July 19 (Bloomberg) -- For the first time since the government started collecting the data, central banks, mutual funds and U.S. banks are buying more government securities at Treasury auctions than Wall Street’s bond dealers.
Foreign and domestic investors bidding directly at note and bond auctions bought 57 percent of the $1.26 trillion in Treasuries sold by the government this year, up from 45 percent during the same period in 2009 and as little as 32 percent for all of 2008, according to government data compiled by Bloomberg. Bids compared with the amount of debt sold, the bid-to-cover ratio, rose 18 percent from last year’s 14-year high, according to data that Treasury started collecting in 1994.
The combination of the lowest U.S. inflation rate in four decades and continuing concerns that the global recovery will falter is boosting bonds even as yields on 10-year notes fall below 3 percent, the lowest since April 2009. The surge in demand through so-called direct and indirect bids is helping drive down rates for U.S. President Barack Obama as he grapples with a budget deficit that’s forecast to swell 14 percent to a record $1.6 trillion.
“The economic backdrop is favorable for Treasuries,” said Thomas Girard, who helps manage $115 billion in fixed income at New York Life Investment Management in New York. “There’s no fear of inflation. The bigger fear is deflation.”
Consumer Confidence Tumbles
Yields on 10-year notes fell 13 basis points last week to 2.92 percent, according to BGCantor Market Data. That’s 88 basis points above the record low of 2.04 percent reached on Dec. 18, 2008, after the collapse of New York-based Lehman Brothers Holdings Inc. spurred investors to seek only the safest government securities.
The two-year yield dropped to an all-time low of 0.577 percent on July 16 as a report showed confidence among U.S. consumers tumbled to the lowest level in a year.
Trading of bills, notes and bonds was shut in Japan today for a holiday.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News. Consumer prices excluding energy and food remained at a 44-year low of 0.9 percent in June for a third consecutive month, the Labor Department said the same day.
The drop in sentiment followed the Labor Department’s July 2 report showing that the U.S. lost 125,000 jobs in June, the first decline since December. Retail sales excluding autos have slid for two consecutive months for the first time since 2008, while new home sales plunged to a record low in May after reaching a 20-month high of 446,000 in April.
U.S. GDP
The American economy grew 2.7 percent in the first three months of 2010, expanding for a third straight quarter after the longest recession since the Great Depression. U.S. gross domestic product will increase 3.1 percent this year, according to estimates from 54 economists compiled by Bloomberg.
“The data shift that we had from the first quarter to the second quarter has been fairly dramatic and came sooner than many investors would have expected,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $1 trillion in bonds. “Treasuries are still attractive.”
Even bond-market bears such as primary dealer Morgan Stanley have trimmed forecasts for U.S. yields to rise in the second half of the year, with slow growth likely to keep the Federal Reserve from increasing record low borrowing rates into 2011. The target for overnight loans between banks has been zero to 0.25 percent since December 2008.
Primary Dealers
Morgan Stanley of New York has lowered its estimate for the 10-year note’s yield at the end of the 2010 to 3.5 percent from 5.5 percent at the start the year. The median projection of 55 forecasts in a Bloomberg News survey is 3.36 percent, down from 3.80 percent in June.
Primary dealers, which are required to bid in government auctions and act as the trading partner to the New York Fed, have won the lowest proportion of Treasuries in auctions since the government began releasing the data in 2003.
Increasing demand for longer-term debt from central banks moving out of the euro and into dollar assets has helped keep yields low, said Jeffrey Rosenberg, a credit strategist at Charlotte, North Carolina-based Bank of America Corp. China holds $867.7 billion of Treasuries, making it the biggest lender to the U.S.
“The auction participation data and the holdings data show an increase in holdings in the long-term,” said Rosenberg. International investors have displayed “comfort with moving out the curve,” he said.
China’s Holdings
Purchases by China in recent months have focused on longer- term debt, unlike in 2008, when most of the cash went into Treasury bills. While China has slashed its bill holdings by nine-tenths to $6.8 billion as the global credit crunch eased, total holdings are up 8.3 percent in the 12 months through May, with notes and bonds due in two years or more surging 46 percent, the Treasury said July 16.
Custodial holdings of Treasuries at the Fed for accounts including central banks have increased 4.7 percent this year to a record $2.29 trillion.
“This has been a pretty ferocious flight-to-quality,” said Wan-Chong Kung, who helps manage $89 billion at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp. “Investors more broadly are embracing the idea of a slower U.S. economy where inflation is not a problem.”
‘Paralyzed With Uncertainty’
Spending by companies and consumers has slowed as economic data has shown signs of weakening. Companies in the Standard & Poor’s 500 Index have stockpiled a record $2.3 trillion of cash and equivalents. At the same time, consumer credit has declined in 15 of the last 16 months, while factory orders fell 1.4 percent in May, the biggest drop in 14 months, the Commerce Department said.
Companies “are paralyzed with uncertainty,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., who helps oversee $72 billion in fixed-income assets. “They’re sitting on cash. There’s a lot of powder there that’s going nowhere. It is in a way deflationary.”
Almost 87 percent of the 23 companies in the S&P 500 that reported earnings since July 12, including Alcoa Inc. of New York and Santa Clara, California-based Intel Corp., have beaten analysts’ forecasts for earnings per share, data compiled by Bloomberg show. General Electric Co. in Fairfield, Connecticut, Bank of America and four other companies reported sales that trailed projections.
Earnings Projections
While analyst estimates compiled by Bloomberg show that profits at S&P 500 companies are forecast to increase by 34 percent in 2010 and 18 percent in 2011, investors remain concerned the earnings expansion is being driven by cost reductions rather than sales growth, Segal said.
Investment funds and U.S. banks have been among the biggest direct buyers of Treasuries this year. Banks held $1.48 trillion in Treasuries and agency debt as of June 30, up 2.1 percent from the end of 2009, according to Fed data.
Depository institutions bought $1.2 billion of the $13 billion in 30-year U.S. bonds auctioned on June 10, $3.1 billion of those offered on March 11 and $2.7 billion of the $16 billion sale on Feb. 11, Treasury data show.
“There is definitely a sense that banks are reluctant to lend and are parking reserves either at the Fed, in Treasuries or other non-consumer lending assets,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Banks have tightened their standards and even if their standards remained the same, the position of consumers has deteriorated with the economy under stress. It’s more difficult to get a car loan, it’s more difficult to get a mortgage.”
Auctions Peak
Company borrowing slid 29 percent in the first half of the year to $528 billion amid a dearth of business investment, Bloomberg data shows.
The drop in debt issuance comes with Treasury auctions starting to decline after reaching record levels. Monthly fixed- coupon sales of Treasuries decreased 7.3 percent to $178 billion in June from $192 billion in April.
Primary dealers told U.S. officials in February that the increase in direct bids from investors at auctions risked distorting prices in the $7 trillion market for U.S. government debt, according to people involved in the discussions at the time. The firms said the rise in direct bids may increase borrowing costs for the Treasury and taxpayers if dealers bid less aggressively because of higher volatility at the sales.
‘Bidding Behavior’
“The change in bidding behavior should increase the volatility around auctions,” Joe Leary and Brett Rose, New York-based strategists at primary dealer Citigroup Inc., wrote in a July 14 report. “A counter effect that comes along with an increased number of direct bidders is increased competition. This recent change in auction behavior may not be completely adverse for Treasury borrowing costs.”
The U.S. deficit rose $68.4 billion in June to $1 trillion for the fiscal year that ends Sept. 30, the government said July 13. Tax receipts have increased 0.5 percent to $1.6 trillion while spending has declined 2.8 percent to $2.6 trillion.
The S&P 500, the benchmark gauge for U.S. equities, has fallen 4.5 percent this year while Treasuries have risen 6.2 percent, according to Bank of America Merrill Lynch indexes.
Globally, bond returns topped stock gains by the widest margin in nine years in the first half as optimism about the global economic recovery waned.
The MSCI World Index of 24 developed countries fell 9.5 percent, including dividends, in the first half of 2010, while bonds gained 4.2 percent, the Bank of America Merrill Lynch Global Broad Market Index shows.
“The bond market has finally come to the conclusion that we’re going to have shallow growth and low inflation for years to come,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. in New York. “That’s being manifested in the auction process. It’s a bullish environment for Treasuries.”
Sunday, July 18, 2010
UK boosts Afghan aid to speed troop exit
UK spending on aid projects in Afghanistan is to rise by 40 per cent as the government attempts to set a path for withdrawing troops from the country by 2015.
Andrew Mitchell, the international development secretary, said on Sunday that securing progress in the country was his “number one priority” at the same time as he indicated that other countries such as India could receive far less of the £7.3bn of the international aid budget.
The decision by David Cameron, the prime minister, to prioritise Afghanistan for extra spending is part of a push to use international development as a way of bolstering national security and military objectives.
British forces suffered four deaths in a 24-hour period over the weekend, bringing to 322 the number of UK soldiers killed since the conflict began in 2001.
Mr Cameron and Sir David Richards, the new chief of defence staff, both believe that the US and UK must make greater efforts to make political progress in Afghanistan alongside the security effort, with aid projects a crucial way of winning local support.
Sir David has said the military mission will have “failed” if troops are not withdrawn by 2015, though Liam Fox, the defence secretary, said “non-combat” troops could remain beyond that date.
Mr Fox has said previously that Britain was only in Afghanistan to safeguard its own national security rather than to support the redevelopment of the country.
In a speech on Monday, Mr Mitchell will say “well-spent aid” in Afghanistan is in the UK’s interest because it promotes political progress and supports the military’s work to bring security and peace to the country.
”While the military bring much-needed security, peace will only be achieved by political progress backed by development,” he will say.
The government has already committed £500m on Afghan aid projects over the next five years. Mr Mitchell said an “aid watchdog” would oversee the programme after accusations that previous projects had proved ineffective.
Spending will be targeted at education, policing, emergency food and medicine, and jobs and training.
In a Sunday interview for the BBC’s Politics Show, Mr Mitchell said the government had looked “very carefully” at how money was being spent in Afghanistan. ”We’ve found some additional funding from less good programmes, so in principle we have an additional 40 per cent going into the development budget,” he said.
His department is reviewing how it spend its £7.3bn aid budget and has already said some countries, such as China and Russia, will no longer receive it. Aid to India is also being looked at as the country “roars out of poverty”, Mr Mitchell said.
Andrew Mitchell, the international development secretary, said on Sunday that securing progress in the country was his “number one priority” at the same time as he indicated that other countries such as India could receive far less of the £7.3bn of the international aid budget.
The decision by David Cameron, the prime minister, to prioritise Afghanistan for extra spending is part of a push to use international development as a way of bolstering national security and military objectives.
British forces suffered four deaths in a 24-hour period over the weekend, bringing to 322 the number of UK soldiers killed since the conflict began in 2001.
Mr Cameron and Sir David Richards, the new chief of defence staff, both believe that the US and UK must make greater efforts to make political progress in Afghanistan alongside the security effort, with aid projects a crucial way of winning local support.
Sir David has said the military mission will have “failed” if troops are not withdrawn by 2015, though Liam Fox, the defence secretary, said “non-combat” troops could remain beyond that date.
Mr Fox has said previously that Britain was only in Afghanistan to safeguard its own national security rather than to support the redevelopment of the country.
In a speech on Monday, Mr Mitchell will say “well-spent aid” in Afghanistan is in the UK’s interest because it promotes political progress and supports the military’s work to bring security and peace to the country.
”While the military bring much-needed security, peace will only be achieved by political progress backed by development,” he will say.
The government has already committed £500m on Afghan aid projects over the next five years. Mr Mitchell said an “aid watchdog” would oversee the programme after accusations that previous projects had proved ineffective.
Spending will be targeted at education, policing, emergency food and medicine, and jobs and training.
In a Sunday interview for the BBC’s Politics Show, Mr Mitchell said the government had looked “very carefully” at how money was being spent in Afghanistan. ”We’ve found some additional funding from less good programmes, so in principle we have an additional 40 per cent going into the development budget,” he said.
His department is reviewing how it spend its £7.3bn aid budget and has already said some countries, such as China and Russia, will no longer receive it. Aid to India is also being looked at as the country “roars out of poverty”, Mr Mitchell said.
Saturday, July 17, 2010
Gillard Starts Australian Campaign With Poll Lead Over Abbott
July 18 (Bloomberg) -- Australian Prime Minister Julia Gillard started a five-week election campaign with a poll showing she has a winning lead that relies on support from Greens Party voters.
Gillard won 52 percent support against 48 percent for opposition Liberal-National coalition leader Tony Abbott in a head-to-head Galaxy poll published today by the Sunday Telegraph newspaper. She drew a 39 percent primary vote compared with Abbott’s 42 percent and 13 percent for the Greens, the poll showed.
Gillard, 48, called the ballot yesterday for Aug. 21, betting the Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. She begins the first full day of the campaign in Queensland, home to former Prime Minister Kevin Rudd whom she ousted last month, and where Labor aims to retain 10 seats with margins of less than 4.6 percent.
Even though the polls show Gillard is leading, the result is likely to be far closer than most people expect, said Anthony Green, an Australian Broadcasting Corp. election analyst.
“The government’s position isn’t as secure as that sounds,” Green said on the ABC’s Insiders program today.
Abbott’s coalition has 63 seats in the 150-member House of Representatives. Labor has 83 lawmakers and there are four independents, according to the parliamentary website.
Contested Seats
Queensland has 10 of the most-closely contested seats in the country and New South Wales, Australia’s most populous state, has eight Labor lawmakers with majorities of less than 5 percent, the level below which seats are considered marginal.
“A lot of the leaders will be spending their time in Queensland and New South Wales because that’s where there’s the most bang for their buck in terms of seats,” Green said.
Gillard’s campaign started amid questions about the circumstances of her ouster of Rudd on June 24, after party factions and key labor unions switched their allegiance.
Some 57 percent of people thought the manner in which Rudd had been treated would undermine Labor’s chances of winning the election, today’s Galaxy poll showed. The survey was based on 800 voters on July 16 and no margin of error was given.
Treasurer Wayne Swan said concern among voters about the dumping of Rudd is “certainly a factor” in Queensland. “But the predominant factor here is the head-to-head contest between Julia Gillard and Tony Abbott,” he told the Nine Network in Sydney today.
Resources Tax
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, has pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
Swan today also sought to draw attention to Labor’s handling of the economy through the worst global recession since World War II. In contrast to most developed economies, Australia’s gross domestic product expanded for the past five quarters as government stimulus spending helped boost consumer demand.
Aggressive Tightening
The economic rebound has prompted the central bank to boost the benchmark rate six times to 4.5 percent since early October, from a half-century low of 3 percent, the most aggressive round of monetary policy tightening by a Group of 20 member.
Signs that the expansion will accelerate, including a 5.1 percent jobless rate that fell below Japan’s level for the first time since at least 1978 and to almost half the level of the U.S., could increase pressure on Reserve Bank of Australia Governor Glenn Stevens to resume raising borrowing costs on Aug. 3, potentially hurting voters in marginal seats.
“We are doing everything we possibly can to get the overall settings in the economy right to minimize inflationary pressures,” Swan told the Nine Network today.
Gillard won 52 percent support against 48 percent for opposition Liberal-National coalition leader Tony Abbott in a head-to-head Galaxy poll published today by the Sunday Telegraph newspaper. She drew a 39 percent primary vote compared with Abbott’s 42 percent and 13 percent for the Greens, the poll showed.
Gillard, 48, called the ballot yesterday for Aug. 21, betting the Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. She begins the first full day of the campaign in Queensland, home to former Prime Minister Kevin Rudd whom she ousted last month, and where Labor aims to retain 10 seats with margins of less than 4.6 percent.
Even though the polls show Gillard is leading, the result is likely to be far closer than most people expect, said Anthony Green, an Australian Broadcasting Corp. election analyst.
“The government’s position isn’t as secure as that sounds,” Green said on the ABC’s Insiders program today.
Abbott’s coalition has 63 seats in the 150-member House of Representatives. Labor has 83 lawmakers and there are four independents, according to the parliamentary website.
Contested Seats
Queensland has 10 of the most-closely contested seats in the country and New South Wales, Australia’s most populous state, has eight Labor lawmakers with majorities of less than 5 percent, the level below which seats are considered marginal.
“A lot of the leaders will be spending their time in Queensland and New South Wales because that’s where there’s the most bang for their buck in terms of seats,” Green said.
Gillard’s campaign started amid questions about the circumstances of her ouster of Rudd on June 24, after party factions and key labor unions switched their allegiance.
Some 57 percent of people thought the manner in which Rudd had been treated would undermine Labor’s chances of winning the election, today’s Galaxy poll showed. The survey was based on 800 voters on July 16 and no margin of error was given.
Treasurer Wayne Swan said concern among voters about the dumping of Rudd is “certainly a factor” in Queensland. “But the predominant factor here is the head-to-head contest between Julia Gillard and Tony Abbott,” he told the Nine Network in Sydney today.
Resources Tax
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, has pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
Swan today also sought to draw attention to Labor’s handling of the economy through the worst global recession since World War II. In contrast to most developed economies, Australia’s gross domestic product expanded for the past five quarters as government stimulus spending helped boost consumer demand.
Aggressive Tightening
The economic rebound has prompted the central bank to boost the benchmark rate six times to 4.5 percent since early October, from a half-century low of 3 percent, the most aggressive round of monetary policy tightening by a Group of 20 member.
Signs that the expansion will accelerate, including a 5.1 percent jobless rate that fell below Japan’s level for the first time since at least 1978 and to almost half the level of the U.S., could increase pressure on Reserve Bank of Australia Governor Glenn Stevens to resume raising borrowing costs on Aug. 3, potentially hurting voters in marginal seats.
“We are doing everything we possibly can to get the overall settings in the economy right to minimize inflationary pressures,” Swan told the Nine Network today.
Insurers Push Plans Limiting Patient Choice of Doctors
As the Obama administration begins to enact the new national health care law, the country’s biggest insurers are promoting affordable plans with reduced premiums that require participants to use a narrower selection of doctors or hospitals.
The plans, being tested in places like San Diego, New York and Chicago, are likely to appeal especially to small businesses that already provide insurance to their employees, but are concerned about the ever-spiraling cost of coverage.
But large employers, as well, are starting to show some interest, and insurers and consultants expect that, over time, businesses of all sizes will gravitate toward these plans in an effort to cut costs.
The tradeoff, they say, is that more Americans will be asked to pay higher prices for the privilege of choosing or keeping their own doctors if they are outside the new networks. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
But companies may be able to reduce their premiums by as much as 15 percent, the insurers say, by offering the more limited plans.
“What we’re seeing is a definite uptick in interest because, quite frankly, affordability is the most pressing agenda item,” said Dr. Sam Ho, the chief medical officer for UnitedHealth’s health-care plans.
Many insurers also expect the plans to be popular with individuals and small businesses who will purchase coverage in the insurance exchanges, or marketplaces that are mandated under the new health care law and scheduled to take effect in 2014.
Tens of millions of everyday Americans will buy their coverage through those exchanges, a vast pool of new customers, including many of the previously uninsured, whom insurers expect will be willing to accept restrictions to get a better deal.
“What this does is eliminate the Gucci doctors,” said Peter Skoda, the controller of the Haro Bicycle Corporation, a Vista, Calif., business that employs 30 people. Facing a possible 35 percent increase in its rates, Haro switched to an Aetna plan that prevents employees from seeing doctors at two medical groups affiliated with the Scripps Health system in San Diego. If employees go to one of the excluded doctors, they are responsible for paying the whole bill.
“There wasn’t any pushback,” Mr. Skoda said. Haro’s employees are generally young and healthy, he said, and they rarely go to the doctor. Instead, they want to make sure they have adequate coverage if they go to the emergency room.
The company’s premiums average $433 a month, Mr. Skoda said, with employees paying one-fourth of the expense. A few employees opted for more traditional coverage, enabling them to go where they please. But they are paying significantly higher deductibles and out-of-pocket costs that could add thousands of dollars to their medical bills.
The last time health insurers and employers sought to sharply limit patients’ choice was back in the early 1990s, when insurers tried to reinvent themselves by embracing managed care. Instead of just paying doctor and hospital bills, insurers also assumed a greater role in their customers’ medical care by restricting what specialists they could see or which hospitals they could go to.
“Back in the H.M.O. days, it was tight networks, and it did save money,” said Ken Goulet, an executive vice president at WellPoint, one of the nation’s largest private health insurers, which is experimenting with re-introducing the idea in California.
The concept was largely abandoned after the consumer backlash persuaded both employers and health plans that Americans were simply not willing to sacrifice choice. Prominent officials like Mr. Obama and Hillary Rodham Clinton learned to utter the word “choice” at every turn as advocates of overhauling the system.
But choice — or at least choice that will not cost you — is likely to be increasingly scarce as health insurers and employers scramble to find ways of keep premiums from becoming unaffordable. Aetna, Cigna, the UnitedHealth Group and WellPoint are all trying out plans with limited networks.
The size of these networks is typically much smaller than traditional plans. In New York, for example, Aetna offers a narrow-network plan that has about half the doctors and two-thirds of the hospitals the insurer typically offers. People enrolled in this plan are covered only if they go to a doctor or hospital within the network, but insurers are also experimenting with plans that allow a patient to see someone outside the network but pay much more than they would in a traditional plan offering out-of-network benefits.
The insurers are betting these plans will have widespread appeal in the insurance exchanges as individuals gravitate toward the least expensive options. “We think it’s going to grow to be quite a hit over the next few years,” said Mr. Goulet of WellPoint.
The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.
Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.
The plans, being tested in places like San Diego, New York and Chicago, are likely to appeal especially to small businesses that already provide insurance to their employees, but are concerned about the ever-spiraling cost of coverage.
But large employers, as well, are starting to show some interest, and insurers and consultants expect that, over time, businesses of all sizes will gravitate toward these plans in an effort to cut costs.
The tradeoff, they say, is that more Americans will be asked to pay higher prices for the privilege of choosing or keeping their own doctors if they are outside the new networks. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
But companies may be able to reduce their premiums by as much as 15 percent, the insurers say, by offering the more limited plans.
“What we’re seeing is a definite uptick in interest because, quite frankly, affordability is the most pressing agenda item,” said Dr. Sam Ho, the chief medical officer for UnitedHealth’s health-care plans.
Many insurers also expect the plans to be popular with individuals and small businesses who will purchase coverage in the insurance exchanges, or marketplaces that are mandated under the new health care law and scheduled to take effect in 2014.
Tens of millions of everyday Americans will buy their coverage through those exchanges, a vast pool of new customers, including many of the previously uninsured, whom insurers expect will be willing to accept restrictions to get a better deal.
“What this does is eliminate the Gucci doctors,” said Peter Skoda, the controller of the Haro Bicycle Corporation, a Vista, Calif., business that employs 30 people. Facing a possible 35 percent increase in its rates, Haro switched to an Aetna plan that prevents employees from seeing doctors at two medical groups affiliated with the Scripps Health system in San Diego. If employees go to one of the excluded doctors, they are responsible for paying the whole bill.
“There wasn’t any pushback,” Mr. Skoda said. Haro’s employees are generally young and healthy, he said, and they rarely go to the doctor. Instead, they want to make sure they have adequate coverage if they go to the emergency room.
The company’s premiums average $433 a month, Mr. Skoda said, with employees paying one-fourth of the expense. A few employees opted for more traditional coverage, enabling them to go where they please. But they are paying significantly higher deductibles and out-of-pocket costs that could add thousands of dollars to their medical bills.
The last time health insurers and employers sought to sharply limit patients’ choice was back in the early 1990s, when insurers tried to reinvent themselves by embracing managed care. Instead of just paying doctor and hospital bills, insurers also assumed a greater role in their customers’ medical care by restricting what specialists they could see or which hospitals they could go to.
“Back in the H.M.O. days, it was tight networks, and it did save money,” said Ken Goulet, an executive vice president at WellPoint, one of the nation’s largest private health insurers, which is experimenting with re-introducing the idea in California.
The concept was largely abandoned after the consumer backlash persuaded both employers and health plans that Americans were simply not willing to sacrifice choice. Prominent officials like Mr. Obama and Hillary Rodham Clinton learned to utter the word “choice” at every turn as advocates of overhauling the system.
But choice — or at least choice that will not cost you — is likely to be increasingly scarce as health insurers and employers scramble to find ways of keep premiums from becoming unaffordable. Aetna, Cigna, the UnitedHealth Group and WellPoint are all trying out plans with limited networks.
The size of these networks is typically much smaller than traditional plans. In New York, for example, Aetna offers a narrow-network plan that has about half the doctors and two-thirds of the hospitals the insurer typically offers. People enrolled in this plan are covered only if they go to a doctor or hospital within the network, but insurers are also experimenting with plans that allow a patient to see someone outside the network but pay much more than they would in a traditional plan offering out-of-network benefits.
The insurers are betting these plans will have widespread appeal in the insurance exchanges as individuals gravitate toward the least expensive options. “We think it’s going to grow to be quite a hit over the next few years,” said Mr. Goulet of WellPoint.
The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.
Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.
Daimler, BMW Surge on ‘Bottomless’ Appetite for German Luxury
Daimler AG’s E-Class Mercedes-Benz, Bayerische Motoren Werke AG’s new 5-Series and Volkswagen AG’s revamped Audi A8 are attracting wealthy buyers in the U.S. and China, prompting the German carmakers to boost deliveries.
Daimler raised a full-year forecast yesterday after second- quarter profit beat analysts’ estimates. BMW, the largest luxury-car maker, this week lifted its 2010 sales and earnings projections. Audi’s first-half increase in vehicle sales beat those of both BMW and Daimler.
“The Chinese appetite for German nameplates is absolutely bottomless,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “There are more than 900,000 millionaires in China and many of them are bursting to show off their wealth.”
The German carmakers are posting gains in China, which passed the U.S. last year as the biggest auto market, as new models attract buyers. BMW has said the new 5-Series is sold out, while Audi is benefitting from the new A8 sedan. Daimler’s Mercedes-Benz aims to add market share with an extended E-Class sedan, its first vehicle for Chinese consumers.
Mercedes-Benz, BMW and Audi are adding workers and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.[bn:WBTKR=DAI:GY]
Daimler [] has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull- wing sports car, GLK sport-utility vehicle and E-Class convertible. Audi is putting on extra shifts. BMW has added 5,000 temporary workers and will give all employees covered by a wage agreement 1,060 euros on average in one-time payment.
Flared Headlights
BMW’s new 5-Series, which abandoned the flared headlights and small kidney-shaped grill of the previous version, is sold out in all markets and customers are waiting three to four months for deliveries, the Munich-based carmaker said June 23. The sedan, which starts at $44,550 in the U.S., went on sale in the country last month and in Europe in late March.
“German premium manufacturers have really worked to improve the quality of their cars,” said Robert Heberger, an analyst at Merck Finck & Co. in Munich. “Daimler’s new E-class is of a much better make than its predecessor. BMW benefits from a positive product cycle. The 5-Series is brand new and such state-of-the-art models are always in demand.”
BMW this week raised its 2010 forecast, predicting sales will rise about 10 percent to more than 1.4 million cars and sport-utility vehicles, while the operating margin at the automotive unit will exceed 5 percent.
BMW increased first-half group deliveries 13 percent while Mercedes-Benz, the second-largest luxury-car maker, posted a 12 percent gain. Six-month deliveries at Ingolstadt, Germany-based Audi, which aims to dethrone BMW by 2015, advanced 19 percent.
‘Death Bells’
“It’s really the other side of the 2009 coin, when everyone was ringing the death bells,” said Sascha Heiden, senior analyst at IHS Global Insight in Frankfurt. “BMW and Mercedes field relatively new models with their 5-Series and E- class, so that may help the German companies attract more buyers.”
Daimler yesterday reported second-quarter operating profit of 2.1 billion euros as sales increased 28 percent to 25.1 billion euros. The carmaker was forecast to post Ebit of 1.52 billion euros on revenue of 22.7 billion euros, according to the average estimates of analysts compiled by Bloomberg.
Mercedes-Benz second-quarter production output of “well over” 300,000 vehicles will be close to the volumes achieved before the start of the financial and economic crisis, Daimler said May 28.
Luxury-car makers are among the best performers this year, with BMW up 33 percent and Daimler gaining 16 percent on the Frankfurt exchange. The 11-member Bloomberg EMEA Auto Manufacturers Index added 2.9 percent.
German Exports
“German luxury-car makers are benefiting from their product portfolio and their regional positioning especially in the surging North American and Chinese markets,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg. “Especially in China we’re seeing growth that’s way beyond expectations and that won’t be easily derailed even if economic growth slows.”
BMW plans to export 10,000 3-Series vehicles built in Munich to China this year to meet additional demand. Along with the additional temporary workers, the carmaker is in talks with unions to expand regular shifts beyond the average 38 hours, BMW said this week.
“German luxury cars are a synonym for status, comfort and safety,” Gommel said. “Those are the traits you want to embody when you’re courting future partners for business. In China, buying a German luxury car is seen like buying a ticket to future wealth.”
For Related News and Information: Top Stories: TOP <GO> BMW sales breakdown: BMW GY <Equity> FA PROD CHART <GO> Today’s top transport news: TRNT <GO>
Daimler raised a full-year forecast yesterday after second- quarter profit beat analysts’ estimates. BMW, the largest luxury-car maker, this week lifted its 2010 sales and earnings projections. Audi’s first-half increase in vehicle sales beat those of both BMW and Daimler.
“The Chinese appetite for German nameplates is absolutely bottomless,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “There are more than 900,000 millionaires in China and many of them are bursting to show off their wealth.”
The German carmakers are posting gains in China, which passed the U.S. last year as the biggest auto market, as new models attract buyers. BMW has said the new 5-Series is sold out, while Audi is benefitting from the new A8 sedan. Daimler’s Mercedes-Benz aims to add market share with an extended E-Class sedan, its first vehicle for Chinese consumers.
Mercedes-Benz, BMW and Audi are adding workers and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.[bn:WBTKR=DAI:GY]
Daimler [] has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull- wing sports car, GLK sport-utility vehicle and E-Class convertible. Audi is putting on extra shifts. BMW has added 5,000 temporary workers and will give all employees covered by a wage agreement 1,060 euros on average in one-time payment.
Flared Headlights
BMW’s new 5-Series, which abandoned the flared headlights and small kidney-shaped grill of the previous version, is sold out in all markets and customers are waiting three to four months for deliveries, the Munich-based carmaker said June 23. The sedan, which starts at $44,550 in the U.S., went on sale in the country last month and in Europe in late March.
“German premium manufacturers have really worked to improve the quality of their cars,” said Robert Heberger, an analyst at Merck Finck & Co. in Munich. “Daimler’s new E-class is of a much better make than its predecessor. BMW benefits from a positive product cycle. The 5-Series is brand new and such state-of-the-art models are always in demand.”
BMW this week raised its 2010 forecast, predicting sales will rise about 10 percent to more than 1.4 million cars and sport-utility vehicles, while the operating margin at the automotive unit will exceed 5 percent.
BMW increased first-half group deliveries 13 percent while Mercedes-Benz, the second-largest luxury-car maker, posted a 12 percent gain. Six-month deliveries at Ingolstadt, Germany-based Audi, which aims to dethrone BMW by 2015, advanced 19 percent.
‘Death Bells’
“It’s really the other side of the 2009 coin, when everyone was ringing the death bells,” said Sascha Heiden, senior analyst at IHS Global Insight in Frankfurt. “BMW and Mercedes field relatively new models with their 5-Series and E- class, so that may help the German companies attract more buyers.”
Daimler yesterday reported second-quarter operating profit of 2.1 billion euros as sales increased 28 percent to 25.1 billion euros. The carmaker was forecast to post Ebit of 1.52 billion euros on revenue of 22.7 billion euros, according to the average estimates of analysts compiled by Bloomberg.
Mercedes-Benz second-quarter production output of “well over” 300,000 vehicles will be close to the volumes achieved before the start of the financial and economic crisis, Daimler said May 28.
Luxury-car makers are among the best performers this year, with BMW up 33 percent and Daimler gaining 16 percent on the Frankfurt exchange. The 11-member Bloomberg EMEA Auto Manufacturers Index added 2.9 percent.
German Exports
“German luxury-car makers are benefiting from their product portfolio and their regional positioning especially in the surging North American and Chinese markets,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg. “Especially in China we’re seeing growth that’s way beyond expectations and that won’t be easily derailed even if economic growth slows.”
BMW plans to export 10,000 3-Series vehicles built in Munich to China this year to meet additional demand. Along with the additional temporary workers, the carmaker is in talks with unions to expand regular shifts beyond the average 38 hours, BMW said this week.
“German luxury cars are a synonym for status, comfort and safety,” Gommel said. “Those are the traits you want to embody when you’re courting future partners for business. In China, buying a German luxury car is seen like buying a ticket to future wealth.”
For Related News and Information: Top Stories: TOP <GO> BMW sales breakdown: BMW GY <Equity> FA PROD CHART <GO> Today’s top transport news: TRNT <GO>
Friday, July 16, 2010
ESun’s $2.4 Billion Claim Against Casino Investors Dismissed
July 17 (Bloomberg) -- A Hong Kong court dismissed an eSun Holdings Ltd. unit’s $2.39 billion claim against investors in its Macau casino project including Oaktree Capital Management LP and Silver Point Capital LP.
High Court Judge A.T. Reyes ruled yesterday that East Asia Satellite Television (Holdings) Ltd.’s attempt to sue them is “untenable” under Macau and Hong Kong laws. He allowed a separate claim for $88.6 million against Oaktree and Silver Point for “inducing breach” of an agreement to proceed.
East Asia Satellite last October sued New Cotai LLC, owned by Oaktree, Silver Point and former Las Vegas Sands Corp. executive David Friedman, and its directors, accusing them of systematically hindering the development of their Macao Studio City project in order to force a renegotiation of the terms of their joint venture.
Calls to eSun executives requesting comment weren’t returned. Peter Lam, chairman of eSun parent Lai Sun Development Co., wasn’t available for comment after office hours in Hong Kong.
Friedman, New Cotai’s chief executive, said in a statement he was pleased the High Court dismissed “so many” of East Asia’s claims.
“We will vigorously defend the remaining claims and are confident that when the Court has the opportunity to consider the remaining claims, our position will be vindicated,” he said.
Playboy Mansion
East Asia Satellite and the group of investors announced the casino project in 2007. It was slated to include a film studio and million-square-foot shopping mall, and attracted Playboy Enterprises Inc., which signed a licensing agreement to build a Playboy mansion on the site.
ESun has sold a one-third stake in East Asia Satellite to Singapore’s CapitaLand Ltd. for about HK$659 million ($85 million).
By November, both Playboy and shopping mall developer Taubman Group had terminated their agreements. Taubman in October said Asia President Morgan Parker resigned, without saying who would replace him.
Friedman, Skardon Baker, Parag Vora and Gary Moross were among the New Cotai directors sued by East Asia Satellite.
The case is East Asia Satellite Television (Holdings) Ltd. and New Cotai LLC, HCA 2189/2009 in the Hong Kong Court of First Instance.
High Court Judge A.T. Reyes ruled yesterday that East Asia Satellite Television (Holdings) Ltd.’s attempt to sue them is “untenable” under Macau and Hong Kong laws. He allowed a separate claim for $88.6 million against Oaktree and Silver Point for “inducing breach” of an agreement to proceed.
East Asia Satellite last October sued New Cotai LLC, owned by Oaktree, Silver Point and former Las Vegas Sands Corp. executive David Friedman, and its directors, accusing them of systematically hindering the development of their Macao Studio City project in order to force a renegotiation of the terms of their joint venture.
Calls to eSun executives requesting comment weren’t returned. Peter Lam, chairman of eSun parent Lai Sun Development Co., wasn’t available for comment after office hours in Hong Kong.
Friedman, New Cotai’s chief executive, said in a statement he was pleased the High Court dismissed “so many” of East Asia’s claims.
“We will vigorously defend the remaining claims and are confident that when the Court has the opportunity to consider the remaining claims, our position will be vindicated,” he said.
Playboy Mansion
East Asia Satellite and the group of investors announced the casino project in 2007. It was slated to include a film studio and million-square-foot shopping mall, and attracted Playboy Enterprises Inc., which signed a licensing agreement to build a Playboy mansion on the site.
ESun has sold a one-third stake in East Asia Satellite to Singapore’s CapitaLand Ltd. for about HK$659 million ($85 million).
By November, both Playboy and shopping mall developer Taubman Group had terminated their agreements. Taubman in October said Asia President Morgan Parker resigned, without saying who would replace him.
Friedman, Skardon Baker, Parag Vora and Gary Moross were among the New Cotai directors sued by East Asia Satellite.
The case is East Asia Satellite Television (Holdings) Ltd. and New Cotai LLC, HCA 2189/2009 in the Hong Kong Court of First Instance.
Bangladesh, With Low Pay, Moves In on China
GAZIPUR, Bangladesh — The eight-lane highway leading from the Bangladeshi capital, Dhaka, narrows repeatedly as it approaches this town about 30 miles north, eventually depositing cars onto a muddy, potholed lane bordered by mangroves and small shops.
But this is no mere rural backwater. It is the sort of place to which foreign manufacturers may increasingly turn, if the rising wage demands of factory workers in China prompt companies to seek new pools of cheap labor elsewhere.
Already, in factories behind steel gates and tall concrete walls, tens of thousands of workers, most of them women, spend their days stitching T-shirts, pants and sweaters for Wal-Mart, H&M, Zara and other Western retailers and brands.
One of the Bangladeshi companies here, the DBL Group, employs 9,000 people making T-shirts and other knitwear. Business has been so good that the company is finishing a new 10-story building with open floors the size of soccer fields, planted with row after row of sewing machines.
“Our family needed the money, so we came here,” said Maasuda Akthar, a 21-year-old sewing machine operator for DBL.
As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.
Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.
“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.
The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.
And while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.
Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.
“The Chinese firms that are beginning to get into trouble are producing textiles, rubber footwear and things like that,” said Barry Eichengreen, a professor of economics and political science at the University of California. “And there are lots of countries in South Asia and East Asia and in Central America that would like to fill this space.”
But Bangladesh has its own challenges to overcome.
China’s combination of a vast population of migrant workers, many with at least elementary school educations, along with modern roads, railways and power grids in its industrial provinces, has bestowed it with manufacturing capabilities that countries like Bangladesh cannot offer. Beijing also provides low-cost loans and other incentives to its industries that other countries have trouble matching for theirs.
Most of Bangladesh, meanwhile, suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields — deficiencies that the government is working on but that will not be eliminated quickly.
The country has a literacy rate of only 55 percent — compared with more than 92 percent in China. As a result, workers in this country are only one-fourth as productive as the Chinese in making shirts, jackets and other woven clothes, according to a report by the Center for Policy Dialogue, an independent research organization based in Dhaka.
Despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.
Among developing countries, Bangladesh is the third-biggest exporter of clothing after mainland China, which exported $120 billion in 2008, and Turkey, a distant No. 2, according to the World Trade Organization.
And with nearly 70 million people of working age, Bangladesh could probably absorb many more of China’s 20 million garment industry jobs.
Still, some of the changes in China could prove to be mixed blessings for Bangladesh. If China allows its currency, the renminbi, to trade more freely, Bangladeshi exports would become more competitive.
But a stronger renminbi could also hurt Bangladesh by raising the price of machinery and fabric imported from China, its biggest supplier, said Ahmed Mushfiq Mobarak, an assistant professor of economics at the Yale School of Management. Over time, Bangladesh could buy more from other countries, like India, but those countries first would need to build up significant production capacity.
But this is no mere rural backwater. It is the sort of place to which foreign manufacturers may increasingly turn, if the rising wage demands of factory workers in China prompt companies to seek new pools of cheap labor elsewhere.
Already, in factories behind steel gates and tall concrete walls, tens of thousands of workers, most of them women, spend their days stitching T-shirts, pants and sweaters for Wal-Mart, H&M, Zara and other Western retailers and brands.
One of the Bangladeshi companies here, the DBL Group, employs 9,000 people making T-shirts and other knitwear. Business has been so good that the company is finishing a new 10-story building with open floors the size of soccer fields, planted with row after row of sewing machines.
“Our family needed the money, so we came here,” said Maasuda Akthar, a 21-year-old sewing machine operator for DBL.
As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.
Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.
“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.
The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.
And while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.
Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.
“The Chinese firms that are beginning to get into trouble are producing textiles, rubber footwear and things like that,” said Barry Eichengreen, a professor of economics and political science at the University of California. “And there are lots of countries in South Asia and East Asia and in Central America that would like to fill this space.”
But Bangladesh has its own challenges to overcome.
China’s combination of a vast population of migrant workers, many with at least elementary school educations, along with modern roads, railways and power grids in its industrial provinces, has bestowed it with manufacturing capabilities that countries like Bangladesh cannot offer. Beijing also provides low-cost loans and other incentives to its industries that other countries have trouble matching for theirs.
Most of Bangladesh, meanwhile, suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields — deficiencies that the government is working on but that will not be eliminated quickly.
The country has a literacy rate of only 55 percent — compared with more than 92 percent in China. As a result, workers in this country are only one-fourth as productive as the Chinese in making shirts, jackets and other woven clothes, according to a report by the Center for Policy Dialogue, an independent research organization based in Dhaka.
Despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.
Among developing countries, Bangladesh is the third-biggest exporter of clothing after mainland China, which exported $120 billion in 2008, and Turkey, a distant No. 2, according to the World Trade Organization.
And with nearly 70 million people of working age, Bangladesh could probably absorb many more of China’s 20 million garment industry jobs.
Still, some of the changes in China could prove to be mixed blessings for Bangladesh. If China allows its currency, the renminbi, to trade more freely, Bangladeshi exports would become more competitive.
But a stronger renminbi could also hurt Bangladesh by raising the price of machinery and fabric imported from China, its biggest supplier, said Ahmed Mushfiq Mobarak, an assistant professor of economics at the Yale School of Management. Over time, Bangladesh could buy more from other countries, like India, but those countries first would need to build up significant production capacity.
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