日本中央银行——日本银行昨日下午发表了一份长达7页的内部报告。这篇题为“关于最近中国不动产价格上升”的报告指出,中国目前的不动产市场实际与上世纪70年代上半期的日本更为相似:高涨的地价与不动产价格源自城市化催生的实际住宅需求;针对不动产业的投资、投机资金中,自我资金比例较高。即使该行业出现调整,也不会出现因投资主体高负债率导致的巨额不良债权等状况。
报告就此得出结论:中国不大可能重蹈20年前日本泡沫经济破灭覆辙。
但报告同时指出,中国目前不动产市场过热亦存在上世纪70年代日本不曾有过的要因,即财政收入驱使的地方政府的积极介入和海外投机热钱的流入。“这些要因的发展及中国政府当局的应对将影响今后中国不动产市场的走势,值得关注。一旦投资者信心动摇、资金急速撤出,该市场出现重大调整也不无可能。”该报告指出。
房价上涨背景不同
日本战后出现过两次不动产价格的急速上涨,分别为上世纪60年代后半期至70年代前半期和80年代后半期,即泡沫经济时期。“但两个时期上涨的背景不同,即经济发展阶段不一样。”该报告表示,“70年代前半期日本正处于高速增长期至稳定增长期的过渡阶段,依然拥有强劲的潜在增长力。城市化、产业结构改革及国民收入持续增长,给予不动产价格自然的上涨压力。但80年代后期,城市化进程与产业结构改革已告一段落。”
在此基础之上,报告指出当前中国与1970年代日本更为相似。报告称,目前,中国人均GDP约3500美元,与1973年的日本最为接近。从GDP增长率来看,中国过去十年(2000-2009年)平均GDP增长率为9.9%,而日本1973年前的十年(1964-1973年)的这一数字为9.3%, 极为接近。从城市人口比率来看,中国目前为45%,与1960年代日本大体相当。
报告表示:“中国现在的不动产价格上涨,很大程度是缘于伴随快速城市化的住宅实际需求。同时,中国目前城市人口比率仅45%,今后预计还将有相当长一段时期的快速城市化过程。而泡沫经济时期的日本,城市人口年均增加不过1%,城市化已进入成熟阶段,与当前的中国明显不同。”
除经济发展阶段不一样外,报告同时指出,从不动产市场投资主体的负债比率来看,当前中国亦与日本泡沫经济时期不同。“从贷款与GDP的比率来看,中国目前在110%～120%左右,与1970年代前半期的日本相近。而1980年代末,日本这一数字为180%。中国目前这一数字仍属于较低水准。”
报告称,1980年代后半期,日本企业大量举债用于投资,结果泡沫破灭后,不仅企业长期受制于债务问题而导致企业投资萎缩,由此产生的大量银行不良债权更使日本经济如陷沼泽。“但中国公司则有所不同。目前他们支出的资金来源中内部储备比率较高,降低了未来债务超重的风险。”报告说。
报告由此也得出了这样一个结论:从潜在增长力及投资负债率来看,即使中国不动产市场现阶段发生大的调整,也不大会产生类似于20年前日本泡沫经济破灭那样严重的后果。
存在资金继续撤出风险
但报告警告,这并不代表目前中国不动产市场不存在风险。
报告称,中国当前不动产市场过热的原因之一是海外热钱的流入,这是1970年代日本所不具备的。报告表示,“这些海外投资资金在目前比较严格的资本流动规定下,其流动速度已大幅加快。因此,今后一旦投资者信心出现动摇,这些海外资金急速撤出,中国不动产市场出现重大调整也不无可能。”
报道同时指出,中国不动产市场过热另一要因——地方政府在该不动产市场中的积极介入,当年日本亦不具备。“1994年的税制改革导致中国地方政府财源不足。不动产开发成为解决这一问题的解药。”报告指出,“2009年,中国地方政府财政预算收入为3.2581万亿元人民币,其中不动产相关的税收为 4812亿元,占预算收入的15%。但地方政府的不动产收入中,如果算上预算外收入,将远要多得多。地方政府通过不动产开发赚取利润的典型方法是,先通过接近原本使用价值的价格征用农民土地,再高价转让给不动产开发商或者投资融资企业。2009年中国地方政府通过这种方法获得的土地转让收入为1.3965 万亿元人民币(与2008年相比增长35%),包含此收入的地方政府不动产相关收入占财政收入的四成以上。”
报告指出,拥有如此财政结构的地方政府,非常欢迎不动产市场的繁荣,他们积极鼓励不动产开发商的开发和地方商业银行的不动产融资。“因此,中央政府即使推出遏制不动产市场过热的指导措施,其效果可能无法如中央所愿。”报告说,“中国当局对此将如何应对势必将影响中国不动产市场的走势,值得关注。”
日本银行表示,该内部报告由日本银行国际局官员撰写,并不代表日本银行的官方见解。
Wednesday, March 31, 2010
Tuesday, March 30, 2010
Genetic shock
A surprising court ruling in America may loosen the drug industry’s grip on important genes
Mar 30th 2010 | From The Economist online
PERSONALISED medicine has proved an elusive dream. Since the decoding of the human genome, biotechnology companies have claimed that by matching a person’s genetic make-up with specialised treatments, they can tailor drugs to maximise benefits and minimise side effects. Alas, researchers have discovered that the link between a given person’s genetic make-up and specific diseases is much more complex than they had hoped. The tantalising vision remains out of reach.
A rare exception has been the success that Myriad Genetics, an American firm, has had with two genes called BRCA1 and BRCA2. Certain versions of these genes, it has been shown, are associated with a high risk of breast and ovarian cancer. The University of Utah has patented the genes and licenses them to Myriad. The firm uses that exclusivity to create expensive genetic tests for cancer risk which only it offers for sale (the patents and licensing conditions are different outside the United States).
The BRCA patents have long frustrated medical researchers, cancer lobbyists and legal activists. They claim that the firm’s grip on the two genes unlawfully stifles both innovation and basic science. Given the history of patent rulings in America, that has been a fringe argument—until now.
At face value the ruling turns America’s approach to the patent protection of genes on its head
On March 29th a federal district court in New York made a ruling that, taken at face value, turns America’s approach to the patent protection of genes on its head. A coalition led by the American Civil Liberties Union (ACLU) had challenged the very basis of Myriad’s patents. The nub of the case was this question: “Are isolated human genes and the comparison of their sequences patentable things?”
Until now, the answer had been “Yes”. But Robert Sweet, the presiding judge, disagreed, at least as far as the BRCA genes are concerned. After weighing up Myriad’s arguments, he ruled: “It is concluded that DNA’s existence in an ‘isolated’ form alters neither this fundamental quality of DNA as it exists in the body nor the information it encodes. Therefore, the patents at issues directed to ‘isolated DNA’ containing sequences found in nature are unsustainable as a matter of law and are deemed unpatentable subject matter.” Mr Sweet reasoned that DNA represents the physical embodiment of biological information, and that such biological information is a natural phenomenon.
As a rule, patents are not granted for rules of nature or naturally occurring phenomena, but the American patent office has allowed genes to be patented if they are isolated and “purified.” Perhaps no longer, if this decision is upheld. The ACLU gleefully declared that this ruling “marks the first time a court has found patents on genes unlawful and calls into question the validity of patents now held on approximately 2,000 human genes.”
It is clear that the judge has the history books in mind
So is this really such a landmark ruling? It is clear that the judge has the history books in mind. His ruling cites Stephen Breyer, a member of America’s Supreme Court, who argued in a dissenting opinion in 2006 that “sometimes too much patent protection can impede rather than ‘promote the Progress of Science and useful Arts,’ the constitutional objective of patent and copyright protection.”
However, the majority of the Supreme Court did not agree with Justice Breyer. Dianne Nicol, a professor of law at the University of Tasmania, observes that “this case turns on whether an isolated gene sequence has markedly different characteristics from a gene that occurs in the human body. The judge in this case has said it does not have different characteristics but it will be interesting to see if the higher courts agree with that.”
This week’s ruling, though ground-breaking in some ways, is not binding on other federal courts or on other kinds of genetic patents. What is more, Myriad will appeal to the higher courts, and the case may even end up at the Supreme Court. The odds probably remain in favour of the existing regime, but it is just possible that Judge Sweet has put an irreparable chink in Big Biotech’s armour.
Mar 30th 2010 | From The Economist online
PERSONALISED medicine has proved an elusive dream. Since the decoding of the human genome, biotechnology companies have claimed that by matching a person’s genetic make-up with specialised treatments, they can tailor drugs to maximise benefits and minimise side effects. Alas, researchers have discovered that the link between a given person’s genetic make-up and specific diseases is much more complex than they had hoped. The tantalising vision remains out of reach.
A rare exception has been the success that Myriad Genetics, an American firm, has had with two genes called BRCA1 and BRCA2. Certain versions of these genes, it has been shown, are associated with a high risk of breast and ovarian cancer. The University of Utah has patented the genes and licenses them to Myriad. The firm uses that exclusivity to create expensive genetic tests for cancer risk which only it offers for sale (the patents and licensing conditions are different outside the United States).
The BRCA patents have long frustrated medical researchers, cancer lobbyists and legal activists. They claim that the firm’s grip on the two genes unlawfully stifles both innovation and basic science. Given the history of patent rulings in America, that has been a fringe argument—until now.
At face value the ruling turns America’s approach to the patent protection of genes on its head
On March 29th a federal district court in New York made a ruling that, taken at face value, turns America’s approach to the patent protection of genes on its head. A coalition led by the American Civil Liberties Union (ACLU) had challenged the very basis of Myriad’s patents. The nub of the case was this question: “Are isolated human genes and the comparison of their sequences patentable things?”
Until now, the answer had been “Yes”. But Robert Sweet, the presiding judge, disagreed, at least as far as the BRCA genes are concerned. After weighing up Myriad’s arguments, he ruled: “It is concluded that DNA’s existence in an ‘isolated’ form alters neither this fundamental quality of DNA as it exists in the body nor the information it encodes. Therefore, the patents at issues directed to ‘isolated DNA’ containing sequences found in nature are unsustainable as a matter of law and are deemed unpatentable subject matter.” Mr Sweet reasoned that DNA represents the physical embodiment of biological information, and that such biological information is a natural phenomenon.
As a rule, patents are not granted for rules of nature or naturally occurring phenomena, but the American patent office has allowed genes to be patented if they are isolated and “purified.” Perhaps no longer, if this decision is upheld. The ACLU gleefully declared that this ruling “marks the first time a court has found patents on genes unlawful and calls into question the validity of patents now held on approximately 2,000 human genes.”
It is clear that the judge has the history books in mind
So is this really such a landmark ruling? It is clear that the judge has the history books in mind. His ruling cites Stephen Breyer, a member of America’s Supreme Court, who argued in a dissenting opinion in 2006 that “sometimes too much patent protection can impede rather than ‘promote the Progress of Science and useful Arts,’ the constitutional objective of patent and copyright protection.”
However, the majority of the Supreme Court did not agree with Justice Breyer. Dianne Nicol, a professor of law at the University of Tasmania, observes that “this case turns on whether an isolated gene sequence has markedly different characteristics from a gene that occurs in the human body. The judge in this case has said it does not have different characteristics but it will be interesting to see if the higher courts agree with that.”
This week’s ruling, though ground-breaking in some ways, is not binding on other federal courts or on other kinds of genetic patents. What is more, Myriad will appeal to the higher courts, and the case may even end up at the Supreme Court. The odds probably remain in favour of the existing regime, but it is just possible that Judge Sweet has put an irreparable chink in Big Biotech’s armour.
Bonds Cap Epic Comeback
With Fed's Massive Mortgage-Buying Spree Ending Today, Market Seeks New Drivers
By MARK GONGLOFFInvestors flooded risky companies with money in March even as the government prepares to shut down a key engine driving one of the greatest corporate-bond rallies in history.
A total $31.5 billion in new high-yield debt, otherwise known as junk bonds, hit the market through Tuesday, exceeding the previous monthly record in November 2006. Partly propelling the activity: The Federal Reserve's massive mortgage-buying program, which comes to an end Wednesday.
By buying $1.25 trillion of mortgage securities, the Fed absorbed a flood of assets that otherwise would have needed buyers. That kept money in the hands of investors, who went searching for something else to buy. The Fed's underpinning encouraged investors to seek riskier, higher-yielding securities. A natural choice: corporate bonds.
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Also on Tuesday, a closely watched index tracking high-yield bond returns reached an all-time peak, capping an 82% run from its December 2008 bottom, according to Bank of America Merrill Lynch indexes. Even returns on normally stodgy investment-grade U.S. debt are up 35% from their October 2008 bottom. By contrast, major stock-market indexes are still below precrisis levels, and their returns have trailed those of bonds.
Among the high-yield issuers in recent weeks have been California mortgage lender Provident Funding as well as Lyondell Chemical, which raised the money to help finance its emergence from bankruptcy-court protection.
Just 18 months ago, in the depth of the financial crisis—a time when the nation's debt markets were frozen—this kind of activity was all but unimaginable. Lehman Brothers had collapsed and investors sold bonds indiscriminately to meet their short-term cash needs, just to survive. Doubts were growing about the survivability of even some of the world's most credit-worthy companies.
Today, with the Fed's mortgage-buying program coming to an end, the debate is turning to whether the economy can sustain the rally. The odds are increasing that corporate-bond gains may be limited from here, given the heights already reached, the government's reduced support and the risk of rising interest rates.
Much of the focus concerns the strength of economic growth, with many investors arguing that further market gains depend on a "Goldilocks" scenario—with growth neither too strong nor too weak—to continue. "If we have an anemic recovery, then most of the market is overrated," says Joe Ramos, lead fixed-income portfolio manager at Lazard Asset Management. "Everything from municipal bonds to corporate debt is rated too highly for the level of cash flow that can be generated."
He defines anemic as a recovery with gross domestic product growth a good bit slower than the 3% economists expect for 2010, along with stubbornly high unemployment. A too-strong recovery, on the other hand, would raise interest rates and could push investors out of bonds and into stocks.
Bullish investors counter that stronger economic growth and a quick drop in unemployment would lower the risk of corporate defaults and make debt an even safer bet. "Yields are still low, and there is still an insatiable demand for higher yield," says Jim Sarni, senior portfolio manager at Payden & Rygel. "That is what will be the self-sustaining mechanism."
He and others also note that a lackluster recovery would keep the Fed from raising short-term interest rates, which also protects fixed-income investments.
The revival of bond fortunes has roots in the Fed's decision, around Thanksgiving 2008, that may have done more than anything else to encourage more investors to take a flyer on bonds. On Nov. 25, the Fed announced it planned to buy debt and mortgage-backed securities issued by housing-related government-sponsored entities such as Fannie Mae and Freddie Mac.
The program pushed mortgage-security prices higher, giving fixed-income money managers an incentive to sell to the Fed. In return, they had a flow of cash that had to be put to work. With Treasury debt yields at record lows, the best alternative remaining was corporate debt.
"That was the big turning point," says Ashish Shah, head of global credit strategy at Barclays Capital. "That's what drove money into credit."
The Fed expanded this program on March 18, of last year, to buy $1.25 trillion in mortgage securities, along with $200 billion in debt of Fannie and Freddie and up to $300 billion in long-term Treasury debt. The expansion fueled the second leg of the credit rally, which hasn't stopped yet.
Fed officials wouldn't comment on whether they intended this secondary effect when designing their asset-purchase program. But they have suggested in speeches that it was a predictable outcome.
"With lower prospective returns on Treasury securities and mortgage-backed securities, investors would naturally bid up the prices of other investments, including riskier assets such as corporate bonds and equities," Brian Sack, head of open-market operations at the New York Fed, said in a speech in early December last year.
The Fed added to the buying pressure in December 2008 by cutting its target for the federal-funds rate—an overnight bank-lending rate that affects other short-term borrowing costs throughout the economy—to roughly zero.
Thereafter, holding cash yielded nothing. And it cost next to nothing to borrow money to invest elsewhere.
"That was just a tremendous incentive to take on risk," says Kathleen Gaffney, co-manager of the Loomis Sayles Bond Fund. "When you looked at the yield on corporate credit, it was really too good to be true."
In fact, many investors struggled to find good bonds at bargain prices in the secondary market. So they vacuumed up any corporate bonds that were brought to market. In response, U.S. companies issued $122.9 billion in new debt in January 2009, a record pace for the month, according to Dealogic.
Given the unusual circumstances of the past couple of years, it is unlikely that the opportunities created by the Fed's program—giving investors the chance to make huge profits at the worst moments for credit—will come around again any time soon. "People always ask if the easy money has been made," said Jason Brady ,a fixed-income portfolio manager at Thornburg Investment Management in Santa Fe, N.M. "There was no easy money."
Write to Mark Gongloff at mark.gongloff@wsj.com
Monday, March 29, 2010
Chinese Stocks for the Long Run
By ED LIN
OF ALL THE EMERGING MARKETS, one would imagine that China would be one of the most volatile places to invest. Surely a fund that plays the country would have a minimum annual turnover of at least 100%.
But Edmund Harriss, manager of Guinness Atkinson China & Hong Kong (ticker: ICHKX), runs a fund that had a turnover of a scant 8% in 2009. "I try to keep it really low, because I don't trade these stocks," says Harriss. "We did virtually nothing in 2009."
Yet the fund rocketed 92.8% that year -- more than 12 percentage points over the benchmark Lipper's China index. The fund's three-year annualized return of 11.9% also tops the index's 8.8%.
"Our portfolio is pitched toward energy and industrialization," says Harriss. "Consumption, we play through technology and through autos. We've got some commodities plays and construction plays through a little bit of real estate, and steel and metals."
China has been in a transition phase for the past 30 years, as Harriss sees it. "It is in the interest of the government to promote growth and bring people in from the agrarian side of the economy into the urban side, where they can see uplift in incomes and, therefore, wealth can be spread."
Harriss recently spoke with Barrons.com by telephone.
Barrons.com: The fund seems pretty heavily weighted to energy.
Harriss: Yes. For the moment China's policy is geared toward industrialization, expansion particularly in areas of construction and heavy industry. These are the areas that employ the most number of people. China has about 12 million people entering the workforce every year, as well as a similar number who are migrating [to factories from rural areas].
They have been increasing the amount of electricity-generating capacity by something in the order of 60 to 80 gigawatts a year. Now that's about the size of the entire in-store capacity of Great Britain, and they have been doing that each year for the past five years. The bulk of that is coal-fired. China consumes about 2.2 billion tons of coal of a year. About half of that is going into the power sector. In the construction area, the biggest component is steel. Steel also requires considerable quantities of coal in its manufacture.
Barrons.com: Yanzhou Coal Mining (YZC) is your top holding. Is that primarily steam coal or metallurgical coal?(锅炉用煤还是炼焦煤)
Harriss: It is primarily steam. China has next to nothing in metallurgical coal. I like Yanzhou, one of the smaller producers, because it is one that is most geared to the spot market rather than contracts. And at the moment, spot prices are moving up well ahead of contract prices. Whereas last year their contract prices were largely supplying to power stations at around $60 a ton, in the spot market they could be getting $80 to $90 a ton. They've also been looking to expand their capacity through an acquisition in Australia.
Q: Is it your top holding because of the movement in the stock price or have you been adding more?
A: I'd start out with something in the order of a 2.5% position in the fund. When it gets higher than that, it is because the stock price has moved. Here I am blowing my trumpet, but [battery and alternative-energy car developer] BYD Co. was a stock that in the middle of last year was about 10% of the fund. Once it got there, I thought that's a heck of a size, so we halved that and have taken a little bit more off the table.
Q: Did the news of Berkshire Hathaway's (BRKA) interest in the stock help? [Editor's Note: A Berkshire Hathaway unit bought a 10% stake in BYD in late 2008.]
A: The Buffett news helped a lot, and I'm happy to say I had moved into that stock earlier. It was a reasonably good quality battery maker in mobile phones and had an emerging auto business that was gaining some traction. So I thought this would be an interesting stock to hold, and it did very well. But once Buffett came in, it sort of took it to a whole different valuation range. BYD's auto business has grown fantastically well in the last 18 months. They've sold more cars in the third quarter of 2009 than in the first half of 2009. By the end of 2009, I think they sold something on the order of 400,000 cars.
Q: How viable a prospect is their electric car?
A: I think it is viable, and what makes it an interesting play is that they are the one company in China with the experience in batteries. They started out on this project back around 2001. BYD said [they were going] into electric cars, and everyone just laughed, because all they had done was batteries and mobile phones. But they stuck with it, and they have a product that works. If you are going to go down the battery route in China, and you are going to be doing it with a Chinese partner, that partner will be BYD.
Q: Let's talk about Cnooc (CEO, 中海油) and PetroChina (PTR, 中石油). What opportunities do they have?
A: Cnooc is what I prefer. Cnooc is an exploration and production business. PetroChina is an integrated business: It has exploration and production, refining, and a growing gas business, which at the moment has yet to contribute significantly. They have been investing hugely in a massive gas pipeline. PetroChina is really a play on China's gas story, and China wants to make more use of natural gas. They have been importing a fair amount of it, and initially there were plans to build these storage facilities about 10 of them on the coast of China. In fact, only two were ever built. They have these gas reserves in the western parts of China, and the problem is to get that gas over to the eastern coastal provinces.
When looking at PetroChina in detail, you can model the exploration and production bit fine. You can model the petrochemical side as much as one can. But the refining business is the one that contains an unknown. You simply don't know how much money that business is going to make because the product prices are fixed, and in order to keep these refiners in business, the government effectively gives them a subsidy. There is a tax that exploration and production companies have to pay on oil production that goes toward paying the subsidy to the refiners, which keeps product prices at a reasonable level domestically. So, you have no idea how much of a subsidy the government is going to hand out -- that's what makes it a tricky business.
Q: Hence, Cnooc is preferred? OF ALL THE EMERGING MARKETS, one would imagine that China would be one of the most volatile places to invest. Surely a fund that plays the country would have a minimum annual turnover of at least 100%.
But Edmund Harriss, manager of Guinness Atkinson China & Hong Kong (ticker: ICHKX), runs a fund that had a turnover of a scant 8% in 2009. "I try to keep it really low, because I don't trade these stocks," says Harriss. "We did virtually nothing in 2009."
Manager's Bio
![[Harriss icon]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uTjVVk0SbmVKGpZCDHwKM7Q44bYwwfERfycSo9T0UpMiNaK0Y8JyAlvBva4yGx9tJlr2WevHBSdQJPlSSFoEJbERhRUci8kQLfQnIu3wPq1r04KS37-LOoD6JyDdaFTVbjWD1NJym92gvhaiRS6Th7Wif64MmbLA=s0-d)
Name: Edmund Harriss
"Our portfolio is pitched toward energy and industrialization," says Harriss. "Consumption, we play through technology and through autos. We've got some commodities plays and construction plays through a little bit of real estate, and steel and metals."
China has been in a transition phase for the past 30 years, as Harriss sees it. "It is in the interest of the government to promote growth and bring people in from the agrarian side of the economy into the urban side, where they can see uplift in incomes and, therefore, wealth can be spread."
Harriss recently spoke with Barrons.com by telephone.
Barrons.com: The fund seems pretty heavily weighted to energy.
Harriss: Yes. For the moment China's policy is geared toward industrialization, expansion particularly in areas of construction and heavy industry. These are the areas that employ the most number of people. China has about 12 million people entering the workforce every year, as well as a similar number who are migrating [to factories from rural areas].
They have been increasing the amount of electricity-generating capacity by something in the order of 60 to 80 gigawatts a year. Now that's about the size of the entire in-store capacity of Great Britain, and they have been doing that each year for the past five years. The bulk of that is coal-fired. China consumes about 2.2 billion tons of coal of a year. About half of that is going into the power sector. In the construction area, the biggest component is steel. Steel also requires considerable quantities of coal in its manufacture.
Barrons.com: Yanzhou Coal Mining (YZC) is your top holding. Is that primarily steam coal or metallurgical coal?(锅炉用煤还是炼焦煤)
Harriss: It is primarily steam. China has next to nothing in metallurgical coal. I like Yanzhou, one of the smaller producers, because it is one that is most geared to the spot market rather than contracts. And at the moment, spot prices are moving up well ahead of contract prices. Whereas last year their contract prices were largely supplying to power stations at around $60 a ton, in the spot market they could be getting $80 to $90 a ton. They've also been looking to expand their capacity through an acquisition in Australia.
Q: Is it your top holding because of the movement in the stock price or have you been adding more?
A: I'd start out with something in the order of a 2.5% position in the fund. When it gets higher than that, it is because the stock price has moved. Here I am blowing my trumpet, but [battery and alternative-energy car developer] BYD Co. was a stock that in the middle of last year was about 10% of the fund. Once it got there, I thought that's a heck of a size, so we halved that and have taken a little bit more off the table.
Q: Did the news of Berkshire Hathaway's (BRKA) interest in the stock help? [Editor's Note: A Berkshire Hathaway unit bought a 10% stake in BYD in late 2008.]
A: The Buffett news helped a lot, and I'm happy to say I had moved into that stock earlier. It was a reasonably good quality battery maker in mobile phones and had an emerging auto business that was gaining some traction. So I thought this would be an interesting stock to hold, and it did very well. But once Buffett came in, it sort of took it to a whole different valuation range. BYD's auto business has grown fantastically well in the last 18 months. They've sold more cars in the third quarter of 2009 than in the first half of 2009. By the end of 2009, I think they sold something on the order of 400,000 cars.
Q: How viable a prospect is their electric car?
A: I think it is viable, and what makes it an interesting play is that they are the one company in China with the experience in batteries. They started out on this project back around 2001. BYD said [they were going] into electric cars, and everyone just laughed, because all they had done was batteries and mobile phones. But they stuck with it, and they have a product that works. If you are going to go down the battery route in China, and you are going to be doing it with a Chinese partner, that partner will be BYD.
Q: Let's talk about Cnooc (CEO, 中海油) and PetroChina (PTR, 中石油). What opportunities do they have?
A: Cnooc is what I prefer. Cnooc is an exploration and production business. PetroChina is an integrated business: It has exploration and production, refining, and a growing gas business, which at the moment has yet to contribute significantly. They have been investing hugely in a massive gas pipeline. PetroChina is really a play on China's gas story, and China wants to make more use of natural gas. They have been importing a fair amount of it, and initially there were plans to build these storage facilities about 10 of them on the coast of China. In fact, only two were ever built. They have these gas reserves in the western parts of China, and the problem is to get that gas over to the eastern coastal provinces.
When looking at PetroChina in detail, you can model the exploration and production bit fine. You can model the petrochemical side as much as one can. But the refining business is the one that contains an unknown. You simply don't know how much money that business is going to make because the product prices are fixed, and in order to keep these refiners in business, the government effectively gives them a subsidy. There is a tax that exploration and production companies have to pay on oil production that goes toward paying the subsidy to the refiners, which keeps product prices at a reasonable level domestically. So, you have no idea how much of a subsidy the government is going to hand out -- that's what makes it a tricky business.
A: CNOOC I think is the more straightforward of the businesses, because it is producing oil offshore and we can make a financial model. We can say that 40% of it weighted to buy, 10% is taxes and the balance is from Indonesia. So you can create a pricing model and you can get very close to what Cnooc is going to earn. I still like PetroChina in spite of the fact it's a difficult one to model.
Fund Facts
Guinness Atkinson China & Hong Kong Fund (ICHKX)
| Assets: | $254.3 million |
| Expense Ratio: | 1.52% |
| Front Load: | None |
| Annual Portfolio Turnover: | 8.0% |
| Yield: | 0.96% |
____________________________________________
Top 10 Holdings
(as of Feb. 28, 2010)
| Yanzhou Coal Mining | (YZC) |
| Weichai Power | |
| Cnooc | (CEO) |
| BYD | |
| CNPC Hong Kong | |
| China Mobile | (CHL) |
| VTech Holdings | |
| PetroChina | (PTR) |
| Dongfang Electric | |
| iShares FTSE/Xinhua A50 China Index ETF |
Q: Let's move on to the Internet. I noticed that you have been adding to positions in Sohu.com (SOHU), NetEase.com (NTES) and Perfect World (PWRD). What do you like about them?
Q: All three of them are a great way of playing the growth in incomes, in youthful Chinese consumption. They are asset-like businesses. The Chinese love the Internet. The speed of takeoff has been phenomenal.
Instant messaging is taking off enormously, but these role-playing games, there are Internet cafes all over. All of them -- Sohu, NetEase and Perfect World -- are generating very good business from these online games with margins of 70% to 80%. The big costs for them are server and bandwidth leasing and the sum cost of the game, but basically after that, it is all profit. Perfect World has just launched, for example, a new upgrade to a game in October, and it is reckoned to account for about 10% of their revenue in the fourth quarter, which is a really quick take-up. There is so much demand for this kind of thing.
You've got a choice of how to play the consumption [story, such as] Chinese retailers, but retailing is a hard business. You will lose money if you've got your merchandising wrong. But take an online game maker trading on substantially lower price-to-earnings multiples and earning much higher margins with such strong cash flows. That makes a much less risky way of playing the Chinese consumption story.
Q: You've mentioned instant messaging. Is China Mobile (CHL) also a part of that consumption story?
A: It is kind of. It's a company that I'm a little bit more cautious on at the moment, and that's more to do with competitive pressures and the nature of what is a particular phase of development that the telecom industry is in, in China.
China Mobile is somewhat on the defensive. They've taken a 20% stake in Shanghai Pudong Development Bank, and that is to really allow them to move in to electronic bill paying, mobile bill paying and that sort of thing. But I think they feel that they have to offer more services to fend off the likes of China Telecom (CHA) and China Unicom Hong Kong (CHU) to try and lock in their existing subscriber base.
Q: Thanks.
Investment Philosophy
Harriss takes a top-down view on what is going on from a macro perspective, regarding money supply, interest rates and policy. He draws out investment themes from that and uses a bottom-up process to find the best stocks that offer the best value.
Sunday, March 28, 2010
Avenue Capital’s Investor in Chief - Marc Lasry
He’s Prescient. He’s Well-Connected. Just Don’t Call Marc Lasry a ‘Vulture’.
By MIKE SPECTOR
Even with just three days remaining before last Sunday’s House vote on landmark health-care legislation, White House Chief of Staff Rahm Emanuel made time for a special lunch guest: Marc Lasry.
Over salmon and grilled-chicken salad in Mr. Emanuel’s office, the administration official quizzed the 50-year-old chief executive of hedge fund Avenue Capital Group about whether banks have begun lending again and when an economic recovery might take hold.
With more than $18 billion under management and an estimated $1.35 billion personal fortune, Mr. Lasry is one of Wall Street’s biggest and most well-connected “vulture” investors. A Democratic fund raiser, he is a friend of former President Clinton, and once employed daughter Chelsea Clinton. In November, he shared a table with Secretary of State Hillary Clinton and Defense Secretary Robert Gates at President Obama’s first state dinner.
Mr. Lasry’s firm buys up debt of troubled companies, with hopes of big profits when those firms, and their bonds and bank debt, return to health.
“A lot of what he said turned out to be right,” Mr. Emanuel said of Mr. Lasry’s previous economic outlooks. “I stayed in touch with him because he has a pretty good read on the economy.”
Mr. Lasry was right in recent years when he predicted that the leveraged-buyout boom and a real-estate bubble would lead to a wave of bankruptcies as weaker companies proved unable to refinance debt.
What he didn’t foresee was that conditions would deteriorate so rapidly, and that the resulting financial crisis would force big changes in the way he does business.
Mr. Lasry was once content to buy senior corporate debt at a discount and then patiently wait for values to recover. These investments are first in line for repayment in the event of bankruptcy, which kept Mr. Lasry’s positions relatively protected.
But when values plunged after Lehman Brothers’ failure in September 2008, companies seeking bankruptcy protection often couldn’t repay senior bank lenders in full, let alone bondholders just below them.
That forced Mr. Lasry to move from hedging his bets to doubling down. From his creditors’ perch, Mr. Lasry has made deals to exchange his debt for equity and pumped additional money into companies to ensure he seizes control, much like a bank forecloses on a delinquent homeowner.
The result is Mr. Lasry has gone from a pure manager and trader—he once ran his own distressed-debt brokerage—to a miniconglomerate, with wide-ranging holdings of companies that skirted death during the recession.
In the past year, Avenue has led investors taking over broadcaster Ion Media Networks Inc., plastics processor Milacron Inc. and South Korea’s MagnaChip Semiconductor Corp. out of bankruptcy. Mr. Lasry is close to controlling three bankrupt Atlantic City, N.J., casinos bearing Donald Trump’s name. In all, he has led investors committing more than $500 million of new money to troubled companies.
Mr. Lasry and his team of portfolio managers sit on a handful of corporate boards, activities usually reserved for private-equity shops. Mr. Lasry said such cases represent one in five of the firms he invests in now.
Some on Wall Street question whether firms like Avenue can succeed in steering companies. Mr. Lasry counters that he sticks to good companies with bad balance sheets that end up with less debt, not classic turnarounds.
Mr. Lasry, like many of his peers, disputes the “vulture” label. He is unapologetic about his aggressive tactics in bankruptcies, where he has been forced to litigate to keep once-safe investments from getting wiped out.
“Our view is we can generate an equity return by buying a senior debt instrument,” Mr. Lasry said from the living room of his six-story townhouse on Manhattan’s Upper East Side. Nearby was a photo of Mr. Lasry and his wife with President Clinton and the Rolling Stones at the former president’s 60th birthday party.
“In this environment, we’ve ended up getting more equity because it’s harder for people to refinance. That’s the only reason why I think now, all of a sudden, everybody focuses on us a little bit more,” Mr. Lasry said.
The turnabout came after Avenue’s investments fell 25% in 2008 and Mr. Lasry personally lost about $100 million. Among other bets, Mr. Lasry held debt in Tribune Co., which entered a free-fall bankruptcy toward the end of the year.
Having once focused on fund raising, Mr. Lasry decided to take the investment reins from one of his lieutenants, Bruce Grossman, who had steered Avenue’s buying and selling for a number of years. Mr. Grossman, a close friend of Mr. Lasry’s, left Avenue.
Now making the day-to-day decisions on Avenue’s investments, Mr. Lasry has tussled with big personalities including Six Flags Inc. board chairman and Washington Redskins football-team owner Daniel Snyder and casino mogul Mr. Trump.
Soon after Mr. Trump’s three casinos filed for bankruptcy protection in February 2009, the star of NBC’s “The Apprentice” allied himself to a restructuring plan that would have left just a sliver of new equity for Avenue-led bondholders owed $1.25 billion.
Mr. Lasry, a competitive poker player, began meeting with Mr. Trump to appeal for a different plan. After Avenue court victories and lunches in Trump Plaza, Mr. Trump switched sides, joining Mr. Lasry’s bid to control the casinos.
Mr. Lasry’s aggressive tactics haven’t always worked. Avenue pushed to provide a bankruptcy loan rich with fees and other stringent conditions to Ion Media when the broadcaster filed for bankruptcy protection last May. At a hearing, other debt investors objected, forcing lawyers to renegotiate the deal in a courtroom hallway.
Avenue’s performance rebounded last year, up 66% amid the firm’s court victories and a broader market rally. Avenue is currently out raising a new $3 billion fund for distressed opportunities.
Mr. Lasry’s hard-charging tactics belie a disarming persona. He shuns suits for pullover sweaters and often wears loafers without socks. Some bankers and lawyers grumble about Avenue’s aggressive portfolio managers but tend toward a favorable view of Mr. Lasry.
Mr. Lasry is a “180” from most fund managers, said Bruce Feldman, who has overseen $255 million of investments with Avenue as director of alternative investments for the Pennsylvania State Employees’ Retirement System. “He’s not brash. He’s not loud.”
Born in Morocco, Mr. Lasry moved to Hartford, Conn., at age seven, sharing a room with his two sisters in a small, two-bedroom apartment.
Mr. Lasry considered a management job at truck-shipping company UPS but his eventual wife, Cathy, insisted he attend law school. Mr. Lasry eventually went to work for Robert M. Bass Group under David Bonderman, founder of private-equity giant TPG. Mr. Lasry became among the first investors to trade substantial amounts of bankruptcy claims.
Mr. Lasry and his sister, Sonia Gardner, opened their own brokerage in 1990. In 1995, the pair founded Avenue with about $10 million.
In 2006, as Avenue continued to expand, Mr. Lasry sold a roughly 15% stake to Morgan Stanley for more than $250 million. Avenue now has 300 employees with 13 offices around the world, including London, Munich and throughout Asia.
He recently made a killing in a much smaller market: Mr. Lasry just sold his copy of the first Superman comic for $1 million. He bought it for $150,000.
By MIKE SPECTOR
Even with just three days remaining before last Sunday’s House vote on landmark health-care legislation, White House Chief of Staff Rahm Emanuel made time for a special lunch guest: Marc Lasry.
Over salmon and grilled-chicken salad in Mr. Emanuel’s office, the administration official quizzed the 50-year-old chief executive of hedge fund Avenue Capital Group about whether banks have begun lending again and when an economic recovery might take hold.
With more than $18 billion under management and an estimated $1.35 billion personal fortune, Mr. Lasry is one of Wall Street’s biggest and most well-connected “vulture” investors. A Democratic fund raiser, he is a friend of former President Clinton, and once employed daughter Chelsea Clinton. In November, he shared a table with Secretary of State Hillary Clinton and Defense Secretary Robert Gates at President Obama’s first state dinner.
Mr. Lasry’s firm buys up debt of troubled companies, with hopes of big profits when those firms, and their bonds and bank debt, return to health.
“A lot of what he said turned out to be right,” Mr. Emanuel said of Mr. Lasry’s previous economic outlooks. “I stayed in touch with him because he has a pretty good read on the economy.”
Mr. Lasry was right in recent years when he predicted that the leveraged-buyout boom and a real-estate bubble would lead to a wave of bankruptcies as weaker companies proved unable to refinance debt.
What he didn’t foresee was that conditions would deteriorate so rapidly, and that the resulting financial crisis would force big changes in the way he does business.
Mr. Lasry was once content to buy senior corporate debt at a discount and then patiently wait for values to recover. These investments are first in line for repayment in the event of bankruptcy, which kept Mr. Lasry’s positions relatively protected.
But when values plunged after Lehman Brothers’ failure in September 2008, companies seeking bankruptcy protection often couldn’t repay senior bank lenders in full, let alone bondholders just below them.
That forced Mr. Lasry to move from hedging his bets to doubling down. From his creditors’ perch, Mr. Lasry has made deals to exchange his debt for equity and pumped additional money into companies to ensure he seizes control, much like a bank forecloses on a delinquent homeowner.
The result is Mr. Lasry has gone from a pure manager and trader—he once ran his own distressed-debt brokerage—to a miniconglomerate, with wide-ranging holdings of companies that skirted death during the recession.
In the past year, Avenue has led investors taking over broadcaster Ion Media Networks Inc., plastics processor Milacron Inc. and South Korea’s MagnaChip Semiconductor Corp. out of bankruptcy. Mr. Lasry is close to controlling three bankrupt Atlantic City, N.J., casinos bearing Donald Trump’s name. In all, he has led investors committing more than $500 million of new money to troubled companies.
Mr. Lasry and his team of portfolio managers sit on a handful of corporate boards, activities usually reserved for private-equity shops. Mr. Lasry said such cases represent one in five of the firms he invests in now.
Some on Wall Street question whether firms like Avenue can succeed in steering companies. Mr. Lasry counters that he sticks to good companies with bad balance sheets that end up with less debt, not classic turnarounds.
Mr. Lasry, like many of his peers, disputes the “vulture” label. He is unapologetic about his aggressive tactics in bankruptcies, where he has been forced to litigate to keep once-safe investments from getting wiped out.
“Our view is we can generate an equity return by buying a senior debt instrument,” Mr. Lasry said from the living room of his six-story townhouse on Manhattan’s Upper East Side. Nearby was a photo of Mr. Lasry and his wife with President Clinton and the Rolling Stones at the former president’s 60th birthday party.
“In this environment, we’ve ended up getting more equity because it’s harder for people to refinance. That’s the only reason why I think now, all of a sudden, everybody focuses on us a little bit more,” Mr. Lasry said.
The turnabout came after Avenue’s investments fell 25% in 2008 and Mr. Lasry personally lost about $100 million. Among other bets, Mr. Lasry held debt in Tribune Co., which entered a free-fall bankruptcy toward the end of the year.
Having once focused on fund raising, Mr. Lasry decided to take the investment reins from one of his lieutenants, Bruce Grossman, who had steered Avenue’s buying and selling for a number of years. Mr. Grossman, a close friend of Mr. Lasry’s, left Avenue.
Now making the day-to-day decisions on Avenue’s investments, Mr. Lasry has tussled with big personalities including Six Flags Inc. board chairman and Washington Redskins football-team owner Daniel Snyder and casino mogul Mr. Trump.
Soon after Mr. Trump’s three casinos filed for bankruptcy protection in February 2009, the star of NBC’s “The Apprentice” allied himself to a restructuring plan that would have left just a sliver of new equity for Avenue-led bondholders owed $1.25 billion.
Mr. Lasry, a competitive poker player, began meeting with Mr. Trump to appeal for a different plan. After Avenue court victories and lunches in Trump Plaza, Mr. Trump switched sides, joining Mr. Lasry’s bid to control the casinos.
Mr. Lasry’s aggressive tactics haven’t always worked. Avenue pushed to provide a bankruptcy loan rich with fees and other stringent conditions to Ion Media when the broadcaster filed for bankruptcy protection last May. At a hearing, other debt investors objected, forcing lawyers to renegotiate the deal in a courtroom hallway.
Avenue’s performance rebounded last year, up 66% amid the firm’s court victories and a broader market rally. Avenue is currently out raising a new $3 billion fund for distressed opportunities.
Mr. Lasry’s hard-charging tactics belie a disarming persona. He shuns suits for pullover sweaters and often wears loafers without socks. Some bankers and lawyers grumble about Avenue’s aggressive portfolio managers but tend toward a favorable view of Mr. Lasry.
Mr. Lasry is a “180” from most fund managers, said Bruce Feldman, who has overseen $255 million of investments with Avenue as director of alternative investments for the Pennsylvania State Employees’ Retirement System. “He’s not brash. He’s not loud.”
Born in Morocco, Mr. Lasry moved to Hartford, Conn., at age seven, sharing a room with his two sisters in a small, two-bedroom apartment.
Mr. Lasry considered a management job at truck-shipping company UPS but his eventual wife, Cathy, insisted he attend law school. Mr. Lasry eventually went to work for Robert M. Bass Group under David Bonderman, founder of private-equity giant TPG. Mr. Lasry became among the first investors to trade substantial amounts of bankruptcy claims.
Mr. Lasry and his sister, Sonia Gardner, opened their own brokerage in 1990. In 1995, the pair founded Avenue with about $10 million.
In 2006, as Avenue continued to expand, Mr. Lasry sold a roughly 15% stake to Morgan Stanley for more than $250 million. Avenue now has 300 employees with 13 offices around the world, including London, Munich and throughout Asia.
He recently made a killing in a much smaller market: Mr. Lasry just sold his copy of the first Superman comic for $1 million. He bought it for $150,000.
Thirty-five years ago, late Chinese Premier Zhou Enlai announced proudly to the world that China was debt-free.
"We achieved new accomplishment in building socialism. We have neither foreign nor internal debts. The price is stable while the market is prosperous," he told the 10th Congress of the Communist Party of China on August 24, 1973. Although this is the only recorded statement regarding China's debt-free status, the central government had actually halted issuing treasury bonds (T-bonds) in 1958.
That explains the surprise and confusion in the country when the central government resumed issuing T-bonds 23 years later in 1981.
Although called "gilt-edged bonds" in international markets, T-bonds were a new concept for almost all Chinese. Few had heard of them while their parents had only vague memories at best of the so-called "national construction public bonds" -- a kind of government bond floated in the 1950s.
The first T-bond issue amounted to 4 billion yuan, with a term of 5 to 10 years. The bonds were non-tradable. State enterprises and institutions purchased half and the remaining was reserved for private individuals.
But because few grasped the bond's concept and value, Beijing resorted to pressing the government-employed purchasers to do so out of patriotism.
"Who knew what bonds were in those days?" recalls 70-year-old Tang Wenyi, a retired doctor in Suzhou, Jiangsu Province. "We bought them because we were told by leaders in our unit that we had to buy T-bonds to support the country's construction and display patriotism. Actually the hospital directly deducted some money -- five to ten yuan -- from our salary every month to buy the bonds for us. We simply took it as a kind of donation, believing that the money would never come back to our wallets."
The first issue, although in a small size, marked a significant step in China's fiscal system reform and T-bonds became a major means for the country to raise much-needed capital to speed up economic construction after the 10-year Cultural Revolution (1966-1976) that destroyed the country's economic infrastructure.
The T-bond's role was reinforced in 1987 when the State Council decided the Ministry of Finance could no longer overdraw from the Central Bank, and in 1994 the Ministry of Finance was not allowed to borrow from the Central Bank to offset its fiscal deficit, which made T-bonds the only way for State finance to cover its deficit.
T-bond issues jumped to 20 billion in 1991, 102.86 billion in 1994, 150 billion in 1995, 460 billion in 2000 and 700 billion in 2005. In 2007 alone, the country issued a total of 2.35 trillion yuan of T-bonds for the first issue of 1.55 trillion yuan of "special T-bonds".
Today, T-bonds, along with security investment funds and stocks, have become favorite investments for residents. Their low risk and relatively high returns make themselves attractive to conservative investors, in particular to retirees like Dr. Tang.
"Now I have to go to the bank hours before the opening time to line up for T-bonds," she complains. "But even doing that can not ensure T-bonds are available when my turn comes. Usually they are sold too quickly."
In Nanjing, capital of Jiangsu Province, 100 million yuan worth of T-bonds were sold out within 10 minutes on November 1, 2004, disappointing hundreds of people -- mostly retirees or middle aged -- who arrived at the banks even before 5 am. Angry investors complained the bonds were sold too quickly while some even suspected that bank employees or institutional buyers secretly snatched up much of the limited issue quota at each bank outlet.
Nowadays if you pass a bank outlet with a long line in front of it anywhere in China, no matter big city or small town, don't ask why. The reasons are the same -- T-bonds.
A Millionaire's First Pot of Gold
Actually the T-bonds' turning point was in 1988 when Yang Huaiding, a famous Chinese stock investor nicknamed "Millionaire Yang", was among the first batch of people to discover opportunities in the T-bonds market.
To reform the issuance of T-bonds, the government conducted an experiment to allow the trading of the T-bonds in April 1988, in seven selected cities including Shenyang, Shanghai, Guangzhou, Wuhan, Chongqing, Shenzhen and Harbin. In June the experiment was expanded to another 54 cities.
A local newspaper in Shanghai published the news, which was ignored by almost all the readers but Yang. The former warehouse keeper in a state-run metallurgical factory in Shanghai quit his job in March that year to look for ways to earn money. He subscribed to 72 newspapers, thumbing through them all the day at home for information. While reading the news about T-bond trading, he believed he saw a golden opportunity.
On the early morning of April 21, 1988, the first T-bond trading day, Yang rushed to No. 101 Xikang Road where the Shanghai trading market was located and where he bought three-year T-bonds.
"In 1988, the interest rate for three-year bank deposits was 5.4 per cent, while that for treasury bonds was 15 percent, why shouldn't I buy?" he recalls in Shanghai Evening News.
Others noted his bold move and it ultimately spurred a buying spree. In the afternoon the price of the T-bonds with a 100-yuan face value surged to 112 yuan and Yang sold his bonds out -- earning 800 yuan in just half a day, which was equal to his annual salary in a factory.
But that was not the end of the story. In his newspapers, he found the trading price for the same T-bond in Hefei, Anhui Province was far lower than in Shanghai. Savvy Yang immediately took a train to Hefei to buy T-bonds and brought them back to Shanghai to sell. In doing so, he became China's first mobile T-bond dealer and continued to shuttle between Shanghai and other cities by train with money earned from the market or borrowed from friends and relatives. He worked so hard that Shanghai Securities Exchange later found that a quarter of its transaction came from Yang.
"My dream those days was to earn 100,000 yuan," he recalls. But in 1988 alone, he earned half a million. The swelling wallet made him so nervous that he could hardly believe a socialist society would allow people to earn so much money. The Shanghai government also noticed Yang's business and some high-ranking officials ordered an investigation into why an ordinary citizen such as Yang was doing better than state-run securities companies.
Worrying about possible policy changes, Yang offered to pay a tax to ensure his money was protected, but tax officials told him his earnings from both T-bonds and T-bond trading were tax-free.
In 1989, Yang moved to the stock market and finally earned his first 1 million yuan and his nickname has become a legend in China's stock market lore.
Many people followed Yang's example and earned quick money by trading T-bonds. They also took advantage of the rural areas where T-bond trading was unauthorized and where ignorant people had little idea what their T-bonds were worth. Thus some naive bondholders were eager to sell the bonds for less.
But these underground transactions spurred further reform in the bond issuance and trading system. In 1991 all cities of prefecture level were allowed to conduct T-bond trading and the Ministry of Finance no longer resorted to administrative means to issue T-bonds. Financial institutions formed underwriting groups to underwrite the bond issues.
T-Bond Futures
With T-bond trading flourishing across the country, the Shanghai Stock Exchange introduced T-bond futures trading to brokerages in 1992 and to the public in October 1993, to offer investors an option to hedge and thus achieve higher benefits. But only a year and a half later, the "327 T-bond scandal" led to the collapse of the whole T-bond futures market and the bankruptcy of the country's largest brokerage, and sent a leading figure in China's stock market to jail.
In this market manipulation case in February 1995, the Shanghai International Securities -- at that time China's largest brokerage and one that was also internationally well respected -- and Liaoning Guofa Group were involved in a scheme to illegally recoup losses that emerged after poor trading decisions were made.
Prior to the maturity month of 327 T-bond (three-year-term T-bonds issued in 1992) futures, price manipulators, led by the Shanghai International, took advantage of short-selling restrictions in the T-bond spot market and very low margin requirements in the T-bond futures market. They accumulated a significant amount of long positions for 327 T-bonds, which they had no intention to offset. It led to 6 billion yuan in losses for the company and the collapse of the T-bond futures market.
The Shanghai International was later taken over by Shenyin Securities while Guan Jinsheng, president of the Shanghai International and one of the founders of China's stock market, was arrested in May 1995 and sent to prison for 17 years. On May 17, 1995, the securities watchdog, China Securities Regulatory Commission announced suspension of T-bond futures trading.
This incident was later widely compared to the Barings Bank Scandal which also took place in February 1995. Barings -- then the oldest bank in Britain -- collapsed after it was unable to meet its cash requirements following unauthorized speculative trading in derivatives at its Singapore office by the then-trader Nick Leeson.
Planning and Innovation
By the end of 2007, China's aggregated domestic debt balance had exceeded five trillion yuan for the first time. The figure was twice that of 2003. In 2007, the country's total transaction volume of T-bonds reached 19 trillion yuan, nearly 50 percent more than in 2003.
Assistant Finance Minister Zhang Tong said earlier this year that T-bonds were a strong support to the economy but added that further innovations were needed.
An issue of special T-bonds last year was such an innovation when for the first time China issued 1.55 trillion yuan of special T-bonds to purchase $200 billion foreign exchange from the central bank to fund the China Investment Corporate (CIC). The CIC is a state-owned foreign exchange investment firm launched in September 2007 and designed to manage the country's huge foreign exchange reserves, which amounted to $1.53 trillion by the end of 2007. The special T-bond issue also helps siphon off excess liquidity from banks and curb China's speeding credit growth.
"We achieved new accomplishment in building socialism. We have neither foreign nor internal debts. The price is stable while the market is prosperous," he told the 10th Congress of the Communist Party of China on August 24, 1973. Although this is the only recorded statement regarding China's debt-free status, the central government had actually halted issuing treasury bonds (T-bonds) in 1958.
That explains the surprise and confusion in the country when the central government resumed issuing T-bonds 23 years later in 1981.
Although called "gilt-edged bonds" in international markets, T-bonds were a new concept for almost all Chinese. Few had heard of them while their parents had only vague memories at best of the so-called "national construction public bonds" -- a kind of government bond floated in the 1950s.
The first T-bond issue amounted to 4 billion yuan, with a term of 5 to 10 years. The bonds were non-tradable. State enterprises and institutions purchased half and the remaining was reserved for private individuals.
But because few grasped the bond's concept and value, Beijing resorted to pressing the government-employed purchasers to do so out of patriotism.
"Who knew what bonds were in those days?" recalls 70-year-old Tang Wenyi, a retired doctor in Suzhou, Jiangsu Province. "We bought them because we were told by leaders in our unit that we had to buy T-bonds to support the country's construction and display patriotism. Actually the hospital directly deducted some money -- five to ten yuan -- from our salary every month to buy the bonds for us. We simply took it as a kind of donation, believing that the money would never come back to our wallets."
The first issue, although in a small size, marked a significant step in China's fiscal system reform and T-bonds became a major means for the country to raise much-needed capital to speed up economic construction after the 10-year Cultural Revolution (1966-1976) that destroyed the country's economic infrastructure.
The T-bond's role was reinforced in 1987 when the State Council decided the Ministry of Finance could no longer overdraw from the Central Bank, and in 1994 the Ministry of Finance was not allowed to borrow from the Central Bank to offset its fiscal deficit, which made T-bonds the only way for State finance to cover its deficit.
T-bond issues jumped to 20 billion in 1991, 102.86 billion in 1994, 150 billion in 1995, 460 billion in 2000 and 700 billion in 2005. In 2007 alone, the country issued a total of 2.35 trillion yuan of T-bonds for the first issue of 1.55 trillion yuan of "special T-bonds".
Today, T-bonds, along with security investment funds and stocks, have become favorite investments for residents. Their low risk and relatively high returns make themselves attractive to conservative investors, in particular to retirees like Dr. Tang.
"Now I have to go to the bank hours before the opening time to line up for T-bonds," she complains. "But even doing that can not ensure T-bonds are available when my turn comes. Usually they are sold too quickly."
In Nanjing, capital of Jiangsu Province, 100 million yuan worth of T-bonds were sold out within 10 minutes on November 1, 2004, disappointing hundreds of people -- mostly retirees or middle aged -- who arrived at the banks even before 5 am. Angry investors complained the bonds were sold too quickly while some even suspected that bank employees or institutional buyers secretly snatched up much of the limited issue quota at each bank outlet.
Nowadays if you pass a bank outlet with a long line in front of it anywhere in China, no matter big city or small town, don't ask why. The reasons are the same -- T-bonds.
A Millionaire's First Pot of Gold
Actually the T-bonds' turning point was in 1988 when Yang Huaiding, a famous Chinese stock investor nicknamed "Millionaire Yang", was among the first batch of people to discover opportunities in the T-bonds market.
To reform the issuance of T-bonds, the government conducted an experiment to allow the trading of the T-bonds in April 1988, in seven selected cities including Shenyang, Shanghai, Guangzhou, Wuhan, Chongqing, Shenzhen and Harbin. In June the experiment was expanded to another 54 cities.
A local newspaper in Shanghai published the news, which was ignored by almost all the readers but Yang. The former warehouse keeper in a state-run metallurgical factory in Shanghai quit his job in March that year to look for ways to earn money. He subscribed to 72 newspapers, thumbing through them all the day at home for information. While reading the news about T-bond trading, he believed he saw a golden opportunity.
On the early morning of April 21, 1988, the first T-bond trading day, Yang rushed to No. 101 Xikang Road where the Shanghai trading market was located and where he bought three-year T-bonds.
"In 1988, the interest rate for three-year bank deposits was 5.4 per cent, while that for treasury bonds was 15 percent, why shouldn't I buy?" he recalls in Shanghai Evening News.
Others noted his bold move and it ultimately spurred a buying spree. In the afternoon the price of the T-bonds with a 100-yuan face value surged to 112 yuan and Yang sold his bonds out -- earning 800 yuan in just half a day, which was equal to his annual salary in a factory.
But that was not the end of the story. In his newspapers, he found the trading price for the same T-bond in Hefei, Anhui Province was far lower than in Shanghai. Savvy Yang immediately took a train to Hefei to buy T-bonds and brought them back to Shanghai to sell. In doing so, he became China's first mobile T-bond dealer and continued to shuttle between Shanghai and other cities by train with money earned from the market or borrowed from friends and relatives. He worked so hard that Shanghai Securities Exchange later found that a quarter of its transaction came from Yang.
"My dream those days was to earn 100,000 yuan," he recalls. But in 1988 alone, he earned half a million. The swelling wallet made him so nervous that he could hardly believe a socialist society would allow people to earn so much money. The Shanghai government also noticed Yang's business and some high-ranking officials ordered an investigation into why an ordinary citizen such as Yang was doing better than state-run securities companies.
Worrying about possible policy changes, Yang offered to pay a tax to ensure his money was protected, but tax officials told him his earnings from both T-bonds and T-bond trading were tax-free.
In 1989, Yang moved to the stock market and finally earned his first 1 million yuan and his nickname has become a legend in China's stock market lore.
Many people followed Yang's example and earned quick money by trading T-bonds. They also took advantage of the rural areas where T-bond trading was unauthorized and where ignorant people had little idea what their T-bonds were worth. Thus some naive bondholders were eager to sell the bonds for less.
But these underground transactions spurred further reform in the bond issuance and trading system. In 1991 all cities of prefecture level were allowed to conduct T-bond trading and the Ministry of Finance no longer resorted to administrative means to issue T-bonds. Financial institutions formed underwriting groups to underwrite the bond issues.
T-Bond Futures
With T-bond trading flourishing across the country, the Shanghai Stock Exchange introduced T-bond futures trading to brokerages in 1992 and to the public in October 1993, to offer investors an option to hedge and thus achieve higher benefits. But only a year and a half later, the "327 T-bond scandal" led to the collapse of the whole T-bond futures market and the bankruptcy of the country's largest brokerage, and sent a leading figure in China's stock market to jail.
In this market manipulation case in February 1995, the Shanghai International Securities -- at that time China's largest brokerage and one that was also internationally well respected -- and Liaoning Guofa Group were involved in a scheme to illegally recoup losses that emerged after poor trading decisions were made.
Prior to the maturity month of 327 T-bond (three-year-term T-bonds issued in 1992) futures, price manipulators, led by the Shanghai International, took advantage of short-selling restrictions in the T-bond spot market and very low margin requirements in the T-bond futures market. They accumulated a significant amount of long positions for 327 T-bonds, which they had no intention to offset. It led to 6 billion yuan in losses for the company and the collapse of the T-bond futures market.
The Shanghai International was later taken over by Shenyin Securities while Guan Jinsheng, president of the Shanghai International and one of the founders of China's stock market, was arrested in May 1995 and sent to prison for 17 years. On May 17, 1995, the securities watchdog, China Securities Regulatory Commission announced suspension of T-bond futures trading.
This incident was later widely compared to the Barings Bank Scandal which also took place in February 1995. Barings -- then the oldest bank in Britain -- collapsed after it was unable to meet its cash requirements following unauthorized speculative trading in derivatives at its Singapore office by the then-trader Nick Leeson.
Planning and Innovation
By the end of 2007, China's aggregated domestic debt balance had exceeded five trillion yuan for the first time. The figure was twice that of 2003. In 2007, the country's total transaction volume of T-bonds reached 19 trillion yuan, nearly 50 percent more than in 2003.
Assistant Finance Minister Zhang Tong said earlier this year that T-bonds were a strong support to the economy but added that further innovations were needed.
An issue of special T-bonds last year was such an innovation when for the first time China issued 1.55 trillion yuan of special T-bonds to purchase $200 billion foreign exchange from the central bank to fund the China Investment Corporate (CIC). The CIC is a state-owned foreign exchange investment firm launched in September 2007 and designed to manage the country's huge foreign exchange reserves, which amounted to $1.53 trillion by the end of 2007. The special T-bond issue also helps siphon off excess liquidity from banks and curb China's speeding credit growth.
China to Begin Stock-Index Futures
A Bitter Memory Is Shed, as Market Prepares to Start in April, 15 Years After a Scandal.
SHANGHAI—China said it will introduce stock-index futures April 16, ending years of preparations that signaled policy indecision over the financial derivatives designed for risk-hedging, but also seen as vulnerable to speculative forces.
The announcement by the China Financial Futures Exchange, which will host the index futures, will give investors a means to bet on the direction of major share indexes and also allow them to make money when the market falls. It is expected to boost demand for index heavyweights such as major blue chips when trading resumes Monday.
Investors have eagerly anticipated the launch, which will expand options in a market where, up to now, being bullish has been the only choice because there has been little to shield investors in the face of a sharp decline. However, Chinese investors’ lack of experience in dealing with risky investment tools such as margin trading and short selling, and the country’s perilous experience with futures trading, form a big question mark over the index futures’ ultimate fate.
China banned financial futures in the mid-1990s after a scandal involving bond futures nearly brought down the country’s financial system.
Analysts say China’s securities regulator has chosen a relatively good time to start the stock-index futures. The benchmark Shanghai Composite Index is close to its historical-average level and showing few signs of a price bubble, leaving enough space for investors to bet in either direction.
The index futures will reference the CSI 300 Index, which consists of 300 yuan-denominated A shares listed on the Shanghai and Shenzhen stock exchanges, the Shanghai-based futures exchange said in a statement posted on its Web site.
The exchange also said it will initially trade contracts for May, June, September and December.
“More direct beneficiaries, namely blue chips such as banks, insurers and securities firms, will likely rise on Monday following the news but the upside could be limited due to uncertainty over further monetary tightening in China,” said Jacky Zhang, an analyst at Capital Securities.
The Shanghai Composite Index rose 1.3% to 3059.72 Friday, at a half-way point from its peak of 6124.04 recorded Oct. 16, 2007.
From a technical point, the current level is widely viewed as ideal for the launch of the index futures. “Some may see it as a glass half empty, or half full, I see it as starting at the center of the basketball court,” said Qian Qimin, an analyst from Shenyin Wanguo Securities.
In 1995, a trading scandal in which government bond futures were widely manipulated threatened the health of the financial system. Memories of that scandal have made regulators leery of financial derivatives.
Financial problems involving derivatives at home and in overseas markets from Singapore to Paris have also curbed Chinese policy makers’ desire to resurrect financial futures.
On the home front, China Eastern Airlines Corp., Air China Ltd. and Shanghai Airlines Co. posted combined losses of 13.2 billion yuan ($1.94 billion) in 2008 on fuel hedges that went awry. Hong Kong-based conglomerate Citic Pacific Ltd. had billions in losses on wrong-way bets on the Australian dollar.
Overseas, Société Générale SA disclosed €4.9 billion ($6.51 billion) in losses in January 2008, which it alleges were due to rogue deals by a low-level derivatives trader. In 1995, illicit deals brought down U.K. lender Barings Bank, after a trader concealed unauthorized trades that racked up losses of $1.38 billion.
Chinese officials have been at pains to assure investors that the start of the stock-index futures won’t cause sharp volatility in the market, promising tough regulations and stringent risk controls.
In February, the China Financial Futures Exchange set a threshold of 500,000 yuan for stock-index futures trading accounts, a high entry requirement that will likely keep most retail investors out of the game.
The exchange also said eligible participants must open accounts in person and pass an examination on the basics of the trading. They should have completed at least 20 mock stock-index futures transactions over a maximum of 10 trading sessions, and made at least 10 commodity futures transactions in the past three years, it said.
SHANGHAI—China said it will introduce stock-index futures April 16, ending years of preparations that signaled policy indecision over the financial derivatives designed for risk-hedging, but also seen as vulnerable to speculative forces.
The announcement by the China Financial Futures Exchange, which will host the index futures, will give investors a means to bet on the direction of major share indexes and also allow them to make money when the market falls. It is expected to boost demand for index heavyweights such as major blue chips when trading resumes Monday.
Investors have eagerly anticipated the launch, which will expand options in a market where, up to now, being bullish has been the only choice because there has been little to shield investors in the face of a sharp decline. However, Chinese investors’ lack of experience in dealing with risky investment tools such as margin trading and short selling, and the country’s perilous experience with futures trading, form a big question mark over the index futures’ ultimate fate.
China banned financial futures in the mid-1990s after a scandal involving bond futures nearly brought down the country’s financial system.
Analysts say China’s securities regulator has chosen a relatively good time to start the stock-index futures. The benchmark Shanghai Composite Index is close to its historical-average level and showing few signs of a price bubble, leaving enough space for investors to bet in either direction.
The index futures will reference the CSI 300 Index, which consists of 300 yuan-denominated A shares listed on the Shanghai and Shenzhen stock exchanges, the Shanghai-based futures exchange said in a statement posted on its Web site.
The exchange also said it will initially trade contracts for May, June, September and December.
“More direct beneficiaries, namely blue chips such as banks, insurers and securities firms, will likely rise on Monday following the news but the upside could be limited due to uncertainty over further monetary tightening in China,” said Jacky Zhang, an analyst at Capital Securities.
The Shanghai Composite Index rose 1.3% to 3059.72 Friday, at a half-way point from its peak of 6124.04 recorded Oct. 16, 2007.
From a technical point, the current level is widely viewed as ideal for the launch of the index futures. “Some may see it as a glass half empty, or half full, I see it as starting at the center of the basketball court,” said Qian Qimin, an analyst from Shenyin Wanguo Securities.
In 1995, a trading scandal in which government bond futures were widely manipulated threatened the health of the financial system. Memories of that scandal have made regulators leery of financial derivatives.
Financial problems involving derivatives at home and in overseas markets from Singapore to Paris have also curbed Chinese policy makers’ desire to resurrect financial futures.
On the home front, China Eastern Airlines Corp., Air China Ltd. and Shanghai Airlines Co. posted combined losses of 13.2 billion yuan ($1.94 billion) in 2008 on fuel hedges that went awry. Hong Kong-based conglomerate Citic Pacific Ltd. had billions in losses on wrong-way bets on the Australian dollar.
Overseas, Société Générale SA disclosed €4.9 billion ($6.51 billion) in losses in January 2008, which it alleges were due to rogue deals by a low-level derivatives trader. In 1995, illicit deals brought down U.K. lender Barings Bank, after a trader concealed unauthorized trades that racked up losses of $1.38 billion.
Chinese officials have been at pains to assure investors that the start of the stock-index futures won’t cause sharp volatility in the market, promising tough regulations and stringent risk controls.
In February, the China Financial Futures Exchange set a threshold of 500,000 yuan for stock-index futures trading accounts, a high entry requirement that will likely keep most retail investors out of the game.
The exchange also said eligible participants must open accounts in person and pass an examination on the basics of the trading. They should have completed at least 20 mock stock-index futures transactions over a maximum of 10 trading sessions, and made at least 10 commodity futures transactions in the past three years, it said.
Saturday, March 27, 2010
U.S. Corporate Profits Kept Climbing at End of 2009
By SARA MURRAY
The government, in the broadest tally of corporate earnings, said profits grew smartly in the fourth quarter as the economy bounded from a deep recession.
Pretax profits rose 8% to a seasonally adjusted $1.5 trillion annual rate in the fourth quarter from the third quarter, the Commerce Department said Friday, as it released a slight downward revision to its estimate of fourth-quarter economic growth.
Gross domestic product, the value of all the goods and services produced by the U.S., grew at a 5.6% inflation-adjusted annual rate. The change reflected weaker than previously estimated business and residential investment, as construction spending declined. Economists are expecting more modest growth for the first quarter, with most estimates around 2.8%.
.While conditions are clearly improving for companies, consumers still aren't yet confident in the economic recovery. An index of consumer sentiment remained flat at 73.6 in March from the prior month, the University of Michigan and Reuters said Friday. Consumers' gauge of current conditions improved slightly but their optimism about where the economy is headed declined. "It is unlikely that sentiment will improve to truly optimistic levels until robust job creation returns and home prices stabilize," said Steven Wood, an Insight Economics LLC analyst.
The 8% quarterly increase in profits, which isn't adjusted for inflation, followed a 10.8% increase in the third quarter. Profits were fueled by an increase in output, as companies replenished inventories, and little change in compensation costs, as companies got more productivity from workers.
The combination pushed pretax profits 30.6% higher than a year earlier—the biggest increase in 25 years—but from the low $1.1 trillion annual rate in late 2008, when the financial crisis mushroomed. For the full-year 2009, profits were down 3.8% from 2008.
.In the fourth quarter, companies' profits from domestic operations climbed $124.7 billion, while profits from the rest of the world dropped $16.1 billion.
Rising profits are a boon for stock market investors, but not a guarantee that companies will use improved earnings for widespread capital spending projects and hiring. "Are we going to see hiring pick up and the money start to flow through the economy?" said Joshua Shapiro, a MFR Inc. economist, "That's obviously the great hope." Still, he said, "I think they're going to be a bit cautious."
Government stimulus has been responsible for propping up much of recent demand. However, recent data suggest strength in business purchases of equipment, computers and software.
After-tax profits increased 6.5% in the fourth quarter and were up 22.8% from a year ago. Taxes on corporate income rose 12.7% in the fourth quarter and were 62.1% higher than a year ago.
The increase in fourth-quarter profits was split nearly evenly between both domestic financial and nonfinancial companies. For all of 2009, however, profits at financial companies were up $45.2 billion, compared with a $31.3 billion decline among nonfinancial businesses.
Durable-goods manufacturers, which are highly influenced by the inventory cycle, had a particularly strong quarter, as did information technology companies.
Gross domestic income, which is a measure of total income in the economy, offered a brighter picture for the fourth quarter. It grew at a 6.2% annual rate, after falling 0.4% in the third quarter, when GDP grew 2.2%.
GDP measures output by adding together expenditures, such as consumption, government spending, investment and exports. Gross domestic income is the sum of all the income received in the economy. In theory, the two measures should be equal, but some recent Federal Reserve research has suggested that income may be the more accurate measure. Gross domestic income took a bigger hit during the recession than GDP, but the uptick in the fourth quarter was a promising indication that the recovery is on track and improvements in the labor market may lie ahead.
The government, in the broadest tally of corporate earnings, said profits grew smartly in the fourth quarter as the economy bounded from a deep recession.
Pretax profits rose 8% to a seasonally adjusted $1.5 trillion annual rate in the fourth quarter from the third quarter, the Commerce Department said Friday, as it released a slight downward revision to its estimate of fourth-quarter economic growth.
Gross domestic product, the value of all the goods and services produced by the U.S., grew at a 5.6% inflation-adjusted annual rate. The change reflected weaker than previously estimated business and residential investment, as construction spending declined. Economists are expecting more modest growth for the first quarter, with most estimates around 2.8%.
.While conditions are clearly improving for companies, consumers still aren't yet confident in the economic recovery. An index of consumer sentiment remained flat at 73.6 in March from the prior month, the University of Michigan and Reuters said Friday. Consumers' gauge of current conditions improved slightly but their optimism about where the economy is headed declined. "It is unlikely that sentiment will improve to truly optimistic levels until robust job creation returns and home prices stabilize," said Steven Wood, an Insight Economics LLC analyst.
The 8% quarterly increase in profits, which isn't adjusted for inflation, followed a 10.8% increase in the third quarter. Profits were fueled by an increase in output, as companies replenished inventories, and little change in compensation costs, as companies got more productivity from workers.
The combination pushed pretax profits 30.6% higher than a year earlier—the biggest increase in 25 years—but from the low $1.1 trillion annual rate in late 2008, when the financial crisis mushroomed. For the full-year 2009, profits were down 3.8% from 2008.
.In the fourth quarter, companies' profits from domestic operations climbed $124.7 billion, while profits from the rest of the world dropped $16.1 billion.
Rising profits are a boon for stock market investors, but not a guarantee that companies will use improved earnings for widespread capital spending projects and hiring. "Are we going to see hiring pick up and the money start to flow through the economy?" said Joshua Shapiro, a MFR Inc. economist, "That's obviously the great hope." Still, he said, "I think they're going to be a bit cautious."
Government stimulus has been responsible for propping up much of recent demand. However, recent data suggest strength in business purchases of equipment, computers and software.
After-tax profits increased 6.5% in the fourth quarter and were up 22.8% from a year ago. Taxes on corporate income rose 12.7% in the fourth quarter and were 62.1% higher than a year ago.
The increase in fourth-quarter profits was split nearly evenly between both domestic financial and nonfinancial companies. For all of 2009, however, profits at financial companies were up $45.2 billion, compared with a $31.3 billion decline among nonfinancial businesses.
Durable-goods manufacturers, which are highly influenced by the inventory cycle, had a particularly strong quarter, as did information technology companies.
Gross domestic income, which is a measure of total income in the economy, offered a brighter picture for the fourth quarter. It grew at a 6.2% annual rate, after falling 0.4% in the third quarter, when GDP grew 2.2%.
GDP measures output by adding together expenditures, such as consumption, government spending, investment and exports. Gross domestic income is the sum of all the income received in the economy. In theory, the two measures should be equal, but some recent Federal Reserve research has suggested that income may be the more accurate measure. Gross domestic income took a bigger hit during the recession than GDP, but the uptick in the fourth quarter was a promising indication that the recovery is on track and improvements in the labor market may lie ahead.
Signed, sealed, delivered
Barack Obama has transformed health reform from near death to fact. So how will Obamacare change America’s health system?
Mar 25th 2010 | WASHINGTON, DC | From The Economist print edition
THE Barack Obama who addressed Americans at near midnight on March 21st had every right to gloat. After a year in which his proposals for health reform were savaged by Republicans and leftists alike, and declared dead half a dozen times by everyone, he has somehow managed to get them over the finishing line.
The reform package is made up of two bills. One, a flawed and pork-laden version of health reform passed by the Senate before Christmas, has now been approved by the House; Mr Obama signed this on March 23rd. The other is a “reconciliation” bill meant to fix some of its flaws, and the House also passed this. Because this is a new bill, the Senate has to pass it too. It can do so under special “reconciliation” rules that require only 50 votes, not a filibuster-proof 60. As The Economist went to press, it looked set to do so.
What will it mean for America? The short answer is that the reforms will expand coverage dramatically, but at a heavy cost to the taxpayer. They will also do far too little to rein in the underlying drivers of America’s roaring health inflation. Analysis by RAND, an independent think-tank, suggests that the reforms will actually increase America’s overall health spending—public plus private—by about 2% by 2020, in comparison with a scenario of no reform (see chart). And that rate of spending was already unsustainable at a time when the baby-boomers are starting to retire in large numbers.
The heart of the new reform is a restructuring of America’s flawed insurance market. Insurers now face tough new regulations forbidding such practices as dropping people with “pre-existing conditions” (real or trumped up), or putting lifetime caps on coverage.
In return, though, the insurance industry will benefit from a big expansion of the country’s private insurance market. Heavily regulated exchanges, or insurance marketplaces, would be set up so that consumers not covered by employer-provided plans today could shop for ones more easily. Insurers would be required to offer plans that meet minimum government requirements for health coverage, and to price them transparently.
Some 32m of the country’s 49m or so uninsured (most of those left out of the new scheme are undocumented aliens) would, starting in 2014, be required to take out insurance. The working poor and uninsured earning up to $88,000 a year get subsidies on a sliding scale so that they can afford to buy coverage; the poorest of all will be added to the rolls of Medicaid, a health scheme for the indigent. It is this binding requirement on individuals that exercises conservatives most.
They point to recent studies done by the Cato Institute, a libertarian think-tank, which, they claim, are early warnings of trouble to come. Cato recently examined the impact of introducing health reforms similar to Obamacare in Massachusetts a few years ago. It estimates that the law has not improved people’s health, but has led to a “substantial crowdout of private coverage” and to 60% fewer young (and presumably healthy) adults moving to the state. It claims that the “leading estimates understate the law’s cost by at least one third.” Premiums have also risen.
If coverage is the new law’s strong point, cost control is its weakness. That is not to say that most ordinary people will pay more for coverage, as critics of reform noisily insist. True, some of those forced to buy insurance will earn too much to qualify for subsidies, and so will be spending more than they do today—but, in return, they will get insurance plans that offer more generous coverage than current basic plans. What is more, many other Americans may end up with lower premiums.
The vast majority of workers enjoy health insurance today through employer-provided schemes. RAND estimates that by 2019 the employer-provided system will benefit from 6m new (mostly healthy) customers, and that premiums for everyone in that system will drop by 2% versus business-as-usual.
Fine, but what about costs to the federal government and the overall health system? The Congressional Budget Office (CBO), a non-partisan agency, estimates that the new health reforms will cost the federal government some $940 billion over the next decade. Of that, roughly $400 billion will be spent by 2020 on the subsidies and about $500 billion on increased spending on Medicaid.
But that underestimates the full cost of this new reform. Elizabeth McGlynn of RAND points out that the huge numbers of newly insured—who now typically skip medical care or simply turn up, in a crisis, in emergency rooms—will soon consume a lot of routine medical services. She thinks this spending will expand the country’s health outlays even more than the direct cost to the federal exchequer.
This need not be a waste of money. Spending more on routine care today is sure to save some money in the long run: paying for someone to pop statin pills daily, for example, is much cheaper than treating his eventual heart attack. The snag is that economists disagree on whether and how much this will really save the government or the health system. What is clear, argues Ms McGlynn, is that this new spending will improve the health and probably extend the lives of those many unfortunates currently without insurance.
Paying the piper
So how is the bill going to be paid? The CBO’s analysis suggests that the federal deficit will be slashed by well over a trillion dollars over the next two decades by this reform. That suggests this reform effort is fiscally prudent. Not so, howl Republicans. Paul Ryan, a Republican congressman, believes the reforms will prove a “fiscal Frankenstein” (meaning the monster) because the CBO’s rules on “scoring” bills have led it to rely on several sleights of hand.
For example, insist critics, a big chunk of the savings is made up of politically implausible cuts in doctors’ reimbursements (known as the “doc fix”) and in Medicare, the government health scheme for the elderly. Also, some of the income provisions will kick in soon, but the main spending on subsidies will not begin until 2014—skewing the ten-year analysis. The cost to the government of expanding coverage over the ten years from 2014 to 2023 will be $1.6 trillion, not $940 billion.
Such talk infuriates Peter Orszag, the head of the White House’s Office of Management and Budget and the administration’s most important health expert. He insists all the fuss about ten-year windows obscures three big ways in which this reform will curb costs, by shifting the incentives in the delivery system to reward value and results rather than mere piecework (or “fee for service”).
The first big idea that he stresses is the creation of a new agency to spearhead innovation and scale up any of the many pilot schemes contained in the bills that manage to reform delivery or payment systems. It is true that the reform effort began with earnest intent to “bend the cost curve”. Alas, explains Mark McClellan of the Brookings Institution, the most meaningful proposals have since been watered down or delayed.
The second lever of change that Mr Orszag says is underappreciated is an excise tax introduced on the most expensive (or “Cadillac”) insurance plans. Most economists like this idea, as it is likely to discourage excessive consumption of health care. Unfortunately, because of political pressure from labour unions and other groups, the Cadillac tax has been diluted, and delayed until 2018. Sceptics wonder if a future Congress will really implement this tax when the time comes. Mr Orszag is right that, if implemented, this provision will represent an important lever of cost control. But it’s a big “if”.
The third and strongest argument Mr Orszag makes is for the potential of an independent payment-advisory board on Medicare spending. Under the new law this group is to make recommendations to Congress on how to reduce the rate of growth in spending per head in Medicare if that expenditure exceeds a target figure.
Sceptics abound. Yes, the approach succeeded when used by the Pentagon to decide which military bases to shut down. But an earlier version of this idea, known as MedPAC, flopped because Congress simply ignored even worthy ideas that proved politically inconvenient. And the new law carves out a ten-year exemption for hospitals—appalling, when one considers that runaway costs and misaligned incentives in hospitals lie at the very heart of the cost problem. But Mr Orszag believes this approach will help in two ways: it insulates tough decisions from politics, and it encourages ongoing reform rather than one-shot heroics. Critics say that is a lot of faith to put in a weakened body.
All this points to the only certain thing about Obamacare: that this is just another episode in the long saga of health reform. Indeed, by adding tens of millions of people to an unreformed and unsustainably expensive health system, this reform makes it all the more urgent to tackle the question of cost.
On that, at least, left and right seem to agree. Paul Krugman, an economics professor at Princeton and a liberal booster of reform, wrote on the eve of the votes: “There is, as always, a tunnel at the end of the tunnel: we’ll spend years if not decades fixing this thing.” Robert Moffit of the Heritage Foundation, a conservative think-tank opposed to the effort, agrees, albeit in darker terms: “This marks the beginning of the next phase of this hundred years war.”
Mar 25th 2010 | WASHINGTON, DC | From The Economist print edition
THE Barack Obama who addressed Americans at near midnight on March 21st had every right to gloat. After a year in which his proposals for health reform were savaged by Republicans and leftists alike, and declared dead half a dozen times by everyone, he has somehow managed to get them over the finishing line.
The reform package is made up of two bills. One, a flawed and pork-laden version of health reform passed by the Senate before Christmas, has now been approved by the House; Mr Obama signed this on March 23rd. The other is a “reconciliation” bill meant to fix some of its flaws, and the House also passed this. Because this is a new bill, the Senate has to pass it too. It can do so under special “reconciliation” rules that require only 50 votes, not a filibuster-proof 60. As The Economist went to press, it looked set to do so.
What will it mean for America? The short answer is that the reforms will expand coverage dramatically, but at a heavy cost to the taxpayer. They will also do far too little to rein in the underlying drivers of America’s roaring health inflation. Analysis by RAND, an independent think-tank, suggests that the reforms will actually increase America’s overall health spending—public plus private—by about 2% by 2020, in comparison with a scenario of no reform (see chart). And that rate of spending was already unsustainable at a time when the baby-boomers are starting to retire in large numbers.
The heart of the new reform is a restructuring of America’s flawed insurance market. Insurers now face tough new regulations forbidding such practices as dropping people with “pre-existing conditions” (real or trumped up), or putting lifetime caps on coverage.
In return, though, the insurance industry will benefit from a big expansion of the country’s private insurance market. Heavily regulated exchanges, or insurance marketplaces, would be set up so that consumers not covered by employer-provided plans today could shop for ones more easily. Insurers would be required to offer plans that meet minimum government requirements for health coverage, and to price them transparently.
Some 32m of the country’s 49m or so uninsured (most of those left out of the new scheme are undocumented aliens) would, starting in 2014, be required to take out insurance. The working poor and uninsured earning up to $88,000 a year get subsidies on a sliding scale so that they can afford to buy coverage; the poorest of all will be added to the rolls of Medicaid, a health scheme for the indigent. It is this binding requirement on individuals that exercises conservatives most.
They point to recent studies done by the Cato Institute, a libertarian think-tank, which, they claim, are early warnings of trouble to come. Cato recently examined the impact of introducing health reforms similar to Obamacare in Massachusetts a few years ago. It estimates that the law has not improved people’s health, but has led to a “substantial crowdout of private coverage” and to 60% fewer young (and presumably healthy) adults moving to the state. It claims that the “leading estimates understate the law’s cost by at least one third.” Premiums have also risen.
If coverage is the new law’s strong point, cost control is its weakness. That is not to say that most ordinary people will pay more for coverage, as critics of reform noisily insist. True, some of those forced to buy insurance will earn too much to qualify for subsidies, and so will be spending more than they do today—but, in return, they will get insurance plans that offer more generous coverage than current basic plans. What is more, many other Americans may end up with lower premiums.
The vast majority of workers enjoy health insurance today through employer-provided schemes. RAND estimates that by 2019 the employer-provided system will benefit from 6m new (mostly healthy) customers, and that premiums for everyone in that system will drop by 2% versus business-as-usual.
Fine, but what about costs to the federal government and the overall health system? The Congressional Budget Office (CBO), a non-partisan agency, estimates that the new health reforms will cost the federal government some $940 billion over the next decade. Of that, roughly $400 billion will be spent by 2020 on the subsidies and about $500 billion on increased spending on Medicaid.
But that underestimates the full cost of this new reform. Elizabeth McGlynn of RAND points out that the huge numbers of newly insured—who now typically skip medical care or simply turn up, in a crisis, in emergency rooms—will soon consume a lot of routine medical services. She thinks this spending will expand the country’s health outlays even more than the direct cost to the federal exchequer.
This need not be a waste of money. Spending more on routine care today is sure to save some money in the long run: paying for someone to pop statin pills daily, for example, is much cheaper than treating his eventual heart attack. The snag is that economists disagree on whether and how much this will really save the government or the health system. What is clear, argues Ms McGlynn, is that this new spending will improve the health and probably extend the lives of those many unfortunates currently without insurance.
Paying the piper
So how is the bill going to be paid? The CBO’s analysis suggests that the federal deficit will be slashed by well over a trillion dollars over the next two decades by this reform. That suggests this reform effort is fiscally prudent. Not so, howl Republicans. Paul Ryan, a Republican congressman, believes the reforms will prove a “fiscal Frankenstein” (meaning the monster) because the CBO’s rules on “scoring” bills have led it to rely on several sleights of hand.
For example, insist critics, a big chunk of the savings is made up of politically implausible cuts in doctors’ reimbursements (known as the “doc fix”) and in Medicare, the government health scheme for the elderly. Also, some of the income provisions will kick in soon, but the main spending on subsidies will not begin until 2014—skewing the ten-year analysis. The cost to the government of expanding coverage over the ten years from 2014 to 2023 will be $1.6 trillion, not $940 billion.
Such talk infuriates Peter Orszag, the head of the White House’s Office of Management and Budget and the administration’s most important health expert. He insists all the fuss about ten-year windows obscures three big ways in which this reform will curb costs, by shifting the incentives in the delivery system to reward value and results rather than mere piecework (or “fee for service”).
The first big idea that he stresses is the creation of a new agency to spearhead innovation and scale up any of the many pilot schemes contained in the bills that manage to reform delivery or payment systems. It is true that the reform effort began with earnest intent to “bend the cost curve”. Alas, explains Mark McClellan of the Brookings Institution, the most meaningful proposals have since been watered down or delayed.
The second lever of change that Mr Orszag says is underappreciated is an excise tax introduced on the most expensive (or “Cadillac”) insurance plans. Most economists like this idea, as it is likely to discourage excessive consumption of health care. Unfortunately, because of political pressure from labour unions and other groups, the Cadillac tax has been diluted, and delayed until 2018. Sceptics wonder if a future Congress will really implement this tax when the time comes. Mr Orszag is right that, if implemented, this provision will represent an important lever of cost control. But it’s a big “if”.
The third and strongest argument Mr Orszag makes is for the potential of an independent payment-advisory board on Medicare spending. Under the new law this group is to make recommendations to Congress on how to reduce the rate of growth in spending per head in Medicare if that expenditure exceeds a target figure.
Sceptics abound. Yes, the approach succeeded when used by the Pentagon to decide which military bases to shut down. But an earlier version of this idea, known as MedPAC, flopped because Congress simply ignored even worthy ideas that proved politically inconvenient. And the new law carves out a ten-year exemption for hospitals—appalling, when one considers that runaway costs and misaligned incentives in hospitals lie at the very heart of the cost problem. But Mr Orszag believes this approach will help in two ways: it insulates tough decisions from politics, and it encourages ongoing reform rather than one-shot heroics. Critics say that is a lot of faith to put in a weakened body.
All this points to the only certain thing about Obamacare: that this is just another episode in the long saga of health reform. Indeed, by adding tens of millions of people to an unreformed and unsustainably expensive health system, this reform makes it all the more urgent to tackle the question of cost.
On that, at least, left and right seem to agree. Paul Krugman, an economics professor at Princeton and a liberal booster of reform, wrote on the eve of the votes: “There is, as always, a tunnel at the end of the tunnel: we’ll spend years if not decades fixing this thing.” Robert Moffit of the Heritage Foundation, a conservative think-tank opposed to the effort, agrees, albeit in darker terms: “This marks the beginning of the next phase of this hundred years war.”
Friday, March 26, 2010
欧洲经济麻烦不断 金融海啸出现“第二波”？
欧洲经济最近麻烦不断,冰岛危机悬案未了,希腊危机又沸沸扬扬,索罗斯基金做空欧元,罗杰斯放言英镑崩盘,还有传言说西班牙也要爆发债务危机,仿佛金 融海啸的“第二波”即将拉开序幕。
以经济总量来衡量,冰岛和希腊都是很小的国家,希腊的GDP总值仅占欧元区的2.5%,其债务危机并不足以动摇欧元的基础。冰岛和希腊政府此时把“烂 账”摊开,其实是想在金融危机结束前,尽可能让别国分摊一些亏损。美国次级债危机引发的金融海啸是对欧洲经济的第一次打击。两大主要货币在2009年联袂 贬值对欧洲经济构成了第二次打击。两次打击使反应迟钝的欧洲经济措手不及,毫无还手之力。
2009年以欧元区、美中日英为代表的五大货币总量增长为8.38%,中国以+27.59%排名第一,英国以+13.91排名第二,欧元区仅增加了 4.53%。英国的广义货币增长仅次于中国,却没有伴随经济复苏。英国2009年的GDP总额为2.6万多亿美元,广义货币总量3万多亿美元,其 M2/GDP之比为1.15:1,这应该就是罗杰斯先生预言英镑即将崩盘的原因之一。
G20会议启动了“发票票,吹泡泡”的经济政策。中美两国的“发票票”立竿见影,资产泡沫应声而起,为国民经济注入
了信心。中国股市楼市相互激励,两个“泡泡”都很靓丽,美国刚刚吹起了一个“泡泡”,股市从道琼斯指数最低6500点区间反弹到万点以上。现在,中美 两国的泡沫经济复苏正在化虚为实,而在英国经济中,超额货币的注入并没有产生明显的泡沫效应,基本面的复苏更无踪无影。对全球经济复苏的主要威胁并不在喧 嚣的欧洲大陆,而在沉默的英国经济。但从大趋势看,经济复苏的态势已经确立,悲观传言中的“第二波”危机并不存在,因为金融海啸的后果之一是强化了主要经 济体之间的经济一体化,一损俱损,一荣俱荣。(华西都市报)
以经济总量来衡量,冰岛和希腊都是很小的国家,希腊的GDP总值仅占欧元区的2.5%,其债务危机并不足以动摇欧元的基础。冰岛和希腊政府此时把“烂 账”摊开,其实是想在金融危机结束前,尽可能让别国分摊一些亏损。美国次级债危机引发的金融海啸是对欧洲经济的第一次打击。两大主要货币在2009年联袂 贬值对欧洲经济构成了第二次打击。两次打击使反应迟钝的欧洲经济措手不及,毫无还手之力。
2009年以欧元区、美中日英为代表的五大货币总量增长为8.38%,中国以+27.59%排名第一,英国以+13.91排名第二,欧元区仅增加了 4.53%。英国的广义货币增长仅次于中国,却没有伴随经济复苏。英国2009年的GDP总额为2.6万多亿美元,广义货币总量3万多亿美元,其 M2/GDP之比为1.15:1,这应该就是罗杰斯先生预言英镑即将崩盘的原因之一。
G20会议启动了“发票票,吹泡泡”的经济政策。中美两国的“发票票”立竿见影,资产泡沫应声而起,为国民经济注入
了信心。中国股市楼市相互激励,两个“泡泡”都很靓丽,美国刚刚吹起了一个“泡泡”,股市从道琼斯指数最低6500点区间反弹到万点以上。现在,中美 两国的泡沫经济复苏正在化虚为实,而在英国经济中,超额货币的注入并没有产生明显的泡沫效应,基本面的复苏更无踪无影。对全球经济复苏的主要威胁并不在喧 嚣的欧洲大陆,而在沉默的英国经济。但从大趋势看,经济复苏的态势已经确立,悲观传言中的“第二波”危机并不存在,因为金融海啸的后果之一是强化了主要经 济体之间的经济一体化,一损俱损,一荣俱荣。(华西都市报)
Thursday, March 25, 2010
Debt Fears Send Rates Up
By TOM LAURICELLA
A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher—a climb that would jack up the government's borrowing costs and spell trouble for the fragile housing market.
For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.
This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.
The poor demand, especially from foreign investors, sent the bonds' prices sharply lower and yields higher. It lifted the yield on the 10-year note to 3.9%—its highest since last June, and approaching the psychologically important 4% mark. That mark has been pierced only briefly since the financial crisis in 2008.
Investors' response marked a big shift from auctions in recent months in which major foreign buyers, such as central banks, had snapped up Treasurys. It could spell trouble for the U.S. housing market; the rates on many mortgages are linked to the yield on the 10-year note.
The move up in its yield coincides with the impending end of the Federal Reserve's program to support the mortgage market. The Fed has bought $1.25 trillion of mortgage-backed securities, bolstering their prices and thus holding down their yields.
In the past two days, mortgage rates have also ticked up. The average 30-year mortgage rate rose to 5.13% on Thursday from 5.06% on Monday, according to HSH Associates in Pompton Plains, New Jersey.
Concerns about the U.S. budget deficit are beginning to hurt the Treasury market, says Steve Rodosky, head of Treasury and derivatives trading at bond giant Pacific Investment Management Co. He says he is increasingly worried about the U.S. fiscal outlook. "The government needs to take real action rather than pay lip service" to addressing the fiscal problems.
In all, the U.S. government is expected to sell $1.6 trillion in debt this year, including the $118 billion sold this week.
There are some temporary factors behind the lackluster demand for this week's Treasury offerings, such as a reluctance by Japanese investors to make new investments ahead of their fiscal year-end March 31.
While this could be just "noise" in the markets, "I think it involves a greater, long-term concern about deficits in the U.S. last 10 or 20 years, about Social Security being in a deficit," said Brian Fabbri, chief economist North America at BNP Paribas. "And all of the concerns about the U.S. have been heightened by concerns about Greece."
The jitters in Treasurys haven't spread to other markets. Stocks remain near 18-month highs. The Dow Jones Industrial Average came within 45 points of the 11000 mark on Thursday before falling back. It closed up 5.06 points at 10841.21.
Bruce Bittles, a strategist at R.W. Baird & Co., said he remains bullish on stocks for now. But he said if the yield on 10-year Treasurys creeps above 4%, that would be an important signal to start dialing back his clients' stock holdings. "In a debt-based economy like we have in the U.S., it doesn't take much of a hit from bond yields to cause some real pain," by raising costs to finance economic activity, Mr. Bittles said.
The dollar has rallied, even as Treasurys have sold off. Usually, concerns about budget deficits send a currency lower. But investors appear to be betting on better prospects for a recovery in the U.S. than in Europe.
Adding to the focus on the Treasury market's woes this week has been an unusual development in an important, but usually ignored, market: interest-rate swaps. These common derivatives entail contracts that typically involve trading one stream of interest income for another. And in the past week, investors are being paid more to own U.S. Treasurys than U.S. corporate bonds.
This development "is causing a lot of people to start scratching their heads, trying to understand what's going on," said BNP's Mr. Fabbri. One explanation, he said, may be investors are more comfortable with the risks of owning bonds backed by U.S. corporations than the government. The big question is whether this fall in demand for Treasurys, and spurt in their yields, will prove temporary or is the start of a trend.
For the most part, investors have taken at face value statements from Federal Reserve officials, including Chairman Ben Bernanke on Thursday, that the Fed isn't about to start raising the short-term rate it controls. But a growing number of investors expect at its next policy-making meeting in late April, the Fed may step back from its pledge to keep short-term rates low for an "extended period."
Longer-term interest rates aren't set by the Fed but move on their own, in response to supply and demand. And some argue that the bond market has been too confident about these longer-term rates remaining low—at a time when the economy is slowly improving and the government is running huge budget deficits.
—Deborah Lynn Blumberg, Min Zeng and Prabha Natarajan contributed to this article.
Write to Tom Lauricella at tom.lauricella@wsj.com
A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher—a climb that would jack up the government's borrowing costs and spell trouble for the fragile housing market.
For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.
This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.
The poor demand, especially from foreign investors, sent the bonds' prices sharply lower and yields higher. It lifted the yield on the 10-year note to 3.9%—its highest since last June, and approaching the psychologically important 4% mark. That mark has been pierced only briefly since the financial crisis in 2008.
Investors' response marked a big shift from auctions in recent months in which major foreign buyers, such as central banks, had snapped up Treasurys. It could spell trouble for the U.S. housing market; the rates on many mortgages are linked to the yield on the 10-year note.
The move up in its yield coincides with the impending end of the Federal Reserve's program to support the mortgage market. The Fed has bought $1.25 trillion of mortgage-backed securities, bolstering their prices and thus holding down their yields.
In the past two days, mortgage rates have also ticked up. The average 30-year mortgage rate rose to 5.13% on Thursday from 5.06% on Monday, according to HSH Associates in Pompton Plains, New Jersey.
Concerns about the U.S. budget deficit are beginning to hurt the Treasury market, says Steve Rodosky, head of Treasury and derivatives trading at bond giant Pacific Investment Management Co. He says he is increasingly worried about the U.S. fiscal outlook. "The government needs to take real action rather than pay lip service" to addressing the fiscal problems.
In all, the U.S. government is expected to sell $1.6 trillion in debt this year, including the $118 billion sold this week.
There are some temporary factors behind the lackluster demand for this week's Treasury offerings, such as a reluctance by Japanese investors to make new investments ahead of their fiscal year-end March 31.
While this could be just "noise" in the markets, "I think it involves a greater, long-term concern about deficits in the U.S. last 10 or 20 years, about Social Security being in a deficit," said Brian Fabbri, chief economist North America at BNP Paribas. "And all of the concerns about the U.S. have been heightened by concerns about Greece."
The jitters in Treasurys haven't spread to other markets. Stocks remain near 18-month highs. The Dow Jones Industrial Average came within 45 points of the 11000 mark on Thursday before falling back. It closed up 5.06 points at 10841.21.
Bruce Bittles, a strategist at R.W. Baird & Co., said he remains bullish on stocks for now. But he said if the yield on 10-year Treasurys creeps above 4%, that would be an important signal to start dialing back his clients' stock holdings. "In a debt-based economy like we have in the U.S., it doesn't take much of a hit from bond yields to cause some real pain," by raising costs to finance economic activity, Mr. Bittles said.
The dollar has rallied, even as Treasurys have sold off. Usually, concerns about budget deficits send a currency lower. But investors appear to be betting on better prospects for a recovery in the U.S. than in Europe.
Adding to the focus on the Treasury market's woes this week has been an unusual development in an important, but usually ignored, market: interest-rate swaps. These common derivatives entail contracts that typically involve trading one stream of interest income for another. And in the past week, investors are being paid more to own U.S. Treasurys than U.S. corporate bonds.
This development "is causing a lot of people to start scratching their heads, trying to understand what's going on," said BNP's Mr. Fabbri. One explanation, he said, may be investors are more comfortable with the risks of owning bonds backed by U.S. corporations than the government. The big question is whether this fall in demand for Treasurys, and spurt in their yields, will prove temporary or is the start of a trend.
For the most part, investors have taken at face value statements from Federal Reserve officials, including Chairman Ben Bernanke on Thursday, that the Fed isn't about to start raising the short-term rate it controls. But a growing number of investors expect at its next policy-making meeting in late April, the Fed may step back from its pledge to keep short-term rates low for an "extended period."
Longer-term interest rates aren't set by the Fed but move on their own, in response to supply and demand. And some argue that the bond market has been too confident about these longer-term rates remaining low—at a time when the economy is slowly improving and the government is running huge budget deficits.
—Deborah Lynn Blumberg, Min Zeng and Prabha Natarajan contributed to this article.
Write to Tom Lauricella at tom.lauricella@wsj.com
Ten-Year Swap Spread Turns Negative on Renewed Demand for Risk
By Susanne Walker
March 23 (Bloomberg) -- The 10-year U.S. swap spread turned negative for the first time on record amid rising demand for higher-yielding assets such as corporate and emerging market securities.
A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate, or Libor. The 30-year swap spread turned negative for the first time in August 2008, after the collapse of Lehman Brothers Holdings Inc. triggered a surge of hedging in swaps. The difference narrowed to negative 20.5 basis points today.
“It’s hedge-related activity related to new corporate issuance,” said Christian Cooper, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that trade with the Federal Reserve. “As more and more institutions receive, then swap rates will go lower.”
Interest Rate Hedging
Debt issued by financial firms is typically swapped from fixed-rate back into floating-rate payments, triggering receiving in swaps, which causes swap spreads to narrow. An increase in demand to pay fixed rates and receive floating forces swap spreads wider, provided Treasury yields are stable. Corporations that issue bonds also use the swaps market to hedge against changes in interest rates that may result in increased debt service costs.
The extra yield investors demand to own corporate bonds rather than government debt was unchanged yesterday at 154 basis points, or 1.54 percentage points, the narrowest since November 2007, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. High-yield debt returned a record 57.5 percent in 2009, and another 4.3 percent this year, according to the Bank of America index data.
“There’s a lot of money on the sidelines waiting for mortgage-backeds to cheapen up,” said Cooper. “In the absence of them getting cheaper and as the end of the buyback program comes near, people are looking for high quality spread products, so a good place to park is in swap spreads.”
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
March 23 (Bloomberg) -- The 10-year U.S. swap spread turned negative for the first time on record amid rising demand for higher-yielding assets such as corporate and emerging market securities.
The gap between the rate to exchange floating- for fixed- interest payments and comparable maturity Treasury yields for 10 years, known as the swap spread, narrowed to as low as negative 2.5 basis points, the lowest since at least 1988, when Bloomberg began collecting the data. The spread narrowed 5.38 basis points to negative 2.38 basis point at 3:12 p.m. in New York.
A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate, or Libor. The 30-year swap spread turned negative for the first time in August 2008, after the collapse of Lehman Brothers Holdings Inc. triggered a surge of hedging in swaps. The difference narrowed to negative 20.5 basis points today.
“It’s hedge-related activity related to new corporate issuance,” said Christian Cooper, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that trade with the Federal Reserve. “As more and more institutions receive, then swap rates will go lower.”
Interest Rate Hedging
Debt issued by financial firms is typically swapped from fixed-rate back into floating-rate payments, triggering receiving in swaps, which causes swap spreads to narrow. An increase in demand to pay fixed rates and receive floating forces swap spreads wider, provided Treasury yields are stable. Corporations that issue bonds also use the swaps market to hedge against changes in interest rates that may result in increased debt service costs.
The extra yield investors demand to own corporate bonds rather than government debt was unchanged yesterday at 154 basis points, or 1.54 percentage points, the narrowest since November 2007, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. High-yield debt returned a record 57.5 percent in 2009, and another 4.3 percent this year, according to the Bank of America index data.
“There’s a lot of money on the sidelines waiting for mortgage-backeds to cheapen up,” said Cooper. “In the absence of them getting cheaper and as the end of the buyback program comes near, people are looking for high quality spread products, so a good place to park is in swap spreads.”
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
Debt Anxiety Severs Some Usual Bonds In Markets
By TOM LAURICELLA And MARK GONGLOFF
Sovereign-debt jitters hit global markets, sending the dollar skyrocketing against the euro, Treasury prices sharply lower and stocks into retreat.
Much of the action was in the currency and bond markets, where worries about the debt crisis in Europe coupled with concerns about the ballooning supply of Treasurys. That spilled over into stocks, which had just clocked 10 gains in 11 trading days. Having just touched fresh 18-month highs on Tuesday, the Dow Jones Industrial Average lost 52.68 points, or 0.5%, to end at 10836.15. Commodities like oil and gold also dropped.
Aside from the size of the moves—10-year Treasurys had their worst day since July and the dollar had its biggest gain in two months—investors also were struck by their direction. Markets that typically move in opposite directions moved together. Treasurys, for example, typically rise when stocks fall; instead they both fell. Similarly, a rising dollar ordinarily might have been accompanied by more demand for Treasurys.
The euro fell to 10-month lows against the dollar after Fitch Ratings downgraded Portugal’s credit rating by one notch and issued a negative outlook for the euro-zone country. In addition, European Union officials continued to wrangle over how to handle Greece’s fiscal woes ahead of a two-day summit starting Thursday.
While the ratings downgrade wasn’t much of a surprise and European officials have been haggling for months, traders said the weight of concerns about the euro’s future finally pushed it below levels it had been holding for weeks. The selloff left the euro at $1.3325, down from $1.3501 late Tuesday.
“The market is growing very uneasy with the lack of certainty,” said Camilla Sutton, currency strategist at Scotia Capital.
The dollar also rallied strongly against the yen, rising to 92.16 yen from 90.41 yen.
“There’s been a broad move toward dollar strength,” said Todd Elmer, a currency strategist at Citigroup.
The dollar’s strength was even more notable given that it came amid broad weakness in Treasurys. Both usually benefit from any flight by investors toward safe assets.
Instead, Treasury prices tumbled, pushing the yield on the 10-year Treasury note, which moves in the opposite direction, to 3.83%, its highest level since Jan. 4. The one-day rise in the yield was the biggest, in percentage points, since July 23.
Some of the selling came as traders were forced to close out bets that rates in the interest-rate swaps market would widen against corresponding Treasury yields.
Some traders had made this bet as swap rates, which measure the cost of exchanging floating-rate corporate debt for fixed-rate debt, fell to nearly even with Treasury yields. Traders believed swap rates couldn’t possibly fall lower. Instead, for the first time on record, 10-year swap rates on Tuesday fell below 10-year Treasury yields, making this a losing bet. Traders unwound it by selling Treasurys.
Making matters worse, a Treasury auction for new five-year debt garnered relatively poor reception, in part because of the continuing decline in Treasurys. The result was a self-reinforcing selloff.
Some observers fear that the market is finally starting to show the strain of absorbing a record flood of new Treasury issuance. One sign of that could be the unusual crossing of swap rates below Treasury yields, which could signal that investors see corporate debt as safer than Treasury debt.
“This is a first sign of stress leading to higher Treasury yields and is not to be missed,” James Caron, head of U.S. interest-rate strategy at Morgan Stanley, said in a note to clients.
For now, though, many other observers suggested the reasons for the move in Treasury yields were mainly technical, including quarter-ending pressures, and that little fundamentally had changed. The peak period of Treasury issuance has probably been reached, swap rates have narrowed relative to Treasurys steadily since last June, and Treasury yields are still within a trading range that has existed for at least that long
Sovereign-debt jitters hit global markets, sending the dollar skyrocketing against the euro, Treasury prices sharply lower and stocks into retreat.
Much of the action was in the currency and bond markets, where worries about the debt crisis in Europe coupled with concerns about the ballooning supply of Treasurys. That spilled over into stocks, which had just clocked 10 gains in 11 trading days. Having just touched fresh 18-month highs on Tuesday, the Dow Jones Industrial Average lost 52.68 points, or 0.5%, to end at 10836.15. Commodities like oil and gold also dropped.
Aside from the size of the moves—10-year Treasurys had their worst day since July and the dollar had its biggest gain in two months—investors also were struck by their direction. Markets that typically move in opposite directions moved together. Treasurys, for example, typically rise when stocks fall; instead they both fell. Similarly, a rising dollar ordinarily might have been accompanied by more demand for Treasurys.
The euro fell to 10-month lows against the dollar after Fitch Ratings downgraded Portugal’s credit rating by one notch and issued a negative outlook for the euro-zone country. In addition, European Union officials continued to wrangle over how to handle Greece’s fiscal woes ahead of a two-day summit starting Thursday.
While the ratings downgrade wasn’t much of a surprise and European officials have been haggling for months, traders said the weight of concerns about the euro’s future finally pushed it below levels it had been holding for weeks. The selloff left the euro at $1.3325, down from $1.3501 late Tuesday.
“The market is growing very uneasy with the lack of certainty,” said Camilla Sutton, currency strategist at Scotia Capital.
The dollar also rallied strongly against the yen, rising to 92.16 yen from 90.41 yen.
“There’s been a broad move toward dollar strength,” said Todd Elmer, a currency strategist at Citigroup.
The dollar’s strength was even more notable given that it came amid broad weakness in Treasurys. Both usually benefit from any flight by investors toward safe assets.
Instead, Treasury prices tumbled, pushing the yield on the 10-year Treasury note, which moves in the opposite direction, to 3.83%, its highest level since Jan. 4. The one-day rise in the yield was the biggest, in percentage points, since July 23.
Some of the selling came as traders were forced to close out bets that rates in the interest-rate swaps market would widen against corresponding Treasury yields.
Some traders had made this bet as swap rates, which measure the cost of exchanging floating-rate corporate debt for fixed-rate debt, fell to nearly even with Treasury yields. Traders believed swap rates couldn’t possibly fall lower. Instead, for the first time on record, 10-year swap rates on Tuesday fell below 10-year Treasury yields, making this a losing bet. Traders unwound it by selling Treasurys.
Making matters worse, a Treasury auction for new five-year debt garnered relatively poor reception, in part because of the continuing decline in Treasurys. The result was a self-reinforcing selloff.
Some observers fear that the market is finally starting to show the strain of absorbing a record flood of new Treasury issuance. One sign of that could be the unusual crossing of swap rates below Treasury yields, which could signal that investors see corporate debt as safer than Treasury debt.
“This is a first sign of stress leading to higher Treasury yields and is not to be missed,” James Caron, head of U.S. interest-rate strategy at Morgan Stanley, said in a note to clients.
For now, though, many other observers suggested the reasons for the move in Treasury yields were mainly technical, including quarter-ending pressures, and that little fundamentally had changed. The peak period of Treasury issuance has probably been reached, swap rates have narrowed relative to Treasurys steadily since last June, and Treasury yields are still within a trading range that has existed for at least that long
Sunday, March 21, 2010
STT Q4 estimate
STT Q4 estimate
Base Case
1.servicing $882*1.02 = 961
2.investment management fees = 231*(1.01) = 233
3.trading revenue, 270*0.9 = 240
4.security finance: 83 * 1 = 83
5.other: 60
6.net interest revenue: 729*0.9 = 660
(NIM 2%, 1.6% ex discount accretion)
total revenue 2.236 bil
expense $1.56*1.03 = 1.62
(2.236 - 1.62)*0.7 = 0.42 bil
EPS $0.84 > mean estimate $0.78
suggestions: overweight
Base Case
1.servicing $882*1.02 = 961
2.investment management fees = 231*(1.01) = 233
3.trading revenue, 270*0.9 = 240
4.security finance: 83 * 1 = 83
5.other: 60
6.net interest revenue: 729*0.9 = 660
(NIM 2%, 1.6% ex discount accretion)
total revenue 2.236 bil
expense $1.56*1.03 = 1.62
(2.236 - 1.62)*0.7 = 0.42 bil
EPS $0.84 > mean estimate $0.78
suggestions: overweight
Saturday, March 20, 2010
China Mobile Mulls Investments In Asia, Africa to Fuel Growth
By LORRAINE LUK
HONG KONG--China Mobile Ltd., the world's biggest mobile operator by subscribers, is looking at acquisition and investment targets in Asia and Africa as profit growth slows at home, its chairman said Friday.
But any expansion through acquisitions would be balanced with continued investments in its home market because there is still huge growth potential in mainland China, Chairman and Chief Executive Wang Jianzhou said in an interview Friday.
China is home to more than 730 million mobile subscribers, with the country's mobile penetration rate at close to 60%. That is still pretty low compared with developed markets like Japan and South Korea where penetration rates are around 100%.
China Mobile is the biggest player, but its profit growth has been slowing because of rising competition after a government mandated restructuring in late 2008 merged China's six telecom operators into three nationwide full-service operators, bringing in China Telecom Corp. into the mobile market. The mobile giant reported Thursday its net profit last year rose just 2.3% to 115.20 billion yuan (US$16.88 billion) from 112.63 billion yuan a year earlier, sharply lower than the 30% growth it saw in 2008.
"Rising competition has already hurt our profitability. The company wants to look for additional growth and opportunities overseas," Mr. Wang said.
His comments suggest China Mobile is taking a more aggressive acquisition approach after the industry restructuring as it seeks to generate further growth. Its only acquisition was in 2006 when it completed the 3.38 billion Hong Kong dollar ($435.5 million) purchase of Hong Kong mobile carrier China Resources Peoples Telephone Co.
China Mobile this month agreed to take a 20% stake in Shanghai Pudong Development Bank Co. for US$5.83 billion as it seeks to expand into mobile payment services. Last year, China Mobile also agreed to invest 17.7 billion New Taiwan dollars (US$557.2 million) in Taiwan's Far EasTone Communications Co. but the plan remains in limbo as the island keeps its phone-services providers off-limits to Chinese investment.
"We are still awaiting approval from the Taiwan government," said Mr. Wang. "We hope the Taiwan government will relax investment rules."
The executive cautioned that despite its hefty cash reserve--last year, the company had US$34 billion in cash--it won't chase "high-priced assets" and that is why it hasn't bid for the African assets of Kuwait's Mobile Telecommunications Co. or for a stake in Nigerian Telecommunications Ltd.
The Nigerian government is auctioning a stake in the telecom operator and China Mobile's rival, China Unicom (Hong Kong) Ltd., has said it would explore the possibility of an equity investment.
"We haven't participated in recent bids for African assets," said the executive, declining to elaborate further.
Analysts say overseas acquisitions would be the only way for China Mobile to boost its earnings growth in the near term as it takes time to generate revenue from value-added and data services.
Goldman Sachs recently raised its price target on China Mobile to HK$90 from HK$86, partly reflecting the anticipated earnings boost from company's planned investment in Shanghai Pudong Development Bank.
Mr. Wang reiterated he expects the deal to boost the company's earnings per share by 2% once completed. The executive also said he sees "great potential" in mobile payment services because China Mobile has more than 500 million subscribers.
HONG KONG--China Mobile Ltd., the world's biggest mobile operator by subscribers, is looking at acquisition and investment targets in Asia and Africa as profit growth slows at home, its chairman said Friday.
But any expansion through acquisitions would be balanced with continued investments in its home market because there is still huge growth potential in mainland China, Chairman and Chief Executive Wang Jianzhou said in an interview Friday.
China is home to more than 730 million mobile subscribers, with the country's mobile penetration rate at close to 60%. That is still pretty low compared with developed markets like Japan and South Korea where penetration rates are around 100%.
China Mobile is the biggest player, but its profit growth has been slowing because of rising competition after a government mandated restructuring in late 2008 merged China's six telecom operators into three nationwide full-service operators, bringing in China Telecom Corp. into the mobile market. The mobile giant reported Thursday its net profit last year rose just 2.3% to 115.20 billion yuan (US$16.88 billion) from 112.63 billion yuan a year earlier, sharply lower than the 30% growth it saw in 2008.
"Rising competition has already hurt our profitability. The company wants to look for additional growth and opportunities overseas," Mr. Wang said.
His comments suggest China Mobile is taking a more aggressive acquisition approach after the industry restructuring as it seeks to generate further growth. Its only acquisition was in 2006 when it completed the 3.38 billion Hong Kong dollar ($435.5 million) purchase of Hong Kong mobile carrier China Resources Peoples Telephone Co.
China Mobile this month agreed to take a 20% stake in Shanghai Pudong Development Bank Co. for US$5.83 billion as it seeks to expand into mobile payment services. Last year, China Mobile also agreed to invest 17.7 billion New Taiwan dollars (US$557.2 million) in Taiwan's Far EasTone Communications Co. but the plan remains in limbo as the island keeps its phone-services providers off-limits to Chinese investment.
"We are still awaiting approval from the Taiwan government," said Mr. Wang. "We hope the Taiwan government will relax investment rules."
The executive cautioned that despite its hefty cash reserve--last year, the company had US$34 billion in cash--it won't chase "high-priced assets" and that is why it hasn't bid for the African assets of Kuwait's Mobile Telecommunications Co. or for a stake in Nigerian Telecommunications Ltd.
The Nigerian government is auctioning a stake in the telecom operator and China Mobile's rival, China Unicom (Hong Kong) Ltd., has said it would explore the possibility of an equity investment.
"We haven't participated in recent bids for African assets," said the executive, declining to elaborate further.
Analysts say overseas acquisitions would be the only way for China Mobile to boost its earnings growth in the near term as it takes time to generate revenue from value-added and data services.
Goldman Sachs recently raised its price target on China Mobile to HK$90 from HK$86, partly reflecting the anticipated earnings boost from company's planned investment in Shanghai Pudong Development Bank.
Mr. Wang reiterated he expects the deal to boost the company's earnings per share by 2% once completed. The executive also said he sees "great potential" in mobile payment services because China Mobile has more than 500 million subscribers.
Small-Fry Munis Likely to Struggle
By MARK GONGLOFF And IANTHE JEANNE DUGAN
At a time of voracious market appetite for traditionally safe municipal bonds, some market watchers are warning municipal-debt investors to be choosy.
A still-struggling economy is squeezing municipal budgets across the board, but many larger governments are passing on their pain by choking off the flow of cash to the local level. As a result, some warn, there is a rising risk that smaller issuers of municipal bonds, such as towns, schools and hospitals, could strain to pay their debts.
"I prefer large states and cities, as problems within those areas are pushed to local governments," Larry Fink, chief executive of BlackRock Inc., the world's largest money-management firm by assets, said in an interview. "State general-obligation bonds are OK, but not small local bodies."
Mr. Fink's comments reflect a growing skepticism about the traditional safety of municipal debt. Across the country, revenues are declining, but expenses aren't. And public entities are wrestling with how to keep making payments on muni bonds, raising worries about rising risk.
"The assumption that an investment-grade rating is merited for all municipal debt is less tenable every day," said Kenneth Buckfire, CEO of investment-banking firm Miller Buckfire & Co. "This is eerily reminiscent of the early days of the subprime crisis, where everybody was comforted by the investment-grade ratings but nobody did any analysis."
Like Mr. Fink, he believes that states generally have a better chance of weathering the storm. He adds that smaller states would be more vulnerable than larger ones because they have fewer sources of revenue and less control over their budgets. He also is optimistic about debt issued by authorities providing public services such as ports and toll roads. These so-called revenue bonds, he says, would likely be less vulnerable to revenue shortfalls because they are collecting fees for services.
Showing the dichotomy, New Jersey Gov. Chris Christie, trying to close a $10.7 billion state budget deficit for the coming year, this past week proposed cutting $466 million in aid to local governments and $820 million in aid to local school districts.
Investors' interest in municipalities of all sizes and shapes is keen. Nearly $69 billion flowed into long-term municipal-bond mutual funds in 2009, up from about $8 billion in 2008 and $11 billion in 2007, according to the Investment Company Institute. Over $12 billion has been poured into muni funds so far this year.
Muni bonds of any size are typically among the safest investments available. Since last July, there have been 171 municipal default notices filed totaling about $5.3 billion in bonds, representing just 0.19% of the $2.8 trillion muni market, according to Municipal Market Advisors.
"For the most part, these are really resilient credits, and they know what they need to do to maintain access to the capital markets," says Tom Kozlik, municipal-credit analyst at Janney Capital Markets in Philadelphia, which underwrites muni bonds.
Of the 171 defaults, all but one were in riskier muni bonds, such as those backed by land or casinos, Mr. Kozlik notes.
But losing assistance from higher up the food chain means local governments may be forced to trim services, lay off workers or raise taxes to close their budget gaps. Such actions could hurt the local economy and their ability to raise revenues.
Many local governments already tightened their belts during the recession and may have little room left to maneuver. That may leave them more vulnerable to default in the event of an unexpected cash crunch.
Smaller issuers make up the majority of municipal-bond deals. This year, issues of $20 million or less have made up 67% of the total number of deals, based on Thomson Reuters data.
At a time of voracious market appetite for traditionally safe municipal bonds, some market watchers are warning municipal-debt investors to be choosy.
A still-struggling economy is squeezing municipal budgets across the board, but many larger governments are passing on their pain by choking off the flow of cash to the local level. As a result, some warn, there is a rising risk that smaller issuers of municipal bonds, such as towns, schools and hospitals, could strain to pay their debts.
"I prefer large states and cities, as problems within those areas are pushed to local governments," Larry Fink, chief executive of BlackRock Inc., the world's largest money-management firm by assets, said in an interview. "State general-obligation bonds are OK, but not small local bodies."
Mr. Fink's comments reflect a growing skepticism about the traditional safety of municipal debt. Across the country, revenues are declining, but expenses aren't. And public entities are wrestling with how to keep making payments on muni bonds, raising worries about rising risk.
"The assumption that an investment-grade rating is merited for all municipal debt is less tenable every day," said Kenneth Buckfire, CEO of investment-banking firm Miller Buckfire & Co. "This is eerily reminiscent of the early days of the subprime crisis, where everybody was comforted by the investment-grade ratings but nobody did any analysis."
Like Mr. Fink, he believes that states generally have a better chance of weathering the storm. He adds that smaller states would be more vulnerable than larger ones because they have fewer sources of revenue and less control over their budgets. He also is optimistic about debt issued by authorities providing public services such as ports and toll roads. These so-called revenue bonds, he says, would likely be less vulnerable to revenue shortfalls because they are collecting fees for services.
Showing the dichotomy, New Jersey Gov. Chris Christie, trying to close a $10.7 billion state budget deficit for the coming year, this past week proposed cutting $466 million in aid to local governments and $820 million in aid to local school districts.
Investors' interest in municipalities of all sizes and shapes is keen. Nearly $69 billion flowed into long-term municipal-bond mutual funds in 2009, up from about $8 billion in 2008 and $11 billion in 2007, according to the Investment Company Institute. Over $12 billion has been poured into muni funds so far this year.
Muni bonds of any size are typically among the safest investments available. Since last July, there have been 171 municipal default notices filed totaling about $5.3 billion in bonds, representing just 0.19% of the $2.8 trillion muni market, according to Municipal Market Advisors.
"For the most part, these are really resilient credits, and they know what they need to do to maintain access to the capital markets," says Tom Kozlik, municipal-credit analyst at Janney Capital Markets in Philadelphia, which underwrites muni bonds.
Of the 171 defaults, all but one were in riskier muni bonds, such as those backed by land or casinos, Mr. Kozlik notes.
But losing assistance from higher up the food chain means local governments may be forced to trim services, lay off workers or raise taxes to close their budget gaps. Such actions could hurt the local economy and their ability to raise revenues.
Many local governments already tightened their belts during the recession and may have little room left to maneuver. That may leave them more vulnerable to default in the event of an unexpected cash crunch.
Smaller issuers make up the majority of municipal-bond deals. This year, issues of $20 million or less have made up 67% of the total number of deals, based on Thomson Reuters data.
Friday, March 19, 2010
中铝与力拓洽谈几内亚蒙古矿山 料涉资165亿美元
中铝将与力拓合资开发几内亚铁矿 年产能达7000万吨
中国铝业公司宣布将与力拓成立合资公司，联合开发力拓持有的位于西非几内亚的世界级铁矿西芒杜项目，该项目每年产能将不低于7000万吨。(新华网)
相关报道：
中铝与力拓洽谈几内亚蒙古矿山 料涉资165亿美元
没有永远的敌人，只有永远的利益。尽管因"坏孩子"必和必拓捣乱而致使注资力拓失败，但中国铝业公司(下称"中铝")还是选择了"尽弃前嫌"，再次" 握手"力拓。
昨日，中铝副总经理吕友清告诉早报记者，目前中铝正在与力拓洽谈合资开发蒙古Oyu Tolgoi铜金矿项目和几内亚Simandou铁矿石项目。另外，本周末力拓矿业集团总裁、首席执行官汤姆·艾博年(Tom Albanese)将到访北京，目前双方正在安排两矿山合资开发项目的相关谈判事宜。
吕友清说，和力拓合作符合公司发展战略，目前正在洽谈的几内亚铁矿石项目和蒙古铜金矿两个项目，但是出资额、股权方面不能透露。
"合伙人"中铝
据了解，中铝目前与力拓商谈两处矿山项目预计成本超过百亿美元。有报道称，几内亚Simandou铁矿石项目开采成本预计为120亿美元，蒙古Oyu Tolgoi铜金矿项目总金额预计达45亿美元。
Simandou是目前全球最大的未开发铁矿石矿藏，其铁矿石储量约22.5亿吨，且将近一半储量的铁矿石品位在65%左右。
蒙古Oyu Tolgoi矿是世界上尚未开发的最大铜金矿，距离中蒙边境仅为200公里。
记者了解到，力拓对Oyu Tolgoi铜金矿的投资是通过其对加拿大艾芬豪矿业公司的持股实现的。2006年10月，与蒙古政府签订合同后，力拓又以3.88亿美元再次增持艾芬豪矿业9.95%的股份。
"钢之家"一位分析师表示，因为Oyu Tolgoi矿区的地理位置距中国很近，如果能够有中国的基础设施、物流以及营销方面的配合，那么业务合作是很可能的。虽然力拓曾经撕毁与中铝的合作协议，但力拓终究会再找到中铝"这个再合适不过的合伙人"。
当然，中铝也看好蒙古Oyu Tolgoi铜金矿项目。"鉴于中铝是中国最大的有色金属公司，而中国和蒙古有地理接壤的便利，我们认为如果有中铝这样的大公司涉足项目，则会对项目带来一些有益的推进。"中铝总经理熊维平在接受外媒采访时表示。
谈成几率几何？
去年，力拓与中铝关系曾因195亿美元股权和资产联盟交易"流产"而变得尴尬，不过之后双方特别是力拓一直致力于修复关系。
"这不会影响中铝的发展，也不会影响我们坚定贯彻战略、成长为全球矿业公司的信心。"熊维平表示。
据悉，力拓矿业集团总裁、首席执行官汤姆·艾博年将于3月20日至22日赴京参加中国发展高层论坛，业内人士称此次北京之行或是一次"修复之旅"。
"能否谈成，要看双方的工作力度。"吕友清对早报记者表示，借此艾博年赴京参会的机会，目前双方正在安排相关谈判事宜。
在铁矿石谈判陷入僵局、"胡士泰案"将要开庭的"风口浪尖"之际，力拓再邀中铝合伙以"示好中国"，但是这一次能谈成吗？几率到底有多大？不过，目前中铝和力拓老总已经表态，将促进双方在项目上的合作。
力拓矿业集团董事长杜立石(Jan du Plessis)在周一该公司年度报告中称，力拓将致力于拓展与中铝的关系，并寻找符合双方利益的商业机会。
据中铝人士介绍，中铝的战略重点是，将生产转移至资源和能源密集型地区。"我们之所以投资力拓，是因为我们对全球矿业和力拓的潜在价值感到乐观。近来有不少关于此事的流言，但我可以很负责地向你们保证，我们并没有售股的计划或这方面的讨论，也没有处理力拓持股的计划或讨论。"熊维平接受外媒采访时表示。
不过，业内专家并不很看好两者的合作。有分析师表示，双方在股份收购方面进一步合作的可能性比较小，必和必拓的插手，使得力拓目前的财务压力已有相当缓解，不过在业务方面的合作更有可能。力拓在铜、铝等资源的占有量非常大，而中铝本身也是中国铝占有量最大的公司，因此两者之间项目合作"很有的谈"。(东方早报)
中国铝业公司宣布将与力拓成立合资公司，联合开发力拓持有的位于西非几内亚的世界级铁矿西芒杜项目，该项目每年产能将不低于7000万吨。(新华网)
相关报道：
中铝与力拓洽谈几内亚蒙古矿山 料涉资165亿美元
没有永远的敌人，只有永远的利益。尽管因"坏孩子"必和必拓捣乱而致使注资力拓失败，但中国铝业公司(下称"中铝")还是选择了"尽弃前嫌"，再次" 握手"力拓。
昨日，中铝副总经理吕友清告诉早报记者，目前中铝正在与力拓洽谈合资开发蒙古Oyu Tolgoi铜金矿项目和几内亚Simandou铁矿石项目。另外，本周末力拓矿业集团总裁、首席执行官汤姆·艾博年(Tom Albanese)将到访北京，目前双方正在安排两矿山合资开发项目的相关谈判事宜。
吕友清说，和力拓合作符合公司发展战略，目前正在洽谈的几内亚铁矿石项目和蒙古铜金矿两个项目，但是出资额、股权方面不能透露。
"合伙人"中铝
据了解，中铝目前与力拓商谈两处矿山项目预计成本超过百亿美元。有报道称，几内亚Simandou铁矿石项目开采成本预计为120亿美元，蒙古Oyu Tolgoi铜金矿项目总金额预计达45亿美元。
Simandou是目前全球最大的未开发铁矿石矿藏，其铁矿石储量约22.5亿吨，且将近一半储量的铁矿石品位在65%左右。
蒙古Oyu Tolgoi矿是世界上尚未开发的最大铜金矿，距离中蒙边境仅为200公里。
记者了解到，力拓对Oyu Tolgoi铜金矿的投资是通过其对加拿大艾芬豪矿业公司的持股实现的。2006年10月，与蒙古政府签订合同后，力拓又以3.88亿美元再次增持艾芬豪矿业9.95%的股份。
"钢之家"一位分析师表示，因为Oyu Tolgoi矿区的地理位置距中国很近，如果能够有中国的基础设施、物流以及营销方面的配合，那么业务合作是很可能的。虽然力拓曾经撕毁与中铝的合作协议，但力拓终究会再找到中铝"这个再合适不过的合伙人"。
当然，中铝也看好蒙古Oyu Tolgoi铜金矿项目。"鉴于中铝是中国最大的有色金属公司，而中国和蒙古有地理接壤的便利，我们认为如果有中铝这样的大公司涉足项目，则会对项目带来一些有益的推进。"中铝总经理熊维平在接受外媒采访时表示。
谈成几率几何？
去年，力拓与中铝关系曾因195亿美元股权和资产联盟交易"流产"而变得尴尬，不过之后双方特别是力拓一直致力于修复关系。
"这不会影响中铝的发展，也不会影响我们坚定贯彻战略、成长为全球矿业公司的信心。"熊维平表示。
据悉，力拓矿业集团总裁、首席执行官汤姆·艾博年将于3月20日至22日赴京参加中国发展高层论坛，业内人士称此次北京之行或是一次"修复之旅"。
"能否谈成，要看双方的工作力度。"吕友清对早报记者表示，借此艾博年赴京参会的机会，目前双方正在安排相关谈判事宜。
在铁矿石谈判陷入僵局、"胡士泰案"将要开庭的"风口浪尖"之际，力拓再邀中铝合伙以"示好中国"，但是这一次能谈成吗？几率到底有多大？不过，目前中铝和力拓老总已经表态，将促进双方在项目上的合作。
力拓矿业集团董事长杜立石(Jan du Plessis)在周一该公司年度报告中称，力拓将致力于拓展与中铝的关系，并寻找符合双方利益的商业机会。
据中铝人士介绍，中铝的战略重点是，将生产转移至资源和能源密集型地区。"我们之所以投资力拓，是因为我们对全球矿业和力拓的潜在价值感到乐观。近来有不少关于此事的流言，但我可以很负责地向你们保证，我们并没有售股的计划或这方面的讨论，也没有处理力拓持股的计划或讨论。"熊维平接受外媒采访时表示。
不过，业内专家并不很看好两者的合作。有分析师表示，双方在股份收购方面进一步合作的可能性比较小，必和必拓的插手，使得力拓目前的财务压力已有相当缓解，不过在业务方面的合作更有可能。力拓在铜、铝等资源的占有量非常大，而中铝本身也是中国铝占有量最大的公司，因此两者之间项目合作"很有的谈"。(东方早报)
Stocks Rise as Corporate Profit Outlook Improves; Pound Falls
By Justin Carrigan
March 19 (Bloomberg) -- Stocks rose in Europe and Asia, led by banks, as an improving outlook for the global economy lifted expectations for corporate earnings. The pound fell and industrial metals advanced.
The Stoxx Europe 600 Index advanced 0.5 percent at 10:16 a.m. in London as three shares gained for every two that fell. The pound weakened against all 16 of its most-traded peers tracked by Bloomberg, and the Swiss franc strengthened versus 15. Copper rose 0.3 percent, and oil dropped below $82 a barrel. Greek bonds fell, with the yield on the government’s benchmark two-year note rising 15 basis points.
Investors became more optimistic on the economy and corporate earnings after Lloyds Banking Group Plc, the U.K. mortgage lender bailed out by the government, said today it expects to return to profit this year. Gains for stocks were limited as divisions grew with the European Union over how to help Greece tackle its financial crisis.
“We have to see financial shares rise for the stock market to extend gains,” said Pierre-Alexis Dumont, a fund manager at OFI Asset Management in Paris, which oversees $27 billion in assets. The Lloyds news is “evidently positive. This means the health of U.K. banks can recover more quickly than expected.”
The MSCI World Index of 23 developed nations’ stocks rose 0.2 percent. Lloyds surged 7.8 percent in London, the biggest gain since October. Royal Bank of Scotland Group Plc, the largest government-owned U.K. bank, climbed 5.6 percent.
Futures Gain
Futures on the S&P 500 slipped 0.1 percent after the benchmark gauge for U.S. equities closed little changed yesterday near its highest level since September 2008. Government reports yesterday showed initial unemployment claims dropped by 5,000 last week, and the consumer price index was unchanged, adding to evidence the economy is recovering without stoking inflation.
The MSCI Asia Pacific Index rallied 0.6 percent as exporters gained. Sony Corp. climbed 2.6 percent in Tokyo. Advantech Co., an industrial-computer maker that gets a third of its sales in North America, jumped 4.6 percent in Taipei. Kia Motors Corp., South Korea’s second-largest automaker, gained 4.2 percent in Seoul after saying it will boost production capacity in Europe.
The MSCI Emerging Markets Index rose 0.1 percent, headed for its sixth weekly advance, the longest rally since May. Emerging-market equity funds received the biggest inflows in two months, according to EPFR Global data for the week ending March 17. South Africa’s rand weakened 0.4 percent against the dollar.
Pound’s Drop
The pound fell 0.7 percent against the dollar and 0.6 percent versus the euro after Bank of England policy maker Andrew Sentance said Britain may return to recession, adding to speculation the central bank will keep its benchmark interest rate at a record low.
The euro dropped 0.1 percent against the dollar, its third straight decline. Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund to overcome the debt crisis unless EU leaders agree to set up a lending facility at a March 25-26 summit. German officials said the IMF is the best option, while French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet said IMF aid would show the EU can’t solve its own crises.
Crude oil for April delivery fell 0.6 percent to $81.75 a barrel on the New York Mercantile Exchange at 9:20 a.m. London time, declining for a second day.
To contact the reporters on this story: Justin Carrigan at jcarrigan@bloomberg.net
March 19 (Bloomberg) -- Stocks rose in Europe and Asia, led by banks, as an improving outlook for the global economy lifted expectations for corporate earnings. The pound fell and industrial metals advanced.
The Stoxx Europe 600 Index advanced 0.5 percent at 10:16 a.m. in London as three shares gained for every two that fell. The pound weakened against all 16 of its most-traded peers tracked by Bloomberg, and the Swiss franc strengthened versus 15. Copper rose 0.3 percent, and oil dropped below $82 a barrel. Greek bonds fell, with the yield on the government’s benchmark two-year note rising 15 basis points.
Investors became more optimistic on the economy and corporate earnings after Lloyds Banking Group Plc, the U.K. mortgage lender bailed out by the government, said today it expects to return to profit this year. Gains for stocks were limited as divisions grew with the European Union over how to help Greece tackle its financial crisis.
“We have to see financial shares rise for the stock market to extend gains,” said Pierre-Alexis Dumont, a fund manager at OFI Asset Management in Paris, which oversees $27 billion in assets. The Lloyds news is “evidently positive. This means the health of U.K. banks can recover more quickly than expected.”
The MSCI World Index of 23 developed nations’ stocks rose 0.2 percent. Lloyds surged 7.8 percent in London, the biggest gain since October. Royal Bank of Scotland Group Plc, the largest government-owned U.K. bank, climbed 5.6 percent.
Futures Gain
Futures on the S&P 500 slipped 0.1 percent after the benchmark gauge for U.S. equities closed little changed yesterday near its highest level since September 2008. Government reports yesterday showed initial unemployment claims dropped by 5,000 last week, and the consumer price index was unchanged, adding to evidence the economy is recovering without stoking inflation.
The MSCI Asia Pacific Index rallied 0.6 percent as exporters gained. Sony Corp. climbed 2.6 percent in Tokyo. Advantech Co., an industrial-computer maker that gets a third of its sales in North America, jumped 4.6 percent in Taipei. Kia Motors Corp., South Korea’s second-largest automaker, gained 4.2 percent in Seoul after saying it will boost production capacity in Europe.
The MSCI Emerging Markets Index rose 0.1 percent, headed for its sixth weekly advance, the longest rally since May. Emerging-market equity funds received the biggest inflows in two months, according to EPFR Global data for the week ending March 17. South Africa’s rand weakened 0.4 percent against the dollar.
Pound’s Drop
The pound fell 0.7 percent against the dollar and 0.6 percent versus the euro after Bank of England policy maker Andrew Sentance said Britain may return to recession, adding to speculation the central bank will keep its benchmark interest rate at a record low.
The euro dropped 0.1 percent against the dollar, its third straight decline. Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund to overcome the debt crisis unless EU leaders agree to set up a lending facility at a March 25-26 summit. German officials said the IMF is the best option, while French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet said IMF aid would show the EU can’t solve its own crises.
Crude oil for April delivery fell 0.6 percent to $81.75 a barrel on the New York Mercantile Exchange at 9:20 a.m. London time, declining for a second day.
To contact the reporters on this story: Justin Carrigan at jcarrigan@bloomberg.net
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