Time for Next Move on Yuan Liberalization

Time for Next Move on Yuan Liberalization

By PETER STEIN

Last year, China made waves by letting foreign investors get their hands on more of its currency. This year, the big question for many is what China will let them do with that money.

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A Chinese bank worker counts a stack of 100-yuan notes at a bank in Hefei, east China's Anhui province on February 27, 2011.
.The first stage of a grand experiment took place last year, when China put in place measures that let people outside its borders for the first time trade in the currency of the world's second-biggest economy, creating a new market for offshore yuan and yuan-based securities.

The take-up has been swift and enthusiastic. Daily trading in offshore yuan now totals more than $600 million, according to Deutsche Bank AG. That's small by the standards of the $4-trillion-a-day foreign-exchange market but up sharply from only around $100 million in October. After helping sell about 36 billion yuan ($5.48 billion) of "dim sum bonds" last year in Hong Kong, bankers reckon this year's issuance could easily double that figure. One company is already working on launching what could be Hong Kong's first ever yuan-denominated share offering.

The reforms are having a global impact, allowing traders in London and New York to buy and sell what was until recently an isolated, walled-off currency. But the impact in Hong Kong, an offshore finance center that's nonetheless part of China, is especially powerful. Peter Pang, deputy chief executive of the Hong Kong Monetary Authority, told investors at a Goldman Sachs conference last week the ex-British territory's role as incubator of this new market is "probably the most important development in Hong Kong's evolution as an international financial center in recent decades."

Feeding this market are the piles of yuan mounting in this city's bank accounts. These totaled 314.9 billion yuan ($47.9 billion) as of Dec. 31, up fivefold from a year earlier, boosted by Beijing's efforts to promote use of yuan over dollars to settle China's overseas trade deals, as well as by expectations that the yuan's value will continue to rise over time. Economists are expecting those deposits to reach anywhere between 500 billion and 1 trillion yuan by the end of the year.

But there's a problem: What do you do with all that yuan? Pocketing 3% to 4% annual appreciation against the dollar is all fine and good, but can you put the money to work? Offshore-yuan securities help, but they're no substitute for being able to invest directly in China. And the yuan won't appreciate forever.

It's an important question for companies looking to raise funds through the offshore yuan market, as each must seek permission to bring the money they raise into China. And China gives Hong Kong banks with yuan deposits only a limited ability to invest that money in the mainland and make a return.

.Behind the reluctance to let yuan (also known as renminbi, or RMB) flow back into China is the specter of "hot money" controlled by shadowy hedge funds that some in China fear might destabilize the country's financial system. At the Goldman Sachs conference, a senior Chinese central banker acknowledged differences of opinion on this subject within China, while dismissing the fears as unfounded.

"Maybe you have noticed there is a lot of debate about hot money and international use of the RMB," said Xing Yujing, deputy director general of the monetary-policy department of the People's Bank of China, adding: "we should be aware of some false propositions."

Some policy makers apparently believe letting yuan flow back into China isn't necessary. Fang Xinghai, director general of Shanghai's financial services office, in January suggested at a public forum in Hong Kong that most funds raised here through yuan bonds should be kept offshore to promote the yuan's internationalization. Those aren't reassuring words for many wannabe bond issuers. Nothing spoils your appetite for dim-sum debt like being told you can't invest your money in China and earn a good return.

More promising are the prospects for a new investment quota that would allow foreign institutions the right to park some of their yuan in mainland Chinese stocks and bonds. Hong Kong officials say that program, long anticipated by players in the market, is under discussion.

Victor Chu, chairman of First Eastern Investment Group, predicted Beijing will soon allow more creative ways of pumping yuan back into China. One might allow private-equity firms to raise yuan offshore and invest it back onshore. That could inject a bit more long-term investment perspective into the market, since private-equity funds raise, deploy and recoup their funds over periods as long as eight to 10 years.

"Hong Kong will have a role to play because the expertise and action is here," Mr. Chu said.

To get to that point, though, China's leadership will need to accept that their goal of internationalizing the renminbi depends on giving people enough incentive to be part of the process.

Write to Peter Stein at peter.stein@wsj.com

团购网站黎明之前:中国市场惨烈厮杀不可避免

团购网站黎明之前:中国市场惨烈厮杀不可避免

文章来源: 经济观察报 于 2011-02-26 07:58:59
敬请注意:新闻取自各大新闻媒体，新闻内容并不代表本网立场！

团购网站已经成了中国创业者的新乐园。团购网站的鼻祖Groupon取得的巨大成功让很多人似乎看到了在短时间内打开财富之门的途径。在这一商业模式被引进中国的一年多里，大量的模仿者一哄而上，来自中国电子商业研究中心的数字显示，在过去一年里，初具规模的团购网站已经达到了1880家，这还不包括那些已经死去的或者并无生命力的700多家网站。

　　回顾过去的历次互联网创业大潮，似乎很难找到像团购这样如此低门槛，看上去又那么容易成功的商业模式。Groupon刚刚拒绝了Google高达60亿美元的收购计划，他们认为自己的价值将远远超过这个价格。这一行为无疑极大地激励了全球团购网站的创业者，他们因此相信，如果能将这一模式复制到自己的国度，成功将唾手可得。

　　乐观的心态弥漫着整个团购行业。然而，他们必须意识到，所有低门槛的行业都必须面临惊人的淘汰率，和更加残酷的丛林法则。在巨头出现并为这个行业树立新的门槛之前，很多参与者将折戟沉沙。这一幕在团购网站上演将毫无悬念。创新工场董事长李开复就曾预言，最后只有大约10家网站会成为幸存者。李开复的预言会否成真姑且不论，唯一可以肯定的是，在团购网站的黎明到来之前，在这个越来越拥挤的行业，一场惨烈的厮杀不可避免。

　　乱世

　　今年年初，美团网和糯米网相继推出了高达1.3亿元和2亿元的广告投放计划，拉手、满座、24券等网站也表示，“今年将是树品牌的一年”，将大力加强广告投放力度。为了聚拢人气，有的网站推出了以房子、汽车为奖品的抽奖，iPad、iPhone等更是成为团购网站的常规奖品。

　　“大家都吃了兴奋剂。”拉手网CEO吴波说。就业务量而言，拉手网在中国团购网站中名列前茅。与大多数团购网站领军者的意气风发不同，吴波给人的感觉比较沉稳和淡定。作为目前团购网站近乎疯狂的广告投放的参与者，他很无奈地表示，这并非出自他的本意，因为投入和产出已经偏离理性的轨道。“原来以为团购是在跑马拉松，不需要吃兴奋剂，但现在发现需要跑200米、500米，别人都在吃，有点害怕，就咬牙吃了。”他说。

　　吴波已经意识到2011年对他们生死攸关，这同时也是大部分团购网站对今年形势的判断。满座网CEO冯晓海给自己的时间更短。“三个月以后真正排名就会比较清晰了。”冯晓海说。他曾因创办爱卡汽车网并在国内首推汽车团购而一战成名。这位年轻的CEO在北京东直门一间并不宽敞的办公室里，表达了他对这个行业格局的清晰判断。他认为，洗牌从去年10月就已经开始，已经有一波网站在这个时间点之后倒下。在未来的三个月，将会有新一轮的淘汰浪潮。“因为从行业的规则来讲，基本上三个月是一个价格战周期，包括广告推广、促销的阶段性效果，都将在三个月内显现。”

　　但他认为，那些在这一轮竞争中失败的企业未必会就此消失，而是可能被第二集团化。作为中国最早的团购网站之一，满座网的目标显然是成为第一集团中的一员。但现在看来，一年多成功经营的经验似乎也不足以保证他们实现这一目标。原因是，除了来自草根创业者的挑战，资本和互联网大鳄们已经毫不掩饰对中国团购这片沃土的觊觎。百度、腾讯、淘宝、360等公司都已宣布将介入团购业务，无论从哪个角度看，这些巨头在团购这种基于某个平台而生的互联网模式面前，都有很强的竞争力。他们的加入让这一领域的竞争变得更加复杂。

　　但最令中国团购的先行者们担忧的，可能是Groupon的强势入侵。这家当今世界最具潜力的网站(据传其IPO规模将达150亿美元)和它自视甚高的创始人AndrewMason想到中国市场几乎是理所当然的事。他们以一种强悍的方式进入中国，虽然至今看上去一事无成，但至少已经打乱了中国同行的发展节奏。拉手网吴波承认，如果不是感到Groupon的威胁，他们不会往广告市场砸那么多钱。此外，Groupon大肆高薪挖人也让这个行业变得风声鹤唳，国内几个大的团购网站甚至达成君子协定，对在Groupon工作过的人将永不录用。“确有此事。”冯晓海说。

　　本质

　　在中国团购市场最终沦为大公司的殖民地之前，大多数团购网站并不打算举起白旗。毕竟，如果那些互联网大佬能单凭自身的资源优势轻而易举地接管这个市场，那么Google还有什么必要花60亿元收购Groupon呢？

　　国内很多团购网站显然也意识到了这一点，至少吴波、冯晓海等人达成的共识是：第一，他们在中国市场确立的优势不会轻易被撼动；第二，团购在中国经过一年多的发展，如果要寻求空间，必须在市场细分和提升服务质量上做文章；第三，对一个线上(网络平台)和线下(营销队伍)相结合的商业模式来说，管理水平尤为重要；第四，弹药必须充足，必须有资本作为支撑。

　　在经历了一年多的摸索之后，很多团购网站不约而同地表达了摆脱蛮荒状态的渴望，而这正是他们确立新的竞争优势的开始。Groupon在美国所获得的佣金比例高达50%，而在中国，佣金往往很难超过10%。激烈的竞争让整个行业的利润率变得很薄，如果没有增值服务，行业的生存环境将变得更加苛刻。这促使一些团购网站创始人开始冷静下来思考这个行业的本质。

　　致力于精准营销的浪淘金公司CEO周杰认为，从营销角度来看，团购的本质是一个促销信息的渠道。比如Groupon核心资产是5000多万的邮件列表，有66%的打开率，有非常活跃的促销信息的发放通路，这个通路为它形成了很好的效益。在美国，商家跟它合作，有庞大的数据库，能够大量有效地发送信息，大量的销售额，大量的新客户，大商家愿意做出大幅度的让利，因此更多的会员愿意加入。“团购网站的典型特点是促销信息的一个渠道，最终谁能赢，就看谁能积累有效的邮件列表，或者会员库。”周杰认为。

　　冯晓海也认同这样的观点。他认为对于团购网站而言，最大的特点是用户在网站消费的痕迹或者信息的不断积累和留存，网站能分析到用户家在哪儿，喜欢吃什么，朋友是谁，年龄大概多少。基于这些精准的数据分析，可以不打广告，直接送服务，帮助客户完成营销。

　　“我们在做整个团购的时候，一定要成为产业链中增值的一环，必要的一环，生意才能做长久。”他说。在他看来，团购只是一种表现形式，其本质是为谁服务。一个令他印象深刻的例子是，满座曾经为一个糕点企业做办公室蛋糕的推送服务，一次卖出了2000份。之后这个客户找到他说，如果满座能卖出 5000份蛋糕，它将拥有跟上游供应商更大的议价权，从而改变蛋糕的成本和价格。结果满座通过其数据库的资料做了一次精准营销，这5000份蛋糕半天就卖光了。

　　资源

　　除了对这个行业进行重新的定位和梳理，很多团购网站意识到，在决战到来之前，占有尽可能多的资源将尤为重要。Groupon冒失的挖人之举如果说产生了什么效果的话，那就是提醒它的对手当前的紧迫形势。

　　团购网站作为商业模式与传统的互联网模式最大的区别可能在于，它必须借助大量线下的人力去完成诸多环节，包括商家的开拓、物流配送等等。冯晓海就一直在提醒自己的员工，“不要把满座看成一个互联网公司，我们是在用互联网的方式做传统的事情”。对大多数团购网站而言，其营销队伍无法通过虚拟世界的力量获得，而必须是实打实的人力投入。吴波表示，目前为止，拉手网每个客户评价需要捆绑一个销售人员。对于扩张中的团购网站而言，销售人员将是一支庞大关键的队伍，这就是Groupon的挖人计划会引起这么大反击的原因。

　　当然，团购网站需要争夺的资源不仅仅是营销人员，还有商家、未开发的城市，以及各路犹豫不决的资本。

　　团购面对的是本地服务市场，本地化的采购与服务是团购网站成功的根基。在北上广这些大城市的争夺趋于白热化之际，二、三线城市的圈地也逐渐展开。

　　满座目前已经在25个城市了设有分支机构，基本覆盖了北、上、广、深，以及长江、珠江和渤海地区，以及成都等西南地区，“未来所有的省会城市，以及我们定义的二线和三线城市，都会覆盖我们的服务。”冯晓海说。2010年3月才开始在中国正式运营的团宝网则已迅速覆盖到108个一、二线城市。

　　此外，一些团购网站还对传统互联网公司的领地发起了冲击。拉手网已经开通了酒店频道。据吴波介绍，在开通酒店频道之前，拉手已经在广州和上海做过酒店团购，效果特别好，有一些用户希望更常态化。同时他发现，在东欧的一些团购网站，卖得最好的是旅游。当他注意到携程惊人的市值和旅游市场的惊人需求之后，跟携程抢生意的想法油然而生。

　　但在吴波看来，虽然目前团购市场的争夺如此激烈，但电子商务市场的快速增长在某种程度上稀释了这种竞争的残酷性。据统计，中国通过互联网浏览商品或者服务信息的人占到了整个网民人数的80%，但有实际购买行为的只占35%，这中间的巨大落差意味着团购网站仍有很大的发展机会。

　　“谷歌和百度竞争的时候，发现想把对方的忠诚用户转过来都不容易，都在看的是新用户，我相信团购市场也是类似的。”曾经在Google工作过的浪淘金CEO周杰说。

　　除了Groupon表现得剑拔弩张之外，国内几家大型团购网站似乎都在强调分享这个市场的可能性，这可以理解为一种生存策略，同时也是中国团购市场的客观写照，那就是，竞争很激烈，但空间也很大。

Saudi Help Ignores the 'Gravity' of the Oil Crisis

By ANDREW PEAPLE

Saudi Arabia's ride to the rescue of global oil markets may be hobbled at birth.

The kingdom may have plenty of spare production capacity, but its oil isn't as high quality as Libya's. So while Saudi willingness to ramp up output has taken the froth off headline oil prices, a full reversal of the sharp rise this week is contingent on a more settled outlook for Libya.

On paper, Saudi Arabia can replace lost Libyan supply. Its 3.5 million barrels a day of spare capacity at the end of January is far more than Libya's daily production of 1.6 million barrels. But Libya's oil is sweeter and less sulphurous than that produced by the Saudis. Refiners prefer higher-grade crude as processing it into gasoline and other products is less complex. As Libya exports the bulk of its oil output, primarily to southern Europe, refiners that can't process heavier Saudi crude will need to find replacement supplies.

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Similar-quality crude can be found, notably in West Africa and the North Sea. But these areas may struggle to ramp up production; combined spare capacity in Angola and Nigeria was just 450,000 barrels a day at the end of January, according to the International Energy Agency. The relative scarcity of high-quality oil is widening the price differential between higher-grade crude and heavier oils. The spread between North Sea Brent and Russian Urals crude has widened 32% in two weeks.
Since higher-grade crude prices feed into the benchmark Brent futures price, headline oil prices likely will remain high despite the Saudi willingness to intervene. Reports of production outages in Libya also will keep markets volatile as the supply situation tightens. Near term, refiners can survive by running down inventories, while upgrades in recent years mean more European refineries can process heavier oils these days.
Still, absent a calmer situation in Libya, the 8.7% rise in Brent futures to above $111 a barrel this week likely will stick.
Write to Andrew Peaple at andrew.peaple@dowjones.com

External Surpluses Root Cause of China's Inflation Problem

External Surpluses Root Cause of China's Inflation Problem

By AARON BACK

BEIJING—China's large external imbalances, combined with its interventions in the foreign -exchange market, are the "root cause" of the country's current inflation problem, Yi Gang, vice governor of the People's Bank of China, said Saturday.

China should increase the flexibility of the yuan exchange rate and undertake a number of internal structural changes to reduce its trade surplus, Mr. Yi said, adding that China's focus should be on boosting imports rather than suppressing exports.

In a wide-ranging lecture at a university in Beijing, Mr. Yi also rejected many criticisms often heard in China of the central bank and its investment of foreign exchange reserves, saying it would be difficult to diversify the reserves into commodities or other alternative assets.

China's large "twin surpluses" in the current account and capital account have created massive inflows of foreign currency. The PBOC buys up those inflows by issuing newly minted yuan, thus swelling the money supply and adding to inflation pressures, Mr. Yi said.

"Why do we have so much base money? Why is the money supply relatively loose? A major reason is that our surpluses are too large," Mr. Yi said. "To maintain the basic stability of the yuan exchange rate, the central bank buys up foreign exchange inflows. If it didn't, the yuan wouldn't be so stable."

In addition to boosting the flexibility of the yuan exchange rate, China also should adjust resource prices to address imbalances, he said, as many resources are still traded in China at below their natural prices. China also should boost wages and social benefits to lift consumption, step up its enforcement of environment regulations and undertake other structural reforms to address imbalances.

After the PBOC buys up foreign exchange inflows, it attempts to "sterilize" or offset the newly created money supply by ordering banks to hold more funds in reserve and by issuing central bank bills. But Mr. Yi said such sterilization operations have costs to the central bank, as it must pay interest to banks on the bills and the reserve funds that they park with the central bank.

"We have been undertaking sterilization efforts to lock up excessive liquidity and maintain price stability," Mr. Yi said. "But all these actions have costs. We have to take into account the marginal costs and benefits if this state of affairs persists."

Many in China argue that inflows of "hot money," short-term capital that seeks to benefit from yuan appreciation and interest-rate arbitrage, are also a main factor behind China's foreign reserve accumulation and a source of imported inflation pressures.

However, estimates released last week by the State Administration of Foreign Exchange--a unit of the central bank that Mr. Yi also heads--showed such hot money inflows to be relatively limited, with just $35.5 billion of net inflows last year. Mr. Yi said the figures demonstrate that hot money inflows account for a small part of total reserve accumulation and that China's current and capital account surpluses are the main factor.

Some analysts inside and outside of China said SAFE's figures likely underestimate the true level of hot money inflows, as many such inflows are deliberately disguised as ordinary current account transactions. Mr. Yi acknowledged that this takes place to a certain degree but defended the overall accuracy of SAFE's estimates. Estimates by foreign countries such as the U.S. of their deficits with China are even greater than China's estimates, he said, indicating that China's estimates can't be significantly understated.

Many Chinese critics of the central bank argue that China should diversify its foreign exchange reserves away from sovereign debt--U.S. Treasury bonds in particular--and toward other assets such as commodities or even land. Mr. Yi said it is difficult for China to diversity into such assets without having a large impact on their market price.

Write to Aaron Back at aaron.back@dowjones.com

Inflation:What lies ahead - PIMCO

Inflation: What Lies Ahead

• We expect popular measures of inflation to show modest increases in price levels this year from last year.
• Masked behind these seemingly benign near-term increases in inflation are a number of longer-term factors that we believe could actually result in undesirably high rates of inflation in the not-too-distant future.
• Higher rates of increases in food, energy and other commodity prices are leading to a divergence between the core rate of inflation that the Fed focuses on and the headline rate that includes food and energy prices and actually affects consumers.

Mihir P. Worah

For 2011, we expect the measure of inflation of most interest to the Federal Reserve, core Consumer Price Index (CPI, not including food and energy), to average 1.0% to 1.5%, up from 0.8% in 2010. More importantly, we expect headline CPI, which includes food and energy, to average 1.7% to 2.2%, up from 1.5% in 2010.
Masked behind these seemingly benign near-term increases in inflation from what many deem as undesirably low rates to more “reasonable” rates are a number of longer-term factors that we believe could actually result in undesirably high rates of inflation in the not-too-distant future. Persistently higher rates of increases in food, energy and other commodity prices are leading to a divergence between the core rate of inflation that the Fed focuses on and the headline rate that includes food and energy prices and actually affects consumers (Figure 1).
Models used to forecast U.S. inflation can fall short, because they are generally not designed to incorporate fundamental changes occurring in the U.S. economy. Our expectation of higher headline inflation in the foreseeable future is based on our judgment as well as use of models while knowing and understanding their limitations. One of the key issues to consider going forward is that the emerging countries are transitioning from being exporters of disinflation to the developed countries to being exporters of inflation.
All things considered, investors may wish to consider adding assets typically associated with inflation-hedging strategies to their portfolios.



Near-Term Outlook
First, let’s touch upon our near-term or one-year outlook. We model core inflation using both a “top-down” Phillips curve–based model as well as a “bottom-up” one that explicitly models and predicts the individual components of CPI, like car prices, apartment rents, groceries etc. (The Phillips curve represents a historical relationship between the rate of inflation and the unemployment rate.) Both of these approaches come up with a number near 1.2% for core CPI in 2011. Much of this expected rise from last year’s 0.8% core CPI number comes from a steadying in the cost of shelter, which is 40% of core CPI and which had plummeted amid the housing crisis. The primary inputs into the cost of shelter are rents or imputed rents (since the Bureau of Labor Statistics only wants to capture the utility part of shelter and not the investment aspect of owning a home). Rents stopped going down in the middle of last year and both our model (Figure 2) and anecdotal evidence support a firming in rental prices this year.



Notwithstanding the firming in rents, the 1.2% central prediction for core CPI in 2011 is still benign, and perhaps the Fed will continue to view core CPI as too low and too close to zero or deflation.
However, it is possible that these models are underestimating future inflation. For example, we already know what these models would predict for core inflation in 2012 if the unemployment rate were still hovering around 9.0%, as PIMCO currently expects. The models would predict another year of nonexistent wage pressure, significant slack in resource utilization and hence a below trend inflation number (provided inflation expectations remained anchored). 

These models cannot incorporate what we believe are structural changes in the U.S. economy, like a higher Non-Accelerating Inflation Rate of Unemployment (NAIRU, a level of unemployment below which inflation rises) and concurrently a lower than historic trend growth rate for the U.S. economy accompanied by an unprecedented expansion of the Fed’s balance sheet. As each year goes by, the near term moves ever closer to the long term and one has to augment these cyclical models with longer-term models and secular thinking to try and catch the shifts that models just cannot catch. More important and immediate, these closed economy models for domestic inflation do not pick up the inflationary impact, both direct and indirect, of higher commodity prices resulting from strong emerging market growth.
To be sure, there could always be a downside surprise in price levels, for example if growth in the emerging economies unexpectedly falters. But that is not our expectation at this time.

Longer-Term Outlook
A common argument for ignoring commodity prices when calculating or predicting longer-term measures for inflation is that these prices “mean revert,” meaning large rises in prices are followed by equally large drops. We think this is true to the extent that we do not expect continued 80% increases in grain prices like we saw in 2010 or the 50% rise in oil prices we saw in the first half of 2008. Both those rapid increases in prices were due to special weather-related factors that exacerbated the fundamental long-term tightening in natural resources that we are living through (although they do underline the points that supply lines are generally stretched and weather patterns are becoming more volatile). We feel that although commodity prices may show tendencies to revert to a “mean,” the mean itself is not static, but rather a moving and, in our opinion, a rising target.

It is not difficult to understand the reason for our expectations of generally rising commodity prices. It is simply a result of several billion people living in emerging economies that are gaining economic clout and improving their standards of living, often in an extremely commodity-intensive way. This generational shift in global consumption patterns leading to a secular rise in commodity prices was temporarily thrown off course by the Great Recession of 2008, but the longer-term direction is clear.

Hence, as far as “mean reversion” in commodity prices goes, we would say that “history does not repeat, it rhymes.” Rapid rises are likely to be followed by modest pullbacks; however, five years from today prices are likely to be higher on average than they are today.

The inflationary impulse from emerging economies is not limited to higher longer-term commodity prices. A combination of too-loose monetary policy (imported from the U.S. via pegged or semi-pegged currencies) and significant rises in food prices (which are a large part of the consumption baskets) has led to an inflation problem in many emerging market countries already. This is likely to result in some combination of higher wages for workers and an appreciating currency, both of which could result in higher import prices in the U.S. and hence higher inflation for U.S. consumers.

Adding to these concerns for imported inflation are the impacts of U.S. monetary and fiscal policy. By now it is well known that the unprecedented expansion in the Fed’s balance sheet is not inflationary if it does not result in increases in broader money aggregates like M2 or M3, which measure money actually circulating in the economy. (M2 includes the narrower M1 as well as certain deposits and money market funds. M1 includes cash and checking account deposits. M3 includes M2 and certain large, long-term items.) Our models of the relationship between money supply and inflation show that a policy error where the Fed does not shrink its balance sheet in the face of the money multiplier returning to its pre-crisis level may result in double-digit inflation with a lag of three years (conversely, shrinking their balance sheet too soon may send us back into deflation). The fact that the emerging economies are no longer a source of disinflation like they were over the past 20 years (in fact quite the opposite) severely complicates the Fed’s job. They now have to make an explicit decision to slow down job growth if they want to fight inflation. In our opinion it is no longer possible to have robust job growth AND low inflation simultaneously.

Finally, we get to our fiscal situation. Our budget deficit is around 10% of GDP and given the current trajectory and in the absence of a surprise economic expansion or political compromise, we estimate our debt-to-GDP ratio will reach around 100% in a few years. There are three ways to solve our debt problem: Growth, Inflation or Default. The choice is clear to us; which one seems most likely to you?

Conclusion Although current inflation numbers and the near-term inflation outlook appear benign, there are a number of factors, including higher commodity prices, that lead us to expect higher inflation longer term. Assets typically associated with “real return,” such as commodities, real estate, equities (as long as inflation remains moderate), bonds from countries that offer high real yields, and even Treasury Inflation-Protected Securities (as long as the duration aspect is managed; see previous Viewpoints for suggestions) can serve as inflation hedges.

Libyans Flee As Gadhafi's Hold Over Country Weakens

Libyans Flee As Gadhafi's Hold Over Country Weakens

NPR Staff and WiresFebruary 23, 2011, 2:10 PM
E-mailTweetThe scope of Moammar Gadhafi's control in Libya was whittled away Wednesday as major cities and towns closer to the capital fell to the rebellion against his rule. In Libya's east, now all but broken away, the opposition vowed to "liberate" Tripoli, where the Libyan leader is holed up with a force of militiamen roaming the streets.

In a further sign of Gadhafi's faltering hold, two air force pilots — one from the leader's own tribe — parachuted out of their warplane and let it crash into the deserts of eastern Libya, rather than follow orders to bomb a opposition-held city.

The opposition reportedly seized control of Misurata, 125 miles east of the capital Tripoli, after days of fighting. Witnesses said people were honking their horns and raising flags representing the monarchy overthrown by Gadhafi more than 40 years ago.

Misurata would be the first major city in western Libya to fall to anti-government forces, which claim — with the help of defecting security forces — to have taken control of nearly the entire eastern half of Libya's 1,000-mile Mediterranean coast, including several oil-producing areas.

Faraj al-Misrati, a local doctor in Misurata, said six residents had been killed and 200 wounded since Jan. 18, when protesters attacked offices and buildings affiliated with Gadhafi's regime

Protesters also claimed to have taken over the eastern city of Tobruk, with people taking to the streets to vent their anger at the regime. Clashes broke out over the past two days in the town of Sabratha, west of the capital, where the army and militiamen were trying to put down protesters who overwhelmed security headquarters and government buildings, a news website close to the government reported.

Independent reporting was scarce in much of Libya, but new opposition videos posted on Facebook showed scores of anti-government protesters raising the flag from the pre-Gadhafi monarchy on a building in Zawiya, on the outskirts of the capital. Another showed protesters lining up cement blocks and setting tires ablaze to fortify positions on a square inside the capital.

A provision government was being formed in the eastern city of Bayda.

"Ordinary people, doctors, lawyers, are talking about how we can coordinate with all other cities in Libya who are now under the protesters' control," said Ahmed Jibril, a former diplomat at the Libiyan mission at the U.N.

International outrage mounted after Gadhafi — in a televised address punctuated by anger and fist-pounding — exhorted his supporters to strike back at anti-government protesters as he pledged never to relinquish power.

He promised to have his supporters go "house to house" to hunt down protesters, whom he described as rats and cockroaches.

Celebratory gunfire from Gadhafi supporters rang out in Tripoli after the speech, while people in Benghazi threw shoes at a TV screen to show their contempt.

Gadhafi's address appeared to have brought out a heavy force of supporters and militiamen that largely prevented major protests in the capital Tuesday night or Wednesday. Gunfire rang out through the night, one woman who lives near downtown told The Associated Press.

"Mercenaries are everywhere with weapons. You can't open a window or door. Snipers hunt people," she said. "We are under siege, at the mercy of a man who is not a Muslim.''

During the day Wednesday, more gunfire was heard near Gadhafi's residence, but in many parts of the city of 2 million, residents were venturing out to stores, some residents said. The government sent out text messages urging people to go back to their jobs, aiming to show that life was returning to normal. The residents spoke on condition of anonymity for fear of retaliation.

Italy's Foreign Minister Franco Frattini said estimates of some 1,000 people killed in the violence in Libya were "credible," although he stressed that information about casualties was incomplete. The New York-based Human Rights Watch has put the death toll at nearly 300, according to a partial count.

As the fighting in Libya intensified, streams of people continued to flee the country. The U.N. High Commissioner for Refugees said thousands of people have crossed into Tunisia. The initial escapees consisted mostly of Tunisians who had been working in Libya, but more and more Libyans were leaving, the refugee agency said.

The Tunisian military sent extra troops to its border with Libya. U.N. officials in Tunis told NPR that the purpose of the reinforcement was mainly to provide humanitarian assistance.

"Situation is not good. It's very bad. It's very bad," said Mohammed Abdu, an Egyptian, who crossed from Libya into Tunisia. "All the night, every day, all the night, we hear, da, da, da–da, da, da. I don't sleep from three days ago."

The Tunisians who were crossing the border said they were singled out for harsh treatment by Gadhafi's police, who blamed them for starting the trouble. Two Tunisian men whipped off their shirts and showed purple bruises across their backs, where they said they were beaten.

At the Egyptian border, guards had fled, and local tribal elders formed local committees to take their place. "Welcome to the new Libya," graffiti spray-painted at the crossing proclaimed. Fawzy Ignashy, a former soldier now in civilian clothes at the border, said that early in the protests, some commanders ordered troops to fire on protesters, but then tribal leaders stepped in and ordered them to stop.

"They did because they were from here. So the officers fled," he said.

More than a dozen countries — including Russia, China, Germany and Ukraine — sent planes to help their people escape an increasingly unstable situation.

Hundreds of Americans boarded a 600-passenger ferry at Tripoli's As-shahab port Wednesday for a five-hour crossing of the Mediterranean to Malta. Others, such as Kathleen Burnett of Baltimore, Ohio, managed to get a seat on one of the few flights out of Libya. As she stepped off the airplane in Vienna, Burnett described the scene she left behind as "total chaos."

"The airport was mobbed; you wouldn't believe the number of people," Burnett said.

Britain was chartering flights and positioning a Royal Navy frigate off the Libyan coast in case it's needed to assist in the evacuations. Turkey has already pulled out thousands of its citizens by sea and air.

International alarm has risen over the crisis, pushing oil prices to a 28-month high of $100 a barrel on Wednesday.

"The violence is abhorrent, it is completely unacceptable and the bloodshed must stop," White House spokesman Jay Carney said in Washington.

U.S. Secretary of State Hillary Clinton said she's working with others in the international community to help end the bloodshed, adding everything is on the table.

"We will look at all the possible options to try to bring an end to the violence, to try to influence the government," she said.

But State Department spokesman P.J. Crowley seemed to rule out one possibility: a no-fly zone to prevent Libyan planes and helicopters from attacking civilians.

Nonessential U.S. diplomats and families of embassy workers were ordered out of the country Monday, but it took until Wednesday to put 35 of them on a ferry, along with other Americans and foreign nationals.

Crowley said the ferry was delayed, in part because Libyan authorities had to stamp the passports of everyone leaving. He said the U.S. has also had trouble getting charter flights to Libya.

British Foreign Secretary William Hague, who wouldn't rule out the possibility of sending in military flights without permission to evacuate British nationals, expressed deep concern about British oil sector workers who live in the Libyan desert.

"These camps are remote, they are isolated, they are scattered over a large distance, they are dependent for food or water on supplies from Libyan cities that have been severely disrupted by the violence and unrest and some we know have been subjected to attacks and looting," he said. "They are in a perilous and frightening situation."

The U.N. Security Council held an emergency meeting Tuesday that ended with a statement condemning the crackdown, expressing "grave concern" and calling for an "immediate end to the violence" and steps to address the legitimate demands of the Libyan people. The U.N. Development Program dropped Gadhafi's daughter, Aisha al-Gadhafi, as a goodwill ambassador Wednesday, citing the crackdown.

Yemeni Lawmakers Quit Ruling Party

Mass uprisings sparked by successful revolts in Tunisia and Egypt have ratcheted up pressure on governments across Northern Africa and the Middle East.

In Yemen, thousands of people streamed into a square in the capital, Sanaa, on Wednesday to strengthen anti-government protesters' hold on the area after club-wielding government supporters tried to drive them out. One person was killed and at least 12 injured in the clashes late Tuesday near Sanaa University, medics said. A local human rights group said two people were killed and 18 hurt.

In the port city of Aden, medics said a 19-year-old man died from injuries during clashes last week. Thirteen demonstrators have been killed since the crisis began nearly a month ago.

Seven legislators in President Ali Abdullah Saleh's ruling party resigned from the group Wednesday, citing the country's precarious political situation. Parliament member Abdul-Aziz Jabbari said they planned to form their own independent bloc. With the latest resignations, nine legislators have quit Saleh's Congress Party since protests began earlier this month.

U.S.-backed Saleh, who has held power for 32 years, has said he will step down after national elections are held in 2013. But a widening protest movement demands that he leave office now.


Kings Of Bahrain, Saudi Arabia Discuss Unrest


Across the Arabian Peninsula, in Bahrain, thousands of anti-government protesters marched in the capital Wednesday after King Hamad bin Isa Al-Khalifa freed at least 100 political prisoners, an acknowledgment of the mounting pressure being placed on him by the Shiite opposition.

Tens of thousands of protesters have flooded the tiny kingdom's capital, Manama, calling for the fall of the Sunni dynasty that rules majority-Shiite Bahrain. There are concerns that Bahrain's uprising, now in its second week, could spread to Saudi Arabia, which also has a significant Shiite population that has long complained of oppression by Sunni rulers.

Al-Khalifa was in Saudi Arabia on Wednesday to discuss the popular uprisings with his royal counterpart, King Abdullah bin Abdul-Aziz, according to state media.

Abdullah had just returned home after three months of medical treatment to face a country that has been dramatically changed by revolutions sweeping the Middle East. More than ever before, Saudis are publicly calling for political reforms, on the Web, in Facebook groups and in political forums across the country.

Ahead of his arrival in Riyadh, Abdullah announced a hefty package of giveaways including unemployment benefits and billions to help Saudis buy homes.

Global Unrest Puts Stocks in a Dive

Global Unrest Puts Stocks in a Dive

By KRISTINA PETERSON

NEW YORK—The stock market plummeted Tuesday in its biggest drop of the year as escalating tensions in the Middle East and North Africa sent oil prices soaring.

The Dow Jones Industrial Average tumbled 178.46 points, or 1.4%, to 12212.79, its biggest point and percentage drop since Nov. 16.

The Standard & Poor's 500-stock index fell 27.57, or 2.1%, to 1315.44, the measure's biggest point and percentage drop since Aug. 11, 2010.

Oil Prices Spiked and Stocks Tumbled on concerns about Libya, after that nation closed its ports blocking oil exports. Paul Vigna has details. Plus, Gadhafi speaks and how cell phone usage affects your brain.

.
Brent rose and U.S. crude oil reached a 2-1/2 year high on concerns the revolt in Libya could spread to other major oil producers as companies suspended operations and ports were disrupted. Video courtesy of Reuters.
.Wal-Mart Stores weighed on the Dow, sliding $1.71, or 3.1%, to $53.67, after the retailer's fiscal fourth-quarter profit rose 27%, capitalizing on strength in its international business, but its U.S. operations continued to struggle. Wal-Mart posted its seventh consecutive quarter of lower U.S. same-store sales, and fourth-quarter revenue fell short of analysts' expectations.

Bank of America fell 57 cents, or 3.9%, to 14.18, after saying its credit-card subsidiary was restating eight quarters of reports to regulators because it took a $20.3 billion write-down because of deteriorating credit and new regulations over the past two years. Alcoa was also weak, tumbling 74 cents, or 4.3%, to 16.54.

Energy components were among the measure's few stocks to gain Tuesday, as oil prices surged. Chevron gained 1.60, or 1.6%, to 100.32, while Exxon Mobil rose 94 cents, or 1.1%, to 85.44.

The Nasdaq Composite sank 77.53 points, or 2.7% to 2756.42.

Global stock markets tumbled Tuesday as violence increased in Libya, a major oil-producing state. Libyan leader Col. Moammar Gadhafi publicly defied protesters seeking to end his rule, vowing to remain in the country "until the end" in a televised speech that showed his determination to cling to power Tuesday, as reinforcements of loyal armed military units tightened their hold around the capital. Libyan traders said the country had shut all ports, which would reopen in two to three days.

U.S. markets had been closed Monday for the Presidents Day holiday. Crude-oil prices jumped as unease over the turmoil in Libya and parts of the Middle East mounted. Libya produces 1.8 million barrels of oil daily, and its 41 billion barrels of proven reserves represent more than 3% of global supplies. Nymex oil prices for March delivery surged 8.6% over Friday's close, adding $7.37 a barrel in the biggest one-day dollar gain in more than two years.

.Investors said the stock market had been ready for a correction, as major stock indexes had climbed steadily to reach 2½-year highs on Friday. The geopolitical tensions in the Middle East and North Africa gave nervous traders reason to retreat, said Liz Miller, president of Summit Place Financial Advisors.

"The unrest in the Middle East has ended up to be that trigger, but any number of things could've been that trigger," she said. She cautioned that, if oil prices do remain elevated, "that's a real concern in an economy that seemed to be gaining some strength."

But Tuesday's tumble came as a relief to some participants unnerved by the market's recent unrelenting climb, even in the face of earlier unrest in Egypt.

"When the market starts shrugging off geopolitical issues and ignoring it completely, it's cause for concern," said Jennifer Ellison, principal at Bingham, Osborn & Scarborough. "It's a positive that we're getting some sort of reality check in the market here."

Asian markets suffered sharp losses, also hurt by a major earthquake in New Zealand and a move by Moody's Investors Service to cut the outlook on Japan's "Aa2" rating to "negative" from "stable."

More
Oil Rises 8.6% on Libya Violence
'Fear Gauge' Shows Most Worry in Months
.Demand for Treasurys climbed, sending yield on the 10-year note down to 3.465%. The dollar strengthened against the euro but weakened against the yen. The euro was at $1.3655, down from $1.3675 late Monday.

Volatility jumped, as the CBOE Market Volatility Index surged more than 30% at its highest point in the day, its biggest one-day climb of the year.

Among stocks in focus, Home Depot slipped 39 cents, or 1%, to 38.09, even after the home-improvement chain's fourth-quarter profit climbed 72% from year-earlier levels, boosted by heavy demand for snow-removal gear. Home Depot provided 2011 guidance at or above the views it gave in December and boosted its dividend by nearly 6% while reiterating its goal to raise the payout every year.

Mentor Graphics climbed 95 cents, or 6.5%, to 15.47, after billionaire investor Carl Icahn offered to buy the chip-design software company for $1.91 billion.


Reuters

World stocks fell Tuesday as a growing revolt in Libya drove oil prices to 30-month highs.
.Dynegy lost 12 cents, or 2%, to 5.89, after it announced that Chief Executive Bruce Williamson will resign and named David Biegler interim CEO.

Forest Laboratories fell 1.43, or 4.2%, to 32.90, after saying it will buy Clinical Data for at least $898.7 million, as it looks to capitalize on Clinical Data's newly approved Viibryd antidepressant drug. Shares of Clinical Data tumbled 2.69, or 7.9%, to 31.21.

In U.S. economic data, a reading of U.S. consumer confidence hit a three-year high, reaching 70.4 in February, well above the 66 expected by economists. The S&P Case-Shiller 20-city home-price index fell 2.4% year-over-year, slightly more than the 2% drop economists surveyed by Dow Jones Newswires had predicted. The Federal Reserve Bank of Richmond saw mixed economic activity.

Write to Kristina Peterson at kristina.peterson@wsj.com

BNY Mellon Faces Forex Suit in New York

BNY Mellon Faces Forex Suit in New York

By CARRICK MOLLENKAMP And LINGLING WEI

Bank of New York Mellon Corp., facing whistle-blower lawsuits in Virginia and Florida that it improperly charged pension funds for currency transactions, also has been sued in New York, according to New York County court records.

The New York case, filed by a plaintiff called FX Analytics in October 2009, is under seal and the specific allegations aren't public. A spokesman for the New York State Comptroller's office, which oversees the state's $141 billion Common Retirement Fund, declined to comment. A spokesman for New York attorney general said "we can't comment on potential or ongoing matters before our office."

FX Analytics is a Delaware partnership that is being used to hide the identity of the whistle-blowers, according to a person familiar with the situation. A plaintiff by the same name filed whistle-blower claims in Virginia and Florida, also in October 2009, against BNY Mellon on behalf of state and local retirement systems.

The lawsuits are part of a growing number of legal cases being brought against BNY Mellon and State Street Corp. relating to foreign-exchange transactions. A whistle-blower, or qui tam, lawsuit can be brought by an individual or group on behalf of the government, alleging fraudulent activity involving government funds. The government has an option to join the case. Documents are initially filed under seal pending the outcome of the case.

State Street and BNY Mellon, two of the nation's largest custody banks by global assets, have denied the claims and say they will fight the lawsuits. The banks act as custodians for investment firms' securities, handling a number of tasks, including currency trades and back-office work, for institutional investors.

In the suits filed in courts in Fairfax County, Va., and Leon County, Fla., FX Analytics alleges that BNY Mellon profited by pocketing the difference between its cost of currency transactions and the cost it charged to state and local pension funds.

In recent weeks, Virginia's attorney general intervened in the whistle-blower lawsuit against BNY Mellon and Florida's attorney general filed a court document to also intervene in the whistle-blower law suit against BNY Mellon. Both lawsuits allege the custody bank improperly charged for foreign exchange.

An Arkansas public pension fund sued State Street in Massachusetts federal court earlier this month in a similar claim. The cases mirror one brought by the California attorney general in 2009 against State Street.

In Virginia, the attorney general earlier this month issued a request-for-proposal to hire outside counsel to assist in the legal case against BNY Mellon. According to documents reviewed by The Wall Street Journal, the attorney general's office on Feb. 4 issued a request for proposals from law firms to assist Virginia on the case. According to the document, the firm that is hired "will be appointed as special counsel to represent the Commonwealth."

Proposals were due Feb. 15. A spokesman for the attorney general's office said a law firm hasn't yet been hired.

The proposal requests that the firm "have knowledge of the principles of contract, banking, and agency law, and foreign currency exchange in the context of a custodial relationship between a bank and its pension customers."

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com and Lingling Wei at lingling.wei@wsj.com

Silver Climbs Near 31-Year High

• By MATT WHITTAKER And DEVON MAYLIE

Silver prices neared 31-year highs on a brightening outlook for the global economy and as inflation concerns have revived.
Silver for February delivery rose 72.6 cents, or 2.3%, to settle at $32.2980 a troy ounce on the Comex division of the New York Mercantile Exchange. It was the metal's strongest close since March 1980.

View Full Image

Bloomberg News

The price of silver has increased 5.3% since the beginning of the year, while the price of gold has declined 2.4%.

 

"It's benefiting from optimism," said Ralph Preston, market analyst at Heritage West Financial.
Silver is a precious metal but unlike gold it has far more industrial applications. Because it is significantly cheaper than gold, which settled at $1,388.20 an ounce Friday, silver is becoming a popular way to hedge against rising prices, with inflation gaining in Europe and China. While inflation in the U.S. remains tame, some believe the Federal Reserve won't be able to control longer-term price pressures stemming from ultralow interest rates and Fed purchases of Treasurys to stimulate the economy.

At the same time, the economic growth that is sparking inflation fears also is prompting a resurgence in manufacturing and consumer purchases.
Silver has gained 4.5% this year and 20% from a two-month low hit Jan. 25. In 1980, the Hunt brothers of Texas attempted to corner the silver market and pushed prices above $40 a troy ounce.
"It's a much more orderly market" nowadays, said Stephen Flood, director of Dublin-based bullion dealer GoldCore.
Commercial traders, like silver miners, have been adding to their short positions in futures contracts throughout February, a sign they are locking in prices. The commercial net short has risen to 50,796 lots in the week ended Feb. 15, from 44,340 lots at the start of the month, according to the latest data from the Commodity Futures Trading Commission.
Mexican company Minera Frisco SAB is hedging production as it seeks to bring previously unprofitable silver projects online, while miners such as Sweden's Boliden AB and U.S. Silver Corp. also set hedging deals for 2011.
The practice of locking in prices at current levels for future sales went out of vogue over the past few years as investors put pressure on precious-metal producers to gain more exposure to record prices. AngloGold Ashanti Ltd. and Barrick Gold Corp. spent much of 2009 and 2010 closing gold hedges.
Minera Frisco, recently spun off by Mexican billionaire Carlos Slim's conglomerate Grupo Carso, has a 70-million ounce silver-hedging program booked out to 2013 that it announced in January in a stock-exchange filing.
Boliden has 2.23 million ounces of silver hedged for 2011 and a total 6.78 million ounces hedged for the period to 2013 as part of its Garpenberg mine expansion. It also is hedging zinc, copper, lead and gold production from that mine, it said. U.S. Silver Corp. is hedging some silver production in 2011, for 500,000 ounces, or 20% of its output, although it has no plans to hedge further production after this year.
"With the recent run-up in silver prices and the extreme volatility we have witnessed, U.S. Silver believed it would be prudent to guarantee a portion of our future cash flow," Chief Executive Tom Parker said.
—Andrea Hotter and Tatyana Shumsky contributed to this article. Write to Matt Whittaker at matt.whittaker@dowjones.com and Devon Maylie at devon.maylie@dowjones.com

Swiss Franc Captures Safety Bids

Swiss Franc Captures Safety Bids

By NEIL SHAH

NEW YORK—The dollar weakened broadly, as initial optimism from encouraging U.S. data was overshadowed by geopolitical jitters that favored such safe harbors as the Swiss franc.

Still, the U.S. currency pared its losses late as minutes of the Federal Reserve's latest policy meeting showed central bankers were getting rosier about the economy in January.

The U.K. pound briefly plunged after the Bank of England's latest quarterly report on inflation suggested that U.K. central bankers aren't ready to start raising interest rates to combat persistently high inflation. Higher rates can lift a currency's value if they aren't seen as hurting an economy.

But by late afternoon in New York, sterling had recovered to $1.6096, after touching $1.5988, though it still was down from $1.6124 late Tuesday. The euro strengthened to $1.3570 from $1.3482 and to 113.44 yen from 113.01 yen. The dollar moved to 83.58 yen from 83.82 yen. The dollar weakened to 0.9593 Swiss franc from 0.9673 franc, after hitting 0.9555 franc.

The dollar got off to a strong start after data on housing starts and producer prices painted an improving picture of the U.S. economy. But it reversed course after reports that Iranian warships were planning to head for Egypt's Suez Canal, which sparked a response from Israel. That spurred investors to seek refuge in the Swiss franc, a favored safe harbor in times of global upheaval.

The dollar recouped some of its losses in the afternoon on the upgraded Fed economic forecast for 2011, which sparked expectations that, while still far off, higher U.S. interest rates eventually could be in the cards.

"The market is starting to anticipate Fed action sooner rather than later," said Jessica Hoverson, fixed-income and foreign-exchange analyst at MF Global in Chicago.

Fed officials were becoming slightly more optimistic about the U.S. economy when they met three weeks ago, but still were unwilling to stop their $600 billion bond-buying program before the scheduled end in June. Officials expect U.S. gross domestic product to rise 3.4% to 3.9% this year.

"It has been an unusually choppy session," said Marc Chandler, a currency analyst at Brown Brothers Harriman in New York, in a note. "One signal that we have found fairly reliable are interest rate spreads, and they are moving in the U.S. direction."

Across the Atlantic, the U.K. pound plunged to below $1.60 after the Bank of England's latest inflation report, along with public comments by central bank governor Mervyn King and discouraging labor market data, threw cold water on the notion that the U.K. central bank could start raising rates in May. A day earlier, the pound rallied after data showed Britain's inflation rate had jumped to an annual 4% in January, double the central bank's medium-term target of 2%.

Inflation concerns are likely to stay front and center on Thursday, when the U.S. reports its own data on consumer prices. "Everyone is focusing on inflation and how central banks respond," says MF Global's Ms. Hoverson.

Earnings Call Puts Deere in the Headlights

• By KELLY EVANS

 

Shares of the 175-year-old machinery giant have quadrupled since bottoming nearly two years ago during the financial crisis. This year alone, they are up about 14% and have reached an all-time high.

That is largely because of the farming boom spurred by record prices for crops such as corn, soybeans and wheat.
Indeed, surging demand for farm equipment is expected to give a substantial boost to fiscal-first-quarter results due Wednesday. Analysts polled by Thomson Reuters expect earnings of 99 cents a share for the January quarter, up from 57 cents a year earlier. Revenue is seen up 33% to about $5.7 billion.
And the run could continue, for a time. Amid a global supply squeeze for many crops, farming has suddenly become one of the hottest sectors. The U.S. Department of Agriculture just raised its 2011 farm-income forecast to about $95 billion, up 20% from last year and about 40% above the past decade's average.
Like any boom, however, the longer it lasts, the greater the risks. Any pullback in crop prices as supply catches up with demand will likely affect Deere shares.
Meanwhile, there are other concerns.
Higher emission standards in the U.S. starting in 2012 and the smaller scale of farms in foreign markets will potentially turn customer demand toward Deere's smaller, less-profitable machines. That, plus rising raw-materials costs, is expected to keep a lid on the company's operating margin this year, according to Jefferies & Co.
With that in mind, Deere also may strike a cautious note in its forward guidance Wednesday. Last week, rival AGCO Corp. said its own fourth-quarter profit more than doubled but warned of margin pressure in 2011.
Deere shares aren't wildly expensive, trading at about 17 times estimated 2011 earnings, compared with an average forward multiple over the past 10 years of 15.2 times, according to FactSet.
The big concern—both for Deere investors and the global economy—is crop prices.
At some point they will turn, probably hitting Deere's shares hard. So while investors may be content to make hay while the sun shines, they should keep a sharp eye out for storm clouds.
Write to Kelly Evans at kelly.evans@wsj.com

How Star Investors Bet Last Quarter

How Star Investors Bet Last Quarter

Text High-profile money managers and investors zigged and zagged during the latest period, with a host of bank bets made or folded and with one investor tripling his stake in Comcast Corp. and another exiting from the cable company entirely.

Four times a year, many investors who manage more than $100 million are required to disclose holdings in certain types of securities, including stocks, within 45 days of the end of a given quarter.

Most hedge-fund managers and others wait until the last possible moment to make these filings, and the disclosures to the Securities and Exchange Commission cover the quarter ending Dec. 31.

The so-called 13F disclosures give the public a relatively fresh look inside the portfolios of major money managers such as Trian Capital's Nelson Peltz, SAC Capital Advisors' Steven Cohen and Berkshire Hathaway's Warren Buffett. They are often the investing public's first notice that closely watched figures have reversed course on a given sector or major company.


Warren Buffett
Warren Buffett's Berkshire Hathaway Inc. eliminated positions in several stocks in the fourth quarter, including Bank of America Corp., Nike Inc. and Fiserv Inc., as one of its longtime investment managers retired.

Berkshire also sold all its shares of Becton Dickinson & Co., Comcast Corp., Fiserv Inc., Lowe's Cos., Nalco Holding Co. and American depository receipts of Nestlé SA, according to a regulatory filing Monday.

Each of the positions Berkshire exited from appeared to be holdings of car insurer Geico Corp., a subsidiary whose portfolio was long managed by Louis Simpson, who retired from the company late last year. Mr. Simpson, who is in his 70s, worked at Geico for more than 30 years and had autonomy over the subsidiary's $4 billion stock portfolio.

The shares of the companies eliminated from the Berkshire portfolio in the last three months of 2010 had been worth about $1.2 billion at the end of the third quarter.

The stock sales are part of a passing of the guard to Todd Combs, a former hedge-fund manager who is taking over a portion of the investment duties at Berkshire. The 40-year-old Mr. Combs, who recently joined Berkshire as an investment manager, is expected to get $2 billion to $3 billion to invest initially.

Berkshire's $52.6 billion U.S. equity portfolio now includes just 25 companies, the fewest in several years. At the end of the third quarter, Berkshire held $48.6 billion in stocks after exiting from investments in firms including CarMax Inc., Home Depot Inc. and NRG Energy Inc., stocks that were in Geico's accounts.

The fourth-quarter increase in the size of the portfolio reflects substantial increases in the value of major holdings, including Wells Fargo & Co. and Coca-Cola Co.

Berkshire added to its holdings of Wells Fargo, its only addition to its giant portfolio in the fourth quarter. The stake rose about 1.8% to 342.6 million shares when calculated according to the Securities and Exchange Commission rules that govern the quarterly disclosure. Berkshire is the San Francisco bank's largest shareholder.

A separate filing late Monday showed that Berkshire and Mr. Buffett together owned 369.2 million shares as of Dec. 31. That figure appeared to include 10.9 million shares held by Mr. Buffett directly and stock owned by its employee benefit plans and subsidiaries not included in the other filing. Those holdings constitute 7% of Wells Fargo's outstanding shares.

Omaha, Neb.-based Berkshire reduced holdings of Bank of New York Mellon Corp. and Moody's Corp. Its Bank of New York stake fell 10% to 1.79 million shares, while Moody's declined 1.6% to 28.4 million. The sale of the Moody's shares was first disclosed in October.

Mr. Buffett's company, like other firms that control an investment portfolio of more than $100 million, is required to report its U.S. stock holdings 45 days after the end of a given quarter, giving the public its freshest possible glimpse at the investing decisions of the "Oracle of Omaha." The filing with the Securities and Exchange Commission is scrutinized by professional money managers and amateur investors alike, and Mr. Buffett's stock picks have the power to move the shares of the companies he's buying and selling.

But Mr. Buffett, Berkshire's chairman and chief executive, has long warned investors who want to piggyback on his stock picks that not all moves in the portfolio are his. While some of the company's investment decisions in past quarters have been Mr. Simpson's, now Mr. Combs will be managing a portion of the portfolio.

Mr. Combs, tapped for the job in October, was formerly a little-known hedge fund manager of a Connecticut hedge fund called Castle Point.

Berkshire's stakes in American Express Co., Coca-Cola and Kraft Foods Inc. remained unchanged. Mr. Buffett's firm appeared to remain the largest shareholder in each, though other money managers were also reporting the contents of their portfolios after the close of trading Monday, making an exact determination difficult.

—Erik Holm and Serena Ng
Steven Cohen
Investor Steven Cohen's SAC Capital Advisors LP, which has been wrestling with fallout from an insider-trading investigation, reported that it doubled its stake in Sprint Nextel Corp. in the fourth quarter and also loaded up on shares of Time Warner Inc., Comcast Corp. and DirecTV Group Inc.

SAC reported 1,843 holdings at the end of December, excluding exemptions. That is down from 1,871 at the end of September, though the portfolio gained value over the intervening months, ending December at $15 billion, up from $12.8 billion at the end of September.

Its holdings of Sprint jumped to 22.2 million shares, valued at about $101 million at Monday's closing price, from 11.8 million shares at the end of the third quarter.

In addition to Sprint, SAC substantially increased its stake in Time Warner, to 1,988,888 shares, valued at about $69.5 million at Monday's closing price, from 29,628 shares. Mr. Cohen also more than tripled his stake in Comcast, to 3.89 million shares, valued about $89.5 million, from a total of 1.04 million shares over two share classes.

He also loaded up on DirecTV, reporting 2.7 million shares, up from 11,651 at the end of September, worth about $116 million.

SAC Capital also reported a stake of 629,235 shares in Advanced Micro Devices Inc.); it had no stake in AMD at the end of the third quarter.

While adding to his positions in TV providers, he was unloading shares of BJ's Wholesale Club Inc., reducing his stake by 463,903 shares, to 1.1 million shares.

Mr. Cohen and his closely watched hedge fund have drawn scrutiny in recent months. Last week, two of SAC's former employees were ensnared in an ongoing federal probe of insider trading. A spokesman for the fund said last week the firm is "outraged" by the former employees' alleged actions and that it was cooperating in the investigation.

—Liz Moyer
David Tepper
Appaloosa Management LP, the New Jersey hedge fund run by investor David Tepper, increased its bets on the four biggest U.S. banks during the fourth quarter and now holds more than $1.23 billion combined in the banks, according to a filing with the Securities and Exchange Commission.

Among its moves, the fund more than doubled its stake in Citigroup Inc. to more than 117 million shares, a holding that at Monday's closing price would be valued at $576.9 million.

The fund also reported a new stake in J.P. Morgan Chase & Co. valued at $25.2 million. Its stake in Bank of America Corp. rose 12% to 25.1 million shares, a value of $373.3 million, while its stake in Wells Fargo & Co. rose to 7.5 million common shares from 6.4 million and 335,482 preferred shares from 292,019. The common stake in Wells Fargo would be valued at $252.7 million at Monday's close.

The fund also boosted its stake in SunTrust Banks Inc. by 8.9% to 4.2 million, valued at $135.6 million and slightly raised its holdings in American Depositary Receipts of Spain's Banco Santander SA.

The fund trimmed its holdings in Fifth Third Bancorp by 8.4% to 9.5 million shares valued at $146.8 million. It also cut its stake in Capital One Financial Corp. common shares to 1.03 million, or $54.1 million, from 1.43 million shares.

Mr. Tepper specializes in distressed-debt investing and manages around $16 billion. He had a strong year in 2010 after turning optimistic about U.S. stocks before many hedge-fund rivals. According to a Wall Street Journal report, he made between $2 billion and $3 billion personally last year.

Mr. Tepper correctly anticipated the Federal Reserve's recent efforts to boost the economy, steps that have helped the market rally. The increased stake in Citi follows a highly publicized Citi investment by John Paulson of Paulson & Co., who took an early bet on Citi.

Among his other big moves for Appaloosa's quarter were increasing to the holdings in various airline carriers, as well as an already reported increase to Goodyear Tire & Rubber Co.

Many investors who manage more than $100 million are required to disclose most securities holdings within a month and a half of the end of a quarter. The filings give the public a relatively fresh look at the portfolios of well-known investors.

—David Benoit
Nelson Peltz
Investor Nelson Peltz's Trian Capital Corp. took on 2.8 million shares of Kellogg Co. during the fourth quarter while dumping shares of Bank of America Corp., J.P. Morgan Chase & Co. and U.S. Bancorp, according to securities filings Monday.

Mr. Peltz, who is well-known for his investments in the food and beverage sector, also sold his holdings of Dr Pepper Snapple Group Inc. In the third quarter, he held 1.4 million shares of the beverage maker, spread out over two of his funds.

The Kellogg stake was spread over three of his funds, according to the securities filings on Monday, which report holdings as of Dec. 31. Mr. Peltz said in the filings that confidential information was filed separately with the Securities and Exchange Commission; such confidential treatment allows him to withhold information about some investments.

His stakes in Wendys Arbys Group Inc. and H.J. Heinz Co. stayed the same. He increased his holding of Family Dollar Stores Inc. in the fourth quarter by 113,400 shares.

Mr. Peltz reported holding 2.9 million shares of Bank of America at the end of the third quarter, but reported no holdings of the stock at the end of December. Likewise, a previous 550,000-share stake in J.P. Morgan wasn't reported in the December-end filing. He also reported no holdings of U.S. Bancorp, in which he held 1.68 million shares at the end of the third quarter.

—Liz Moyer
FrontPoint Partners
FrontPoint Partners, which late last year got caught up in an insider-trading probe related to a clinical drug trial, bought new stakes in Seagate Technology Inc. and J.P. Morgan Chase & Co. and dumped some health-care stocks, according to a securities filing Monday.

FrontPoint reported new stakes of 1.1 million shares of Seagate and about half a million shares of J.P. Morgan during the fourth quarter. Its new stakes in Seagate Technology and J.P. Morgan are valued at about $15.2 million and more than $24 million, respectively, as of Friday's close.

The Greenwich, Conn.-based hedge-fund firm, which is owned by Morgan Stanley, has been wrestling with fallout from the insider-trading probe for the past several months. The firm is also facing the possible departure of high-profile hedge-fund manager Steve Eisman, whose profitable 2007 bet that the housing market would collapse was chronicled in the book "The Big Short." The Wall Street Journal last month reported that Mr. Eisman was considering leaving.

In early November, prosecutors accused a French doctor of illegally alerting a fund manager with insider information about a clinical drug trial. FrontPoint has laid off the manager, Joseph F. Skowron III, and the rest of the health-care team. Morgan Stanley and FrontPoint have said they are cooperating with authorities and that they haven't been accused of wrongdoing.

Because of the probe, FrontPoint shed stakes in health-care stocks during the fourth quarter as it liquidated its health-care funds. Among the health-care positions eliminated were 1.9 million shares of GlaxoSmithKline PLC and 1.3 million shares of Aetna Inc.

It also disclosed it eliminated its positions in MasterCard Inc. and Visa Inc.

Morgan Stanley said in October that it planned to spin off FrontPoint. As part of the agreement, which was expected to close in the fourth quarter, FrontPoint's senior management and portfolio managers would own a majority equity stake. The insider-trading probe sent the plan into disarray.

—Corrie Driebusch

Threat Builds on the Margins

Threat Builds on the Margins

By JONATHAN CHENG

This earnings season has seen a much-welcomed return to revenue growth, giving investors another reason to push stocks to two-year highs.

But beneath the surface lurks a fresh worry: For many companies, the cost of raw materials is rising at a faster pace than revenue. Blame it on soaring prices of everything from cotton to copper and corn. That has squeezed profit margins more markedly than many analysts anticipated—and is serving as a worrying sign for future earnings.


Bloomberg News

Harvested corn is loaded onto a truck in Ines Indart, Agentina, on Monday, April 5, 2010. Before April 20, corn declined 14 percent this year on forecasts for production to rise in Brazil and Argentina, the biggest exporters behind the U.S. Photographer: Diego Giudice/Bloomberg
.Procter & Gamble, Ford Motor and Kraft Foods are among dozens of companies that reported lower profit margins for the fourth quarter of 2010 compared with the third quarter. Their stocks were punished by investors, even as the companies' profit and revenue exceeded analyst forecasts. The cool reception stood in contrast to the general optimism among investors that has helped the Dow Jones Industrial Average to gain about 6% this year.

About three-quarters of the companies in the Standard & Poor's 500-stock index have reported their earnings so far. Some 25% of those companies have posted lower margins in the latest quarter, according to Morgan Stanley. S&P says operating margins for S&P 500 companies in the latest quarter have come in at 8.69%, down from margins of 8.95% for the S&P 500 in the third quarter.

"I think this quarter was a wake-up call. We're seeing these stocks get hit on margins and sell off dramatically," said Erin Browne, director of global macro trading at Citigroup. "It's definitely picking up steam and becoming much more on the tops of investors' minds, and it's only going to continue as we move through 2011."

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.While some of these costs can be passed on to customers, many companies have been unable to increase their own prices. The economic recovery is just gaining steam, unemployment remains high, and consumers are keeping a tight rein on spending.

Some worry that many analysts aren't taking the lower margins into account and are overestimating future profit margins. Adam Parker, Morgan Stanley's chief U.S. equity strategist, says consensus earnings estimates for the rest of the year imply that analysts continue to see margins expanding. That leaves plenty of room for disappointment if rising commodity prices bite deeply into companies' margins.

"Some analysts may be guilty of 'over-extrapolating' the recent margin improvements into their forward outlooks," and companies that fail to meet these heightened expectations may find themselves punished by the market, Mr. Parker warned in a recent note to clients.

Kraft reported a 30% rise in revenue on Thursday. But the company said higher costs for meat, packaging and other raw materials sliced $500 million from net income, which the company reported at $540 million. The shares fell about 2% after the earnings were released. Procter & Gamble blamed higher commodity prices for crimping margins and said higher costs will lower annual earnings by about $1 billion. Since its earnings on Jan. 27, the shares are down 2.1%, compared with a gain in the S&P 500 of 2.5%. Ford shares are down 13% since Jan. 28, when the auto maker reported that rising costs of commodities such as steel and oil helped drag down its fourth-quarter profit.

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Ford Motor is among dozens of companies that reported lower profit margins for the fourth quarter of 2010.
.Companies that are dependent on raw materials to produce their goods are going to feel the biggest pinch, like Procter & Gamble and Ford, said Charles Blood, market strategist at Brown Brothers Harriman. But energy and materials companies are benefiting.

Citigroup's Ms. Browne recommends investors buy energy and agricultural stocks that benefit from higher commodity prices. Among her recommendations are Exxon Mobil, Peabody Energy and Monsanto. She says investors should avoid—or even bet against—consumer staples and consumer discretionary stocks that have to absorb or can't pass along these higher input costs in slack consumer times. On her list: General Mills, Kimberly-Clark and Kraft. Ms. Browne said that while the theme began to emerge in third-quarter earnings, "concern regarding input costs picked up materially during fourth-quarter earnings" as more and more companies reported lower margins.

The pinched margins put a damper on an earnings season that has finally delivered on revenues, which have come in much stronger than analysts have expected, in part because demand picked up faster than anticipated.

During the downturn, U.S. companies aggressively cut costs and improved productivity, allowing many of them to churn out profits even as the weak economy kept sales muted. But investors were worried that the cost-cutting would have its limits, and that longer-term growth could really only be sustained by revenue growth.

According to Brown Brothers Harriman, 71% of S&P 500 companies reporting so far have beaten revenue expectations this earnings season, compared with the usual rate of about 60%. Revenue has grown an average of 9.8% in the fourth quarter, significantly outpacing estimates of 3.8% growth.

"It tells me that end demand is stronger than what analysts had expected, and that's a very healthy sign that there's more to the profits recovery than just cost-cutting," says Priya Hariani, U.S. equity strategist with Bank of America Merrill Lynch. Ms. Hariani says she is unfazed by the shrinking margins, adding that worries are being stoked by "a handful of companies making headlines." She says current margins are sustainable. Interest rates are low, as are corporate borrowings and corporate-tax rates, she says.

While wages have started rising—up 0.4% in January, according to the Labor Department—they remain low, she notes. And large swaths of the S&P 500 are commodity producers, which benefit as commodity prices rise.

"There are some pockets of the S&P 500 that get pressured, including retailers and food-product companies, but net-net, S&P 500 commodity input costs are low," she says. "What I think this will do is, you won't see the same rapid pace of margin expansion, but it doesn't mean we'll see any meaningful margin contraction."

Goodyear Tire & Rubber still managed to please investors worried about profit margins. The tire-maker posted a loss, but saw its stock jump 14% after the company said it would ramp up production and is ready for 25% to 30% increases in raw-material costs, including for natural rubber.

"Higher raw-material prices are the most significant challenge facing our industry today," Goodyear Chief Executive Richard Kramer said. "Commodity prices that were already high continue to increase." While Goodyear sold the same number of tires in North America in the fourth quarter as in the year-earlier quarter, sales were up 17% as consumers continued to buy Goodyear's more expensive tires.

Write to Jonathan Cheng at jonathan.cheng@wsj.com

高盛欺诈中国真相：挂羊头却卖狗肉 套保忽悠人

高盛欺诈中国真相：挂羊头却卖狗肉 套保忽悠人

手机免费访问　www.cnfol.com　2011年02月14日 13:44　第一财经日报　张晓东

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　　2009年初，我国B航空公司、S航空公司和中国某海洋运输公司分别公布了在石油和远洋运输指数的衍生品交易上发生了巨额亏损，亏损额依次为68亿元、62亿元和50亿元，举国哗然。国资委在2008年11月紧急叫停了央企衍生品交易，要求企业查明原因，采取应对措施。

　　对于如此巨额亏损，上述几家公司都归结于国际金融危机。但是，其他国家或地区的同类公司却并没有发生类似的情况。实际情况是，中国上述几家公司都在金融衍生品市场上，被高盛等国际投行欺诈了。这是一些国内企业不敢承认也不愿承认的事实。

　　作为一名金融从业人员，笔者对“欺诈”一词的使用非常谨慎，这是一个具有法律含义的词语。但通过对衍生品合约的解剖，通过一系列谈判和接触，笔者可以明确使用“欺诈”一词。名义上是套期保值产品，但实际上套期保值的功能微乎其微，其结构陷阱甚至让产品连投机功能都没有。

　　国资委原副主任李伟先生在中央党校《学习时报》的一篇署名文章中，也曾使用了“欺诈”一词。他指出，截至2008年10月底，这68家企业从事金融衍生品业务合约市值为1250亿元人民币，形成了114亿元人民币的浮动净亏损。这些企业所遭受巨额亏损，“与国际投行恶意兜售带有欺诈性的、设计复杂的高杠杆产品有很大的关系”。

　　在本文中，笔者将以S航空公司为案例，对这种“欺诈”进行详细解剖，将真相揭开。这很具有意义，中资公司在衍生品市场的巨亏第一笔是2004年中航油(新加坡)5.5亿美元的亏损，但其原因并没有被真正了解，这导致4年之后被用同样的手法、同样的金融产品在2008年从中国企业身上攫取了更多利润。一个细节是，高盛在新加坡的全资公司杰润公司，是2004年中航油新加坡公司的主要交易对手，杰润公司同样是2008年这一轮多家央企衍生品亏损的主要对手，以某航空公司为例，金融产品和中航油亏损的金融产品也是同样一致的产品。

　　走样的套期保值

　　S航空公司在此次衍生品亏损中亏损额达到62亿元，2008年末净资产为负的116亿元，如果没有国家支持，就破产倒闭了。

　　从2003年开始，S航空公司同高盛进行石油的衍生产品交易，主要目的是对冲因石油价格上涨而导致的公司航空燃料购买成本的增加，即所谓的套期保值。

　　开始阶段，从2003年到2005年，交易工具是简单的期权和简单的互换，没有复合期权等复杂的工具。合约的交易量也比较小，每月1万桶左右。这个阶段可以看作是企业的摸索阶段。这期间所做的交易基本符合石油套期保值的要求。

　　从2005年开始，S航空公司通过衍生品进行石油套期保值的交易量有所放大，不过增加的幅度不是很大。但是，从2008年6月开始，S航空公司签订的石油衍生品合约的交易量急剧放大，从每年的几十万桶激增到每年上千万桶。就在这些合约签订后不到3个月的时间里，石油价格从146美元/桶迅速下跌，最低到33美元/桶。合约亏损迅速放大。

　　高盛等卖给航空公司的衍生品合约有两大类：TARN和Extendible 3-Ways.TARN的全名叫Target Accrue Redemption Note中文翻译为目标累计赎回合约；Extendible 3-Ways的中文翻译为展期三项式。这两类合约都是非常少见、非常复杂的多种衍生产品的组合，可以说是专门为中国公司定制的。这两个产品没有套期保值功能，没有投资价值，在美国和欧洲市场是违法的产品，是纯粹的欺诈性金融工具，是陷阱。

　　这里有几个问题让人迷惑。第一，为什么恰恰在石油价格暴跌前，中国的航空公司突然增加了看多的交易量，从每年几十万桶暴增几十倍到几千万桶？第二，这些衍生产品合约究竟是什么产品？结构是什么？风险收益特征是什么？也就是说，这些衍生产品合约的可能收益有多大、潜在的风险和损失有多大？第三，这些合约是从哪里来的？谁设计了这些合约，是中国航空公司自己设计的，还是高盛等跨国金融机构？谁推销的这些产品？这些产品在其他的国家和市场是如何监管的？

　　下面，笔者通过对高盛卖给中国航空公司产品的深入解剖，来回答这几个问题。因为这些产品的合约文本都是英文，而且充满了专业术语和法律条款，对普通的读者来说，搞清这些专业名词和法律条款比较困难，也没有必要。所以，在这里只分析这些产品的基本结构和风险收益特征，并揭露其欺诈本质。

　　解剖欺诈性合约

　　下面，笔者对这两个产品分别进行详细的分析。

　　第一类，目标累计赎回合约。以下是某航空公司同某国际投行签订合约的基本结构：

　　合约类型：TARN

　　每月交易量：5万桶

　　合约期限：36个月

　　敲出条件：累计盈利150万美元

　　看涨期权执行价：100美元/桶

　　看跌期权执行价：70美元/桶

　　杠杆比率：2

　　油价现价(CL1)：125.5美元/桶

　　这是一个为期3年的合约。签约时间是2008年7月末，当时石油价格是125.5美元/桶。石油的价格是在2008年7月11日达到历史高点147美元/桶，然后开始下跌。

　　合约的主要内容是：国际投行对航空公司说，当时的石油价格是125.5美元/桶，可以打8折即100美元让航空公司每月购买5万桶石油。这听起来很美好，简直就像天上掉下馅饼。

　　但问题是，这个馅饼掺了“毒药”。国际投行说，为了吃到“天上掉下来的这个馅饼”，航空公司需要接受额外的两个条件，因为这个“馅饼”对它自己来说是一个很大的“风险”。两个附加条件：(1)如果航空公司的累计盈利达到150万美元时，该合约自动终止，这就是所谓的“敲出”。(2)如果石油价格跌破70美元/桶，航空公司需要以70美元/桶的价格加倍至每月购买10万桶石油。

　　这两个条款看起来似乎没有什么危险。“收益封顶”不就是少赚点吗？没有风险嘛。“加倍购买”需要在石油价格跌破70美元/桶之后才触发。石油现在的价格是125.5美元/桶，能跌到70美元/桶吗？高盛不是说石油价格已经进入了百元时代了吗，怎么可能跌到70美元/桶？

　　实际上，这两个条款是无色无味的“毒药”，正是这两剂毒药，毒死了航空公司。合约的毒性主要体现在以下几个方面。

　　第一，风险非常大，是正常的两倍。当石油跌到70美元/桶以下时，航空公司将加倍以高的价格购买石油。具体来说，假设石油价格跌到40美元/桶，按照合约规定，航空公司必须以70美元/桶的固定价格购买石油，而且购买量需要加倍。正常的情况，航空公司的亏损是(70-40)×5万桶=150万美元的损失，但因为有加倍条款，航空公司被迫加倍购买，亏损也就加倍成300万美元。

　　第二，航空公司收益非常小，仅150万美元。不管油价涨到100美元/桶还是涨1000美元/桶。航空公司的最大收益是不变的，都是150万美元。因为合约将航空公司的最大收益封顶了。因此，这个合约没有对冲石油价格上涨风险的功能，也就是说，没有套期保值功能。不仅没有套期保值功能，连投机的功能都没有。

　　第三，时间非常长。这是一个长达三年的合约。如此长的时间跨度，为石油价格跌到70美元/桶留出了足够的时间。一旦世界经济的增长停滞或陷入衰退，石油的价格就将大幅下跌。一旦石油价格下跌，航空公司在未来三年都将被锁定在这个合约里，连逃跑的机会都没有。这就是为什么在上面提到，这个合约连投机的功能都没有。投机如果不成的话，我可以马上跑。而这个合约是连逃跑的机会都没有。

　　第二类，展期三项式合约。展期三项式合约有两个部分：三项式部分和展期部分。三项式部分的结构是这样：

　　每月交易量：15万桶(未考虑加倍)

　　合约期限：12个月(2009年1月至2009年12月)

　　航空公司买入看涨期权执行价：150美元/桶

　　航空公司卖出看涨期权执行价：180美元/桶

　　航空公司卖出看跌期权执行价：70美元/桶

　　杠杆比率：2

　　WTI原油期货现价(CL1)：131.31美元/桶

　　展期部分的结构是这样：

　　每月交易量：30万桶

　　合约期限：24个月(2010年1月至2011年12月)

　　航空公司买入看涨期权执行价：170美元/桶

　　航空公司卖出看涨期权执行价：200美元/桶

　　航空公司卖出看跌期权执行价：80美元/桶

　　杠杆比率：2

　　WTI原油期货现价(CL1)：131.31美元/桶

　　这个合约也是由一组期权组成。合约签订时，三项式部分即开始生效。一年后，当三项式部分结束的时候，即在2009年年末，国际投行有权决定是否执行展期部分。

　　三项式期权的结构可以这样来理解。在石油130美元/桶的时候，高盛送给航空公司一个权利，未来可以以150美元/桶的价格从高盛手中购买石油。作为这个权利的补偿，高盛要求三个补偿：(1)航空公司送给自己一个权利，当石油价格跌到70美元/桶之下时，高盛可按70美元/桶的价格向航空公司卖出石油；(2)航空公司送给高盛另外一个权利，送给高盛一个执行价在180美元/桶的看涨期权，其作用是将航空公司的盈利进行封顶，也就是每桶最大的盈利不能超过50美元；(3)航空公司再送给高盛一个权利，高盛可以在一年后选择是否将展期部分激活的权利，也就是说，高盛在一年后可以在完全不需要航空公司同意的情况下，决定是否将展期部分变成立即执行的合约。

　　这个合约同目标累积合约TARN相比，都是欺诈性极强的合约。但是，展期三项式比TARN更隐蔽，更有欺骗性，杀伤力也更大。

　　首先，展期三项式合约的第一部分三项式，是一个有一定套期保值功能的结构，这会使得很多人认为整个展期三项式合约也是一个套期保值产品。而真实的情况是，展期三项式的展期部分是没有任何套期保值功能的，是一个纯粹的陷阱。展期部分的执行权在高盛手里，航空公司只有被动接受的权利，没有选择的权利。

　　因此，这个展期期权对航空公司来说，只有可能的义务和责任，没有任何主动的权利。对高盛来说，只有在对其非常有利的情况下，高盛才会选择执行展期期权，当市场对高盛不利、对航空公司有利的时候，高盛不会行使权利，因此，高盛没有任何风险，S航空公司也就相应没有任何收益。而对高盛有利的时候，则恰恰对航空公司极其不利。展期三项式这么危险的结构，高盛通过将其同三项式捆绑在一起，就给了航空公司套期保值工具的假象，充分表明了其隐蔽性。

　　其次，展期三项式合约的杀伤力更大。相比较TARN而言，展期三项式没有敲出机制，因此合约一旦签订，就意味着航空公司被完全锁定三年，中间没有任何机会终止合约。

　　展期三项式的“展期”，其实是一个期权，在当时的市场中，该期权应该被定价，但高盛却“免费”得到了这一展期权利。

　　蒙在鼓里的高管

　　2009年3月，笔者团队成为S航空公司衍生品财务顾问，对S航空公司与高盛等签订的石油衍生品合约进行分析、研究、定价和重组。受S航空公司全权委托进行衍生品合约的重组和谈判。

　　当我们最初告诉企业，它们被高盛等国际金融机构欺诈的时候，所有的人都不接受这个观点，认为我们是在故意夸大其辞。

　　在约谈高盛等投行前，S航空公司提出要进行一个演练。S航空公司自己组建了一个团队“代表”高盛，和我带领的衍生品团队进行一个模拟演习。我们以一个合约为例，说明这些合约的欺诈问题。

　　这是一个为期三年、合约金额2亿美元的合约。对S航空公司来说，在未来三年里，这个合约最大的可能盈利仅是可怜的150万美元，但最大的可能亏损却可以高达2亿美元。这样的合约怎么能有套期保值功能呢？通过这个合约，完全可以证明高盛的欺诈行为。

　　讲到这里，S航空公司负责合约谈判重组的一位高管打断了我们。他说，你们的分析有错误。这个合约是每月的最大可能盈利是150万美元，三年内的最大可能盈利则应该是150×36=5400万美元。我说，不是1个月可能盈利150万美元，而是这三年的最大可能盈利是150万美元。我们的计算是严格按照合约条款进行，并经过多重检验，肯定没有错误。

　　这位高管则说，S航空公司不可能签订这样的合约，“我们S航空公司虽然没有衍生品的专业能力，但基本的商业判断还是有的，断不会为了150万美元而签订这样一个为期三年、合约金额高达2亿美元、损失却可能高达2亿美元的合约！”

　　我们两个僵持不下，无法达成共识。他转身问旁边财务部的负责人。S航空公司的财务部是具体负责开展套期保值业务、同高盛等交易对手签订衍生品合约的业务部门，所有合约的签订和日常的沟通都是财务部具体负责。他问财务部的负责人：“这个合约我们三年的最大可能盈利仅仅是150万美元吗？”。财务部的老总低着头，点头称是。这位高管当时就惊呆了，拍着桌子说，这是欺诈！太过分了！

　　笔者当时内心也惊呆了。这些合约已经使用好几年了，从2008年10月巨亏开始出现之后，到我们开会也有半年多的时间。但直到当时，S航空公司高层还没有了解和掌握这些合约的真实情况，具体负责套期保值业务的工作人员仍然在“蒙蔽”公司的高层领导。

　　高盛的“无赖逻辑”

　　2009年4月，我们与对手方高盛杰润公司某负责人Martin一行进行了第一轮谈判，我们通过分析合约条款，指出高盛卖给S航空公司的展期三项式不是套期保值工具，没有套期保值功能，甚至连投机功能都没有，是一个欺诈性工具。而在S航空公司与高盛签订的石油合约中，都有S航空公司明确的声明：“签订本合约的唯一目的是套期保值，没有任何其他的投机目的”。此外，合约在签订的时候双方的风险收益极其不平等，尤其是展期三项式的期权估值，按照合约签订时石油期货当时的市价和当时石油期货的波动率曲线，采用我们自己的模型进行估值和计算，我们发现这个合约的价值对高盛来说价值3000万美元。但是，高盛却没有付给S航空公司一分钱。换句话说，S航空公司送给了高盛一个价值3000万美元的合约，却没有得到一分钱。S航空公司自己没有能力对这些合约进行估值和定价，完全依靠高盛对这些合约进行定价。因此，高盛在定价上欺诈了S航空公司。

　　在与高盛后来的谈判中，Martin首先说展期三项式虽然不符合套期保值会计，但这不意味着这个产品没有套期保值功能。企业可以根据自己的实际情况，通过石油现货和这个展期三项式形成套期保值。S航空公司使用这个产品已经4年，前3年一直在赚钱。Martin的这些话让我非常惊讶，因为这意味着他对套期保值最基本的概念都没有理解。

　　符合套期保值会计的基本要求之一就是，采用的衍生品工具和石油现货之间具有高度的相关关系，通常需要在80%到120%之间。也就是说，如果石油价格上涨一倍，那么，这个衍生产品工具的价值也要上涨，且上涨幅度不小于80%。换句话说，套期保值会计和形成套期保值就是一一对应的关系。但是，高盛卖给S航空公司的这个展期三项式和石油现货根本没有这个关系，因此，不可能是套期保值。

　　我要求Martin详细地解释S航空公司的展期三项式怎么和石油现货之间形成对冲关系。Martin无法做出解答。在我的一再要求之下，Martin说，高盛不是S航空公司的顾问，没有义务对此进行分析，是依靠S航空公司自己的分析来判断展期三项式有没有套期保值功能。这是一种无赖的逻辑。

　　关于S航空公司在前3年通过这个产品一直赚钱的问题，我告诉Martin，恰恰说明高盛卖给S航空公司的展期三项式产品没有套期保值功能，是一个欺诈性的产品。从2004年到2008年，在这4年里，S航空公司通过跟高盛等签订的合约赚了2000多万美元。乍看起来，这是一笔很大的数字。但深入分析的话，就会发现严重的问题。S航空公司每年用于购买燃油的费用都在数百亿元人民币。石油价格从2004年到的30美元/桶，涨到2008年的147美元/桶，简单估算，S航空公司四年中因航空燃油上涨导致的成本增加高达数百亿。如果有套期保值功能的话，应该能够覆盖大部分燃油价格上涨带来的成本增加，与高盛签订的这些展期三项式合约在过去四年应给S航空公司带来几十亿元的收益才对，但实际却不到2亿元。同几十亿元的实际购油成本的增加相比，实在是微不足道，基本上可以忽略，根本就没有起到套期保值功能。

　　这个展期三项式在石油价格上涨的时候，不能帮助S航空公司对冲价格上涨的风险，不能帮助S航空公司锁定购油的价格。但是，当石油价格下跌的时候，却给S航空公司带来巨额损失，这是典型的欺诈。

　　最终，我们给S航空公司提出了停止赔付、起诉高盛的建议。但是S航空公司因各种原因没有采纳这一建议。最后是因为国资委的介入，才帮助S航空公司等企业避免了更大的损失。

　　不仅仅是S航空公司，中国B航空公司、中国某海洋运输公司，以及中信泰富、深南电、海升果汁等一大批企业，都陷落在这种“欺诈”之中。怎样让更多人知道中国企业受“欺诈”的真相，怎样避免犯同样的错误，怎样增强中国金融机构与中国企业在金融衍生品市场上的能力，实是迫在眉睫的任务。

Mubarak Leaves Legacy of Egypt in Turmoil While Region at Peace

Mubarak Leaves Legacy of Egypt in Turmoil While Region at Peace

By Alaa Shahine and Cam Simpson

Feb. 11 (Bloomberg) -- It took 18 days of pressure from Cairo protesters as the U.S. and the European Union called for change to end the 30-year presidency of Hosni Mubarak, who kept peace with Israel, battled Islamic militants and preserved American interests in the Middle East.

His departure came after violence killed more than 300 people, according to the United Nations, with police sometimes firing on demonstrators and pro-Mubarak forces attacking as well. Egypt is the most populous country in the Arab world, which holds more than 50 percent of all known oil reserves.

The replacement for Mubarak -- who said just yesterday that he would stay until September elections while handing powers to his vice-president -- must have democratic legitimacy, former U.S. National Security Adviser Zbigniew Brzezinski said in a telephone interview before Mubarak said he would leave.

“Egypt is now at a stage of development in which it is reasonable and expected by the population,” Brzezinski said of the need for a leader popularly elected in free and fair elections.

In its final days, Mubarak’s regime also faced tough criticism from its most powerful ally, the U.S. Since the protests began, officials in the administration of President Barack Obama have been condemning violence wielded against demonstrators, calling for a faster transition and saying emergency laws, which had been used to justify harsh security tactics, should be lifted.

Facebook Opponents

Mubarak was brought down by an unexpected coalition of opposition politicians, members of the banned Muslim Brotherhood group and, most important, tens of thousands of young people who planned and organized the demonstrations on Facebook and Twitter.

Chief among them: Wael Ghonim, a 30-year-old Google Inc. executive whose social media expertise helped trigger and propel the demonstrations. He was arrested and held in secret detention for more than a week as Mubarak’s government shut down the Internet and mobile services, the tools he used to help make the protests possible.

Two days after his Feb. 7 release, Ghonim told those gathered in Tahrir Square, “I’m not a hero. You’re all heroes, the martyrs who have died in the struggle are the real heroes.” Pictures of those killed were posted around the square.

Mubarak, a former air-force general who as president was commander of the largest military force in the Arab world, was the nation’s longest-serving ruler in more than 150 years. He controlled a government that was the linchpin of U.S. policy in the Middle East for three decades, Brzezinski said.

Peace With Israel

Mubarak kept peace with Israel, with which Egypt had had formal peace for only two years when he took office, supported U.S. counterterrorism efforts, backed Iranian sanctions over its nuclear program and helped broker Palestinian-Israeli negotiations.

At the same time, Mubarak, an 82-year-old with jet-black hair, controlled a regime condemned by the U.S. government for its lack of basic freedoms at home, for its widespread suppression of political opposition and for the torture of Egyptian citizens, which was often carried out with impunity, according to the State Department.

“If you are prepared to reconcile those two realities, then it seems to me that, on balance, Mubarak has been a partner and a friend to the U.S. and the region,” said former U.S. Middle East peace negotiator Aaron David Miller.

Still, Miller said, the cost was steep.

‘Anger and Animosity’

“His increasing authoritarianism and repression generated enormous anger and animosity, not just towards him, but also toward the United States,” said Miller, who served as a State Department official under six U.S. secretaries of state and was a peace negotiator in the Clinton Administration. He is now a public policy scholar at the Washington-based Woodrow Wilson International Center for Scholars.

Mubarak was propelled to power by the 1981 assassination of Anwar Sadat, the leader who made peace with Israel two years earlier. Only Mohammed Ali, who ruled Egypt from 1805 to 1849, governed longer in the past 200 years.

Miller said three decades of stability in the region for the U.S. and Israel helped Mubarak buy a pass from Washington when he failed to follow through on pledges to open the country’s political system to competition that would have posed a challenge to his own rule.

Egypt’s benchmark stock index has risen more than seven- fold in the past 10 years. The MSCI Emerging Markets Index has almost tripled in the same period. Egypt’s stock market is the second-biggest in North Africa by market value after Morocco according to data compiled by Bloomberg.

Protected Ruling Elite

Since the global financial crisis, though, Egypt’s economic growth rate has dropped below the 7 percent that the government estimates is necessary to create enough jobs for a growing working-age population -- such as the young people who camped out in Cairo’s Tahrir Square.

Suppression of a wide array of perceived rivals under an emergency law promulgated in 1981 marked Mubarak’s reign. Some analysts and opposition groups, including the Muslim Brotherhood, said his policies protected the ruling elite while leaving the poor grappling with an inflation rate that reached more than 20 percent in 2008.

Mubarak’s governments blamed population growth and the economic mismanagement of past administrations for the poverty that plagued the nation of 80 million.

Egypt’s per-capita gross domestic product more than quadrupled from 1981 to 2009, when it stood at $6,000, lower than countries such as Namibia and Gabon, according to the CIA World Factbook.

Funeral Visit

Mubarak never put in doubt the policy of diplomatic rapprochement with Israel, though his only visit to the Jewish state was for the funeral of assassinated Israeli Prime Minister Yitzhak Rabin in 1995.

He renewed ties with Arab states, which had almost universally rejected Cairo’s separate peace accord with Israel under Sadat. They showed their anger by breaking diplomatic relations with Egypt, suspending its membership in the Arab League and moving the group’s headquarters from Cairo to Tunis.

Addressing Arab leaders in Cairo in 1996, Mubarak stressed his commitment to regional peace, which he maintained until the end of his regime.

“There isn’t among us anyone who wants to take the region back to the destruction of war or to the phase of no war and no peace,” he said. “We are sincerely determined to struggle for peace until the end.”

Brzezinski, who was national security adviser to President Jimmy Carter when the U.S. helped forge the Egypt-Israel accord, said that was Mubarak’s most important legacy.

Avoiding Legacy

“I think avoiding war in the region is of importance to the United States,” Brzezinski said. “The moment Egypt signed a separate peace treaty with Israel the possibility of an encircling attack on Israel, like in 1973, faded.”

Mubarak also retained Egypt’s alliance with the U.S., which began with Sadat’s break with the then-Soviet Union. Egypt now receives about $1.3 billion a year in U.S. military aid. U.S. non-military aid last year was $250 million, according to the State Department.

Critics, including the group Human Rights Watch, said he went too far, arguing that the alleged torture of terrorism suspects created more danger than it quelled.

The government’s “foul record on torture” played an important part in fueling the anger that brought Mubarak down, said Sarah Leah Whitson, the Middle East director at the New York-based Human Rights Watch.

Five Times President

She called on the new government to end torture and prosecute perpetrators.

Mubarak was elected president five times. Four were by referendum in which he was the only candidate, and one, in 2005, was an election against an array of weak candidates. Throughout his reign, he retained the state-of-emergency rules that restricted political activity and free speech.

Like Egypt’s three other presidents since the revolution of 1952, Mubarak came from the military. Almost three decades after he assumed power, that same military would announce that it recognized “the legitimacy of the people’s demands” and promise not to fire on peaceful demonstrators.

Until the crisis that began with demonstrations Jan. 25, Mubarak had never appointed a vice president or officially designated anyone as his likely successor. The rise of his son, Gamal, up the ranks of the ruling National Democratic Party led Egyptians to conjecture that he would succeed his father. Both men repeatedly denied this.

Brotherhood Opponents

His most visible political opponents were members of the Muslim Brotherhood, an Islamic group that had renounced violence in the 1970s. Dissatisfaction among Egyptians over corruption and economic inequality fueled its growth.

In 2005, Mubarak opened presidential elections to multiple candidates. The regulations were so restrictive that no strong challengers emerged; the runner-up, lawyer Ayman Nour, won only 7 percent of the vote to Mubarak’s 88 percent. After the election, Nour was jailed for four years on fraud charges that human-rights groups say were trumped up.

In elections later in 2005, the Muslim Brotherhood won 88 seats in the 454-member parliament -- a surprise result that prompted a crackdown on Islamic activists and on anti-Mubarak secular politicians, judges, newspaper editors, bloggers and street demonstrators. Hundreds of Brotherhood activists were rounded up and some put on trial in closed-door military courts.

In 2007, a constitutional amendment forbade parties with religious ties, eliminating the Muslim Brotherhood from fielding a presidential candidate. Rules on running as an independent were also tightened, making a Brotherhood-affiliated nominee unlikely.

To contact the reporters on this story: Alaa Shahine in Cairo at asalha@bloomberg.netCam Simpson in London at csimpson13@bloomberg.net