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March 31, 2005
Quote of the Day for Thursday, March 31, 2005
Today's quote is from Leo Buscaglia, born on this date in 1925:
"Life is uncharted territory. It reveals its story one moment at a time."
March 30, 2005
Quote of the Day for Wednesday, March 30, 2005
Today's quote is from the great medieval Jewish philosopher Maimonides, born on this date in 1135:
"Teach thy tongue to say "I do not know," and thou shall progress."
March 29, 2005
Quote of the Day for Tuesday, March 29, 2005
Today's quote is from Wal-Mart founder Sam Walton, born on this date in 1918:
"There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."
March 28, 2005
Quote of the Day for Monday, March 28, 2005
Today's quote is from Russian author Maksim Gorky, born on this date in 1868:
"Happiness always looks small while you hold it in your hands, but let it go, and you learn at once how big and precious it is."
Posted by John at 7:44 AM | Comments (0) | TrackBackMarch 25, 2005
The "Moment of Truth" for Banks
Two McKinsey & Company principals recently surveyed 2,100 retail banking customers across the country. The results, highlighted in The McKinsey Quarterly, were not altogether surprising: it’s the “moments of truth,” as these researchers put it, which drives customer perceptions of their institution. Such “moments” include when a customer opens a deposit or loan account, bounces a check, experiences a problem with funds availability after a deposit, or when the bank charges an unexpected fee or makes a mistake in a customer’s account.
Disaffected mass-affluent customers, defined as those with $100,000 in assets or more, were much more penalizing toward the offending institution than mass-market customers, according to the survey. As measured by the size of the relationship with the bank, mass-affluent customers are about twice as punitive in their reaction to a negative event with their institution. Such behavior is tremendously disconcerting for offending institutions, McKinsey notes, since mass-affluent customers produce 13 times as much profit as mass-market clients.
I haven’t seen anything to confirm this, but I’d bet the mass-affluent in the United States view themselves as particularly time-constrained relative to other groups. Spending the time necessary to resolve a problem like a bank mistake, therefore, is particularly resented by this demographic. They are much more likely, therefore, to view problem events as a reason to change institutions.
While this particular study didn’t draw the connection, these results seem a clear explanation for the explosion in both the numbers and profitability of service-oriented community banks in recent years. It is also a telling explanation of why it is so difficult for an acquisition-happy regional bank, by definition constantly battling merger execution and integration risk, to maintain profitability in their acquired properties.
March 24, 2005
China's Swirling Job Market
I’m on my way to China in early April for a couple of weeks. It’s been only about six months since I was last there. One travels to this fascinating country expecting to see momentous change, however, regardless of length of time between visits. That, plus an itinerary which includes a region of the country new to me, central southern China, makes this trip one to look forward to.
Before I leave I’m trying to finish several books on my always-too-high stack of reading material. One of the particularly fascinating volumes in my pile is China Inc.: How the Rise of the Next Superpower Challenges America and the World. The author, former commodities trader turned journalist Ted Fishman, offers a plenty of interesting facts and enlightening vantage points.
While the American focus relative to China invariably centers on domestic job losses, the tremendous swirl of China’s job market makes ours seem negligible by comparison. I’m speaking in the macro sense, of course; to an individual, whether in the United States or elsewhere, the loss of a job is hardly a trivial affair.
The rapidly expanding private sector in China is creating massive disruption among state-owned companies. Since 1978, Fishman notes, nearly 40,000 state-owned enterprises have been shut down. In the five years ended in 2001, about 53 million Chinese workers lost their jobs in the state-owned sector. By comparison, the five hundred largest corporations in the world, as measured by Fortune magazine, have a combined workforce of 46 million people.
In the four years beginning in 1998, the state-owned sector in China fired 21 million workers. This figure, Fishman notes, is more than the entire American workforce employed in the manufacturing sector.
This competitive disruption is largely being caused by China's own private sector, which Fishman pegs at about a quarter of the country’s GDP. This figure is likely understated; a World Bank study estimates the size of the “informal economy” in China was 13% of 2003 GDP.
Even so, the intensity of the swirl in China’s job market likely has a number of years to play out.
Posted by John at 6:46 AM | Comments (0) | TrackBackQuote of the Day for Thursday, March 24, 2005
Today's quote is from Cato the Elder:
"Grasp the subject. The words will follow."
March 23, 2005
Some Perspective on Venture Capital from a Seasoned Pro
I was in Boston yesterday visiting our good friend and partner Joe McCullen. Joe has spent about a quarter of a century in the venture capital business. Joe was a Managing Director for both Whitney & Co. and OneLiberty Ventures. He was a founding investor and board member of several companies which grew to be publicly-traded, multi-billion enterprises, including Intermedia Communications, Brooks Fiber Properties, TeleCorp and MetroNet. During his career his investments have returned, on average, over $7.00 for each $1.00 invested.
As if all that wasn’t enough for one career, Joe spent several years in public service, serving in posts including Special Assistant to the President, Assistant Secretary of the Navy, Acting Secretary of the Navy, and on various Board or Commissions under the last five Presidents.
He now spends about half his time investing in both venture capital and real estate for his family investment firm, McCullen Capital. He also serves on four boards, and is a Senior Advisor to the private equity affiliates of Key Bank.
You might say that Joe knows v.c. You could also say I’m pretty lucky to have been spending a brilliantly sunny March day in Boston, chatting with Joe.
I asked Joe about the state of affairs in the venture capital industry, now about five years removed from the climax of the TMT (technology, media, and telecom) bubble. After several years of plummeting investment caused in part by preoccupation with dealing with troubled investments, the industry has regained some sense of equilibrium. Investors are reallocating assets to venture capital, and venture capital investment overall has been rising over the last eighteen months or so.
I asked Joe where excess and slack investment demand now existed across the v.c. continuum. While many of his peers would not agree with him, he said, too much money is going into late stage venture capital relative to the number of attractive opportunities.
Such an environment is understandable, when you think about it. After seeing millions of dollars disappear into the black hole of TMT start-ups several years ago, it’s natural for investors to prefer later stage, more proven private equity opportunities. By definition, moreover, these companies are theoretically much closer to a liquidity event.
Because of the amount of money flowing into later stage companies, the prospect for excess returns, according to Joe, exists in early stage investing. Entrepreneurs are starving for the funds necessary to take their companies through their formative days. Early stage investors, therefore, are seeing excellent opportunities for profit.
Comparing the Value of a Hog and a Dog
The Financial Times observes ($) that Harley-Davidson’s market value, about $17.7 billion, now exceeds that of General Motors’ roughly $16.2 billion.
Based on 2004 numbers, Harley-Davidson’s market value is over $55,700 per bike shipped, in spite of the fact that net income per bike is only about $2,800. Wall Street investors, by implication, seem happy to accept a 5% return on each Hog sold. (I’ve just come at earnings yield, or as Warren Buffett calls it, “owner earnings,” in a little different way to make a point.)
GM receives much less respect on Wall Street, of course. The struggling auto make sells at only about $1,800 per vehicle shipped in 2004. GM’s net income per vehicle was much less than HD’s in 2004, only $768. The earnings yield for GM, based on 2004 results, is a whopping 43%.
In fairness, GM will lose a tremendous amount of money in the first quarter. While the company puts a brave face on the rest of the year, a loss for all of 2005 could be in the offing. The earnings yield, in other words, has disappeared under the weight of health care costs and other burdens.
With all that said, is GM so reviled among consumers that its value should be less than $1,800 per vehicle? Are Harley-Davidson’s future prospects so compelling that a valuation of $55,700 per Hog is a bargain?
The disparity is compellingly striking.
(We have no position in either stock.)
Posted by John at 11:07 AM | Comments (0) | TrackBackQuote of the Day for Wednesday, March 23, 2005
Today's quote is from the Book of I Ching:
"Before the beginning of great brilliance, there must be chaos. Before a brilliant person begins something great, they must look foolish to the crowd."
March 22, 2005
Another Contrary Indicator for the Dollar
This week's Buttonwood column from the Economist sees the dollar as "heading inexorably down. The question is how much it takes with it."
This "certitude" comes after an 18 month run with the dollar down about 30%+ relative to the Euro.
We believe the dollar's performance in 2005 is likely to surprise the naysayers.
Posted by John at 7:37 AM | Comments (0) | TrackBackDispassionately Measuring the Value of Freer Trade
In this weekend’s Barron’s, Thomas Donlan writes ($) on the research of Scott Bradford, Paul Grieco, and Gary Clyde Hufbauer, on the benefits of freer trade to America. Donlan's article is an interesting summary, and intrigued me enough to track down the original research.
You can find this trio’s work, "The Payoff to America from Global Integration," (pdf) in a book edited by Fred Bergston entitled The United States and the World Economy: Foreign Economic Policy for the Next Decade
This paper begs for your attention, as it dispassionately examines the effects of trade liberalization using a variety of methodologies. Its conclusion: estimated annual gains to the U.S. economy because of loosened trade restrictions amount to about $1 trillion, no small number for a $12 trillion economy.
For the average household in 2003, the estimated gain in income attributable to freer trade policies was between $7,100 and $12,900. Even the low end of that range is no small number for an economy with over $97,000 in GDP per household in 2003.
Such research means nothing, of course, to those whose vested interests require demagoguery of this issue.
Posted by John at 6:37 AM | Comments (0) | TrackBackComing to Oil-Rich Alaska: The World's Smallest Nuclear Reactor
As an alternative to purchasing diesel oil towed from 350 miles away by barge, a small rural community in Alaska is considering developing the world's smallest nuclear reactor, reports the Houston Chronicle:
With Galena tucked into the western part of Alaska, diesel oil that powers the electrical plant must be towed 350 miles by barge. Customers pay 30 cents per kilowatt-hour, compared with a national average of 8.71 cents, so they cook with propane, turn off lights and limit television time.
In need of relief, the community of 700 is turning to nuclear power. But Galena's plant would be far different from other U.S. commercial nuclear power plants — at 10 megawatts, it would be downright tiny.
City officials met recently with staff from the Nuclear Regulatory Commission to discuss licensing a plant being developed by Toshiba Corp. that could be a test case for providing cheap power to rural communities. . . .
The smallest U.S. commercial nuclear power plants are the Fort Calhoun Nuclear Plant, 19 miles north of Omaha, Neb., and the Ginna Nuclear Plant, east of Rochester, N.Y. Both have electrical output of 470 megawatts, roughly 45 times larger than what Toshiba is contemplating, NRC spokesman Scott Burnell said. . . .
If you want a really detailed explanation of Toshiba's reactor, see the exceptional detailed description and analyis by Roland Piquepaille on his blog, Roland Piquepaille's Technology Trends.
Imagine what such a small, relatively cheap source of power would do for developing, non-energy producing regions and countries around the world.
Posted by John at 6:06 AM | Comments (0) | TrackBackQuote of the Day for Tuesday, March 22, 2005
Today's quote is from rocket pioneer Wernher von Braun, born on this date in 1912:
"I have learned to use the word "impossible" with the greatest caution."
March 21, 2005
Quote of the Day for Monday, March 21, 2005
Today’s quote is from Yoda, in the "Star Wars" film, "The Empire Strikes Back":
"Try not. Do... or do not. There is no try."
Posted by John at 6:38 AM | Comments (0) | TrackBackMarch 20, 2005
The Fog You See on the Mirror Comes from the Outside Directors
With CEO changes becoming almost a daily occurrence, a number of press articles have appeared with a common theme: has the pendulum gone too far, and are directors getting too reactionary?
Cheryl Hall of the Dallas Morning News interviewed several different CEOs on the issue, including John Davis, chairman and founder of Pegasus Solutions Inc., a purveyor of hotel-related reservations technology and services:
"Candidly, things I could have gotten through without anyone blinking an eye three, four or five years ago draw a very detailed discussion today," he says.
"Used to be, if we had one independent board meeting a year" – where executives are excused to let the outsiders discuss issues – "it was unusual. There's one now after every board meeting.
"The old 'Let's take the board out to dinner the night before and get everything taken care of' doesn't happen anymore."
Not even if you serve Courvoisier?
"Nothing helps," Mr. Davis laughs. "In fact, you open yourself up for trouble if you even try to bring up issues before the meeting. The days of rubber stamps are long gone in public boardrooms."
Is that a good thing?
"Very much so. When things seem automatic to me, I often don't spend a lot of time thinking about the downside. These guys do. It makes me better at my job."
Only the most insecure CEOs question the value of this increased level of oversight. Insecurity, in this case, can often mean three things, none of which are good: lack of competence for the job, dishonesty, or both.
The results of a recent survey by the Business Roundtable reveal some healthy trends, if you’re a shareholder wondering whether your representatives, the directors, are actually earning their pay:
--More than four out of five companies (83%) have an independent chairman, lead director or presiding director – a 12% increase from a year ago.
--Every responding company expects outside directors to meet in executive session in 2005, with 71% expecting executive sessions at every board meeting.
--More than 92% of companies report increased director participation in the past two years.
--90% of companies have established procedures for shareholder communications with directors, up from 87% last year.
--85% of nominating committees reported they are willing to consider shareholder recommendations for Board nominees.
Is it harder to find qualified directors in such an environment? Undoubtedly. As Ms. Hall quoted Brinker International CEO Doug Brooks: "Ultimately, you get a board member who can give more time and be more involved and committed to your business. That's a good thing."
Amen.
Posted by John at 11:03 PM | Comments (0) | TrackBackThe Chinese Steel Industry: You've Come a Long Way, Baby--in a Very Short Time
According to the International Iron & Steel Institute, world production of steel reached 1.05 billion tons in 2004, the first year in history steel production topped one billion tons.
China’s share of worldwide production in 2004 was roughly 26%, up from 15% in 2000. Its production of 272.5 million tons of steel last year is the highest annual crude steel production ever, according to the IISI.
In the month of December, China produced 26.5 million tons of steel, the highest monthly total ever tallied. (Production for the first two months of 2005 has “moderated” to an average of about 25 million tons.) By contrast, Italy, the tenth largest steel producer in the world and second in the EU only to Germany, produced just over 28 million tons all of last year.
Of the over 200 million ton increase in worldwide production from 2000 to 2004, China accounts for over 145 million tons, or 70% of the increase.
Quote of the Day for Sunday, March 20, 2005
Today's quote (containing sound investment advice) is from one of the greatest ancient Roman poets, Ovid, born on this date in 43 B.C.:
"Let your hook be always cast, in the pool where you least expect it will be a fish."
March 18, 2005
Univision and the Attack of the Caterpillars
Univision has been the “go to” Hispanic media stock for many years, particularly since there haven’t been too many alternatives of size and quality. Most every time a financial writer gets a bug in their ear about the Hispanic market, therefore, Univision is cited as a prime investment vehicle to capitalize on this growing demographic. Stephen Simpson, writing for The Motley Fool, is one of the latest:
. . . Univision continues to crush would-be rivals like GE's Telemundo network. Furthermore, management no longer considers other Spanish-language networks to be the network's prime competitors. Rather, Univision is now competing with the likes of Disney's ABC, GE's NBC, Viacom's CBS, and News Corp's Fox network.
To some extent, this viewpoint is valid. Other dedicated Spanish-language broadcasters like Telemundo and the emerging Azteca America (owned by Mexico's TV Azteca aren't major threats today.
What could be a major threat, though, is the expansion of existing major networks into Hispanic programming -- ventures like ESPN Deportes, MTV Latino, and a host of low-priced Spanish-language tiers offered by cable companies like Comcast. . . .
Simpson touches on a very important point. Mainstream networks such as ABC, NBC, and CBS have had their share voraciously nibbled away at the margin by caterpillars like ESPN, the Discovery Channel, A&E, Court TV, Animal Planet, HGTV, and the 200 or so other networks which are carried on various cable and satellite systems.
If Univision views its prime competition as the mainstream networks, then by extension, it is vulnerable to the same segmentation. The U.S. Hispanic population is now almost 40 million, roughly the size of the country of Spain. Media markets of this size draw media segmentation, by definition.
Another way to look at it is this: how many media companies have maintained an 80% market share indefinitely over a long period of time?
With the mainstream networks, the results of the "caterpillars' appetites" showed little by little over a period of years, but it was inexorable. The same is likely to be true for Univision, in our view.
Posted by John at 10:55 AM | Comments (0) | TrackBackOutsourcing Your Tax Return
Liz Pulliam Weston, writing for MSN Money, sees the number of outsourced tax returns exploding:
As many as 500,000 U.S. tax returns could be prepared in India next year, says tax outsourcing expert Gary Boomer of Boomer Consulting in Manhattan, Kan. That’s up from about 25,000 in the 2002 tax year and 100,000 for 2003. The individual and business returns come from a wide range of U.S. sources, from single-CPA offices to Big Four accounting firms, including Ernst & Young and Deloitte.
The reasons for such outsourcing are straightforward, as Jay Soled explains in The CPA Journal:
. . . Outsourced tax returns can be prepared in an cost-efficient manner by a highly skilled workforce. Moreover, outsourcing obviates the need for U.S. accounting firms to hire temporary staff during the busy tax season months of February, March, and April, and pay concomitant expenses (e.g., health-care costs and unemployment insurance). Although U.S. accounting firms’ experiences have varied, many have enjoyed tremendous labor-cost savings, often 50% or more per return.
The second reason is the practical efficiency associated with using an overseas workforce coupled with the advent of secure websites that enable information to be transferred across the globe in seconds. Because of time-zone differences, U.S. accounting firms often can delegate work to overseas accountants before they leave work at night and find the work done when they return in the morning, effectively creating 24-hour operations.
Finally, accounting firms want to maintain their competitive edge. They fear that if competitors use outsourcing and they do not, they may ultimately price themselves out of the marketplace.
This last explanation may be the most critical one. The fees accounting firms charge are constantly being questioned by their clients. Moreover, I’d be willing to bet that a rising number of individuals view tax return preparation as a commodity, and therefore search only for the lowest price. Like any business operating in the “Wal-Mart” consumer culture, therefore, accounting firms are forced to search for ways to cut and control their costs.
With the recent ChoicePoint and Lexis-Nexis security breaches in this country, however, the thought of your accounting firm transmitting your personal financial data halfway around the globe is a bit scary. Ms. Weston notes that:
. . . .Some of the foreign data processors have security systems that would put their American counterparts to shame.
On a recent visit to Bangalore, New Delhi, Mumbai and other Indian cities, for example, Boomer, the CPA, saw guarded facilities that required fingerprint scans for employees to enter. Briefcases, purses and knapsacks weren’t allowed inside, he said, and the workers had no access to printers or the Internet. The computers they worked on even lacked hard drives, disk drivers or other removable media that could be used to store or transport information.
"The places we saw had far more security," Boomer said, "than any (U.S.) CPA firm you’d see." . . .
Michigan State University professor Judith Collins studied more than 1,000 identity-theft cases where the thief was identified and prosecuted. She found that as many as 70% of those cases started with a crooked, usually low-level employee stealing personal data from a workplace such as a bank or health-care provider.
her study vividly illustrates how sloppy many domestic firms are with their customers’ data. Dishonest employees often can easily access, copy and walk away with reams of confidential information that can be used to commit identity theft. Companies are frequently unwilling to invest in security measures such as encryption or restricted access based on fingerprint scans or other biometric identification . . . .
Ms. Weston goes on to recommend disclosure to clients, which apparently has not been required before now. (I stand to be corrected on this.) She indicates legislation may be needed.
In fact, the industry has already addressed the disclosure issue. In his article for The CPA Journal, Soled points to Ethics Ruling 112 (pdf), issued by the AICPA Professional Ethics Executive Committee, which requires disclosure of any use of a “third-party service provider” for services rendered on or after July 1, 2005:
Posted by John at 9:33 AM | Comments (0) | TrackBack. . . before disclosing confidential client information to a third-party service provider, a member should inform the client, preferably in writing, that the member may use a third-party service provider. This disclosure does not relieve the member from his or her obligations under Ethics Ruling No. 1 [ET section 391.001-.002] under Rule 301, Confidential Client Information [ET section 301.01]. If the client objects to the member’s use of a third-party service provider, the member should provide the professional services without using the third-party service provider or the member should decline the engagement.
A member is not required to inform the client when he or she uses a third-party service provider to provide administrative support services (for example, record storage, software application hosting, or authorized e-file tax transmittal services) to the member.
March 15, 2005
Bank of America's Private Bank: Sell, Sell, Sell
As if you needed any more evidence that big banks don’t really understand that the "ground has shifted" in the private banking and wealth management market, consider the following recent headline from the American Banker ($): "B of A Private Bank Eyes Broader Sales to Clients."
The article quotes the newly named President of B of A's Jane Farley Magpiong: "Clients have multiple needs and are looking for a way to simplify their financial affairs," she said, and the private bank can be a one-stop-shopping experience for its wealthy customers. "We want to attract new people and get them inside the doors, but the biggest area for growth is penetrating the existing client base," she said.
As Barron's recently explored ($) in an article on the wealth management efforts of private institutions, clients increasingly do not trust the recommendations of the "one stop" institutions for precisely the reasons Ms. Magpiong expressed: they feel like they are getting a product pushed on them:
. . . private banks have been trying to shrug off the sales culture that dominated the business for decades, but change isn't happening fast enough for many potential clients. For example, they complain the banks are giving only lip service to "open architecture", or access to the funds of other investment firms, while pitching their own funds aggressively. . . .
Gregory Curtis, chairman of Greycourt, a Pittsburgh-based wealth advisor founded in 1998, says his 60 or so clients -- most of whom have assets of around $100 million -- constantly search for unconflicted advice. "We design a custom strategy for clients, and figure out which bank's products are best for each part of the portfolio," he says. "[My clients] don't want to go to bed at night wondering why their banks recommended emerging markets, and then put them in the banks' own emerging-markets funds" rather than those of a competitor.
You have to wonder how many of Bank of America's boutique competitors have clipped the American Banker article for future use.
Posted by John at 11:03 AM | Comments (0) | TrackBackPlaintiff Attorneys and the War on Terrorism
According to the Times of London, a group of plaintiff attorneys in South Carolina led by Ron Motley has assembled the world’s largest privately developed database of intelligence on Islamic terrorism. Motley is famous for his role in the 1998 litigation against the tobacco companies, and he was portrayed in the movie "The Insider".
The information compiled in this database will be used in a $1 trillion lawsuit on behalf of the families of victims and the injured in the 9/11 terrorist attacks. One of the principal defendants will undoubtedly be Saudi Arabia, according to the article. Thanks to Marginal Revolution for the pointer:
. . . “It’s the best database on Islamic terrorism in the world,” said a senior counter-terrorism official at the FBI. . . .Posted by John at 8:32 AM | Comments (0) | TrackBack. . . Among the millions of pages of documents . . . are the Jordanian intelligence records on Abu Musab al-Zarqawi, America’s most wanted man in Iraq; Bosnian intelligence files of the minutes of the meeting to form Al-Qaeda; German prosecution reports on the Hamburg cell that spawned many of the key players of the September 11 attacks; and Spanish documents that show links between 9/11 and the 2004 Madrid bombings.
There are also records from the Philippines on the failed 1995 Bojinka plot to blow up 12 American airliners over the Pacific, the forerunner of 9/11; Moroccan intelligence on the 2003 Casablanca bombings and Moroccan members of the Hamburg cell; Russian files on Chechnya; and the Swiss bank records of Osama Bin Laden.
. . . Down a series of oak-panelled corridors in Motley’s law office is a darkened room where two database managers sit at laptops in front of a large screen. They showed me how they have adapted a British computer program called Analysts’ Notebook — used by many law enforcement agencies — to find links between some of America’s most wanted terrorists, well known Islamic charities and famous banks.
We typed in “Abdelghani Mzoudi”, one of the Moroccans from the Hamburg cell who, the German authorities believe, was involved in logistics for 9/11. We added “account” and the computer flashed up six accounts. We followed payments to his Citibank account in Düsseldorf and found that his fellow Moroccan, Zakariya Essabar, was the source of one of the transactions. Soon there was a web of bank transactions on screen, linking the two men.
Mzoudi was acquitted last year by a German court that said there was a significant possibility he knew nothing of the plot. German prosecutors are appealing.
One of the database managers demonstrated their party-piece: how they discovered who was behind the Madrid bombings. Running the names of those arrested through their database, they found the same names in documents from the German prosecutors.
“The Spanish government was blaming it on Eta and we were able to show it was Al-Qaeda, because the same names had been lower league players in Hamburg,” he said. . . .
New information is coming in all the time, particularly on the Madrid-Hamburg nexus. The investigation discovered that the July 2001 meetings in Spain of the 9/11 hijackers included individuals who took part in the Madrid bombings.
“We also discovered transfers from the Saudi ministry of interior directly to the Madrid cell,” said [attorney Jack] Cordray. “You are not telling me that money was for building mosques.”
This allegation of Saudi financial support is fundamental to the class action. The case is based on the argument that the 9/11 hijackers could not have carried out the attacks without generous — largely Saudi — backing. It rests on the premise that those who finance terrorist organisations are liable for the damage they cause.
The CIA estimates Al-Qaeda’s annual running costs at $30m (£16m), raised almost entirely through donations. Tracking down the donors has been given low priority by government agencies, but many involved in the war on terror believe it is only in stopping the financing that the fight can be won.
The 205 defendants accused of financing Al-Qaeda include some of the biggest banks in the Middle East, wealthy Saudi individuals and corporations and several leading Islamic charities.
Motley alleges that members of the Saudi royal family contributed millions in protection money to Al-Qaeda after the Khobar Towers bombing in Dharan in 1996, in which 19 American airmen died, a charge the House of Saud denies. . . .
March 14, 2005
Looking Outside for Innovation
IBM is not the only major company to embrace open source, “out of house” innovation. According to the Economist, companies such as GE’s healthcare division, with their LightSpeed VCT heart scanner, are fostering innovation by consulting their key users willing to donate their insights freely. BMW has launched a significant effort to cultivate outside innovation called the Virtual Innovation Agency. To use BMW’s own language, “we are not only interested in our own research and development departments, but also in the creative minds outside the BMW Group.”
The Economist reports on research indicating such innovation is more reliable than the old-fashioned in-house research lab driven by customer surveys and focus groups:
. . . Researchers such as Nikolaus Franke at the University of Vienna and Christian Lüthje at the Technical University of Hamburg have demonstrated the importance of past user contributions to the evolution of everything from sporting equipment to construction materials and scientific instruments. But the rise of online communities, together with the development of powerful and easy-to-use design tools, seems to be boosting the phenomenon, as well as bringing it to the attention of a wider audience, says Eric Von Hippel of the Massachusetts Institute of Technology, who is about to publish a book, “Democratising Innovation” (MIT Press). “User innovation has always been around,” he says. “The difference is that people can no longer deny that it is happening.” Indeed, it is “very likely that the majority of innovation happens this way,” says Mr Von Hippel. Such innovation, he says, has a “much higher rate of success”. . . .. . . Traditionally, firms have innovated by sending out market researchers to discover “unmet needs” among their customers. These researchers report back. The firm decides which ideas to develop and hands them over to project-development teams. Studies suggest that about three-quarters of such projects fail. Harnessing customer innovation requires different methods, says Mr Von Hippel. Instead of taking the temperature of a representative sample of customers, firms must identify the few special customers who innovate.
Researchers call such customers “lead users”. GE's healthcare division calls them “luminaries”. They tend to be well-published doctors and research scientists from leading medical institutions, says GE, which brings up to 25 luminaries together at regular medical advisory board sessions to discuss the evolution of GE's technology. GE then shares some of its advanced technology with a subset of luminaries who form an “inner sanctum of good friends”, says Sholom Ackelsberg of GE Healthcare. GE's products then emerge from collaboration with these groups. . . .
At the heart of most thinking about innovation is the belief that people expect to be paid for their creative work: hence the need to protect and reward the creation of intellectual property. One really exciting thing about user-led innovation is that customers seem willing to donate their creativity freely, says Mr Von Hippel. This may be because it is their only practical option: patents are costly to get and often provide only weak protection. Some people may value the enhanced reputation and network effects of freely revealing their work more than any money they could make by patenting it. Either way, some firms are starting to believe that there really is such a thing as a free lunch.
Posted by John at 7:49 AM | Comments (0) | TrackBack
Being Thankful for My Spot on the Bench
Late last Wednesday evening my partner Henry Brenner was in a major traffic accident with another unlicensed driver running a red light. Fortunately he's ok, with nothing left bleeding and no broken bones. He was knocked around pretty violently, though, so he's going to be sore for a while. His car was demolished.
It is human nature to take our daily pace for granted, assuming that the music will always play with no skips. Events like Henry's accident are harsh interruptions in the comfortable rhythm of life in which all of us float, day to day and week to week.
Such times call us to be thankful for our blessings of life and health, without which our prosperity and position mean nothing. We are also reminded of the precious gifts we receive from family and friends, those whose presence in our lives offers as much psychic benefit as food and water give physical sustenance.
In this specific case, it is a specific reminder of the privilege that I personally have, every day, to work not only with Henry but with the best group of professionals I’ve ever been associated with.
I'm like the utility infielder on the New York Yankees. Bench players on the Yankees often could be in the starting lineup everyday with almost any other team. They choose to play with the Yankees, typically for less money, in order to receive the professional satisfaction of being associated with the best, proud to be a part of a marvelous team of winners.
So, to Patty, Wesley, Sharon and Marcela, to Sam, Gayle and Sharon, to Alicia and Yin, and, of course, to King Henry, thanks for giving me the chance to play ball on your team.
March 13, 2005
Chinese Consumers Demanding the Latest Technologies
Generally speaking, the fastest growing consumer products in China represent the latest technologies, based on a recent Gallup poll:
. . . The percentage of households that own a refrigerator crept up from 39% to 41% from 1999 to 2004, continuing the steady growth evident since Gallup's first national survey in China in 1994. Growth in washing machine ownership has also edged up a bit (from 51% to 54%), and vacuum cleaners are now in 8% of homes versus only 5% in 1999.
But contrast that slow and steady growth with that of more technological products: DVD/VCD (video compact disk) ownership has doubled, from 26% to 52%, in the same time span. Ownership of stereo systems has more than doubled (from 12% to 26%), and microwave oven ownership has tripled, from 6% to 18%. Since 1999, computer ownership has more than tripled (from 4% to 13%). Computers are now found in more Chinese homes than vacuum cleaners!
As reported elsewhere, access to and use of the Internet has virtually exploded; China is well on its way to being the world's largest Internet community. . . .These explosions in product growth are happening not just in the world of computers, but also wherever new technologies promise or provide considerable advantages--in image as well as performance--over traditional technologies.
Official estimates estimate the number of Internet users in China will reach 120 million by the end of this year. When I was in China last summer, at that time we heard current estimates (unofficial) that much or larger.
Also, "image" is indeed as important as "performance," based on our first hand experiences. The Substance of Style is not just a U.S. phenomenon, but there's a Chinese version as well. If you want the latest in cellphone technology, you have to go to China to get it. It's being released there first, not in Japan or in the United States.
Posted by John at 10:22 AM | Comments (0) | TrackBackMarch 10, 2005
Mark Cuban and the Definition of Risk
Exactly five years ago today, the NASDAQ closed at 5048.62. The next day's move, a decline of almost 3%, seemed at the time to be only a temporary blip for an index whose importance in the minds of many investors had eclipsed that of the Dow Jones Industrial Average or the S & P 500.
That 3% drop, of course, presaged something much more ominous. Yesterday's close places the NASDAQ almost exactly 60% below the apex reached five years ago. Assuming an uninterrupted 12% gain every year from year, it will take the NASDAQ a total of thirteen years (about eight more years from now) to reach its 2000 high.
In "commemoration" of the event, Mark Cuban was interviewed on "Your World with Neil Cavuto" yesterday. Cuban sold his company, Broadcast.com to Yahoo! in 1999 for almost $6 billion in stock, and in the process earned roughly $2 billion for himself. He presciently hedged his Yahoo! shares, consequently protecting his capital from the subsequent market bloodbath.
In response to question regarding his current investment activity, Cuban remarked that one can either be a momentum investor or invest in something they know; he chooses to stay in those particular niches and companies in which he has a significant knowledge "edge."
The distinction Cuban draws an important one. Positioning one's self in the middle of the investment jet stream, the essence of momentum investing, is the victory of popularity over discipline. Remaining grounded in whatever part of the world you hold an edge, regardless of its fashion of the moment, is the common trait of all successful investors, regardless of how they made their money.
Cuban not only hedged his Yahoo! stake but actively shorted Internet-related companies he considered extremely overvalued. In Cuban's case, shorting these companies was not inherently risky since he knew the industry intimately.
The risk in one's portfolio is not really measured by the security type employed, individual weightings, volatility, or many of the other indicators to which investment consultants cling.
Risk is much more directly related to the proximity an investor's choices to their own circle of competence. It's vitally important to know what you know, and have the good sense to stay there.
March 9, 2005
Rising Demands on the World's Water Faucet
Arguably the world’s biggest problem receiving the least attention is water. If you think the price of gasoline is ridiculous, the price of water may scare you in a few years. In an article for the Globalist, Steve Loranger, the CEO of ITT Industries, identifies some of the reasons for the problem:
. . . The World Bank estimates that some 300 million people on earth now live in areas of “serious” to “severe” shortages. In 25 years, that number will rise to three billion people in areas of shortage.
And yet, the amount of available fresh water will remain constant at about 1%. All the remaining water in the world is either salt water in the oceans or fresh water unavailable in polar caps, in the soil, snow and humidity.
Whether you look at California, Texas or the Sudan, irrigation is very frequently inefficient and wasteful.
Poor farming practices and subsidized water prices that do not reflect its true cost — and thus provide no incentive to save water — result in even more wasted water.
While agriculture uses 70% of the world’s water, cities just a few hundred miles away from farms often struggle with shortages and high prices. . . .
But farming is not the only culprit. If one looks at manufacturing, the picture is also discouraging.
The world’s manufacturing systems are largely open, meaning water is drawn in for production — and then discarded at the end of the process. More often than not, we are discarding a valuable renewable resource.
The manufacture of a complete car requires 39,000 gallons of water.
One barrel of crude oil takes 1,800 gallons, a ton of steel 62,000 gallons — and just one semi-conductor takes 3,000 gallons.
Just take those cell phones that are so ubiquitous today. Just the chips in each single one of them took many thousands of gallons of water to make.
Our food supply is very water-intensive as well. A pound of bread or a pound of rice each take one ton of water to produce. . . .
To use a Wall Street trading term, Loranger is "talking his book." The fluid technology business of ITT Industries (approximately 40% of the companies total sales) will be a major beneficiary as this trend unfolds. That doesn't mine he's not right.
In coming years this issue is highly likely, in my view, to eclipse oil as the "most discussed commodity."
Posted by John at 8:24 AM | Comments (0) | TrackBackSigns of Economic Life in Germany
Which G7 country (out of the United States, Japan, the United Kingdom, Canada, France, Germany, and Italy) has actually increased its share of world exports over the last five years?
The answer is surprising and remarkable: Germany. If on the scale of "global price advantages" China is a "10," Germany may be a "1" or less.
While German politicians may be flittering around delaying necessary economic reforms, the company’s business community seems to be on the ball. (One highly notable exception is DaimlerChrysler CEO Jurgen Schrempp). The Scotsman reports:
. . . .Corporate profits have consequently risen faster than in the US, the Frankfurt stock exchange seeing profits increase by more than 55 per cent in 2004, up from 36 per cent in 2003, with price per earning ratios that remain tempting.
A more general reason why some closely-watched German confidence indicators, like that published by Nuremberg market researchers GfK, are on the rise, is that despite its hesitancy (some say cowardice), the SPD government, aided by the spur of cheap labour in the EU’s new accession countries, has begun administering a death of a thousand cuts to outdated aspects of German business culture, with labour relations to the fore.
[German Chancellor Gerhard] Schröder has often backed down from confrontation in this area, and the powerful unions are not rolling over, but it is significant that, faced with the recent threat to corporate profits caused by oil price rises, unions have been accepting pay cuts as an alternative to outsourcing and redundancy.
This new flexibility bodes well for the completion of hesitantly begun reforms, the most notorious being loosening requirements on the meisterbrief (craftsman qualifications) that restricts labour mobility. . . .
The German economy may be doing badly but the most successful German firms have responded by making themselves ultra-competitive and concentrating on overseas market. The most successful of them have immunised themselves against the low-confidence, high-cost domestic economy by relocating many of their operations abroad. . . .
. . . It may offend the country’s stakeholding traditions but daring to be "un-German" has greatly improved shareholder value, and may have positive long-term effects on the dynamics of the domestic economy. . .
While venture capital investments are running at a fraction of several years ago levels, private equity investments in Germany, driven by buyouts, is rising. In 2004, buyouts involved German companies had an aggregrate value of EUR 22.5. Deutsche Bank forecasts (pdf) this figure will rise 30% this year.
Strike up the Violin Music for the Mutual Thrift Industry
Let the violin music play.
This morning’s American Banker reports ($) on the problems mutual thrifts, technically owned by their depositors, have with FASB acquisition accounting that public companies have to deal with every day:
Mutual thrifts fear that an accounting change the Financial Accounting Standards Board is considering would make it next to impossible for them to merge with other mutuals.
The change - requiring mutuals to use purchase accounting instead of the traditional pooling method for their mergers - seems innocuous. After all, the accounting board required stock-owned companies to make the same switch in 2001, and they have done hundreds of deals since.
But Dennis Hild, the vice president of accounting and financial management policy for America's Community Bankers, said purchase accounting would add a dense layer of complexity to mutual mergers. That is because in mergers of mutuals "no cash or stock changes hands."
"They don't feel like anything has been purchased because there is no price," Mr. Hild said. . . .
This quote is inadvertently revealing. Prices are vitally important pieces of information in a capitalist society. They serve to properly allocate capital. If there is "no price," then perverse incentives seep into the system.
We’re supposed to feel sorry for these poor mutual thrifts, according to one mutual thrift executive quoted in the article, because they won’t be able to compete if they can’t do deals.
What a crock of beans--to be charitable. Such an obtuse notion ignores the myriad of community banks growing like mad without having to make a single acquisition.
It is also patently illogical. Is getting to a billion dollars of assets, let’s say, going to, in and of itself, make an institution "better able to compete"? The answer of course, is no. If asset size was the answer, everybody under a trillion dollars in assets (Citicorp and Bank of America’s size) might as well raise the white flag and go home.
Mutual thrifts don’t want to be subjects of the marketplace, and that’s dangerous public policy for institutions carrying FDIC insurance. The underreported root of the thrift crisis of the 1980s is that many of the largest flameouts were mutual institutions not subject to the discipline of the marketplace.
Mutual institutions should be required to convert to investor-owned institutions, subject to the accountability such status entails, in order to maintain their FDIC insurance. Such a requirement would be better for the health of the banking system.
Posted by John at 5:07 AM | Comments (0) | TrackBackMarch 8, 2005
Acquisitions: Buffett vs. Corporate America
Warren Buffett's Berkshire Hathaway is sitting a stack of bills $43 billion high. There are only about 110 whole companies whose market capitalization is greater; $43 billion is roughly equal to the market cap of home improvement retailer Lowe's.
In his latest letter to shareholders (pdf), Buffett takes himself to task for setting on such an unused hoard:
. . . My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out. Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position. Charlie and I will work to translate some of this hoard into more interesting assets during 2005, though we can’t promise success.. . . We don’t enjoy sitting on $43 billion of cash equivalents that are earning paltry returns. Instead, we yearn to buy more fractional interests similar to those we now own or – better still – more large businesses outright. We will do either, however, only when purchases can be made at prices that offer us the prospect of a reasonable return on our investment.
While Buffett frets about having so much unused cash, corporate America is on a buying spree. Fortune reports that U.S. companies announced 48 deals of $1 billion or more from November through January. The total deal value, $357 billion, represents the best three-month period in five years.
According to Fortune, the earnings growth many of these buyers will have to squeeze from their targets to justify the premium paid is significant:
--Gillette's earnings will have to grow 12% a year until 2010 to cover the premium P&G paid; Gillette's earnings growth the last five years have been one-third as much.--To earn back the premium Synamtec paid for Veritas, operating earnings growth for the last has to rise an uninterrupted 24% a year for the next five years.
--Even SBC, which is essentially buying AT&T with no premium, has its work cut out for it. Although SBC simply has to hold AT&T earnings flat for the coming five years to make the deal pay, AT&T is a sinking ship. Its operating income has declined by roughly $10 billion (from a $4 billion profit to a $6 billion loss) over the past five years.
Meeting the needed earnings growth to recover the premium in any of these deals will require heavy doses of buzzwords such as "synergy," "cost savings," and "revenue enhancement."
"Synergy" never has been any justification for a Buffett acquisition. All Buffett has asked management to do is stay in place and keep growing the business, mostly organically. In fact, in his letter, Buffett says Berkshire 'after 40 years has finally generated some synergy' though its acquisition of Clayton Homes. Clayton's finance operation is now able to borrow at a much better rate with Berkshire as its parent.
Whose judgment is most open to question: Buffett, for sitting on his cash, or corporate America, for spending theirs in buzzword-laden deals?
Time will tell, but one thing I'm certain of: if Buffett turns out to be wrong, he'll honestly tell us as much, in very simple, unequivocal language.
Posted by John at 2:18 PM | Comments (0) | TrackBackHispanic Population Not Just Growing, But Growing Wealthier
Radio market research firm Arbitron recently released a study called the Power of Hispanic Consumers, 2004-2005 (pdf). While the growth in numbers in the Hispanic market is generally understood, the rising wealth of this demographic is not, in our view.
Here are a few facts of note we pulled from the Arbitron study:
• Hispanics are younger than the general population.
• Larger families; 55.1 percent of Hispanic households have four or more members
• Heavy spending, particularly in certain categories such as groceries, infant and children's clothing, and telecom services.
• Over one-third of Hispanics have some college education, college degree or more.
• Hispanic consumers are more likely to be employed than the average person in the United States, whether full-time or part-time.
• There are 14 million Hispanics 18+ employed full-time in the United States Hispanics spend, in part, due to larger household sizes
• More than 11.6 million Hispanics 18+ are homeowners. (Homeownership, of course, is the greatest store of net worth for most American families.)
• Nearly three million Hispanics 18+ own homes valued at $250,000 or more
• 52 percent of Hispanic adults 18+ own a computer (over 13.7 million)
• Over 21 percent have spent $100+ on Internet purchases
The Hispanic demographic in the United States is generally better educated, wealthier, and more "wired" than what is generally perceived.
Posted by John at 11:45 AM | Comments (0) | TrackBackAs China Goes, So Goes Oil
The analysts at private intelligence firm Stratfor continue to anticipate a looming economic disruption in China, sparked in part by higher worldwide interest rates. The capital structure of most of China’s industrial companies is heavily oriented toward debt, and very low short-term rates have enticed many a number of enterprises to shorten the weighted average maturity of that debt. Vulnerability to rising rates, therefore, is a very legitimate concern.
The severity of any slowdown in China is debatable, but one fact Stratfor points out is indisputable. China’s industrial sector is almost exclusively powered by oil, while most of the country’s electricity is produced by coal. Any industrial slowdown in China is likely to have a major impact, at the margin, on oil prices.
Posted by John at 11:43 AM | Comments (0) | TrackBackMarch 7, 2005
Buffett and the Power of Humility in Communications
With the release of his annual letter to shareholders (pdf), Warren Buffett proves yet again why he not only retains a devoted following and but wins awards for his excellence in writing:
Last year, Berkshire’s book-value gain of 10.5% fell short of the index’s 10.9% return. Our lackluster performance was not due to any stumbles by the CEOs of our operating businesses: As always, they pulled more than their share of the load. My message to them is simple: Run your business as if it were the only asset your family will own over the next hundred years. Almost invariably they do just that and, after taking care of the needs of their business, send excess cash to Omaha for me to deploy.I didn’t do that job very well last year. My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out. Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position. Charlie and I will work to translate some of this hoard into more interesting assets during 2005, though we can’t promise success.
Later in his letter Buffett discusses Berkshire home furnishings subsidiary R. C. Willey and its successful expansion outside of its home state of Utah. Buffett relates that he doubted whether Willey’s expansion into Boise and Las Vegas would be effective; the first Las Vegas store quickly became the top unit in the chain.
A second Las Vegas store located only 20 minutes away from the first was opened. Buffett says he wondered whether that store would only cannibalize the first store. Both stores, he notes, are doing 26% more volume than any other store in the chain and continue to post gains month after month.
R.C. Willey is about to open a store in Reno. “Before making this commitment,” Buffett writes, “Bill and Scott [Willey’s lead managers] again asked for my advice. Initially, I was pretty puffed up about the fact that they were consulting me. But then it dawned on me that the opinion of someone who is always wrong has its own special utility to decision-makers.”
Buffett's personal humility gives the opinions he expresses elsewhere, on such topics as the trade deficit or the expensing of stock options, much more power than would be the case otherwise.
A Change at Sony
Welshman Howard Stringer, who holds dual British-U.S. citizenship, today was named as Chairman and CEO of Sony Corporation, the first foreigner to head the company in its near 60 year history.
Sony, once arguably the most trusted consumer electronics brand name on the planet, has been losing out to companies like Sharp and Matsushita in flat panel TVs and Apple in portable music players.
Sony was co-founded by Akio Morita, who instituted a management policy of shared responsibility for the company’s fate between management and workers. Management, according to Morita’s philosophy, had to run the company as stewards for all employees, not just the top people. Part of the Sony culture was lifetime employment, which was designed to foster long-term thinking.
Sony’s cultural history is not unlike that of IBM. Founder Thomas Watson, Sr. laid out three principles called the “Basic Beliefs”: respect for the individual, the best customer service, and the pursuit of excellence.
As current IBM CEO Sam Palmisano noted in the December 2004 interview with the Harvard Business Review, these tenets morphed perilously:
Unfortunately, over the decades, [IBM founder Thomas] Watson’s Basic Beliefs became distorted and took on a life of their own. “Respect for the individual” became entitlement: not fair work for all, not a chance to speak out, but a guaranteed job and culture-dictated promotions. “The pursuit of excellence” became arrogance: We stopped listening to our markets, to our customers, to each other. We were so successful for so long that we could never see another point of view. And when the market shifted, we almost went out of business. . . .
Success is indeed a very dangerous business narcotic, which dulls the sense of paranoia necessary to survive in a competitive marketplace.
Posted by John at 8:25 AM | Comments (0) | TrackBackMarch 6, 2005
Only the Paranoid Survive at Nippon Steel
Over the last two decades, Nippon Steel has fought the negative effects of the yen’s climb against the dollar and an aggressive competitive threat from South Korean steelmaker Posco, whose exports were tied to the weak dollar. As detailed ($) in the Wall Street Journal, Nippon Steel was forced to take a series of restructurings which removed over $12 billion in costs over that time period.
The lesson?
. . . ."The biggest danger is complacency. "I'm constantly afraid," says Nippon Steel's chief financial officer, Nobuyoshi Fujiwara. "I have learned that no matter how well things are going, it can all change in an instant."
"We have learned that restructuring is not a one-time thing," says Akio Mimura, Nippon Steel's president. To survive, "it has to be a way of life."
Whether it’s currency fluctuation, heightened competition, inflation of raw materials prices, labor pressures are only a few of the hundreds of variables that constantly seek to knock a business off-kilter. To thrive, as Nippon Steel as demonstrated, it’s vital to remember your Andy Grove.
Posted by John at 10:28 PM | Comments (0) | TrackBackForget Chicken Flu, Worry About the Plague
A few days ago I highlighted a Bangkok Post article--representative of many you run across these days--expounding on the severe risk of a major influenza outbreak caused by the H5N1 avian flu virus.
Wendy Orent, author of Plague: The Mysterious Past and Terrifying Future of the World's Most Dangerous Disease, responds with a Los Angeles Times commentary asking us to focus our attention on the plague:
. . . A respiratory disease that Doctors Without Borders believes is pneumonic plague has killed about 60 people and may have infected 400 others in an open-pit diamond mine in northern Congo. This is the same plague that caused the Black Death, wiping out a third of Europe and Asia during the Middle Ages.Posted by John at 9:44 PM | Comments (0) | TrackBack
As CDC plague expert Ken Gage points out, this area isn't where plague is normally found. A traveler may have brought it to the crowded, squalid diamond mines, where it could have puttered along for a time, and then exploded. Doctors Without Borders estimates that 4,000 people have fled the region in fear of the disease. We don't know where they went, or how many of them are incubating the disease. We don't know where it will spread.
The logic is clear: It's human disease factories and not a virus mutating among chickens that should command our attention. We ought to be more worried about conditions such as the Congo mine, where sick people huddle with healthy people and deadly disease can evolve to terrifying effect, than about an avian flu threat that most likely will never come to pass.
March 4, 2005
Trade Policies Pit Steel Companies vs. Their Clients
The “Cleveland Flash,” our friend and partner Bernie Porter, alerted us to a Cleveland Plain Dealer article on the conflict between steel companies and their clients over trade policies:
.....Lawmakers, steel companies and unions urged a trade panel Wednesday to keep steel tariffs on some foreign imports for five more years. Carmakers and appliance manufacturers said it's time to let competition back into the market.
.....The U.S. International Trade Commission is reviewing penalties put in place in 1999 to stop a flood of low-priced hot-rolled steel from Brazil, Japan and Russia. A second wave of steel imports from 11 other countries led to additional tariffs in 2002, which President Bush lifted in late 2003. . . .
....."Unfortunately, unfairly traded imports of hot-rolled steel have continued to plague this industry and continued to harm steel workers and their families," Rep. Ted Strickland, Democrat from Ohio, told the panel. "Now is not the time to terminate relief as the domestic hot-rolled steel industry has only just begun to recover."
.....About two dozen other lawmakers from steel-producing states, including Pennsylvania, West Virginia, Michigan, North Carolina and Illinois, also testified in favor of keeping the tariffs.
.....But domestic manufacturers such as Ford Motor Co., General Motors Corp., Maytag Corp., Whirlpool Corp. and auto parts maker Dana Corp., told the trade panel that the tariffs are causing higher steel prices and harming their businesses.
....."We believe that the restitution in this case [is] no longer needed," said Jeff Engel, executive director for American production purchasing at Ford.
.....The U.S. steel industry has rebounded and reorganized since the tariffs were first ordered. Richfield-based International Steel Group was born after merging several bankrupt steel companies, including LTV and Weirton, while U.S. Steel and Nucor each acquired other companies. . . .
Let’s see here. How does Maytag and Whirlpool compete against cheaper imports like Haier when their raw materials costs are higher because of U.S. tariffs on imported steel? They open plants in China and elsewhere outside the United States.
Environmental Services Growing Quickly Even by China Standards
A recent China Daily article reinforces our belief that the environmental industries will be among the fasting growing in China over the next several years:
.....China will launch a massive campaign soon to implement energy savings and promote environment friendly buildings nationwide, Vice-Minister of Construction Qiu Baoxing said yesterday. .....Qiu said the campaign is crucial since the country is facing growing shortages and continuing waste of resources. ....."If we do not take measures, the situation will continue to worsen," Qiu told a press conference in Beijing. . . . .....Statistics indicate that making of solid clay bricks damages 8,000 hectares of arable land annually in China. Compared with the building industry in the developed countries, China's steel consumption is 10-25 per cent higher, 80 kilograms of extra water is needed for mixing 1 cubic metre of concrete and 30 per cent more water is needed to flush a toilet. .....To make the buildings more energy efficient, environmental impact evaluations will be implemented during the process of construction and when choosing building and decoration materials, electric and machinery equipment, low-voltage electric equipment, landscape equipment, stadium seating, air-conditioning equipment and electronic recording equipment. . . .Posted by John at 9:41 AM | Comments (0) | TrackBack
Trade Between Taiwan and the China Mainland
The Western press gives a lot of space to points of conflict between Taiwan and China’s mainland. The People’s Daily features an underreported aspect of this relationship, one that helps foster stability:
Posted by John at 8:41 AM | Comments (0) | TrackBack