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The Case for Cash: Once shunned, putting cash on the sidelines now looks shrewd to some investors

September 20, 2013, 10:53 a.m. ET

The Case for Cash

Once shunned, putting cash on the sidelines now looks shrewd to some investors. Brett Arends explains

BRETT ARENDS

A FRIEND WAS recently considering a potential investment for her portfolio and asked a simple question: Is it better than any of the alternatives that are currently out there?  My answer surprised her: The real question is whether it’s also better than any of the alternatives that you are likely to see in the next year or two. For most mainstream investment professionals—including many of those with some pricey clients—that kind of an argument is near-sacrilege. It means, they say, trying to “time” the market. Their advice is usually along the lines of investing everything, everything, immediately, in the (high fee) products they make available. But this is flawed thinking. If the events of the last 15 years have shown anything, it is that turmoil and financial bargains seem to come along with great frequency. If there are no compelling opportunities on offer at the moment, wait a while. One will be coming along soon—in the next great panic about Europe, or emerging markets, or U.S. subprime mortgages, or gold, or China, or commodities, or high oil prices, or low oil prices, or inflation, or deflation or something else entirely. Read more of this post

Roger Lowenstein: The Long, Sorry Tale of Pension Promises; How did states and cities get into this mess? It’s a simple case of human frailty; where to go from here

September 20, 2013, 8:35 p.m. ET

The Long, Sorry Tale of Pension Promises

How did states and cities get into this mess? It’s a simple case of human frailty; where to go from here

ROGER LOWENSTEIN

Fifty years ago, the auto industry suffered a massive pension bust. The numbers back then were small, but pension failures are never about the numbers—they’re about human frailty. People are tempted to promise more than they can deliver. Today, cities and states across the country are way behind on the promises they made to their employees. Several—including Detroit—are in bankruptcy. Back in 1963, Studebaker, an independent auto maker in South Bend., Ind. was struggling to compete with the Big Three. Desperate to stay afloat, the company had increased the benefits it was promising to its retirees four times in the 1950s and early 1960s. What was desperate about this? Pension benefits aren’t paid out of thin air; sponsors are supposed to set aside a sum of money proportional to the benefits that will eventually come due. If the money is invested prudently, the fund will have enough assets to meet its obligations. Read more of this post

For Migrants, New Land of Opportunity Is Mexico; With Europe sputtering and China costly, the “stars are aligning” for Mexico as broad changes in the global economy create new dynamics of migration

September 21, 2013

For Migrants, New Land of Opportunity Is Mexico

By DAMIEN CAVE

MEXICO CITY — Mexico, whose economic woes have pushed millions of people north, is increasingly becoming an immigrant destination. The country’s documented foreign-born population nearly doubled between 2000 and 2010, and officials now say the pace is accelerating as broad changes in the global economy create new dynamics of migration. Rising wages in China and higher transportation costs have made Mexican manufacturing highly competitive again, with some projections suggesting it is already cheaper than China for many industries serving the American market. Europe is sputtering, pushing workers away. And while Mexico’s economy is far from trouble free, its growth easily outpaced the giants of the hemisphere — the United States, Canada and Brazil — in 2011 and 2012, according to International Monetary Fund data, making the country more attractive to fortune seekers worldwide. Read more of this post

Jobless recoveries are here to stay, economists say, but it’s a mystery why

Jobless recoveries are here to stay, economists say, but it’s a mystery why

By Jim Tankersley, Published: September 20

The U.S. economy just hasn’t looked like its old self lately, especially when it comes to regaining the jobs lost during a recession. It looks a lot more like 1980s-era Europe — slow to rebound and hire after a downturn, leaving workers to flail for years in a weak job market. The United States is stuck in its third consecutive “jobless recovery,” stretching back to the rebound from the 1990 recession. And Americans might need to get used to them: A major new study from economists at the University of Texas at Austin and the University of California at Berkeley suggests that vintage Europe is the new American normal for recessions and recoveries. But even after an exhaustive series of tests, the economists still can’t explain what has gone wrong. Read more of this post

Jeremy Grantham called the Internet bubble, then the housing bubble. What alarm bell is the chief investment strategist at GMO ringing about now?

September 20, 2013, 10:31 a.m. ET

Our Chat With Jeremy Grantham

He called the Internet bubble, then the housing bubble. What alarm bell is Jeremy Grantham, the chief investment strategist at GMO, ringing about now?

IAN SALISBURY

JEREMY GRANTHAM’S GOT A TRACK RECORD that’s impossible to ignore—he called the Internet bubble, then the housing bubble. While moves like those have earned the famed forecaster the nickname “perma-bear,” in early 2009 he also told clients at GMO, his $100 billion, Boston-based money-management firm, to jump back into the market. It was the same week that stocks hit their post-Lehman low. Now, however, the outspoken Yorkshireman, who is chief investment strategist at GMO, is making headlines with a new prediction: Dire, Malthusian warnings about environmental catastrophe. To hear him tell it, the world is running out of food. Resources will only keep getting more expensive. And climate change looms over it all. Indeed, at times he sounds like someone Greenpeace would send door-to-door with a clipboard. (He’s not above likening the coal-industry spin to the handiwork of Goebbels.) If it were anyone else, Wall Street would probably laugh him off. But because it’s Jeremy Grantham, they just might listen. Read more of this post

It’s Not Too Early to Start Worrying About Banks Again; Washington regulators are publicly raising alarms about banks’ accounting practices

It’s Not Too Early to Start Worrying About Banks Again

By Jonathan Weil – Sep 20, 2013

You don’t often see Washington regulators publicly raising alarms about banks’ accounting practices. That’s why a speech this week by the comptroller of the currency, Thomas Curry, deserves more attention. The way Curry described the situation, you get the sense that some banks’ numbers may be too good to be true. He made clear he wasn’t warning about an imminent crisis. Yet he cautioned that some banks seemed to have been “scrimping on their allowances against their loan losses,” which is a fancy way of saying they may be fudging their numbers. Read more of this post

Fed reveals weak spot in superhero powers

September 20, 2013 5:18 pm

Fed reveals weak spot in superhero powers

By Ralph Atkins in London and Michael MacKenzie in New York

Superman had issues with Kryptonite. For Achilles, it was his heel. With central bankers, is it communicating with markets? The US Federal Reserve startled investors round the globe this week by deciding not to start scaling back its $85bn a month of asset purchases, or quantitative easing. Bond and share prices jumped sharply on the prospect of unexpectedly undiminished Fed largesse. But even as they pocketed gains, investors wondered if they had misunderstood Ben Bernanke, Fed chairman. Based on hints dropped since May, the consensus view had been for a $10bn to $15bn reduction in the pace of purchases. Read more of this post

Chart Of The Day: The Fed’s “Renormalization” Shock (All 600 bps Of It)

Chart Of The Day: The Fed’s “Renormalization” Shock (All 600 bps Of It)

Tyler Durden on 09/21/2013 15:21 -0400

As we noted earlier, Bernanke’s actions this week make it very clear that between “financial conditions” and the fragility of growth, the US is incapable of surviving without ZIRP and QE (for now). As Barclays notes, ultimately, normalisation should proceed according to a timeline that does not threaten recovery, yet will result in a neutral monetary policy by the time the economy reaches full capacity and the desired inflation rate. However, there are many uncertainties along this path. Read more of this post

CEOs to Reveal Their ‘Cheap Number’; SEC Wants to Compare CEO Pay with Average Worker’s

September 21, 2013, 8:30 p.m. ET

CEOs to Reveal Their ‘Cheap Number’

SEC Wants to Compare CEO Pay with Average Worker’s

AL LEWIS

Perhaps you’ve seen those commercials for the Sleep Number mattress. What’s your Sleep Number? Learn it and you’ll have pleasant dreams. There is another number that’s giving the chief executives of America’s largest companies nightmares. It expresses the ratio of their pay to that of their employees. I call it the Cheap Number. In 1977, renowned management thinker Peter Drucker wrote a piece for The Wall Street Journal complaining that this number had grown as high as 50 at many companies. “A ratio of 25-to-1…is well within the ratio most people in this country…consider proper and indeed desirable,” he wrote. Today the number is 354, according to a study touted by the AFL-CIO. Other studies show it well over 1,000 at some companies. A recent analysis by Bloomberg compared a former J.C. Penney CEO to a former J.C. Penney cashier and pegged the number there at 1,795. Knowing this number raises a salient question: If you own a business, what would you rather have for your money? An army of more than 1,000 workers, or one delusional jerk in a suit? The world is filled with enterprises paying fortunes to chief executives, but relatively little to almost everyone else. Read more of this post

Wash, Rinse, Rebrand: Electrolux Spiffs Up Appliances in China; Company Has Been Stuck in Slow Sales Cycle

September 19, 2013, 7:09 p.m. ET

Wash, Rinse, Rebrand: Electrolux Spiffs Up Appliances in China

Company Has Been Stuck in Slow Sales Cycle

JAMES R. HAGERTY

Fifteen years ago, Electrolux AB ELUX-B.SK +2.30% dreamed of being a major mass-market supplier of washers, refrigerators and other home appliances in China. Now, conceding that its initial strategy was a flop, the Swedish appliance maker is preparing to reintroduce itself in China as a premium brand. Before year-end, Electrolux plans to launch a variety of appliances aimed at people seeking more style and features. The company says it will apply lessons it has learned in Brazil, where it has been far more successful. Read more of this post

Adidas profits warning cites EM currencies

September 19, 2013 10:21 pm

Adidas profits warning cites EM currencies

By Alice Ross

Adidas, the world’s second largest sportswear group by sales, issued a profit warning last night blaming the slump in emerging market currencies for lower than expected projected sales for the year. Investors in the German company should brace themselves for income payouts up to 11 per cent lower than previously forecast, the group said, as it lowered its net income projection for shareholders to €820m-€850m for 2013, down from an estimate of €890m-€920m. Read more of this post

Auto Makers in India Increasing Prices to counter higher costs, caused mainly by a sharp fall in the rupee currency’s value

Updated September 19, 2013, 12:23 p.m. ET

Auto Makers in India Increasing Prices

SANTANU CHOUDHURY

NEW DELHI—Hyundai Motor Co., 005380.SE +0.39% Tata Motors Ltd.500570.BY +2.75% and General Motors Co. GM -0.93% are raising their vehicle prices in India to counter higher costs, caused mainly by a sharp fall in the rupee currency’s value. Prices of Hyundai’s cars such as the Eon and i20 subcompact hatchbacks will rise between 4,000 rupees ($65) and 20,000 rupees effective Oct. 1, India’s second-largest car maker by sales said. Read more of this post

Indonesia to Run World’s Biggest Gas Deficit by 2018

Indonesia to Run World’s Biggest Gas Deficit by 2018

By Tito Summa Siahaan on 8:55 pm September 19, 2013.
Indonesia will emerge as the main driver in the international gasoline market as imports to Southeast Asia’s biggest economy increase to meet domestic demand, according to a forecast from Wood Mackenzie, a global energy think tank. “From 2012 to 2018, Indonesia’s gasoline deficit will grow from 340,000 barrels per day (bpd) to around 420,000 bpd,” Sushant Gupta, Wood Mackenzie’s Asia Pacific head of downstream research, said in a statement released on Thursday. Read more of this post

Taxis Vanish in Rain as Singapore Gets Congested: Southeast Asia

Taxis Vanish in Rain as Singapore Gets Congested: Southeast Asia

At 6 a.m. one weekday morning, 64-year-old taxi driver Koh Chia Hock set out to ply Singapore’s roads when it started raining. So he turned around and went home. “If I go and fetch a customer, it’s very risky,” said Koh, as the heavy traffic raises the chance of an accident that could leave him without earnings while the car is repaired. “I don’t have the stomach for it. I don’t want to drive when it rains.” Cab drivers like Koh are avoiding the traffic jams that have become a hallmark of Singapore’s tropical rainstorms after a jump in the city’s population and a surge in vehicles clogged roads. As the government shuts the center of the city this weekend for the annual Formula One street race, residents are bracing for even more delays. Read more of this post

Debt explosion real story of Fed QE dance; Western finance cannot be fixed without tackling credit addiction

September 19, 2013 5:14 pm

West’s debt explosion is real story behind Fed QE dance

By Gillian Tett

Western finance cannot be fixed without tackling credit addiction

The danger with addictions is they tend to become increasingly complusive. That might be one moral of this week’s events. A few days ago, expectations were sky-high that the Federal Reserve was about to reduce its current $85bn monthly bond purchases. But then the Fed blinked, partly because it is worried that markets have already over-reacted to the mere thought of a policy shift. Faced with a choice of curbing the addiction or providing more hits of the QE drug, in other words, it chose the latter. Read more of this post

Li Revives Old Lending Playbook After Cash Crunch: China Credit

Li Revives Old Lending Playbook After Cash Crunch: China Credit

Syndicated loans to Chinese companies are poised for their best quarter in two years, after a cash crunch curbed expansion in the bond market. Alibaba Group Holding Ltd. and Shuanghui International Holdings Ltd. led $21.3 billion of bank loans denominated in either U.S. dollars or yuan since June 30, according to data compiled by Bloomberg. Including $4 billion of deals in the pipeline, volumes this quarter are set to challenge the $26.8 billion raised in the three months ended Sept. 30, 2011. Local-currency corporate bond sales total 51.3 billion yuan ($8.4 billion) this period, the slowest in two years. Read more of this post

Asia Should Think Twice Before Cheering Fed’s Decision; Fed Can’t Taper Over India’s Cracks

September 19, 2013, 5:25 AM

Asia Should Think Twice Before Cheering Fed’s Decision

By Ewen Chew

At first glance, the Federal Reserve’s surprise decision to postpone a highly anticipated reduction in its bond-buying program is good news for Asian markets. But reading between the lines, the Fed clearly feels the U.S. economy isn’t improving as expected, and might actually be priming markets for tougher times ahead. If so, the impact won’t be limited to America, but will affect Asia’s export-oriented economies and capital-hungry markets as well. Read more of this post