“The Big Mac Mirage”: America is actually terrible at globalization; U.S. companies derived less than 10% of their overall revenues from emerging markets

“The Big Mac Mirage”: America is actually terrible at globalization

By Tim Fernholz — 6 hours ago

Coke is so prevalent around the world that non-profits look to its supply chain for help on distributing aid. McDonalds, in 122 different countries, is so widespread that there’s a foreign relations theory that no two countries hosting the burger franchise will go to war, although the strong version of that theory is well dead. And Wal-Mart is the world’s third largest global employer, after the American and Chinese militaries, respectively.

The US must be great at globalization, right?

Unfortunately, no, according to Bhaskar Chakravorti, the director of Tufts’ University’s Institute for Business in the Global Context. He says all these examples represent “the myth of American global market power”—they are outliers that disguise the real failing of American multinationals to succeed around the world, and especially in fast-growing emerging markets. Despite what you might hear, he says “we are extremely under globalized.” Here’s an excerpt from a forthcoming paper he’s written with fellow economist Gita Rao (emphasis mine):

In 2010, emerging markets represented 36% of global GDP; these markets already account for the majority of the world’s oil and steel consumption, 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile phone subscriptions. With two-thirds of global growth coming from these markets, in a decade they will account for the majority of the world’s economic value. Yet U.S. companies derived less than 10% of their overall revenues from emerging markets: about as little as 7%, according to HSBC estimates for 2010. The 100 largest companies from the developed world overall made 17% of their revenues from emerging markets, according to a McKinsey report; in other words, the U.S. lags not only emerging market firms in capturing share in emerging markets, but it lags the developed world overall. By considering the difference between the “absolute potential” represented by the 36% number or, to take a much more conservative benchmark, the global peer average of 17% and the U.S. share of 7%, we derive two measures of the gap – and the degree to which U.S. industry has not participated in global growth. Read more of this post

China is spending more on policing its own people (RMB 769bn) than on its defense budget (RMB 720bn)

China is spending more on policing its own people than on its defense budget

By Lily Kuo — 6 hours ago

Red alert! China plans to spend 720 billion yuan ($114 billion) on its military this year, according to a budget released at the National People’s Congress this morning. With the world’s second-largest military in terms of spending, the Chinese government has increased its defense budget by double-digit percentages annually since 2000. This year’s increase will be 10.7%, similar to last year’s and faster than the target GDP growth of 7.5%.

But perhaps this is the headline the Chinese government would rather the media focus on. Buried in the budget numbers is another figure: 769 billion yuan, to be spent on what is officially termed “public security.” That means money for China’s vast network of official and unofficial police, armed militia, jails and overall state security, i.e. keeping the country’s 1.3 billion people in check as discontent mounts over pollution (paywall), government corruption, and inequality. Chinese officials have countered that this is a misrepresentation, saying that some of the funds also go to things like improving public transportation or food safety. Read more of this post

Fear of China bank crisis keeps Aberdeen alert

Fear of China bank crisis keeps Aberdeen alert

By Elva Muk | 6 March 2013 (48 minutes ago)

If the nation’s shadow-banking system blows up, banks will foot the bill, its managers argue. But they see opportunity in HK-domiciled firms exposed to Greater China consumption. Aberdeen International fund managers are fearful of a China banking crisis, but see opportunity in Hong Kong-domiciled firms exposed to Greater China consumption. Asian equities manager Kathy Xu argues one of the biggest downside risks to China’s stock market this year is the country’s shadow-banking, or private lending, system. As a consequence she is bearish on the mainland banking sector. “This area is not transparent nor strongly regulated enough,” she says. “If the shadow banking [system] burst, we worry what banks would have to pay the bills.” China’s shadow-banking sector is enormous, encompassing trust funds, wealth management products (WMPs), products from securities firms, underground lending and local government financing vehicles. Together it is estimated these account for Rmb22.8 trillion ($3.6 trillion), or 44% of China’s national GDP. Read more of this post

Berkshire’s BNSF Railway to Test Switch to Natural Gas; BNSF, the largest railroad in the U.S., estimates it is the second-biggest user of diesel in the country, after the U.S. Navy.

March 5, 2013, 6:24 p.m. ET

Berkshire’s BNSF Railway to Test Switch to Natural Gas

By RUSSELL GOLD

BNSF Railway Co., one of the country’s biggest consumers of diesel fuel, plans this year to test using natural gas to power its locomotives instead.

If successful, the experiment could weaken oil’s dominance as a transportation fuel and provide a new outlet for the glut of cheap natural gas in North America.

The surplus, spurred by new technologies that unlock the fuel from underground rock formations, has sent natural-gas prices plummeting. That has prompted industries from electric utilities to tugboat operators to switch to gas. If freight rail joins the parade, it would usher in one of the most sweeping changes to the railroad industry in decades.

“This could be a transformational event for our railroad,” BNSF Chief Executive Matt Rose said of the plan, which hasn’t been publicly announced. Shifting to natural gas would “rank right up there” with the industry’s historic transition away from steam engines last century, he said.

Freight railroads overwhelmingly are powered by diesel fuel refined from crude oil. BNSF, the largest railroad in the U.S., estimates it is the second-biggest user of diesel in the country, after the U.S. Navy. Read more of this post

Druckenmiller: “When You Get This Kind Of Rigging, It Will End Badly”; When even Home Depot’s Ken Langone is questioning the reality of this rally (CEO of one of the best performing stocks since the Dow last traded here), you have to be a little concerned

Druckenmiller: “When You Get This Kind Of Rigging, It Will End Badly”

Tyler Durden on 03/05/2013 14:00 -0500

When even Home Depot’s Ken Langone is questioning the reality of this rally (CEO of one of the best performing stocks since the Dow last traded here), you have to be a little concerned. However, it is Duquesne’s Stanley Druckenmiller’s point that with QE4EVA it is impossible to know when this will end but warns that “all the lobsters are in the pot” now as he notes that “if you print enough money, everything is subsidized – bonds, stocks, real estate.” He dismisses the notion of any sell-off in bonds for the same reason as the Fed is buying $85 bn per month (75-80% all off Treasury issuance). The Fed has cancelled all market signals (whether these are to Congress or market participants) and just as we did in the 1970s, we will find out about all the mal-investments sooner or later. “This is a big, big gamble,” he notes, “manipulating the most important price in all of free markets,” that ends one of only two ways, a mal-investment bust (as we saw in 2007-8) or full debt monetization and “off we go into inflation.” Read more of this post

Suppliers prefer Aldi to Coles, Woolies because it pays invoices faster and is easier to deal with

Suppliers prefer Aldi to Coles, Woolies

March 6, 2013

Lucy Battersby

Easier to deal with: Suppliers say Aldi pays faster than the big two supermarket chains. Photo: Peter Braig

A number of suppliers producing a range of groceries have spoken out against the dominant supermarket chains, Woolworths and Coles, saying they prefer dealing with German-owned rival Aldi.

BusinessDay has revealed Woolworths produced a dossier that claims Aldi’s arrival in Australia has led to a rise in private label products and a tough competitive environment.

Several suppliers have spoken out about their experience supplying Australian supermarkets on the condition of anonymity, fearing contracts would be cancelled in retribution. They say they prefer dealing with Aldi because it pays invoices faster and is easier to deal with. One said it was ”so much better and much more stable to do business with”. Another said Coles and Woolworths reduced supplier prices and took an extra 3 er cent to cover marketing costs when products go on sale, where Aldi would absorb the losses sales into its own profit margin.

Woolworths enjoys some of the best profit margins in the world, according to Bank of America Merrill Lynch analyst David Errington. ‘Within its Australian food and liquor business, Woolworths currently enjoys the highest margins of any retailer globally, at … 9.3 per cent (lease adjusted), compared to its nearest global competitor at 7.9 per cent,” Mr Errington wrote in a note to clients. Read more of this post

China’s outgoing PM Wen issues unusual warning on growth, that a 7.5% GDP target will be ‘hard to attain; President Xi’s task exposes limits of central control

Last updated: March 5, 2013 10:11 am

Wen issues China growth warning

By Jamil Anderlini and Simon Rabinovitch in Beijing

China’s outgoing premier issued an annual growth target of 7.5 per cent on Tuesday, while giving an unusual warning that this pace might not be reached easily this year.

In his final “state of the union” speech, Premier Wen Jiabao described the growth target, in line with last year’s, as a “goal we will have to work hard to attain”. Addressing the National People’s Congress, a largely ceremonial parliament, he also acknowledged a “growing conflict between downward pressure on economic growth and excess production capacity”. The annual economic growth target is more of a signalling device than a forecast, but if the economy were to grow by exactly 7.5 per cent this year it would be the slowest growth since 1990. Read more of this post

In the battle for China’s beer drinkers, the $0.32 brew is still king; 85% of the domestic beer market is comprised of low-end domestic beer brands

In the battle for China’s beer drinkers, the $0.32 brew is still king

By Lily Kuo — March 4, 2013

Earlier today, Denmark’s Carlsberg said it is attempting a partial takeover of China’s Chongqing Brewery Company in a bid worth 2.65 billion Danish crowns ($461 million).

Carlsberg’s is the latest attempt by a foreign brewery to tap into what is now theworld’s largest beer market by volume as sales in more traditional markets slump. (China’s per capita beer consumption is about half of America’s.) And while a lot of attention is paid to China’s emerging affluent and middle class, it’s the low-end of Chinese tipple that still matters most.

Market analysts have been saying that China’s beer industry is about to come of age; Nomura has forecast that industry profits would rise from $1 billion in 2012 to $9 billion in 2021. Still, for China’s newly affluent, beer doesn’t have the same status as high-end liquor or wine. It’s mainly seen as an accompaniment to dinner (it should be light, with a low alcohol content, and go well with spicy food).

It’s no surprise then that 85% of the domestic beer market (pdf, p. 3) is comprised of low-end domestic beer brands, according to a 2012 report by the consulting company Accenture. In Beijing, a 330-milliliter bottle of Tsingtao sells for about 2 yuan (about $0.32), compared to a bottle of Budweiser that would cost about three times as much. Read more of this post

Dow Average Surpasses Previous Record High Set in 2007

The Last Time The Dow Was Here…

Tyler Durden on 03/05/2013 09:36 -0500

“Mission Accomplished” – With CNBC now lost for countdown-able targets (though 20,000 is so close), we leave it to none other than Jim Cramer to sum up where we stand (oh and the following list of remarkable then-and-now macro, micro, and market variables):  “we all know it’s going to end badly, but in the meantime we can make some money” – ZH translation: “just make sure to sell ahead of everyone else.”

• Dow Jones Industrial Average: Then 14164.5; Now 14164.5
• Regular Gas Price: Then $2.75; Now $3.73
• GDP Growth: Then +2.5%; Now +1.6%
• Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
• Americans On Food Stamps: Then 26.9 million; Now 47.69 million
• Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
• US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
• US Deficit (LTM): Then $97 billion; Now $975.6 billion
• Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
• US Household Debt: Then $13.5 trillion; Now 12.87 trillion
• Labor Force Particpation Rate: Then 65.8%; Now 63.6%
• Consumer Confidence: Then 99.5; Now 69.6
• S&P Rating of the US: Then AAA; Now AA+
• VIX: Then 17.5%; Now 14%
• 10 Year Treasury Yield: Then 4.64%; Now 1.89%
• EURUSD: Then 1.4145; Now 1.3050
• Gold: Then $748; Now $1583
• NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

March 5, 2013

Dow Average Surpasses Record High as Market Opens

By PETER EAVIS

Despite everything, the stock market is back at a record high.

The Dow Jones industrial average, which measures the performance of 30 blue-chip companies, rose more than 80 points at the start of trading on Tuesday, to 14,207.94. That surpasses its previous record close of 14,164.53, which it achieved nearly five and a half years ago, as well as its record intraday high, set around the same time, of 14,198.10. Read more of this post

Jim Rogers Bullish on Japan Equities on Abe’s Catalyst; “Japan is one of the few places in the world where I own shares,”

Jim Rogers Bullish on Japan Equities on Abe’s Catalyst

Jim Rogers, who co-founded the Quantum Fund with George Soros in the 1970s, said he increased his holdings of Japanese shares and plans to buy more because Prime Minister Shinzo Abe will boost the economy.

“Japan is one of the few places in the world where I own shares,” Rogers, chairman of Rogers Holdings, said at a Daiwa Securities Group Inc. (8601) equity conference in Tokyo today. “I have no plans to sell and plan to accumulate more when I can. Abe has been a catalyst and this will continue for several years.” Read more of this post

India Rewarded Ineligible Farmers With $9.5 Billion Debt Waiver

India Rewarded Ineligible Farmers With $9.5 Billion Debt Waiver

Almost a tenth of Indian farmers whose debts were written off by the government were not eligible for relief, according to an audit of a $9.5 billion plan that helped the ruling Congress party win a second term in power.

There were errors in nearly 25 percent of the cases where debt assistance was offered from 2008, the Comptroller and Auditor General of India said in a review submitted to parliament. About 13 percent of farmers the government considered qualified for help were denied funding by banks, the auditor said.

Lapses and errors “raised serious concerns about the implementation of the scheme,” it said in its report. Read more of this post