U.S. budget cuts more blip than bomb 28 Feb 2013 For all the rhetoric, the impending $100 bln of federal spending reductions, however imperfectly chosen, won’t do much real damage to the growing economy. Uncle Sam’s outlays will still rise this year, and any impact will be short-lived and easily absorbed by the private sector.
America discovers hidden cost of green energy 28 Feb 2013 California’s facing blackouts as its aging electricity grid is ill-equipped to husband the sporadic nature of wind and solar power. The rest of the country isn’t far behind. Fixing it means higher bills for consumers - it’ll cost $1 trln to upgrade the nation’s infrastructure.
Time to think of salaries for performance 28 Feb 2013 The EU is curbing the ratio of bonus to salary for bank staff. In most businesses, such a rule would simply capture economic reality. If pay reflects performance, salaries should usually comprise most of the package. Banks are different - because their business models are flawed.
Intel sets up quandary in making chip for rivals 28 Feb 2013 Offering this service on a limited basis to companies like Altera is close to a free lunch. It helps Intel maximize manufacturing capacity and defray costs: building a semiconductor plant costs $10 bln. Expanding this business too far, however, could threaten margins.
Make lenders to euro zone banks liable sooner 28 Feb 2013 As it stands, the new “bail-in” regime for senior creditors is not set to begin until 2018. Until then, their loans remain virtually risk free. The authorities are thinking of moving faster. There are dangers, but markets are already getting ready for the shift.
New Standard set for governance best practice 28 Feb 2013 Do as you would be done by. And to that end Standard Life has published a comprehensive review of its corporate governance activities. Just as company boards need to be held to account, so too fund managers. All big asset managers should follow the example.
EU bonus lesson: self-regulate or worse follows 28 Feb 2013 Caps on the ratio of fixed to variable banker pay are being imposed at just over 1:2 depending on how much bonus is deferred. Regulating income is an unwelcome post-crisis milestone. It is also a warning to banks and big business: self-regulate or get misguided rules from above.
BOJ chief could score early win by dumping rule 28 Feb 2013 The Bank of Japan’s self-imposed limit on government bond holdings is past its sell-by date. Haruhiko Kuroda, the likely next governor, could deliver a quick boost to monetary easing by dropping the restriction. Doing so would allay fears of a spike in long-term yields.
RBS has multiple barriers to share sale goal 28 Feb 2013 The UK bank plans further shrinking of its trading arm, listings for its U.S subsidiary and some domestic branches, and a capital boost. If it can do all this, and make a profit, a share sale could begin in 2014. But unless regulators remove key obstacles, that deadline is tough.
Stern budget will help India shrug off bad past 28 Feb 2013 Finance Minister Chidambaram has eschewed pre-poll populism. The government plans to control borrowing. That should reduce the competition for savings - and lower interest rates. Private investments will revive and a smaller fiscal deficit will steady the current account.
Man has to run hard to stand still 28 Feb 2013 New Chief Executive Emmanuel Roman faces entrenched threats. The hedge fund manager has delivered strong earnings, good investment performance and tight cost control. But recent share-price strength belies the risk of a political flare-up and falling assets.
Big oil’s novel problem: fifty shades of gray 27 Feb 2013 Nearly half of petroleum engineers will hit retirement age in the next decade, leaving a skill shortage because of a 1980s hiring hiatus. Based on the last such occurrence, the lack of experience may lead to a $120 bln productivity drain. It’s a hidden risk in the price of crude.
Supreme Court unanimously orders SEC off its duff 27 Feb 2013 The U.S. justices denied the watchdog more time to sue investor Marc Gabelli, ruling it had the means to pounce sooner. That highlights a chronic problem. Rather than aim ample firepower at financial crisis cases, the SEC stuck with one a decade old. Investors deserve better.
Music upturn shows digital death isn’t forever 27 Feb 2013 The Internet didn’t kill music, after all. The industry is half its former size, but global sales rose in 2012 for the first time since 1999. Growth came from subscriptions and cheap legal downloads. There’s hope - eventually - for other industries facing a digital tsunami, too.
Germany’s objections to ESM bank recap have merit 27 Feb 2013 The founding treaty of the euro zone’s bailout fund must be amended before it can directly recapitalise banks. Germany is reluctant, and its electoral climate doesn’t make things easier. But the questions it has raised about the current plan are serious, and should be dealt with.
U.S. buyout barons have new tax-dodge rivals: MLPs 27 Feb 2013 The low tax rates on LBO bosses’ so-called carried interests save them $1.3 bln a year, an advantage critics want wiped out. But new data show investors in energy partnerships are now costing Uncle Sam a similar amount thanks to an outdated perk. Both loopholes should be closed.
Ethical economy: Salvation through work 27 Feb 2013 In 1790, Benjamin Franklin predicted the four-hour working day. He looked prescient until 1935, when the U.S. abandoned a plan to move from eight hours to six. The decision to prefer more job to more leisure is cultural, not economic - but it’s bad for both economy and culture.
Bersani-Grillo may find platform to reform Italy 27 Feb 2013 Centre-left leader Pier Luigi Bersani has proposed a way out of the political gridlock, seeking loose support from ex-comedian Beppe Grillo’s party. They could agree on much-needed political reform. At the very least it may limit Silvio Berlusconi’s nuisance potential.
BoE tempted to turn to futile policy options 27 Feb 2013 The UK central bank’s deputy governor has suggested prodding lending-shy banks into action by charging them to park money safely. Negative rates may make sense in theory. But outside the ivory tower, aggressive pushes on the monetary string will only tie the economy into knots.
EADS triumph obscures its cyclical vulnerability 27 Feb 2013 Europe’s top aerospace group is making investors forget the failed merger with BAE Systems. Having overhauled its governance, EADS is upping dividends and share buybacks. The standalone snapshot looks good. But this is still a cyclical business - that’s why BAE was on the agenda.
Illumination alone won’t slow China shadow banks 27 Feb 2013 With non-bank finance over 40 pct of GDP, a mooted plan to disclose and limit off-balance sheet lending is welcome. Yet growth will continue, and it’s still not clear that investors will be on the hook for losses. The economic imperative to keep credit flowing is pre-eminent.
Stronger economy is Bernanke’s Godot 26 Feb 2013 The Fed chairman is keen on reducing deficits, but not while the U.S. recovery is fragile. Trouble is, there’s no sign of growth gathering much more steam. Waiting for a robust recovery before making meaningful spending cuts is looking more and more like a fool’s errand.
U.S. taxes on rich and poor not created equal 26 Feb 2013 Federal government levies on the wealthy hurt the economy. But sales gloom at Wal-Mart relative to Macy’s and Saks shows that letting payroll taxes rise again has socked it to poorer consumers. That’s worse for economic growth because the less well-off actually spend their wages.
Companies need more lawyers on board 26 Feb 2013 Not so much the bill-by-the-hour variety, though they help cover bosses’ behinds. Rather, hiring attorneys as directors may cut risk, promote stability and boost value. Based on new research, investors should be glad that lawyers are turning up more often in U.S. boardrooms.
Electoral funk endangers Italian banks’ recovery 26 Feb 2013 The sector has tanked amid renewed political chaos. Most of the big banks had been slowly repairing their capital bases and were accessing market funding. If higher yields push up costs and further hit already-weak returns, the virtuous circle will turn vicious again.
Lucky coincidences overstate BASF’s success 26 Feb 2013 The world’s largest chemicals company appears to be growing nicely. But it is only cautiously optimistic about the near-term future. Exchange rates and the end of Libyan unrest worked in its favour last year. Such good fortune, in things beyond its control, cannot be relied on.
Negative intellectual equity traps mortgage reform 26 Feb 2013 The latest plan to shake up U.S. housing finance, from a bipartisan think tank, offers nothing new. It rests on the usual received wisdom that the market cannot exist without a government backstop. The idea’s prevalent among lawmakers, bankers and investors. It’s wrongheaded.
Mexican manufacturing puts China, Brazil in shade 26 Feb 2013 Exports and other data point to steady gains in competitiveness over the last decade. Mexico’s wage costs are up only 20 pct in dollar terms - a fraction of the increase in the PRC and other big emerging markets. With Europe in recession, global market share is up for grabs.
Euro zone must change to allow Italy to reform 26 Feb 2013 The Italian election results caught euro zone leaders by surprise. They now fear “instability”. It’s clear that Italy will pay a high price if it fails to reform. But crude “austerian” meddling by other governments, the EU and the ECB helped create the current mess.
CME-DB deal is both justifiable and unlikely 26 Feb 2013 The U.S. exchange reportedly made merger overtures to its German rival. Creating a $32 bln powerhouse would mean real savings, and antitrust problems could be solved. But resistance elsewhere could be stiff. And Deutsche Boerse has no pressing reason to give up its independence.