Why bosses should be careful when using performance-related pay

Why bosses should be careful when using performance-related pay

May 25th 2013 |From the print edition

20130525_FND000_0

OF ALL a firm’s inputs, its workers’ effort is perhaps the oddest. It is as vital as land, factories or machines, but much harder to control. It is often impossible even to measure. A manager can gauge the firm’s output, but not the effort people put in, beyond crude gauges such as the time they spend on the job. Employees have the informational edge, knowing their own effort, output and skill level. This asymmetry makes it hard for managers to distinguish, for instance, between the low-skilled but diligent and the skilled but lazy. Monitoring schemes to reward hard-working employees and punish slackers can boost effort, but they can backfire badly, too.

What should firms do? A good place to start is with the worst kind of behaviour: crime. In a paper published in 1968 Gary Becker, of the University of Chicago, set out the factors which policymakers should consider when deciding on what resources they should devote to detection. In his model criminals calculate the risks and benefits of bad behaviour, taking into account the possible monetary reward, the probability of being caught and the subsequent punishment. To cut crime authorities must increase the probability of being caught, the severity of the punishment, or both. This approach can also be applied to less extreme forms of bad behaviour, such as slow or sloppy work: firms may have to monitor individual workers, and then reward the good and punish the bad. Read more of this post

India is considering letting its business houses run banks. It should think twice

India is considering letting its business houses run banks. It should think twice

May 25th 2013 | MUMBAI |From the print edition

20130525_FND001_0

BANKING in India is a vast problem and a huge opportunity. Only 35% of adults have formal accounts. A grim reminder of the risks for the 600m-odd unbanked folk came in April. A multi-billion-dollar, barely regulated, “chit fund” in Kolkata collapsed, destroying the savings of hundreds of thousands of poor people. Up to a dozen committed suicide, one by immolation. Precisely because the banking market is so underpenetrated, it should offer lots of growth. Although there are 196 domestic banks, a majority are state-controlled and stodgy. Lending margins are high. So when new licences for private players are granted, fortunes are made. The last two permits, awarded in 2003-04 when the industry was recovering from bad debts, have helped make $10 billion for their backers. Now the Reserve Bank of India (RBI), the central bank, plans to issue new licences. Applications are due by July 1st and a frenzy is building. Vikram Pandit, the Indian-born ex-boss of Citigroup, an American bank, has teamed up with a local outfit. There could be up to 100 entries for perhaps ten licences, reckons a banker.

Read more of this post

Why Myanmar’s military rulers are giving power to the people; Why investors still need to proceed with caution

Why Myanmar’s military rulers are giving power to the people

May 25th 2013 |From the print edition

20130525_SRM937 20130525_SRC485 20130525_src935 20130525_SRM934

MYANMAR’S TRANSITION HAS been a top-down affair. This, more than anything, distinguishes it from other recent upheavals such as the “people power” revolutions of the Arab spring, the fall of communism in Europe and the toppling of Indonesia’s President Suharto. At crucial moments the threat of mass protests hurried the process along. Government advisers concede that in 2011 they were afraid of an Arab spring on the streets of Yangon. The army had mercilessly oppressed protests such as the aborted “saffron revolution” in 2007, led by monks, and the pro-democracy uprising in 1988 that had first propelled Miss Suu Kyi to national prominence. Those 1988 protests led to elections in 1990 which were won by the NLD but annulled by the government. For the main part, though, Myanmar now stands as a rare example of an authoritarian regime changing itself from within. Read more of this post

Do Shilajit, Other Rock Extracts Boost the Immune System?

May 27, 2013, 5:21 p.m. ET

Do Shilajit, Other Rock Extracts Boost the Immune System?

By LAURA JOHANNES

The Claim: Minerals and acids taken from rocks, including shale in the U.S. and tar from India, are good for your health. Rock ingredients vary, but can include fulvic and humic acids, and dozens of metals and minerals including iron, zinc, gold and silver, scientists say. Proponents say these ingredients soothe inflammation, boost the immune system and act as an antioxidant. A well-known rock-based treatment is shilajit, (pronounced shil-a-jeet), a tar-like substance scraped from rocks in the Himalayas.

The Verdict: “There is no known benefit of shilajit or other rock extracts” and they haven’t been adequately tested for safety in humans, says Philip J. Gregory, a pharmacist at ConsumerLab.com., which does independent testing on dietary supplements. Composition of rock-based therapies may vary from sample to sample, so it’s hard to be sure exactly what you’re getting, he adds.

PJ-BO502_ACHES_DV_20130527170737

Blk Enterprises’s Blk mineral-infused water sells for $2.49 for a 16.9-oz. bottle, while Pure Shilajit, a Himalaya tar-like resin which can be mixed in a liquid, sells for $380 for 90 grams.

The idea of consuming the nutrients in rocks for health benefits goes back thousands of years, says Dhaval Dhru, acting chairman of the department of Ayurvedic Sciences at Bastyr University in Kenmore, Wash. In ayurveda, or traditional Indian medicine, a small amount of shilajit is taken in warm milk, he says, to improve libido and treat a range of health problems such as diabetes and anemia. Read more of this post

A Better Way to Treat Anxiety; For Teens, Therapy Turns Parents Into ‘Exposure Coaches,’ Not Protectors

May 27, 2013, 5:42 p.m. ET

A Better Way to Treat Anxiety

For Teens, Therapy Turns Parents Into ‘Exposure Coaches,’ Not Protectors

By LAURA LANDRO

OB-XP842_INFORM_G_20130527185202

Getting up the nerve to order in a coffee shop used to be difficult for 16-year-old Georgiann Steely. Speaking in front of classmates was unthinkable.

The high-school sophomore overcame a crippling case of social anxiety as a patient in the Child and Adolescent Anxiety Disorders program at the Mayo Clinic in Rochester, Minn. Therapists there use an innovative approach early in treatment, gradually exposing children to things they fear most and teaching parents to act as “exposure coaches” rather than enable their children to avoid things and situations as a protective measure.

When parents help children to escape from feared situations, anxiety symptoms may worsen and children frequently become more impaired, says Stephen Whiteside, a Mayo pediatric psychologist. Read more of this post

New York rolled out a long-awaited bike-share program, an effort dubbed the city’s first new public-transit option in 75 years with $95 annual membership fee, $25 weekly passes and $9.95 day passes

May 27, 2013, 9:06 p.m. ET

Bike Share Gets Rolling Across City

Mayor Bloomberg Rolls Out Bike-Share Program With a Ding of a Bicycle Bell

By JOSH DAWSEY

NY-CJ227_BIKE_G_20130527162908

Toby Miller returns a bicycle to a bike-sharing kiosk on Monday. Straddling a bike but never pedaling, New York Mayor Michael Bloomberg rolled out a long-awaited bike-share program with a ding of a bicycle bell on Monday, an effort dubbed the city’s first new public-transit option in 75 years. A signature Bloomberg administration initiative, Citi Bike—named for its main sponsor, a financial-services company—made its debut with more than 6,000 bicycles available at 330 stations in Manhattan and Brooklyn for about 15,000 people who paid a $95 annual membership fee. Starting Sunday, others who don’t have annual memberships can buy day passes for $9.95 and weekly passes for $25.

Read more of this post

Indonesia’s Weak Institutions Spark Nostalgia for New Order; power abuse by elites and uneven growth has left people yearning for Suharto

Indonesia’s Weak Institutions Spark Nostalgia for New Order

A jurist and an economist say power abuse by elites and uneven growth has left people yearning for Suharto

By Ezra Sihite on 8:55 am May 27, 2013.

310313poster-soeharto2.jpg

President Suharto’s image can be found on posters around Indonesia in increasing numbers, as people seek the stability that his often-brutal leadership brought to the country. (JG Photo/Ali Lutfi)

Many Indonesians believe that life in the New Order era under President Suharto was better than today and that social elites dominate modern politics and law, according to a senior former jurist.

Speaking at a forum in Jakarta, former Constitutional Court chief justice Mahfud M.D. said that Indonesia is blighted by an oligarchy of elites that prioritize their interests over the public interest and do not abide by social rules, causing disillusionment and a lack of confidence in the law.

“Don’t be surprised to see people today wanting to see the military back [in power] because of oligarchic [conditions]. In Yogyakarta, you see stickers on cars with picture of a smiling Suharto reading, ‘Wasn’t it good during my time?’ ” Mahfud said. Read more of this post

Sick workers pay price for Chinese growth

Sick workers pay price for Chinese growth

By Carol Huang (AFP) – 1 hour ago

SHUANGXI, China — As China boomed around 200 men set out from Shuangxi’s rural idyll to build its infrastructure and skyscrapers. Now lung disease from dust has killed a quarter of them and 100 more are waiting to die.

Back home amid rice paddies and forested hills, Xu Zuoqing walks outside and his face contorts in pain from the effort. As he struggles to breathe, his wife rushes over a stool so he can recuperate.

“It’s like my lungs are being choked. My chest feels so tight,” says the 44-year-old who worked on construction sites for about 15 years, his voice strained at times.

“I just wish I could die comfortably… Well, I wish I didn’t have to die.” Read more of this post

The Ultimate Resume-Booster: Communist Party Membership; How China maintains interest in its ruling party, even as communist belief fades away

May 27, 2013 | by Lotus Yuen

The Ultimate Resume-Booster: Communist Party Membership

How China maintains interest in its ruling party, even as communist belief fades away

Zhang Xi’en, professor from the School of Politics and Public Administration at Shandong University, recently suggested that the Chinese Communist Party (CPP) should limit the number of its incumbent party members to 30 million and maintain a “moderate scale” of 51 million members in the future. Professor Zhang deemed this necessary because:

Various people, speculators included, have attempted to make personal gains in the name of being a ruling party member. They swarm into the Party, rapidly expanding its scale, and bringing tremendous danger to the Party.

The CCP, the largest political party in the world, had over 82 million party members as of 2011, 2.33 million more than in the previous year. It takes up around 6% of the total population of mainland China, and the total number is increasing by an average of one million people each year. Read more of this post

Corrupt Chinese officials turn to paying ‘black’ PR firms who claim to help them vanish from sight, with all negative stories about them scrubbed from the internet

Corrupt Chinese officials turn to ‘black’ PR

In the middle of the biggest anti-corruption campaign for years, crooked Chinese politicians are paying to vanish from sight, with all negative stories about them scrubbed from the internet.

The black PR firms are claiming “We can clean your name from blogs, forums, news websites, Weibo [China’s version of Twitter], everything,”  Photo: ALAMY

By Malcolm Moore, Beijing

5:46PM BST 26 May 2013

“It does not matter how big or sensitive the story is, we can make it disappear,” promised a manager at Yage Times, China‘s largest and most notorious “black” public relations (PR) firm. Dozens of Chinese officials have been put under investigation in recent months, and Communist Party members at every level are genuinely worried, according to the children of two senior cadres. In particular, they fear the internet, where stories about corrupt officials often go viral, putting pressure on the Communist party to launch a high-profile investigation. Read more of this post

Following defaults, Chinese Banks Cut Back on wealth-management products which grew from close to zero a few years ago to $1.2 trillion has rung alarm bells about growing risks for banks and retail investors

Updated May 27, 2013, 5:53 p.m. ET

Chinese Banks Cut Back on Wealth-Management Products

BEIJING—New rules aimed at reducing risks in China’s financial-services industry have dented the appeal of high-yield alternatives to deposits and threaten to crimp profits for banks.

Bank issuance of wealth-management products—retail investments that offer some of the security of deposit accounts but higher yields—dropped 8.8% in April from March, according to Cnbenefit, a research firm in the city of Chengdu. The average yield edged down to 4.3% in May from 4.4% in March, Cnbenefit said.

A default on a product sold by Huaxia Bank last year fanned concerns over inadequate disclosure and opaque investment structures.

China’s banking regulator introduced strict new rules in March governing where wealth-management products can be invested, how assets are managed, and standards of disclosure to investors. The rules give China’s banks until the end of the year to reduce the share of wealth-management products invested in illiquid assets to 35% of wealth products, or 4% of total assets. If they don’t, they could be forced to make moves that reduce their profitability, such as allocating more capital to back those assets.

The prospect of lower growth in the sector, combined with reduced returns and higher management costs, gives China’s banks with an unpalatable choice: reduce returns to investors and risk losing market share, or keep returns high and accept lower margins.

Smaller banks could be particularly hard hit. Small and medium-size banks collectively have a 60% share of the wealth-management market, and 15% of their products are in breach of the new rules, according to estimates from Bernstein Research. Read more of this post

Power struggle in Beijing leaves China Investment Corp (CIC) leaderless; Empty chair in sovereign wealth fund’s corner office worries investment industry observers and casts shadow over economic reform plans

Power struggle in Beijing leaves CIC leaderless

Monday, 27 May, 2013, 12:00am

George Chen george.chen@scmp.com

Empty chair in sovereign wealth fund’s corner office worries investment industry observers and casts shadow over economic reform plans

China’s US$480 billion sovereign wealth fund may well have to wait a few more months before it gets its new chairman, thanks to a power struggle in Beijing.

The chairman’s office at China Investment Corp (CIC) has been empty for about three months since former chairman Lou Jiwei , who helped establish CIC in 2007, was promoted to become finance minister as part of the Communist Party’s once-a-decade leadership transition earlier this year. Read more of this post

As the economy slows and midtier brands lose favor with consumers who are switching to premium brands and to shopping online, China’s retail sector is changing

Updated May 27, 2013, 11:07 a.m. ET

Change Afoot for Investors in China’s Retail Sector

By CHAO DENG

AM-AY684_AMONEY_NS_20130527030010

As the economy slows and midtier brands lose favor with consumers who are switching to premium brands and to shopping online, China’s retail sector is changing. The result is that private-equity firms that once bet on sky-high consumer growth are now buying into restructuring situations or into companies that cater to more-sophisticated tastes. “Going from a founder focused on growth to a team focused on modern management techniques is a hard curve for Chinese companies,” said André Loesekrug-Pietri, chairman of private-equity firm A Capital, which has invested in the sector. “Retail is not only about branding and fast growth but about efficient inventory management and logistics.” Read more of this post

New Tools to Hunt New Viruses

May 27, 2013

New Tools to Hunt New Viruses

By DONALD G. McNEIL Jr.

A new flu, H7N9, has killed 36 people since it was first found in China two months ago. A new virus from the SARS family has killed 22 people since it was found on the Arabian Peninsula last summer.

In past years, this might have been occasion for panic. Yet chicken and pork sales have not plummeted, as they did during flus linked to swine and birds. Travel to Shanghai or Mecca has not been curtailed, nor have there been alarmist calls to close national borders.

Is this relatively calm response in order? Or does the simultaneous emergence of two new diseases suggest something more dire?

Actually, experts say, the answer to both questions may well be yes. Read more of this post

WordPress is 10 years old today: Here’s how it’s changed the Web

WordPress is 10 years old today: Here’s how it’s changed the Web

Ken Yeung

27 May 2013

WordPress, the blogging and content management system, is 10-years old today. The platform has evolved in the past decade from being a basic blogging service to something that has helped people and brands become more social and changed how we communicate on the Web. Started by Matt Mullenweg and Mike Little, WordPress is an open source service where anyone can make modifications to the code to improve their blog and make it something that works for them. Bloggers who use WordPress are able to apply design themes to their sites while also integrating third-party plugins easily. Since it’s open source software, there isn’t a need for an approval process before someone can implement a new feature. As of this writing, the latest version of WordPress has been downloadedmore than 21 million times. Read more of this post

A Push to Quickly Switch Video-On-Demand Ads

Updated May 27, 2013, 8:42 p.m. ET

A Push to Quickly Switch Video-On-Demand Ads

19%: The average percentage VOD viewing has increased annually since 2009.

By AMOL SHARMA and SUZANNE VRANICA

A few weeks ago, Travel Channel viewers using cable video-on-demand services started seeing Land Rover ads. Viewers wouldn’t know it, but the spots were the result of a significant advance in TV-advertising technology that media companies hope will help shore up their bottom lines.

Scripps Networks Interactive Inc.,SNI +0.54% the owner of Travel Channel, is among several media companies also including ComcastCorp.’s CMCSA +0.31% NBCUniversal, A+E Networks, News Corp NWSA +0.67% .’s Fox broadcast and cable networks, and AMC NetworksAMCX -1.18% rolling out “dynamic ad-insertion” or working toward doing so, according to people familiar with the matter. The new technology is being introduced by a cable operator-owned venture that lets TV networks switch out and replace ads on programs that air on video-on-demand in as little as 24 hours—instead of having to wait weeks as is currently the case. Read more of this post

400 Million Users Strong: UCWeb CEO Shares Turning Points of the Company

400 Million Users Strong: UCWeb CEO Shares Turning Points of the Company

May 28, 2013

by Willis Wee

With more than 400 million users of its UC Browser, China’s UCWeb is probably one of most popular mobile browser makers in the world. UCWeb CEO Yu Yongfu tells us that that the company’s first product started as a BlackBerry Messenger type of service called UCMail. Unfortunately, it didn’t take off. But the team was quick to realize that people weren’t using UCMail. Rather, they wanted an application that could help them browse the web. So in 2004, UCMail rebranded to UCWeb, which stands for “U Can Web”, to being a full-fledged mobile browser. In 2006, with a team of 12, Yu Yongfu reorganized UCWeb and took over as the founder and CEO role. Today, under Yongfu, UCWeb has grown into a 1,500 employees company with 400 million users globally. Prior to UCWeb, Yongfu was a venture capitalist for six years focusing on the mobile internet sector. But he saw a lot of potential in the young company, so he chose to switch to the other side of the table to become an entrepreneur.

Read more of this post

Technology executives could be the next public enemies

May 27, 2013 4:41 pm

Technology executives could be the next public enemies

By Andrew Hill

About a year ago I was in San Francisco’s Pacific Heights, gazing down at the Golden Gate Bridge from one of Larry Ellison’s many spectacular homes. The Oracle chief executive wasn’t there – he had lent the house out for a reception. In any case, he would be the last person to apologise for enjoying the fruits of his success. But the view from technology executives’ balconies is getting stormier. After banks and bankers, could they be next to feel the sting of a populist backlash?

It sounds unlikely. For the tablet-toting, smartphone-stroking, Amazon-and-Googling masses – you and me, in other words – to attack companies that provide the products and services we love would be a case of biting the data feed they hand us. Read more of this post

Social commerce strategies: Wishbuuk showed how to convert followers into customers

May 27, 2013 4:41 pm

Social commerce strategies

By José Luis Nueno

The story

Wishbuuk is a Facebook application which was created after Fnac, the French books and music retailer, approached Flash2Flash digital, a marketing agency, for help introducing its brand into social networks. While marketing agencies such as Flash2Flash have helped brands create Facebook fan pages to attract followers, converting these followers into customers has proved difficult. Social commerce – using social media to buy products – is forecast to become a $30bn sector worldwide by 2015. Read more of this post

The Age of Big Data Has Created a Myth of Technocratic Infallibility

The Age of Big Data Has Created a Myth of Technocratic Infallibility

By Chrystia Freeland on 11:30 am May 27, 2013.
We are living in the age of the technocrats.

In business, Big Data, and the Big Brains who can parse it, rule. In government, the technocrats are on top, too.

From Washington to Frankfurt to Rome, technocrats have stepped in where politicians feared to tread, rescuing economies or at least propping them up.

Technocrats are in vogue within the intelligentsia, too. It is well nigh impossible to pick up a book about any social or political issue nowadays (including my own) without coming across some data-heavy social science research. Read more of this post

Bidding war between Tencent and LINE for Kakao; Tencent already own nearly a third of Kakao

Thomas Clayton: Bidding war between Tencent and LINE for Kakao

BY JACKY YAP | MAY 28, 2013 | ASIA

Thomas Clayton, CEO and founder of Bubble Motion shares his thoughts on Asian startups and the impending bidding war between LINE and Tencent for Kakao.

There are only a handful of companies in the region which managed to grow and subsequently raise multiple round of fundings. Singapore-based Bubble Motion is one of them. Founded back in 2005, Bubble Motion is the Twitter for Voice, and raised a total of US$50 million in funding from investors such as Sequoia Capital, Comcast Ventures, SingTel Innov8, JAFCO Asia, and many others. Bubble Motion now serves over 19 million users globally.

Of course, a great company is led by a great team. CEO and founder Thomas Clayton has had extensive experience and prior to starting Bubble Motion, Tom has started, worked for and ran numerous high-tech companies. Thomas also recently wrote an article on “Why the Largest Social Network in 2015 Won’t be Facebook, and Will Be From Asia“. Prior to his keynote at Echelon, we spoke to Thomas about the opportunities in Asia. Read more of this post

South Korea’s Plastic Surgery Fad Goes Extreme

South Korea’s Plastic Surgery Fad Goes Extreme

By Jung Ha-Won on 10:56 am May 27, 2013.

Seoul. South Korea’s obsession with plastic surgery is moving on from standard eye and nose jobs to embrace a radical surgical procedure that requires months of often painful recovery. A stream of celebrities boast on TV shows how it gave them a “new life,” while advertisements extolling its cosmetic benefits are everywhere from street billboards to subway stations, magazines and popular Internet sites.

But there’s nothing really “cosmetic” about double-jaw surgery. A radical solution to congenital facial deformities or for people unable to chew properly due to excessive over or underbite, the operation involves realigning the upper and lower jaws. Read more of this post

Korean chaebols including Samsung tense over economic bills; restrictions of shareholders’ voting rights could have a major impact on its web of cross shareholdings among affiliates

2013-05-27 17:10

Chaebol tense over economic bills

By Jun Ji-hye
Ruling Saenuri Party and main opposition Democratic Party (DP) will open an extraordinary session on June 3 to handle bills on key economic issues.
Conglomerates and financial firms are paying keen attention on which bills will be legislated into laws as they will influence their business substantially.
Both parties have in principle agreed to handle bills aimed at removing unfair business practices by chaebol. However, they have yet to narrow differences on key issues before passing them.
One of the sensitive bills on “economic democratization” is the one to restrict voting rights of major shareholders of financial companies if they are caught embezzling corporate funds. Read more of this post

Korean chaebol CJ, Home Plus and other large companies received the lowest rating in terms of relationship with SME

2013-05-27 17:03

Home Plus, CJ among worst in SME relationship

By Yi Whan-woo
Home Plus and seven other large companies received the lowest rating from a corporate watchdog on Monday in terms of relationship with smaller business groups.
Also on the list were CJ O Shopping, Hyundai Home Shopping, Hyundai Department Store, KCC Corp., STX Heavy Industries, LSIS and Kolon Global.
The National Commission for Corporate Partnership (NCCP) made the evaluation of 73 firms on the basis of a survey of some 9,500 small- and medium-sized enterprises (SMEs).
They were the subcontractors of those large firms. Read more of this post

Why Turkey is Thriving; There is nothing flashy about Turkey’s rise, which has been based on fundamentals, rather than bubbles or resource discoveries

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. His books include The End of Poverty and Common Wealth.

Why Turkey is Thriving

27 May 2013

NEW YORK – A recent visit to Turkey reminded me of its enormous economic successes during the last decade. The economy has grown rapidly, inequality is declining, and innovation is on the rise.

Turkey’s achievements are all the more remarkable when one considers its neighborhood. Its neighbors to the west, Cyprus and Greece, are at the epicenter of the eurozone crisis. To the southeast is war-torn Syria, which has already disgorged almost 400,000 refugees into Turkey. To the east lie Iraq and Iran. And to the northeast lie Armenia and Georgia. If there is a more complicated neighborhood in the world, it would be difficult to find it. Read more of this post

Sony’s Bread and Butter? It’s Not Electronics; selling life, auto and health insurance accounts for 63 percent of Sony’s total operating profit

May 27, 2013

Sony’s Bread and Butter? It’s Not Electronics

By HIROKO TABUCHI

TOKYO — Sony is best known as a consumer electronics company, making PlayStation game consoles and televisions. And it loses money on almost every gadget it sells.

Sony has made money making Hollywood movies and selling music. That profitable part of the business is what Daniel S. Loeb, an American investor and manager of the hedge fund Third Point, wants Sony to spin off to raise cash to resuscitate its electronics business.

But as Mr. Loeb pressures Sony executives to do more to revive the company’s ailing electronics arm, some analysts are asking, Why bother?

Sony, it is suggested, might be better off just selling insurance. Or just making movies and music. But not electronics. Read more of this post

Financial innovation for once works for the investor

Financial innovation for once works for the investor

Posted by: abnormalreturnsMay 27th, 2013 at 4:08 pm

True, long-lasting innovations ares a rare thing in the world of finance. In my book I argue that the introduction of the ETF or exchange-traded fund was exactly that. It has taken two some decades but we are now seeing real changes in how people invest due to ETFs. I wrote:

Like all upheavals, the ETF revolution has both its benefits and its drawbacks. On the whole, ETFs have made investing easier, more diverse, and cheaper. On the other hand, the introduction of ETFs has changed the actual underlying nature of some markets, and the rapid introduction of new ETFs has diluted the benefits seen early on. Unlike many revolutions, we are not likely to see a counterrevolution unseating the ETF regime any time soon.

You can see how the introduction of ETFs has driven the adoption of “broadly diversified, low-cost portfolios.”Joe Davis and Andy Clarke at the Vanguard Blog compare the rise of these portfolios to other “great ideas. They write:

The adoption of great ideas typically follows an “S” curve, starting slowly, then accelerating. Eventually, the great idea becomes commonplace. The adoption of the “broad low-cost portfolio” seems to be following this pattern.

MPR_0513

Source: Vanguard. Adapted from Visualizing Economics and The New York Times. Vanguard calculated the growth in the low-cost portfolio based on data from Morningstar, Inc. The calculation represents the percentage of U.S. mutual fund and ETF assets under management with annual expense ratios of less than 25 basis points.

They note that we are still in the “second or third” inning of this process. Of course there is a limit as to just how much of the asset management industry can (or will) shift towards this approach. To be clear the definition of these portfolios is low cost, not necessarily indexed. In any event if too much money becomes indexed there should be a resulting increase in opportunities to generate alpha. Read more of this post

U.S. securities regulators are turning back toward Main Street, renewing their focus on accounting fraud and other financial-disclosure failings

May 27, 2013, 5:56 p.m. ET

Accounting Fraud Targeted

With Crisis-Related Enforcement Ebbing, SEC Is Turning Back to Main Street

By JEAN EAGLESHAM

U.S. securities regulators are turning back toward Main Street, renewing their focus on accounting fraud and other financial-disclosure failings.

Such cases were long a staple of the Securities and Exchange Commission’s enforcement efforts, leading to more than 25% of civil-enforcement actions filed by the agency in its 2003 to 2005 financial years. The financial crisis shifted attention and money elsewhere. In the year ended last September, accounting fraud and financial-disclosure problems made up just 11% of SEC enforcement actions. Read more of this post

Over-optimism raises risk of global recession

Over-optimism raises risk of global recession

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5 per cent annual GDP growth for the foreseeable future — a higher pace than during the bubble years of 2000-2007.

27 MAY

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5 per cent annual GDP growth for the foreseeable future — a higher pace than during the bubble years of 2000-2007.

But, since then, the IMF has steadily pared its economic projections. Indeed, this year’s expected GDP growth rate of 3.3 per cent — which was revised downward in the most recent WEO — will probably not be met.

Persistent optimism reflects a serious misdiagnosis of the global economy’s troubles. Most notably, economic projections have vastly underestimated the severity of the eurozone crisis, as well as its impact on the rest of the world. And recovery prospects continue to depend on the emerging economies, even as they experience a sharp slowdown. The WEO’s prediction of a strengthening recovery this year continues the misdiagnosis. Read more of this post

Li Says China Confronts ’Huge Challenges’ as Growth Levels Slow

Li Says China Confronts ’Huge Challenges’ as Growth Levels Slow

Chinese Premier Li Keqiang said his country is confronted by “huge challenges” as it opens up the economy and that the new government’s reform measures will be accompanied by tapered-off levels of growth.

Speaking in Berlin during his first trip abroad as premier, Li said the Chinese government will move forward with market-oriented reforms to generate stable growth after the economy unexpectedly slowed in the first quarter. Read more of this post

%d bloggers like this: