June 26, 2013
The financial crisis has fuelled a huge expansion of organised crime in Europe with 3,600 criminal syndicates now active across the continent, profiting even from such prosaic products as household detergents, the head of Europol has warned. … Rob Wainwright, director of the EU’s crime-fighting agency, said Europe’s black market in counterfeit foodstuffs, pharmaceuticals and machine parts doubled to a value of about €2bn in the early years of the recession. … The groups are profiting from an increased demand for cheap goods and finding ways to cash in on EU member states’ attempts to boost tax revenues … a new breed of cyber criminals in Russia, Ukraine and other parts of eastern Europe are carrying out increasingly sophisticated online attacks on financial services groups. … In the UK, for instance, the VAT rate increased in early 2011 from 17.5 per cent to 20 per cent, making any fake claim on this tax instantly more profitable. VAT fraud is now estimated to be worth €100bn a year across Europe.
June Gloom, the fog and clouds that often linger here over the Southern California coast this time of year, appears to have spread to the Federal Reserve. ... We agree that QE must end. It has distorted incentives and inflated asset prices to artificial levels. But we think the Fed’s plan may be too hasty. ... Fog may be obscuring the Fed’s view of the economy – in particular, the structural impediments that will inhibit its ability to achieve higher growth and inflation. Mr. Bernanke said the Fed expects the unemployment rate to fall to about 7% by the middle of next year. However, we think this is a long shot. ... Mr. Bernanke’s remarks indicated that the Fed is taking a cyclical view of the economy. ... Our view of the economy places greater emphasis on structural factors. Wages continue to be dampened by globalization. Demographic trends, notably the aging of our society and the retirement of the Baby Boomers, will lead to a lower level of consumer demand. And then there’s the race against the machine; technology continues to eliminate jobs as opposed to provide them. ... It’s reasonable, of course, for Mr. Bernanke to try to prepare markets for the inevitable and necessary wind down of QE. But if he has to wave a white flag three months from now and say, “Sorry, we miscalculated,” the trust of markets and dampened volatility that has driven markets over the past two or three years could probably never be fully regained. It would take even longer for the fog over the economy to lift.
No one knows for sure why some societies are more innovative than others. The United States is a highly inventive society, the source of a host of technologies -- the airplane, the atomic bomb, the Internet -- that have transformed the world. Modern China, by contrast, is frequently criticized for its widespread copying of foreign inventions and creative works. Once the home of gunpowder, printing, and other transformational inventions, China is today better known for its knockoffs of almost every imaginable product: cars, clothes, computers, fast food, movies, pharmaceuticals, even entire European villages. The United States gave the world the iPhone; China gave it the HiPhone -- a cheap facsimile of a groundbreaking American gadget. ... Some see deep cultural roots to the pervasiveness of copying in China. But a more common view is that China fails to innovate because it lacks strong and stable protections for intellectual property. ... But American anxiety and anger over Chinese piracy are misplaced. Copying is not the plague that American business leaders and politicians often make it out to be. In fact, far from always being an enemy of innovation, copying is often a critical part of creativity. Although copying has a destructive side, it also has a productive side. Nearly all creations rest on prior work, and the ability to freely copy and refine existing designs fuels fields as varied as fashion, finance, and software. Copying can also foster stronger competition, grow markets, and build brands.
In a 52-story office tower overlooking the leafy streets of this city's embassy district, some 400 deal makers at Citic Trust Co. arrange financing for property developers, steel mills and other businesses starved for cash and shunned by China's traditional banks. ... The lenders at Citic and other institutions that make up China's "shadow banks" have created the closest thing China has to the culture of Wall Street. They take risks that traditional banks won't, going so far as to create investment funds for assets like top-shelf liquor and mahogany furniture. Their top executives drive luxury cars and frequent expensive clubs. ... Now, China's shadow banks—a mélange of trust companies, insurance firms, leasing companies, pawnbrokers and other informal lenders subject to limited oversight ... Between 2010 and 2012—a period during which traditional banks scaled back lending—shadow lenders doubled their outstanding loans to 36 trillion yuan ($5.8 trillion), or about 69% of China's gross domestic product ... At so-called trust companies, a pillar of the shadow sector, assets under management have almost tripled to 8.7 trillion yuan, making the trust industry the second-largest financial-services sector in China, after banks. ... "The future of the industry is now entirely up to the central bank's policy stance," says a senior executive at trust company Ping An.
They accumulated even more debt of LyondellBasell Industries NV (LYB), the world’s largest manufacturer of polypropylene, before it filed for bankruptcy in January 2009. … The Lyondell bet paid off. The $2 billion Apollo sank into the company, whose products are used to make tires and bathroom fixtures, has turned into a $9.6 billion paper profit, the biggest gain ever on a private-equity investment, according to data compiled by Bloomberg. … That eclipses the $7 billion that Henry Kravis’s KKR & Co. reaped from the 1986 buyout of supermarket chain Safeway Inc. and a similar profit that a group led by financier J. Christopher Flowers reaped from the 2000 takeover of the predecessor to Tokyo-based Shinsei Bank Ltd.
Somewhere between a fifth to a third of the million students graduating out of India's engineering colleges run the risk of being unemployed. Others will take jobs well below their technical qualifications in a market where there are few jobs for India's overflowing technical talent pool. Beset by a flood of institutes (offering a varying degree of education) and a shrinking market for their skills, India's engineers are struggling to subsist in an extremely challenging market. … According to multiple estimates, India trains around 1.5 million engineers, which is more than the US and China combined.
“My career has largely been successful as a consequence of the fact that I love to test ideas,” says Rob Arnott, chairman and CEO of Research Affiliates and former editor in chief of the Financial Analysts Journal. Arnott’s reputation for testing conventional investment wisdom made him one of the key contributors when the Research Foundation of CFA Institute gathered leading academics and practitioners in 2011 to discuss the equity risk premium (ERP), the expected return for equities in excess of a risk-free rate. He delivered a presentation titled “Equity Risk Premium Myths,” which was subsequently included in the book Rethinking the Equity Risk Premium. In this interview with CFA Institute Magazine, Arnott corrects some of the misconceptions about the ERP, argues that “a cult of equities is worshipping a false idol,” deconstructs the notion of a risk-free rate, and explains why “our industry, both on the practitioner and on the academic sides, has tremendous inertia, a resistance to new ideas.”
Brendan Kennedy and Michael Blue, private-equity financiers, settled into a downtown Seattle conference room in March to meet with a start-up. Both wore charcoal blazers and polished loafers. Kennedy, 41, is the former chief operating officer of SVB Analytics, an offshoot of Silicon Valley Bank. Blue, 35, learned his trade at the investment-banking firm de Visscher & Co. in Greenwich, Conn. Two years ago they quit comfortable posts to form Privateer Holdings, a firm that operates on the Kohlberg Kravis Roberts model: they buy companies using other people’s money and try to increase their value. What sets them apart is the industry in which they invest. Privateer Holdings is the first private-equity firm to openly risk capital in the world of weed. Or as the Privateer partners prefer to call it, “the cannabis space.”
In recent years, a growing number of African governments have issued Eurobonds, diversifying away from traditional sources of finance such as concessional debt and foreign direct investment. Taking the lead in October 2007, when it issued a $750 million Eurobond with an 8.5% coupon rate, Ghana earned the distinction of being the first Sub-Saharan country – other than South Africa – to issue bonds in 30 years. ... This debut Sub-Saharan issue, which was four times oversubscribed, sparked a sovereign borrowing spree in the region. Nine other countries – Gabon, the Democratic Republic of the Congo, Côte d’Ivoire, Senegal, Angola, Nigeria, Namibia, Zambia, and Tanzania – followed suit. By February 2013, these ten African economies had collectively raised $8.1 billion from their maiden sovereign-bond issues, with an average maturity of 11.2 years and an average coupon rate of 6.2%.
Words have power, especially in meetings. A new study from MIT’s Sloan School of Management finds that saying “yeah”, “give”, “start” and even “meeting” can boost a person’s persuasive powers among co-workers. … Statisticians Cynthia Rudin and Been Kim studied 95 meetings for the vocabulary used in proposals that were accepted by the group. They concluded that the most persuasive words are those that build consensus. … “Yeah” signals agreement with a previous idea, the authors posit. Using the word “start” in sentences like “I think we should start with the basics” is useful for building early alliances early; group participants want to appear interested in being productive. The word “give” indicates some benefit to the group.
Meditation and mindfulness are the new rage in Silicon Valley. And it’s not just about inner peace—it’s about getting ahead. … Across the Valley, quiet contemplation is seen as the new caffeine, the fuel that allegedly unlocks productivity and creative bursts. Classes in meditation and mindfulness—paying close, nonjudgmental attention—have become staples at many of the region’s most prominent companies. There’s a Search Inside Yourself Leadership Institute now teaching the Google meditation method to whoever wants it. The cofounders of Twitter and Facebook have made contemplative practices key features of their new enterprises, holding regular in-office meditation sessions and arranging for work routines that maximize mindfulness. Some 1,700 people showed up at a Wisdom 2.0 conference held in San Francisco this winter, with top executives from LinkedIn, Cisco, and Ford featured among the headliners. … These companies are doing more than simply seizing on Buddhist practices. Entrepreneurs and engineers are taking millennia-old traditions and reshaping them to fit the Valley’s goal-oriented, data-driven, largely atheistic culture. Forget past lives; never mind nirvana. The technology community of Northern California wants return on its investment in meditation. … It can be tempting to dismiss the interest in these ancient practices as just another neo-spiritual fad from a part of the country that’s cycled through one New Age after another. But it’s worth noting that the prophets of this new gospel are in the tech companies that already underpin so much of our lives.
Every generation produces kid geniuses, but in the early 1900s, the public was obsessed with them ... In the first few decades of the 20th century, child prodigies became national celebrities. Much like the movie stars, industrial titans and heavyweight champs of the day, their exploits were glorified and their opinions quoted in newspapers across the United States. ... While every generation produces its share of precocious children, no era, before or since, seems to have been so obsessed with them. The recent advent of intelligence testing, which allowed psychologists to gauge mental ability with seemingly scientific precision, is one likely reason. ... in 1916, Stanford University psychologist Louis Terman published the Stanford-Binet test, which made the term intelligence quotient, or I.Q., part of the popular vocabulary.
When Hurricane Sandy closed in on New york City, the Weather Channel dispatched (who else?) Jim Cantore, the world’s most fearless meteorologist. Nick Heil tagged along for a wet, wild adventure that quickly became something else—a survival challenge in the darkest hours of a killer storm.