In Deal Hunt, Big-Game Buffett Settles for Small Prey; Berkshire Hathaway Boss Trains His ‘Elephant Gun’ on Junior-Sized Targets With Larger Ones Scarce

Updated August 8, 2013, 4:38 p.m. ET

In Deal Hunt, Big-Game Buffett Settles for Small Prey

Berkshire Hathaway Boss Trains His ‘Elephant Gun’ on Junior-Sized Targets With Larger Ones Scarce

ANUPREETA DAS

Warren Buffett hasn’t fired his “elephant gun” much recently, but he has put his managers on the hunt for smaller prey. Berkshire Hathaway Inc.’s BRKB +0.72% subsidiary operations collectively spent about $2.3 billion on 26 acquisitions last year, which the company says is a record amount. They have continued that streak this year, acquiring more than a dozen companies in the first half of 2013. Berkshire hasn’t disclosed the amount spent by its subsidiaries on acquisitions this year. With bigger, multibillion-dollar deals few and far between of late, Mr. Buffett increasingly favors such “bolt-on” acquisitions because they increase Berkshire’s earnings and enable it to use its cash pile, which stood at $36 billion at the end of June. Net cash flow from operations rose nearly 36% for the first six months of 2013 from a year earlier, putting greater pressure on Berkshire to use its cash rather than hoard it. In a telephone interview, the Omaha, Neb.-based billionaire investor said he expected these types of deals to be frequent and numerous. “I like the managers finding opportunities,” Mr. Buffett said. Read more of this post

Bill Gross’ Strategy for Combating Rising Rates; The Pimco chief explains how to alter a bond portfolio for a new set of circumstances

THURSDAY, AUGUST 8, 2013

Bill Gross’ Strategy for Combating Rising Rates

By WILLIAM H. GROSS  | MORE ARTICLES BY AUTHOR

The Pimco chief explains how to alter a bond portfolio for a new set of circumstances.

Adaptation is tantamount to survival in the physical world. So argued Darwin, at least, and I am not one to argue with most science and its interpretation of natural laws. Adaptation has been critical as well for the survival of countries during wartime, incidents of which I am drawn to like a bear to honey, especially when they concern WWI. Stick with me for a few paragraphs on this – the following is not likely to be boring and almost certainly should be instructive. In the first decade of the 20th century, British war colleges and their generals were philosophically trapped by the successful strategies of a prior era – an era before the invention of a functional machine gun. They felt that machine guns might dampen the spirit of their fighting forces. What counted was the horse and the sword. Britain’s cavalry training manual of 1907 in fact stated that “the rifle or machine gun, effective as it is, cannot replace the devastation produced by the speed of the horse, the magnetism of the charge, and the terror of cold steel.” Read more of this post

LKY: Mao Promoted Perpetual Struggle; Deng Saved China from Chaos

Mao Promoted Perpetual Struggle; Deng Saved China from Chaos

by Lee Kuan Yew | Aug 8, 2013

Mao’s successor drew lessons from Singapore’s economic development

On October 1, 1949, at the Gate of Heavenly Peace in Beijing, Mao Zedong, leader of the Communist Revolution, declared the founding of the modern People’s Republic of China. Mao was an idealist who strove for constant class struggle as a way to keep the Chinese from becoming bourgeois. At the height of the Cultural Revolution, in 1967-69, schools and universities were closed, and children were encouraged to hit and rebel against their parents. Mao was, of course, a famous leader and liberator, but he was less practical when it came to governing the country.

More practical was Deng Xiaoping, who quietly took control after Mao’s death, calmed the country and concentrated on its economic development. Were it not for him, China might well have broken apart. Read more of this post

Discount Grocery Chain WinCo Touted As ‘Wal-Mart’s Worst Nightmare’ with a business model that allows for cheaper prices

A Discount Grocery Chain Is Being Touted As ‘Wal-Mart’s Worst Nightmare’

ASHLEY LUTZ AUG. 8, 2013, 5:32 PM 5,562 30

A discount grocery chain is being called “Wal-Mart’s worst nightmare.” WinCo, a Western grocery chain with about 100 stores, has a business model that allows for cheaper prices than Wal-Mart, writes Brad Tuttle at Time.  WinCo keeps costs low by buying directly from suppliers and eliminating middlemen, according to Tuttle. It also doesn’t accept credit cards and has customers bag their own groceries. A recent Idaho Statesman article about WinCo quoted retail analyst Burt Flickinger III as saying that WinCo was “unstoppable.” “They’re Wal-Mart’s worst nightmare,” Flickinger said.  Much like Costco, WinCo offers a minimalist selection instead of a wide array of brands according to Time. For instance, WinCo might only carry two brands of toothpaste, while Wal-Mart has more than 40. Unlike Wal-Mart, whose employees have demanded better wages, the company provides health benefits to employees who work 24 hours per week and a pension. WinCo is expanding fast, and could convert Wal-Mart’s customers, according to Time. “Generally speaking, shoppers tolerate Walmart’s empty shelves and subpar customer service because the prices are so good,” Tuttle writes. “The fact that another retailer—even a small regional one—is able to compete and sometimes beat Walmart on prices, while also operating well-organized stores staffed by workers who enjoy their jobs, like their employer, and genuinely want the company to be successful.”

Nestlé Feels Commodity Crunch; Missed Sales Expectations Four Quarters in a Row; Nestlé got a serious lift over the past few years from rising commodity costs. It was able to pass these on, and perhaps a bit more, to consumers

August 8, 2013, 2:39 p.m. ET

Nestlé Feels Commodity Crunch

Sales Expectations Have Been Missed Four Quarters in a Row, and a Couple More May Be Needed to Get Back on Track

JOHN JANNARONE

Nestlé NESN.VX -2.16% shares are a bit like its sugary treats: After providing a burst of energy, they have left investors in a funk. The Swiss food conglomerate fell short of revenue expectations for the fourth quarter in a row Thursday, when it reported results for the three months through June. Nestlé acknowledged that it will be “a stretch” to achieve 5% organic sales growth this year, meaning it may miss its typical 5%-6% target. That suggests Nestlé got a serious lift over the past few years from rising commodity costs. It was able to pass these on, and perhaps a bit more, to consumers. But prices of many inputs like sugar have declined over the past several months. That leads to competitive pressure that erodes pricing power. As Andrew Wood of Sanford C. Bernstein points out, Nestlé’s second-quarter pricing growth of 0.8% was the lowest in a decade. It is hard to guess when commodity prices will rebound. Emerging-market growth, a big driver of commodity demand, has cooled and may take a couple of years to resume. Read more of this post

Goldman: China might face credit losses of up to 18.6 trillion yuan ($3 trillion), because the speed of its credit expansion has exceeded that seen prior to other credit crises in history

Credit losses may hit $3 trillion, bank says

Updated: 2013-08-09 07:25

By Wang Xiaotian ( China Daily)

Goldman Sachs report warns of ‘shadow banking‘ risk elements

China might face credit losses of up to 18.6 trillion yuan ($3 trillion), because the speed of itscredit expansion has exceeded that seen prior to other credit crises in history, Goldman SachsGroup Inc has warned. In a report dated Aug 5, it said the rapid pace of China’s credit expansion, increasingly sourcedfrom the inherently more risky and less transparent “shadow banking” sector, has become atop concern for global markets. “Our Asian economists and strategists recently published a comprehensive look at this concernand its implications for economic growth and asset performance in China, calculating that anextreme upper-bound for total China credit losses could amount to 18.6 trillion yuan,” the reportsaid. But actual credit losses are likely to be significantly lower than these worst-case figures,emerge gradually and be partially absorbed by bank earnings or other avenues, it added. Read more of this post

China’s Urban Sludge Dilemma: Sinking in Stink; Trucks are dumping sludge on melon fields near Beijing, highlighting a nationwide struggle with waste

08.08.2013 16:12

China’s Urban Sludge Dilemma: Sinking in Stink

Trucks are dumping sludge on melon fields near Beijing, highlighting a nationwide struggle with waste

By staff reporter Cui Zheng and intern reporter Liu Zhiyi

Promptly at noon on March 17, a heavy truck hauling a dark substance and on a dark mission pulled out of the Gaobeidian Wastewater Treatment Plant in eastern Beijing. A wastewater treatment engineer helped a Caixin reporter identify the unusual load, which jiggled in the truck’s bed like gelatin as the driver headed down a bumpy road. The substance was unprocessed sludge – a mucky, smelly and hazardous byproduct of the sewage treatment process. Anything less disgusting coming out of the Gaobeidian plant, the engineer said, would not have jiggled. Gaobeidian is one of the largest wastewater plants in China and the biggest in Beijing, serving the capital’s downtown business district and industrial zones along with about 2.4 million household residents. It handles some 40 percent of Beijing’s wastewater, and has a daily wastewater capacity of about 1 million cubic meters. The plant is one of many built over the past seven years as part of a 500 million yuan, central government push to upgrade wastewater treatment nationwide. The investment has shown some good results: The collective sewage treatment capacity in China’s counties, for example, has risen to more than 70 percent. Read more of this post

China’s crazy love affair with steel is a scary example of how its finances could implode

China’s crazy love affair with steel is a scary example of how its finances could implode

By Gwynn Guilford @sinoceros 10 hours ago

So maybe China’s not collapsing—in fact, it might be stabilizing. At least, that’s what China’s unexpectedly strong July trade data hints. Exports rose 5.1% year-on-year in July, more than analysts expected. Imports, though, were the real shocker, surging 10.9%, to hit $168 billion. But wait—what exactly was China importing so furiously in July? Heaps of iron ore, it seems. Imports of the metal leapt to a record 73.1 million tonnes (80.5 million tons), up 26.7% on the previous year. That’s more than it imported during the many months of the infrastructure bonanza between 2009 and 2012, when the government pumped $11.2 trillion into the economy: Some think this means the economy is stabilizing; “steel demand is quite strong” (paywall), Maquarie analyst Graeme Train said. But it’s weird, because China’s businesses really don’t need new steel. It’s so hard to find buyers that steel mills are now storing 225,000 tonnes of steel, up 1.8% from last year. By one estimate the industry has a fifth more production capacity than it needs. And of China’s major steel mills, 40 out of 86 operated at a loss in H1 2013. Read more of this post

In Export Boom, U.S. Cities Sell to the World

In Export Boom, U.S. Cities Sell to the World

By Dorothy Gambrell on August 08, 2013

U.S. exports in June increased to an all-time high. While most of the big coastal cities did well, metropolitan areas on the Gulf stand out for their thriving oil and gas business.

Finalists of 2013 NZ International Business Awards

FINALISTS NAMED IN 2013 NEW ZEALAND INTERNATIONAL BUSINESS AWARDS

A revolutionary diabetes detection system and a digital DJ software platform are among the unique range of solutions produced by the 29 finalists in this year’s 2013 New Zealand International Business Awards. Celebrating the passion, vision and new approaches that New Zealand businesses are taking to achieve international success, the Awards are run by New Zealand Trade and Enterprise (NZTE) and strategic partner ANZ. Other finalists include a business offering 3D modelling technology for use in hydrogeological and geothermal exploration, a company whose handmade educational tools for children are sold in Harrods and MoMa, a burger venture taking on the Middle East, a business that manufactures precision electro magnets used in touchscreens, whiteware and medical systems, and a number of agricultural and ICT-focused companies. Also of note this year are the two winery finalists – the first time in four years a winery has made it to the finalist stage of the Awards. Read more of this post

China’s Worst Nightmare Is Turning Japanese

China’s Worst Nightmare Is Turning Japanese

Few words strike greater fear in the hearts of economists and politicians than “Japanization.” That specter of chronic malaise, deflation and bad debt has driven central bankers from Ben S. Bernanke in the U.S. to Mario Draghi in Europe to flood markets with liquidity in an effort to avert their own lost decades.

It should worry China, then, that experts on this dreaded scenario are turning their attention to Beijing. Take Brian Reading, whose quest to understand what the world can learn from Tokyo’s mess dates back to his prescient 1992 book “Japan: The Coming Collapse.” He recently wrote a 40-page report with Lombard Street Research Ltd. colleague Diana Choyleva titled “China’s Chance to Avoid Japan’s Mistakes.” Read more of this post

In wake of cash crunch, PBOC commits to transparency but quietly tightens grip to become more controlling and secretive

In wake of cash crunch, PBOC commits to transparency but quietly tightens grip

Wed, Aug 7 2013

By Lu Jianxin and Pete Sweeney

SHANGHAI (Reuters) – China’s central bank has publicly committed to becoming a better communicator after a cash crunch that it engineered spooked global financial markets in June, but traders say its behavior has become more controlling and secretive. “There is a vicious cycle in China’s reform process,” said a senior trader at a Chinese state-owned bank in Beijing. “A deregulation move often creates a mess in the newly liberalized market. Then the consequent re-tightening suppresses the market again.” Read more of this post

China’s ailing bad debt market cries for change

China’s ailing bad debt market cries for change

Thu, Apr 26 2012

By Koh Gui Qing

BEIJING (Reuters) – Veteran investor Jack Rodman has had enough. After waiting 11 years for China to sell its rising pile of bad bank loans, he is quitting and going to Spain instead. His pull-out exposes a pressing failing in China’s booming financial sector: it does not properly dispose of a growing store of bad loans from banks’ profligate lending, keeping risks pent up within the world’s second-biggest economy. And the problem only scratches the surface of deeper troubles plaguing China’s banking industry, where heavy government intervention has produced a dysfunctional system that is at times better at destroying capital than creating it. The frozen market for bad loans shows just that. Read more of this post