Time to Retire The Simplicity of Nature vs. Nurture

Time to Retire The Simplicity of Nature vs. Nurture

Jan. 24, 2014 7:39 p.m. ET

Are we moral by nature or as a result of learning and culture? Are men and women “hard-wired” to think differently? Do our genes or our schools make us intelligent? These all seem like important questions, but maybe they have no good scientific answer.

Once, after all, it seemed equally important to ask whether light was a wave or a particle, or just what arcane force made living things different from rocks. Science didn’t answer these questions—it told us they were the wrong questions to ask. Light can be described either way; there is no single cause of life.

Every year on the Edge website the intellectual impresario and literary agent John Brockman asks a large group of thinkers to answer a single question. (Full disclosure: Brockman Inc. is my agency.) This year, the question is about which scientific ideas should be retired.

Surprisingly, many of the writers gave a similar answer: They think that the familiar distinction between nature and nurture has outlived its usefulness.

Scientists who focus on the “nature” side of the debate said that it no longer makes sense to study “culture” as an independent factor in human development. Scientists who focus on learning, including me, argued that “innateness” (often a synonym for nature) should go. But if you read these seemingly opposed answers more closely, you can see a remarkable degree of convergence.

Scientists have always believed that the human mind must be the result of some mix of genes and environment, innate structure and learning, evolution and culture. But it still seemed that these were different causal forces that combined to shape the human mind, and we could assess the contribution of each one separately. After all, you can’t have water without both hydrogen and oxygen, but it’s straightforward to say how the two elements are combined.

As many of the writers in the Edge symposium point out, however, recent scientific advances have made the very idea of these distinctions more dubious.

One is the explosion of work in the field of epigenetics. It turns out that there is a long and circuitous route, with many feedback loops, from a particular set of genes to a feature of the adult organism. Epigenetics explores the way that different environments shape this complex process, including whether a gene is expressed at all.

A famous epigenetic study looked at two different strains of mice. The mice in each strain were genetically identical to each other. Normally, one strain is much smarter than the other. But then the experimenters had the mothers of the smart strain raise the babies of the dumb strain. The babies not only got much smarter, they passed this advantage on to the next generation.

So were the mice’s abilities innate or learned? The result of nature or nurture? Genes or environment? The question just doesn’t make sense.

New theories of human evolution and culture have also undermined these distinctions. The old evolutionary psychology suggested that we had evolved with very specific “modules”—finely calibrated to a particular Stone Age environment.

But new research has led biologists to a different view. We didn’t adapt to a particular Stone Age environment. We adapted to a newly unpredictable and variable world. And we did it by developing new abilities for cultural transmission and change. Each generation could learn new skills for coping with new environments and could pass those skills on to the next generation.

As the anthropologist Pascal Boyer points out in his answer, it’s tempting to talk about “the culture” of a group as if this is some mysterious force outside the biological individual or independent of evolution. But culture is a biological phenomenon. It’s a set of abilities and practices that allow members of one generation to learn and change and to pass the results of that learning on to the next generation. Culture is our nature, and the ability to learn and change is our most important and fundamental instinct.


Cory Booker: Building on the Success of the War on Poverty; The government’s half-century of effort has slashed poverty rates. It’s time to strengthen and scale up what works

Cory Booker: Building on the Success of the War on Poverty

The government’s half-century of effort has slashed poverty rates. It’s time to strengthen and scale up what works.


Jan. 24, 2014 7:01 p.m. ET

In my three months as a senator, I have already seen firsthand that partisan debates in Washington can distract us from uniting around common-sense actions to address our most urgent needs. I always try to remember the old African saying: “When there is a snake in the hut, there is no need to debate its color.”

Two of the interrelated dangers we face today include an underperforming economy and, in everything from health care to criminal justice, the continuing problem of spending too much money and not getting the results we want in return.

Our national investment strategy is hardly a strategy at all. We are failing to invest in areas that not only produce great social returns but also reduce federal spending in the long run. Most glaring of all, we’ve got our priorities wrong: We are failing to maximize the productivity of our greatest natural resource—our people.

Opposing Argument

In America, tragically, social mobility is flat or, by some measures, actually declining: If you are born poor, you are likely to stay poor. This fact contradicts the very concept of America, deprives us of the genius of our people, damages our economy and threatens our way of life.

Against this backdrop, we are now having a debate over the War on Poverty, marking the 50th anniversary of President Lyndon B. Johnson’s 1964 speech. Listening to pundits and politicians over the past month, I’ve felt that too much of the discussion has been fueled by our partisan divide and has failed to unite us around actually addressing the pressing crisis of poverty.

Don’t get me wrong: I’m happy to hear more people talking about poverty. But we can’t fall prey to the debilitating simplicities of our seemingly binary political world.

Data, not stultifying political or ideological rhetoric, must drive our agenda. So let’s be clear on the facts. The federal government’s half-century of effort has slashed poverty among seniors from 35% in 1960 to 9% in 2011; it has brought so-called “deep poverty” (those living 50% below the poverty line) down to 5.3%; and it has cut overall poverty by a third, when you factor in tax credits and other payments, according to a recent report by the Council of Economic Advisers.

Continuing our fight against poverty—an endeavor that President Johnson rightly warned would be long and difficult—is fiscally responsible. If we are going to have a real conversation about it, we must abandon the rigid ideological view that, simply by virtue of being a government initiative, the Great Society was a failure.

We must dispense with the false choice between pursuing fiscal responsibility and funding programs to help the poor. Instead, we should be focused on outcomes and substantive cost-benefit analyses. So how do we best leverage societal investment for maximum return?

As mayor of Newark, it always frustrated me to see constant assaults on initiatives—from food stamps to Medicaid expansion—that keep so many New Jersey families out of the quicksand of poverty and make financial sense.

Take food stamps—formally known as the Supplemental Nutrition Assistance Program. A 2010 National Academy of Sciences study found that it lifted four million people out of poverty. But those dollars also “ripple throughout the economies of the community, state and nation,” according to the U.S. Department of Agriculture, which also found that “every $5 in new SNAP benefits generates a total of $9 in community spending.”

I’m sure many Americans share my frustration and worry about whether their federal government feels a sense of urgency on poverty. The failure to extend unemployment insurance is the current case in point.

But I believe we have a profound opportunity: Fifty years after the War on Poverty began, we can greatly advance our common cause if we recommit to policies that have been successful and update our approach, based on the evidence of what works and what doesn’t. There are many sound ideas, ranging from addressing the educational needs of our children to stimulating more investment and entrepreneurship in pockets of urban poverty. Here are just a few.

In a global, knowledge-based economy, the genius of our children is our nation’s greatest asset. Universal pre-K is a must: Based just on cost-benefit analysis, the evidence is overwhelming. We know that every dollar spent on high-quality early education returns roughly $7—through reduced spending on social services, as well as higher earning and productivity for participants as adults.

In focusing on kids, we must be willing to confront some uncomfortable truths. Whether a child grows up in a two-parent home is one of the top predictors of social mobility. This doesn’t mean that we demean single-parent households. But we should focus on proven strategies that empower couples to stay together (like eliminating the marriage penalty in the Earned Income Tax Credit) and better support single parents (like raising the federal minimum wage).

As mayor, I saw countless families broken apart and economically hobbled when one parent went to jail for a nonviolent drug offense. We can save taxpayer money and keep families together by reforming our ineffective criminal-justice system. For instance, re-entry programs that help former prisoners move quickly toward training and work have been shown to produce profound benefits, with significant reductions in recidivism and future taxpayer expenditures.

In terms of anti-poverty impact and return on investment, few programs surpass at-home nursing initiatives designed to serve low-income, first-time mothers. A study funded by the Pew Center estimated that the returns of such programs exceed $73,000 over the life of a child. Other studies have shown marked reductions in crime, child abuse and other problems, including infant death rates.

For young people entering the workforce, apprenticeships are a great way to close the skills gap and to increase lifetime earnings—by up to $300,000. But the U.S. had just 358,000 active, registered apprenticeships in 2012—a tiny fraction compared with other industrialized countries. We should expand private-sector-led apprenticeship strategies similar to those in South Carolina, which saw a 580% increase in apprenticeships in recent years.

The above examples give me hope that we can cut through the old false debates. We’ve proved, through strategic investments, that we can tackle poverty by empowering people to succeed—and save taxpayer dollars in the long run.

What excites me about being a senator is the opportunity to strengthen and scale up these common-sense programs through federal investments, public-private partnerships and incentives. Significantly reducing poverty isn’t a question of whether we can—it is a question of whether we have the collective will.

I welcome a broad conversation about poverty and social mobility, but the balance sheet is indisputable after a half-century of the War on Poverty. We need to do more, not less.

But doing more doesn’t mean wasteful and indiscriminate spending. Doing more means making smart investments in proven programs and innovating around promising new strategies.

We have a historic opportunity today to lift millions out of poverty, to limit government spending in the long term and to create middle-class jobs. Doing so isn’t just a moral imperative; it will also profoundly improve our global competitiveness and the economic security of American families. As that African saying goes, the snake is in the hut; it is now time for us to act on the urgent challenges before us.


When a Giant Gain Causes Pain; Succeeding as an investor takes a strong mind, but a stronger heart. That is especially true when stocks plunge-or soar

Jan 24, 2014

When a Giant Gain Causes Pain


Succeeding as an investor takes a strong mind, but a stronger heart. That is especially true when stocks plunge—or soar.
In his letter this week to investors in his hedge funds, manager David Einhorn of Greenlight Capital pointed to “the parabolic rise of a growing number of market-leading story stocks.”

If you have explosive gains on stocks like Fannie MaeFNMA -3.54% (up 968% over the past 12 months),NetflixNFLX -0.68% (up 163% over the same period) orPriceline.comPCLN -2.39% (up 74%), it isn’t just time to reassess what you are investing in. It is time to reassess what kind of investor you are.

For proof, look no further than the remarkable story of Ross Miller and Mary O’Keeffe, a married couple who took a wild ride on a supersonic stock.

Mr. Miller, who died last May at age 59, was a professor of finance at the State University of New York in Albany. Every year, he had his classes analyze and track a stock in the news. But, says Ms. O’Keeffe, Mr. Miller never bought any of them, investing exclusively in diversified index funds—until last February, when that semester’s stock caught his fancy.

It was Tesla MotorsTSLA -3.80%, the manufacturer of electric cars, which he bought at around $38 a share.

The stock doubled in the next three months. Then Mr. Miller bought call options on Tesla—bets on a further rise in price that made roughly $30,000 in one week, according to Ms. O’Keeffe.

Early last May, Mr. Miller said to her, “I have something to confess to you.” He had kept the options trade a secret from his wife. “I was so relieved that was what he was confessing,” she says.

Decades earlier, as a young professor at the California Institute of Technology, Mr. Miller had become addicted to options trading, in which even small price movements can produce big gains or losses. “He made some money, then lost it all,” Ms. O’Keeffe recalls. Mr. Miller then made a written commitment never to trade options again, placing the couple’s two favorite stuffed animals next to the pledge and having them “witness” it.
So Mr. Miller felt the need to confess last year because he had violated one of his own rules of self-control. “I gave him absolution,” Ms. O’Keeffe says.

But the options were making Mr. Miller “stressed out,” she recalls. So he sold them and told his wife that if Tesla hit $200 a share, he would consider selling the stock, too.

Ten days later, Mr. Miller died of sudden heart failure.

“Nothing prepared me for the sudden responsibility of managing this,” says his widow. “By training and intellectual preparation I should have been qualified, but I was utterly unprepared for how difficult it would be emotionally.”

Ms. O’Keeffe hadn’t merely been married to a finance professor who pioneered a method for estimating the value that fund managers provide for their investors.

Like her husband, Ms. O’Keeffe earned a Ph.D. in economics at Harvard University. She had taught a course on financial management for nonprofits. She and Mr. Miller ran a consulting firm that advised companies on how to manage financial risks. Ms. O’Keeffe, now 60, is a professor of public finance and tax policy at Union College in Schenectady, N.Y.

But as Tesla “gyrated wildly up and down,” she says, the stock was “too stressful to watch.” She sold most of it at around $140 a share in August. After the stock went up to $194 and down again, she sold the last of her shares at around $130 in November.

Tesla was back above $180 this week, but Ms. O’Keeffe doesn’t care. “I have no regrets,” she says. “I’m so glad not to have to think about it anymore.”

What happened to Mr. Miller and Ms. O’Keeffe isn’t unusual, say experts in the psychology of investing.

If you have a small stake in a company, you own the stock. But if that stake suddenly grows enormous, the stock owns you. Thinking rationally about it then can become all but impossible—even if you have a doctorate in economics.

No matter how closely you analyzed a stock when you bought it, if it has since gone way up, then it is time to start analyzing yourself, says Meir Statman, a professor of behavioral finance at Santa Clara University.

“What many people are afraid of when they have a stock with a big gain,” he says, “is regret.” So you need to figure out which will bother you more: selling the stock and then watching it go up even more, or not selling and then watching it go down.

To manage both kinds of regret on a highflying stock, consider selling, say, 20% in five equal installments at regular intervals. That reduces the risk of selling too soon and of holding too long. As Terrance Odean, a behavioral-finance professor at the University of California, Berkeley, puts it: “Investors should diversify emotionally as well as financially.”


Microsoft earnings illustrate move to devices and services from software; A picture of the new Microsoft – one transformed from a software factory into a maker of devices and online services – has come into sharper focus

Microsoft earnings illustrate move to devices and services from software

SEATTLE — A picture of the new Microsoft — one transformed from a software factory into a maker of devices and online services — has come into sharper focus.

BY –


SEATTLE — A picture of the new Microsoft — one transformed from a software factory into a maker of devices and online services — has come into sharper focus.

The old Microsoft had an almost unmatched ability to chug out profits by selling software on discs to customers. The new Microsoft has an expanding portfolio of hardware products with decidedly lower margins.

That was clear on Thursday, when the company reported a 14 per cent increase in quarterly revenue — in large part from brisk holiday sales of its new Xbox game console and Surface tablets — and a 3 per cent rise in profit.

Microsoft management has been coaching Wall Street for some time to expect major changes in its business as it refashions itself to what it calls a devices and services company.

The person driving that change at Microsoft has been Mr Steve Ballmer, its Chief Executive. But if the vision is going to be seen through to the end, it will be by someone other than Mr Ballmer, who is stepping down in the coming months. His successor was not named on Thursday, as the search for a new leader dragged on.

The holidays are an especially strong time for hardware sales and they offered a good test of the company’s evolving focus. The new Xbox One turned out to be one of the most sought-after gifts this year and Microsoft’s new versions of the Surface tablet received better reviews than its first tablet offerings.

Those sentiments translated into sales. Microsoft sold 7.4 million Xbox consoles, including the Xbox One and the older Xbox 360, up from 5.9 million a year ago. And revenue from the Surface tablet more than doubled to US$893 million (S$1.14 billion) from the previous quarter.

In the last quarter ended Dec 31, revenue from devices and consumer hardware rose 68 per cent to US$4.73 billion, growing faster than any other part of the company.

“The real growth you see is hardware,” said Mr Brendan Barnicle, an analyst at Pacific Crest Securities. “It was the devices and consumer business driving everything in the quarter.”

And Microsoft’s hardware ambitions are only getting bigger, too, with the company nearing the completion of its US$7.2-billion deal to acquire Nokia’s handset business.



The 13-F Spotlight: Revealing And Concealing Hedge Fund Trades

The 13-F Spotlight: Revealing And Concealing Hedge Fund Trades

Jan 22 2014 | 8:28am ET

By Ronan Cosgrave
Director and Sector Specialist
for Convertible Bond Hedging, PAAMCO

One of the more interesting snapshots of the investing universe is captured by the 13-F filings with the U.S. Securities and Exchange Commission (SEC), which come out 45 days after the end of each quarter. Institutional investors, including hedge funds with more than $100 million in assets, are obliged to file their long U.S. equity positions, other securities such as select options, and some convertible bonds with the SEC at the end of each quarter. The SEC then publishes them for the world to see 45 days later. The $100 million asset threshold captures hedge funds above a moderate size that are investing in U.S. equities whether they are U.S. based or not.

Plenty of people find it very interesting and useful to see where the largest and most successful hedge funds are investing. In fact, there is now an index that tracks the best-regarded managers’ largest 30 investments as well as an upcoming ETF of the same theme. For example, if one just invested in the top 10 holdings of the hedge fund universe identified in the 13-F filings released on July 15, 2013 and sold them when the next holdings release occurred on November 15, the portfolio would have had a total return of 17.3% (11.6% when you exclude Icahn Enterprises which is in the top ten purely due to Carl Icahn’s own holding of his eponymous holding company). The S&P 500’s return for the same time period was 7.65%.

13-F: A Game of Cat and Mouse

The 13-F filings of hedge funds have spurred an ongoing game of cat and mouse. Everybody with a high profile knows that their 13-F filings are going to be dissected. These investors hardly have a problem with the world piling into their trades behind them, and sometimes they even take advantage of these trades by subsequently lightening up on their holdings. To further add to the confusion, some of these long positions may be hedges to short exposures, such as put options, where the fund may actually have a negative bias on the individual company. It is for this reason that inferences should not be drawn from the holdings of firms like Susquehanna Investment Group, and other options traders and market makers, which regularly feature in the 13-F data. Regardless of these firms’ opinions on any given company, they are, in general, simply hedging an exposure derived from their dealings in the options and other related markets.

While large funds file considerably more data privately with the SEC, other government agencies in the U.S., and in other jurisdictions, the 13-F filing offers a rare chance for comparative analysis of the equity positions of the hedge fund world in general. At PAAMCO, we have transparency into our own fund investments, and we furthermore have a reasonable idea of what is going on in the broader hedge fund universe. Having an actual external comparison, however, is a very useful tool.

September Filing

The data from the filing on September 30 covers $1.48 trillion worth of U.S. equity holdings spread across 860 filing hedge fund managers. This very non-trivial number represents an average holding of $1.72 billion of long U.S. equities for each reporting hedge fund. While this may seem rather high, it is fair to say an element of distortion is introduced by the quantitative market neutral funds that may be levered multiple times as they can have thousands of names with tiny weights in their portfolios. To put the $1.48 trillion number in perspective, the total market cap of the S&P 500 is nearly $16 trillion (as of November 29) while the total full market capitalization of all listed U.S. stocks is (as measured by the Wilshire 5000) $22 trillion (as of November 29). For further comparison, the most recent Hedge Fund Intelligence biannual Global Review estimates that hedge funds around the world manage $2.6 trillion, $1.8 trillion of which is managed out of the U.S.

13-F filings will only show approximately half of the hedge fund books as the 13-F filers are not obliged to show short positions. Also, the number of managers holding many positions is artificially increased by the aforementioned market neutral funds. However, the sum of the dollars invested in each name is a good indication of where hedge fund assets are flowing.

Top 10 Positions by Market Value among Hedge Fund Managers from 13-F Filings Sept 30 2013

  Ticker Market Cap (bn) 13F Market Value (bn) % Total 13F HF Allocations
APPLE INC AAPL 433.1 12.039 0.81%
GOOGLE INC-CL A GOOG 291.9 11.105 0.75%
MICROSOFT CORP MSFT 277.2 11.034 0.74%
PRICELINE.COM PCLN 52.1 7.432 0.50%
CITIGROUP INC C 147.5 6.958 0.47%
JPMORGAN CHASE JPM 194.6 6.47 0.44%

The Numbers

Taking the S&P 500 as a guide, out of aggregate 13-F filings, 46% of the dollars represented are invested in S&P 500 companies. The S&P 500 is approximately 75% of total U.S. market capitalization, so one might infer there is a relative bias away from the large/mega cap companies. However, within the S&P 500 it is relatively unevenly distributed ranging from very popular (e.g., Dollar General: held by 97 funds with ownership of 30% of the shares outstanding) to ignored (e.g., Windstream: held by 20 funds with ownership of 0.57% of the company; though Windstream is certainly not ignored on the short side with a 13.9% short interest as of October 31). The average market cap of the top ten holdings is $159 billion. While on average just over 19% of reporting managers hold each of the top ten holdings, it is hard to draw many conclusions from that. Notably, there is a very distinct technology and financial sector bias within the top ten.

As noted before, Icahn Enterprises is a holding company for activist investor Carl Icahn and while it would seem like a very direct example of investors piggybacking on another investor’s ideas, in fact it is Carl Icahn’s own hedge fund which holds just over 88% of this company.

It is interesting for us to compare our PAAMCO portfolio to the 13-F filings; only 10% of PAAMCO’s U.S. equity investments are in S&P 500 companies and the average market cap of the top 10 U.S. equity names in the PAAMCO book is $8.5 billion as of September 30, 2013. The PAAMCO top 10 holdings add up to 15.3% of our long equity portfolio and are held on average by two managers out of a possible 41 13-F eligible managers (4.9%). Based on this data, it is apparent that PAAMCO’s managers are more concentrated in top names and that these names are smaller than what the overall hedge fund universe focuses on.


Good trade ideas are limited in number and hard to come by. When a lot of smart people are given more or less the same objective (make money!), the same information (Reg FD!) and the same tools (the market!) they can at times look very similar. However, investors should be careful to make sure that passive hedge fund herd-following is not masquerading (and charging) as active investing. Having a fund with a consistent overlap with the most popular names or with the portfolio of various famous investors’ positions is not value-adding active management.

In general, hedge fund assets are concentrated in the larger cap names, though to be fair, less so than the actual market. However a large weight in mega-cap names is an inevitable result of the sheer size of some of the funds in the hedge fund industry. Don’t forget that the average size of long portfolio in this sample is close to $2 billion. This inhibits the amount of impact smaller market cap investments could possibly have on a portfolio, while also magnifying liquidity issues. Another take-away is that hedge funds seem to like ‘growthier’ names. For example, more staid large-cap investments such as Exxon Mobil or J&J are comparatively ignored in favor of names such as Apple, Facebook or Qualcomm. Finally, it is important to know what is in underlying portfolios and to use that information in a cohesive manner recognizing that there are many different angles one must examine to truly understand risk exposures.

13-F filings throw into relief the use of portfolio transparency; a large part of the hedge fund universe already offers this transparency to larger clients. However for those that don’t, the SEC has done their clients a favor and given them a tool to monitor their hedge fund investments and assess them relative to other hedge funds: 13F filings can be used to monitor crowdedness of individual positions in hedge fund portfolios and risk-manage exposures in times of hedge fund de-leveraging; they can be used to measure overlap between managers in the same portfolio or to independently assess sector weightings independent of different sector categorizations by underlying managers. It is up to investors to make use of this data as an evaluation tool and judge accordingly.

Ronan Cosgrave, CFA, CQF is a Partner and Sector Specialist for the Convertible Bond Hedging strategy at PAAMCO. He also serves as the Portfolio Manager and main point of contact for certain institutional investor relationships. He is responsible for global manager research and portfolio construction within this sector. Ronan is a member of PAAMCO’s Investment Oversight and Risk Management Committees. Prior to joining PAAMCO, Ronan worked as a Process Engineer at IBM’s Storage Technology Division sites in Silicon Valley, Germany and Ireland. He also did chemical engineering design and commissioning for ProsCon, an Irish engineering and process control consultancy. Ronan received his MBA in Finance and Economics from Columbia Business School, and B. Eng. in Chemical and Process Engineering (Honors) from Cork Institute of Technology.


Immigration debate mars Norway’s liberal reputation

Immigration debate mars Norway’s liberal reputation

MORTENSRUD (NORWAY) — Ms Lise Ulvestrand and her husband went to the southern Oslo town of Mortensrud in 2005 for the space, the forest and the cheaper rents. A former development worker in Latin America and a social worker who worked with Norway’s immigrants, she says she is comfortable around foreigners and different cultures.


MORTENSRUD (NORWAY) — Ms Lise Ulvestrand and her husband went to the southern Oslo town of Mortensrud in 2005 for the space, the forest and the cheaper rents. A former development worker in Latin America and a social worker who worked with Norway’s immigrants, she says she is comfortable around foreigners and different cultures.

However, as the number of immigrants, including Muslims, gradually increased in Mortensrud, she began to worry about her children and their education. So, the Ulvestrands decided last summer to move back to comfortable western Oslo, where she grew up. The family wanted a stable environment and had some questions about the social challenges at the children’s school, where the non-ethnic Norwegian majority was growing rapidly.

Their concerns about immigration and perceptions that Islam is challenging prevailing national values are widely shared, both among some Norwegians, like the Ulvestrands who are on the left of the political spectrum, and among many on the right, who in September put the Conservative Party into office after eight years of Labour Party-led leftist coalitions.

The intensifying debate about immigration has focused on the anti-immigration Progress Party, which is part of the new Conservative-led government. It came under intense scrutiny in 2011, when a former member, Anders Behring Breivik, bombed government buildings in Oslo, killing eight people, before going on to kill 69 others at a Labour Party summer camp on the island of Utoya. Breivik quit the party in 2006 because he felt it was not sufficiently radical.

Mr Ketil Solvik-Olsen, Minister of Transport and Communications and a deputy leader of the party, scoffed at the notion that the party had anything to do with Breivik’s ideas. “We are strict on immigration, but this is not a war on cultures. Our idea is to protect our welfare system,” he said.

Instead, he spoke about the kind of discomfort that the Ulvestrands felt. “Some people feel they wake up one morning and their old neighbourhood is gone,” he said. “Strangers move in and people don’t even understand what they’re saying; we have a generous welfare system and you feel like a stranger in your own neighbourhood.”

After the killings and a disastrous showing in local elections in 2011, the populist party began tamping down more extreme voices. In September, the party won 16.3 per cent of the vote, down from the 22.9 per cent it won in 2009, but enough to form a coalition with the Conservative Party led by Prime Minister Erna Solberg.

The Progress Party is now considered mainstream and its level of support has required “more moderate rhetoric” than that from smaller, more extreme parties such as the Swedish Democrats, said Mr Thomas Hylland Eriksen, a social anthropologist at the University of Oslo.

“Yet they firmly belong with other parties … that see immigrants, and in particular Muslims, as a threat to the integrity of society,” he said.

The party, however, is facing criticism by older, more ideological members and beginning to lose support in opinion polls. Mr Anders Romarheim, a fellow at the Norwegian Institute for Defense Studies said the new acceptability of the party may have encouraged the fierce anti-Islam opinion that remains prevalent on Norwegian social media.

However, there is also a new reticence about public rhetoric, the Prime Minister said in an interview. Public discussion of Islam is less about their beliefs or their colour and more about lack of education and need for training, Ms Solberg said.

Mr Hylland Eriksen said Breivik’s massacre had regrettably little lasting impact on Norway’s politics. “Some of us were hoping that it would serve as a loud and clear reminder of the need to accept that we live in a culturally diverse society,” he said. “Instead, the political dimensions of the attack have been consistently dodged.” The New York Times


EBay reliance on PayPal for growth lowers chances of spinoff

EBay reliance on PayPal for growth lowers chances of spinoff

12:54pm EST

By Phil Wahba and Nadia Damouni

NEW YORK (Reuters) – EBay Inc is fighting the proposal by activist investor Carl Icahn to spin off PayPal because it views the payments service as crucial to long-term growth prospects of the e-commerce company.

The marketplaces business, eBay’s biggest, is growing at a slower rate than both PayPal and eBay rival Amazon.com Inc. PayPal, estimated to be worth as much as $40 billion on its own, helps bolster eBay’s share price.

And it is key to future growth opportunities. PayPal is considered a leader in U.S. mobile payments, which Forrester Research projects will triple in volume to $90 billion by 2017.

Icahn, who has roiled the tech industry by agitating for change at companies from Apple Inc and Dell Inc to Netflix, took a 0.82 percent stake in eBay this month and made a proposal for it to spin off PayPal, eBay disclosed on Wednesday. On Thursday, a source close to the matter said Icahn’s stake stood closer to 2 percent.

Many Wall Street analysts do not expect Icahn’s proposal to succeed. They say hiving off PayPal would weaken the parent company and compromise prospects of its marketplace business and its business services division, which handles ecommerce for major retailers.

EBay’s CEO and board dismissed Icahn’s proposal. Their refusal to part with PayPal may also stem from an uneasiness over whether PayPal can thrive independently.

Hot startups like Square and Stripe have raised hundreds of millions of dollars and are beginning to challenge PayPal in mobile payments.

“Marketplaces is battling Amazon in the midst of a massive eCommerce channel shift and PayPal is the clear early leader in payments,” Wells Fargo analyst Matt Nemer wrote on Thursday.

“But they play in a field of well-funded innovators.”

Even with a small bump following Icahn’s proposal, eBay’s shares are down 5.2 percent from a 52-week high last April. Since then, eBay’s results have disappointed, and on Wednesday the company lowered its 2015 revenue forecast and gave a disappointing profit forecast for the current quarter.

One top Silicon Valley banker said Icahn’s idea had some merit, that eBay could find ready buyers for PayPal, for instance one of the major credit card companies.

An independent PayPal also might find it easier to sign up retailers wary of entrusting payments to an eBay division.

“They would get a nice premium from it in a couple years time. It is not a stupid idea,” the banker said.


EBay Chief Executive Officer John Donahoe, with the backing of founder and top shareholder Pierre Omidyar, who owns an 8.5 percent stake, on Wednesday forcefully dismissed Icahn’s suggestion. Donahoe said eBay’s three units all need one another to thrive. On Thursday, director Marc Andreessen, a Silicon Valley investor, took to Twitter to oppose the spinoff idea.

While Donahoe has the support of his board, he will need to rally shareholders. Icahn’s activism has boosted share prices at other big companies.

One prominent investor reached by Reuters voiced support for eBay, and said Donahoe has successfully blended the marketplace and payment services.

EBay shares, which surged 12 percent after hours on Wednesday immediately following news of Icahn’s proposal, gave back most of those gains on Thursday and closed just 1 percent higher.

PayPal was founded in the late 1990s, and acquired by eBay in 2002 for $1.5 billion, shortly after PayPal went public.

It is now eBay’s fastest growing business, with 143 million active users at the end of 2013, up 16 percent from a year earlier. Paypal revenue rose 19 percent during the holiday quarter, beating a 12 percent rise at the marketplaces unit.

R.W. Baird analyst Colin Sebastian estimates PayPal is worth $30 per eBay share, contributing more than half of its parent’s value even though it contributes only 41 percent of revenues.

One industry expert expressed concern PayPal on its own would struggle to innovate as much, or have access to as much funding to continue developing its technological edge.

“I doubt the same level of investment would be available to PayPal if it were a standalone company,” said Denee Carrington, a senior analyst with Forrester Research. “One of the things PayPal has to do is demonstrate their ability to have success in mobile payments that’s not dependent on eBay.”

McDonald’s CEO Don Thompson said that the fast-food chain has lost relevance with some customers and needs to improve its menu offerings and provide better value

McDonald’s Says Its Restaurants Got Too Complicated

Tepid Quarterly Results Prompt Promises of Menu Changes, Better Execution


Updated Jan. 23, 2014 3:42 p.m. ET

McDonald’s Corp. MCD -0.64% Chief Executive Don Thompson said that the fast-food chain has lost relevance with some customers and needs to improve its menu offerings and provide better value.

On Thursday, McDonald’s reported flat sales and earnings for the fourth quarter. Same-store sales slipped 0.1%—marking a second quarterly decline in 2013—weighed down in part by a steeper-than-expected 3.8% drop during December in the U.S., McDonald’s biggest market.

After nearly a decade of outperforming other restaurant companies, McDonald’s has struggled lately. Franchisees and executives have said the company’s more complicated menu—after years of adding items to suit broader tastes—has slowed service and turned off customers, while failing to attract lots of new business.

Mr. Thompson said 2013 was a challenging year and that while he expects improvement in 2014, January is shaping up as another sluggish month, with same-store sales likely to be flat.

“The key is going to really be to re-establish the trust of customers,” Mr. Thompson told investors on a conference call. “That means basic execution at a restaurant level, marketing engagement at a much stronger level and also to make sure that our menu is relevant.”

Mr. Thompson became CEO in July 2012, succeeding Jim Skinner, who had overseen eight years of strong sales growth and a roughly 188% run up in the McDonald’s stock that transcended the global economic downturn. Since then, however, sales have been soft: Same-store sales last year edged up just 0.2%, the slowest annual gain since 2002, when global same-store sales fell 2.1%. And the share price rose only 10% in 2013, compared with 25% for the Dow Jones Industrial Average.

McDonald’s executives say they have learned from their mistakes of the past year and are moving to correct them. The company rolled out numerous menu items in quick succession, creating a bottleneck in the kitchens. They also rolled out products that were too expensive for many consumers, including chicken wings that were priced far above competitors’ offerings, leaving the chain with approximately 10 million pounds of unsold wings, according to a person familiar with the matter.

“We overcomplicated the restaurants and didn’t give restaurants an opportunity to breathe,” Tim Fenton, McDonald’s chief operating officer, said during Thursday’s call. “We need to do fewer products with better execution.”

The chain is revamping its kitchens to include expanded prep tables to give employees more space to assemble food. It also plans to add more employees at peak hours and during weekends.

Mr. Thompson said the marketing needs to reflect efforts to improve its menu. McDonald’s on Wednesday announced the appointment of Deborah Wahl, formerly chief marketing officer of home builder PulteGroup Inc., to be its new chief marketing officer for McDonald’s USA.

“We’ve got to make sure that the food is relevant and that the awareness around McDonald’s as a restaurant that prepares fresh, high quality food is strong and pronounced in our marketing and our messaging,” Mr. Thompson said.

In the latest quarter, same-store sales in the U.S. fell 1.4%, while in Europe they grew 1%, as strong performance in the U.K., Russia and France was partially offset by Germany. The Asia/Pacific, Middle East and Africa region’s same-store sales fell 2.4%, reflecting weakness in Japan and relatively flat performance in China and Australia.

For 2014, McDonald’s is budgeting $3 billion in capital expenditures, which will cover up to 1,600 new restaurant openings and the refurbishing of more than 1,000 existing locations. The company also expects to return about $5 billion to shareholders through dividends and share repurchases.


Investors Shun Currency Benchmark Amid Forex Probe Volumes on London Benchmark Are ‘Dropping Like a Stone’

Investors Shun Currency Benchmark Amid Forex Probe

Volumes on London Benchmark Are ‘Dropping Like a Stone’


Updated Jan. 23, 2014 3:47 p.m. ET

Investors are shunning the main benchmark for global currencies amid a widespread probe into possible manipulation of foreign-exchange markets, according to several people who attended a high-level committee of currency-market participants that met in London this week.

Trading volumes at the 4 p.m. WM/Reuters fix “are dropping like a stone,” said one participant at the foreign-exchange committee of financial-markets association ACI on Wednesday.

The WM/Reuters fix is calculated daily by a unit of State Street Corp. from trades executed either side of 4 p.m. London time. The fix provides a snapshot of currency rates and is used by companies and major institutional investors as a reference point for valuing foreign-currency-denominated assets and liabilities.

“The WM/Reuters benchmark service is committed to reliability and robust operational standards,” a State Street spokeswoman said. “WM continually reviews recommended methodology and policies to ensure that industry best practices are considered.”

Recently, the fix has also become a key focus of authorities looking into potential manipulation of global currency markets, according to people familiar with the investigations.

The U.K.’s Financial Conduct Authority kick-started the global probe into possible currency-market manipulation last April. Since then, regulators in Europe, Asia and the U.S. have also launched investigations, and several major currency-dealing banks have suspended traders in connection with the probe.

As The Wall Street Journal reported in December, transcripts of electronic communications between traders at different banks appear to show efforts at collusion to try to maximize profits and minimize losses in trading around fix points.

Before the global currency-market investigation, around 1% to 2% of the $2 trillion-a-day global “spot” currencies flows were executed at the London fix, according to market participants. These trades, while a relatively small slice of the overall currency market, have an outsize impact, given they are completed over a relatively short window.

The ACI’s foreign-exchange committee meets several times a year and membership consists of major investors and currency-dealing banks. One person who attended this week’s meeting said banks that trade at the fix for their clients are seeing less of that kind of business. “It’s a realization that attempting to put through at a given moment in time a very substantial order is not necessarily the most efficient way of doing it. If you had to buy $100 million worth of Korean equities, you would not do it at a split second. So why do it in foreign exchange?” this person said.

The ACI discussion comes after bankers at various high-level industry forums have considered the impact of the currency-market investigation on the way foreign-exchange trades are executed. Representatives of several large global banks said at a meeting in November of the Foreign Exchange Committee of the Federal Reserve Bank of New York that industry best practices would be altered as a result of the probe, according to minutes of the meeting.

In October, bankers and policy makers at a meeting of the European Central Bank considered changing the way foreign-exchange benchmarks are calculated, or pushing clients to ditch benchmark-based trades altogether, according to a person who attended the meeting.

Some fund managers are also expressing concerns about trading at the fix.

“Asset managers have got to do what they have to do, and they can either use the fix or avoid it. Studies have shown that there is more liquidity around the fix, but volatility also tends to be higher,” said Eric Busay, portfolio manager at California Public Employees’ Retirement System, which has about $283.8 billion of assets. “We have always been concerned about anomalous moves in the price around the fix, and we’ve always been very cautious in the use we make.”

Robert Savage, a hedge-fund manager who plans to launch currency fund CCtrack Solutions in coming weeks, said “publicity over the fix has made managers realize that their obligation for best execution isn’t solved by getting a public price at a particular time.” His new fund won’t be using the WM/Reuters fix, Mr. Savage said.


Female CEOs Missing in IPO Boom Just 3% of Firms Going Public Had Female CEOs; Care.com’s Marcelo Joins Club

Female CEOs Missing in IPO Boom

Just 3% of Firms Going Public Had Female CEOs; Care.com‘s Marcelo Joins Club


Jan. 24, 2014 1:03 p.m. ET

As a female, Filipino-American entrepreneur and CEO, Sheila Lirio Marcelo doesn’t fit most corner-office stereotypes.

When her company, Care.com Inc., began trading Friday following its initial public offering, Ms. Marcelo joined another small club: Just 3% of companies that went public in the U.S. between 1996 and 2013 had women CEOs, according to sociologist Martin Kenney and economist Donald Patton at the University of California, Davis.

The figures haven’t changed much recently. Last year, 82 “emerging-growth” companies went public, the most since 2007. But only two— Marrone Bio Innovations Inc.MBII -1.07% and Veracyte Inc. VCYT -3.03% —had women CEOs, according to Messrs. Kenney and Patton, who updated their study for The Wall Street Journal.

Mr. Kenney suggests the dearth of women-led IPOs could reflect the underrepresentation of women among venture capitalists and as founders of venture-backed companies. In a 2011 census by the National Venture Capital Association and Dow Jones VentureSource, 11% of venture-capital investors were women.

“It’s not necessarily that there’s some sort of discrimination, but rather structural factors,” said Mr. Kenney, a professor of community and regional development. The study excludes blank-check shell companies, real-estate investment trusts, companies founded more than 30 years ago, and spinoffs of larger companies.

Shares of Care.com were up 31% midday Friday, from the IPO price of $17. The offering priced above its initially proposed range of $14 to $16 a share, raising $91 million for the company.

Women are scarce in U.S. corporate executive suites, and even scarcer at technology companies, the source of many IPOs. Law firm Fenwick & West recently found that 11.5% of top executives in top publicly traded Silicon Valley firms are women, compared with 14.7% at companies in the S&P 100.

Women are underrepresented in the board room of many IPOs as well. Neither FacebookInc., FB -2.90% the biggest IPO of 2012, nor Twitter Inc., TWTR -0.91% the biggest technology IPO of 2013, had a woman on its board at the time of the IPO. Facebook has since added two women to its board, Twitter one.

“The deck is rigged against [women] at all levels,” said Vivek Wadhwa, fellow at the Stanford University Rock Center for Corporate Governance. “Women don’t get to hob nob with the board members. So the trust never builds,” he said.

Curiously, women CEOs are more prevalent before and after an IPO than around the time of an initial offering. A study by Dow Jones VentureSource last year found women CEOs at 6.5% of privately owned, venture-capital-backed companies—the pool from which most IPOs emerge. Among companies in the S&P 500 index, 24, or almost 5%, are led by women, according to S&P Capital IQ.

Selina Lo, CEO of networking-equipment maker Ruckus Wireless Inc. RKUS -5.06%before, during and after its 2012 IPO, says that there are few women present in the IPO process.

“In my segment, it is extremely male dominated. You really don’t find that many female executives, and primarily it starts with the venture community being predominantly male,” said Ms. Lo, who was also a senior executive at Alteon SYNI 0.00% WebSystems Inc. during its 1999 IPO. Alteon was acquired the following year by Nortel Networks Corp. for more than $7 billion.

A forthcoming research paper suggests investor bias may be a factor. Researchers at the University of Utah’s David Eccles School of Business presented M.B.A. students with public-offering prospectuses of the same company, but changed the gender of the CEO.

The students were four times as likely to recommend an investment in a company with a male CEO. The paper is to be published in a coming issue of the Journal of Management.

During the long road to an IPO, “a series of unconscious biases kills it for some women,” says Lyda Bigelow, lead author of the study.

At Care.com, an online marketplace for nannies and other at-home caregivers, Ms. Marcelo is a public face for the company and an advocate for women in business. She left her role as entrepreneur-in-residence at Matrix Partners in 2006 to start the company. She has expanded the service to 9.7 million members, many of whom pay a monthly, quarterly or annual subscription to find and solicit care givers. Care.com doesn’t disclose how many customers pay for the service.

Ms. Marcelo in an interview Friday said, “All along the line there are certainly challenges for women.” She added: “A lot of people face different types of challenges, whether it’s color or age, and it’s about mustering that extra strength to have that conviction and passion to do what you love.”


The Benefits of Default The Possible Default of a Trust Product in China Should Be a Wake-Up Call for Investors

The Benefits of Default

The Possible Default of a Trust Product in China Should Be a Wake-Up Call for Investors


Jan. 23, 2014 11:49 a.m. ET

Wealth management is booming in China, but some of the products being sold can be risky. Soul Htite, the CEO of Sino Lending, tells WSJs Wei Gu what investors need to be aware of when buying investment products.

The possible default of a trust product in China should be a wake-up call for investors, many of whom believe the government will stand behind anything they buy from banks.

High-yielding investment products have exploded in popularity in the past few years as investors flee low-return bank deposits. And while there will likely be more trouble with such products, they can be good for savers if people invest with care.

So far, Chinese investors who bought fixed-income wealth-management products have enjoyed higher returns than bank deposits offer, without suffering any losses. But that looks to be changing now, as a slowing economy starts to expose the weakness in the system, and the Chinese government may not want to absorb all the losses.

Investors need to adjust by not treating trust products as all the same, instead focusing on finding well-run offerings that fit their risk appetite and investment goals and that diversify their portfolios.

For now, the focus is on a three billion yuan ($500 million) fixed-income wealth-management product sold by the Industrial & Commercial Bank of China,601398.SH 0.00% issued by China Credit Trust and backed by loans to a struggling coal miner, Zhenfu Energy Group. As the maturity date of Jan. 31 nears, worries that the company can’t pay back the loans are growing—and investors are calling on ICBC to cover their losses.

The money at risk is a drop in the bucket for China’s trust industry, whose total assets at the end of the third quarter exceeded 10 trillion yuan ($1.67 trillion)—up 60% from a year earlier— largely because there is lots of cash chasing too few good opportunities. Chinese investors don’t trust the stock market. Bank deposit rates, kept artificially low, generally lag behind inflation. The government has made it harder and more expensive to buy real estate.

The first lesson investors should take from the potential default is that earning a low return is better than losing money. Laura Zhang, a Shanghai housewife, invested two million yuan in an investment product from New York-listed Noah Holdings Ltd., managed by Guangfa Securities, in 2011.

She was told the money would be used to buy large blocks of shares on the stock market that would then be sold to small investors at a profit. But the fund changed strategy after a few months, shifting from block trades to private placements—allowed under the contract, though they weren’t supposed to be the focus. Instead of delivering an annualized return of 60% as originally projected, it lost 12%.

Noah said it doesn’t guarantee the principal of investment products like the one bought by Ms. Zhang, and adds that its fixed-income products have never lost money.

Ms. Zhang, who is married to a lawyer, regrets not carefully reading the fine print of the documents she signed. “All those big institutional names associated with the product made it look quite safe, but when it failed to deliver, no one is assuming any responsibility,” she said. Now, she mostly invests in start-ups and private-equity firms run by people she trusts and has known for more than five years.

“The moment you think that you can just be lazy and outsource the decision to someone else, there will be a problem,” said Ms. Zhang. “It is your money after all, and you have to take full responsibility.”

Ms. Zhang invests funds she’ll need in the short term in conservative reverse-repurchase agreements issued by the People’s Bank of China, which currently yield about 6%. (The good news for investors from China’s continuing cash crunch is that low-risk money-market investments are offering quite healthy yields, providing a reasonable place to park money they know they will need in the next few years—say, to pay for college.)

Investors looking to beat the yield offered by bank deposits should make sure they understand what happens if an investment goes bad. The potential of a big loss should be balanced by enough of a potential return to justify the risk.

They should also consider whether the investment diversifies their holdings, a classic way to reduce risk. People who already own multiple apartments, for example, might do best by avoiding funds that invest in real estate.

Finally, they should look at how the fund is run. Some banks charge commissions as high as 4%. Some products are vague about investment strategy and leave themselves a lot of freedom to change it.

It is no surprise that Alibaba Group’s Yuebao fund has become China’s biggest mutual fund in just six months. By leveraging their gigantic customer bases and taking advantage of low-cost Internet infrastructure, new entrants such as Alibaba and Tencent HoldingsTCEHY -5.11% are able to charge lower fees. And they offer better disclosure than many of their competitors.


Dassault Systemes: Capturing a Beating Heart in 3D Simulation

Dassault Systemes: Capturing a Beating Heart in 3D Simulation

by Joann Muller | Jan 24, 2014

Designers have used computers for years to build elaborate machines. But what about modelling complex experiences? Dassault Systèmes is leading the charge

Dr Julius Guccione, a 50-year-old cardiac researcher at the University of California, San Francisco, was mesmerised the first time he saw a virtual image of a beating heart. He’d been using math models to research the heart his entire career, but now Dassault Systèmes, a French design and simulation software company, had created a complete, three-dimensional view of the electrical impulses and muscle-fibre contractions that enable the human heart to perform its magic.
If it were a model of his own heart, Guccione would have seen it racing. “This is something doctors have been trying to get to since before the 1900s,” he said. The advent of technologies like magnetic resonance imaging and echocardiography, he said, have been a “dream come true” for measuring abnormal motion in a patient’s heart. But by modelling a beating heart in 3D, the hope is that one day doctors will be able to diagnose and treat patients based on the unique forces at work within each patient and even rehearse open-heart surgery on an individual before opening up his chest.
“The heart isn’t just made of tissue; it also has an electrical current. I compare it to a machine,” says Dassault Systèmes Chief Executive Bernard Charlès, whose company has been creating digital mock-ups of machines like airplanes and automobiles for more than 30 years. With $2.8 billion in revenue and 11,000 employees (3,000 in North America), it’s the leader in the $16 billion market for product life-cycle management (PLM) software, which engineers at companies such as Boeing and Gap use to manage the development of everything from jumbo jets to jeans, saving both time and money.
As the Living Heart project suggests, Charlès, 56, is steering the company in new directions as part of a plan to double its revenue in five years. Instead of just peddling software for designers and manufacturers, Dassault Systèmes is recasting itself as a ‘3D experience company’ whose simulation technology can be applied to just about anything.
Last year it combined its nine software brands, including Catia, Simulia and Enovia, into one 3D Experience Platform, which clients can use to model and simulate not only the way a product is designed or manufactured but even how it is bought, feels or is used. Charlès’s favourite example: A woman with an armful of groceries who swings her leg under the bumper of her Ford SUV, causing the lift gate to open automatically. Catia software helped realise that “experience”.
Dassault Systèmes has already branched out beyond aerospace and automotive design to a total of 12 sectors, including life sciences, architecture and construction, energy and consumer packaged goods. Even some fashion designers are using Dassault Systèmes’s 3D tools to design their collections (though they don’t like to admit it, Charlès says).
SHoP Architects and its virtual construction arm, SHoP Construction, are known for pushing the limits of technology on projects like the new Barclays Center in Brooklyn, which features an undulating latticework ‘wrapper’ made of 12,000 unique prefabricated, pre-weathered steel panels.
SHoP used Dassault Systèmes’s 3D Experience software to transform the way designers and engineers worked together on the project, streamlining the process by creating a single model that all teams could work from, including plumbers, electricians and carpenters. The 3D model logged changes made by any of the construction teams in real time, so every team, regardless of trade, was always working from the most current information. That helped reduce material costs by 25 percent.
SHoP is now testing a cloud-based version of Dassault Systèmes’s technology to manage its next project—modular, prefabricated houses to replace homes lost in Hurricane Sandy. By sharing 3D design data directly with the Long Island factory that will build the housing modules, SHoP says it will be able to erect a fnished home in just 48 hours, instead of the customary four to six months.
At the Museum of Fine Arts in Boston, Harvard professor Peter Der Manuelian is converting its impressive collection of photos, diaries, drawings and documents from Egypt’s Giza pyramids into 3D models so he can take students inside the tombs for a realistic view of the Fourth Dynasty. Armed with that rich data and a 3D printer, he’s even recreating ancient Egyptian artefacts that had long since vanished.
“If you can imagine it, you can simulate it,” says Steve Levine, chief strategy officer of Dassault Systèmes’s Simulia, who heads up the Living Heart project. He admits there’s a chicken-and-egg problem: You need to start with good data in order to produce an accurate simulation.
In the case of the Living Heart project, Dassault Systèmes lifted geometric data about the electrical and mechanical properties of the heart from about a dozen different sources—academic researchers, cardiologists, medical device companies and regulators—then combined it into one massive database. “People had been working on different pieces of this in great detail, but no one has attempted to work it together,” Levine said.
Matching up data about the heart’s electrical impulses with its mechanical ones—called coupled multiphysics—was a meticulous job. Using a standard 48-processor workstation, Dassault Systèmes’s scientists needed about four hours to calculate the precise biomechanical forces of a single heartbeat, tracking how electricity is conducted through every strand of muscle fibre to replicate the true motion of a human heart. Once they accurately described the physics, the model operated on its own. “We do nothing more than pulse it the way nature does,” said Levine.
The next step is personalised 3D heart models. Doctors would start with the Dassault Systèmes model of a normal heartbeat, then modify it to reflect the behaviour of the patient’s own heart as detected by an MRI or echocardiogram. If a portion of the heart was damaged after a heart attack, for instance, they would observe how the physics had changed and simulate various treatment options to ensure proper blood flow.
Dassault Systèmes was established in 1981 as a spinoff from France’s Dassault Aviation, the privately held manufacturer of Falconjets founded in 1929 by Marcel Dassault.
At the time it was working on software for wind-tunnel testing, which naturally led to similar work for the auto industry. It sold its software under the Catia brand, through a distribution agreement with IBM.
Over the years Dassault Systèmes added to its PLM software portfolio through a series of acquisitions, including Enovia and SolidWorks. The company went public in 1996, though 41.5 percent is still privately held by Dassault Group. In 2010, it acquired IBM’s PLM sales force, taking responsibility for its own growth. Revenue has been growing 10 percent a year, outpacing competitors like Siemens PLM, Autodesk and PTC. And Dassault Systèmes’s stock, like its rivals’, has been on a tear, up 175 percent since 2009, as investors look to jump on the 3D printing bandwagon. Dassault Systèmes is ideally positioned. As Charlès says, “If you want to print a letter, you have to write it first.”
Today almost 70 percent of Dassault Systèmes’ $2.8 billion in revenue is recurring from software licences and maintenance, providing a cushion to explore new markets. Despite a third-quarter slowdown attributed to a weak economy, Charlès is expecting sales to bounce back in the fourth quarter and in 2014. The launch of its cloud-based software, Lighthouse, early next year should open new markets and spur companies to speed up their 3D modelling efforts, he believes.
Years ago manufacturers and their vendors were all located in the same village because they needed to be, says Charlès. But in an age of virtual design and cloud collaboration, “the world of the making” is changing rapidly, he says. “Innovation will still come from scientific breakthroughs, yes, but also from social trends and virtualisation, which have opened us to ideas we never thought were possible before. The frontiers of industry are changing because the nature of collaboration is changing.”

The 30-Year-Old Macintosh and a Lost Conversation With Steve Jobs

JANUARY 24, 2014, 11:57 AM  1 Comment

The 30-Year-Old Macintosh and a Lost Conversation With Steve Jobs



Associated PressSteven P. Jobs, left and John Sculley presented the Macintosh computer at an Apple shareholder meeting in Cupertino, Calif, in January 1984.

On a late-November day in 1983, Steven Levy, then a freelance journalist for Rolling Stone, got into a car outside 10460 Bandley Drive, in Cupertino, Calif.

As the vehicle sped away from the white office building, Mr. Levy looked at the driver and said hello to Steven P. Jobs, then the young, spry co-founder of Apple, who immediately responded with a voluble tirade about the magazine Mr. Levy worked for.

As he zigzagged Cupertino’s streets toward a pizza restaurant, Mr. Jobs complained that a coming article about the Macintosh — a computer that was still two months away from being announced — would not be on the cover of Rolling Stone, but rather stuffed inside a planned issue. Mr. Jobs groused that the magazine was, as Mr. Levy remembers, an expletive, and said a previous cover article about MTV was an expletive, too.

Mr. Levy couldn’t get a word in, but when he finally did, he explained that the he had written the MTV cover article Mr. Jobs hated so much.

“He immediately changed the subject,” Mr. Levy recalled with a chuckle in a phone interview.

For the next couple of hours, over pizza with olives, Mr. Levy interviewed Mr. Jobs about the coming Mac computer, his design philosophy, a breakup which had left Mr. Jobs love-sick and, ominously, struggles with Apple’s board over the direction of the company. (Mr. Jobs would be fired two years later.)

The interview was a rare and raw moment for Mr. Jobs, where he bared his true feelings on the record with a reporter.

While some snippets of the 11,500-word conversation were used in the Rolling Stone feature (which never did make it to the cover), until now, the transcript has been tucked away in one of Mr. Levy’s files.

To celebrate the 30-year anniversary of the Mac, Mr. Levy said Friday that he was appending the transcript, which is “essentially unexpurgated,” in an updated Kindle version of the book about the birth of the Macintosh, “Insanely Great: The Life and Times of Macintosh, the Computer that Changed Everything.”

It’s clear in the interview that Mr. Jobs was struggling with a few demons. For one, he was upset about a recent article in Time magazine that described himas petulant and unkind. And he blamed his obsession with work for a breakup.

“I just had a romance that I really care about, a lot — I mean, a lot — go up in smoke. Because of the stress, and the sort of other woman that Macintosh is,” Mr. Jobs said.

Yet what is apparent in the discussion is that Mr. Jobs knows he is about to introduce a computer that is going to change the world. He discusses the graphics and the design of the machine with the passion of an artist describing a newly completed masterpiece. “I mean, it’s incredibly great,” Mr. Jobs said when asked about the Mac. “It’s insanely great.”

The Macintosh he was so excited about would be the world’s first mass-market personal computer that had a graphical user interface and a mouse.

“It’s hard to put yourself in the mindset, to look back at the way things were back then,” Mr. Levy told me when I asked about re-reading the interview after all these years. “Computers had these glowing green letters back then and there was no Internet.”

But Mr. Jobs seemed to know exactly the kind of impact the Mac would have, and the team of people who had helped make it a reality.

He repeatedly refers to the team that built the Mac as “pirates,” and then says a quote that became famous years later: “Better to be a pirate than join the navy.” It’s also clear that Mr. Jobs and his band of over-worked pirates had agonized over every detail of the computer, even analyzing the details of the manual.

There are some aspects of the 30-year-old interview that might answer some unanswerable questions about what Mr. Jobs would have done with his life if he were still alive today.

When Mr. Levy told Mr. Jobs that there was “speculation” that he might go into politics, Mr. Jobs replied that he had no desire to enter the public sector and noted that the private sector could have a greater influence on society. “I’m one of those people that think Thomas Edison and the light bulb changed the world more than Karl Marx ever did,” Mr. Jobs said.

One thing Mr. Levy was continually searching for in the interview, was what was driving Mr. Jobs — a question that was echoed in 2011 in “Steve Jobs,” the biography written by Walter Isaacson.

In the 1983 interview, it’s clear that money isn’t the answer. Mr. Jobs talked about his net worth falling by $250 million in six months. ”I’ve lost a quarter billion dollars! You know, that’s very character building,” he said, and notes that at some point, counting your millions of dollars is “just stupid.”

Mr. Levy pressed again. “The question I was getting at is, what’s driving you here?”

“Well, it’s like computers and society are out on a first date in this decade, and for some crazy reason we’re just in the right place at the right time to make that romance blossom,” Mr. Jobs replied, noting that the 1980s were the beginning of the computing revolution. “We can make them great, we can make a great product that people can easily use.”

Such passion is something that would follow Mr. Jobs through his career, and what he said next seemed to be the driving force behind that passion.

“I look at myself as an artist if anything,” Mr. Jobs said. “Sort of a trapeze artist.”

“With or without a net?” Mr. Levy asked.

“Without,” Mr. Jobs replied, and then he said one of the more profound things in the interview: ”You know we’re constantly taking. We don’t make most of the food we eat, we don’t grow it, anyway. We wear clothes other people make, we speak a language other people developed, we use a mathematics other people evolved and spent their lives building. I mean we’re constantly taking things. It’s a wonderful ecstatic feeling to create something and put it into the pool of human experience and knowledge.”

Given that we’re still talking about the Mac computer 30 years later, and a long list of other products Mr. Jobs helped create, it’s apparent that he was able to add something to that pool.


Hospital Chain Said to Scheme to Inflate Bills

Hospital Chain Said to Scheme to Inflate Bills


Every day the scorecards went up, where they could be seen by all of the hospital’s emergency room doctors.

Physicians hitting the target to admit at least half of the patients over 65 years old who entered the emergency department were color-coded green. The names of doctors who were close were yellow. Failing physicians were red.

The scorecards, according to one whistle-blower lawsuit, were just one of the many ways that Health Management Associates, a for-profit hospital chain based in Naples, Fla., kept tabs on an internal strategy that regulators and others say was intended to increase admissions, regardless of whether a patient needed hospital care, and pressure the doctors who worked at the hospital.

This month, the Justice Department said it had joined eight separate whistle-blower lawsuits against H.M.A. in six states. The lawsuits describe a wide-ranging strategy that is said to have relied on a mix of sophisticated software systems, financial incentives and threats in an attempt to inflate the company’s payments from Medicare and Medicaid by admitting patients like an infant whose temperature was a normal 98.7 degrees for a “fever.”

The accusations reach all the way to the former chief executive’s office, whom many of the whistle-blowers point to as driving the strategy.

For H.M.A., the timing could not be worse. Shareholders recently approved the planned$7.6 billion acquisition of the company by Community Health Systems, which will create the nation’s second-largest for-profit hospital chain by revenue, with more than 200 facilities. The deal is expected to be completed by the end of the month.

While the lawsuits against H.M.A. provide a stark look at the pressure being put on doctors and hospital executives to emphasize profits over their patients, similar accusations are being raised at other hospital and medical groups as health care in the United States undergoes sweeping changes.

Federal regulators have multiple investigations into questionable hospital admissions, procedures and billings at many hospital systems, including the country’s largest, HCA. Community Health Systems, the Franklin, Tenn., company from which H.M.A. hired its former chief executive in 2008, faces similar accusations that it inappropriately increased admissions. Community is in discussions with federal regulators over a settlement regarding some of the accusations.

The practice of medicine is moving more rapidly than ever from decision-making by individual doctors toward control by corporate interests. The transformation is being fueled by the emergence of large hospital systems that include groups of physicians employed by hospitals and others, and new technologies that closely monitor care. While the new medicine offers significant benefits, like better coordination of a patient’s treatment and measurements of quality, critics say the same technology, size and power can be used against physicians who do not meet the measures established by companies trying to maximize profits.

“It’s not a doctor in there watching those statistics — it’s the finance people,” said Janet Goldstein, a lawyer representing whistle-blowers in one of the suits, of a type known as qui tam litigation, against H.M.A.

What’s more, like their Wall Street bank counterparts, the mega-hospital systems, with billions of dollars in revenue, are more challenging to regulate, according to experts.

Still, when H.M.A. announced the Justice Department’s involvement in the lawsuits, investors and analysts shrugged, and the stocks for both companies involved in the merger barely budged.

Sheryl R. Skolnick, who follows health care for CRT Capital, recently wrote in a note to investors, “Investors seem to think that D.O.J. investigations, qui tam suits and allegations of serious Medicare fraud are simply a cost of doing business.” Many settlements run only into the tens of millions of dollars. That’s a corporate slap on the wrist for companies whose stocks typically soar when executives push the profit envelope. Only if the penalty is at least $500 million, Ms. Skolnick said, are corporations likely to find the cost a deterrent.

H.M.A. also faces shareholder lawsuits and a federal securities investigation. A former executive was indicted late last year on an obstruction charge related to these investigations.

The company said it could not comment on pending litigation, but was cooperating with the Justice Department investigation. In a statement, the company defended the quality of its medical care. “H.M.A. associates and physicians who practice at our facilities are focused on providing the highest-quality patient care in all of our hospitals,” it said.

The architect of the strategy to raise admissions, according to several of the lawsuits, brought by an array of physicians, individual hospital administrators and compliance officers, was the company’s former chief executive, Gary D. Newsome.

“Gary vigorously denies the allegations,” according to an email from his lawyer, Barry Sabin of Latham & Watkins.

Mr. Newsome joined H.M.A. in September 2008 from a high-ranking post at Community Health. He left H.M.A. last summer to head a religious mission in Uruguay. His compensation in the three years before his departure totaled $22 million.

Shortly after joining H.M.A., Mr. Newsome traveled to North Carolina to meet with local hospital officials. He informed them he was putting in place new protocols, using customized software, meant to “drive admissions” at hospitals, according to allegations in a federal suit filed by Michael Cowling, a former division vice president and chief executive of an H.M.A.-owned hospital in Mooresville, N.C.

To reach admission goals, administrators were directed to monitor on a daily basis the percentage of patients being admitted, using a customized software program called Pro-Med. The progress of the physicians in meeting their goals was updated daily on the scorecards.

When Mr. Cowling confronted Mr. Newsome with physician concerns that the new protocols were clinically inappropriate and would result in unnecessary tests and admissions, and said that his doctors “won’t do it,” Mr. Newsome responded: “Do it anyway,” according to the lawsuit.



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As a result, according to a former physician who cited multiple examples, patients who did not need inpatient treatment often were admitted, which allowed the hospital to bill Medicare and Medicaid more for the care.

In Georgia, a baby whose temperature was 98.7 degrees was admitted to the hospital with “fever,” according to a lawsuit filed in federal court by Dr. Craig Brummer, a former medical director of emergency departments at two H.M.A. hospitals.

In one case, an 18-year-old Medicaid patient with a right-knee laceration was admitted, though he could have been treated and discharged, Dr. Brummer said in his lawsuit.

Executives who raised questions about H.M.A.’s policies and procedures were often fired.

When Jacqueline Meyer, a regional administrator for EmCare, a company that provided emergency room physicians to a number of H.M.A. hospitals, refused to follow H.M.A.’s directives and fire doctors who admitted fewer patients than H.M.A. wanted, she was fired, according to the lawsuit she filed with Mr. Cowling. The Justice Department has not yet decided whether to join her lawsuit against EmCare, which declined to comment.

Likewise, shortly after Ralph D. Williams, an accountant with 30 years’ experience in hospital management, was hired as the chief financial officer for an H.M.A. hospital in Monroe, Ga., he asked an outside consulting firm to review the hospital’s inpatient admission rate.

When Mr. Williams showed the report, which confirmed a higher admission rate, to a higher-level division executive, he was told to “burn it.” Mr. Williams was soon fired, according to a qui tam lawsuit Mr. Williams filed in federal court in Georgia.

The last year has been particularly tumultuous for H.M.A., starting with the announced departure of Mr. Newsome, a battle for control of the board with Glenview Capital Management, the hedge fund founded by Lawrence M. Robbins, and the announcement of the acquisition by Community Health Systems.


The merger — and the fact that Glenview controlled big blocks of stock in both H.M.A. and Community Health — recently drew fire from some critics who questioned whether shareholders knew enough about the whistle-blower lawsuits before they voted on the merger.

H.M.A. has disclosed in regulatory filings dating back almost two years that it was the subject of investigations by attorneys general in numerous states. But the shareholder vote on the merger started before the Justice Department joined the multiple lawsuits and the company disclosed that fact.

“I find it incredibly troubling that a few days after voting had started on the merger that the company announced that the Justice Department was joining a bunch of these suits,” said Randi Weingarten, the president of the American Federation of Teachers. The union represents nurses at some of the company’s hospitals, but also trustees of teacher pension funds that own shares.


Can Brian Krzanich’s practicality revive Intel?

Can Brian Krzanich’s practicality revive Intel?

January 24, 2014: 5:00 AM ET

Krzanich may turn out to be a CEO so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way.

By Kevin Kelleher, contributor

FORTUNE — All along Intel’s (INTC) storied history, an investment in the company has essentially been a vote of confidence in Moore’s law — the observation, named after an Intel founder, that the number of transistors on a microchip doubles every two years.

But if Moore’s law is still working well enough, the stock of the company he co-founded has not been advancing quite as steadily. Over the past two years, the stock is largely unchanged from its current $25 a share price — technically, it’s down 4% in that period, against a 52% rise in the Nasdaq Composite. And as Bespoke Investment noted, the stock has gapped down each of the past eight quarters Intel has posted earnings.

Much of Intel’s subpar performance is tied to its longtime dependence on chips for the PC market, which has seen sales dwindle in the era of the tablet. It’s not an issue of the technology of Intel’s chips, it’s the devices they’re going into — tablets and smartphones, in particular. Intel has been struggling to find a way into mobile chips, as well as devices in emerging areas like wearable computers and the Internet of Things.

That has left Brian Krzanich, appointed as Intel’s CEO last May, tasked with pushing Intel into the post-PC era. Krzanich joined Intel after graduating from San Jose State University in 1982, rising through a number of positions in the company’s manufacturing operations. His roots in engineering were welcome inside Intel, but some investors wondered whether he had what it takes to revive the chipmaker.

Following in the footsteps of several high-profile CEOs before him, Krzanich was something of a mystery when he was tapped to lead Intel. He has since emerged as a quietly practical leader with a shrewd, no-nonsense approach that appeals to some on Wall Street. “At a very high level,” BMO Capital analyst Ambrish Srivastava wrote in a report this month, “we see the company more willing to accept and address the challenges that the company faces.”

Some of Krzanich’s grit became evident during Intel’s investor day in November. After Intel Chairman Andy Bryant told the investment crowd he was “personally embarrassed that we seem to have lost our way,” Krzanich stepped forth to diagnose the cultural problem that led Intel to be blindsided by the iPad: “We’d become insular,” he said. “We’d become focused on what was our best product vs. where the market wanted to move.”

In that moment, Krzanich presented himself to investors as the born-and-bred Intel engineer who would find the market’s pulse and reposition the company toward it. As if to show his resolve in breaking with tradition, he vowed to expand the company’s contract manufacturing business, allowing more chipmakers access to a crown jewel, Intel’s advanced process technology.

For Krzanich’s turnaround to work, it will need some time. Last week, when Intel reported earnings for the most recent quarter, its traditional business of PC chips saw revenue decline 4% in a quarter when PC shipments fell 10%. Conversely, revenue from Intel’s data-center group rose 8%, well below the double-digit rate analysts were expecting. Intel blamed that on excess inventory and a slow recovery in corporate IT spending.

In the conference call to discuss earnings, Krzanich discussed the Bay Trail system-on-a-chip platform Intel recently launched for tablets and smartphones. His goal is to sell 40 million tablets with Intel processors by year’s end, having sold 10 million through 2013. Krzanich also toldRe/code how its low-power Quark chips would “find a home in all manner of gear from machines to wearables and more.”

Krzanich is not immune to missteps. At CES this month, he demoed a number of devices in wearable computing, but the gambit backfired when the company admitted some of those devicesused chips from ARM, the rival whose chips power the iPad and other tablets.

But neither is Krzanich averse to bold measures. One of the pet projects of his predecessor, Paul Otellini, was OnCue, Intel’s bid at creating new revenue streams outside of pure chips. OnCue was an Internet-driven set-top box designed by Eric Huggers, who previously created the well-received BBC iPlayer. OnCue delivered an interface that, according to those who saw it, was “beautiful” and “audacious,” something that could finally deliver on the promise of big-screen Internet video and bury for good the medieval experience of navigating pay TV.

This week, Krzanich sold OnCue off to Verizon (VZ) for a reported $200 million, a fifth of Intel’s original asking price. The deal is a good one for Verizon, helping it take on Comcast (CMCSA) and perhaps improve the TV experience for the small audience that has access to its FIOS TV service. Or maybe Verizon just wants to sunset a technology superior to the experience already offered by incumbents.

Why would Intel sell a perfectly good innovation at a steep discount? Most likely because of Krzanich-school practicality. Intel doesn’t have to distract itself with things it poorly understands, like negotiating with the sharks that own video content. And also to win some valuable chits with Verizon, which has the power to tell mobile-phone manufacturers which chip to put into its smartphones and tablets … like the Atom or the Bay Trail, maybe?

“Think of it in a way where you have a new CEO who has a strategy of delivering chips into phones and tablets, and no relationship with those big players,” Barron’s quoted an Intel source as saying. “When you have zero market share in mobile, one could argue there is a need to cement the relationship.” In other words, Intel has fallen from a giant that told other industries how to do business to a company that curries favor with potential allies.

Just like an engineer. Krzanich may turn out to be a CEO like Facebook’s (FB) Mark Zuckerberg — so practical-minded he gets exactly what he wants in the end, even if it means passing serendipity along the way. No matter. Moore’s law progresses. And under Krzanich, Intel will try to as well.


Why Lenovo paid $2.3 billion for IBM’s low-end server unit

Why Lenovo paid $2.3 billion for IBM’s low-end server unit

By Miguel Helft, senior writer January 24, 2014: 11:37 AM ET

Here’s a hint: Apple and Samsung should be nervous.

FORTUNE — In this game of chicken, it looks like IBM blinked.

The Armonk, N.Y.-based technology company (IBM) has wanted to unload its low-end, x86 server business for some time. Early last year, it conducted serious negotiations with the most likely buyer, Lenovo, the Beijing-based company that purchased its personal computer business in 2005. News of an impending deal, presumably leaked by IBM, suggested that the unit would fetchnorth of $4 billion. But it was premature: Lenovo balked at the steep price and walked away.

On Thursday, the companies announced that they finally had a deal. Lenovo will pay $2.3 billion for IBM’s business, which brings in approximately $4.6 billion in revenue annually. Some 7,500 IBM employees will join Lenovo.

The news comes just two days after IBM said during its fourth-quarter earnings report that its hardware business was declining faster than expected. While the decision to seal the deal with Lenovo likely preceded the report, it’s clear that IBM understood that it was holding on to an asset whose value would only decline over time. It wisely took the $2.3 billion, even though it was a much smaller sum than what it had asked a year earlier.

The deal makes plenty of sense for Lenovo, too, as well as its investors, which sent the company’s U.S. shares up by more than 3% on the news. The Chinese company has been killing it in the PC business for years. A little over six months ago, it became No. 1 in the industry, edging out Hewlett-Packard (HPQ). Lenovo is also the only major PC vendor that has managed to hold steady as the PC market experiences its worst declines in history. The company has staked its success on a strategy of diversification (in both product and geography), scale, and wafer-thin margins. Oh, and flawless execution.

As Fortune explained in a feature story last year, Lenovo’s ultimate goal is to leverage its dominant position in PCs to challenge Apple (AAPL) and Samsung in mobile.

So how does this deal further those ambitions? First, it significantly strengthens Lenovo’s position in low-end servers, a business that has a lot of synergies with PCs with regard to development and manufacturing. With IBM’s unit, Lenovo will go from No. 6 to No. 3 in the business of selling servers to corporate data centers. “It grows our business by almost a factor of 10,” Peter Hortensius, a senior vice president at Lenovo, said in a conference call with reporters.

What’s more, while low-end servers were a low-margin business for IBM, they represent a high-margin business for Lenovo, which has often prioritized market share over profits and undercut rivals like Dell and HP on price.

A boost in overall profit margins could give the Chinese company the breathing room it needs to invest more heavily in its mobile business, which is still young but growing quickly. In the third quarter, Lenovo, which entered the smartphone market only a little more than two years ago, became the No. 3 seller worldwide, on the strength of its business in China and other developing markets. While Lenovo’s 5.1% share of the global market remains far behind Apple’s 12.1% share and Samsung’s 32.1% share, the performance is impressive.

“We’re very excited by this acquisition,” Hortensius said. “It’s the logical next step for us.”

The major question now is whether the deal will clear regulatory approval, including a likely national security review. History suggests it will: Unlike many Chinese companies, Lenovo largely operates by Western standards of transparency and openness. It sells tens of thousands of PCs to federal agencies, and it has been cleared to buy American companies or units of American companies on multiple occasions. The most significant of those was Lenovo’s 2005 acquisition of IBM’s PC business, a deal that began the transformation of a successful Chinese company into a global powerhouse. Hortensius, who helped negotiate that deal on behalf of IBM and then joined Lenovo, said he expects the deal to close in six to nine months.


Lenovo: the next Samsung?

January 24, 2014 12:47 pm

Lenovo: the next Samsung?

Chinese computer maker would need to add competitive edge to its market momentum

One slips on so-so earnings – only $7bn in quarterly profits. The other jumps 3 per cent on a deal that will hurt its bottom line. It isn’t hard to see that the latter,Lenovo, has more market momentum than Samsung Electronics. Both make consumer electronics and tech hardware, from Lenovo’s new server business to Samsung’s chips. Might Lenovo become the next Samsung?

On a size basis, the comparison is still a bit ridiculous. Samsung’s market capitalisation is $160bn; Lenovo’s, $14bn. Samsung’s profits last quarter were 10 times Lenovo’s for the past year. Still, Lenovo’s deal this week to buy IBM’s X86 server business demonstrates that it still has the ambition it showed when it bought Big Blue’s PC business in 2004.

The relatively low price paid – half of sales – reflects theIBM unit’s swing into loss last year. The business will knock about 5 per cent off Lenovo’s full-year earnings per share, including the slight dilution from the shares issued to IBM. The shares’ rise suggests that investors think it can use its lower cost structure to lift profits.

Investors like bold tech stories. Samsung’s success was not born of timidity either. It has never bought in growth as Lenovo has, but has taken risks to move up the value chain. One of the reasons for its unexpectedly poor earnings in the latest quarter was a Won800bn ($738m) bonus paid to employees to mark the 20th anniversary of a strategy. Back then its chairman made a bonfire of 150,000 mobile phones – worth $50m – to make the point he wanted better. Now Samsung is trying to push into software – a challenge for a company staffed by hardware engineers.

Samsung’s shares have risen 20 per cent a year, compounded, for the past two decades. Should Lenovo follow suit, it will take it a little over a decade to reach Samsung’s present size.

Lenovo has momentum on its side. But can it sustain profit growth on a foundation of low-cost manufacture of commodity hardware? Samsung invested aggressively to acquire an enduring competitive advantage – scale – in chips, and from there built a hugely profitable premium phone business. Lenovo needs to find a similar edge.


China “hard landing” stokes fear at Davos

China “hard landing” stokes fear at Davos

POSTED: 24 Jan 2014 20:38
The risk of a hard landing for the economy in China as well as the threat of military conflict with Japan stoked fears at the World Economic Forum in Davos on Friday.

DAVOS, Switzerland: The risk of a hard landing for the economy in China as well as the threat of military conflict with Japan stoked fears at the World Economic Forum in Davos on Friday.

Days after the world’s second-largest economy registered its worst rate of growth for more than a decade, top politicians and economists at the annual gathering of the global elite said the near-term outlook was bleak.

Li Daokui, a leading Chinese economist and former central bank official, said: “This year and next year, there will be a struggle, a struggle to maintain a growth rate of 7-7.5 per cent, which is the minimum to create the 7.5 million jobs every year China needs.”

On January 20, Beijing announced that its economy had grown at 7.7 per cent in 2013, the worst rate since 1999.

“The risk of a hard landing in China has not been dispelled yet,” added Nouriel Roubini, the economist who earned the nickname “Dr Doom” for predicting the collapse of the US housing market and global recession in 2008.

He cited concerns over rising inequalities in China and the “vast challenge” facing authorities in Beijing as they bid to push through deep-seated economic reform.

President Xi Jinping has committed to transforming China’s growth model to one where consumers and other private actors play the leading role, rather than huge and often wasteful state investment.

But several delegates voiced concern that the reforms were not being carried out quickly enough.

British Finance Minister George Osborne said: “In China, I think the challenge there is that there’s a lot of good talk about economic reform … we all now just want to see that delivered by the Chinese government.”

Roubini was characteristically more direct.

“Talk is cheap … we have to see action and so far we have not seen a lot of action,” he stressed.

“I worry that it’s going to be a gradual process and it may not go fast enough,” added the economist, saying that many of the reforms also did not go far enough.

A potentially explosive diplomatic spat between Japan and China over islands in the East China Sea, which has been a major topic in Davos this year after a keynote speech by Japanese Prime Minister Shinzo Abe, also raised fears for the economic outlook.

Victor Chu, a Hong-Kong-based venture capitalist, said: “If there were an accident in the territorial situation, if there were accidents before politics and diplomacy can return things to the status quo … that could be serious” for the economy.

Everything rests on the success and pace of reform, several analysts said, with many predicting that Chinese growth could pick up after a relatively sluggish couple of years.

“It’s not easy, it’s a long and winding road but if you look at the long-term outlook, it has to be positive,” said Chu.

Speaking on the sidelines of the meeting here, the Managing Director of the International Monetary Fund, Christine Lagarde, said that a slowdown in China would have an impact on the global economy but played down the likely extent of the deceleration.

“We don’t see a massive slowdown, we see a slightly reduced growth rate,” she said.


Big Four firms, China in talks over corporate audit impasse: KPMG

Big Four firms, China in talks over corporate audit impasse: KPMG

12:18pm EST

By Amanda Cooper

DAVOS, Switzerland (Reuters) – In the midst of a U.S.-China quarrel over corporate auditing, the global chairman of audit giant KPMG said on Friday that a “constructive dialogue” was under way to defuse the dispute, which led days ago to U.S. sanctions against the Chinese arms of the world’s largest accounting firms.

“We are in dialogue with the Ministry of Finance in China on the matter,” KPMG KPMG.UL Chairman Michael Andrew told the Reuters Global Markets Forum, an online community, in Davos, Switzerland, during the World Economic Forum meetings.

Months of tension over U.S. regulators’ attempts to examine audits in China of U.S.-listed Chinese companies boiled over on Wednesday when a U.S. administrative law judge sanctioned the Chinese units of the so-called Big Four.

The Chinese arms of the Big Four – KPMG, Ernst & Young ERNY.UL, Deloitte & Touche DLTE.UL and PricewaterhouseCoopers PWC.UL – have refused to hand over to U.S. officials the records of audit work done by the Chinese units for U.S.-listed Chinese companies.

Fearing that complying with Washington’s demands would violate Chinese secrecy laws and incur Beijing’s wrath, the firms are in the middle of an international standoff that could escalate and damage U.S.-China economic relations.

The sanctions, imposed by U.S. Securities and Exchange Commission Administrative Law Judge Cameron Elliot, were expected and underscored “the need for both governments to resolve the impasse,” Andrew said.

“The four accounting firms are caught in an unenviable position that if we hand our work papers over, we breach Chinese law and risk jail terms,” Andrew said. “If we don’t hand our papers over we get sanctioned by the U.S. government.”

Judge Elliot declared that the Chinese arms of Deloitte & Touche, PricewaterhouseCoopers, KPMG and Ernst & Young should be suspended from auditing U.S.-listed companies for six months.

The firms “willfully” refused to turn over audit documents from China requested by the SEC and deserve little sympathy, Elliot said.

The SEC for years has been trying to get documents from the firms to investigate a rash of accounting scandals at Chinese companies whose stocks are listed in the United States.

KPMG’s Andrew said the judge’s ruling will be appealed by the firms. The matter could play out for months, or even years, as it goes before the five-member SEC and moves into the courts.

China’s securities regulator said on Friday it deeply regretted Elliot’s ruling. At a regular news briefing, ministry spokesman Deng Ge said China hoped the SEC “would make the correct decision” on the case, adding that “the SEC would bear all the responsibility for consequences of its action.”


Rate support for leveraged buyouts fades; Money markets sound alarm for ECB; Rapid withdrawal of liquidity has pushed up overnight lending rate; Regulators warn on non-traded Reits

January 24, 2014 8:32 am

Rate support for leveraged buyouts fades

By Henny Sender

The profits of the Hilton buyout and IPO won’t be repeated soon

When Hilton went public at the end of last year, its listing was great news for its owners at Blackstone. It was also good news for the Federal Reserve, which acquired more than $4bn in Hilton debt that had been on the Bear Stearns balance sheet as part of JPMorgan’s purchase of the troubled security firm in 2008.

In addition, Hilton’s recovery was spectacularly lucrative for the hedge funds that invested in Hilton debt. And there was a lot of debt since Blackstone put in less than 20 per cent equity, paying for its $27bn purchase with more than 80 cents on the dollar in debt, or well over $20bn in total.

Some of the smartest debt investors in the world traded the debt, including Centerbridge Partners, Oaktree Capital Management and Greg Lippman, the former Deutsche Bank mortgage credit trader, who is now the chief investment officer of hedge fund MaxLibre.

Both Centerbridge and Oaktree began buying the debt at its nadir below 50 cents on the dollar and rode it all the way up to the high 90s. Meanwhile, Mr Lippman came so late to the trade in late 2012 that in some cases he paid above par for the debt and still made a decent return on his investment. These investors were attracted to the trade since hotels are among the most cyclical and volatile ways to bet on a real estate recovery driven by easy money. And, the most junior debt offered the greatest potential upside as a way to play Hilton.

Hilton was one of the most levered of all the leveraged buyouts of the peak years. Nevertheless, the hedge funds that piggybacked on Blackstone also made a lot of money primarily because of the Fed’s easy money policies that brought interest rates way down, in turn making it easier for Blackstone to pay down Hilton’s debt load.

Today, there is widespread optimism on Wall Street about prospects for this year. But the single most important factor in the best trades of the last few years – such as the Hilton trade – was declining rates, and that trend is coming to an end, suggesting that the general optimism is overdone.

Although the Fed has made it clear that it plans to keep rates lower for longer than was the case a few months ago, the central bank may not be as effective on keeping rates where it wants them to go. Moreover, even if rates rise on the expectation of stronger economic growth, that growth probably will not be strong enough to offset the negative of rising rates, a big bearish factor for both the credit market and the stock market.

Moreover, the Hilton story, among other things, is a reminder that the main beneficiaries of the Fed’s easy money policies are levered investors, and the real results of quantitative easing are reflected more in rising asset prices than in the real economy.

The Hilton story had a happy ending for all investors who had faith that it would eventually work out, though that outcome was not always obvious. When Blackstone restructured the debt in 2010, the firm put in equity and paid off some of the junior debt at 45 cents on the dollar. Holders who took part in the Blackstone orchestrated debt restructuring in 2010 (some of whom paid less than 50 cents on the dollar in the secondary market) ended up with $1.16, pocketing accrued interest and a percentage of the profits on the deal, alongside Blackstone.

There are factors beyond the Fed that contributed to the success of the Hilton trade. Blackstone had always made it clear that it had ambitious plans to grow Hilton and that determination to transform the formerly sleepy business helped both the story and confidence. Moreover, Blackstone was visibly behind Hilton, both putting more money in at the depth and making a market in the debt so holders knew they could get a bid if they wanted to sell.

It was clear that Blackstone would not walk away, as other private equity firms abandoned overleveraged buyouts. In addition, the banks were more co-operative than they may have otherwise been, mindful of the fees that Blackstone doles out to them. They agreed to sell their junior debt to Blackstone for that low 45 cents on the dollar at a time when it was clear that the worst was behind both the credit markets and Hilton itself.

But sadly for investors today, all this is history now. The saga of Hilton is not likely to be repeated any time soon.


January 23, 2014 6:45 am

Money markets sound alarm for ECB

By Ralph Atkins in London

Rapid withdrawal of liquidity has pushed up overnight lending rate

Sudden rises in very short-term market interest rates – the cost of borrowing overnight, for instance – usually spell trouble. Soaring Chinese interbank borrowing costs at the end of last year highlighted the central bank’s difficulties in curbing the most egregious financing practices of the country’s banks.

Less noticed beyond a few specialist circles, the European Central Bank has this year also seen market interest rates rising – not as acutely as in China, but possibly sufficiently to force a change in strategy.

As in China the rises reflect shifts in the banking landscape – something the ECB is keen to encourage. But the risk is of rising market rates feeding through into higher borrowing costs for businesses and consumers when economic growth remains weak. An unwanted, premature monetary policy tightening – via higher market interest rates – could tip the eurozone into a dangerous deflationary slump.


The ECB’s problem is largely self-inflicted. When the eurozone debt crisis was at its most intense in late 2011, Mario Draghi, the new ECB president, decided to flood banks with a “wall of money”.

Eurozone banks were urged to take advantage of cheap three-year ECB loans, or “longer-term refinancing operations”, but to ensure sufficient take-up the ECB sweetened its offer with an early repayment clause. Rather than being locked into holding ECB funds on their books for the full three years, banks could repay after a year.

The sweetener helped ensure the LTROs were successful in averting disaster: banks borrowed more than €1tn and the eurozone crisis eased, at least temporarily.

By the time the early repayment clause could be exercised in January 2013, the situation had changed. With the eurozone clearly on the mend and financial tensions eased, repayments quickly flowed.

At the end of last week €450bn had been repaid. And the ECB’s balance sheet has shrunk significantly: relative to gross domestic product, it will soon be smaller than the US Federal Reserve’s.

Withdrawing all that liquidity has pushed up market interest rates. As a result of cuts in official ECB interest rates, the euro overnight index average (Eonia) – an interest rate benchmark – had crashed almost to zero (excluding spikes caused by technical factors). This week it was back above 35 basis points.

You can argue that LTRO repayments are good news. Banks are repaying ECB money because their finances are healthier and they can borrow again in markets.

Strikingly, a quarter of LTRO repayments have been by banks in Spain, on the eurozone’s crisis hit “periphery”, according to Barclays. “A higher Eonia is a small price to pay for a return of investors to the periphery,” says Laurent Fransolet, the bank’s head of fixed income research.

The rises so far in Eonia are also modest compared with the peaks seen during the crisis years. What is more, repayment of the LTROs – which were the eurozone’s answer to “quantitative easing” – are making easier an eventual exit from the ECB’s exceptionally loose monetary policies.

While the Fed has struggled to calibrate manually the tapering, or scaling back, of its asset purchase programme without creating turmoil in global financial markets, the pace of the ECB’s exit is driven by the market; banks repay ECB funds as their finances improve.

Wrong kind of exit

In the long run that might arguably produce better economic outcomes. The snag is that this seems precisely the wrong time for an ECB exit.

While the LTROs were designed to avert a looming bank crisis, the ECB’s task in coming months is to prevent sharp falls in eurozone inflation from turning into a deflationary shock. The slow pace at which the Fed is unwinding its crisis policies has kept the euro high against the dollar, adding to downward pressure on eurozone prices.

Mr Draghi could try to override the automatic tightening effects of LTRO payments, but that may not be easy. Given that banks are repaying LTROs, take-up of any fresh offers of long-term ECB loans might be embarrassingly weak.

The ECB could cut its main policy rate again – already at just 0.25 per cent. Beyond that, the only alternative may be full-blown US-style quantitative easing, an option it has resisted so far.

We are not at that point yet. Mr Draghi points out rightly that there is no clear relationship between measures of “excess liquidity” and Eonia – LTRO repayments are only part of the story. But the ECB is braced for an acceleration in repayments. From this month the maturity of outstanding loans has fallen below a year, making them less useful to banks needing to impress regulators.

The warning lights are flashing in money markets.


January 24, 2014 8:57 am

Regulators warn on non-traded Reits

By Anjli Raval in New York

Investors are betting heavily on a shadowy type of US property investment even as regulatory scrutiny of the sector intensifies.

Like their publicly listed counterparts, so-called non-traded real estate investment trusts (Reits) own income-generating property portfolios. But these unlisted Reits, which raise funds through share sales by broker-dealer networks, tend to target mom and pop investors and have come under fire in recent years.

They lack transparency, have high management fees and broker commissions, and are illiquid assets that do not have mark-to-market pricing – an accounting practice that allows investors to assess the fair value of a company’s assets.

Even as criticism about the sector’s opacity by the Financial Industry Regulatory Authority has mounted, non-traded Reits raised a record $19.6bn in 2013, up from $10.4bn in 2012, according to data by Robert A Stanger & Co, an investment bank that tracks the industry. This year they are expected to hit the $20bn mark.

The securities industry’s self-funded regulator is expected to file industry guidelines with the Securities and Exchange Commission as early as next month. Non-traded Reits will be required to provide better information on fee structures and report changes in the value of underlying properties more swiftly.

Income-oriented investors have been drawn to Reits, which distribute at least 90 per cent of their taxable income to shareholders annually in the form of dividends. But as anxiety surrounding rising interest rates battered public Reit stocks last year, their private counterparts only grew in popularity.

“While some of these non-traded Reits have performed well, other companies have been very bad investments,” said Ben Strubel, president of Strubel Investment Management. “A lot of unsophisticated investors don’t know what they’re getting into and are at risk.”

Fees and commissions can rise to 12 per cent of the original investment and investors are often locked in for seven to 10 years.

Finra has warned investors that their returns, upon liquidation, may be less than the original investment. It has also flagged the dubious marketing tactics of some brokers and expressed concern about companies using leverage to pay out distributions that exceed operating cash flow.

Market participants say the influx of cash may spur non-traded Reits to make riskier property purchases, which could eventually come back to burn investors in the real estate vehicles.

This is still a relatively new industry which is moving towards lower fee structures and more frequent valuation guidelines. The demand is there for these assets

– Keith Allaire, Robert A Stanger & Co

Although a portion of outstanding shares may be redeemable annually, non-traded Reits usually return money to shareholders only through “liquidity events” such as the sale of real estate, a takeover or a stock exchange listing.

American Realty Capital Healthcare Trust, which has assets valued at $1.7bn and is headed by Reit mogul Nicholas Schorsch, is set to list its common stock in what analysts expect to be up to $20bn of liquidity events of non-traded Reits during the next two years, up from about $17bn in 2013.

“Illiquidity is not necessarily a deficiency,” said Keith Allaire, managing director at Robert A Stanger & Co. “This is still a relatively new industry which is moving towards lower fee structures and more frequent valuation guidelines. The demand is there for these assets.”


EM tumble carries echoes of 1990s crisis

January 24, 2014 5:22 pm

EM tumble carries echoes of 1990s crisis

By John Authers

Fed, China and now Argentina send investors scurrying for cover

When the money keeps rolling out you don’t keep books,
You can tell you’ve done well by the happy grateful looks.

Evita, lyrics by Tim Rice

Argentina has been here before. So have many other emerging markets. For the second time in six months, money is rolling out. Emerging currencies are under acute pressure, as are bonds and equities.

But the important point about crises in emerging markets is that they do not start there. Instead, they are almost invariably triggered by the actions of investors or central banks in the developed world.

Emerging markets have made strides during the past two decades. With a few exceptions, they have let their exchange rates float, built the institutions needed for free-market capitalism, and developed local debt markets to cut reliance on foreign funds.

But certain truths remain. Flows of foreign capital still dwarf local money. While that money keeps rolling in, the temptation is to behave like a latter-day Eva Peron; and when that money rolls out, there can be problems.

Look at a historical precursor: the wave of emerging markets crises in the late 1990s that started with Mexico’s “tequila crisis”. It started in 1994 when the government gave up defending its peso at an overvalued level.

Mexico had been spending beyond its means. But the trigger for crisis came from the US, where the Federal Reserve that year raised rates sharply to head off inflation. That brought money home and revealed Mexican problems.

This week’s events fit the 1990s template, only now China has emerged as the world’s second economic superpower. Events there, as well as in the US, can send money scurrying for cover.

Argentina is a special case. Its debt was downgraded late last year, to reflect concern at the new economic team of the president, Cristina Fernández, so many institutions are barred from investing in it. It is no longer even considered an “emerging” market by MSCI, the guardians of the term for equity markets, so many equity investors cannot buy Argentina.

There is little reason why Argentina should affect others, beyond its neighbours.

Rather, the exit from emerging markets has been driven by renewed concern about the Fed. Talk that it would taper off its bond purchases, which kept US rates low and encouraged money to go overseas, last summer led to a sell-off in emerging markets.

When the Fed finally tapered, in December, it muted the effects with forward guidance that in effect promised that rates could not start to rise until 2015 at the very earliest. This week’s sell-off of emerging currencies came as traders worried that such “forward guidance” could not be trusted.

The fate of the forward guidance offered in August last year by Mark Carney, governor of the Bank of England, demonstrates the problem. He promised not to raise rates at least until unemployment dropped to 7 per cent; it has since fallen faster than expected, to 7.1 per cent; and so Mr Carney this week downplayed the importance of his guidance.

The message for traders: central banks can always retreat from guidance if they have to.

Then there is China. HSBC’s flash estimate of the ISM supply managers’ index this week suggested the economy was shrinking. Further, money market rates in China are spiking upwards, in a crude attempt by the authorities to bring credit under some control. And China faces a test case over whether it will allow defaults by trust loans, a form of shadow banking.

Faced with such concerns, US and western money headed home and into treasury bonds, which are now yielding almost exactly what they were when the Fed announced its taper in December.

Sentiment towards emerging markets tends to move in long waves. As the chart shows, developed markets have beaten emerging markets during the past 20 years, a period that starts on the eve of the tequila crisis – even though emerging markets have grown far faster.

Such waves of sentiment are hard to stop. This one could easily last longer.

Emerging markets funds have suffered persistent outflows for more than three months, according to EPFR data, without what BofA Merrill Lynch calls true “capitulation”. That would mean outflows of more than $20bn per week; the latest week saw an outflow of $2.4bn.

As for currencies, fair value measures kept by Deutsche Bank’s Alan Ruskin suggest that none has yet overshot, and that Brazil’s real is close to its 10-year average, after accounting for inflation.

In the long run, the well-rehearsed arguments for emerging markets remain good. They are likely to grow faster than the west, and do not look expensive. Those with a long-term horizon might well start dribbling money into emerging markets.

But the risks remain high that emerging markets assets will soon be cheaper still. That will depend largely on the Fed, and on China.


Last updated: January 24, 2014 2:29 pm

Emerging markets sell-off spreads

By Ron Derby and Robin Wigglesworth in London and Gillian Tett in Davos

Emerging market stocks have fallen sharply, tumbling to their lowest since July 2013 as investors took fright at a plunge in Argentina’s peso and wider volatility sweeping through financial markets amid concerns over Chinese growth.

The FTSE Emerging Markets index fell 1.2 per cent on Friday, extending this year’s slump to more than 4.7 per cent.

Fears over emerging markets have heightened since theUS Federal Reserve announced plans to scale back and eventually end quantitative easing this year. But those concerns have been compounded by worries over Chinese economic growth – a big driver for the developing world as a whole.

The movements in emerging markets have been “spectacular” this week, said Jane Foley, senior currency strategist at Rabobank. “Domestic fundamentals have come home to roost.”

As emerging market currencies took another dive, investors poured money into US Treasuries, the yield on 10-year US government debt falling to 2.73 per cent.

Turkey’s lira fell 1.6 per cent on Friday followingThursday’s heavy losses, with Russia’s rouble falling to its lowest level in almost five years against the US dollar.

South Africa’s rand slid to its weakest level since October 2008. Even Mexico’s peso, one of the stronger currencies in the developing world, declined for a fourth straight day to its weakest level against the US dollar since June last year.

Despite concerns over tapering and its impact on the developing world, Alexandre Tombini, the central bank governor of Brazil, insisted that his country had plenty of “buffers” to deal with any market turbulence.

“Tapering is a net positive for a country like Brazil,” he said, arguing there was no reason to fear that a shift in US monetary policy would hurt Brazil in any serious way. “This change of relative prices since (taper talk) started is part of the process [of normalisation].”

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The market volatility was triggered by a survey released on Thursday that indicated Chinese manufacturing unexpectedly contracted in January. That was followed by a nose-dive in the value of Turkey’s and Argentina’s currencies. The Argentina Peso had its biggest one day drop, down 14 per cent, on Thursday and continued its drop against the US dollar on Friday, weakening a further 1.7 per cent.

Of the 24 emerging market currencies tracked against the US dollar by Bloomberg data, only three, the Chinese renminbi, the Thai baht and Taiwanese dollar, were in positive territory.


Entrepreneurship: Where failure is part of recipe for success

anuary 24, 2014 5:00 am

Entrepreneurship: Where failure is part of recipe for success

By Amie Tsang

With Silicon Valley constantly generating tales of innovation and moneymaking, it is hardly surprising that many should hope to emulate that success – especially young people who find themselves in a tough economic climate after leaving schools and universities.

Governments, too, are hoping that young enterprise will go some way towards lowering youth unemployment and spurring their economies.

In December, George Osborne, the UK chancellor, announced an expansion of the government’s Start Up Loans scheme.

However, many organisations offering funding and training have realised that their approach has to be reassessed in light of the skills gap.

Richard Branson, the Virgin Group founder, listed some of the elements that young people need to succeed: “Secondary education should place greater emphasis on critical thinking, problem-solving and emotional intelligence – key traits of successful entrepreneurs and indeed successful people.”

But skills such as these are difficult to measure and hard to teach. Some organisations have found ways to ensure young people going through their entrepreneurial programmes get experience to help develop these qualities.

Rather than allowing young people to pitch for funding early on, a scheme run by Prince Charles’s charity for young people gives participants a mentor and a small grant first to test out their plan, for example by setting up stall for a day in a market.

“Businesses that we saw weren’t necessarily being successful and it was our responsibility to help a young person understand exactly what running a young business means,” says Martina Milburn, chief executive of the Prince’s Trust.

“A lot of the young people we work with don’t understand that.”

Ashoka, the social enterprise network, also tries to enrol people at an early stage, as it means they get more opportunities to test themselves and fail.

Marina Mansilla Hermann, campaigns director for Ashoka’s global Youth Venture project, compares the approach with five-a-side football, where younger players can develop on a smaller pitch.

This ultimately makes people more prepared when they bid for funding or try to launch their project. It also breaks down the sense of social stigma that might be attached to failure in places such as Japan.

“As part of our process, we embrace failure,” she explains. “Of course, it’s not [the] ultimate goal, but if it happens we have to learn from it.”

Rob Wilson, a co-director at Youth Venture UK, adds that “the challenge is that the education system says it’s bad to fail”.

European graduates are “graduating through an education system that hasn’t challenged them in any way shape or form about the world”, he says.

“I would much rather employ someone who has tried to set up a venture and failed … They’ll have tried to recruit, sold things, manufactured, done logistics, dealt with everything.”

And this is advice many organisations that want to help budding young entrepreneurs would do well to follow themselves, according to a study conducted by the Overseas Development Institute.

Claudia Pompa, a researcher at the ODI, points out that data on the success of entrepreneurial schemes are often incomplete and not comparable, so many organisations do not know what works and what does not.

“The [development] industry itself could do so much more in terms of sharing best practice … [It] is not very good at acknowledging failure,” she says.

“There are fundamental things you have to take into account when you ask an 18-year-old to walk into a bank to ask for a loan and offer collateral.”


Networks: Budding entrepreneurs find support and contacts in shared forums

“When you announce you’re going to start up your own business, people are either worried for you or they have over-expectations,” says Rachel Hanretty, who set upMademoiselle Macaron, a business making macaroon biscuits.

Faced with such differing attitudes, young Scottish entrepreneurs have turned to enterprise networks.

Ms Hanretty has found reassurance in meeting others at networking events run by the Prince’s Trust charity.

Mhairi MacLeod, founder of Lux, a marketing agency dedicated to building food and drink brands, has also found that entrepreneurship does not necessarily mean working alone.

She found support in a shared workspace for young businesses: “You’re all in the same boat. I can go over and ask my neighbours what they would do. More often than not they have been in that situation.”

In South Korea meanwhile, networks are opening streams of funding to budding entrepreneurs.

The Banks Foundation for Young Entrepreneurs, a non-profit group funded by banks, set up a hub for entrepreneurs in Gangnam, the Silicon Valley of Seoul. The hub, calledD.Camp, gives members access to a network of contacts, workspace and mentorship.

Hahn Ryu, manager of business planning at the Banks Foundation, says the opportunities D.Camp has given young entrepreneurs have been crucial to funding new companies.

He cites Korbit, a Bitcoin exchange, as one of the start-ups that attracted funding through contacts made at the hub.

“Lots of people come here – investors casually drop by to see if there are any companies they would like to invest in,” he says. “They have a casual conversation over coffee and this leads to investment.”

While the South Korean hub is funded by banks, back in Scotland, Vicky MacDonald credits the government for the existence of young enterprise networks.

When she set up Edinburgh Markets, which helps street traders, she was pleasantly surprised by the support for social enterprises. It made her feel “there was a revolution happening in Scotland”.

Ahead of this year’s in­dependence referendum, Angela Constance, minister for youth employment, says the young enterprise networks and her portfolio, which does not exist at UK level, are evidence that “Scotland has what it takes” to survive alone.


Divisions emerge over effect of digital disruption

Last updated: January 24, 2014 5:42 pm

Divisions emerge over effect of digital disruption

By Andrew Hill in Davos

Sitting alongside his counterparts fromYahooAT&TBT Group and Cisco Systems, Marc Benioff, chief executive ofSalesforce.com, launched the World Economic Forum this week with the bull case for the technology revolution.

“This panel is usually Nobel laureate [economists],” he told the opening session in Davos on Wednesday. “We took their spot this year because technology is really important and there’s never been a more exciting, more fun, more energetic time.”

The economists have struck back, however, pointing out that the many opportunities presented by digital disruption of companies and communities also carry with them complex political, economic and social risks.

Lawrence Summers, the economist and former US Treasury secretary, said on Friday that the advance of technology “was one of the greatest things that will ever happen to humanity”, but it was not an “unalloyed good”. The former economic adviser to President Obama likened the benefits – and the disruption – to those brought by the industrial revolution, but warned that the world lacked the kind of political leaders who helped shape the public policy of the late 19th and early 20th century. “We don’t yet have the Gladstone, the Teddy Roosevelt, or the Bismarck of the technology era,” he said.

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At the heart of these concerns is uncertainty about the impact of technological change on jobs – shared by some technology executives, despite their optimism about the eventual benefits. On Thursday, in another Davos briefing, Eric Schmidt, chairman of Google, warned that automation could wipe out a broad range of jobs describing it as “a race between people and computers [that] people need to win”.

Advances in artificial intelligence could put at risk white-collar jobs in areas such as research that were previously less threatened by automation, with disruption spreading from manufacturing to service industries.

The predictive power of the Davos elite on technology is flawed. As Davos veteran Maurice Lévy, chief executive of Publicis, the advertising agency, has pointed out this week, while everybody at the forum now carries a smartphone, tablet or both, 10 years ago delegates were handed Palm Pilots, while more recently it was the virtual community Second Life, now a niche enthusiasm, which was expected to revolutionise business and society.

It is also possible that many new jobs will be created in technology areas that have not yet developed. Economists have pointed out, too, that recent technological changes do not seem to be feeding through to productivity, which stopped improving in most countries last year. One possible explanation is that innovation is not increasing efficiency in the way technology bulls such as Mr Benioff predict it should.

At the same time, most individuals remain optimistic about the impact of technology on their lives. A survey carried out for Microsoft, and released on Friday, shows a majority of people, particularly in the developing countries, believe personal technology will improve economic wellbeing. Nine out of 10 people in developing countries think such technology is “making the world a better place” according to the survey. In China, Mexico, Russia and India more than 80 per cent believe it helps bridge economic gaps. In developed countries, however, 41 per cent of people saw personal technology as a barrier to economic opportunity. According to the latest Edelman Trust Barometer, released this week, people trust technology companies more than those in any other sector.

Even so, policy makers and analysts gathered in Davos remain concerned about the potentially negative implications for poorer members of the community, if the benefits of technology are not equally spread. They also warn that government is unequipped to step in and protect them. Their fear is that this, in turn, could add to income inequality and provoke a backlash against wealthy technology entrepreneurs.

“We’re innovating in a world that doesn’t have a perfect map, so we’re going to have to do it with empathy and humanity,” said one Nobel Prize-winning economist at a private Davos session this week. A former US presidential economic adviser pointed out at the same session that there was a “constant risk” that the political system would not provide policies to protect poorer citizens against the consequences of digitisation and automation.

Mr Schmidt said this week governments had to encourage the formation of rapidly growing “gazelle” companies and provide incentives for them to scale up and create new jobs. Bill McDermott, co-chief executive of SAP, the enterprise software group, said on Friday that “innovation is key to creating jobs and wealth and opportunity”, while technological tools would help improve transparency and efficiency in the public sector.

Prof Summers himself recommended some combination of policies on education, taxation and social protection to help cushion the effects of the technology revolution – but he conceded that it was far easier to lay out such a prescription than to implement it.


Online stores think local to grow global

January 24, 2014 4:52 pm

Online stores think local to grow global

By Duncan Robinson

When it comes to ecommerce, the world is far from flat.

Although goods can zip across the globe quicker and more cheaply than ever before, international ecommerce hits a stumbling block when it comes to parting customers from their roubles, reals and rupees.

A shopper in São Paulo may prefer to pay in instalments, while many Muscovites would rather feed their roubles into a type of reverse ATM than pay by card for online goods. Consumers in India, meanwhile, will only hand over the cash once an item has been delivered.

Such local payment preferences can make life very difficult for ecommerce groups with global ambitions.

But the added hassle is worth it. Ecommerce in emerging markets is booming. In India, annual ecommerce sales will more than double from $12bn today to $31bn in 2017, according to new figures from eMarketer, a research group.

In Brazil and Russia, ecommerce sales are expected to jump about 45 per cent between now and 2017, according to eMarketer. By comparison, ecommerce in developed markets such as Australia will grow by just a fifth.

But with great potential comes great inconvenience. Offering consumers a seemingly simple change in payment options to accommodate local norms often requires an inordinate amount of work.

Hotels.com – a hotel-booking division of US travel group Expedia – found this out the hard way when it allowed customers to pay for hotels when they check out, as holidaymakers from southern Europe and Russia prefer.

This seemingly minor tweak to please customers in just a handful of markets involved rewriting the contracts Hotels.comhad with 250,000 hotels and a full year of tests to make sure the functionality worked on the new website. “It was the biggest technology project in 2013,” says Matthew Walls, a vice-president at Hotels.com.

The hotel-booking website let its Brazilian customers pay in instalments – or parcelas– from early last year. This involved joining with a Brazilian financial services group, who will take on the credit risk – but for a fee, which weighs on margins. “If you really want the Brazilian customer, this is what you have to do,” says Mr Walls.

Although credit card usage in Brazil grew 63 per cent between 2007 and 2012, according to research group Euromonitor, high interest rates make credit cards unaffordable for many, meaning that instalments are here to stay.

“It’s ingrained in our culture, especially among the new middle classes,” says Ricardo Rocha, a professor of finance at São Paulo’s Insper business school. “It represents a huge challenge for foreign retailers.”

But it is a challenge with potentially large rewards: Brazil’s ecommerce market is set grow from $18bn to $26bn in the next four years, according to eMarketer.

Western retailers expanding into emerging markets have to fall into line with each market’s rules, points out Lord Alli, former chairman of British fast fashion groupAsosLord Alli launched Koovs, a fast fashion retailer aimed at Indian women last year.

While increasing numbers of Indians now have internet access, credit and debit card penetration is lagging behind. To get around this, Koovs – which is hoping to float in London later this year – lets customers pay for their goods on delivery, like takeaway food.

“Our job as retailers is to serve our customers,” says Lord Alli. “My job isn’t to tell them how they want to pay, or convert them to credit cards, or beat them over the head because they want it delivered by hand. Our job is to be at their service.”

The added expense of payment on delivery is simply a cost of doing business in a fast-growing market, says Lord Alli. “It is slightly more costly, but every market has its peculiarities. If they want to pay by cash, you have to make it as easy as possible. If you lose margin there, you have to gain somewhere else.”

In Russia, 58 per cent of consumers prefer to pay for an online order with cash, according to a survey by Morgan Stanley. Companies such as Qiwi – a Nasdaq-listed payments group – have sprung up to cater for this demand. Qiwi operates payment terminals that act as reverse ATMs into which Russians feed wads of roubles when they pay for everything from household bills to online orders.

It is expensive and inconvenient – as any Muscovite who has to nip outside in the middle of January to pay their internet bill will tell you.

But it is also ubiquitous. Accordingly, more and more western companies – among them Groupon, Apple and Hotels.com – are signing up with the service.

Every market has its peculiarities. If they want to pay by cash, you have to make it as easy as possible

– Lord Alli

“Each market has its nuance,” says Nick Robertson, chief executive of Asos, which launched a Russian language website last year. “It’s essential if you’re going to operate globally, you have to operate the best payments methods.”

Asos now operates in markets such as China, as well as Europe and North America. But payment in developed markets can still be a headache. In Germany, only 10 per cent of consumers say that they prefer to pay for goods on plastic. By comparison, 70 per cent of Brits do, according to YouGov.

To get around this lack of enthusiasm for credit and debit cards, Asos has teamed with companies such as Klarna – a Swedish start-up that lets consumers pay for goods only once they have been received – to help the retailer part Germans from their euros.

Despite the regional variations, retailers have reason for optimism. The smorgasbord of payment methods shows signs of shrinking. Credit and debit card penetration is increasing in all markets, particularly among young people, says Mr Robertson of Asos. “Demographics are moving in our favour,” he says. “20-somethings use debit and credit cards.”

But until then, retailers with international ambitions have to play by local rules. “Never punish your consumer for the way they pay,” says Lord Alli. “It’s irrelevant how they pay; I want them to buy.”


Pimco’s Gross problem: who can succeed the ‘Bond King’?

Pimco’s Gross problem: who can succeed the ‘Bond King’?

Thu, Jan 23 2014

By Svea Herbst-Bayliss

BOSTON (Reuters) – When Pimco co-founder Bill Gross’ heir apparent abruptly stepped down this week, the news illustrated just how reliant the company is on its star manager, an uncomfortable fact for investors who worry the 69-year-old has not done enough to find a replacement.

With Mohamed El-Erian, 55, resigning his position as chief executive and co-chief investment officer at the $2 trillion asset manager, all power now appears to be flowing back to Gross, who co-founded Pimco in 1971 and runs the $237 billion Total Return Fund, a mainstay in many retirement portfolios.

Gross, a yoga enthusiast who shaved his mustache a few years ago to look younger, greeted the departure by dividing up El-Erian’s roles among a few more men, and by saying he is not yet planning for life after investing in bonds.

“Pimco’s fully engaged. Batteries 110 percent charged,” Gross said in a Twitter post from the firm’s official “@PIMCO” account that still features a photo of Gross and El-Erian side by side.

“I’m ready to go for another 40 years!” his tweet continued, a nod to the rigorous work ethic demanded by Gross, known among rivals and investors as the “Bond King.” Portfolio managers at Pimco start their days at 4 a.m. and rarely speak on the firm’s Newport Beach, California, trading floor, communicating instead by email to keep the noise down.

El-Erian, a trained economist and one-time senior International Monetary Fund official known for his near daily appearances on cable television and wide-ranging market calls, landed back at Pimco seven years ago after leaving the bond house for a two-year stint as head of Harvard University’s endowment. He first joined Pimco in 1999.

Pimco parent Allianz (ALVG.DE: QuoteProfileResearchStock Buzz) brought him back in part to “reduce the Bill Gross risk,” said one investor who asked not to be named for fear of angering Gross.

Even though Allianz quickly appointed Douglas Hodge as chief executive officer plus Andrew Balls and Daniel Ivascyn as deputy co-chief investment officers to replace El-Erian, analysts and investors agree that none are real contenders for Gross’ job right now.

“The problem is it takes a number of years to groom somebody like Mohamed,” said Sean Egan, president of Egan-Jones Ratings Co. “It’s difficult and Bill Gross is not getting any younger. From a public perception standpoint, the next couple years are going to be difficult.”

Pimco declined repeated requests to interview Gross, El-Erian or his newest lieutenants.

The two deputy co-chief investment officers have managed billions of dollars, but nothing that compares to the Total Return fund. Ivascyn’s $30 billion fund at Pimco, for example, amounts to less than 13 percent of Gross’ main portfolio.

“Heir apparent is not their label now,” said Morningstar senior research analyst Eric Jacobson.

Indeed Gross has said in media interviews following El-Erian’s resignation that more deputies would be named in coming weeks, a sign his pool of potential successors is growing, not narrowing. Morningstar analysts said the list of new appointees could include portfolio managers and directors such as Curtis Mewbourne, Christian Stracke, Scott Mather and Tony Crescenzi, each a long-time bond market hand of one stripe or another.

The group, Jacobson said, tends to skew relatively young and is somewhat split among those with strong backgrounds in economics, and those with more hands-on experience running portfolios. There appear to be few generalists who have the mix of skills one would expect to find in an heir to Gross, he said. “I can’t think of any single person who would seem to be an obvious and ready candidate.”

For investors – especially the big name institutions – a clear succession plan has always been important, prompting even other iconic investors such as Warren Buffett, 83, to groom Todd Combs and Ted Weschler as potential successors.

But at Pimco there is now no clear plan B.

“Pimco investors should be worried,” said Erik Gordon, professor of business and law at the University of Michigan. “There should be a succession plan that doesn’t require Gross to be CEO at age 109,” he said.


For Pimco, the abrupt shift in management comes at a critical time just as the decades-long bull run in bonds appears to be ending, and the bond market’s biggest influence, the Federal Reserve, is maneuvering to dial back its extraordinary policies that pushed bond yields to historic lows.

Gross’ Total Return fund had outflows of $42 billion, according to Lipper, and lost 1.92 percent last year. The fund underperformed 72 percent of comparable funds in 2013, data from Morningstar shows.

Burton Greenwald, an industry consultant who runs Greenwald Associates, said: “Bill Gross is well along in age and at some point he is going to want to hang up his hat. After all he wasn’t fixed income manager of the year last year, Dan Ivascyn was. This is a critical transition period for the firm as stocks are more on most investors’ minds.”

Because El-Erian managed only a fraction of the assets Gross oversees, his departure is unlikely to trigger the kind of redemptions asset manager TCW faced when star manager Jeffrey Gundlach left.

But it will raise questions, analysts said. Gross’s calendar will likely be jam-packed with meetings for weeks as pension funds, endowments and others stream to Pimco’s Newport Beach offices for an explanation of what is next.

In the meantime, deputy co-chief investment officers, Ivascyn and Balls, are considered rising stars, and highly capable. Ivascyn, 44, a mortgage credit expert, has just been named Morningstar’s fixed income manager of 2013 along with colleague Alfred Murata. Their Pimco Income fund gained 4.8 percent with the help of bets on nonagency mortgage-backed securities.

Andrew Balls, a former journalist turned portfolio manager, has been Pimco’s spokesman for the European debt crisis and has close ties in London where his brother, Edward Balls, is the Labour Party’s shadow chancellor.

It will fall to them, in part, to help Pimco bring in fresh money and turn the tide after last year’s outflows.

“Ivascyn has certainly demonstrated great skill as a portfolio manager,” Michael Rosen, chief investment officer at Angeles Investment Advisors said, adding “but whether he can continue to do that while he’s taking on increased responsibilities of being a deputy chief investment officer remains to be seen.”


SME community portal TowkayZone.com launched

SME community portal TowkayZone.com launched

Friday, January 24, 2014 – 20:25


SINGAPORE – SPH Magazines has launched TowkayZone.com, an online portal designed and created with small medium enterprises (SMEs) in mind. The portal was soft launched in September 2013 and officially launched today.

Built in partnership with the Infocomm Development Authority of Singapore (IDA), the site provides a platform for the SME community to exchange ideas and seek advice on technologies that can transform their businesses as well as on other issues pertinent to them.

It also allows users to sign-up using their Facebook and LinkedIn profiles, which can further enhance the potential for them to broaden their networks within the community.

Since its soft launch, the site has gathered more than 15 partners, attracted about 4,000 unique visitors monthly and generated more than 400 forum threads.

The site was officially announced by Ms Sim Ann, Minister of State, Ministry of Communications and Information, at the DP Information Group’s 27th Annual Singapore 1000 & Singapore SME 100 awards dinner.

“I hope to see more SME owners, topic experts and industry players coming on board, to tap on TowkayZone to exchange knowledge, and to generate new ideas for your company and beyond,” Ms Sim said at the dinner.

Several business owners and experts have come on board TowkayZone.com as advisors, including Jackie Lee, CEO and founder of clickTRUE and Noisy Crayons; Prakash Somosundram, Social Media Director of YOLK; Eric Koh, founder ofTravelogy.com; Tiang Lim Foo, Market Development Manager for Evernote Asia Pacific and Dylan Hu Dingren, Director for Poli Medical.

Eric Koh, Founder of Travelogy.com, said: “The idea of having a forum for discussing startups and entrepreneurship is welcoming. There has been a lot more interest in this area recently, with the government chipping in to help kickstart the ecosystem. I don’t think there’s a credible online discussion forum yet in Singapore for entrepreneurs.”

“The next step for the site is probably to have more organisations like ACE, SITF and IHLs (Institutes of Higher Learning), etc. to come on TowkayZone and use it as a bridge to support their entrepreneurial efforts in Singapore. Young companies need all the publicity out there,” said Jackie Lee, CEO of clickTRUE and Noisy Crayons.

He added: “Be it as a mentor or an entrepreneur, I find TowkayZone to have the potential to reach out and generate efficient conversations beyond the traditional one-one mentoring, giving visitors a many-to-many scale. That’s where it will become a lot more interesting and useful.”

Terence Ang, Product Manager for TowkayZone.com, said: “Some business owners, or “Towkays”, have accumulated a wealth of experience over the years but have never really shared the secrets to their success openly. Over time, we would like them to share these experiences, and pass on their wisdom to future generations of business owners.”

He added that there is also a mobile edition of the website that users can access using their smartphones.


Contagion Spreads in Emerging Markets as Crises Grow

Contagion Spreads in Emerging Markets as Crises Grow

The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by growing political and financial instability.

The Turkish lira plunged to a record, while Ukraine’s hryvnia sank to a four-year low and South Africa’s rand fell to the weakest level since October 2008, after tumbling yesterday beyond 11 per dollar for the first time since 2008. Argentine policy makers devalued the peso by reducing support in the foreign-exchange market, allowing it to drop the most in 12 years to an unprecedented low.

Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.

“The current environment is potentially very toxic for emerging markets,” Eamon Aghdasi, a strategist at Societe Generale SA in New York, said in a phone interview yesterday. “You have two very troubling things: uncertainty about the Fed policy, combined with concerns about growth, particularly in China. It’s difficult to justify that it’s time to go out and buy emerging markets at the moment.”

Global Declines

Developing-nation currencies sold off after a report from HSBC Holdings Plc and Markit Economics yesterday indicated that China’s manufacturing may contract for the first time in six months, adding to concern that growth is losing momentum.

The declines were part of a broader slide in global markets today, with European stocks falling, U.S. stock futures lower and Asian shares tumbling. The yield on 10-year German bunds slipped to an 11-week low, while the yen, considered by investors as a haven, rose versus all 16 major currencies.

Currencies from commodity-exporting countries that depend on Chinese demand sank, with the rand plunging 1.7 percent, extending yesterday’s 1.1 percent decline. Brazil’s real fell 1.3 percent, while Chile’s peso was down 1.3 percent yesterday.

Argentina’s peso has plunged 37 percent in the past year, while the lira is down 24 percent.

Turkey Intervenes

A rally yesterday in Turkey’s currency after the central bank carried out its first unscheduled intervention in more than two years wasn’t enough to stop it setting new all-time lows later, and then again today. Investors are speculating the central bank’s efforts to prop up the lira by plowing through foreign-exchange reserves will prove futile without raising interest rates.

The lira plunged to a record 2.3296 per dollar, and was 1.5 percent weaker at 2.3271 as of 11:30 a.m. in London. It also set an all-time low of 3.1968 per euro. Turkey’s central bank refrained from raising benchmark rates this week, fueling concern that it will be difficult to finance current-account deficits.

Turkey holds about $33 billion in foreign reserves, excluding deposits from commercial banks, only enough to cover 1 1/2 months of imports, according to Citigroup Inc.

‘Bad Storm’

“It’s a bad storm,” Neil Azous, the founder of Rareview Macro LLC, a Stamford, Connecticut-based advisory and research firm, said in a phone interview yesterday. “Their net foreign-exchange reserves are dwindling pretty fast. They’re definitely in the danger zone. If you’re a money manager, the responsible action is to take some measures to reduce risk.”

The International Monetary Fund predicts that the growth advantage of emerging markets over advanced economies will shrink this year to the smallest since 2001. The Washington-based institute kept its expansion forecast for developing countries this year at 5.1 percent on Jan. 21, while raising the outlook for advanced economies to 2.2 percent, from the 2 percent estimated in October.

China is struggling to contain $4.8 trillion in shadow-banking debt, raising concern about the growth outlook for a country that buys everything from Chile’s copper to Brazil’s iron ore. A corruption investigation is embroiling Turkish Prime Minister Recep Tayyip Erdogan’s cabinet, while deadly protests in Ukraine and Thailand are eroding confidence in the political stability of developing nations.

‘Gradual Erosion’

“The gradual erosion of sentiment for the EMs, owing to the perception that several EM economies or countries are ‘on the brink,’ simply made the run on reserves in Argentina and the poor China data the ‘straws that broke the camel’s back’,” Thierry Albert Wizman, a strategist at Macquarie Group Ltd. in New York, wrote in an e-mail to clients yesterday.

A Bloomberg customized gauge tracking 20 emerging-market currencies fell to 89.6 today, the lowest level since April 2009. The index has tumbled 9.9 percent over the past 12 months, bigger than any annual decline since it slid 15 percent in 2008.

Argentina’s peso fell 12 percent yesterday to 7.8825 per U.S. dollar, marking its biggest decline since a devaluation in 2002. The central bank pared dollar sales aimed at propping up the peso to preserve international reserves that have fallen to a seven-year low. Today, the bank said it would lift currency controls and allow the purchase of dollars for savings starting next week.

Fatal Protests

Venezuela devalued its currency for airline tickets and incoming foreign direct investment on Jan. 22. Its international reserves are at a 10-year low. Ukraine’s hryvnia slumped as Parliament planned to hold an emergency session after anti-government protests led to fatalities this week.

South Africa’s rand tumbled to as low as 11.1949 per dollar today on concern a strike at the world’s biggest platinum mines would dent the country’s exports.

The selloff in emerging-market currencies started in May, when the Fed signaled it may pare the monthly asset purchases that had helped fuel investment in developing nations. Yields on U.S. Treasuries rose in response.

“In an environment of rising U.S. rates, the market is quickly finding out who has been swimming naked,” Dirk Willer, a Latin America strategist at Citigroup, the second-largest currency trader, wrote in a client note. He said it’s “not unreasonable” for the Argentine peso to fall to 14 per dollar.

Buying Opportunities

The recent weakness has created buying opportunities for some emerging markets with stronger economic prospects, according to Marcela Meirelles, a Latin America sovereign strategist at TCW Group Inc.

“This selloff will create eventually good buying opportunities of those EM credits with strong fundamentals and there is still no shortage of them around the world,” Meirelles said in an e-mailed reply to questions.

HSBC recommends clients buy the Mexican peso against the Chilean peso, saying Mexico’s currency will benefit from expansion in the U.S. as efforts to open up the energy industry to outside investment boost its southern neighbor’s long-term growth potential.

While differentiation is important, the end of China’s “investment and export boom” may still put emerging-market currencies on a declining trend, according to Morgan Stanley.

“We continue to see the risks surrounding China’s macro trajectory as having a negative impact on EM,” Rashique Rahman, the New York-based co-head of foreign-exchange and emerging-market strategy at Morgan Stanley, wrote in a note yesterday. “As capital costs rise and investment slows, commodity prices should come under pressure, boding poorly for economies linked to China’s old growth model.”

Brazil’s Real

Morgan Stanley has a “reduce” rating on emerging-market currencies, while recommending selling the Russian ruble against the dollar.

Brazil’s real fell to a five-month low of 2.4327 per dollar today and has lost 28 percent over the past two years. Brazil should return to the policies of former President Luiz Inacio Lula da Silva to boost growth, tame rising consumer prices and attract foreign investment, Pacific Investment Management Co. said yesterday.

“Valuations are attractive, but unless an effective policy mix is restored, the outlook for order in Brazil’s financial markets is less certain,” Michael Gomez, the co-head of emerging markets, said in a report published on the fund’s website yesterday.

Pimco Chief Investment Officer Bill Gross said last week that Brazil was no longer a preferred market. The comment came more than a decade after the firm bought the country’s bonds as they plunged before presidential elections in 2002, a bet that proved prescient.

“The market is punishing those countries with bad policies and politics,” Bhanu Baweja, the head of emerging-market cross-asset strategy at UBS AG, said by phone from London. “There isn’t panic, but we are not finished yet. There’s no reason to buy emerging for now.”

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; John Detrixhe in New York atjdetrixhe1@bloomberg.net

ata Sons, the investment holding company of the TTata group, has set up an office in Singapore for the ASEAN

Tata Sons sets up ASEAN office

Friday, Jan 24, 2014

SINGAPORE- Tata Sons, the investment holding company of the Tata group, has set up an office in Singapore for the ASEAN region and appointed Mr K.V. Rao (left) as resident director, ASEAN – Tata Sons. The office is aimed at strengthening Tata Sons’ engagement with the stakeholders in the ASEAN region facilitating Tata group companies’ growth, through a focus on innovation, research and development and technology.

Mr Rao, a Singapore resident for 18 years, has served in the Singapore Civil Service as a director with International Enterprise Singapore. He is on the executive committee of the Singapore Indian Development Association, the Singapore Fine Arts Society and serves as vice-chairman of the South Asia Business Council of the Singapore Business Federation. He also continues to serve as the MD of Trust Energy Resources, a Tata Power subsidiary.

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