Posts in category Business and finance


ApprovedBusinessBusiness and finance

America’s shale firms don’t give a frack about financial returns

INSIDE the boardrooms and bars of Houston, the spiritual capital of America’s energy industry, the swagger is back. The oil price may only be at $48, or half the level it was three years ago. But shale fracking—the business of getting oil and gas out of rocks by blasting them with water and sand—is booming once again after the crash of 2014-16. Exploration and production (E&P) companies are about to go on an investment spree. Demand is soaring for the industry’s raw materials: sand, other people’s money, roughnecks and ice-cold beer.

Shale’s second coming is testament to Texan grit. But the industry’s never-say-die spirit may explain why it has done next to nothing about its dire finances. The business has burned up cash for 34 of the last 40 quarters, according to figures on the top 60 listed E&P firms collected by Bloomberg, a data provider. With the exception of airlines, Chinese state enterprises and Silicon Valley unicorns—private firms valued at more than $1bn—shale firms are on an unparalleled money-losing streak. About $11bn was torched in the latest quarter, as capital expenditures exceeded cashflows. The cash-burn rate may well rise again…Continue reading

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Business and financeButtonwood's notebook

Donald Trump, trade and the new world order

TWO months into the Trump administration and we have had more sound and fury than concrete proposals about its economic agenda. The most alarming sign so far is that America forced the G20 to drop a pledge about resisting “all forms of protectionism” from a joint statement but this may be purely symbolic.

Nevertheless, Mr Trump’s determination to shake up the status quo may yet have global consequences. In a research note, Chris Watling of Longview Economics suggests that

Trump’s policies might inadvertently bring about a new international monetary order as the administration struggles to fulfil campaign promises in the light of the original misdiagnosis of the ‘trade deficit’ problem.

The current monetary system emerged from the downfall of Bretton Woods in the 1970s. Under the Bretton Woods system, devised in part by John Maynard Keynes (pictured, left), currencies were fixed to the dollar (with scope for occasional devaluations or revaluations) and the dollar was fixed against gold. But this required America to act as the anchor of the system; other…Continue reading

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Business and financeFree exchange

Podcast: A most unusual company

The one-time bookseller Amazon accounts for more than half of every new dollar spent online in the US. But how did it get to be the fifth most valuable company in the world? Also: why it costs the American government more to borrow money on the bonds market than European ones. And the big brands used to account for two-thirds of the tyre market. Now China has massively deflated their share. Simon Long hosts.

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Business and financeGulliver

Donald Trump’s proposed budget cuts would have serious implications for travellers

THREE months into his presidency, Donald Trump has engendered little but despair among among travel-industry types. Restrictions announced today on taking laptops and iPads aboard airlines originating from eight Middle Eastern countries are probably reasonable (see Gulliver). But an ill-considered attempt in January to ban travellers from seven mostly-Muslim countries seems to have affected visitor numbers. When that order was shot down by the courts, and a revised one proposed, it turned out that it might cause longer waits for foreigners leaving the country. Then last week in his budget blueprint, Mr Trump proposed big cuts to domestic spending to help fund the military. Several of the programmes on the chopping block have implications for business travellers.

One such is a call to privatise the country’s air traffic control system. The budget outline says privatisation would make air traffic control “more efficient and innovative while…Continue reading

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Business and financeGulliver

IAG enters the low-cost, long-haul market

WILLIE WALSH has spent much of the past few years stripping the frills from British Airways planes, at least on short-haul routes. The boss of IAG, BA’s parent firm, seems keen to ape the success of Europe’s low-cost carriers, such as Ryanair. Hence, everything that once distinguished it as a “full-service” carrier—whether a complimentary sandwich, a free checked bag or to the right to choose your seat—has been deplaned. The strategy has proved a success. Despite the weak pound, British Airways posted an operating profit of £1.5bn in 2016—about 80% of IAG’s total.

When it comes to long-haul flights, however, Mr Walsh has had to contain his cost-cutting zeal. On such routes, BA must compete against carriers that boast sparkling amenities, particularly at the front of the plane, such as Emirates and Singapore Airlines. So although BA has managed to skimp a bit in the premium cabins (by, for example, reducing the food options and downsizing the washbag) it is also investing £400m to upgrade its posh Club World service.

On transatlantic flights, however, the full-service carriers are facing a new threat to their business: low-cost long-haul operators….Continue reading

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Business and financeGulliver

Free health cover for Britons in Europe is under threat

BUSINESS travellers face several uncertainties after Brexit. Will travelling to the European Union in future require a visa? Given the state of the pound, will companies start to crack down on expenses? And what happens if you get ill abroad?

This last question has perhaps been farthest from the front of road warriors’ minds—until this week. On March 15th, David Davis, the minister in charge of Brexit, told a parliamentary committee that it was “probably right” that once Britain leaves the EU British travellers would lose access to free or subsidised health care within the European Economic Area (EEA). Currently, British travellers are entitled to be treated as if they were a national of the EEA country (plus Switzerland) they are visiting if they have a European Health Insurance Card, or EHIC. Some 200,000 Brits received medical aid through the scheme while travelling last year, according to ABTA, a travel agents’ association. The card covers those who get ill or have an accident while abroad, or have a serious pre-existing condition that needs…Continue reading

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ApprovedBusinessBusiness and finance

The business model for the Olympic Games is running out of puff

PIERRE DE COUBERTIN, the French aristocrat who founded the modern Olympics, was seduced by the world’s fair. In 1900, 1904 and 1908 his games were embedded within such exhibitions. He soured on the arrangement eventually because the games were overshadowed, “reduced to the role of humiliated vassal”, as he put it. The Olympics still criss-crosses the globe, but with city after city ditching ambitions to put on the world’s largest sporting event, the model is under threat.

The latest blow comes courtesy of Budapest, which on March 1st withdrew its bid to host the 2024 summer games after public opposition. Its retreat comes on the heels of Boston, Rome and Hamburg canning their bids within the past two years, whittling a once-crowded pool of candidate cities down to only two: Los Angeles—itself a replacement for the torpedoed Boston bid—and Paris.

The situation ought to feel familiar by now to the International Olympic Committee (IOC), the governing body of the games. After lots of cities bowed out of the competition for the 2022 winter games it was again left with two options: Almaty, Kazakhstan and Beijing, China….Continue reading

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ApprovedBusinessBusiness and finance

Chinese pharma firms target the global market

The way things were

WALK into the Shanghai laboratories of Chi-Med, a biotech firm, and you encounter the sort of shiny, cutting-edge facilities common in any major pharma company in America, Europe or Japan. Chi-Med has just had positive results in a late-stage trial of its drug for colorectal cancer, which is called Fruquintinib. If the drug is approved both in China and in Western markets it could be the very first prescription drug to be designed and developed entirely in China that will be on a path to global commercialisation.

Given China’s ageing population, higher incomes and rising demand for health care it is clear why innovation in drugs is a priority for the country. Its national market for drugs has grown rapidly in recent years to become the world’s second-largest. It could grow from $108bn in 2015 to around $167bn by 2020, according to an estimate from America’s Department of Commerce. By comparison, America spends about $400bn a year on drugs.

Chinese firms mainly sell cheap, generic medicines that earn only razor-thin margins. The pharma industry is extremely fragmented, with thousands of tiny…Continue reading

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ApprovedBusinessBusiness and finance

Elon Musk supercharges progress on energy storage

Storage salesman

HOW much power does a tweetstorm involving two tech tycoons, the prime minister of Australia and 8.5m Twitter followers generate? Enough, at least, to supercharge a debate about the future role of batteries in the world’s energy mix.

Elon Musk, a Silicon Valley entrepreneur (pictured), may be best known for his gravity-defying ambition, but his core product is the battery: whether for his Tesla cars, for the home or for grid-scale electricity storage. He gave the last of these an unexpected jolt of publicity on March 10th, by responding to a blackout-inspired challenge on Twitter from an Australian software billionaire, Mike Cannon-Brookes. Mr Musk said he could install 100 megawatt hours (MWh) of battery storage in the state of South Australia in 100 days to help solve an energy crisis it faces, or it would be free of charge. “That serious enough for you?” he asked.

In response, Malcolm Turnbull, the prime minister, communicated with Mr Musk and appeared to turn from pro-coal sceptic into battery believer. On March 14th Jay Weatherill, the premier of South Australia, went further. Declaring…Continue reading

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ApprovedBusinessBusiness and finance

What Satya Nadella did at Microsoft

A DECADE ago, visiting Microsoft’s headquarters near Seattle was like a trip into enemy territory. Executives would not so much talk with visitors as fire words at them (one of this newspaper’s correspondents has yet to recover from two harrowing days spent in the company of a Microsoft “brand evangelist”). If challenged on the corporate message, their body language would betray what they were thinking and what Bill Gates, the firm’s founder, used often to say: “That’s the stupidest fucking thing I’ve ever heard.”

Today the mood at Microsoft’s campus, a sprawling collection of more than 100 buildings, is strikingly different. The word-count per minute is much lower. Questions, however ignorant or critical, are answered patiently. The firm’s boss, Satya Nadella (pictured), strikes a different and gentler tone from Mr Gates and Steve Ballmer, his immediate predecessor (although he, too, has a highly competitive side).

Both these descriptions are caricatures. But they point to an underlying truth: how radically the world’s biggest software firm has changed in the short time since Mr Nadella took charge in early 2014. Back…Continue reading

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ApprovedBusinessBusiness and finance

Mobileye and Intel join forces

Data trafficking

CARMAKING in Israel has amounted to little more than some unstylish models put together in the latter half of the last century and a few rugged off-roaders still assembled for the country’s security forces. A reluctance to make them, however, has not stopped Israel from becoming a thriving centre for the high-tech kit with which cars now bristle, and also for mobility services such as ride-hailing.

The latest evidence of Israel’s pre-eminence in the field came on March 13th, when Intel, a giant American chipmaker, paid $15.3bn for Mobileye, a Jerusalem-based firm that is at the forefront of autonomous-car technology. With the acquisition, Intel joins the ranks of technology companies that are trying to outmanoeuvre carmakers and auto-parts suppliers to develop the brains of vehicles of the future.

Mobileye is an attractive target because of what it does now and what it will soon be capable of. Its EyeQ software is already used by most of the world’s carmakers to help their vehicles stay in their lanes and brake in emergencies, precisely what will also be required in autonomous vehicles. This…Continue reading

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ApprovedBusinessBusiness and finance

Citigroup’s decade of agony is almost over

IF YOU ask financial types in New York for their views on the world’s big banks, they usually come up with similar vignettes for each one. They agree that JPMorgan Chase is an unstoppable force under its boss, Jamie Dimon. Goldman Sachs is on a roll, with its shares up by 36% since the election (even if some worry that its Darwinian culture is going soft given all the regulation it faces). Across the pond Deutsche Bank is struggling to keep its head above water; its leader, John Cryan, embarked on a capital-raising and cost-cutting plan on March 5th. Yet one big bank elicits shrugs of bafflement: Citigroup. Its managers are anonymous and they get paid about a fifth less than their peers at other financial groups. No one is quite sure what Citi is up to or what it exists for. Once too big to fail, it is now too drab to mention.

That Citi has become the world’s half-forgotten bank is surprising. It was America’s biggest firm before the financial crisis, measured by size of assets; it is now the fourth-largest. After suffering huge losses on loans and subprime securities, in 2008-09 it received the biggest bail-out of any American bank. Citi can still…Continue reading

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ApprovedBusinessBusiness and finance

A battle over Euro Disney

IF YOU judge only by the volume of screams and the beaming faces of those taking rides at Europe’s most-visited, privately-owned tourist destination, then it is clear that Disneyland Paris has much to celebrate. In the three decades since Disney, an American media firm, agreed to put its European theme park on a site east of Paris, and the 25 years since its doors swung open, in 1992, 320m customers have queued for attractions such as “Space Mountain”, a stomach-twisting rollercoaster, and photo-ops with Disney characters.

To mark these anniversaries the firm is making bold claims for the park’s economic and social benefits. Nearly €8bn ($8.6bn) has been invested in or near the site, which includes a second Disney studio-themed park, 8,500 hotel rooms, convention centres and a golf course. France’s economy has supposedly seen gains worth €68bn and the creation of 56,000 jobs. Politicians pay it heed: François Hollande, the retiring president, made an end-of-term visit late last month.

But investors tell a different story. Shares in Euro Disney (the French parent company) have performed like a raft on the…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Do smart-beta investment funds work?

IN THE world of investing, everyone is always looking for a better mousetrap—a way to beat the market. One approach that is increasingly popular is to select shares based on specific “factors”—for example, the size of companies or their dividend yield. The trend has been given the ugly name of “smart beta”.

A recent survey of institutional investors showed three-quarters were either using or evaluating the approach. By the end of January some $534bn was invested in smart-beta exchange-traded funds, according to ETFGI, a research firm. Compound annual growth in assets under management in the sector has been 30% over the past five years.

The best argument for smart-beta funds is that they simply replicate, at lower cost, what fund managers are doing already. For example, many fund managers follow the “value” approach, seeking out shares that look cheap. A computer program can pick these stocks more methodically than an erratic human. A smart-beta fund does what it says on the tin.

But does it work? The danger here is “data mining”. Carry out enough statistical tests, and you will always find some strategy that worked in the…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Is the Federal Reserve giving banks a $12bn subsidy?

EVERY time the Federal Reserve has raised rates since the financial crisis, as it did on March 15th, it has done so in part by increasing “Interest On Excess Reserves” (IOER). This obscure policy rate is surprisingly controversial. Jeb Hensarling, the Republican chair of the congressional committee that oversees the Fed, has called it a “subsidy” to some of the largest banks in America.

To understand the argument, consider the Fed’s year-end financial statement. In 2016 it earned $111.1bn in interest income on its vast portfolio of securities. But it also paid JPMorgan Chase, Wells Fargo, and other mostly big banks $12bn in interest on excess cash deposited at regional Federal Reserve banks. Such IOER payments are both woefully unpopular and critical to the Fed’s monetary policy.

Over a decade ago, to give the Fed better control of short-term interest rates, Congress authorised it to pay interest on funds in excess of those banks need to meet reserve requirements. The policy was first used during the financial crisis in 2008. But today, IOER is the Fed’s primary monetary-policy tool, essential to its setting of…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The South Korea-US trade agreement turns five

IT SHOULD have been a happy anniversary. On March 15th 2012, KORUS, a trade deal between America and South Korea, came into effect. It slashed tariffs, tightened intellectual-property rights and opened up South Korea’s services market. When it was signed, the head of an American manufacturing lobby hailed it as meaning “jobs, jobs and jobs”. Wendy Cutler, its American negotiator, calls it “the highest standard deal we have in force”.

Five years on, jubilation has given way to anxiety. On the campaign trail, Donald Trump referred to the deal as a “job-killer”. On March 1st his administration’s official trade-strategy document singled it out for criticism. America’s trade deficit in goods with South Korea has more than doubled since 2011. “This is not the outcome the American people expected,” it lamented.

Trade between America and South Korea has indeed fallen short of expectations. When the deal was signed, the United States International Trade Commission predicted that it would boost American goods exports to South Korea by around $10bn. In fact they fell by $3bn between 2011 and 2016. The deal suffered…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The progressive case for immigration

“WE CAN’T restore our civilisation with somebody else’s babies.” Steve King, a Republican congressman from Iowa, could hardly have been clearer in his meaning in a tweet this week supporting Geert Wilders, a Dutch politician with anti-immigrant views. Across the rich world, those of a similar mind have been emboldened by a nativist turn in politics. Some do push back: plenty of Americans rallied against Donald Trump’s plans to block refugees and migrants. Yet few rich-world politicians are willing to make the case for immigration that it deserves: it is a good thing and there should be much more of it.

Defenders of immigration often fight on nativist turf, citing data to respond to claims about migrants’ damaging effects on wages or public services. Those data are indeed on migrants’ side. Though some research suggests that native workers with skill levels similar to those of arriving migrants take a hit to their wages because of increased migration, most analyses find that they are not harmed, and that many eventually earn more as competition nudges them to specialise in more demanding occupations. But as a slogan, “The data say…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

As the Fed raises rates, Janet Yellen’s legacy is pondered

THIRD time lucky. In each of the past two years, the Federal Reserve has predicted multiple interest-rate rises, only to be thrown off-course by events. On March 15th the central bank raised its benchmark Federal Funds rate for the third time since the financial crisis, to a range of 0.75-1%. This was, if anything, ahead of its forecast, which it reaffirmed, that rates would rise three times in 2017. “Lift-off” is at last an apt metaphor for monetary policy. But as Janet Yellen, the Fed’s chairwoman, picks up speed in terms of policy, she must navigate a cloudy political outlook. The next year will define her legacy.

Ms Yellen took office in February 2014 after dithering by the Obama administration over a choice between her and Larry Summers, a former treasury secretary. Left-wingers preferred Ms Yellen, in part because she seemed more likely to give jobs priority over stable prices. Indeed, Republicans in Congress worried that she would be too soft on inflation. The Economist called her the “first acknowledged dove” to lead the central bank.

Today Ms Yellen looks more hawkish—certainly than Mr Summers, who…Continue reading

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ApprovedBusiness and financeFinance and economics

As the Fed raises rates, Janet Yellen’s legacy is pondered

THIRD time lucky. In each of the past two years, the Federal Reserve has predicted multiple interest-rate rises, only to be thrown off-course by events. On March 15th the central bank raised its benchmark Federal Funds rate for the third time since the financial crisis, to a range of 0.75-1%. This was, if anything, ahead of its forecast, which it reaffirmed, that rates would rise three times in 2017. “Lift-off” is at last an apt metaphor for monetary policy. But as Janet Yellen, the Fed’s chairwoman, picks up speed in terms of policy, she must navigate a cloudy political outlook. The next year will define her legacy.

Ms Yellen took office in February 2014 after dithering by the Obama administration over a choice between her and Larry Summers, a former treasury secretary. Left-wingers preferred Ms Yellen, in part because she seemed more likely to give jobs priority over stable prices. Indeed, Republicans in Congress worried that she would be too soft on inflation. The Economist called her the “first acknowledged dove” to lead the central bank.

Today Ms Yellen looks more hawkish—certainly than Mr Summers, who regularly urges the Fed to…Continue reading

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ApprovedBusinessBusiness and finance

America’s pot industry shrugs off Donald Trump’s harder line on legal drugs

THESE are high times for America’s marijuana-industrial complex. More than half the country’s states have legalised medical cannabis, often rather loosely defined. Eight have voted to legalise the drug for recreational purposes. The industry was worth about $6bn last year, a figure that is likely to rise sharply in 2018 when recreational sales begin in California.

Yet in Washington, DC, the mellow mood has been harshed. Donald Trump may have said in 1990 that “You have to legalise drugs to win that war.” But after entering politics he became more conservative. While campaigning for the presidency he called Colorado’s legal cannabis market a “real problem”. Last month his press secretary, Sean Spicer, said he expected to see “greater enforcement” of the laws that still ban cannabis at the federal level.

That worries pot peddlers. The fact that they are in breach of federal law means that in theory their profits are criminal proceeds, subject to forfeiture. In 2013 the deputy attorney-general of the day, James Cole, published a memo reassuring states that had legalised cannabis that federal agents would not interfere…Continue reading

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Business and financeFree exchange

Podcast: Microsofter

Microsoft has reinvented itself under its new CEO Satya Nadella with a move to the cloud. Is its friendlier approach to program developers likely to pay off? Also: as the Netherlands goes to the polls, our Europe editor Matt Steinglass examines how each party’s financial manifestos were put to the test. And: many people are fed up with their banks. Now help is at a hand from Europe’s banking regulators. Simon Long hosts.

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Business and financeGulliver

The Middle East’s once fast-expanding airlines are coming under pressure

LAST April, Etihad Airways, the flag-carrier of the emirate of Abu Dhabi, claimed that 2015 had been its fifth consecutive year in the black, with net profits of $103m. James Hogan, the firm’s chief executive, hailed the result as proof that Etihad is a “sustainably profitable airline”. Yet less than one year on, both Mr Hogan and his chief financial officer, James Rigney, have been eased out amid a “company-wide strategic review” to “improve cost efficiency, productivity and revenue”; reforms ill-befitting a healthy business. Just across the sand, Emirates, the flag-carrier of Dubai, has deferred orders for 12 double-decker Airbus A380s in response to a 75% drop in profits. Qatar Airways, the region’s other super-connector airline, has abandoned plans for a subsidiary in Saudi Arabia. After years of uninterrupted and speedy growth, the Gulf carriers are hitting turbulence.

Taken in isolation, falling profits and waning sales should be of no great concern to these industry goliaths. Low oil prices and jitters about terrorism may have sapped demand for business and leisure travel—particularly in their neighbourhood—but overall the global economy is holding up…Continue reading

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Business and financeButtonwood's notebook

The hounding of Owen Jones

IN THE big scheme of things, the retreat of a Guardian columnist from social media is not a huge event—it will be drowned out by the latest antics of Donald Trump, the extraordinary diplomatic dispute between the Netherlands and Turkey, the triggering of article 50 by the UK and Scotland’s push for a second independence referendum.

Actually, though, I think that it’s possible to tie all these events together as evidence of a much wider trend; one that is corrosive to both global politics and economics. Let us start with the specifics. Owen Jones (pictured) is a left-wing writer; initially a great enthusiast for Jeremy Corbyn, Britain’s Labour leader, he has become disillusioned. Those who previously agreed with his columns have denounced him on Facebook and Twitter. As he wrote in one final post (complete with language that may offend some)

On a daily basis I have angry strangers yelling at me, on the one hand, that I’m responsible for the destruction of the Labour Party, and on the other, I’m a right-wing sellout careerist who’s allied to Tony Blair and possibly in the pay of the Israeli government (and that I’m a Blairite cunt who needs to go fuck myself,…Continue reading

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Business and financeGulliver

Leaked travel advice for spooks from the CIA

AMONG the trove of American intelligence agency documents released by Wikileaks this week is one that instructs the country’s spies on protocols to follow while travelling abroad. Some of these are quite specific to the CIA’s needs. (“Talk to CCIE/Engineering about your planned TDY timeline,” the document begins, adding such tidbits as “Breeze through German Customs because you have your cover-for-action story down pat.”) But others are just good common-sense business travel tips—for spies and corporate sales managers alike.

The first universal advice in the document, which appears to be designed for spooks visiting an operations base in Frankfurt, is this: “If you are using a personal credit card, be sure to call your credit card company and notify them of your travel to Germany.” That seems like sound guidance. Even better is the pithy advice on which airline to fly with:

Flying Lufthansa: Booze is free so enjoy (within reason)!

Flying United: My condolences, but at least you are earning a United leg towards a status increase.

Hardly…Continue reading

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ApprovedBusinessBusiness and finance

Can a railway legend deliver at America’s CSX?

E. HUNTER HARRISON, a veteran railway executive, tried retiring in 2010, after he made Canadian National (CN), a formerly state-owned company, the best-performing of the large railways in North America. But once he pocketed the gold watch and attended the retirement party he faced a void that raising and training horses for showjumping did not fill. By mid-2012 he was back at the helm of another railway, Canadian Pacific (CP), whose glory days were long past. Once he had turned around CP, he didn’t make the same mistake again. On January 18th the 72-year-old Tennesseean both announced his departure and entered negotiations with Florida-based CSX to become that railway’s CEO.

Just the rumour that Mr Harrison might be moving to CSX caused the share price to rise by 23% in 24 hours. It continued to rise when the negotiations became public. At last, on March 6th, CSX appointed Mr Harrison as CEO and met the condition set by Mantle Ridge, an activist hedge fund with which he has partnered, to name five new board directors. Mr Harrison made long-term shareholders in CP and CN rich, tripling profits at both during his tenures. CSX shareholders expect…Continue reading

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ApprovedBusinessBusiness and finance

New technologies could slash the cost of steel production

ALTHOUGH he is best known for developing a way to mass-produce steel, Henry Bessemer was a prolific British inventor. In the 1850s in Sheffield his converters blasted air through molten iron to burn away impurities, making steel the material of the industrial revolution. But Bessemer knew he could do better, and in 1865 he filed a patent to cast strips of steel directly, rather than as large ingots which then had to be expensively reheated and shaped by giant rolling machines.

Bessemer’s idea was to pour molten steel in between two counter-rotating water-cooled rollers which, like a mangle, would squeeze the metal into a sheet. It was an elegant idea that, by dint of having fewer steps, would save time and money. Yet it was tricky to pull off. Efforts to commercialise the process were abandoned.

Until now. Advances in production technology and materials science, particularly for new types of high-tech steel, mean that Bessemer’s “twin-roll” idea is being taken up successfully. An alternative system that casts liquid steel directly onto a single horizontally moving belt is also being tried. Both techniques could cut energy…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Economists argue about the impact of Chinese imports on America

COMPETITION from Chinese imports may have cost some Americans jobs, but economists have done pretty well out of it. Since 2013 David Autor, David Dorn and Gordon Hanson have published nine separate studies digging into the costs of trade. They have found that, of the fall in manufacturing jobs between 1990 and 2007, one-quarter could be attributed to a surge in imports from China. Other sectors failed to soak up the extra workers. Their research also suggested that the China shock has cut the supply of marriageable men and opened the door of the White House to Donald Trump.

In recent weeks a dispute has erupted over their results. Jonathan Rothwell, an economist at Gallup, a pollster, alleged “serious flaws” in one paper, prompting a fierce eight-page response from the authors, and an acrimonious public tiff.

The row centres on how the effect of the China shock is measured. The trio wanted to isolate the effects of extra Chinese supply, rather than of something happening in America, so they checked that imports of particular Chinese products were surging in other rich countries, too. They then compared places in America…Continue reading

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ApprovedBusinessBusiness and finance

Mining companies have dug themselves out of a hole

FOR mining investors there is something sinfully alluring about Glencore, an Anglo-Swiss metals conglomerate. It is the world’s biggest exporter of coal, a singularly unfashionable commodity. It goes where others fear to tread, such as the Democratic Republic of Congo (DRC), which has an unsavoury reputation for violence and corruption. It recently navigated sanctions against Russia to strike a deal with Rosneft, the country’s oil champion.

Yet Glencore could still acquire a halo for itself. It is one of the world’s biggest suppliers of copper and the biggest of cobalt, much of which comes from its investment in the DRC. These are vital ingredients for clean-tech products and industries, notably electric vehicles (EVs) and batteries.

The potential of “green” metals and minerals, which along with copper and cobalt include nickel, lithium and graphite, is adding to renewed excitement about investing in mining firms as they emerge from the wreckage of a $1trn splurge of over-investment during the China-led commodities supercycle, which began in the early 2000s. The most bullish argue that clean energy could be an even bigger source of…Continue reading

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ApprovedBusinessBusiness and finance

A deal sparks talk of car-industry mega-mergers

THE Peugeot 3008, a striking SUV, was voted European car of the year on March 6th, the eve of the opening of the Geneva motor show, an annual industry shindig. PSA Group, the maker of Peugeots and Citroëns, would doubtless view it as the second prize it scooped that day. News also came that the French carmaker was buying Opel (branded as Vauxhall in Britain), the European operation of America’s General Motors (GM). Few of the car-industry experts at the show, however, would call Opel a trophy.

The consensus was that GM was right to rid itself of a business that had lost money for 16 years straight. Opel has around 6% of the European market; that makes it too small and inefficient in a business where scale is key. It has been confined mostly to Europe for three reasons: the particular tastes of the region’s car buyers (for instance, for small diesel cars); tighter emissions regulations outside Europe; and GM’s fear of taking sales from its other brands further afield. The result has been to leave it boxed in and isolated.

Shorn of Opel, the American firm can redirect investment to China and America, where its profit margins are…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Foreign buyers push up global house prices

MANY Americans were taken aback when news broke in January that Peter Thiel, an internet billionaire and adviser to Donald Trump, had New Zealand citizenship. For five years this backer of an “America first” president had kept his Kiwi passport quiet. Then the government released details of his $10m-lakeside estate (pictured).

A growing horde of rich foreigners see New Zealand as a safe haven. In 2016 overseas investors bought just 3% of all properties. But their purchases were concentrated at the expensive end of the market, which is growing fast: sales involving homes worth more than NZ$1m ($690,000) increased by 21%. That helped push prices in the country up by 13% over the past year, to lead The Economist’s latest tally of global house-price inflation (see table).

New Zealand is one of several countries where the impact of foreign money on housing is under scrutiny. Prices have also risen rapidly in Australia and Canada. Central bankers fret about the dangers fickle capital flows pose to financial stability. London’s mayor has ordered a study on foreign ownership in the capital after property prices…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Deutsche Bank raises capital, and changes course

THREE times since the financial crisis, Deutsche Bank’s bosses have turned to its shareholders for cash: €10.2bn ($13.6bn) in 2010, €3bn in 2013 and €8.5bn in 2014. Since becoming chief executive in 2015, John Cryan has had no plans to ask for more. Deutsche still needed to thicken its equity cushion, but disposals, cost cuts and earnings (if any: it has made losses for the past two years) would provide the stuffing.

Well, plans change. On March 5th Mr Cryan announced an €8bn rights issue. Some comfort for investors: the price, €11.65 a share, is 39% below the previous close; and Mr Cryan, who had suspended the dividend, promises a return to “competitive” payouts next year. In another reversal, Deutsche will keep rather than sell Postbank, a mass-market retail business that was once part of the post office. Deutsche has owned it since 2010.

Postbank and the posher “blue” Deutsche Bank brand will be more closely integrated—notably, sharing computer systems. Mr Cryan is also selling a slice of Deutsche’s asset-management division and some lesser assets. And he is reorganising its corporate and investment bank to…Continue reading

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ApprovedBusinessBusiness and finance

Chinese startups push into foreign markets

They’re coming your way

ON THE outskirts of Guangzhou, a city in southern China, lies an abandoned park filled with crumbling replicas of the wonders of the world. To the right are fading golden spires that are meant to represent Angkor Wat, a temple in Cambodia. On the left, a row of dusty Egyptian statues towers over a desolate Greek amphitheatre. Adding to the surrealism, the tops of the trees have been lopped off and a buzzing noise fills the night air.

This strange place is the testing ground for EHang, a Chinese startup that makes drones. (The treetops were chopped off, an employee explains, because drones kept crashing into them.) Hu Huazhi, EHang’s founder, is beaming. His firm has just set a world record for a drone-swarm light show in Guangzhou, where it flew a thousand small drones in perfect unison. Next it plans to launch an autonomous flying-taxi service with a giant drone big enough to take a person (pictured). Dubai has just signed a deal with EHang to launch drone taxis this summer.

EHang is an example of a new kind of Chinese firm, labelled “micro-multinationals” by some. In the past,…Continue reading

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