For the last year, Pfizer has been laying the groundwork to combat the looming competition against Lipitor, forging deals with insurers, pharmacy benefit managers and patients to meet or beat the price of its generic replacements.
As it loses its patent for Lipitor, the top-selling cholesterol drug, on Wednesday, Pfizer is completing relationships and shoring up discounts — like a reduced co-payment of $4 a month versus the $10 customers would pay for many generic prescriptions.
Some deals require pharmacies to reject prescriptions for low-cost generics, starting Thursday, and substitute a discounted name-brand Lipitor. Some deals have blocked generic makers from mail-order services that account for an estimated 40 percent of all Lipitor prescriptions.
The company’s aggressive strategy may offer lessons for drug makers facing similar losses of patent protection for other blockbuster drugs over the next few years, and may chart a new path for shifts between the big pharmaceutical companies and generic rivals.
Lipitor was the first drug to exceed $10 billion a year in sales, and accounted for almost one-quarter of Pfizer’s revenue in the last decade.
With Pfizer’s plans to try to maintain brand loyalty for the next six months becoming public, industry analysts have raised the company’s earnings outlook by 2 to 4 percent, and now estimate that it could retain 40 percent of the market through next year. Pfizer officials declined to comment on that estimate.
Aiding its chances is a stumbling start-up by generic competitors. Ranbaxy Laboratories, the Indian subsidiary of the Japanese drug company Daiichi Sankyo, won the right to bring the first generic version to market. But Ranbaxy has disclosed it is under federal investigation. It has not yet received Food and Drug Administration approval. Ranbaxy’s president has said it will be ready by Thursday.
Watson Pharmaceuticals of Parsippany, N.J., is a second competitor with a generic version of the drug authorized and manufactured by Pfizer. But Watson has to give about 70 percent of its profits to Pfizer, according to the investment house Sanford C. Bernstein & Company. And Pfizer’s own deals are undercutting both Watson and Ranbaxy on price.
“Pfizer’s tactic of dressing up as a generics company is pulling the rug under the incentive system created to foster the development of generic drugs,” David A. Balto, a lawyer for some generic makers and a former policy director for the Federal Trade Commission, said Tuesday.
Pfizer’s strategy so far is limited to the first 180 days after Lipitor goes off patent. During that period, under law, generic competition is limited and the first entries have historically charged fairly high prices to recoup their costs. After the first six months, any company can enter the generic market, and prices plunge.
Although Ranbaxy and Watson have not yet announced their prices, one top Pfizer official said on Tuesday that its new discounts could be adjusted to beat any tit-for-tat reduction in the expected generic pricing.
“They are a set contract but they could change,” said David S. Simmons, president and general manager of Pfizer’s established products unit. “I mean, it’s at the discretion of two parties. They could change.”
Mr. Simmons said the intention of Pfizer’s discount was to keep Lipitor “at or below generics’ cost to the health care system.”
The discount is also extending to many Medicare prescription drug plans that will dispense Lipitor even if patients ask for generics, according to a memo released by an advocacy group called Pharmacists United for Truth and Transparency.
The memo, from CVS/Caremark, a pharmacy benefit management company, and dated Monday, notified pharmacies that the generic form of Lipitor would not be covered for 29 prescription drug plans it managed for Medicare Part D. Instead, any prescription claims for generic atorvastatin will be rejected with a notice saying: “Brand Lipitor will pay at generic co-pay.”
The company’s memo did not disclose the financial terms.
The government may receive the rebates that drug manufacturers pay to benefit managers and insurers if they are fully disclosed and characterized as rebates, not fees, according to a March report by the Office of the Inspector General for the Department of Health and Human Services. But benefit managers’ records may not be accessible or auditable, it added.
Express Scripts, another large pharmacy benefit manager, is recommending that its clients not accept Pfizer’s deals under the reasoning that it could cost more in the long run, according to F. Everett Neville, vice president for pharmaceutical strategy. “They’re 180-day deals but no one knows what the price of the generic may be if they lower their prices in a month or two,” he said.
Medco Health Solutions, another giant benefit manager, is also recommending that customers switch to the generic version of Lipitor. Medco is sending faxes to tens of thousands of physicians and letters to some of the million people who buy Lipitor through the company, saying they should use generic atorvastatin to save money, said Timothy C. Wentworth, Medco’s group president for employer and key accounts.
At the same time, both Express Scripts and Medco say their own mail-order services will use Lipitor as a “house generic” because Pfizer has guaranteed to match the price and assured a supply.
With mail order increasingly dominant — accounting for an estimated 30 percent of Lipitor sales — those deals are important. Timothy Anderson of Bernstein Research estimated that Pfizer would maintain 90 percent of the mail order market.
Aetna is not taking Pfizer’s offer. “We decided not to participate in the rebate program because it doesn’t support our generic-first philosophy,” an Aetna spokesman, Matt Wiggin, said.
Kevin Hooks, managing partner of the Virtuous Group, a benefits consultant in Las Vegas, also said: “We don’t know what the generic is going to be priced yet. He added, “Right now we think it’ll be a better deal for members to get Lipitor for the first six months, with discount, and then kill the deals.”
Consumers will certainly benefit from generic prices. And Pfizer is making sure of that with a program called Lipitor for You, offering the $4 co-payment card and direct delivery of Lipitor. The program is limited to privately insured people, though, because government programs like Medicare say such discounts could violate antikickback laws and lead to higher health spending.
It’s unclear how taxpayers will fare through the Medicare Part D drug benefits program, administered by private companies. Tony Salters, a spokesman for Medicare, said he could not comment.
Christine K. Cramer, a spokeswoman for CVS/Caremark, said its drug plans had already included the Lipitor rebates in its 2012 Medicare bids, thus lowering premiums for the government and Lipitor users.
Even at the lower price, Pfizer has a huge margin because of the relatively low cost of materials for Lipitor, Bernstein Research estimated. Pfizer, the benefit managers and some insurers insist all of the new discount will be passed along to consumers, companies and other payers.
“Who knows who it’s good for?” said Dr. John Santa, director of health ratings for the independent nonprofit Consumer Reports. With all the companies involved, “and they say consumers are going to be good here, I’d be skeptical,” he added.
Adam J. Fein, a pharmaceutical consultant and blogger, said: “It’s kind of a forerunner of what’s going to happen over the next two years as everyone battles for the incremental profit in the generic wave.” He added: “You have over $80 billion in drugs that are going to go generic. Say $80 billion settles to $10 billion eventually. That’s $70 billion savings. But during that period going from 80 to 10 there’s going to be a lot of money made by the various channel intermediaries, and they all want a piece of that pie.”
This story originally appeared in The New York Times
We all know the iPhone has had its fair share of battery issues. And even some death grip problems. But this is one for the record books: On November 25, a passenger on an Australian flight, traveling between the city of Lismore and the city of Sydney, looked down to find his iPhone 4 had exploded, and was currently emitting plumes of "dense smoke."
So say the folks at Regional Express, a major Australian airline. In a press release with the completely wonderful title of "Mobile Phone Self Combustion," Regional Express said the situation was quickly brought under control by a flight attendant.
"Regional Express flight ZL319 operating from Lismore to Sydney today had an occurrence after landing, when a passenger’s mobile phone started emitting a significant amount of dense smoke, accompanied by a red glow," the release read. "In accordance with company standard safety procedures, the flight attendant carried out recovery actions immediately and the red glow was extinguished successfully. All passengers and crew on board were unharmed."
As the team over at ABC News points out, this isn't the first time Apple has had trouble with exploding gadgets. In 2009, the European Union looked into allegations that various Apple mobile devices had caught fire. More recently, Apple recalled the original Nano music player, which were reportedly at risk of overheating.
No word yet from Apple on the Great Australian Airplane Apple iPhone Combustion of 2011.
American Airlines filed for bankruptcy protection on Tuesday to cut labor costs in the face of high fuel prices and dampened travel demand, capping a prolonged descent for what was once the largest U.S. carrier.
AMR Corp, the parent of American Airlines, also filed for bankruptcy and replaced its chief executive.
The company, which employs about 88,000, has been mired for years in fruitless union negotiations, complaining that it shoulders higher labor costs than rival domestic and foreign carriers that have already restructured in bankruptcy.
United Continental Holdings Inc's United Airlines and Delta Air Lines Inc, both of which used Chapter 11 to cut costs and later found merger partners, are now the largest U.S. carriers. American ranks third.
"The world changed around us," incoming Chief Executive Tom Horton told reporters on a conference call. "It became increasingly clear that the cost gap between us and our competitors was untenable."
AMR named Horton as chairman and chief executive, replacing Gerard Arpey, who retired.
American plans to operate normally while in bankruptcy, but the Chapter 11 filing could punch a hole in the pensions of roughly 130,000 workers and retirees.
AMR pension plans are $10 billion short of what the carrier owes, and any default could be the largest in U.S. history, government pension insurers estimated.
Ray Neidl, aerospace analyst at Maxim Group, said a lack of progress in contract talks with pilots tipped the carrier into Chapter 11, though it has enough cash to operate. The carrier's passenger planes average 3,000 daily U.S. departures.
"They were proactive," Neidl said. "They should have adequate cash reserves to get through this."
PROBLEMS TO ADDRESS
Bankruptcy gives AMR a chance to pare less profitable operations, and could result in the sale of flight routes. The process also gives AMR more flexibility, according to Jack Williams, a professor of law at Georgia State University.
"There are considerable tax benefits that they will be able to use in a bankruptcy case, and they will be able to more aggressively manage their liabilities," Williams said.
But analysts question whether the bankruptcy will address operational shortcomings that have eroded revenue.
"Bankruptcy is not necessarily the be-all, end-all," said Helane Becker, an analyst with Dahlman Rose & Co. "They've got more problems to address in addition to the cost problem."
Shares of AMR closed Tuesday down $1.36, or 84 percent, at 26 cents, down from a 52-week high of $8.89 on January 7. Stock typically is wiped out in bankruptcy.
Shares of rival airlines rallied on expectations that reduced competition could boost fares. AMR had kept a lid on industrywide fares in its effort to keep its airplanes full.
United Continental shares closed up 6.3 percent at $17.63, Delta rose 5 percent to $7.80 and US Airways Group Inc climbed 4.4 percent to $4.46.
AMR shares were halted 28 times on the NYSE on Tuesday for triggering a circuit breaker rule, activated when a stock moves up or down at least 10 percent within five minutes.
SLIMMED-DOWN AMR
In its bankruptcy petition filed in Manhattan, AMR reported assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash.
One bankruptcy rule is "don't wait too long," Harvey Miller, a partner at Weil, Gotshal & Manges representing AMR, said at a court hearing. "Don't wait until the course is irreversible. That is what American Airlines is doing today."
AMR's bankruptcy filing showed few details about how the company would proceed, said Stephen Selbst, a bankruptcy attorney with Herrick Feinstein in New York.
"It's possible they are still in negotiations and don't want to put something on paper that might prejudice those negotiations," he said.
Experts believe AMR stands to save billions by restructuring its obligations in bankruptcy.
"AMR will no longer have its defined benefit pension plan, helping absorb nearly $7 billion in debt," Morningstar equity analyst Basili Alukos said.
"I imagine the company can save between $1.2 billion to $1.5 billion in labor costs, in addition to savings on repair and maintenance and better fuel burn," he said.
MERGER IN THE OFFING?
AMR said the bankruptcy has no direct legal impact on non-U.S. operations. It also said it was not considering debtor-in-possession financing.
But it could susceptible to unsolicited takeover bids from rival carriers. AMR has long said it could thrive on its own.
Robert Herbst, an analyst with AirlineFinancials.com and a former American pilot, said there was a "95 percent" chance American would join up with another carrier within two years.
"US Airways is probably toward the top of the list but it wouldn't be the only (potential merger partner)," he said.
A US Airways representative did not immediately return a phone call seeking comment.
Most large U.S. carriers are the products of mergers.
United Continental combined the former United Airlines and Continental Airlines, while Delta bought the former Northwest Airlines. US Airways was formed from a 2005 merger with America West Airlines.
US Airways and United Airlines filed for bankruptcy protection in 2002, and Delta and Northwest in 2005. US Airways had tried to buy Delta out of bankruptcy.
Japan Airlines Co, one of American Airlines' alliance partners, filed for bankruptcy last year.
American Airlines said it would remain an active member of the oneworld global airline alliance.
LABOR PAIN
American struggled with labor costs despite massive concessions from unionized workers in 2003, which enabled it to avoid Chapter 11 at the time.
"That deal wasn't good enough," former American chief Robert Crandall told Reuters. "The other airlines that went bankrupt cut their costs much deeper than American.
"If you look at all of the elements of the problem, they all stem back to costs," he said. "It hasn't cut capacity effectively given the constraints" that labor placed.
Contract talks with pilots hit a wall in recent weeks over wages, benefits and work rules. Talks with unionized flight attendants have also flagged.
"While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," David Bates, president of the Allied Pilots Association, said in a statement.
A wave of pilot retirements this year prompted speculation of a Chapter 11 filing, given that the retirements could preserve pensions that might be at risk of being terminated.
"The 18-month timeline allotted for restructuring will almost certainly involve significant changes to the airline's business plan and to our contract," Bates said.
CLSA
Sensex Likely To Drop Another 15 to 20 per cent
-The absence of the RBI from the FX market has resulted in a 20 per cent devaluation of the Rupee since August 2011. This is the biggest devaluation undertaken by the country since 1990-91.
-While the devaluation is the most aggressive amongst emerging markets it opens the country to sizeable imported inflation, making it unlikely that the country has seen the last of the interest rate hikes from the RBI.
-Higher interest rates are eating up nearly 60 per cent of the EBITDA of Sensex companies in the First Half of FY12.
-While CLSA has let out a FY12 revised earnings growth forecast of a mere 9 per cent, it still maintains a 18-19 per cent growth in earnings for FY13.
-However, the FY13 Earnings estimate are likely to contract sizeably leading to a review of the forecast earnings for FY13.
-If earnings decline continue, then a 15 per cent drop in Earnings and a 15XFY13 Earnings could result into a 20 per cent fall of the Sensex to 14000.
Fitch Ratings gave the United States until 2013 to come up with a "credible plan" to tackle its ballooning budget deficit or risk a downgrade of the country's coveted AAA rating.
The ratings agency on Monday revised to negative from stable the outlook on the U.S. credit rating after a special congressional committee failed last week to agree on at least $1.2 trillion in deficit-reduction measures.
The committee failure made it unlikely that any meaningful deficit plan will be adopted next year, increasing the fiscal burden on the next administration that will be elected in late 2012, Fitch said.
"The negative outlook reflects Fitch's declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. AAA sovereign rating will be forthcoming," the ratings agency said in a statement, adding that the chance of a downgrade is "slightly greater than 50 percent" now.
The news had little market impact, as a negative outlook from Fitch was widely expected.
"What it shows is that Fitch is putting the U.S. on warning that this cannot go on forever," said Michael Yoshikami, chief investment strategist at YCMNET Advisors in Walnut Creek, California.
"The markets already assumed this was going to happen. It would be different if it was a downgrade but a negative outlook is not the end of the world."
Like Moody's Investors Service, which also has a negative outlook on the U.S. Aaa rating, Fitch does not expect meaningful deficit-reduction measures in 2012, when presidential elections should exacerbate political divisions in Washington.
Rival agency Standard & Poor's cut the U.S. rating to AA-plus in an unprecedented decision on Aug. 5, citing concerns about the government's budget deficit and rising debt burden. It maintains a negative outlook on the credit.
KICKING THE CAN
The so-called "Super Committee" of six Democrats and six Republicans was seen by Fitch as the last chance of an agreement before elections.
Last week, however, its members announced they were unable to agree on a deficit reduction plan, setting in motion automatic cuts worth $1.2 trillion over 10 years. The cuts are designed to be split evenly between domestic and military programs.
Both S&P and Moody's said on Nov. 21 the committee's failure would have no immediate impact on their ratings.
However, Moody's on Nov. 23 warned the United States that its rating could be in jeopardy if lawmakers backtrack on the automatic cuts of $1.2 trillion due to take effect starting in 2013.
In a statement issued after Fitch's decision, the U.S. Treasury said "Fitch's action is a reminder of the need for Congress to reduce the country's long-term deficit in a balanced manner and to avoid efforts that would undo the $1.2 trillion in automatic cuts negotiated last summer."
Fitch is now willing to give the new government that will take office in January 2013 several months to come up with a "sound" deficit reduction plan, top credit analyst David Riley told Reuters in an interview.
"Once we move to the second half (of 2013) and it looks as if a deal can't be done, then the (negative) outlook would likely result in a downgrade," Riley said.
Until then, there is little change of a "material adverse shock" that would trigger an early downgrade of the U.S. rating, he said, playing down concerns about the economic impact of the euro-zone debt crisis.
"If we had a relatively short downturn because, for example, the crisis in Europe got much worse and there was a spillover effect to the U.S. but we thought that it ultimately would prove to be temporary for the U.S. ... then that wouldn't necessarily lead us to change the rating."
Global - Economy and Market
Euro split scenarios risk becoming self-fulfilling
Even as global markets rallied on Monday on talk that a grand plan to save the euro was finally taking shape, more and more researchers are squarely broaching the alternative outcome of the currency's disintegration.
Jean Pisani-Ferry, director of Bruegel, a respected Brussels think tank, noted that market participants and real businesses were increasingly pricing in such a break-up scenario. "It is still hard to think the unthinkable, let alone to work out the details of it, but any rational player has to consider the possibility of it. If disaster expectations build up and a growing number of players start positioning themselves to protect themselves from it, the consequences could become overwhelming," he said in a report.
Fund-raising push speeds European banks' retreat
Europe's banks stepped up efforts to raise funds and offload business in far-flung places on Monday as Bank of Ireland (BKIR.I) sold a parcel of project finance loans and Credit Agricole (CAGR.PA) said it will quit South Africa.
European lenders are expected to ditch up to 3 trillion euros of loans to meet new capital rules, ease funding strains and become more profitable, and a flurry of deals showed efforts to "deleverage" are intensifying.
Fitch revises U.S. rating outlook to negative
Fitch Ratings on Monday revised to negative the outlook on the United States' AAA credit rating after a Congress committee failed last week to agree on at least $1.2 trillion in deficit-reduction measures.
Russia: The central bank left all policy rates unchanged at its meeting on Friday, in line with market
Wall Street ends 7-day slide
Stocks rebounded from seven days of losses on Monday as investors used the latest effort from European leaders to resolve the region's debt crisis as an opportunity to cover short positions.
Japan's Nikkei average rose almost 1 percent on Tuesday, climbing for a second straight session on hopes for more drastic steps to deal with the euro zone debt crisis and a robust start to the U.S. holiday shopping season.
India - Economy and Market
FDI in retail: Government U-turns, says foreign retailers must shop locally
The government on Monday said foreign retailers wanting to set up shop in India must source 30% of their inputs from domestic micro and small enterprises, backtracking from "anywhere in the world" announced last week under political pressure.
Icra lowers GDP forecast to 7.5%; sees Q2 growth at 7%
Rating agency Icra today joined rest of the forecasters to peg down economic growth to 7.3-7.5% from 7.5-7.7% projected earlier, besides pegging Q2 GDP numbers at 7%, following the overall contraction in growth indicators. This is the lowest projections so far from leading agencies as the forecasts from the Government, RBI, Crisil and CMIE are all above or at 7.6%.Icra has also warned that Government will not be able to meet fiscal deficit target of 4.6% and said it will shoot up to 5.5%.
An ET survey shows - economy will grow at an average 7% in the three months to September, according to a poll of 11 leading economists. The economy grew at 7.7% in the April-June quarter. The government is due to announce the GDP growth rate for the second quarter on Wednesday. Economists said the rising costs of funds and policy paralysis in government are weighing heavy on growth. These and the escalating debt crisis in Europe are likely to push growth below the trend, they said, adding that the coming months will be crucial in determining the growth trajectory.
Petrol prices may be cut by about one rupee: Source
The state refiners could cut petrol prices by about one rupee a litre or 1.5% as softening Singapore spot gasoline prices have offset the impact of a declining rupee, an industry source said on Monday
India wants more market access in China to bridge trade gap
The government said it is pursuing market access issues with China for Indian products, a move which will help in bridging the rising trade deficit.
In 2010-11, India's exports to China stood at $19.61 billion, while imports were $43.47 billion, leaving a trade deficit of $23.86 billion.
Indian shares to start lower, Reliance watched
MUMBAI, Nov 29 - Indian shares are set to open lower on Tuesday, weighed down mounting opposition to reforms and as investors await definite moves by European policymakers to address the euro zone debt
Technology News –
Facebook plans IPO between April and June - report
REUTERS - Facebook Inc is looking to go public between April and June 2012 with a valuation of over $100 billion, the Wall Street Journal reported, citing people familiar with the matter.
Twitter acquires mobile security start-up company
REUTERS - Twitter has acquired a start-up company that makes software to improve security and privacy for smartphones and other mobile devices.
Apple beats Android in Britain in Oct-researcher
The long-awaited iPhone 4S launch helped Apple Inc take top spot in the British smartphone market in October, overtaking phones using Google Inc's Android platform, data from research firm Kantar Worldpanel ComTech showed on Monday.
Akaash tablets fuels global interests in the low-cost machine
Panama has approached the Indian Embassy there to buy one lakh units of Akaash. Even Philadelphia has shown interest.
Philippines overtakes India as hub of call centers
MANILA, Philippines: Americans calling the customer service lines of their airlines, phone companies and banks are now more likely to speak to agents named Mark in Manila than people named Bharat in Bangalore.
More Filipinos - about 400,000 - than Indians now spend their nights talking to mostly U.S. consumers, according to industry officials, as companies like AT&T, JPMorgan Chase and Expedia have hired call centers here, or even built their own.
India, where offshore call centers first took off in a big way, fields as many as 350,000 call center agents, according to some industry estimates. The Philippines, which has a population one-tenth as big as India's, overtook India this year, according to Jojo Uligan, executive director of the Contact Center Association of the Philippines.
Facebook, the world's largest Internet social network, is preparing for a initial public stock offering next year, according to a source familiar with the matter.
Facebook is exploring raising $10 billion, the Wall Street Journal said on Monday. It hopes the offering will value the company at more than $100 billion, according to WSJ, which first reported the story.
Facebook's Chief Financial Officer, David Ebersman, had discussed a public float with Silicon Valley bankers but founder and Chief Executive Officer Mark Zuckerberg had not decided on any terms and his plans could change, the Journal said.
The social network, which now claims more than 800 million members after seven years of explosive growth, has not selected bankers to manage what would be a very closely watched IPO. But it had drafted an internal prospectus and was ready at any moment to pull the IPO trigger, the Journal cited people familiar with the matter as saying.
At $100 billion valuation, the company started by Zuckerberg in a Harvard dorm room would have double the valuation of Hewlett-Packard, the Journal said.
A formal S-1 filing could come before the end of the year, though nothing was decided, the newspaper added.
A Facebook representative declined to comment.
Silicon Valley start-ups have this year begun to test investor appetite for a new wave of dotcoms. If it does debut in 2012, Facebook's IPO would dwarf that of any other dotcom waiting to go public.
"Farmville" creator Zynga has filed for an IPO of up to $1 billion. In November, daily deals service Groupon debuted with much fanfare, only to plunge below its IPO price within weeks.
LinkedIn and Pandora are now also trading significantly below the levels their stocks reached during their public debuts earlier this year.
Facebook has become one of the world's most popular Web destinations, challenging established companies such as Google and Yahoo for consumers' online time and for advertising dollars.
Facebook does not disclose its financial results, but a source familiar with the situation told Reuters earlier this year that the company's revenue in the first six months of 2011 doubled year-on-year to $1.6 billion.
Eric Feng, a former partner at venture capital firm Kleiner Perkins Caufield & Byers who now runs social-networking site Erly.com, said that the cash Facebook will get in an IPO would allow them to make more acquisitions and refine or work on new projects, such as a rumored-Facebook phone or a netbook.
Having tradable stock will also allow Facebook to attract more engineering talent who might have been more attracted to the company in earlier days when it was growing faster but now perhaps might be attracted to other companies. "It'll be a powerful bullet for them," said Feng.
Investors have been increasingly eager to buy shares of Facebook and other fast-growing but privately-held Internet social networking companies on special, secondary-market exchanges.
Facebook said in January that it will exceed 500 shareholders this year, and that in accordance with SEC regulations, it will file public financial reports no later than April 30, 2012.
Europe continues to take the centre stage in terms of determining the outlook for global financial markets and economies – and it is therefore critical to try and keep abreast of the constantly evolving events in the Eurozone and incorporate them into your decision making framework. Germany continues to insist on harsh fiscal austerity in the periphery, without a "lender-of-last-resort" role for the ECB and issuance of jointly guaranteed Eurobonds. The horrors of the Weimar hyperinflation of the early 1920s remain firmly entrenched in the national psyche and influence its deep aversion to "monetary financing" (i.e. monetizing government deficits via the printing press). However, Germany should perhaps be even more concerned about the horrors which could be unleashed by a prolonged and deep recession which was actually the real cause for the rise of Hitler in the 1930s as detailed by Dylan Grice of Societe Generale in a fascinating note. To summarise:
-In the aftermath of the collapse of the gold standard in the early 1930s , most countries selected the easier option of devaluation of currencies to inflate themselves out of a painful recession with the main exception being Germany which chose to cling to the gold standard (and resulting deflation), haunted by the horrors of the 1923 hyperinflation (see attached chart).
-The US clung onto the gold standard longer than countries like the UK and Japan and therefore suffered a deeper depression, while Germany experienced an even more devastating depression than the US as it suffered a comparable loss in industrial output but significantly worse (and more prolonged) unemployment levels (33% at its peak - see attached chart).
-It is generally believed that the rise of the third Reich was caused by the 1923 hyperinflation, and while it is true that Hitler made his first attempt to grab power in 1923 with the "Beerhall Putsch", by the late 20s the Nazis were just another large fringe group.
-The depression in Germany which began in the late 1920s (associated with rising unemployment levels) was tightly correlated with the rising share of the Nazis electoral vote (from less than 5% in the mid 20s to late 20s to 45% by 1933-see attached chart).
-What would the course of history have been if Germany had inflated like the UK, which left the gold standard in 1931 and experienced a significant drop in unemployment and a recovery in output. With unemployment levels of 17% rather than 33% would the Nazis have won the March 1933 elections?
-By insisting on imposing harsh fiscal austerity on the periphery, Germany runs the risk of ever-more misery in the affected countries, and a severe political backlash blaming Germany for their misery.
-It is time for Germany to make-up its mind –the Euro or its hard money principles. It is likely that Germany will eventually make the decision in favour of the Euro, and allow the ECB to act as a lender of last resort. A continued economic slowdown in Germany would make this choice even more probable.
-This could be implemented by giving the EFSF a banking license, allowing it to borrow from the ECB and act like a euro IMF – bailing out countries in return for certain conditions to be met (e.g. labour market, welfare and tax reforms). There would be no breach of existing treaties. The treaties could also be changed (in due course) allowing countries to opt out of the Euro.
Absolutely fascinating and yet another example of how easily misconceptions get imbedded in the popular psyche and lead to erroneous actions and unnecessary and widespread misery! Anyway, I agree that Germany will eventually have to make a choice between the Euro and allowing the ECB to act as a lender-of-last-resort – the question is when? Germany is adamant in following a step-by-step process of eventually more European political and fiscal integration via change of treaties (which will take several years to effect), coupled with some level of support for government bond markets via limited purchases by the ECB in the secondary markets, and support from a leveraged EFSF (and possibly a Euro Redemption fund as recently suggested by the German Council of Economic Advisers). This approach may well work but would the markets be patient enough and not force Merkel's hand prematurely? Time will tell, but meanwhile expect continued volatility in markets – though not a meltdown or a significant upward trend until this issue is resolved.
On Asian Credit Growth:
The above note also has relevance to Asia, as it drives home the point that eventually (when push comes to shove), governments when faced a choice between growth and inflation will choose growth as the social consequences of no growth are more severe – yes, inflation is not a pleasant experience as you lose the real value of your income – but the alternative of having no income at all is far worse!. The attached graph highlights this choice by depicting credit growth in Asia over the past decade and highlights China's very timely response to the 2008 financial crisis by embarking on an unprecedented credit growth rate of 35% per year! With the global economy in a slowdown mode yet again, expect China (and the rest of Asia) to embark on another credit growth cycle leading to buoyant stock (but perhaps not property which was the main beneficiary of the credit spurge) markets.
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Global - Economy and Market
Italy's Monti in austerity race as IMF role eyed
ROME - Prime Minister Mario Monti faces a testing week seeking to shore up Italy's strained public finances, with an IMF mission expected in Rome and market pressure building to a point where outside help may be needed to stem a full-scale debt emergency.
China factory unrest flares as global economy slows
DONGGUAN, China - In factory towns across China's export powerhouse in the Pearl River Delta, a vicious cycle of slowing orders from the West and increasing wage pressures has led to a series of major strikes that could reverberate through the economy.
Europe's banks plan accounting tricks to look stronger
European banks are planning to change how they calculate risk-weighted assets to make it look like they have improved their financial conditions. Such a change could allow banks to avoid selling assets or new shares to meet new capital requirements.
China kicks off yuan trading vs Aussie, Canadian dollar
SHANGHAI - China's yuan started trading against the Australian dollar and Canadian dollar in the country's onshore forex market on Monday, the latest currency pairs to be introduced as part of Beijing's efforts to promote the use of its currency.
8:33am IST
China on track to be world's biggest online market by 2015
China will replace the U.S. as the world's biggest online market by 2015, a Boston Consulting Group report says. China will have more than $314 billion in online sales by that year, the report says. China Daily (Beijing) (23 Nov.)
Hungary: Moody's downgraded Hungary's government bond rating by one notch to Ba1, below investment grade, and the kept its outlook negative yesterday
Asian shares jump, euro firms amid Italy aid
TOKYO - Asian shares jumped and the euro firmed on Monday on hopes Europe will come up with some concrete steps this week toward activating a crucial euro zone bail-out fund and reports that the International Monetary Fund is considering helping Italy.
MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS rose 1.6 percent, after slumping to its lowest level since early October on Friday to mark a fourth consecutive week of declines.
Japan's Nikkei .N225 gained 1.9 percent after hitting its lowest in two and a half years on Friday.
India - Economy and Market
RBI: opening up retail to help growth, curb inflation
CHANDIGARH - India's growth story is still "credible" and the move to open up the economy to global supermarket chains will help growth and control inflation, RBI governor Duvvuri Subbarao said on Friday.
Rules stipulating that foreign supermarkets will have to source 30 percent of produce from smaller industries cannot be restricted to the Indian market, as this would violate World Trade Organisation guidelines, a senior official said.
India opens retail sector to foreign investment
The specific conditions linked to the approval are yet to be announced.However, citing an unnamed government official, Bloomberg has reported that these will
likely include two conditions: 1) large overseas retailers would be required to invest a minimum of USD100mn million in India; and 2) the stores would be allowed only in cities with at least 1 million inhabitants. The government will apparently also allow 100% foreign ownership of single brand retail operations, up from 51% earlier.
This is a major and welcome change that could have important implications for inflation going forward.
We think the liberalization measures could spur investment in food storage and transportation facilities that would reduce wastage and therefore frequent supply shortages that drive food price volatility. It is believed that
about 40% of India's fruit and vegetables rot before they are sold, for example. This has been a structural driver of food inflation that has partly kept WPI inflation elevated.
Therefore, if the move successfully results in improved storage facilities, this should provide some relief for the RBI in the future.
FX reserves at $308.624 bln as on Nov 18
MUMBAI - India's foreign exchange reserves fell to $308.624 billion on Nov. 18, from $314.339 billion in the previous week, the RBI said in its weekly statistical supplement on Friday.
Cabinet note on PSU cross-holdings soon
The finance ministry will move a cabinet proposal to allow government companies to acquire equity in other public sector units.
Foodgrain productivity up 8% at 1,921 kg/hectare in 2010-11
Foodgrain productivity rose by 8 per cent to 1,921 kg per hectare in 2010-11 crop year, Parliament was informed today.
The average growth in Gross Domestic Product (GDP) of agriculture and allied sectors suffered a setback due to severe drought in many parts of the country during 2009-10 and drought/deficient rainfall in some states namely Bihar, West Bengal, Jharkhand and East Uttar Pradesh in 2010-11
However, the GDP growth for agriculture sector touched 6.6 per cent in 2010-11 -- the highest growth rate achieved in last six years -- on account of the corrective actions taken by the government
Indian shares to open up; retailers, Reliance eyed
MUMBAI, Nov 28 - Indian shares are expected to start higher on Monday, supported by firmer Asian markets and hopes the government will push more reforms after liberalising foreign investment in the retail sector.
Technology News –
Mid-sized IT cos go for buyouts
Mumbai-based software products and services provider Infrasoft Technologies has mandated three investment banks including Avendus Capital to look for acquisitions in the US in the range on $10-15 million. This comes on the heels of Infrasoft's acquisition of the financial services business of KPIT Cummins in October this year.
Cloud technology for instance has been a focus of many acquisitions in recent times with companies like Aditi Technologies and Vembu Technologies making acquisitions in the space.
Internet startup Flipkart and BPOs like EXL and Hinduja Global Solutions (HGS) have also bought companies over the last few months. HGS in August acquired Canada-based customer relationship management company Online Support (OLS) for $78 million.
Dion Global Solutions, a software solutions provider for financial markets, today said it has acquired UK-based wealth management and stock broking software provider Investmaster Group for an undisclosed amount.
TK Kurien cleans up Wipro with elbow grease, puts it back on growth path
Its operational metrics show that vitality is returning, helped in no small part by TK Kurien, the man who took over as chief executive of the Bangalore based company nine months ago.
Volumes - a measure of the number of hours billed by software engineers - have jumped 6% in the three months to September compared with the well under 2% quarterly growth when Kurien took over. That was marginally behind larger rival TCS (6.3%) and ahead of Infosys (4.6%).
HTC CFO says plans to launch competitive phones in Feb
TAIPEI - Taiwanese smartphone company HTC Corp said it has confidence that new products to be launched at the Barcelona Mobile Conference next February would be more competititive and achieve better sales.
AT&T to offer bigger asset sale to save T-Mobile deal - Bloomberg
REUTERS - AT&T Inc is considering an offer to divest a significantly larger portion of assets than it had initially expected, in order to salvage its $39 billion deal to buy T-Mobile USA, Bloomberg reported citing a person familiar with the plan.
There are all kinds of debt—as small as personal debt or as large as national debt. There's another type of debt as important as the rest—called Sovereign Debt. CNBC Explains.
What is sovereign debt?
It's debt guaranteed by a particular government, often called external debt.
What happens is this: In order to raise money, a government will issue bonds in a currency that is not the government's—and sells those bonds to foreign investors.
This is what makes the debt external, as purchasers are from outside the country.
The currency chosen for the sovereign debt is usually a strong one, in that its value is higher than other currencies.
Bonds, of course, are instruments of debt to be paid back at a certain time—that can be as long as ten years or as short as one year—with the original investment plus interest. Bonds issued by a government in a foreign currency are called sovereign bonds.
The money collected by the sale of the bonds can be used in any manner the issuing government wants. For instance, the funds can be used to spur job growth with spending on infrastructure projects. A government could also give the money to private companies or banks.
It's important to note, sovereign debt is technically owed by a government and not the citizens of the country issuing the sovereign bonds. It's not thenational debt.
However, in order to pay the sovereign debts, the government has to come up with the money in the foreign currency in which it sold the bonds. To get that money, the country could divert funds from internal spending, increase taxes, and/or induce cutbacks in social programs such as pensions.
© 2011 CNBC.com
Economist Paul Volcker was Chairman of the Federal Reserve under Presidents Reagan and Carter. But his name is becoming more well known for a part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. It's called the Volcker rule, and CNBC explains.
What is the Volcker Rule?
The rule restricts U.S. banks, or an institution that owns a bank, from making certain kinds of speculative investments with their own money that could hurt their customers.
That includes any bank or credit union that is federally insured and accepts deposits, as well as traditional banks and investment firms likeGoldman Sachs and Morgan Stanley—which are now bank holding companies.
The rule was proposed by Volcker as part of the the Dodd–Frank reform bill of 2010. Volcker was then the Chairman of the Economic Recovery Advisory Board under President Barack Obama, a post he left in January 2011.
Volcker partly blamed the speculative investing by banks for helping create the financial crisis of 2007-2010. He felt the type of investing the banks were doing resulted in putting customers at great risk for financial losses through the trading.
To be specific, the rule prohibits banks from engaging in short-term trading of any security, derivatives and certain other financial instruments from a bank's own funds. And it prohibits owning, sponsoring, or having certain relationships with a hedge fund or private equity fund.
The rule would require banks to create some sort of internal compliance program for making trades. Banks with major trading operations would have to report to federal agencies.
Banks made huge profits in the years leading up to the financial crisis on the type of trading the Volcker rule would stop—more than $15 billion by some estimates.
President Obama has come out in favor of the rule, as have many consumer groups.
What do critics say about the rule?
Banks say the rule would hurt their profits and cost banks additional money in attempting to comply with all of the rule’s details. Traders say their bonuses would be cut, as they would no longer be able to make commissions on certain trades.
The rule is also subject to many exemptions for trading, which some Volcker Rule supporters say are not stringent enough and banks say are too complex.
Is the Volcker Rule in place?
Not yet. The rule is still being worked on. The Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation and Securities Exchange Commission did release a version of the rule on Oct. 11, 2011. It is 298 pages long.
Regulators have given the public until Jan. 13, 2012 to comment on the proposed draft of the rule.
Under the Dodd-Frank financial reform bill—which was signed into law in 2010—the final version of the Volcker rule will go into effect on July 21, 2012.
© 2011 CNBC.com
What is the Volcker Rule?
The rule restricts U.S. banks, or an institution that owns a bank, from making certain kinds of speculative investments with their own money that could hurt their customers.
That includes any bank or credit union that is federally insured and accepts deposits, as well as traditional banks and investment firms likeGoldman Sachs and Morgan Stanley—which are now bank holding companies.
The rule was proposed by Volcker as part of the the Dodd–Frank reform bill of 2010. Volcker was then the Chairman of the Economic Recovery Advisory Board under President Barack Obama, a post he left in January 2011.
Volcker partly blamed the speculative investing by banks for helping create the financial crisis of 2007-2010. He felt the type of investing the banks were doing resulted in putting customers at great risk for financial losses through the trading.
To be specific, the rule prohibits banks from engaging in short-term trading of any security, derivatives and certain other financial instruments from a bank's own funds. And it prohibits owning, sponsoring, or having certain relationships with a hedge fund or private equity fund.
The rule would require banks to create some sort of internal compliance program for making trades. Banks with major trading operations would have to report to federal agencies.
Banks made huge profits in the years leading up to the financial crisis on the type of trading the Volcker rule would stop—more than $15 billion by some estimates.
President Obama has come out in favor of the rule, as have many consumer groups.
What do critics say about the rule?
Banks say the rule would hurt their profits and cost banks additional money in attempting to comply with all of the rule’s details. Traders say their bonuses would be cut, as they would no longer be able to make commissions on certain trades.
The rule is also subject to many exemptions for trading, which some Volcker Rule supporters say are not stringent enough and banks say are too complex.
Is the Volcker Rule in place?
Not yet. The rule is still being worked on. The Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation and Securities Exchange Commission did release a version of the rule on Oct. 11, 2011. It is 298 pages long.
Regulators have given the public until Jan. 13, 2012 to comment on the proposed draft of the rule.
Under the Dodd-Frank financial reform bill—which was signed into law in 2010—the final version of the Volcker rule will go into effect on July 21, 2012.
© 2011 CNBC.com
There aren't many tech fields that move faster than the cell phone world. Not only are the devices themselves designed to be disposable within two years, but the back-end technology powering the networks is constantly being upgraded.
That means the transition to the next generation of wireless communications is already under way. The latest is called 4G — and all of the carriers are peppering their marketing with the phrase. What many are failing to do, though, is explain what's so important about 4G and why consumers should care.
What is 4G — and how is it different from 3G?
4G is the fourth generation of phone data networks. The first generation (1G) made its debut in 1979 in Japan. The analog network, launched by Nippon Telegraph and Telephone, was a breakthrough at the time, but it lacked range and required enormous battery power. (It was also incredibly insecure and allowed just about anyone with a little tech know-how to listen in on calls.)
The new Sprint HTC Evo 4G smartphone is displayed at the International CTIA Wireless 2010 convention at the Las Vegas Convention Center March 24, 2010 in Las Vegas, Nevada. CTIA is the international association for the wireless telecommunications industry.
2G made its debut in 1991 and introduced digital signals to cell phone technology. This added a layer of security to conversations and took up less bandwidth, meaning the batteries (and thus, the phones) could be smaller. During this time text messaging and email delivered to your phone became possible.
3G, the current standard, made its debut in 2001 – but no one really took notice until 2007, when Apple introduced the iPhone. 3G allowed providers to simultaneously provide voice and data services. Also, people could watch video on their phones. But as smart phones gobbled up more bandwidth, the reliability of 3G became spotty.
4G further strengthens cell phone security and dramatically increases bandwidth. That means fewer dropped calls, significantly faster streaming and Web access, and more multimedia functionality.
© 2011 CNBC.com
What is Mark to market accounting?
From this video, you’ll understand:
The rationale behind mark-to-market accounting
How mark-to-market and fair value accounting differ from historical cost
Oren Etzioni writes articles about artificial intelligence for scholarly journals, is a renowned expert on data mining and gained fame when Microsoft paid $115 million for Farecast, an airline-ticket price predictor he founded.
Now, Professor Etzioni, who teaches computer science at the University of Washington, has directed his considerable intellect at the American ritual of shopping for bargains on Black Friday. After examining billions of prices of consumer electronics, he has decided to spend the busiest shopping day of the year scuba-diving in Bali.
Why? It is not until early December, Professor Etzioni’s research shows, that prices are likely to be the lowest for electronics, products that are among the biggest sellers on the Friday after Thanksgiving.
“The bottom line is, Black Friday is for the retailers to go from the red into the black,” he said. “It’s not really for people to get great deals on the most popular products.”
What the professor has determined with a complex computer algorithm for consumer electronics, others have found through less scientifically rigorous means for other products, including clothing and toys: despite all the ads that suggest otherwise, the lowest prices tend to come at other times of the year.
In the case of toys, stores actually offer the steepest discounts in the weeks immediately following Thanksgiving because they want to unload the inventory not swept up on Black Friday, said Dan de Grandpre, who has tracked deals for 15 years at Dealnews.com.
“Toys have a very short shelf life,” he said.
“On Dec. 26, they’re not really useful to retailers anymore, so they have to get rid of it and start slashing prices early in December.”
And it is a precise window of opportunity. In the week or so before Christmas, toy prices shoot back up, Mr. de Grandpre’s tracking shows, as last-minute shoppers come stampeding for Barbies and Lego sets and stores are less desperate “because they’ve been able to reduce their inventory.”
The added value Professor Etzioni brings to price discussions is the computer crunching of the trove of data provided by online prices—and specific recommendations about when to make a purchase.
Following the approach of Farecast, now part of Microsoft’s Bing search engine, the professor’s start-up company, Decide.com, studies current and historical prices, information about new models and rumors about new product introductions to figure out the best time to buy.
Type in the name of a product—a Soundcast SurroundCast speaker system, for instance. Decide.com will pull prices from around the Web, and tell you to buy or wait. In the SurroundCast case, it showed this week that prices were at $150 in early September and had now gone up to $160.
The verdict: wait. Decide.com said it was 96 percent confident that prices for the speaker system would drop within two weeks.
Introduced this summer, the Web site predicts prices for consumer electronics only, though Professor Etzioni says there are plans to expand to categories like cars and potentially even clothing in a couple of years. In the meantime, others are making educated guesses about when it is best to spend money on variety of products.
James C. Bieri, who heads a Detroit-based real estate firm that leases to retailers, has determined there are far better times than the Friday after Thanksgiving to make most apparel purchases. Many stores offer steep discounts on products other than clothing, he said, to get shoppers into their stores.
“They’re going to use apparel to get some of the margins back on the stuff they’re giving away,” he said. Better times to make apparel purchases include back-to-school and post-holiday clearance sales, and it is an area where coupons, friends-and-family discounts and the like are big money-savers.
Assuming fruitcake and candy canes still sound good after the holidays, sales of gourmet food and candy should be postponed until then, advised Brad Wilson, of BradsDeals.com, because prices drop drastically.
As for appliances, major retailers like Sears tend to discount those at the end of their fiscal quarters (Sears’s next quarter ends Jan. 31.) But Mr. de Grandpre said that this year, the deals in the weeks before Thanksgiving had been as good as he could remember, especially from retailers like Lowe’s and Home Depot, and brands like LG and Samsung.
Retailers do discount smaller appliances on the Friday after Thanksgiving. “You’ll see small kitchen electronics under $20, sometimes under $10—blenders, toasters,” he said. “But it’s low-end, cheap Chinese knockoffs that are heavily discounted—often there’s a mail-in rebate hassle that goes with it—but it’s a very, very low price.”
That is true of most of the biggest deals on that Friday, he said. Because retailers want to impress shoppers with very low prices, the quality of the discounted items can be low.
For higher-end electronics, Mr. de Grandpre’s trends show, shoppers should wait until the week after Thanksgiving.
“Black Friday is about cheap stuff at cheap prices, and I mean cheap in every connotation of the word,” Mr. de Grandpre said. Manufacturers like Dell or HP will allow their cheap laptops to be discounted via retailers on that Friday, but they will reserve markdowns through their own sites for later.
“Their best promotions happen during Cyber Monday week,” he said, referring to the marketing name drummed up by online retailers for the Monday after Thanksgiving.
Did Decide.com agree with the laptop advice?
It did. A low-end Dell laptop had dropped to $249 at Amazon this week, and Decide said to buy it now. But for a more feature-heavy laptop, priced at $1,528 at Sears and $1,541 at PCNation, Decide said to wait, as it expected prices to stay flat or decline by up to $339 within two weeks.
On Friday, “there will be big sales, but are they big sale on the items you want?” Professor Etzioni said, over his remarkably clear cellphone connection from Bali. “Look at all the amazing volatility, and wait for the price drops.”
If some consumers insist on shopping on Friday, Professor Etzioni and Mr. de Grandpre have some suggestions. Movies, music and books are among the few categories that reach their lowest prices starting the week of Thanksgiving, Mr. de Grandpre said. And for online shoppers, the professor’s Decide.com could spot a good deal in a holiday special of smartphones for 1 cent from Amazon.
“Buy,” the Web site advised, “before prices rise.”
This story originally appeared in The New York Times
Ever heard of the phrase six degrees of separation?
The theory refers to the idea that every person is only six steps away, by way of introduction, from any other person on Earth. In 1967, psychologist Stanley Milgram published his findings on 'six degrees' after conducting an experiment where 296 volunteers were asked to send a message via postcard through friends, and then friends of friends to a specific person in Boston. Well Facebook is making the degree of separation even smaller. The social media site has taken the concept and reduced it to just 4.74 degrees of separation. Over a one month period, researchers at Facebook and The University of Milan used algorithms that measured the connections between 721 of its users. According to a New York Times article, the algorithms calculate the average distance between any two people by computing a vast number of sample paths among Facebook users. They found that the average number of links from one arbitrarily selected person to another was 4.74. In the United States, where more than half of people over 13 are on Facebook, it was just 4.37. Therefore, the results confirmed that given any other person on Earth, a friend of your friend probably knows a friend of their friend. Of course, this depends on your definition of the word 'friend.' Some people say these connections between other people simply support the idea that Facebook's definition of 'friendship' is not the same as it is in the real world. At any rate, with the help of Facebook and social media in general, it has become a lot easier to reach people and make connections. Looks like the world just got a little bit smaller.
