US companies in China: tougher times

US companies in China: tougher times

Feb 28, 2013 11:30am by Stefan Wagstyl

After a string of cautious statements on China from US companies ranging from Caterpillar to Yum!Foods, the American Chamber of Commerce in Shanghai has declared that the days of relentless sales and rising profits are over.

The “new normal” is one of slower economic growth, rising costs, skilled labour shortages and an increasingly competitive business environment. Tougher times “will be the rule rather than the exception in the years ahead,” AmCham says in a report. Read more of this post

Buffett’s Mentor Benjamin Graham’s Clever Idea for Averting Currency Wars

Benjamin Graham’s Clever Idea for Averting Currency Wars

Benjamin Graham is remembered primarily as the father of value investing, and as the former professor, employer, friend and investing mentor of Warren Buffett. Yet Graham did a lot more than dispense sound investment advice.

For one thing, he developed a subtle and clever idea for stabilizing currencies — and economies — that might bear closer examination today. He called it the commodity reserve currency.

Graham first formulated the idea in response to the recession of 1920-1921. During that crisis, Graham observed that the price of gold was remarkably stable while the prices of many other items, even basic commodities with far greater direct impact on the economy than precious metals, were dropping precipitously. From his perch on Wall Street, Graham saw these declining prices reflected in plummeting corporate earnings.

At the time, each U.S. dollar represented a fixed amount of gold. Graham noticed how that dynamic stabilized the price of gold (and, to a lesser extent, silver) while the price of other goods crashed. Gold producers were “exempt from the difficulties that bedeviled the rest of us,” he wrote.

So, with characteristic inventiveness, Graham wondered how much more stable the economy would be if, instead of precious metals alone, fixed quantities of more essential commodities would be pegged to the value of the dollar. He speculated that this would ensure that the prices of, say, petroleum or wheat would be as stable as that of gold. Read more of this post

China plans bond overhaul to fund $6 trillion urbanization

Exclusive: China plans bond overhaul to fund $6 trillion urbanization – sources

4:20pm EST

By Nick Edwards and Benjamin Kang Lim

BEIJING (Reuters) – China plans major bond market reform to raise the money the ruling Communist Party needs for a 40 trillion yuan ($6.4 trillion) urbanization program to buoy economic growth and close a chasm between the country’s urban rich and rural poor.

The Party aims to bring 400 million people to cities over the next decade as the new leadership of president-in-waiting Xi Jinping and premier-designate Li Keqiang seek to turn China into a wealthy world power with economic growth generated by an affluent consumer class.

The urban development would be funded by a major expansion of bond markets, sources with leadership ties, and a senior executive at one of China’s “Big Four” state banks, who was formerly at the central bank, told Reuters. Read more of this post

Yeltsin-Era Tycoons Sell Resources to Keep Distance From Kremlin

Yeltsin-Era Tycoons Sell Resources to Keep Distance From Kremlin

Russian billionaires who made their fortunes buying commodities assets in the 1990s are exiting natural resources to gain independence as Kremlin-backed oligarchs take their place.

Viktor Vekselberg, Russia’s third-richest man according to the Bloomberg Billionaire Index, said this year he will invest his share of the $28 billion sale of half of oil producer TNK-BP in technology, machinery and alternative energy, not resources.

Mikhail Prokhorov, Russia’s ninth-richest, sold his stake in Russia’s biggest gold producer, Polyus Gold International Ltd. (PGIL) for $3.6 billion last week, to diversify his investments. Sergey Popov, No. 27, sold his remaining stake in coal miner SUEK this year, the last of his resource assets.

“There is an evolution of interests among the wealthiest Russians and that evolution is in sync with the evolution of the Russian economy,” said James Beadle, an investment adviser at Societe Generale SA’s private banking unit in Monaco. “By saying that you are investing in areas other than commodities, you are both following the Kremlin’s nod and also following the economic logic of the situation.”

Russia’s government set targets to diversify the economy and cut its dependence on oil, gas and metals, which last year accounted for 81.3 percent of exports to countries excluding former Soviet republics, customs service data shows. Read more of this post