Israel’s inverted economic pyramid and how to flip it

Israel’s inverted economic pyramid and how to flip it

The opposing examples of IDB Group and Iscar indicate a pressing need to shift the economic narrative from financiers who specialize in gimmicks toward businessmen who build something of real value.

By Sami Peretz | May.03, 2013 | 2:20 PM

Over a hundred years ago, the socialist Zionist leader Dov Ber Borochov defined the structure of Jewish labor in the Diaspora as an inverted pyramid. The narrow base consisted of a few productive workers employed in industry and agriculture and, above them, in a much wider layer, were those dealing in “airy-fairy” jobs (“luftgescheft” in Yiddish), such as middlemen, small merchants and moneylenders.

At that time, the inverted pyramid was the result of Jews being denied access to other jobs and thus pushed into these professions by default. The need, therefore, to transform the Jew from a person dealing with such impractical or insubstantial work into a productive, industrial person was deeply embedded and an integral part of the drive to create a Jewish national home in Israel. A hundred years later, the financial news from this week may confirm this Zionist ideal.

On one hand, we have the Wertheimer family, founders of Iscar, a shining example of a productive industrial business, which just sold another 20 percent stake in the company to Warren Buffett for $2 billion, a deal that reflected a total company worth of $10 billion. On the other hand, a court has nominated an observer to supervise activity at IDB Development, one of the companies in Nochi Dankner’s collapsing pyramid.  Read more of this post

Korean chaebol forced to reduce cross-affiliate deals

2013-05-05 10:48

Chaebol forced to reduce cross-affiliate deals

Regulations feared to drive large firms out of country
By Lee Hyo-sik

President Park Geun-hye’s pledge to penalize inter-subsidiary dealings has been troubling Korea’s family-controlled conglomerates. She has vowed to curb business transactions among chaebol affiliates in the name of “economic democratization,” which her advisors say seeks to correct unfair business practices by large family-run groups, as well as protect small businesses.

The government expects the National Assembly will approve the revised Fair Trade Act in July, designed to discourage intra-group transactions by imposing fines on and prosecuting those orchestrating them.

Policymakers and civic groups argue that generating the bulk of revenues from exclusive dealings with affiliated companies is tantamount to unfair business practices. Such transactions, they say, deprive unrelated firms, most of which are small- and medium-sized enterprises, of potential business opportunities.

They also say the exclusive intra-group dealing is misused, serving to boost the wealth of offspring and other family members of group chairmen. These family members often hold substantial stakes in the benefiting entities. Read more of this post

More chaebol children stock-rich

2013-05-05 6:49 p.m.

More chaebol children stock-rich

By Cho Mu-hyun

The number of parents and grandparents transferring stocks worth more than 100 million won ($ 91,300) to childrens names has soared to a record high, according to a report released Sunday.Chaebul.com, which tracks large conglomerates and their owners said, as of April, there were 118 102 children under the age of 12 who had stocks worth 100 million won The figure was a year ago, thirty one such offspring had stocks worth more than 1 billion won, and two had more than 10 billion won The richest child in Korea is the 12-year-old son of Huh Yong-soo, senior vice president of GS Energy and cousin of GS Group Chairman Huh Chang-soo. The boy had 42.9 billion won worth of stocks. Huhs son topped the list last year as well, when his stocks were valued at 45.3 billion won. He received 259,000 of stocks GS Holdings when he was four years old in 2004, and currently has 740,341 His nine-year-old younger brother was runner-up with 17.4 billion won worth of stocks Relatives Lim Sung-Gi, chairman and CEO of Hanmi Pharmaceutical, hold seven spots in the top ten aged between five and ten, they each own stocks valued at more than 8.44 billion won in the company’s subsidiaries Hanmi Science and Hanmi Pharm LB Investment CEO Koo Bon-chuns two sons, aged 12 and 10, had stocks worth 6.05 billion won and 55.5 billion won. The elder son first appeared on the annual list two years ago, when his stocks were worth 7.5 billion won. Koo is the son-in-law of Lee Sang-deuk, a former lawmaker of The Saenuri ruling Party and the elder brother of former President Lee Myung-bak, Seoul Pharma CEO Hwang Woo-sungs two 9-year-old sons both had stocks valued at 4.25 billion won four of the grandchildren of Hankook Tire Chairman Cho Yang-rae appeared on the list. The 7-year-old son and 10-year-old daughter of sis son and Hankook Tire President Cho Hyun-bum, who is also the son-in-low of former president Lee Myung-bak, owned stocks worth 810 and 800 million won, respectively, there are also stock-rich Infants The granddaughters of Koo and the Korea Watos Chairman Song Gong-suk, both just turned 1 who own stocks valued at 160 and 100 million won Critics say owners of conglomerates have been transferring stocks larger to relatives so they can accumulate fortunes by receiving dividends or making it easier for them to control their BUSINESSES One example is the Hyosung Group, whose Chairman Cho Suk-Raes three grandchildren owned stock in the company worth around 80 million won in 2008. When the stock price quadrupled in 2010, it was sold for a profit of 300 million won each. Another advantage of the ploy includes avoiding heavy taxes.

China-only Iron Man 3: whatever it takes to profit

China-only Iron Man 3: whatever it takes to profit

Staff Reporter

2013-05-06

The special edition of Hollywood blockbuster Iron Man 3 made exclusively for Chinese audiences reflects the compromises that movie producers are willing to make to crack the lucrative Chinese film market, reports the Commercial Times, our Chinese-language sister paper.

Iron Man 3, co-produced by US Marvel Studios and China’s DMG Entertainment Group, debuted in China last week with four minutes of additional footage and featuring the so-called “Chinese elements” required by Beijing to satisfy tight controls designed to protect the domestic film industry. This highly anticipated China-exclusive version, however, has been widely panned for coming across as awkward and adding nothing to advance the flow and plot points of the film.

According to Chinese viewers, the extra four minutes of footage were dominated by domestic product placement, including the milk product Guo Li Duo and domestic electronics makers TCL and Zoomlion. Veteran Chinese actor Wang Xueqi, who made a five-second cameo in the international version of the film, was given more screen time as a doctor prescribing Chinese medicine to aid Iron Man, while Chinese superstar Fan Bingbing, who did not appear at all in the international version, played Wang’s nameless assistant. Iron Man is also seen on a television screen with cheering Chinese school children. Read more of this post

China Intensifies Scrutiny of Importer, Exporter Capital Flows

China Intensifies Scrutiny of Importer, Exporter Capital Flows

China’s currency regulator said it will increase scrutiny of cross-border capital flows by importers and exporters to prevent speculative funds entering the country disguised as trade bills. The State Administration of Foreign Exchange will send out risk-warning notices to companies whose goods and capital flows do not match, as well as those that are bringing big amounts of cash into China, it said in a statement on its website. Recipients of such notices have 10 days to explain the need for their transactions and those that fail to comply or are unable to provide satisfactory proof will then be placed on SAFE’s so-called B list, which means their activities will be closely monitored for a period of at least three months. A return to SAFE’s A list can only take place once relevant indicators return to a normal range, the statement said. SAFE said it would finalize the B list and send out the first batch of warnings before May 10. It also ordered banks to adjust their foreign-exchange positions to comply with regulations. The yuan fell 0.03 percent to 6.1572 per dollar as of 12:01 p.m. in Shanghai, after earlier touching a 19-year high of 6.1521.

–Judy Chen. Editors: James Regan, Robin Ganguly

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

German euro founder calls for ‘catastrophic’ currency to be broken up

German euro founder calls for ‘catastrophic’ currency to be broken up

Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is “leading to disaster”.

Mr Lafontaine said on the parliamentary website of Germany’s Left Party that Chancellor Angela Merkel will “awake from her self-righteous slumber” once the countries in trouble unite to force a change in crisis policy at Germany’s expense. Photo: Reuters

By Ambrose Evans-Pritchard, International Business Editor

9:30PM BST 05 May 2013

“The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt,” he said.

“The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later,” he said, blaming much of the crisis on Germany’s wage squeeze to gain export share. Read more of this post

Buffett worries about Fed’s ‘huge experiment’, thinks the Fed chief may have overplayed his hand

Buffett worries about Fed’s ‘huge experiment’

By Stephen Gandel, senior editor May 4, 2013: 3:17 PM ET

Says he admires Ben Bernanke, but thinks the Fed chief may have overplayed his hand.

Warren Buffett

FORTUNE — Warren Buffett has a piece of advice for Ben Bernanke: It’s easier to buy than it is to sell.

Buffett, speaking on Saturday at Berkshire Hathaway’s (BRKA) annual meeting in Omaha, said he is worried about what will happen when the Federal Reserve tries to wind down its recent efforts to stimulate the economy. Via a program nicknamed QE, short for quantitative easing, the Fed in recent years has bought up over $2 trillion in bonds in order to lower interest rates and promote borrowing and investment.

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don’t know what will happen, but he is concerned.

“QE is like watching a good movie, because I don’t know how it will end,” says Buffett. “Anyone who owns stocks will re-evaluate his hand when it happens and that will happen very quickly.” Read more of this post

The Chinese Are Freaking Out About A Potential Drop In Housing Prices

The Chinese Are Freaking Out About A Potential Drop In Housing Prices

The Economist | May 4, 2013, 5:54 PM | 10,113 | 9

ASK ordinary people about their own Chinese dream, and you find owning a home is high on the list.

But years of rising house prices have put that dream out of reach of many. A slowing economy appeared to take some of the heat out.

Now, alas, the residential property market is soaring again (see chart). A new survey of developers and property firms on May 2nd showed average house prices up more than 5% in April on a year earlier.

Read more of this post

Companies Add to Lineups of ‘Free’ ETFs

Updated May 3, 2013, 1:29 p.m. ET

EXCHANGE-TRADED FUNDS

Companies Add to Lineups of ‘Free’ ETFs

Still, trading commissions are only one cost, so other funds may be more attractive on balance

By ARI I. WEINBERG

How attractive is “free”? Some of the largest online brokers of exchange-traded funds are determined to find out.

Two have recently expanded the lineups of ETFs they offer without trading commissions, bringing their menus closer to the size of their competitors’.

In February, Charles Schwab Corp.SCHW +6.27% expanded its commission-free ETF menu to 105 funds, up from just its own 15 broad-based index offerings. A few weeks later, Fidelity Investments expanded its exclusive partnership with BlackRock Inc.BLK +3.43% to offer 65 of BlackRock’s iShares ETFs commission-free, up from 30, in addition to Fidelity’s one ETF.

Both programs now challenge TD Ameritrade Holding Corp. AMTD +6.08% and Vanguard Group, whose commission-free ETF choices were already large and diverse. TD Ameritrade offers 101 funds and exchange-traded notes selected by researcher Morningstar Inc., and Vanguard features all 65 of its own ETFs. Read more of this post

Shedding some light on the dark world of party discipline in China

Shedding some light on the dark world of party discipline

Monday, 06 May, 2013, 12:00am

Wang Xiangwei xiangwei.wang@scmp.com

Lawyers and media commentators say the harsh system known as shuanggui contravenes efforts to push for rule of law

In China’s uphill battle against rampant corruption, no other Communist Party agency evokes more fear among officials than the Central Commission for Discipline Inspection (CCDI), the country’s top anti-graft watchdog.

The commission’s name may sound innocuous, and so does its most potent weapon, known as shuanggui – a two-word abbreviation from a clause in the party’s regulations that requires members to explain their so-called disciplinary violations at a specific time and venue.

But those two words have given the commission sweeping powers to indefinitely detain and question any official suspected of wrongdoing. Read more of this post

‘Boring’ Blue Chips Lead Record-Setting Market Runup; Bufett’s Bear Doug Kass says when the market is led by defensive stocks, “it is time to be fearful of the broader markets.”

May 5, 2013

‘Boring’ Blue Chips Lead Record-Setting Market Runup

By GREGORY ZUCKERMAN

Boring bulls are powering the market higher.

That the stock market has climbed as much as it has this year surprises many analysts. Perhaps the biggest shocker: the kinds of companies leading the charge.

Technology, Internet or other companies making cutting-edge products? Hardly. A group of decidedly unsexy companies—from Procter & Gamble PG +0.55% (PG) and Johnson & Johnson JNJ +0.69% (JNJ) to Colgate-Palmolive CL +0.35% (CL), Clorox (CLX) and General Mills GIS +0.54% (GIS)—are en vogue. Read more of this post

Buffett devotees stick by him even as growth slows; Buffett Says Next CEO to Bolster Berkshire Aura for Crisis Deals

Buffett devotees stick by him even as growth slows

4:04pm EDT

By Jonathan Stempel and Jennifer Ablan

OMAHA, Nebraska (Reuters) – Short-seller Douglas Kass, Warren Buffett’s handpicked bear, raised a concern on the minds of many shareholders at the “Woodstock for capitalists” this weekend: Has Berkshire Hathaway Inc become so big that it will find it hard to grow?

Many retail investors who converged on Omaha, Nebraska, for Berkshire’s annual meeting on Saturday acknowledged that its fastest growth days are likely behind it. But they said Berkshire is still a good long-term bet as faith remains in Buffett and his management team’s more than 4-decade-long record of stellar returns, and the company’s tentacles into many sectors of the U.S. economy.

“Yes, it is a concern, but I have to get my expectations in line,” said Julie Fehrnstrom, a mother of three from Orinda, California, attending her fifth meeting. “They are not driven by short-term decision making and they have really smart management. You really don’t always find that.” Read more of this post

Leaders Pore Over Southeast Asia’s Investment Hurdles

May 5, 2013, 10:14 p.m. ET

Leaders Pore Over Southeast Asia’s Investment Hurdles

By NATASHA BRERETON-FUKUI

GREATER NOIDA, India—Asian policy makers have been working hard to improve access to funding for regional infrastructure projects, but other hurdles could be a bigger constraint to investment in the sector. Read more of this post

Warren Buffett Says He’s Not a Buyer of Gold After Price Slump

Warren Buffett Says He’s Not a Buyer of Gold After Price Slump

Billionaire investor Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., comments on the investment appeal of gold. He spoke to reporters in Omaha, Nebraska, on May 2. Gold rallied 4.9 percent in the past two weeks after entering a bear market April 12. Futures in New York are still down 13 percent this year to $1,464.20 an ounce. On whether he would buy gold after recent declines:

“No. Gold’s not reproduced or anything since I wrote about it a year or two ago. It just sits there, and you hope somebody pays you more for it. ‘‘If gold went to $1,000 I wouldn’t be a buyer. If it went to $800, I wouldn’t be a buyer. It’s never interested me. If you go back to 1965, Berkshire was at $15 and gold was at $35, so you could’ve bought two shares of Berkshire for an ounce of gold, a little more than two shares. And so far, two shares of Berkshire’s been better.” Read more of this post

Sweden a Crisis Casualty No More Shows How Haven Appeal Is Won

Sweden a Crisis Casualty No More Shows How Haven Appeal Is Won

After suffering through devaluations, three years of economic contraction and a banking crisis in the 1990s, Sweden has learned how to handle financial turmoil.

Now, the largest Nordic economy is emerging as a permanent haven from global market turbulence, according to the nation’s debt office.

“Sweden is looked at in a different light than before,” Thomas Olofsson, head of the Swedish government’s debt management, said in an interview in Stockholm. “There’s definitely a completely different interest in Sweden than five to 10 years ago. In the past, the Swedish exchange rate and interest rates often suffered during times of turbulence in a way that we haven’t seen this time around.”

The country cemented its status as a haven from Europe’s debt crisis last year, after posting the biggest economic rebound in the European Union in 2010 while keeping its budgets in surplus. Sweden boasts the lowest default risk in the world, after oil-rich Norway, credit derivatives suggest, and has managed to produce some of Europe’s best-capitalized banks.

The success in navigating way through the current crisis follows lessons learned two decades ago. Swedes suffered three years of economic decline from 1991 through 1993, culminating in the 1992 currency crisis, when the Riksbank abandoned the krona peg after failing to stem capital flight even with a 500 percent interest rate. Read more of this post