
Mr. Solomon, who has worked for board members of both parties, said this case was straightforward: Boeing had retaliated against workers for exercising their federally protected right to strike. “They had a consistent message that they were doing this to punish their employees for having struck and having the power to strike in the future,” he said. “I can’t not issue a complaint in the face of such evidence.”
These fears and hopes were stirred this week when the labor board’s top lawyer filed a case against Boeing, seeking to force it to move airplane production from a nonunion plant in South Carolina to a unionized one in Washington State. Boeing executives had publicly said they were making the move to avoid the kind of strikes the airplane maker had repeatedly faced in Washington; Lafe Solomon, the labor board’s acting general counsel, said the company’s motive constituted illegal retaliation against workers for exercising their right to strike.
The agency’s unusually bold action angered business groups and some politicians, who said it was an unwarranted attempt by the government to interfere with a fundamental corporate decision.
But under President Obama’s appointees, the agency, including Mr. Solomon and his staff, has sought to reinterpret and more vigorously enforce the rules governing employers and employees, from what workers can say about their bosses on Twitter to the use of Internet and phone voting in union elections.
How much ultimately changes will depend in large part on the decisions made by the five-member board, led by Wilma Liebman, that sits atop the agency. That panel hears cases brought by the board’s regional offices — overseen by Mr. Solomon — after employers, workers or unions file complaints.
Democratic-dominated boards often tilt toward unions and reverse the decisions of Republican-leaning boards, which usually tilt toward management, and vice versa. The current board — made up of three Democrats and one Republican, with one vacancy — is expected to reverse a Bush-era decision that stripped graduate teaching assistants at private universities of their right to bargain collectively. Labor experts also predict that the board will adopt a policy that makes it easier to organize nursing home workers by allowing unions to go after smaller units of workers inside those homes.
The biggest surprise has been the activist stance taken by Mr. Solomon, a career civil servant at the board for 39 years. He became acting general counsel in June 2010, and President Obama nominated him to be the permanent general counsel last January. The Senate has not yet confirmed him to the post.
In the Boeing case, Mr. Solomon charged that the company had illegally moved some production work of the 787 Dreamliner passenger plane to South Carolina to punish workers for past strikes and to avoid future ones. The remedy proposed by Mr. Solomon has been denounced as extreme by many business leaders: that Boeing move the work back to its unionized Puget Sound facilities, after it made a $2 billion investment and hired 1,000 nonunion workers in South Carolina.
Outraged, the National Association of Manufacturers warned that if the agency won this case, “no company will be safe from the N.L.R.B. stepping in to second-guess its business decisions on where to expand.”
Senator Jim DeMint, a South Carolina Republican, complained, “This is nothing more than a political favor for the unions who are supporting President Obama’s re-election campaign.”
The Boeing case was not the first time that Mr. Solomon has riled the business community and its Republican allies. Saying it is the domain of the federal government, he recently threatened to sue four Republican-heavy states — Arizona, South Carolina, South Dakota and Utah — in an effort to invalidate recent constitutional amendments that prohibit private sector workers from choosing a union by signing cards, a process known as card check.
He has also sought to extend the labor board’s reach into the world of the Internet. He approved requests from regional labor board officials to bring complaints against businesses that punished employees for Facebook and Twitter posts, including one case against Reuters. Mr. Solomon has also proposed that electronic voting be used when workers decide whether they want to unionize their workplace — a proposal that business groups maintain will make it easier for unions to coerce workers.
In an interview, Mr. Solomon, a 61-year-old Arkansas native, insisted that he was no radical.
“My goal is to enforce the National Labor Relations Act,” he said. That law, enacted in 1935, governs private sector workers’ right to unionize as well as relations between tens of thousands of companies and employees.
Mr. Solomon, who has worked for board members of both parties, said this case was straightforward: Boeing had retaliated against workers for exercising their federally protected right to strike. “They had a consistent message that they were doing this to punish their employees for having struck and having the power to strike in the future,” he said. “I can’t not issue a complaint in the face of such evidence.”
Obama Condemns Syria for Violence; McCain Backs Rebels During Libya Visit
President Barack Obama condemned Syria for “outrageous use of violence” against anti-government protesters as U.S. Senator John McCain visited Libya in a show of support for insurgents trying to overthrow Muammar Qaddafi.
Syrian security forces fired tear gas and live ammunition to break up protests, killing at least 81 people yesterday, Al Jazeera television reported, citing activists.
The government’s moves two days ago to lift the 48-year-old state of emergency and allow peaceful demonstrations “were not serious given the continued violent repression against protesters,” Obama said in a statement yesterday. President Bashar al-Assad must “change course now and heed the calls of his own people.”
McCain, the 2008 Republican presidential nominee and the ranking member of the Senate Armed Services Committee, yesterday visited Benghazi, Libya’s second-largest city, and the center of the uprising that began against Qaddafi in mid-February. McCain called on the U.S. government to recognize the rebel Transitional National Council as the country’s government and provide financial assistance and more military aid to the insurgents.
The violence in Syria was the deadliest since protests against Assad’s government began March 15. Using force to quell protests “must come to an end now,” Obama said in an e-mailed statement from the White House.
Blaming Outsiders
“The United States has repeatedly encouraged President Assad and the Syrian government to implement meaningful reforms, but they refuse to respect the rights of the Syrian people or be responsive to their aspirations,” Obama said. “President Assad is blaming outsiders while seeking Iranian assistance in repressing Syria’s citizens through the same brutal tactics that have been used by his Iranian allies.”
Al Arabiya and Al Jazeera broadcast amateur videos of thousands of protesters across the country and people fleeing gunfire in several cities. Two boys aged seven and 10 and a 70- year-old man were among those killed in the southern town of Izzra, according to Amnesty International.
“The Syrian authorities have again responded to peaceful calls for change with bullets and batons,” Amnesty International’s Malcolm Smart said on the group’s website.
Syrian human rights activists have reported at least 200 people killed by government forces since major demonstrations began March 16, according to Human Rights Watch, a New York- based group that tracks violations of human rights.
Libyan Patriots
Libyan fighters seeking to oust Qaddafi are “patriots who want to liberate their nation,” McCain said during his visit. “They are not al-Qaeda.”
“Maybe we should be doing everything we can to help these people,” McCain, 74, of Arizona, said on Al Jazeera following a visit to a hospital. “And maybe we’re not, and they’re dying.”
White House spokesman Jay Carney responded to McCain’s call to recognize the Transitional Council by saying the Obama administration has determined that “it’s for the people of Libya to decide who the head of their country is, not for the United States to do that.”
Carney told reporters yesterday that that the administration knew about McCain’s trip and that the senator wasn’t carrying any messages from the administration.
Predator Drones
The U.S. has authorized Predator drones, made by closely held General Atomics of San Diego, to support the insurgents. France, Italy and the U.K. have sent military advisers. The U.S. has said it would provide $25 million in non-lethal aid, such as radios and body armor, to Libya’s rebels.
The U.S. rules out for now supplying arms to the rebels, ambassador to the United Nations Susan Rice said on Bloomberg Television’s “Political Capitol with Al Hunt,” airing this weekend.
“With the weapons that they have, the rebels are holding on,” Rice said, referring to firefights in the besieged city of Misrata. “It is natural and to be expected that it is going to take some time for them to be constituted into an effective fighting force.”
The North Atlantic Treaty Organization is leading a UN- sanctioned mission to police a no-fly zone, protect civilians and enforce an arms embargo against Qaddafi’s government.
Fighting has halted most oil exports from Libya, home to Africa’s biggest oil reserves. Oil prices are up more than 30 percent from a year ago. Crude oil for June delivery rose 84 cents to settle at $112.29 a barrel on the New York Mercantile Exchange. Markets were closed for the Good Friday holiday.
Prices Probe
Obama said April 21 that his Justice Department would investigate whether “traders and speculators” in oil markets deserve any blame for the high prices.
Obama faces pressure over rising gasoline prices. Previous administrations have conducted similar inquiries after gasoline price spikes. Gasoline climbed to a 33-month high April 21, and crude oil was up 23 percent this year as Middle East unrest cut supply and a global economic rebound bolstered demand.
Anti-government protests in Sana’a, Yemen’s capital, drew almost 1 million people following Friday prayers, according to an unidentified organizer. Demonstrators are demanding the end of President Ali Abdullah Saleh’s 30-year rule.
The president, who has rejected calls to step down, spoke to his own supporters yesterday, a day after he met with officials of the Gulf Cooperation Council in an attempt to resolve the crisis.
A total of 109 protesters have been killed in Yemen since Feb. 11, according to Majed al-Madhaji, a spokesman at the Arabic Sisters Forum for Human Rights in Sana’a.
Syrian security forces fired tear gas and live ammunition to break up protests, killing at least 81 people yesterday, Al Jazeera television reported, citing activists.
The government’s moves two days ago to lift the 48-year-old state of emergency and allow peaceful demonstrations “were not serious given the continued violent repression against protesters,” Obama said in a statement yesterday. President Bashar al-Assad must “change course now and heed the calls of his own people.”
McCain, the 2008 Republican presidential nominee and the ranking member of the Senate Armed Services Committee, yesterday visited Benghazi, Libya’s second-largest city, and the center of the uprising that began against Qaddafi in mid-February. McCain called on the U.S. government to recognize the rebel Transitional National Council as the country’s government and provide financial assistance and more military aid to the insurgents.
The violence in Syria was the deadliest since protests against Assad’s government began March 15. Using force to quell protests “must come to an end now,” Obama said in an e-mailed statement from the White House.
Blaming Outsiders
“The United States has repeatedly encouraged President Assad and the Syrian government to implement meaningful reforms, but they refuse to respect the rights of the Syrian people or be responsive to their aspirations,” Obama said. “President Assad is blaming outsiders while seeking Iranian assistance in repressing Syria’s citizens through the same brutal tactics that have been used by his Iranian allies.”
Al Arabiya and Al Jazeera broadcast amateur videos of thousands of protesters across the country and people fleeing gunfire in several cities. Two boys aged seven and 10 and a 70- year-old man were among those killed in the southern town of Izzra, according to Amnesty International.
“The Syrian authorities have again responded to peaceful calls for change with bullets and batons,” Amnesty International’s Malcolm Smart said on the group’s website.
Syrian human rights activists have reported at least 200 people killed by government forces since major demonstrations began March 16, according to Human Rights Watch, a New York- based group that tracks violations of human rights.
Libyan Patriots
Libyan fighters seeking to oust Qaddafi are “patriots who want to liberate their nation,” McCain said during his visit. “They are not al-Qaeda.”
“Maybe we should be doing everything we can to help these people,” McCain, 74, of Arizona, said on Al Jazeera following a visit to a hospital. “And maybe we’re not, and they’re dying.”
White House spokesman Jay Carney responded to McCain’s call to recognize the Transitional Council by saying the Obama administration has determined that “it’s for the people of Libya to decide who the head of their country is, not for the United States to do that.”
Carney told reporters yesterday that that the administration knew about McCain’s trip and that the senator wasn’t carrying any messages from the administration.
Predator Drones
The U.S. has authorized Predator drones, made by closely held General Atomics of San Diego, to support the insurgents. France, Italy and the U.K. have sent military advisers. The U.S. has said it would provide $25 million in non-lethal aid, such as radios and body armor, to Libya’s rebels.
The U.S. rules out for now supplying arms to the rebels, ambassador to the United Nations Susan Rice said on Bloomberg Television’s “Political Capitol with Al Hunt,” airing this weekend.
“With the weapons that they have, the rebels are holding on,” Rice said, referring to firefights in the besieged city of Misrata. “It is natural and to be expected that it is going to take some time for them to be constituted into an effective fighting force.”
The North Atlantic Treaty Organization is leading a UN- sanctioned mission to police a no-fly zone, protect civilians and enforce an arms embargo against Qaddafi’s government.
Fighting has halted most oil exports from Libya, home to Africa’s biggest oil reserves. Oil prices are up more than 30 percent from a year ago. Crude oil for June delivery rose 84 cents to settle at $112.29 a barrel on the New York Mercantile Exchange. Markets were closed for the Good Friday holiday.
Prices Probe
Obama said April 21 that his Justice Department would investigate whether “traders and speculators” in oil markets deserve any blame for the high prices.
Obama faces pressure over rising gasoline prices. Previous administrations have conducted similar inquiries after gasoline price spikes. Gasoline climbed to a 33-month high April 21, and crude oil was up 23 percent this year as Middle East unrest cut supply and a global economic rebound bolstered demand.
Anti-government protests in Sana’a, Yemen’s capital, drew almost 1 million people following Friday prayers, according to an unidentified organizer. Demonstrators are demanding the end of President Ali Abdullah Saleh’s 30-year rule.
The president, who has rejected calls to step down, spoke to his own supporters yesterday, a day after he met with officials of the Gulf Cooperation Council in an attempt to resolve the crisis.
A total of 109 protesters have been killed in Yemen since Feb. 11, according to Majed al-Madhaji, a spokesman at the Arabic Sisters Forum for Human Rights in Sana’a.
Most Asian Stocks Drop as China Shares Slip; Yuan Strengthens, Gold Rises
Most stocks fell in Asia as Chinese shares slipped on speculation the country’s central bank may let the yuan strengthen to cool inflation. China’s currency touched a 17-year high against the dollar, gold climbed to a record and shares in Russia rose.
Declines by technology and materials stocks were offset by gains in automakers and industrial shares leaving the MSCI Asia Pacific Index unchanged at 138.82 even as six stocks retreated for every five that advanced. The Shanghai Composite Index slid 0.5 percent, while the yuan gained 0.2 percent to 6.5067. Gold increased to $1,512.47 an ounce, before trading at $1,506.85 at 5:25 p.m. in London. Russia’s Micex jumped 0.8 percent.
More rapid appreciation of the yuan may be a tool for curbing prices, Wang Yong, a professor at the People’s Bank of China’s training center in the city of Zhengzhou, wrote in a commentary published in today’s Securities Times newspaper. Stocks in Asia pared declines after Renesas Electronics Corp. (6723), a Japanese chipmaker, said it will restart operations at a plant damaged by the quake. Most markets in Europe and the Americas were closed today for Good Friday.
“It’s a difficult environment for investors to take a proactive stance right now,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “There are still a lot of uncertainties for the global economy.”
The MSCI Asia Pacific gauge advanced 2.2 percent this week. Samsung Electronics Co. slid 2.6 percent today. The memory-chip producer said it sued Apple Inc. claiming patent infringement, a week after the iPhone maker filed a complaint in U.S. federal court alleging the South Korean company copied its products.
Toyota, Honda
Renesas Electronics advanced 1.4 percent after the chipmaker that supplies Japan’s carmakers said it plans to resume operations at its Naka plant in Ibaraki prefecture. Toyota Motor Corp. (7203), the world’s biggest carmaker, Honda Motor Co. and Nissan Motor Co. gained more than 2 percent.
The Shanghai Composite Index extended this week’s decline to 1.3 percent, its worst week in three months. The yuan gained after the central bank set the currency’s reference rate 0.11 percent stronger at 6.5156 per dollar, the highest level since July 2005. Twelve-month non-deliverable forwards rose 0.38 percent to 6.3235 per dollar.
Four interest-rate increases and higher bank reserve requirements have failed so far to curb prices, with the consumer-price index rising 5.4 percent in March. A stronger currency makes the country’s exports less competitive.
Gold for immediate delivery advanced 1.4 percent so far this week. Silver for immediate delivery climbed 1.4 percent to $47.25 an ounce, the highest price since 1980.
Emerging Europe
Higher precious metals prices lifted OAO Polymetal, a Russian gold and silver producer, 2.1 percent higher, helping the biggest advance in the Micex. Benchmark equity indexes in Hungary and the Czech Republic declined, snapping three days of gains.
Japan’s bonds rose, pushing 10-year yields to a four-week low, after Prime Minister Naoto Kan’s government compiled a 4 trillion yen ($49 billion) extra budget that didn’t include new debt sales. The yield on the 2021 bond fell 1.5 basis points to 1.21 percent.
Declines by technology and materials stocks were offset by gains in automakers and industrial shares leaving the MSCI Asia Pacific Index unchanged at 138.82 even as six stocks retreated for every five that advanced. The Shanghai Composite Index slid 0.5 percent, while the yuan gained 0.2 percent to 6.5067. Gold increased to $1,512.47 an ounce, before trading at $1,506.85 at 5:25 p.m. in London. Russia’s Micex jumped 0.8 percent.
More rapid appreciation of the yuan may be a tool for curbing prices, Wang Yong, a professor at the People’s Bank of China’s training center in the city of Zhengzhou, wrote in a commentary published in today’s Securities Times newspaper. Stocks in Asia pared declines after Renesas Electronics Corp. (6723), a Japanese chipmaker, said it will restart operations at a plant damaged by the quake. Most markets in Europe and the Americas were closed today for Good Friday.
“It’s a difficult environment for investors to take a proactive stance right now,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “There are still a lot of uncertainties for the global economy.”
The MSCI Asia Pacific gauge advanced 2.2 percent this week. Samsung Electronics Co. slid 2.6 percent today. The memory-chip producer said it sued Apple Inc. claiming patent infringement, a week after the iPhone maker filed a complaint in U.S. federal court alleging the South Korean company copied its products.
Toyota, Honda
Renesas Electronics advanced 1.4 percent after the chipmaker that supplies Japan’s carmakers said it plans to resume operations at its Naka plant in Ibaraki prefecture. Toyota Motor Corp. (7203), the world’s biggest carmaker, Honda Motor Co. and Nissan Motor Co. gained more than 2 percent.
The Shanghai Composite Index extended this week’s decline to 1.3 percent, its worst week in three months. The yuan gained after the central bank set the currency’s reference rate 0.11 percent stronger at 6.5156 per dollar, the highest level since July 2005. Twelve-month non-deliverable forwards rose 0.38 percent to 6.3235 per dollar.
Four interest-rate increases and higher bank reserve requirements have failed so far to curb prices, with the consumer-price index rising 5.4 percent in March. A stronger currency makes the country’s exports less competitive.
Gold for immediate delivery advanced 1.4 percent so far this week. Silver for immediate delivery climbed 1.4 percent to $47.25 an ounce, the highest price since 1980.
Emerging Europe
Higher precious metals prices lifted OAO Polymetal, a Russian gold and silver producer, 2.1 percent higher, helping the biggest advance in the Micex. Benchmark equity indexes in Hungary and the Czech Republic declined, snapping three days of gains.
Japan’s bonds rose, pushing 10-year yields to a four-week low, after Prime Minister Naoto Kan’s government compiled a 4 trillion yen ($49 billion) extra budget that didn’t include new debt sales. The yield on the 2021 bond fell 1.5 basis points to 1.21 percent.
Thursday, April 21, 2011
Mitsubishi Deal Aids Morgan Stanley’s Recovery
James P. Gorman, the chief executive of Morgan Stanley, received some bad news earlier this year. A joint venture controlled by Mitsubishi UFJ Financial in Japan was facing huge losses, which would drag down earnings at the American investment bank.
But Mr. Gorman used the situation as leverage, striking a deal that frees Morgan Stanley from paying roughly $800 million a year to Mitsubishi, the costly overhang of a cash infusion made during the financial crisis.
Announced on Thursday, the agreement between the two banks removes a major financial burden on Morgan Stanley, which at the same time reported that first-quarter profit declined 48 percent from the period in the previous year. It also was a personal victory for Mr. Gorman, who has struggled to turn around Morgan Stanley since becoming chief executive in January 2010. In an internal note to employees, Mr. Gorman, 52, called the deal a “signature event” for the firm.
Under the terms of the transaction, Mitsubishi will trade most of its convertible preferred stock in Morgan Stanley for common stock. Once completed, Mitsubishi UFJ will own 385 million common shares, or roughly 10 percent of the company. The agreement requires approval from shareholders and regulators.
Although the firm still faces major obstacles in its recovery, investors welcomed the deal. Shares of Morgan Stanley closed at $26.48, up 1.69 percent, on Thursday.
Morgan Stanley reached out to Mitsubishi for a $9 billion lifeline during the depths of the crisis in 2008. In exchange for the money, the investment bank agreed to make quarterly dividend payments of roughly $200 million on Mitsubishi’s stake.
The firm was required to do so until the stock hit $37.875 for 20 out of 30 consecutive trading sessions — or until the two banks reached a new agreement. With the stock languishing below that target, Morgan Stanley insiders worried it could take years to reach that level.
For months, the Mitsubishi stake has been a source of aggravation for Mr. Gorman, who had inherited several headaches, some of which he dealt with by shedding nonessential divisions.
At a staff meeting in January, the chief executive expressed his frustration about the dividend payment. In response to questions about bonuses, he told employees that the firm needed to show restraint on compensation in part to appease shareholders and get the stock price up — generating an automatic end to the Mitsubishi payment.
When the news of the joint venture troubles crossed his desk around the same time, Mr. Gorman moved to use the information to his advantage. Ruth Porat, Morgan Stanley’s chief financial officer, who worked with Mr. Gorman and other senior Morgan executives on the latest deal, said the losses “took a logical discussion to the finish line.”
The parties were also cognizant that Goldman Sachs was moving to pay back a $5 billion crisis investment from Warren E. Buffett’s Berkshire Hathaway, which was completed this week.
In late March, Mr. Gorman flew to Japan to meet with executives of Mitsubishi and they reached an accord not long after. Morgan Stanley’s board voted to approve the pact this week.
The directors also met to review the firm’s first-quarter earnings, which Morgan Stanley released Thursday. Morgan Stanley posted a profit of $736 million, compared with $1.41 billion a year earlier. The results included a pretax loss of $655 million from the Mitsubishi joint venture.
The firm’s quarterly profit of 50 cents a share beat analysts’ expectations of 35 cents, according to Thomson Reuters.
Net revenue was $7.6 billion for the quarter, compared with $9.1 billion a year ago.
Although the Mitsubishi deal removes one obstacle to Morgan Stanley’s prospects, the firm still has plenty of work left on its turnaround, as it contends with a sluggish economic environment and a more restrictive regulatory regime. Its fixed-income and commodities division posted revenue of $1.77 billion, down 35 percent from year-ago levels. Asset management posted net revenue of $626 million, down 4 percent.
There were bright spots in the financials. Investment banking reported first-quarter revenue of $1.2 billion, up 15 percent from the period a year earlier. At the global wealth management division, which includes Morgan Stanley Smith Barney, revenue increased to $3.4 billion, from $3.1 billion a year ago.
Mr. Gorman struck an unusually positive note on the firm’s conference call with analysts, saying the changes he and his team had made over the last year or so were starting to pay off.
“We made clear progress increasing client share and this translated to financial performance. We have seen the benefits of our investments in hiring and the leadership as we execute across our businesses,” he said.
But Mr. Gorman used the situation as leverage, striking a deal that frees Morgan Stanley from paying roughly $800 million a year to Mitsubishi, the costly overhang of a cash infusion made during the financial crisis.
Announced on Thursday, the agreement between the two banks removes a major financial burden on Morgan Stanley, which at the same time reported that first-quarter profit declined 48 percent from the period in the previous year. It also was a personal victory for Mr. Gorman, who has struggled to turn around Morgan Stanley since becoming chief executive in January 2010. In an internal note to employees, Mr. Gorman, 52, called the deal a “signature event” for the firm.
Under the terms of the transaction, Mitsubishi will trade most of its convertible preferred stock in Morgan Stanley for common stock. Once completed, Mitsubishi UFJ will own 385 million common shares, or roughly 10 percent of the company. The agreement requires approval from shareholders and regulators.
Although the firm still faces major obstacles in its recovery, investors welcomed the deal. Shares of Morgan Stanley closed at $26.48, up 1.69 percent, on Thursday.
Morgan Stanley reached out to Mitsubishi for a $9 billion lifeline during the depths of the crisis in 2008. In exchange for the money, the investment bank agreed to make quarterly dividend payments of roughly $200 million on Mitsubishi’s stake.
The firm was required to do so until the stock hit $37.875 for 20 out of 30 consecutive trading sessions — or until the two banks reached a new agreement. With the stock languishing below that target, Morgan Stanley insiders worried it could take years to reach that level.
For months, the Mitsubishi stake has been a source of aggravation for Mr. Gorman, who had inherited several headaches, some of which he dealt with by shedding nonessential divisions.
At a staff meeting in January, the chief executive expressed his frustration about the dividend payment. In response to questions about bonuses, he told employees that the firm needed to show restraint on compensation in part to appease shareholders and get the stock price up — generating an automatic end to the Mitsubishi payment.
When the news of the joint venture troubles crossed his desk around the same time, Mr. Gorman moved to use the information to his advantage. Ruth Porat, Morgan Stanley’s chief financial officer, who worked with Mr. Gorman and other senior Morgan executives on the latest deal, said the losses “took a logical discussion to the finish line.”
The parties were also cognizant that Goldman Sachs was moving to pay back a $5 billion crisis investment from Warren E. Buffett’s Berkshire Hathaway, which was completed this week.
In late March, Mr. Gorman flew to Japan to meet with executives of Mitsubishi and they reached an accord not long after. Morgan Stanley’s board voted to approve the pact this week.
The directors also met to review the firm’s first-quarter earnings, which Morgan Stanley released Thursday. Morgan Stanley posted a profit of $736 million, compared with $1.41 billion a year earlier. The results included a pretax loss of $655 million from the Mitsubishi joint venture.
The firm’s quarterly profit of 50 cents a share beat analysts’ expectations of 35 cents, according to Thomson Reuters.
Net revenue was $7.6 billion for the quarter, compared with $9.1 billion a year ago.
Although the Mitsubishi deal removes one obstacle to Morgan Stanley’s prospects, the firm still has plenty of work left on its turnaround, as it contends with a sluggish economic environment and a more restrictive regulatory regime. Its fixed-income and commodities division posted revenue of $1.77 billion, down 35 percent from year-ago levels. Asset management posted net revenue of $626 million, down 4 percent.
There were bright spots in the financials. Investment banking reported first-quarter revenue of $1.2 billion, up 15 percent from the period a year earlier. At the global wealth management division, which includes Morgan Stanley Smith Barney, revenue increased to $3.4 billion, from $3.1 billion a year ago.
Mr. Gorman struck an unusually positive note on the firm’s conference call with analysts, saying the changes he and his team had made over the last year or so were starting to pay off.
“We made clear progress increasing client share and this translated to financial performance. We have seen the benefits of our investments in hiring and the leadership as we execute across our businesses,” he said.
Tata Consultancy Services Profit Rises After Orders Increase
Tata Consultancy Services Ltd. (TCS), the world’s second-largest computer services provider by market value, said fourth-quarter profit rose after companies outsourced more information-technology contracts.
Net income rose 23 percent to 24 billion rupees ($542 million) in the three months ended in March, the Mumbai-based company said in a statement today. That compares with the 23.6 billion-rupee average of 31 analysts’ estimates compiled by Bloomberg. The earnings are based on U.S. accounting norms.
Chief Executive Officer Natarajan Chandrasekaran, who added 39 clients including Air Liquide SA in the fourth quarter, said demand continues to be “vibrant.” Tata Consultancy joins International Business Machines Corp. (IBM) and Accenture Plc (ACN) in signaling corporations are raising spending on computer services and advisory businesses.
“TCS’s top-10 clients’ composition is such that they’re all in really good financial health,” said Shashi Bhusan, an analyst at Prabhudas Lilladher Pvt. in Mumbai with a “buy” rating on the shares. “Their clients are able to spend more and more on I.T.”
Tata Consultancy fell 2.2 percent to 1,192.10 rupees at the 3:30 p.m. close in Mumbai. The company’s price-to-earnings ratio is the highest among the top three software writers in India, according to data compiled by Bloomberg.
Demand
The company had sales of 101.6 billion rupees in the quarter, according to the statement, which didn’t provide a year-ago number. Tata Consultancy had revenue of 77.4 billion rupees in the fourth quarter last year, according to the company’s website. A Bloomberg survey of 46 analysts had estimated sales of 101.5 billion rupees.
“The demand environment continues to be vibrant,” Chandrasekaran said in the statement. “There are opportunities across markets and industries.”
Worldwide spending on IT outsourcing by businesses and governments will grow 7.1 percent this year to $254 billion after increasing 2.8 percent last year, according to a Jan. 10 report from Cambridge, Massachusetts-based Forrester Research Inc.
U.S. businesses and government will lead the growth, spending an estimated $104 billion on IT outsourcing this year, according to an April 1 report from Forrester. Spending in the country will outpace gross domestic product growth as companies make up for orders delayed from the recession and replace older systems, Forrester said.
Volume Growth
Economists surveyed by Bloomberg last month said U.S. GDP will expand 2.9 percent in 2011, the same rate as last year.
Tata Consultancy derived 53 percent of its revenue from companies in North America, 16.2 percent from the U.K., and 10.5 percent from continental Europe in the year ended March 2010. A stronger rupee damps the value of overseas earnings during repatriation.
The company added a net 11,700 employees in the fourth quarter and had an attrition rate of 14.4 percent, according to the statement. Volume growth in the fourth quarter was 2.9 percent, the statement said.
Volume at Infosys Technologies Ltd. (INFO), Tata Consultancy’s nearest competitor, fell 1.4 percent in same period, Chief Financial Officer V. Balakrishnan said in an April 15 call with analysts.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Net income rose 23 percent to 24 billion rupees ($542 million) in the three months ended in March, the Mumbai-based company said in a statement today. That compares with the 23.6 billion-rupee average of 31 analysts’ estimates compiled by Bloomberg. The earnings are based on U.S. accounting norms.
Chief Executive Officer Natarajan Chandrasekaran, who added 39 clients including Air Liquide SA in the fourth quarter, said demand continues to be “vibrant.” Tata Consultancy joins International Business Machines Corp. (IBM) and Accenture Plc (ACN) in signaling corporations are raising spending on computer services and advisory businesses.
“TCS’s top-10 clients’ composition is such that they’re all in really good financial health,” said Shashi Bhusan, an analyst at Prabhudas Lilladher Pvt. in Mumbai with a “buy” rating on the shares. “Their clients are able to spend more and more on I.T.”
Tata Consultancy fell 2.2 percent to 1,192.10 rupees at the 3:30 p.m. close in Mumbai. The company’s price-to-earnings ratio is the highest among the top three software writers in India, according to data compiled by Bloomberg.
Demand
The company had sales of 101.6 billion rupees in the quarter, according to the statement, which didn’t provide a year-ago number. Tata Consultancy had revenue of 77.4 billion rupees in the fourth quarter last year, according to the company’s website. A Bloomberg survey of 46 analysts had estimated sales of 101.5 billion rupees.
“The demand environment continues to be vibrant,” Chandrasekaran said in the statement. “There are opportunities across markets and industries.”
Worldwide spending on IT outsourcing by businesses and governments will grow 7.1 percent this year to $254 billion after increasing 2.8 percent last year, according to a Jan. 10 report from Cambridge, Massachusetts-based Forrester Research Inc.
U.S. businesses and government will lead the growth, spending an estimated $104 billion on IT outsourcing this year, according to an April 1 report from Forrester. Spending in the country will outpace gross domestic product growth as companies make up for orders delayed from the recession and replace older systems, Forrester said.
Volume Growth
Economists surveyed by Bloomberg last month said U.S. GDP will expand 2.9 percent in 2011, the same rate as last year.
Tata Consultancy derived 53 percent of its revenue from companies in North America, 16.2 percent from the U.K., and 10.5 percent from continental Europe in the year ended March 2010. A stronger rupee damps the value of overseas earnings during repatriation.
The company added a net 11,700 employees in the fourth quarter and had an attrition rate of 14.4 percent, according to the statement. Volume growth in the fourth quarter was 2.9 percent, the statement said.
Volume at Infosys Technologies Ltd. (INFO), Tata Consultancy’s nearest competitor, fell 1.4 percent in same period, Chief Financial Officer V. Balakrishnan said in an April 15 call with analysts.
Information-technology services companies define volume as the number of man-months workers spend on projects for clients.
Reliance Misses Profit Estimates for Fifth Time in Six Quarters
Reliance Industries Ltd. (RIL), India’s biggest company by market value, missed analysts’ earnings estimates for the fifth time in six quarters after natural gas production from the nation’s biggest deposit declined.
Net income in the three months ended March 31 rose 14 percent to 53.8 billion rupees ($1.2 billion), or 16.40 rupees a share, from 47.1 billion rupees, or 14.40 rupees, a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange yesterday. The average estimate of 18 analysts in a Bloomberg survey was 54.3 billion rupees.
Output of gas from the KG-D6 field declined because of falling pressure, eroding higher earnings from refining driven by a 20 percent surge in average crude prices in the quarter from a year earlier. The slowest profit growth in six quarters may constrain billionaire Chairman Mukesh Ambani’s plans to invest in telecommunications, power generation and hotels.
“Gas production continues to be the major overhang on earnings,” P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai, which owns Reliance shares, said before the results were announced. “Investors are looking for clear 20 percent growth in profit for at least four quarters and that is not there now. The shares will continue to remain at this level.”
Reliance rose 1.4 percent to 1,040.60 rupees at close in Mumbai yesterday, giving the company a market value of about $77 billion. The stock has declined 1.3 percent in the past year compared with a 12 percent increase in the benchmark Sensitive Index. The earnings were announced after the market closed.
Government Not Satisfied
Reliance is producing 50 million cubic meters a day of gas compared with a target of 69.8 million cubic meters, S.K. Srivastava, director general at India’s oil regulator, told reporters in New Delhi yesterday. The government isn’t satisfied with Reliance’s explanation for the decline, he said, without elaborating.
Production fell from 60 million cubic meters a day because of declining pressure at the reservoir, a person with direct knowledge of the matter said April 11.
Pretax profit from selling crude oil and gas declined 8 percent to 15.7 billion rupees in the three months ended March 31, Reliance said in an e-mailed statement. Ambani roped in BP Plc as a partner to help increase gas production, which has trailed targets and hurt profit.
BP as Partner
BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks in India from Reliance and to form a venture to market gas. The deal size may increase to $20 billion with future performance payments and investment. BP’s investment will accelerate development and production from Reliance’s fields in India, Ambani said Feb. 22.
Reliance had outstanding debt of 674 billion rupees as of March 31 and cash and equivalents of 423.9 billion rupees, the company said.
Pretax profit from refining rose 26 percent to 25.1 billion rupees in the quarter, according to the statement. The recovery from the 2009 global recession spurred demand for fuel and helped to increase refining margins.
Reliance’s two adjacent refineries at Jamnagar in the western state of Gujarat, the largest such complex in the world, earned $9.20 on every barrel of crude oil turned into fuels compared with $7.50 barrel a year earlier, according to the statement. The plants, which can process a combined 1.24 million barrels a day of crude, produce gasoline, diesel and naphtha, which are exported to the U.S., Europe and Asia.
The refiner processed 16.7 million metric tons of crude oil in the quarter, unchanged from a year earlier.
Heavy Grades
Reliance buys heavy grades of crude oil, which are cheaper than lighter varieties, and turns them into high-quality products including gasoline and diesel. A wider difference between heavy and light grades of crude oil helps Reliance increase its refining margins.
The difference between light Brent crude oil and heavier Dubai oil averaged $4.9 a barrel in the three months ended March 31, more than three times the level a year earlier, according to data compiled by Bloomberg. The spread reached $7.22 a barrel on April 11, the highest in 30 months.
Essar Oil Ltd. (ESOIL), the operator of India’s second-largest non- state, crude-oil refinery, earned $8.15 on every barrel processed in the quarter compared with $5.37 a year earlier, according to an April 11 statement.
Crude oil in New York has climbed 22 percent this year to $111.75 a barrel. It rose 20 percent to an average of $94.6 a barrel in the three months ended March 31 from a year earlier, according to Bloomberg data.
Reliance, which has interests in retail chain stores and chemicals, has bought stakes in a broadband provider, a cargo airline and a hotel chain to diversify the risks of investing primarily in the oil and gas business.
Net income in the three months ended March 31 rose 14 percent to 53.8 billion rupees ($1.2 billion), or 16.40 rupees a share, from 47.1 billion rupees, or 14.40 rupees, a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange yesterday. The average estimate of 18 analysts in a Bloomberg survey was 54.3 billion rupees.
Output of gas from the KG-D6 field declined because of falling pressure, eroding higher earnings from refining driven by a 20 percent surge in average crude prices in the quarter from a year earlier. The slowest profit growth in six quarters may constrain billionaire Chairman Mukesh Ambani’s plans to invest in telecommunications, power generation and hotels.
“Gas production continues to be the major overhang on earnings,” P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai, which owns Reliance shares, said before the results were announced. “Investors are looking for clear 20 percent growth in profit for at least four quarters and that is not there now. The shares will continue to remain at this level.”
Reliance rose 1.4 percent to 1,040.60 rupees at close in Mumbai yesterday, giving the company a market value of about $77 billion. The stock has declined 1.3 percent in the past year compared with a 12 percent increase in the benchmark Sensitive Index. The earnings were announced after the market closed.
Government Not Satisfied
Reliance is producing 50 million cubic meters a day of gas compared with a target of 69.8 million cubic meters, S.K. Srivastava, director general at India’s oil regulator, told reporters in New Delhi yesterday. The government isn’t satisfied with Reliance’s explanation for the decline, he said, without elaborating.
Production fell from 60 million cubic meters a day because of declining pressure at the reservoir, a person with direct knowledge of the matter said April 11.
Pretax profit from selling crude oil and gas declined 8 percent to 15.7 billion rupees in the three months ended March 31, Reliance said in an e-mailed statement. Ambani roped in BP Plc as a partner to help increase gas production, which has trailed targets and hurt profit.
BP as Partner
BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks in India from Reliance and to form a venture to market gas. The deal size may increase to $20 billion with future performance payments and investment. BP’s investment will accelerate development and production from Reliance’s fields in India, Ambani said Feb. 22.
Reliance had outstanding debt of 674 billion rupees as of March 31 and cash and equivalents of 423.9 billion rupees, the company said.
Pretax profit from refining rose 26 percent to 25.1 billion rupees in the quarter, according to the statement. The recovery from the 2009 global recession spurred demand for fuel and helped to increase refining margins.
Reliance’s two adjacent refineries at Jamnagar in the western state of Gujarat, the largest such complex in the world, earned $9.20 on every barrel of crude oil turned into fuels compared with $7.50 barrel a year earlier, according to the statement. The plants, which can process a combined 1.24 million barrels a day of crude, produce gasoline, diesel and naphtha, which are exported to the U.S., Europe and Asia.
The refiner processed 16.7 million metric tons of crude oil in the quarter, unchanged from a year earlier.
Heavy Grades
Reliance buys heavy grades of crude oil, which are cheaper than lighter varieties, and turns them into high-quality products including gasoline and diesel. A wider difference between heavy and light grades of crude oil helps Reliance increase its refining margins.
The difference between light Brent crude oil and heavier Dubai oil averaged $4.9 a barrel in the three months ended March 31, more than three times the level a year earlier, according to data compiled by Bloomberg. The spread reached $7.22 a barrel on April 11, the highest in 30 months.
Essar Oil Ltd. (ESOIL), the operator of India’s second-largest non- state, crude-oil refinery, earned $8.15 on every barrel processed in the quarter compared with $5.37 a year earlier, according to an April 11 statement.
Crude oil in New York has climbed 22 percent this year to $111.75 a barrel. It rose 20 percent to an average of $94.6 a barrel in the three months ended March 31 from a year earlier, according to Bloomberg data.
Reliance, which has interests in retail chain stores and chemicals, has bought stakes in a broadband provider, a cargo airline and a hotel chain to diversify the risks of investing primarily in the oil and gas business.
Violence grows over India’s nuclear goals
Violent protests at the site of one of India’s most ambitious nuclear installations have thrown into sharp relief the domestic resistance the country faces in achieving its nuclear power ambitions.
French group Areva hopes to complete a $10bn deal by mid-year for two third-generation European pressurised water reactors in India, despite increasingly violent local protests against the project.
The reactors would be the first of six Areva intends to build for the state-owned Nuclear Power Corporation of India at a site in the village of Jaitapur on western India’s lush Konkan coast.
The project has met firm resistance from local residents, some nuclear experts and prominent intellectuals. Opposition intensified following the disaster at the Fukushima nuclear reactor in Japan.
“However many safety systems you may deploy, the vulnerability has been proved by Fukushima,” said Advait Pednekar, a Mumbai-based engineer and volunteer with the Konkan Bachao Samiti, or Save the Konkon Forum.
Villagers fear that radioactivity and hot water from the installation will ruin local agriculture, fishing and health, and also bitterly resent the state’s forced acquisition of 936 acres of private land to set up the nuclear power park.
The opposition took a violent turn earlier this week when the construction of the compound wall began. Protesters and police clashed, resulting in a 30-year-old man being killed and several people injured.
Police said the mob attacked a police station. But activists said their peaceful demonstrations for the release of fellow protesters were met with open fire by the police, which led to the death and injuries.
The government has now ordered an inquiry into the firing and death.
However, the Congress-led government is adamant that it will go ahead with the project to fill India’s huge energy deficit, and state government officials have vowed to punish what they describe as “troublemakers”.
Jairam Ramesh, the environment minister, said the events at Fukushima were “a wake-up call” for India, but that the country could not abandon its nuclear ambitions of installing 30,000 megawatts of nuclear power by 2020.
But A. Gopalakrishnan, former chairman of India’s Atomic Energy Regulatory Board, said he opposes India building the new reactors with a technology that has yet to be tested through actual operations anywhere in the world.
“It takes about 10 or 15 years before you can say, ‘Now I have a trouble-free reactor’,” he says. “Go and prove it somewhere, and when it’s all ready and well cooked, we can try it.”
Areva executives in Paris told visiting Indian journalists this week that the company would answer any questions the Indian government had about safety, but that the company had “the highest safety standards”.
Areva is expecting to sign a commercial deal with NPCIL by mid-year, though construction may have to await India’s clarification of its new nuclear liability law, which lays out liability in case of a nuclear accident.
French group Areva hopes to complete a $10bn deal by mid-year for two third-generation European pressurised water reactors in India, despite increasingly violent local protests against the project.
The reactors would be the first of six Areva intends to build for the state-owned Nuclear Power Corporation of India at a site in the village of Jaitapur on western India’s lush Konkan coast.
The project has met firm resistance from local residents, some nuclear experts and prominent intellectuals. Opposition intensified following the disaster at the Fukushima nuclear reactor in Japan.
“However many safety systems you may deploy, the vulnerability has been proved by Fukushima,” said Advait Pednekar, a Mumbai-based engineer and volunteer with the Konkan Bachao Samiti, or Save the Konkon Forum.
Villagers fear that radioactivity and hot water from the installation will ruin local agriculture, fishing and health, and also bitterly resent the state’s forced acquisition of 936 acres of private land to set up the nuclear power park.
The opposition took a violent turn earlier this week when the construction of the compound wall began. Protesters and police clashed, resulting in a 30-year-old man being killed and several people injured.
Police said the mob attacked a police station. But activists said their peaceful demonstrations for the release of fellow protesters were met with open fire by the police, which led to the death and injuries.
The government has now ordered an inquiry into the firing and death.
However, the Congress-led government is adamant that it will go ahead with the project to fill India’s huge energy deficit, and state government officials have vowed to punish what they describe as “troublemakers”.
Jairam Ramesh, the environment minister, said the events at Fukushima were “a wake-up call” for India, but that the country could not abandon its nuclear ambitions of installing 30,000 megawatts of nuclear power by 2020.
But A. Gopalakrishnan, former chairman of India’s Atomic Energy Regulatory Board, said he opposes India building the new reactors with a technology that has yet to be tested through actual operations anywhere in the world.
“It takes about 10 or 15 years before you can say, ‘Now I have a trouble-free reactor’,” he says. “Go and prove it somewhere, and when it’s all ready and well cooked, we can try it.”
Areva executives in Paris told visiting Indian journalists this week that the company would answer any questions the Indian government had about safety, but that the company had “the highest safety standards”.
Areva is expecting to sign a commercial deal with NPCIL by mid-year, though construction may have to await India’s clarification of its new nuclear liability law, which lays out liability in case of a nuclear accident.
Vodafone to eye Indian listing if it wins $2.6bn tax battle
Vittorio Colao, chief executive of Vodafone, said the UK-based mobile phone operator would consider listing its Indian business if it won a long-running legal battle with Indian authorities over a $2.6bn tax bill.
Tax authorities in the country have ordered Vodafone to pay $2.5bn in back taxes for its $11bn acquisition of Hutchison Whampoa’s 67 per cent stake in a domestic mobile operator that it completed three years ago.
But in a series of interviews with Indian media, part of an effort to boost the group’s image following the tax case, the Italian-born executive stressed that no tax was overdue, adding that if it lost the case it would re-evaluate its investments in Asia’s third-largest economy.
Mr Colao said: “We can see a future of different ownership structure and will consider around the end of the year whether we would be listing the company.
“I do not know when the listing will take place, but it will bring in another phase of maturity into the company.”
Analysts in Mumbai said Indian investors would be welcome a listing, but many added that they had serious doubts about whether the UK group was serious about a public offering.
One said: “We’d love to see Vodafone listed here. But I think they are using the listing option to put pressure on the government to make sure they don’t mess around with their tax issue”.
Vodafone has argued that no tax is due because the transaction was between two non-Indian companies. India’s Supreme Court is due to hear the case on July 19.
However, in March the Indian tax department initiated penalty proceedings against the mobile operator. The total penalty could end up at double the $2.5bn tax bill, Vodafone said.
Vodafone said this month.“Seeking penalties on a ‘test case’ involving a major infrastructure investor highlights the unpredictable nature of India’s taxation policy.
“This move is only likely to raise further concerns amongst potential investors in India.”
Vodafone said a potential listing would also follow the completion of its $5bn buy-out of Essar Group, which controls a 33 per cent stake in Vodafone Essar, the UK group’s Indian business.
Indian rules bar Vodafone from owning more than 74 per cent. The UK group said it would still be compliant with the regulations after the transaction was completed. Vodafone owns 42 per cent of Vodafone Essar directly and a further 18 per cent indirectly via its Indian partners that do not include Essar.
Tax authorities in the country have ordered Vodafone to pay $2.5bn in back taxes for its $11bn acquisition of Hutchison Whampoa’s 67 per cent stake in a domestic mobile operator that it completed three years ago.
But in a series of interviews with Indian media, part of an effort to boost the group’s image following the tax case, the Italian-born executive stressed that no tax was overdue, adding that if it lost the case it would re-evaluate its investments in Asia’s third-largest economy.
Mr Colao said: “We can see a future of different ownership structure and will consider around the end of the year whether we would be listing the company.
“I do not know when the listing will take place, but it will bring in another phase of maturity into the company.”
Analysts in Mumbai said Indian investors would be welcome a listing, but many added that they had serious doubts about whether the UK group was serious about a public offering.
One said: “We’d love to see Vodafone listed here. But I think they are using the listing option to put pressure on the government to make sure they don’t mess around with their tax issue”.
Vodafone has argued that no tax is due because the transaction was between two non-Indian companies. India’s Supreme Court is due to hear the case on July 19.
However, in March the Indian tax department initiated penalty proceedings against the mobile operator. The total penalty could end up at double the $2.5bn tax bill, Vodafone said.
Vodafone said this month.“Seeking penalties on a ‘test case’ involving a major infrastructure investor highlights the unpredictable nature of India’s taxation policy.
“This move is only likely to raise further concerns amongst potential investors in India.”
Vodafone said a potential listing would also follow the completion of its $5bn buy-out of Essar Group, which controls a 33 per cent stake in Vodafone Essar, the UK group’s Indian business.
Indian rules bar Vodafone from owning more than 74 per cent. The UK group said it would still be compliant with the regulations after the transaction was completed. Vodafone owns 42 per cent of Vodafone Essar directly and a further 18 per cent indirectly via its Indian partners that do not include Essar.
Wednesday, April 20, 2011
In Online Games, a Path to Young Consumers
HESPERIA, Calif. — Deep into one of her favorite computer games, Lesly Lopez, 10, moves her mouse to click on a cartoon bee. She drags and drops it into an empty panel, creating her own comic strip.
Lesly likes this online game so much that she plays twice a week, often e-mailing her creations to friends. “I always send them to my cousin in Los Angeles,” she said.
But this is not just a game — it is also advertising. Create a Comic, as it is called, was created by General Mills to help it sell Honey Nut Cheerios to children.
Like many marketers, General Mills and other food companies are rewriting the rules for reaching children in the Internet age. These companies, often selling sugar cereals and junk food, are using multimedia games, online quizzes and cellphone apps to build deep ties with young consumers. And children like Lesly are sharing their messages through e-mail and social networks, effectively acting as marketers.
When these tactics revolve around food, and blur the line between advertising and entertainment, they are a source of intensifying concern for nutrition experts and children’s advocates — and are attracting scrutiny from regulators. The Federal Trade Commission has undertaken a study of food marketing to children, due out this summer, while the White House Task Force on Childhood Obesity has said one reason so many children are overweight is the way junk food is marketed.
Critics say the ads, from major companies like Unilever and Post Foods, let marketers engage children in a way they cannot on television, where rules limit commercial time during children’s programming. With hundreds of thousands of visits monthly to many of these sites, the ads are becoming part of children’s daily digital journeys, often flying under the radar of parents and policy makers, the critics argue.
“Food marketers have tried to reach children since the age of the carnival barker, but they’ve never had so much access to them and never been able to bypass parents so successfully,” said Susan Linn, a psychiatry instructor at Harvard Medical School and director of the Campaign for a Commercial-Free Childhood, an advocacy coalition. Ms. Linn and others point to many studies that show the link between junk-food marketing and poor diets, which are implicated in childhood obesity.
Food industry representatives call the criticism unfair and say they have become less aggressive in marketing to children in the Internet era, not more so.
Since 2006, 17 major corporations — including General Mills, McDonald’s, Pepsi, Coca-Cola and Burger King — have taken a voluntary pledge to reduce marketing of their least nutritious brands to children, an effort they updated last year to include marketing on mobile devices.
The pledge says the companies, if they choose to market to children, will only advertise food choices that are “better for you,” said Elaine D. Kolish, director of the Children’s Food and Beverage Advertising Initiative, an arm of the Better Business Bureau that oversees the pledge.
“Compliance is excellent,” she said of the pledge. She noted that in recent months, companies had shut down several child-centric sites, including General Mills’s popular virtual world Millsberry, while other sites have been changed to focus on adults, like those of Kellogg’s Pop Tarts and Pepsi’s Cap’n Crunch. And she said General Mills and Post Foods had cut or pledged to cut the amount of sugar in some cereals.
Only rarely do these major companies violate their pledges, she said: “It’s pretty darn infrequent and it’s not willful.”
Nutrition experts say that the voluntary pledges are fraught with loopholes, and that “better for you” is a relative term that allows companies to keep marketing unhealthful options.
Whatever criticism they may invite, the companies have good financial reason to pitch to children. James McNeal, a former marketing professor at Texas A&M University, estimates conservatively that children influence more than $100 billion in food and beverage purchases each year, and well over half of all cold cereal purchases.
Children “have power over spending in the household, they have power over the grandparents, they have power over the babysitters, and on and on and on,” said Professor McNeal, who has researched family behavior for decades and consulted for major companies on marketing to children. “All of that is finally being recognized and acknowledged.”
Some parents, like Lesly Lopez’s mother, Toribia Huerta, 26, say the online marketing is subverting their efforts to improve their children’s diets. Ms. Huerta said Lesly and her younger siblings pester her for sugary cereals they see in the games and for snacks like Baby Bottle Pops, a candy with a game site that the girl also visits often.
“They ask me for it constantly. They’re hard to resist when they whine,” Ms. Huerta said, speaking in Spanish through a translator. She blames her daughter’s love of sugar for her dental problems, including many cavities.
But Ms. Huerta also said the food sites seemed fun and safe: “They look like good games for her age.”
Lesly likes this online game so much that she plays twice a week, often e-mailing her creations to friends. “I always send them to my cousin in Los Angeles,” she said.
But this is not just a game — it is also advertising. Create a Comic, as it is called, was created by General Mills to help it sell Honey Nut Cheerios to children.
Like many marketers, General Mills and other food companies are rewriting the rules for reaching children in the Internet age. These companies, often selling sugar cereals and junk food, are using multimedia games, online quizzes and cellphone apps to build deep ties with young consumers. And children like Lesly are sharing their messages through e-mail and social networks, effectively acting as marketers.
When these tactics revolve around food, and blur the line between advertising and entertainment, they are a source of intensifying concern for nutrition experts and children’s advocates — and are attracting scrutiny from regulators. The Federal Trade Commission has undertaken a study of food marketing to children, due out this summer, while the White House Task Force on Childhood Obesity has said one reason so many children are overweight is the way junk food is marketed.
Critics say the ads, from major companies like Unilever and Post Foods, let marketers engage children in a way they cannot on television, where rules limit commercial time during children’s programming. With hundreds of thousands of visits monthly to many of these sites, the ads are becoming part of children’s daily digital journeys, often flying under the radar of parents and policy makers, the critics argue.
“Food marketers have tried to reach children since the age of the carnival barker, but they’ve never had so much access to them and never been able to bypass parents so successfully,” said Susan Linn, a psychiatry instructor at Harvard Medical School and director of the Campaign for a Commercial-Free Childhood, an advocacy coalition. Ms. Linn and others point to many studies that show the link between junk-food marketing and poor diets, which are implicated in childhood obesity.
Food industry representatives call the criticism unfair and say they have become less aggressive in marketing to children in the Internet era, not more so.
Since 2006, 17 major corporations — including General Mills, McDonald’s, Pepsi, Coca-Cola and Burger King — have taken a voluntary pledge to reduce marketing of their least nutritious brands to children, an effort they updated last year to include marketing on mobile devices.
The pledge says the companies, if they choose to market to children, will only advertise food choices that are “better for you,” said Elaine D. Kolish, director of the Children’s Food and Beverage Advertising Initiative, an arm of the Better Business Bureau that oversees the pledge.
“Compliance is excellent,” she said of the pledge. She noted that in recent months, companies had shut down several child-centric sites, including General Mills’s popular virtual world Millsberry, while other sites have been changed to focus on adults, like those of Kellogg’s Pop Tarts and Pepsi’s Cap’n Crunch. And she said General Mills and Post Foods had cut or pledged to cut the amount of sugar in some cereals.
Only rarely do these major companies violate their pledges, she said: “It’s pretty darn infrequent and it’s not willful.”
Nutrition experts say that the voluntary pledges are fraught with loopholes, and that “better for you” is a relative term that allows companies to keep marketing unhealthful options.
Whatever criticism they may invite, the companies have good financial reason to pitch to children. James McNeal, a former marketing professor at Texas A&M University, estimates conservatively that children influence more than $100 billion in food and beverage purchases each year, and well over half of all cold cereal purchases.
Children “have power over spending in the household, they have power over the grandparents, they have power over the babysitters, and on and on and on,” said Professor McNeal, who has researched family behavior for decades and consulted for major companies on marketing to children. “All of that is finally being recognized and acknowledged.”
Some parents, like Lesly Lopez’s mother, Toribia Huerta, 26, say the online marketing is subverting their efforts to improve their children’s diets. Ms. Huerta said Lesly and her younger siblings pester her for sugary cereals they see in the games and for snacks like Baby Bottle Pops, a candy with a game site that the girl also visits often.
“They ask me for it constantly. They’re hard to resist when they whine,” Ms. Huerta said, speaking in Spanish through a translator. She blames her daughter’s love of sugar for her dental problems, including many cavities.
But Ms. Huerta also said the food sites seemed fun and safe: “They look like good games for her age.”
Gold Climbs to Record as Debt Concern, Inflation Boost Investment Demand
Gold climbed to a record, trading at more than $1,500 an ounce, as demand climbed as investors sought to protect their wealth from further currency debasement and accelerating inflation.
Immediate-delivery gold advanced as much as 0.3 percent to $1,506.32 an ounce and traded at $1,505.32 at 8:56 a.m. in Singapore. Bullion for June delivery in New York rose as much as 0.5 percent to $1,506.30 an ounce, nearing a record $1,506.50.
The dollar, trading near a 15-month low against the euro, has dropped after Standard & Poor’s lowered the U.S. credit- rating outlook this week to negative, citing the widening deficit. The Treasury Department has projected the government will reach its $14.3 trillion debt-ceiling limit no later than May 16 and run out of options for avoiding default by early July.
“U.S. Treasury numbers are showing that U.S. debt cannot be repaid without a dollar debasement,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, wrote in a note today. “Demand is also growing for gold as an inflation hedge.”
Treasury Secretary Timothy F. Geithner said this week that the U.S. will “absolutely” keep its AAA rating, speaking in an interview on Fox Business Network. Geithner said yesterday in an interview on Bloomberg Television that he’s confident U.S. political leaders will bridge differences on spending.
Gold is on course for an 11th annual advance on increased investment demand for commodities and on concern that inflation will accelerate after governments worldwide spent $2 trillion to stimulate economies. Violence in the Middle East, sovereign- debt turmoil in Europe and Japan’s nuclear crisis have also helped propel bullion 31 percent higher in the past year.
The Thomson Reuters/Jefferies CRB Index of 19 commodities rose as much as 1.7 percent. Commodity assets under management rose to a record $412 billion in March, Barclays Capital said in an e-mailed report yesterday.
Gold futures in Shanghai rose to a record for a second day, touching 316.16 yuan ($48.45) per gram. Cash silver was little changed at $45.3138 an ounce, approaching the record $49.45 an ounce set in 1980. Palladium increased 0.7 percent to $765 an ounce and platinum gained 0.2 percent to $1,806.75 per ounce.
Immediate-delivery gold advanced as much as 0.3 percent to $1,506.32 an ounce and traded at $1,505.32 at 8:56 a.m. in Singapore. Bullion for June delivery in New York rose as much as 0.5 percent to $1,506.30 an ounce, nearing a record $1,506.50.
The dollar, trading near a 15-month low against the euro, has dropped after Standard & Poor’s lowered the U.S. credit- rating outlook this week to negative, citing the widening deficit. The Treasury Department has projected the government will reach its $14.3 trillion debt-ceiling limit no later than May 16 and run out of options for avoiding default by early July.
“U.S. Treasury numbers are showing that U.S. debt cannot be repaid without a dollar debasement,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, wrote in a note today. “Demand is also growing for gold as an inflation hedge.”
Treasury Secretary Timothy F. Geithner said this week that the U.S. will “absolutely” keep its AAA rating, speaking in an interview on Fox Business Network. Geithner said yesterday in an interview on Bloomberg Television that he’s confident U.S. political leaders will bridge differences on spending.
Gold is on course for an 11th annual advance on increased investment demand for commodities and on concern that inflation will accelerate after governments worldwide spent $2 trillion to stimulate economies. Violence in the Middle East, sovereign- debt turmoil in Europe and Japan’s nuclear crisis have also helped propel bullion 31 percent higher in the past year.
The Thomson Reuters/Jefferies CRB Index of 19 commodities rose as much as 1.7 percent. Commodity assets under management rose to a record $412 billion in March, Barclays Capital said in an e-mailed report yesterday.
Gold futures in Shanghai rose to a record for a second day, touching 316.16 yuan ($48.45) per gram. Cash silver was little changed at $45.3138 an ounce, approaching the record $49.45 an ounce set in 1980. Palladium increased 0.7 percent to $765 an ounce and platinum gained 0.2 percent to $1,806.75 per ounce.
Fairfax's Watsa Recommends Wells Fargo, J&J, Kraft, US Bancorp Shares
Fairfax Financial Holdings Ltd. (FFH) Chief Executive Officer Prem Watsa said he wants to boost his company’s stake in an insurance venture with India’s ICICI Bank Ltd. (ICICIBC) when rules allow for increased foreign ownership.
Watsa, who said he sees a “huge amount of opportunity in India,” wants 49 percent of ICICI Lombard General Insurance Company Ltd., he told investors today at the company’s annual meeting in Toronto. Fairfax owns 26 percent of the joint venture, the maximum allowed under the country’s rules, he said.
“They’ve been telling us for the last five years that it’s one year away -- and so I just have to wait,” for rules to be eased, Watsa told reporters following the meeting. “When they allow us the opportunity, we’ll look at taking advantage of it.”
Watsa, 60, has modeled Fairfax after Warren Buffett’s Berkshire Hathaway Inc. by investing the assets of insurance operations, often in out-of-favor securities. Born in Hyderabad, India, Watsa was been running Fairfax since 1985.
He recommended shares of Wells Fargo & Co. (WFC), Johnson & Johnson (JNJ), Kraft Foods Inc. (KFT) and US Bancorp. (USB) Fairfax owns a combined $1.9 billion in the four U.S. company shares.
“The underlying fundamentals are there for everyone to see, but it’s boring,” Watsa said. “No one wants to buy something that will take five, six years” to double in value.
Fairfax, which owns insurers including Northbridge Financial and Crum & Forster, plans to release first-quarter results on April 28. Watsa declined to say what impact the damages of the March 11 earthquake in Japan may have on results.
Earthquake
“If it was material, we would disclose it,” Watsa said.
Fairfax is being “cautious” on investments and is focusing on preserving capital, Watsa said. The CEO said he likes government and municipal bonds and the company is selling some corporate bonds after gains. Fairfax is also investing in consumer price index-linked derivative contracts.
Through its subsidiaries, Fairfax is one of the largest investors in publisher Torstar Corp. and toymaker MEGA Brands Inc. (MB), according to Bloomberg data.
Watsa, who said he sees a “huge amount of opportunity in India,” wants 49 percent of ICICI Lombard General Insurance Company Ltd., he told investors today at the company’s annual meeting in Toronto. Fairfax owns 26 percent of the joint venture, the maximum allowed under the country’s rules, he said.
“They’ve been telling us for the last five years that it’s one year away -- and so I just have to wait,” for rules to be eased, Watsa told reporters following the meeting. “When they allow us the opportunity, we’ll look at taking advantage of it.”
Watsa, 60, has modeled Fairfax after Warren Buffett’s Berkshire Hathaway Inc. by investing the assets of insurance operations, often in out-of-favor securities. Born in Hyderabad, India, Watsa was been running Fairfax since 1985.
He recommended shares of Wells Fargo & Co. (WFC), Johnson & Johnson (JNJ), Kraft Foods Inc. (KFT) and US Bancorp. (USB) Fairfax owns a combined $1.9 billion in the four U.S. company shares.
“The underlying fundamentals are there for everyone to see, but it’s boring,” Watsa said. “No one wants to buy something that will take five, six years” to double in value.
Fairfax, which owns insurers including Northbridge Financial and Crum & Forster, plans to release first-quarter results on April 28. Watsa declined to say what impact the damages of the March 11 earthquake in Japan may have on results.
Earthquake
“If it was material, we would disclose it,” Watsa said.
Fairfax is being “cautious” on investments and is focusing on preserving capital, Watsa said. The CEO said he likes government and municipal bonds and the company is selling some corporate bonds after gains. Fairfax is also investing in consumer price index-linked derivative contracts.
Through its subsidiaries, Fairfax is one of the largest investors in publisher Torstar Corp. and toymaker MEGA Brands Inc. (MB), according to Bloomberg data.
Asian Stocks Rise to Highest in Six Weeks as U.S. Earnings Gain
Asian stocks rose, pushing the regional index to its highest level in six weeks, after U.S. companies including Apple Inc. (AAPL) reported increased profits, signaling the global economic recovery is accelerating, and commodity shares gained.
Samsung Electronics Co., an Apple rival, gained 1.5 percent, advancing for a third day in Seoul and leading technology shares higher. BHP Billiton Ltd. (BHP), the world’s biggest mining company, advanced 0.7 percent in Sydney after oil and metal prices rose. Inpex Corp. (1605), Japan’s largest oil and gas explorer, climbed 3.2 percent.
“U.S. companies, especially tech stocks, are doing well, and that’s helping to instill confidence,” said Mitsushige Akino, who oversees about $600 million in assets in Tokyo at Ichiyoshi Investment Management Co. “Investors are looking to take a little bit more risk.”
The MSCI Asia Pacific Index advanced 0.6 percent to 137.74 at 9:37 a.m. in Tokyo, headed for its highest close since March 9. About three shares gained for each that fell on the 1,023- member gauge. The measure fell 0.5 percent last week, reversing three weeks of gains.
Japan’s Nikkei 225 (NKY) Stock Average, Australia’s S&P/ASX 200 Index and South Korea’s Kospi index each climbed 0.8 percent. New Zealand’s NZX 50 Index increased 0.4 percent.
Futures on the Standard & Poor’s 500 Index rose 0.4 percent today after Apple reported profit that almost doubled. The world’s largest technology company by market value announced earnings after the close of trading in New York.
Oil Prices
Yesterday the S&P500 advanced 1.4 percent, the most in a month, as sales at companies from Intel Corp. to Yahoo! Inc. exceeded estimates and commodity producers gained.
Higher oil and metal prices boosted commodity producers, with the measure for materials shares rising the third-most among the MSCI Asia Pacific Index’s 10 industry groups.
Crude for June delivery climbed $3.17 to settle at $111.45 a barrel yesterday in New York, the biggest increase in more than a month. The London Metal Exchange Index of six metals, including copper and aluminum, jumped 2.1 percent, the most in almost two weeks.
The MSCI Asia Pacific Index lost 0.6 percent this year through yesterday, compared with gains of 5.8 percent by the S&P 500 and 1.2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average as of the last close, compared with 13.6 times for the S&P 500 and 11.2 times for the Stoxx 600.
Samsung Electronics Co., an Apple rival, gained 1.5 percent, advancing for a third day in Seoul and leading technology shares higher. BHP Billiton Ltd. (BHP), the world’s biggest mining company, advanced 0.7 percent in Sydney after oil and metal prices rose. Inpex Corp. (1605), Japan’s largest oil and gas explorer, climbed 3.2 percent.
“U.S. companies, especially tech stocks, are doing well, and that’s helping to instill confidence,” said Mitsushige Akino, who oversees about $600 million in assets in Tokyo at Ichiyoshi Investment Management Co. “Investors are looking to take a little bit more risk.”
The MSCI Asia Pacific Index advanced 0.6 percent to 137.74 at 9:37 a.m. in Tokyo, headed for its highest close since March 9. About three shares gained for each that fell on the 1,023- member gauge. The measure fell 0.5 percent last week, reversing three weeks of gains.
Japan’s Nikkei 225 (NKY) Stock Average, Australia’s S&P/ASX 200 Index and South Korea’s Kospi index each climbed 0.8 percent. New Zealand’s NZX 50 Index increased 0.4 percent.
Futures on the Standard & Poor’s 500 Index rose 0.4 percent today after Apple reported profit that almost doubled. The world’s largest technology company by market value announced earnings after the close of trading in New York.
Oil Prices
Yesterday the S&P500 advanced 1.4 percent, the most in a month, as sales at companies from Intel Corp. to Yahoo! Inc. exceeded estimates and commodity producers gained.
Higher oil and metal prices boosted commodity producers, with the measure for materials shares rising the third-most among the MSCI Asia Pacific Index’s 10 industry groups.
Crude for June delivery climbed $3.17 to settle at $111.45 a barrel yesterday in New York, the biggest increase in more than a month. The London Metal Exchange Index of six metals, including copper and aluminum, jumped 2.1 percent, the most in almost two weeks.
The MSCI Asia Pacific Index lost 0.6 percent this year through yesterday, compared with gains of 5.8 percent by the S&P 500 and 1.2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average as of the last close, compared with 13.6 times for the S&P 500 and 11.2 times for the Stoxx 600.
Tuesday, April 19, 2011
Vedanta buys stake in Cairn India
By Amy Kazmin and James Lamont in New Delhi
Published: April 19 2011 08:45 | Last updated: April 19 2011 20:50
Vedanta Resources, the UK-listed mining group, has bought a 10.4 per cent stake in Cairn India for $1.5bn (£920m) from Petronas, the Malaysian state-owned oil group, as it steps up pressure on New Delhi to allow it to take over the company.
The purchase of the stake on the open market comes as Vedanta is seeking to buy a $9.6bn controlling stake in Cairn India – which owns strategically important oilfields in Rajasthan – from its London-listed parent Cairn Energy.
Vedanta bought the Petronas shares at Rs331 a share on Tuesday, a discount to the Rs405 Vedanta offered Cairn Energy and 1.6 per cent down on Monday’s closing market price.
Shares in Cairn India rose almost 3 per cent on Tuesday to Rs345.4, valuing the company at $15bn.
The transaction was agreed at short notice. People close to the deal said Vedanta did not approach Petronas but received feelers from brokers, suggesting that the Malaysian oil group, which has been a purely financial investor since 2006, was interested in withdrawing from the venture.
On Monday, Vedanta received a call from Merrill Lynch, which had a mandate to sell, and built a stake at an attractive price.
The signal of Vedanta's intent comes as the company is in the midst of an open offer for minority shareholders to sell out of Cairn India at Rs355 a share. However, analysts said Cairn India's relatively small free float meant Vedanta was unlikely to take a large stake through that offer, which closes on April 30.
When the offer was made in August, Vedanta agreed that the number of shares it acquired from Cairn Energy would be reduced by the number of shares Vedanta bought from minority shareholders up to 11 per cent of the share capital.
However, on Tuesday, Vedanta said it aimed to own 51 per cent to 70.4 per cent of Cairn India.
“Vedanta looks forward to the successful completion of the Cairn India acquisition,” it said.
Regulatory approval of Vedanta’s takeover of Cairn India has been stalled for months, with New Delhi debating whether to give its consent before resolution of a dispute with the state-run Oil and Natural Gas Corp over royalties.
The purchase of the stake shows that Vedanta, controlled by self-made Indian billionaire Anil Agarwal, is undeterred by the regulatory drag, in spite of what some consider a move to exclude him from India’s oil and gas sector.
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© Copyright The Financial Times Ltd 2011.
Published: April 19 2011 08:45 | Last updated: April 19 2011 20:50
Vedanta Resources, the UK-listed mining group, has bought a 10.4 per cent stake in Cairn India for $1.5bn (£920m) from Petronas, the Malaysian state-owned oil group, as it steps up pressure on New Delhi to allow it to take over the company.
The purchase of the stake on the open market comes as Vedanta is seeking to buy a $9.6bn controlling stake in Cairn India – which owns strategically important oilfields in Rajasthan – from its London-listed parent Cairn Energy.
Vedanta bought the Petronas shares at Rs331 a share on Tuesday, a discount to the Rs405 Vedanta offered Cairn Energy and 1.6 per cent down on Monday’s closing market price.
Shares in Cairn India rose almost 3 per cent on Tuesday to Rs345.4, valuing the company at $15bn.
The transaction was agreed at short notice. People close to the deal said Vedanta did not approach Petronas but received feelers from brokers, suggesting that the Malaysian oil group, which has been a purely financial investor since 2006, was interested in withdrawing from the venture.
On Monday, Vedanta received a call from Merrill Lynch, which had a mandate to sell, and built a stake at an attractive price.
The signal of Vedanta's intent comes as the company is in the midst of an open offer for minority shareholders to sell out of Cairn India at Rs355 a share. However, analysts said Cairn India's relatively small free float meant Vedanta was unlikely to take a large stake through that offer, which closes on April 30.
When the offer was made in August, Vedanta agreed that the number of shares it acquired from Cairn Energy would be reduced by the number of shares Vedanta bought from minority shareholders up to 11 per cent of the share capital.
However, on Tuesday, Vedanta said it aimed to own 51 per cent to 70.4 per cent of Cairn India.
“Vedanta looks forward to the successful completion of the Cairn India acquisition,” it said.
Regulatory approval of Vedanta’s takeover of Cairn India has been stalled for months, with New Delhi debating whether to give its consent before resolution of a dispute with the state-run Oil and Natural Gas Corp over royalties.
The purchase of the stake shows that Vedanta, controlled by self-made Indian billionaire Anil Agarwal, is undeterred by the regulatory drag, in spite of what some consider a move to exclude him from India’s oil and gas sector.
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Monday, April 18, 2011
Luxury carmakers eye India’s super-rich
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Global ultra-luxury carmakers are pouring into India. The country that is home to almost half a billion of the world’s poorest citizens, as well as the largest national group of billionaires outside the US, has become the next key market for sports cars worth more than $1m.
Aston Martin, the British luxury car manufacturer, is the latest to announce its entry into India’s coveted high-end car segment, signalling that the nation’s clan of über-rich has become too big to ignore.
“We think the market has now reached the necessary critical mass to make two local dealerships financially viable,” Bill Donnelly, Aston Martin’s global director, told the Financial Times.
Aston Martin, whose cars feature in James Bond films, joins Ferrari, Maserati and Bugatti, which have also announced plans to open a showroom in India, where the number of dollar millionaires reached 130,000 in 2010. At the same time an estimated 80 per cent of the population lives on less than $2 a day, according to the World Bank.
India sold 15,702 luxury cars last year, some way behind China, which sold 727,227 premium vehicles in the same period, according to research group IHS Global Insight.
Compared to China, the Indian market is only nascent, due to its poor highway networks, a 110 per cent tax barrier on imported vehicles and because Chinese car demand suffered a lot less during the financial crisis, analysts said.
“In China, luxury car sales did extremely well even during the financial crisis,” said Mike Dunne, an Asia-based auto consultant. “It was as if they were untouched by the events in the US.”
But demand among India’s super-rich seems to confirm sports car makers’ enthusiasm for Asia’s third-largest economy.
“The market for luxury sports cars is still in its infancy in India, but growing at a rate which makes it very important for the future,” said Mr Donnelly.
India’s demand for luxury cars is growing at a rate of more than 30 per cent, considerably higher than that of normal hatchbacks, said Jatin Chawla, auto analyst at India Infoline in Mumbai.
“Compared to China the Indian market is small but [it] is catching up rapidly,” said Mr Chawla.
Julius Kruta, of Bugatti Automobiles, which will be selling the group’s classic Veyron 16.4 Grand Sport for $3.6m in India, said the south Asian country was the latest frontier for luxury carmakers.
“India is the hub of luxury, the country of the erstwhile maharajas, who were the true patrons of bespoke luxury,” he said. “India, with its growing clan of billionaires and booming businesses, is a market that is hard to ignore.”
Simone Niccolai, Asia-Pacific managing director of Italy’s Maserati, which sold 5,675 cars globally in 2010, said that the Indian market had developed an appetite for luxury cars and planned to open seven dealerships in the country by 2015.
Lalit Choudary, an Aston Martin dealer, whose showroom in Mumbai is minutes away from the $1bn home of Indian tycoon Mukesh Ambani, said there was a new generation of millionaires who wanted to buy a luxury car to tell the world: “I’ve made it”.
“People in India want status and a car like [an] Aston Martin gives you exactly that,” said Mr Choudary, who plans to sell about 100 cars a year by 2015, including the collector’s model One-77, which will be on sale for $4.5m.
Global ultra-luxury carmakers are pouring into India. The country that is home to almost half a billion of the world’s poorest citizens, as well as the largest national group of billionaires outside the US, has become the next key market for sports cars worth more than $1m.
Aston Martin, the British luxury car manufacturer, is the latest to announce its entry into India’s coveted high-end car segment, signalling that the nation’s clan of über-rich has become too big to ignore.
“We think the market has now reached the necessary critical mass to make two local dealerships financially viable,” Bill Donnelly, Aston Martin’s global director, told the Financial Times.
Aston Martin, whose cars feature in James Bond films, joins Ferrari, Maserati and Bugatti, which have also announced plans to open a showroom in India, where the number of dollar millionaires reached 130,000 in 2010. At the same time an estimated 80 per cent of the population lives on less than $2 a day, according to the World Bank.
India sold 15,702 luxury cars last year, some way behind China, which sold 727,227 premium vehicles in the same period, according to research group IHS Global Insight.
Compared to China, the Indian market is only nascent, due to its poor highway networks, a 110 per cent tax barrier on imported vehicles and because Chinese car demand suffered a lot less during the financial crisis, analysts said.
“In China, luxury car sales did extremely well even during the financial crisis,” said Mike Dunne, an Asia-based auto consultant. “It was as if they were untouched by the events in the US.”
But demand among India’s super-rich seems to confirm sports car makers’ enthusiasm for Asia’s third-largest economy.
“The market for luxury sports cars is still in its infancy in India, but growing at a rate which makes it very important for the future,” said Mr Donnelly.
India’s demand for luxury cars is growing at a rate of more than 30 per cent, considerably higher than that of normal hatchbacks, said Jatin Chawla, auto analyst at India Infoline in Mumbai.
“Compared to China the Indian market is small but [it] is catching up rapidly,” said Mr Chawla.
Julius Kruta, of Bugatti Automobiles, which will be selling the group’s classic Veyron 16.4 Grand Sport for $3.6m in India, said the south Asian country was the latest frontier for luxury carmakers.
“India is the hub of luxury, the country of the erstwhile maharajas, who were the true patrons of bespoke luxury,” he said. “India, with its growing clan of billionaires and booming businesses, is a market that is hard to ignore.”
Simone Niccolai, Asia-Pacific managing director of Italy’s Maserati, which sold 5,675 cars globally in 2010, said that the Indian market had developed an appetite for luxury cars and planned to open seven dealerships in the country by 2015.
Lalit Choudary, an Aston Martin dealer, whose showroom in Mumbai is minutes away from the $1bn home of Indian tycoon Mukesh Ambani, said there was a new generation of millionaires who wanted to buy a luxury car to tell the world: “I’ve made it”.
“People in India want status and a car like [an] Aston Martin gives you exactly that,” said Mr Choudary, who plans to sell about 100 cars a year by 2015, including the collector’s model One-77, which will be on sale for $4.5m.
The Assembly Line Is Rolling Again, Tenuously, at Honda in Japan
SAYAMA, Japan — As an electric sign tallied the vehicles rolling off the Honda assembly line here, a scrolling message exhorted employees: “Let’s pool our strength to overcome this crisis.”
A little more than a month after the earthquake and tsunami devastated the automobile industry’s supply chains in Japan, Honda — like the other main Japanese car makers — has resumed domestic production.
Slogans or no, however, it is a tenuous triumph.
Honda’s factory here in Sayama, a suburb of Tokyo, was not damaged in the disasters. Neither was its other major plant, about 200 miles southwest of here. But auto production in Japan is at only half the normal level for Honda — as it is for Honda’s bigger rivals, Toyota and Nissan.
That is mainly because many of the 20,000 to 30,000 parts that go into a Japanese car come from the earthquake-stricken region in northeastern Japan, where numerous suppliers were knocked off line. Unless part makers can resume production soon, the auto companies might have to shut down once again.
“We cannot continue for a long time,” said Ko Katayama, the general manager at Honda’s factory here, declining to specify how long production could continue. “Sooner or later, it’s going to run out.”
Honda is now making only 400 to 450 vehicles a day at the factory in Sayama. That is down from the daily pace of 800 to 900 before the earthquake, said Atsushi Nemoto, a company spokesman.
The production shortfalls for Japan’s biggest automakers will crush earnings that had just begun to recover from the global slump caused by the world financial crisis. Over the long term, the Japanese industry could lose global market share — in recent years it has been nearly 30 percent — as overseas customers sample other brands.
Analysts say Japan’s car companies might also resign themselves to making even more of their products offshore. Even before the March disaster, Japan’s top three automakers were producing most of their vehicles outside the country. (In Honda’s case, only about 27 percent of its 3.6 million cars last year were made in Japan.)
Of course, if vital parts remain unavailable, some factories outside Japan are also being affected, though not to the same extent as those in Japan. Honda, for instance, has said it will produce at a reduced rate in North America at least through May 6.
Noriyuki Matsushima, automobile analyst at Citigroup, estimates that global production by Japanese automakers will decline 15 percent in the fiscal year that ends next March. He predicted full Japanese auto production would not resume until October.
“In a worst-case scenario,” he wrote in a recent report, industry operating losses in the first half of the fiscal year would be “the biggest ever, surpassing even those posted at the time of the Lehman Brothers bankruptcy.”
The limited scope of the recovery at the Honda factory here, known as the Saitama plant, was evident on Monday. The company had invited reporters to observe operations that had resumed a week earlier. But access was limited to a single spot near the end of the assembly line, where workers in white company jackets and trousers put finishing touches on Elysion minivans, a model sold only in Japan.
A Honda official acknowledged that if reporters had viewed the entire factory, they would have seen stretches of the assembly line containing no cars.
Toyota, too, which had resumed production in all 17 of its domestic factories as of Monday, is working at only half volume, said Shiori Hashimoto, a spokeswoman. It plans to shut factories again from April 28 through May 9 for an extended version of Japan’s Golden Week — a period containing several national holidays. And even after production resumes at half volume, Ms. Hashimoto said, the situation is uncertain beyond June 3.
In the last week Nissan has also resumed production at all five of its car factories and two engine factories in Japan — including the Iwaki engine plant that was heavily damaged by the earthquake. But Nissan, too, is producing only about half as many vehicles as usual, Mitsuru Yonekawa, a spokesman, said.
Koji Endo, a managing director at Advanced Research Japan, an equity research firm, said automakers “could have a June crisis” when inventories of crucial parts run out. “There is a very good chance they will have to shut down again,” he said.
A little more than a month after the earthquake and tsunami devastated the automobile industry’s supply chains in Japan, Honda — like the other main Japanese car makers — has resumed domestic production.
Slogans or no, however, it is a tenuous triumph.
Honda’s factory here in Sayama, a suburb of Tokyo, was not damaged in the disasters. Neither was its other major plant, about 200 miles southwest of here. But auto production in Japan is at only half the normal level for Honda — as it is for Honda’s bigger rivals, Toyota and Nissan.
That is mainly because many of the 20,000 to 30,000 parts that go into a Japanese car come from the earthquake-stricken region in northeastern Japan, where numerous suppliers were knocked off line. Unless part makers can resume production soon, the auto companies might have to shut down once again.
“We cannot continue for a long time,” said Ko Katayama, the general manager at Honda’s factory here, declining to specify how long production could continue. “Sooner or later, it’s going to run out.”
Honda is now making only 400 to 450 vehicles a day at the factory in Sayama. That is down from the daily pace of 800 to 900 before the earthquake, said Atsushi Nemoto, a company spokesman.
The production shortfalls for Japan’s biggest automakers will crush earnings that had just begun to recover from the global slump caused by the world financial crisis. Over the long term, the Japanese industry could lose global market share — in recent years it has been nearly 30 percent — as overseas customers sample other brands.
Analysts say Japan’s car companies might also resign themselves to making even more of their products offshore. Even before the March disaster, Japan’s top three automakers were producing most of their vehicles outside the country. (In Honda’s case, only about 27 percent of its 3.6 million cars last year were made in Japan.)
Of course, if vital parts remain unavailable, some factories outside Japan are also being affected, though not to the same extent as those in Japan. Honda, for instance, has said it will produce at a reduced rate in North America at least through May 6.
Noriyuki Matsushima, automobile analyst at Citigroup, estimates that global production by Japanese automakers will decline 15 percent in the fiscal year that ends next March. He predicted full Japanese auto production would not resume until October.
“In a worst-case scenario,” he wrote in a recent report, industry operating losses in the first half of the fiscal year would be “the biggest ever, surpassing even those posted at the time of the Lehman Brothers bankruptcy.”
The limited scope of the recovery at the Honda factory here, known as the Saitama plant, was evident on Monday. The company had invited reporters to observe operations that had resumed a week earlier. But access was limited to a single spot near the end of the assembly line, where workers in white company jackets and trousers put finishing touches on Elysion minivans, a model sold only in Japan.
A Honda official acknowledged that if reporters had viewed the entire factory, they would have seen stretches of the assembly line containing no cars.
Toyota, too, which had resumed production in all 17 of its domestic factories as of Monday, is working at only half volume, said Shiori Hashimoto, a spokeswoman. It plans to shut factories again from April 28 through May 9 for an extended version of Japan’s Golden Week — a period containing several national holidays. And even after production resumes at half volume, Ms. Hashimoto said, the situation is uncertain beyond June 3.
In the last week Nissan has also resumed production at all five of its car factories and two engine factories in Japan — including the Iwaki engine plant that was heavily damaged by the earthquake. But Nissan, too, is producing only about half as many vehicles as usual, Mitsuru Yonekawa, a spokesman, said.
Koji Endo, a managing director at Advanced Research Japan, an equity research firm, said automakers “could have a June crisis” when inventories of crucial parts run out. “There is a very good chance they will have to shut down again,” he said.
Obama Might Trade Parties With Paul Ryan: Laurence Kotlikoff
We all know that Democrats want to spend more on people and Republicans want to tax people less. But giving someone an extra dollar is no different than taking a dollar less from that person; raising spending is the same as cutting taxes, and cutting taxes is the same as raising spending.
Gee, maybe Democrats are closet Republicans, and Republicans are closet Democrats.
Of course some spending isn’t on people. It’s on tanks and bureaucrats. But the Democrats aren’t bigger discretionary spenders than Republicans. Bill Clinton, for example, cut discretionary spending from 8 percent to 6 percent of gross domestic product. George W. Bush raised it back to 8 percent. Since 1971, discretionary spending averaged 8 percent under Democratic administrations and 9 percent under Republican administrations.
So when it comes to discretionary spending, Republicans are Democrats and Democrats are Republicans.
This problem is on full display in the latest contretemps between “Democrat” President Barack Obama and “Republican” House Budget Chairman Paul Ryan. The president has characterized Ryan’s tax plan to cut top personal and corporate income tax rates from 35 to 25 percent as horribly regressive. But if you look closely, it may be highly progressive.
Progressive Taxation
Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive -- average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.
Conclusion: you can simultaneously lower the top rate and make the system more progressive.
Ryan is proposing dramatically broadening the tax base by curtailing or eliminating tax loopholes, such as the home mortgage-interest deduction. This break disproportionately favors the rich, saving millionaires $75,000 each on average. And Ryan’s base-broadening may include taxing capital gains and dividends at ordinary rates. In this case, the rich will pay a 25 percent, not 15 percent, tax on this income, and see both their marginal and average tax rates rise.
Next, consider cutting the corporate tax rate, which will lead to new investment, jobs, and higher wages. This isn’t a trickle-down fantasy. Just look at Ireland’s amazing growth after cutting its corporate rate.
Tax Avoidance
Unlike our personal income tax, the rich can avoid our corporate tax by investing abroad. With a higher corporate tax, capital leaves and wages (the cost of labor) fall until capital is again indifferent between staying and going. With a lower corporate tax, the opposite occurs.
Raise the corporate tax and take-home wages fall; lower it and take-home wages rise. Sounds like the corporate tax hits workers like a payroll tax.
That’s precisely what most public-finance economists believe. Hence, Ryan’s proposed cut in the corporate tax rate would, effectively, replace Obama’s temporary payroll tax cut with a permanent one -- and a roughly six times larger one at that. Haven’t the president’s economists told him this?
The president has also vilified Ryan’s Medicare voucher plan, which moves Uncle Sam from paying the fees for whatever services the health-care sector sends him to putting health care on a fixed budget. Absent such a budget, our nation will go broke, as the president himself acknowledges.
Never Worked
The president says he can limit Medicare’s fee-for-service spending through other, mainly unspecified means. But we’ve tried all types of alternatives for decades and nothing’s worked. As a result, Medicare, not Paul Ryan, is killing Medicare. As the health-care sector orders up ever-more services for the government to pay, government will be forced to cut its fees to the point that doctors will no longer cover Medicare participants.
Finally, think about Ryan’s Medicare vouchers. They are individually risk-adjusted and the poor, who are in worse shape than the rich, will get bigger vouchers. Those who will have to pay more out of pocket will be the rich.
Ryan’s voucher plan may be the most progressive reform proposed in recent memory. But the president dismissed it out of hand, saying, “I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking budget to pay for rising costs.”
Vouchers for All
To read this, you’d think Obama wouldn’t countenance vouchers for anyone. But Obama’s health plan, which covers the uninsured, provides the same vouchers that Ryan is advocating. So the president is saying vouchers are OK for uninsured workers, but not the elderly? And he’s saying leaving such workers at the mercy of the insurance industry is OK? He can’t have it both ways. Either vouchers and regulated insurance companies are OK or they aren’t.
Both are OK. As I’ve said in my last two columns, we need a single voucher system covering everyone. If Obama and Ryan sat down and spoke in French, they’d likely agree to that, as well as find common ground on taxes and discretionary spending cuts. After which, they might switch parties.
(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)
Gee, maybe Democrats are closet Republicans, and Republicans are closet Democrats.
Of course some spending isn’t on people. It’s on tanks and bureaucrats. But the Democrats aren’t bigger discretionary spenders than Republicans. Bill Clinton, for example, cut discretionary spending from 8 percent to 6 percent of gross domestic product. George W. Bush raised it back to 8 percent. Since 1971, discretionary spending averaged 8 percent under Democratic administrations and 9 percent under Republican administrations.
So when it comes to discretionary spending, Republicans are Democrats and Democrats are Republicans.
This problem is on full display in the latest contretemps between “Democrat” President Barack Obama and “Republican” House Budget Chairman Paul Ryan. The president has characterized Ryan’s tax plan to cut top personal and corporate income tax rates from 35 to 25 percent as horribly regressive. But if you look closely, it may be highly progressive.
Progressive Taxation
Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive -- average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.
Conclusion: you can simultaneously lower the top rate and make the system more progressive.
Ryan is proposing dramatically broadening the tax base by curtailing or eliminating tax loopholes, such as the home mortgage-interest deduction. This break disproportionately favors the rich, saving millionaires $75,000 each on average. And Ryan’s base-broadening may include taxing capital gains and dividends at ordinary rates. In this case, the rich will pay a 25 percent, not 15 percent, tax on this income, and see both their marginal and average tax rates rise.
Next, consider cutting the corporate tax rate, which will lead to new investment, jobs, and higher wages. This isn’t a trickle-down fantasy. Just look at Ireland’s amazing growth after cutting its corporate rate.
Tax Avoidance
Unlike our personal income tax, the rich can avoid our corporate tax by investing abroad. With a higher corporate tax, capital leaves and wages (the cost of labor) fall until capital is again indifferent between staying and going. With a lower corporate tax, the opposite occurs.
Raise the corporate tax and take-home wages fall; lower it and take-home wages rise. Sounds like the corporate tax hits workers like a payroll tax.
That’s precisely what most public-finance economists believe. Hence, Ryan’s proposed cut in the corporate tax rate would, effectively, replace Obama’s temporary payroll tax cut with a permanent one -- and a roughly six times larger one at that. Haven’t the president’s economists told him this?
The president has also vilified Ryan’s Medicare voucher plan, which moves Uncle Sam from paying the fees for whatever services the health-care sector sends him to putting health care on a fixed budget. Absent such a budget, our nation will go broke, as the president himself acknowledges.
Never Worked
The president says he can limit Medicare’s fee-for-service spending through other, mainly unspecified means. But we’ve tried all types of alternatives for decades and nothing’s worked. As a result, Medicare, not Paul Ryan, is killing Medicare. As the health-care sector orders up ever-more services for the government to pay, government will be forced to cut its fees to the point that doctors will no longer cover Medicare participants.
Finally, think about Ryan’s Medicare vouchers. They are individually risk-adjusted and the poor, who are in worse shape than the rich, will get bigger vouchers. Those who will have to pay more out of pocket will be the rich.
Ryan’s voucher plan may be the most progressive reform proposed in recent memory. But the president dismissed it out of hand, saying, “I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking budget to pay for rising costs.”
Vouchers for All
To read this, you’d think Obama wouldn’t countenance vouchers for anyone. But Obama’s health plan, which covers the uninsured, provides the same vouchers that Ryan is advocating. So the president is saying vouchers are OK for uninsured workers, but not the elderly? And he’s saying leaving such workers at the mercy of the insurance industry is OK? He can’t have it both ways. Either vouchers and regulated insurance companies are OK or they aren’t.
Both are OK. As I’ve said in my last two columns, we need a single voucher system covering everyone. If Obama and Ryan sat down and spoke in French, they’d likely agree to that, as well as find common ground on taxes and discretionary spending cuts. After which, they might switch parties.
(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)
Robots Find High Radiation as Tokyo Electric Lays Out Plan to End Crisis
Robots sent into two buildings at Japan’s crippled Fukushima Dai-Ichi nuclear station detected radiation still too toxic for humans as the plant operator set out a plan to end the crisis in six to nine months.
Measurements show one hour inside the No. 3 reactor building would expose humans to more than one-fifth of the radiation Japan has said is the most workers can endure in a year, the atomic safety agency said yesterday. People haven’t been in the buildings since a 15-meter (49-foot) surge following a magnitude-9 quake on March 11 knocked out cooling equipment, sparking the worst disaster since Chernobyl in 1986.
A sustained drop in radiation at the tsunami-damaged plant could be achieved within three months, Tokyo Electric Power Co. said in a statement laying out its plans. Following that, a cold shutdown, where core reactor temperatures fall below 100 degrees Celsius (212 degrees Fahrenheit), may be achieved within six months, it said.
The six-to-nine month timeframe “seems mindbogglingly long given the urgency,” said Michael Friedlander, a former U.S. nuclear engineer based in Hong Kong. The utility should aim to have the crisis in hand in two to three months, he said. “They’re managing expectations and don’t want to make a commitment they can’t deliver on.”
In the next three months, Tepco, as the utility is known, plans to fill the reactor containment vessels at the No. 1 and No. 3 units with water, the company said in its April 17 statement. The utility will seal the vessel of the No. 2 reactor, which is likely damaged, before flooding it.
Leaking Into Sea
“If we flood the damaged vessel, the leak of contaminated water will increase,” Tepco Vice President Sakae Muto told reporters in Tokyo April 17. “We will continue injecting water with care and monitor the volume of water leaked.”
The water pumped so far has overflowed into basements and trenches, with some of it leaking into the ocean.
“It is vitally important that Tepco succeeds in shifting the cooling process to a closed loop system,” said Philip White, international liaison officer at the Citizens’ Nuclear Information Center in Tokyo. “In the current situation, where water poured in one end leaks out the other, there is the constant danger that highly radioactive water will run off into the sea.”
Tepco completed preparations of a waste water treatment facility at the plant yesterday, NHK reported on its website. The company will begin moving highly contaminated water to the treatment unit from other areas of the plant after reporting the method and safety measures to nuclear regulators, the public broadcaster said.
Robots, Radiation
Two iRobot Corp. (IRBT) robots sent April 17 to check whether humans can reenter the site found radiation levels as high as 49 millisieverts per hour in the No. 1 reactor building, and up to 57 millisieverts in the No. 3 building, the Nuclear and Industrial Safety Agency said.
The cumulative maximum level for nuclear workers was raised to 250 millisieverts from 100 millisieverts by Japan’s health ministry on March 15. Exposure totaling 100 millisieverts over a year is the lowest level at which any increase in cancer is evident, according to the World Nuclear Association in London.
Another robot spent almost an hour in the main building of reactor No. 2 yesterday, NISA said in a press release. It didn’t give readings for the building. Tepco officials are analyzing the data taken by the robot, spokesman Akitsuka Kobayashi said today.
Shares Fall
Tepco shares fell as much as 5.4 percent to 442 yen in Tokyo today and traded at 446 yen at 9:57 a.m. The stock is down almost 80 percent since the quake and tsunami, which left about 28,000 people dead or missing.
Tepco plans to inject nitrogen into the containment vessels of the No. 2 and No. 3 reactors by the end of April, Muto said. The utility injected the inert gas into the No. 1 unit this month to prevent hydrogen explosions.
“Injecting nitrogen doesn’t hurt, but it makes no sense -- it just makes it look like you’re doing something,” said Friedlander, who spent 13 years working in nuclear plant management in the U.S. “It’s a question of resources and the people; those people could be better utilized.”
Three to six months after the initial phase of its plan, Tepco will attempt a cold shutdown of reactors No. 1, 2 and 3, the company said. Reactors 4, 5 and 6 were shut at the time of the disaster. The utility will also cover the No. 1, 3 and 4 reactor buildings as a temporary measure to reduce radiation emissions after the structures were damaged by hydrogen blasts last month, according to the statement.
Evacuated Families
Japan’s government plans to tell families evacuated from the area within ninth months whether they can return home, Trade Minister Banri Kaieda said in a briefing in Tokyo.
The government this month widened a 20-kilometer evacuation zone to include the towns of Iitate, Katsurao and Namie. Radiation no longer poses “significant” health risks beyond an 80-kilometer radius, the U.S. State Department said.
Seventy percent of people in Japan disapprove of the way Prime Minister Naoto Kan’s government has handled the nuclear crisis, the Nikkei newspaper said yesterday, citing a telephone survey it carried out with TV Tokyo Corp.
Measurements show one hour inside the No. 3 reactor building would expose humans to more than one-fifth of the radiation Japan has said is the most workers can endure in a year, the atomic safety agency said yesterday. People haven’t been in the buildings since a 15-meter (49-foot) surge following a magnitude-9 quake on March 11 knocked out cooling equipment, sparking the worst disaster since Chernobyl in 1986.
A sustained drop in radiation at the tsunami-damaged plant could be achieved within three months, Tokyo Electric Power Co. said in a statement laying out its plans. Following that, a cold shutdown, where core reactor temperatures fall below 100 degrees Celsius (212 degrees Fahrenheit), may be achieved within six months, it said.
The six-to-nine month timeframe “seems mindbogglingly long given the urgency,” said Michael Friedlander, a former U.S. nuclear engineer based in Hong Kong. The utility should aim to have the crisis in hand in two to three months, he said. “They’re managing expectations and don’t want to make a commitment they can’t deliver on.”
In the next three months, Tepco, as the utility is known, plans to fill the reactor containment vessels at the No. 1 and No. 3 units with water, the company said in its April 17 statement. The utility will seal the vessel of the No. 2 reactor, which is likely damaged, before flooding it.
Leaking Into Sea
“If we flood the damaged vessel, the leak of contaminated water will increase,” Tepco Vice President Sakae Muto told reporters in Tokyo April 17. “We will continue injecting water with care and monitor the volume of water leaked.”
The water pumped so far has overflowed into basements and trenches, with some of it leaking into the ocean.
“It is vitally important that Tepco succeeds in shifting the cooling process to a closed loop system,” said Philip White, international liaison officer at the Citizens’ Nuclear Information Center in Tokyo. “In the current situation, where water poured in one end leaks out the other, there is the constant danger that highly radioactive water will run off into the sea.”
Tepco completed preparations of a waste water treatment facility at the plant yesterday, NHK reported on its website. The company will begin moving highly contaminated water to the treatment unit from other areas of the plant after reporting the method and safety measures to nuclear regulators, the public broadcaster said.
Robots, Radiation
Two iRobot Corp. (IRBT) robots sent April 17 to check whether humans can reenter the site found radiation levels as high as 49 millisieverts per hour in the No. 1 reactor building, and up to 57 millisieverts in the No. 3 building, the Nuclear and Industrial Safety Agency said.
The cumulative maximum level for nuclear workers was raised to 250 millisieverts from 100 millisieverts by Japan’s health ministry on March 15. Exposure totaling 100 millisieverts over a year is the lowest level at which any increase in cancer is evident, according to the World Nuclear Association in London.
Another robot spent almost an hour in the main building of reactor No. 2 yesterday, NISA said in a press release. It didn’t give readings for the building. Tepco officials are analyzing the data taken by the robot, spokesman Akitsuka Kobayashi said today.
Shares Fall
Tepco shares fell as much as 5.4 percent to 442 yen in Tokyo today and traded at 446 yen at 9:57 a.m. The stock is down almost 80 percent since the quake and tsunami, which left about 28,000 people dead or missing.
Tepco plans to inject nitrogen into the containment vessels of the No. 2 and No. 3 reactors by the end of April, Muto said. The utility injected the inert gas into the No. 1 unit this month to prevent hydrogen explosions.
“Injecting nitrogen doesn’t hurt, but it makes no sense -- it just makes it look like you’re doing something,” said Friedlander, who spent 13 years working in nuclear plant management in the U.S. “It’s a question of resources and the people; those people could be better utilized.”
Three to six months after the initial phase of its plan, Tepco will attempt a cold shutdown of reactors No. 1, 2 and 3, the company said. Reactors 4, 5 and 6 were shut at the time of the disaster. The utility will also cover the No. 1, 3 and 4 reactor buildings as a temporary measure to reduce radiation emissions after the structures were damaged by hydrogen blasts last month, according to the statement.
Evacuated Families
Japan’s government plans to tell families evacuated from the area within ninth months whether they can return home, Trade Minister Banri Kaieda said in a briefing in Tokyo.
The government this month widened a 20-kilometer evacuation zone to include the towns of Iitate, Katsurao and Namie. Radiation no longer poses “significant” health risks beyond an 80-kilometer radius, the U.S. State Department said.
Seventy percent of people in Japan disapprove of the way Prime Minister Naoto Kan’s government has handled the nuclear crisis, the Nikkei newspaper said yesterday, citing a telephone survey it carried out with TV Tokyo Corp.
Sunday, April 17, 2011
Inflation in China Poses Big Threat to Global Trade
SHANGHAI — As the United States and Europe struggle to get their economies rolling again, China is having the opposite problem: figuring out how to keep its revved-up growth engine from generating runaway inflation.
The latest sign that things were moving too fast came on Sunday, when China’s central bank ordered the biggest banks to set aside more cash reserves.
The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China’s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world’s biggest economies.
Because China is now the world’s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.
High inflation endangers China’s status as the low-cost workshop for the world. And if the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses — whether multinationals like General Electric or copper miners in Chile — that have been counting on China for growth.
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.
“China’s inflation is a big concern, and actual numbers are worse than officially reported,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.
She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.
Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).
The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.
The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.
But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.
For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.
The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.
Analysts say too much of the country’s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.
In the first quarter of 2011, fixed asset investment — a broad measure of building activity — jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.
Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing’s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world’s largest car market, China’s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.
Rising food prices, meanwhile, are showing up in various ways — including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.
China’s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.
The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.
The latest sign that things were moving too fast came on Sunday, when China’s central bank ordered the biggest banks to set aside more cash reserves.
The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China’s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world’s biggest economies.
Because China is now the world’s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.
High inflation endangers China’s status as the low-cost workshop for the world. And if the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses — whether multinationals like General Electric or copper miners in Chile — that have been counting on China for growth.
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.
“China’s inflation is a big concern, and actual numbers are worse than officially reported,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.
She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.
Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).
The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.
The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.
But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.
For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.
The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.
Analysts say too much of the country’s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.
In the first quarter of 2011, fixed asset investment — a broad measure of building activity — jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.
Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing’s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world’s largest car market, China’s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.
Rising food prices, meanwhile, are showing up in various ways — including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.
China’s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.
The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.
G-20 Names ‘Too Big to Ignore’ Economies, Downplays Shocks
The U.S., China and five other large economies will face deeper scrutiny from their peers to ensure their policies don’t derail a global expansion that finance chiefs bet is strong enough to absorb recent shocks.
The seven countries have a gross domestic product greater than 5 percent of the Group of 20 nations’ economy, and so carry “the greater potential for spillover effects,” G-20 central bankers and finance ministers said during weekend talks in Washington.
Drawing up the list is part of a plan to spot imbalances in individual economies such as large trade gaps, and prescribe policies to fix them before they harm global growth. For now, the recovery is “broadening and becoming more self-sustained” even as unrest in the Middle East and North Africa, as well as Japan’s earthquake and tsunami, raise “uncertainty” about the outlook, policy makers said.
The economies named are “too big to ignore,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. The G-20 is “approaching a situation where there are common principles for them all and that those who deviate from them will be called to the dock.”
The push to rebalance the world economy so its growth relies less on drivers such as U.S. demand and Chinese exports will likely encourage appreciation of emerging market exchange rates against those of developed economies, New York-based Englander said. He predicts the Chinese yuan will rise to 6.18 per dollar over the next 12 months after it touched 6.5290 last week, the strongest since 1993.
Expansion Strength
Policy makers were in Washington for the semi-annual talks of the 187-member International Monetary Fund and World Bank as investors query the strength of expansion. In addition to the Japanese disasters, the price of oil is above $100 a barrel, monetary policy is tightening in China, and European nations from Greece to Portugal continue to struggle to finance their debts. World Bank President Robert Zoellick said the world is “one shock away” from a food crisis.
Even as it noted “downside risks still remain,” the G-20 nevertheless sounded more optimistic than in February when it complained of uneven growth and high unemployment in rich nations. At the end of a week in which German carmaker Volkswagen AG (VOW) posted record first-quarter sales and French retailer Carrefour SA (CA) said its first-quarter sales rose 3.9 percent, policy makers noted “increasingly robust” private demand growth and enough spare capacity to meet energy needs.
Stocks Fell
U.S. stocks fell last week, giving the Standard & Poor’s 500 Index its second straight weekly decline as companies from Alcoa Inc. (AA) to Google Inc. (GOOG) reported quarterly results that missed estimates.
Jim O’Neill, chairman of Goldman Sachs Asset Management in London, predicts the S&P 500 will rise to at least 1,400 by the end of the year from 1,319.68 last week as the recovery endures. Hiring and household balance sheets in the U.S. have also improved.
The focus of the discussions was the G-20’s new surveillance system for the world economy, of which it represents 85 percent. The goal is to foster balanced international growth after skewed trade and investment flows -- reflected in China’s $3 trillion foreign reserves and U.S. trade deficits -- helped trigger financial turmoil.
Have Guidelines
Having agreed two months ago to monitor indicators including budget deficits, private debt and external trade balances for signs of excess, policy makers now have guidelines against which to test them. They are based on historical performance and circumstances of the individual country and comparisons with other economies.
The U.S., Japan, Germany, France, U.K., India and China will be probed the most thoroughly because of their importance to the world economy.
The next step is for officials to work with the IMF to study the countries’ policies before telling leaders which ones are aggravating imbalances, and what measures can be taken to correct them, at a November summit in Cannes, France. The IMF’s policy committee said separately that the Fund will study how the financial policies of one country impact others.
“The net is a little bit tighter for those countries that are considered of systemic importance,” French Finance Minister Christine Lagarde told reporters.
China Satisfied
After a contentious summit in Paris two months ago, where China won omission of currency reserves from the list of indicators, Vice Finance Minister Zhu Guangyao said he was “satisfied with the result” of the Washington meeting.
His country still faced pressure from officials including U.S. Treasury Secretary Timothy F. Geithner and Mexican central bank Governor Agustin Carstens to let the yuan appreciate faster after gaining just 4.5 percent since 2009. The G-20 agreed to look more closely at currency misalignments.
Challenges to the G-20 process include its reliance on peer pressure to spur needed changes and the suspicion of emerging markets that it will be used by developed economies to ramp up pressure to increase currency flexibility, said Sophia Drossos, currency fund manager at Morgan Stanley Investment Management in New York.
In a sign of these challenges, finance officials argued over the causes of, and cures for, capital flows surging into developing nations. The U.S. blamed China’s currency policy, while Brazil pointed the finger at low interest rates in rich nations.
“Emerging markets are going to be concerned about how these rules will be implemented,” said Drossos. “There are also questions about how adequately any of the rules can be enforced.”
The seven countries have a gross domestic product greater than 5 percent of the Group of 20 nations’ economy, and so carry “the greater potential for spillover effects,” G-20 central bankers and finance ministers said during weekend talks in Washington.
Drawing up the list is part of a plan to spot imbalances in individual economies such as large trade gaps, and prescribe policies to fix them before they harm global growth. For now, the recovery is “broadening and becoming more self-sustained” even as unrest in the Middle East and North Africa, as well as Japan’s earthquake and tsunami, raise “uncertainty” about the outlook, policy makers said.
The economies named are “too big to ignore,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. The G-20 is “approaching a situation where there are common principles for them all and that those who deviate from them will be called to the dock.”
The push to rebalance the world economy so its growth relies less on drivers such as U.S. demand and Chinese exports will likely encourage appreciation of emerging market exchange rates against those of developed economies, New York-based Englander said. He predicts the Chinese yuan will rise to 6.18 per dollar over the next 12 months after it touched 6.5290 last week, the strongest since 1993.
Expansion Strength
Policy makers were in Washington for the semi-annual talks of the 187-member International Monetary Fund and World Bank as investors query the strength of expansion. In addition to the Japanese disasters, the price of oil is above $100 a barrel, monetary policy is tightening in China, and European nations from Greece to Portugal continue to struggle to finance their debts. World Bank President Robert Zoellick said the world is “one shock away” from a food crisis.
Even as it noted “downside risks still remain,” the G-20 nevertheless sounded more optimistic than in February when it complained of uneven growth and high unemployment in rich nations. At the end of a week in which German carmaker Volkswagen AG (VOW) posted record first-quarter sales and French retailer Carrefour SA (CA) said its first-quarter sales rose 3.9 percent, policy makers noted “increasingly robust” private demand growth and enough spare capacity to meet energy needs.
Stocks Fell
U.S. stocks fell last week, giving the Standard & Poor’s 500 Index its second straight weekly decline as companies from Alcoa Inc. (AA) to Google Inc. (GOOG) reported quarterly results that missed estimates.
Jim O’Neill, chairman of Goldman Sachs Asset Management in London, predicts the S&P 500 will rise to at least 1,400 by the end of the year from 1,319.68 last week as the recovery endures. Hiring and household balance sheets in the U.S. have also improved.
The focus of the discussions was the G-20’s new surveillance system for the world economy, of which it represents 85 percent. The goal is to foster balanced international growth after skewed trade and investment flows -- reflected in China’s $3 trillion foreign reserves and U.S. trade deficits -- helped trigger financial turmoil.
Have Guidelines
Having agreed two months ago to monitor indicators including budget deficits, private debt and external trade balances for signs of excess, policy makers now have guidelines against which to test them. They are based on historical performance and circumstances of the individual country and comparisons with other economies.
The U.S., Japan, Germany, France, U.K., India and China will be probed the most thoroughly because of their importance to the world economy.
The next step is for officials to work with the IMF to study the countries’ policies before telling leaders which ones are aggravating imbalances, and what measures can be taken to correct them, at a November summit in Cannes, France. The IMF’s policy committee said separately that the Fund will study how the financial policies of one country impact others.
“The net is a little bit tighter for those countries that are considered of systemic importance,” French Finance Minister Christine Lagarde told reporters.
China Satisfied
After a contentious summit in Paris two months ago, where China won omission of currency reserves from the list of indicators, Vice Finance Minister Zhu Guangyao said he was “satisfied with the result” of the Washington meeting.
His country still faced pressure from officials including U.S. Treasury Secretary Timothy F. Geithner and Mexican central bank Governor Agustin Carstens to let the yuan appreciate faster after gaining just 4.5 percent since 2009. The G-20 agreed to look more closely at currency misalignments.
Challenges to the G-20 process include its reliance on peer pressure to spur needed changes and the suspicion of emerging markets that it will be used by developed economies to ramp up pressure to increase currency flexibility, said Sophia Drossos, currency fund manager at Morgan Stanley Investment Management in New York.
In a sign of these challenges, finance officials argued over the causes of, and cures for, capital flows surging into developing nations. The U.S. blamed China’s currency policy, while Brazil pointed the finger at low interest rates in rich nations.
“Emerging markets are going to be concerned about how these rules will be implemented,” said Drossos. “There are also questions about how adequately any of the rules can be enforced.”
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