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ApprovedBusinessBusiness and finance

Embattled Toshiba tries to sell its flash-memory unit

ONCE an electronics and nuclear-power empire that was the pride of corporate Japan, Toshiba is threatened with a stockmarket delisting. It missed a deadline to file its annual results, on May 15th, for the third time this year. In earnings estimates (auditors are refusing to sign off on its results), it warned of a loss close to ¥1trn ($9bn) for the financial year that ended in March. That is the steepest loss on record for a Japanese manufacturer.

To make things worse, Western Digital, an American joint-venture partner in its semiconductor unit, last week took legal action to block Toshiba’s plan to shed their flash-memory business. The case could drag on, but Toshiba needs a sale. That would help cover a write-down of billions of dollars from Westinghouse Electric, its bankrupt American nuclear-power unit.

The group’s chip business accounted for almost one-fifth of revenue in the nine months to December 2016; together, Toshiba and SanDisk, a subsidiary of Western Digital,…Continue reading

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Hunger for vinyl means a chronic shortage of pressing machines

Well under 45

FOR young hipsters and middle-aged sentimentalists alike, the resurgence of vinyl is cause for celebration. Since 2010 sales of vinyl records in America have tripled. Britain’s vinyl industry saw its biggest gains for 25 years in 2016. Big supermarkets are extending the amount of space that they allocate to the discs and even the turntables that twirl them have found a place on Amazon’s best-seller lists.

Meeting this demand has been tricky. Vinyl accounted for 76% of total album sales in 1973; by 1994 this had dropped to 1.5% as compact discs (CDs) took over. By then the bulk of the world’s vinyl-pressing plants had closed and most of their cumbersome machines had gone to the scrapyard. Only a very few plants that could diversify into new areas of printing and production stayed open. But they did so without any further investment in vinyl, so the few machines that kept on producing often date back to the 1960s.

GZ Media, a Czech…Continue reading

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Coca-Cola’s new boss tries to move beyond its core product

FEW companies are as defined by a single product as Coca-Cola. The firm has sold the sweet dark soda since 1886. At its headquarters in Atlanta, archives house the advertisements that sowed Coke in the world’s consciousness: posters urging consumers to “Have a Coke and a Smile”; Norman Rockwell’s 1935 painting of a boy fishing, Coke bottle in hand; a Coca-Cola record with tunes sung by Ray Charles, Aretha Franklin and The Who; advertisements with a red-coated, bearded Santa Claus—it was Coca-Cola that popularised the image of Santa in the 20th century.

Today Coca-Cola has $42bn in revenue and is available “within an arm’s reach of desire”, as the firm puts it, in every country but Cuba and North Korea. Its distribution is so broad, its marketing so expert that the Gates Foundation has urged vaccine campaigns to mimic its strategy. The question for James Quincey, an insider who took over as CEO this month, is whether Coca-Cola can move beyond Coke.

The company…Continue reading

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Antoine Frérot is overhauling France’s water-and-waste champion

Bin there, done that

WALK along Sugar Road in Aubervilliers, north-east of Paris, and it is obvious how a formerly scruffy area is gentrifying. New office blocks, a shopping mall and bistros have appeared in recent years, filling spaces left after wrecking balls flattened warehouses. Along a canal previously used by barges, commuter ferries deliver workers from richer parts of the city. A district long known for slums, cheap housing and support for the Communist Party is becoming a business hub—Chanel, a fashion firm, as well as several film producers and studios, have moved in and big banks are expected next.

The district’s centrepiece is a U-shaped glass block, the headquarters of Veolia, the world’s largest water-and-waste group. The building opened in January, after the firm moved out of central Paris to save costs and concentrate 2,000 of its 163,000 staff in one spot. Moving to a rehabilitated area carries symbolism for Veolia, which is experiencing…Continue reading

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America’s trade policy has a new face, Robert Lighthizer

AS IS well known, Donald Trump wants the press to focus not on what he calls “fake” news about himself, but on his administration’s achievements. On May 12th he helpfully tweeted an example: “China just agreed that the US will be allowed to sell beef, and other major products, into China once again. This is REAL news!”

His first trade deal was real, if short of the “Herculean accomplishment” touted by his commerce secretary, Wilbur Ross. It promised American credit-rating agencies, payment companies and beef exporters new access to the Chinese market, and set a deadline for progress, of July 16th.

Parts of the deal lack detail, so it may yet disappoint. China has been offering since 2006 to open its market to American beef, but with hefty restrictions. The World Trade Organisation (WTO) had already ruled that China’s restrictions on foreign payment-card companies broke its rules. And the Chinese incumbent is so entrenched that American cards may still struggle to compete.

Maybe Mr Trump picked the wrong “real” news. More important for his trade agenda was the Senate’s confirmation on May 11th of Robert Lighthizer as the new United States Trade Representative (USTR). He will matter much more for economic relations with China than a hasty mini-deal. And now that he is in place, renegotiation of the North American Free-Trade…Continue reading

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A surge in the value of crypto-currencies provokes alarm

IT IS hard to predict when bubbles will pop, in particular when they are nested within each other. It helps to keep this image in mind when considering one of the biggest surges in asset values of recent years: the market value of all the world’s crypto-currencies has trebled since the beginning of the year, and is now worth more than $60bn (see chart).

Bitcoin is the best known of these currencies, especially after hackers this month instructed victims to pay ransoms in the anonymous digital cash in order to get their computer files decrypted. Not that many bitcoins exist: there are about 16.3m of them, with only 1,800 new ones minted every day. But growing demand has pushed bitcoin’s price to a record recent high of about $1,830, up from $450 a year ago.

Problems abide. Earlier this year some of the biggest exchanges, such as Bitfinex, experienced problems with their correspondent banks and were unable to pay out real-world currencies to account-holders. To get their money…Continue reading

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Numismatics—acquiring old coins—outperforms other investments

A penny for your dreams

BEHIND the heavily fortified door of Stack’s Bowers, a gallery of rare coins in New York, smiling salesmen show off their precious wares neatly displayed in pristine glass cabinets. To the untutored eye, it looks like pocket change. Numismatists, who study the history and art of old money, see well-preserved coins as aesthetic masterpieces worth many times their face value. At an auction organised by Stack’s Bowers on March 31st, an American cent from 1793 (pictured) sold for $940,000, becoming the costliest penny ever.

An index of tangible alternative asset classes compiled by Knight Frank, a consultancy, shows that returns on rare coins over ten years to the end of 2016 were 195%, easily beating art (139%), stamps (133%), furniture (-31%) and the S&P 500 index (58%). Coins are more portable than paintings or furniture, and boast a higher value-to-volume ratio. Stamps may be lighter, but, come doomsday, cannot be melted…Continue reading

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Dow Chemical shows how American industrials and globalisation mix

WHAT does it take for an American industrial champion to succeed in an age of globalisation and impatient investors? Some observers argue that it has become impossible. The world is just too nasty and unfair, they bleat. Perhaps they should take a look at Dow Chemical, a firm born in Michigan in 1897 that has hustled hard enough to be at the top of its industry 120 years later.

When Dow completes its planned $130bn merger with DuPont, a longtime rival, probably at the end of this year, it will become the largest chemical company in the world by sales. This new colossus will keep changing—in 2018-19 the plan is for it to split into three specialised firms. “New Dow” will focus on selling chemicals to the automotive, construction and packaging industries. The other two smaller companies will concentrate mainly on the agricultural and electronics industries.

This is a good moment, before the three-way split, to take stock. Being in the chemicals business is like swimming in a…Continue reading

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Insurers get a new global accounting regime

LISTED firms in over 120 countries, including all large economies bar America, issue financial statements according to international financial reporting standards (IFRS) set by the International Accounting Standards Board (IASB). One industry, however, has been in practice free to keep using divergent national standards: insurance. That, too, is about to change. IFRS 17, issued on May 18th and coming into force in 2021, is the first standard for insurers to require consistent accounting across all countries using IASB rules (ie, again excluding America).

It has a wide gulf to bridge. In one example, looking at identical financial results reported under two countries’ standards, revenue differed by a quarter and net income by nearly two-fifths. Some places, such as the EU, require insurers to use updated discount rates to value future cashflows. Others, including America and many parts of Asia, allow the use of historical discount rates and assumptions valid at the time the policy was…Continue reading

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The markets are quiet. Too quiet?

HAN SOLO, a hero from the Star Wars movies, has a habit of saying, at tense moments, “I have a bad feeling about this.” Many commentators are echoing this sentiment after a recent fall in the Volatility Index, or Vix, below ten. Their fears deepened on May 17th, when the Vix lurched above 15 and American stockmarkets had their worst day in eight months. Incessant turmoil in the White House at last seemed to take its toll.

A low Vix reading is usually seen as a sign of investor complacency. The previous two occasions on which the index fell below ten were in 1993 and early 2007 (see chart). One preceded the bond market sell-off of 1994 and the other occurred just before the first stages of the credit crisis.

The value of the Vix relates to the cost of insuring against asset-price movements via the options market. An option gives the purchaser the right, but not the obligation, to buy (a call) or sell (a put) an asset at a given price before a given date. In return, like…Continue reading

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The British government sells its last shares in Lloyds bank

IN OCTOBER 2008, amid post-Lehman pandemonium, Britain’s Treasury said it would pump £37bn (then $64.4bn) into three big banks: £20bn into the stricken Royal Bank of Scotland (RBS); the rest into Lloyds TSB and HBOS, a sickly rival that ministers had cajoled Lloyds into buying. After rights issues in 2009, in all the state paid £20.3bn for 43.4% of the merged Lloyds Banking Group. On May 17th Lloyds said the last state shares had been sold.

The government has recouped £21.2bn, including £400m-plus in dividends, since it started to unload its stake in 2013. The return may sound slim, but had big lenders imploded the costs of the financial crisis would surely have been far greater even than they were. (Not surprisingly, anyone holding Lloyds TSB or HBOS shares since before the crisis has made a heavy loss.)

The group is Britain’s biggest retail bank. Its brands—Lloyds Bank, with its “black horse” logo, Halifax and Bank of Scotland—boast around…Continue reading

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A British firm plans a secondary market for crowd-funded shares

EVERYONE would like a piece of the next Google or Facebook. But the big venture-capital (VC) firms do not usually raise money from small investors. And some entrepreneurs complain that it is hard to get noticed by the hotshots in the VC industry. Hence the enthusiasm for crowd-funding, where small investors can buy a stake in startup companies.

Seedrs, a British crowd-funding firm, was set up in 2012, and has backed 500 firms so far, raising a total of £210m ($271m) from more than 200,000 users. But there are two big problems with crowd-funding. First, it is risky: most startups fail. Second, investments tend to be illiquid—shareholders have to wait for a takeover or a stockmarket flotation to recoup their investment.

Seedrs is trying to solve the illiquidity problem by setting up a secondary market, where buyers and sellers can exchange shares. The new market will start operating this summer, and will allow trading for a week every month, starting on the first…Continue reading

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Sinclair Broadcast buys Tribune Media

AT A time when ever fewer people are watching television, it may seem improbable that the owners of local TV stations in America want to expand their empires. It turns out that they can hardly wait. On May 8th, just 18 days after a change in federal rules made the deal possible, Sinclair Broadcast Group announced that it would buy Tribune Media in a transaction worth $6.6bn, beating out interest from others including 21st Century Fox, which is owned by Rupert Murdoch. Sinclair will become America’s dominant owner of local TV stations.

The deal signals a broader interest in expanding what has been a surprisingly decent business in recent years. In America local TV stations tend to affiliate themselves with a national broadcast network, transmitting its content, including live sports. In exchange the stations make substantial payments. Despite falling viewership of network TV, the economics of local-station ownership have remained robust for two reasons.

First is the resilience of local TV advertising, especially in election years, says Mark Fratrik of BIA/Kelsey, a media consultancy. The ability of small TV stations to reach specific areas for local political races has proved difficult to match.

Second, TV stations have tapped a new vein of cash: retransmission fees, the payments they command from cable- and satellite-TV providers for their consent…Continue reading

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The super-connector airlines face a world of troubles

WHEN a video of a passenger being dragged off a United Airlines flight went viral last month, the American carrier’s Middle Eastern rivals were quick to mock its customer service. Qatar Airways updated its smartphone app to say it “doesn’t support drag and drop”. The ribbing was justified. Over a decade of expansion, Qatar Airways, along with Emirates of Dubai, the world’s largest airline by international passenger miles travelled, and Etihad Airways of Abu Dhabi, wowed customers with superior service and better-value fares.

Passengers joined them in droves, abandoning hub airports in America and Europe as well as the airlines that use them. Over the past decade the big three Gulf carriers and Turkish Airlines trebled their passenger numbers, to 155m in 2015 (see chart). They went a long way to dominating long-haul routes between Europe and Asia. Most international airlines rely on travellers going from or to their home countries, but customers of the four “super-connectors”,…Continue reading

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Management lessons from an American general

After war war, jaw jaw

STANLEY MCCHRYSTAL’S voice is hoarse as he addresses a packed arena in Helsinki. His audience, mostly businessmen in dark suits, is rapt. The American former general tells thrilling battlefield stories of leading the Joint Special Operations Command in Iraq, which captured Saddam Hussein and killed Abu Musab al-Zarqawi, al-Qaeda’s local chief. He explains how his outfit adapted against an unexpectedly difficult enemy. A change in management style let his group go from conducting a handful of raids each month to hundreds, achieving better results against insurgents.

Neither America’s occupation of Iraq nor Mr McChrystal’s military career ended well. He went on to lead Western forces in Afghanistan, but stood down in 2010 after falling out with his political bosses. He reinvented himself as a management consultant. His McChrystal Group employs 65 people. It draws on its founder’s experience hunting insurgents to advise businesses,…Continue reading

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A boss’s guide to fending off an activist attack

MODERN bosses are a resilient bunch who can handle everything from Twitter storms to takeovers. But one thing drives many of them berserk: activist hedge funds, which buy stakes in companies and lobby for change. Last month Klaus Kleinfeld, the boss of Arconic, an industrial firm, succumbed to a bout of “activist apoplexy”. He sent a confidential letter to Paul Singer, head of Elliott Management, a fund that was trying to oust him. Its mysterious references to parties during the 2006 football World Cup in Germany and to a feather headdress seemed to be a threat to expose details about Mr Singer’s personal life. Mr Kleinfeld, who had spent over a decade running big listed firms including Siemens and Alcoa, resigned when his board found out.

Bosses feel that they are being stalked by activists. Elliott is now in a confrontation with Akzo Nobel, a Dutch chemicals firm that is using a poison pill to resist a takeover by PPG, an American rival. Since 2010, on average, 8% of…Continue reading

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How America’s two tech hubs are converging

WOULD your region care to be the next Silicon Valley? In most of the world’s technology hubs, local leaders scramble to say “yes”. But ask the question in and around Seattle, the other big tech cluster on America’s west coast, and more often than not the answer is “no”—followed by explanations of why the city and its surrounds are different from the San Francisco Bay Area. The truth may be more complex: in recent years the Seattle area has become a complement to the valley. Some even argue that the two regions, though 800 miles (1,300km) apart, are becoming one.

They have similar roots, notes Margaret O’Mara, a historian at the University of Washington (UW). Each grew rapidly during a gold rush in the 19th century. Later both benefited from military spending. Silicon Valley ultimately focused on producing small things, including microprocessors, and Seattle on bigger ones, such as aeroplanes (Boeing was for decades the city’s economic anchor). This difference in dimension…Continue reading

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Donald Trump’s family and a controversial visa scheme

A family affair

THE events seemed inconspicuous enough: presentations in smart hotels in Beijing and Shanghai seeking investors for luxury American apartments. The details might have gone unnoticed had not a journalist from the Washington Post heard about the event’s star attraction. But these days the surname “Kushner” is like a magnet. It quickly emerged that Nicole Meyer, sister of Jared Kushner, Donald Trump’s son-in-law and senior adviser, spoke in her pitch on May 6th to prospective investors about her powerful brother. One slide (pictured) that was shown to the audience included a photo of Mr Trump himself.

The affair underlined potential conflicts of interest surrounding Mr Trump’s family members and their businesses. Mr Kushner is not directly involved in the family firm. But Kushner Companies later apologised if Ms Meyer’s name-dropping “was in any way interpreted as an attempt to lure…Continue reading

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Africa’s informal economy is receding faster than Latin America’s

COMMON to all men, according to Adam Smith, is “the propensity to truck, barter and exchange”. Less common is a willingness to report all of this enterprise to the authorities (which have a propensity to register, regulate and tax). South Africa’s spaza shops (convenience stores often run from people’s homes), Kenya’s jua kali (a Swahili term referring to the “hot sun” under which craftsmen traditionally made and sold their wares) or Senegal’s tight-knit networks of Mouride street peddlers—all contribute to the informal economy. This shadow economy, which includes unregistered enterprises and off-the-books activity by registered firms, is difficult to measure, almost by definition. But this week the IMF released new estimates of its size.

The fund’s economists inferred the size of the informal economy indirectly, based on more visible indicators that either cause informality (heavy taxes, high unemployment and patchy rule of…Continue reading

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A new sort of hedge fund relies on crowd-sourcing

“QUANT” hedge funds have long been seen as the nerdy vanguard of finance. Firms such as Renaissance Technologies, Two Sigma and Man AHL, each of which manages tens of billions of dollars, hire talented mathematicians and physicists to sit in their airy offices and develop trading algorithms. But what if such talent could be harnessed without the hassle of an expensive and time-consuming recruitment process? That is the proposition Quantopian, a hedge fund and online crowd-sourcing platform founded in 2011, is testing. Anyone can learn to build trading algorithms on its platform. The most successful are then picked to manage money. Last month the firm announced it had made its first allocations of funds to 15 algorithms it had selected.

Quantopian would appear to have one striking advantage over its competitors: sheer weight of numbers. The difficulty of hiring and a desire for secrecy limit even big quant funds to a full-time research staff in the low hundreds (Man AHL, for instance,…Continue reading

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India needs to curb a borrowing spree by its state governments

WHICH Indian state sounds more likely to repay a loan: Bihar, the country’s poorest, with a budget deficit of nearly 6% of its state GDP last year and a hole in its finances after it banned alcohol sales; or Gujarat, a relatively prosperous coastal region with a deficit nearer to 2%? According to bond markets at least, both are equally good credits, and so pay the same interest rate. As welcome as such mispricing might be to the Bihari authorities, it is brewing trouble for the rest of the Indian economy.

The borrowing habits of Bihar, Gujarat, and India’s 27 other states used to be below the radar of all but the pointiest financial eggheads. The indebtedness of India, and its annual budget deficits—both high by emerging-market standards—could largely be blamed on the profligacy of the central government in Delhi. But an explosion in the net amounts borrowed by states over the past decade (see chart), from 154bn rupees in 2006 ($3.5bn then) to an estimated 3.9trn in the fiscal year…Continue reading

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America’s food-truck revolution stalls in some cities

The burghers rise up

IT WAS in 2008 that an out-of-work chef named Roy Choi began selling $2 Korean barbecue tacos from a roaming kitchen on wheels, tweeting to customers as he drove the streets of Los Angeles. Mr Choi’s gourmet food truck has since inspired a reality-TV programme and a hit Hollywood film, and helped jumpstart a $1.2bn industry.

Within the food industry, the food-truck business, built on unique dishes, low prices and clever use of social media, is the fastest-growing segment. Restaurants fret about an army of trucks stealing customers but such concerns are unwarranted. According to the Bureau of Labour Statistics, counties that have experienced higher growth in mobile-food services have also had quicker growth in their restaurant and catering businesses.

Although many cities have treated food trucks as a fad, a nuisance, or a threat to existing businesses, others have actively promoted them. Portland, Oregon, known for its vibrant culinary scene, has had small food carts on its streets for decades. After a study in 2008 by researchers at Portland State University concluded that the carts benefited residents, the city…Continue reading

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Worries mount about car finance in America and Britain

THOUSANDS of second-hand cars, ranging from dented clunkers to Bentleys, glisten under the evening floodlights at Major World, a car dealership in Queens, a borough of New York. “Business has been good,” says a crisply-dressed salesman, scurrying between prospective customers. Almost everyone who wants to buy a car at Major World can get approved for a loan, he explains, regardless of their credit score, or lack of one: when banks turn buyers down, the dealership offers them its own in-house financing.

In both America and Britain new-car sales reached record levels last year (2.7m cars in Britain and 17.5m in America), as did second-hand-car sales in Britain. So too did car loans: £31.6bn ($42.8bn) in Britain and $565bn in America. Even folk with poor credit records (“subprime” borrowers) have been able to find financing. So some are asking whether this latest credit boom might have sown the seeds of a new crisis.

In America worries have centred on rising delinquencies in subprime asset-backed securities (ABSs) based on car loans. Bundling car-loan repayments into ABSs to sell on to investors represents an important source of financing, particularly for non-bank lenders. Cumulative net losses on subprime car-loan ABSs issued in 2015 are at levels not seen since 2008—over 6% after only 15 months.

Some hear echoes of the financial crisis….Continue reading

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Axel Springer’s digital transformation

VISITING the top floor of Axel Springer’s tower in Berlin is like travelling back to a lost age. The German publisher’s Journalisten Club is a suite of wood-panelled rooms filled with antique books, leather armchairs and classical paintings. “It is a symbol,” says Mattias Döpfner, the publisher’s chief executive.

Whether it still makes sense as a symbol is unclear, for Axel Springer’s business has shifted rapidly away from print media (though it still owns Bild and Die Welt, two leading German dailies) towards an array of digital businesses. In 2000 it had almost no digital revenue; by the end of last year over 72% of its operating profit came from digital activities. Profits have increased by 37% over the past decade, from €434m ($473m) in 2006 to €596m last year.

Four years ago Axel Springer sold off several newspapers and magazines, including the Hamburger Abendblatt and the Berliner Morgenpost, for $1.2bn. In 2015 it nearly bought the Financial Times, a British paper with a strong online presence but…Continue reading

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America’s Treasury ponders issuing 40-, 50- or 100-year bonds

HOW can governments borrow most cheaply? The answer matters hugely for taxpayers. Take America: it has $14trn in outstanding national debt, fully three-quarters of GDP. Interest payments alone are expected to reach $280bn this fiscal year—ie, more than three times the combined budgets of the Departments of Education, Labour and Commerce.

The problem largely comes down to deciding how much long, medium and short-dated debt to sell. Almost every country issues a combination of these maturities. In the current low interest-rate environment, however, many argue that governments should sell proportionately more long-dated bonds to make sure they are able to pay historically low rates for many decades to come, thereby saving taxpayers money in the long run.

Some countries have already ploughed ahead. In recent years Britain, Canada and Italy have sold 50-year bonds; Mexico, Belgium and Ireland have issued 100-year debt. The latest country to flirt with the idea is America: last month the Treasury sent out a survey to bond-dealers to gauge market appetite for 40-, 50- and 100-year bonds. On May 3rd officials said that Steve Mnuchin, the…Continue reading

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Harvard Business School risks going from great to good

YOU will all be aware that a book has just been published about our institution, Harvard Business School (HBS). Entitled “The Golden Passport”, by Duff McDonald, it makes a number of unflattering claims about the school’s ethics and its purpose. While often unbalanced, it is likely to galvanise hostility to HBS both inside Harvard University, of which we are a part, and among the public. This memorandum, circulated only to the most senior faculty members, assesses HBS’s strategic position.

Our school has been among the country’s most influential institutions since its foundation in 1908. Our forebears helped build America’s economy in the early 20th century and helped win the second world war. HBS educates less than 1% of American MBA students but case studies written by our faculty are used at business schools around the world. Our alumni fill the corridors of elite firms such as McKinsey. Many bosses of big American companies studied here. Even in Silicon Valley, where we are relatively weak, about a tenth of “unicorns”—private startups worth over $1bn—have one of our tribe as a founder.

We have a business model that monetises the Harvard brand…Continue reading

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Cancer drugs are getting better and dearer

THE debate in rich countries about the high price of drugs is a furious and frustrating one. The controversy is already having an impact on spending on drugs, suggest new figures from the QuintilesIMS Institute, a research firm. The rate of growth in spending on prescription medicines in America fell to 4.8% in 2016, less than half the average rate of the previous two years (after adjusting for discounts and rebates). Michael Levesque of Moody’s, a rating agency, reckons that pressure over pricing is contributing to a deceleration in earnings growth at pharma firms. Public scrutiny constrains their flexibility over what they can charge and allows payers to get tougher.

In one area, however, earnings are expected to keep rising: cancer. Oncology is the industry’s bright spot, says Mr Levesque. The grim fact is that two-fifths of people can now expect to get cancer in their lifetime because of rising longevity. This is one of the reasons why the number of new cancer drugs has expanded by more than 60% over the past decade. The late-phase pipeline of new medicines contains more than 600 cancer treatments. New cancer drugs are being approved more quickly.

More are…Continue reading

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Might legalising the rhino-horn trade actually help the rhino?

Pricier than snake-oil, and deadlier

A DEAD rhino, with a bloody stump in place of its horn, means different things. For the species it is the danger of imminent extinction; for wildlife-lovers it is barbarism; for law-enforcers it is failure. For its poachers it means income; the horn will be exported illegally to fetch tens of thousands of dollars. For economists, it means market forces are at work.

South Africa is in the throes of a poaching epidemic. Official figures show poachers killed 1,054 rhinos in 2016, up from just 13 in 2007. In Kruger National Park, home to the world’s largest rhino population, numbers are dropping despite a fall in recorded poaching incidents. Tom Milliken of TRAFFIC, a wildlife-trade monitoring network, worries that poachers have become better at hiding the carcasses.

The problem is international. The rhino-horn supply-chain sprawls from South Africa, home to nearly three-quarters of the world’s rhinos, to Asia, and in particular to Vietnam, where rhino horn is coveted as medicine, prescribed for fevers, alcohol dependency and even cancer.

Prohibitionists call for better law-enforcement. Demand for…Continue reading

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Warren Buffett has many fans in China but few true followers

AS THE second-richest person in the world, and with a half-century record of investing success, Warren Buffett is a household name worldwide. But in China, he is something more: a celebrity. In March a special edition of Cherry Coke, featuring a cartoon image of the 86-year-old investor, hit Chinese shop shelves (Mr Buffett not only loves the sugary beverage; he is Coke’s largest shareholder). On May 6th thousands of Chinese investors will descend on Omaha for the annual meeting of Berkshire Hathaway, his holding company, and many more will tune into a live-stream of the event. Mandarin is the only foreign language into which the proceedings will be simultaneously translated. Those who miss the broadcast can pick up one of the hundreds of Chinese books about his approach to minting money.

Mr Buffett’s stature in China stems partly from good timing. China’s modern stockmarket was launched in 1990. Just as neophyte investors grappled with earnings reports and trend lines, the Oracle of Omaha’s reputation as the world’s best stock-picker was blossoming. Compared with the regular booms and busts of the Chinese stockmarket, the steady returns of Berkshire Hathaway…Continue reading

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Puerto Rico declares bankruptcy at last

THE government of Puerto Rico said in 2015 that the island could not pay its debts. Yet it was only on May 3rd that it kicked off the biggest bankruptcy case in America’s history. Public-sector debts total almost $74bn (around 100% of GNP). The drawn-out fiscal crisis has both imperilled Puerto Rico’s economy and upended the island’s politics.

Something akin to bankruptcy is possible only because of a federal law passed in 2016. Until then, the island’s legal status as a territory afforded it no escape from its debts (were Puerto Rico a state, its public utilities could have declared bankruptcy). The law established a “financial oversight board”, appointed in Washington, with the task of reaching a deal with bondholders. But it also allowed for bankruptcy-like proceedings should negotiations fail.

A two-thirds majority of bondholders would have forced all of them to accept a reduction in the value of their debt. Yet agreement was always unlikely. Puerto Rica’s constitution says payments to holders of so-called “general obligation” bonds have priority over all other expenditure. But another group of creditors have first dibs on revenue from the sales…Continue reading

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ApprovedBusiness and financeFinance and economics

Euro-area GDP growth outpaces America’s

THE enduring appeal of GDP is that it offers, or seems to, a summary statistic that tells people how well an economy is doing. On that basis, the euro-area economy is in fine fettle, indeed it is improving at a faster rate than America’s. Figures released today show that GDP in the currency zone rose by 0.5% in the first quarter of 2017, an annualised rate of around 2%. That is quite a bit faster than the 0.7% rate reported in the same period for America’s GDP.

These figures probably overstate the gap between the two economies. In recent years, first-quarter estimates of GDP growth in…Continue reading

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ApprovedBusinessBusiness and finance

Steven Mnuchin gets started on tax reform but there is more to do

OF THE things that investors and bosses have come to like about Donald Trump, the most important is his promise to redraw America’s knackered corporate-tax system. On April 26th Steven Mnuchin, the treasury secretary, laid out a guide for reform. After weeks of anticipation, Wall Street will be relieved. The thrust of the plan is just what business folk want—a simpler system, with lower bills. But whether it helps the wider economy and ordinary citizens remains to be seen. And Mr Trump will have to push the reforms through a bitterly divided Congress.

The actual tax rate America’s businesses pay in aggregate, of 20-25%, is much lower than the high, headline federal tax rate, of 35%. But in the home of free enterprise the taxman’s treatment of business is a muddle. There are three distortions. First, the treatment of overseas profits. Unlike most countries America taxes them when they are remitted back home, at high rates. The result is that American firms refuse to repatriate all their earnings, and collectively stash some $1trn of cash abroad.

The second distortion is that loopholes encourage firms to change their legal status from ordinary…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The market in Initial Coin Offerings risks becoming a bubble

WOULD you care to invest in Gnosis, a prediction market where users can bet on outcomes of events such as elections? Or in ZrCoin, a project to produce zirconium dioxide, used to make heat-resistant alloys? How about an “immersive reality experience” called “Back to Earth”?

These are just three of a new wave of what are called Initial Coin Offerings (ICOs). Nearly $250m has already been invested in such offerings, of which $107m alone has flowed in this year, according to Smith+Crown, a research firm. But it was in April that ICOs, or “token sales”, as insiders prefer to call them, really took off. On April 24th Gnosis collected more than $12m in under 15 minutes, valuing the project, in theory, at nearly $300m.

ICO “coins” are essentially digital coupons, tokens issued on an indelible distributed ledger, or blockchain, of the kind that underpins bitcoin, a crypto-currency. That means they can easily be traded, although unlike shares they do not confer ownership rights. Instead, they often serve as the currency for the project they finance: to pay users for a correct prediction, as does Gnosis; or for the content users contribute. Investors hope that…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Credit Suisse unveils another change of course

EUROPE’S most troubled big banks may at last be on the road to recovery. Not only is economic growth perking up; uncomfortable decisions, put off too long, are also being taken. In recent months UniCredit, Italy’s largest lender, has written down bad debt by €8.1bn ($8.7bn) and tapped shareholders for €13bn. Deutsche Bank, Germany’s biggest, has raised €8bn in equity and decided to keep a retail business it had hoped to sell. On April 27th it reported first-quarter net income of €575m, up from €236m a year earlier, although revenue fell.

Like Deutsche, Credit Suisse is freer to make plans after a recent settlement with American authorities over mis-selling mortgage-backed securities before the financial crisis. On April 26th Switzerland’s second-biggest bank reported first-quarter net income of SFr596m ($594m), far better than forecast, reversing a SFr302m loss a year before. Along with most of Wall Street, which published earnings earlier in the month, and Deutsche it benefited from a good quarter for fixed-income trading. It expects to wind up a unit in which it has dumped unwanted assets by the end of 2018, a year ahead of schedule.

Credit…Continue reading

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