Fed generates the wealth, but where’s the effect? 31 May 2013 Americans’ private worth grew twice as fast as the U.S. economy last year, due largely to the rise in stocks and other financial assets. They can thank Ben Bernanke for that. Consumers aren’t, however, rushing to spend their gains. It’s another reason to question Fed policy.
Euro zone trapped in jobs-growth doom loop 31 May 2013 The unemployment rate is up to 12.2 percent in the ageing and fully developed single currency zone. A return to GDP growth would create jobs, but where will that growth come from? Additional jobs, basically. Sadly, effective labour reform is still in short supply.
New SARS-like virus tests plague of patent trolls 31 May 2013 A deadly affliction first found in Saudi Arabia has led to squabbles over whether the quest for IP rights has impeded discovery and treatments. The case stretches the law far beyond the smartphone wars. When the stakes are this high, though, greed often plays a lesser role.
Smiths medical sale would create a fresh headache 31 May 2013 The UK conglomerate is in talks to sell one of its biggest units. A fully priced deal would highlight the turnaround under CEO Philip Bowman. But he needs a good plan for the more than 2 billion pounds in proceeds. That will probably include a mixture of pensions funding and M&A.
Japan bond market blues: A guide for the perplexed 31 May 2013 The central bank is struggling to keep a lid on interest rates. Will rising yields choke Japan’s recovery and cause fiscal and financial panic? While the surge looks manageable for now, it’s a reminder to Prime Minister Abe not to neglect his remaining reforms. Our guide explains.
Bubble in bubbles has further to inflate 31 May 2013 Are central banks inflating another financial bubble? Investors and pundits are obsessed with the question. But while it feels like there’s a bubble in bubble talk, usage of the word is below its last peak. Like the real thing, a bubble bubble is hard to spot before it bursts.
The invisible hand kills morals – and mice 31 May 2013 Economists may love the free market, but mice should avoid it. A study shows that people value a creature’s life less when markets take the place of individual consciences. A fistful of euros can be harmful. Unfettered capitalism has hidden moral costs.
Buffett needs luck for Las Vegas gamble to pay off 30 May 2013 Berkshire Hathaway’s $5.6 bln bet on NV Energy suggests billionaire investor Warren Buffett is coming up short on decent ways to deploy his cash. With utility mergers offering meager synergies thanks to regulators, Berkshire will struggle to cover its cost of capital.
South African economy bogged down in old politics 30 May 2013 Real GDP didn’t even manage a 1 pct growth rate in Q1. That pales next to star economies like Ghana’s. Mining rebounded but manufacturing fell. While emerging near-neighbors are welcoming foreign investment and small business, South Africa’s leaders are reliving past battles.
Europe’s Tobin tax retreat must go further 30 May 2013 Revisiting Europe’s flawed financial transactions tax was the only way to save it as opposition rose. Brussels plans to dilute it and phase implementation. Mk II is less harmful and will raise less revenue. But there are still better ways to address the under-taxation of finance.
Memo to central banks: you can’t control markets 30 May 2013 The Fed, Bank of Japan and their peers are certainly influential. But the recent rapid rise of global bond yields is a healthy reminder of the limits to their power. Monetary policymakers don’t want a bond rout, but they will struggle to prevent one if investors lose confidence.
GE Capital chief exit puts spotlight on Immelt 30 May 2013 Michael Neal may be leaving after eight years running the erstwhile high-flying lending unit. He got GE Capital back in shape after the financial crisis, but it’s no longer the company’s key division. Neal’s departure raises the question of who will succeed GE boss Jeff Immelt.
Switzerland succumbs to plea bargainer’s dilemma 30 May 2013 When you’re guilty, it’s best to cooperate in return for a light sentence. That thinking has led the Swiss government to make a deal with the Americans about tax evasion. Banks keep client secrecy and have a year to settle. Fines will turn their past errors into history.
Total’s investor apathy holds back governance reform 30 May 2013 A $400 mln payment to authorities helps the French oil major avoid a U.S. trial over alleged bribes. While French prosecutors want to put the CEO in the dock, investors are apathetic. That’s too bad, because the imbroglio is an opportunity to rethink Total’s cosy governance.
Carney hopes for UK face bond-market bears 30 May 2013 The new governor of the Bank of England is expected to help the UK economy. Like the U.S. Fed, Mark Carney may try to keep bond yields low by issuing “forward guidance”. But his efforts may founder against bearish bond trends unless the bank prints money and mops up gilts.
Double arbitrage validates China’s pork purchase 30 May 2013 Why is Shuanghui paying $4.7 billion for U.S. producer Smithfield? Simple: imported pork is cheaper than the Chinese-reared variety, and shoppers will pay up to avoid suspect local produce. With luck, the deal will spark a change in the factors that make it so attractive.
Rare Gulf cash call built on shaky foundations 30 May 2013 UAE contractor Arabtec is seeking $1.3 bln through share issues to fund expansion. The strategy makes sense, but it lacks detail and the newness of the management is a risk. And it’s unclear if the agenda of its big Abu Dhabi backer, Aabar, is aligned with ordinary investors.
Grim reaper breathes life into moribund M&A market 29 May 2013 The 9 pct decline in worldwide merger volume may be haunting Wall Street. But U.S. funeral operator Service Corp is buying a rival for $1.4 bln, with the value of synergies more than covering the premium paid. CEOs and shareholders are at peace with deals of this kind.
Exxon CEO joins Dimon in chairman survivors club 29 May 2013 About 35 pct of the oil giant’s shareholders wanted to strip CEO Rex Tillerson of his board chairmanship. That’s more than voted against the JPMorgan boss. Today’s bigwigs look secure. But a trend to separate roles means they could be the last of their corporate kind.
U.S. watchdog boss needs ears as well as teeth 29 May 2013 Gary Gensler, the current CFTC chairman, might leave this year. His self-belief is among his strengths. But as a new critique of the agency reveals, a bit more humility might have avoided some missteps. His successor also needs a deep understanding of derivatives markets.
Banks need better disclosure for bail-in to succeed 29 May 2013 Regulators want bondholders to be on the hook - bailed in - when banks fail. But as lenders tie up more of their assets in secured funding, it’s harder for unsecured creditors to price risk. For markets to work, banks must be clearer about what assets they’ve pledged, and where.
Clean pork powers $4.7 bln China-U.S. meat deal 29 May 2013 Fluorescent pork headlined one PRC food scare. Shuanghui’s planned purchase of Smithfield could help prevent such debacles. For one thing, untainted pigs are cheaper to produce in the U.S. and import to China. As long as the trade goes that way, U.S. watchdogs needn’t worry.
Export approval may rev up U.S. natural gas prices 29 May 2013 Rates have fallen to a low idle since peaking five years ago. But renewed overseas sales should boost demand and give prices some oomph. Freeport LNG just received the first export license granted since 2011. With more on the way, drillers finally have reason to cheer.
Edward Hadas: The dangerous aristocrats of finance 29 May 2013 Economic incentives - the “heads I win, tails you lose” system - cannot fully explain the haughty attitude of financiers, hardly dented by the 2008 crisis. Look to sociology. Financial leaders have become a modern aristocracy. Members really think they deserve their privileges.
Europe yields to reality on austerity 29 May 2013 The European Commission will give France, Spain and others time to hit hair-shirt deficit targets. A retreat was almost inevitable. Harsh austerity is senseless when investors are docile and voters are restless. The snag is that gentle markets will also ease pressure for reform.
ENRC board has reputation leverage 29 May 2013 Kazakhmys, ENRC’s 26 pct owner, may be less fussed than other minority shareholders about getting a high price out of the miner’s founding oligarchs. But Kazakhmys won’t necessarily embrace a low offer that ENRC’s independent board has snubbed. Reputational cover is valuable.
Global trade surplus: proof of alien life? 29 May 2013 That’s one explanation for the finding that the world’s combined exports are worth much more than imports. If extra-terrestrials aren’t buying iPads, billions of dollars in capital must be crossing borders in the garb of trade. It’s another reason to be wary of official data.
Tea Leaf Index: China needs less shady stimulus 29 May 2013 Our index has slumped to the lowest level since August 2012. Then, a surge in “shadow bank” lending drove a property-led recovery. But real estate is already on a tear, and banks are now being reined in. Unless urbanization gets an extra push, recovery looks distant.
California surplus is a hidden gem for U.S. economy 28 May 2013 The one-time basket case expects a $1.1 billion surplus next year. Other states are climbing out of deep fiscal holes, too. It’s still unclear what each local government will do with its newfound riches. But their recovery means they won’t be such a drag on the U.S. economy.
Four-way Latam trade deal holds quadratic power 28 May 2013 Eliminating tariffs on most goods between Colombia, Mexico, Peru and Chile is a big step for the region. For one, it should expand a largely U.S.-centric export program to Asia. More broadly, greater cooperation may create bigger integrating forces for a fractured Latin America.