Category: Business / Finance

Spectre and Meltdown prompt tech industry soul-searching

THE timing could hardly have been worse. Just as the tech industry was preparing for its big annual trade show, CES, held this week in Las Vegas, it was hit by one of the most worrying computer-security scares of recent times. On January 3rd it emerged that most microprocessors, the brains of electronic devices, are vulnerable to hacker attacks aimed at stealing sensitive data, such as passwords or encryption keys. Instead of enthusing over the new gadgets presented at the event (see article), many attending discussed only one question: how great would the damage be?

Once the weaknesses became public earlier this month (researchers had first discovered them in June), some cyber-security experts said the only full protection would be to replace all affected processors. The problem is baked into the chips and enables two separate, but…

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Spotify opts for an unusual way of going public

FOR seasoned bankers and starry-eyed entrepreneurs alike, doing an IPO, or initial public offering, is synonymous with the very idea of taking a firm public. No wonder, then, that the decision by Spotify, a music-streaming service, to opt for an unconventional alternative called a “direct listing” has prompted debate. Instead of paying investment banks hefty fees to arrange an IPO, Spotify plans to have existing shares simply switch one day to being tradable on the New York Stock Exchange (NYSE).

IPOs themselves have become rarer, as startups such as Uber and Airbnb have chosen to raise money through private markets instead. Although there was an uptick in the number of IPOs in America in 2017—108, compared with 74 in 2016—the average number of IPOs has remained at around 100 annually since 2000, compared with over 300 in the course of the two previous decades. But until now no big company had contemplated direct listing as an alternative. The structure has been seldom used: in…

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Predicting doom for the bond market

INVESTORS are dragging their attention away from the stockmarket for a moment to figure out what is going on in the other main part of their portfolios: government bonds. Yields have been rising so far this year and Bill Gross, one of the sector’s gurus, has said the long bull market (which dates back to the early 1980s) is finally over.

This certainly seems to be the month for big calls; the noted equity bear Jeremy Grantham has already pointed to the potential for a “melt-up” in the stockmarket. Mr Gross, who runs money for Janus but made his name at Pimco, said that the 25-year trend lines had been broken for both the five- and ten-year bonds.

The end of the bond bull market has been called many times, dating back at least to September 2011. There…

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Investment banks’ cull of company analysts brings dangers

THEY are not extinct, nor even on the endangered-species list. But company analysts, once among the most prestigious professionals in the stockmarket, are being culled. New European rules, with the catchy name of MiFID2, have just dealt analysts another blow. A study by Greenwich Associates estimates that the research budget may drop by 20% this year.

In their heyday in the late 1980s and early 1990s, analysts could make and break corporate reputations. A “buy” or “sell” recommendation from the leading two or three analysts in an industry could move a share price substantially. Fund managers, and many financial journalists, relied on analysts to spot those companies that were on a rising trajectory, and those where the accounts revealed signs of imminent trouble. And the best analysts were very well paid.

But that golden age was built on some rusty foundations. Analysts were well paid because they worked for the big investment banks. But those big banks made money…

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Where did the inflation go?

THE strength of the global economy is one reason why the stockmarket has started 2018 in buoyant mood (with the Dow passing 25,000). At some point, in any expansion, businesses find it harder to recruit workers or get the materials they need; these bottlenecks cause wages and prices to rise. Central banks then start to tighten monetary policy, a process that can eventually turn the market (and the economy) down.

After many years of ultra-low interest rates, the Federal Reserve has started to tighten monetary policy. There were three rate rises in 2017, and three are expected this year. The idea is to tighten gradually and (keep ahead of the curve) so that inflation does not accelerate so fast that a very sharp monetary tightening is needed.

The problem is that inflation remains hard to spot. Continue reading

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Where did the inflation go?

THE strength of the global economy is one reason why the stockmarket has started 2018 in buoyant mood (with the Dow passing 25,000). At some point, in any expansion, businesses find it harder to recruit workers or get the materials they need; these bottlenecks cause wages and prices to rise. Central banks then start to tighten monetary policy, a process that can eventually turn the market (and the economy) down.

After many years of ultra-low interest rates, the Federal Reserve has started to tighten monetary policy. There were three rate rises in 2017, and three are expected this year. The idea is to tighten gradually and (keep ahead of the curve) so that inflation does not accelerate so fast that a very sharp monetary tightening is needed.

The problem is that inflation remains hard to spot. Continue reading

…read more

China’s Ant Financial is obliged to abandon an American acquisition

It didn’t mean jack

“THE geopolitical environment has changed considerably since…a year ago.” That was the explanation given this week by Alex Holmes, chief executive of MoneyGram International, a Dallas-based American money-transfer firm, for Ant Financial abandoning its $1.2bn deal to buy his firm. Ant, the online-payments affiliate of Alibaba Group, a Chinese e-commerce giant, had outbid Euronet, an American rival, in 2017 and secured the approval of MoneyGram’s board for the acquisition. In normal times, Ant would have secured the prize.

But it is up against a rising tide of anti-China sentiment in Washington, DC. Donald Trump has often argued that China does not play fair in global commerce. The sense that China and its companies are not to be trusted is spreading on Capitol Hill, too. Ant’s bid was blocked by the Committee on Foreign Investment in the United States (CFIUS), a government body reporting to the Treasury. It reviews such deals for…

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Masterful salesmanship has pushed Salesforce to ever-greater heights

Benioff’s guide to upselling

VISIBLE from nearly every corner of San Francisco and from up to 30 miles away, the new skyscraper that will be the headquarters of Salesforce, a software giant, stands 1,100 feet (326 metres) tall, making it the highest building in America west of Chicago. On January 8th, after four years of building, workers will start moving in.

Those who know Salesforce’s founder, Marc Benioff, find his firm’s new digs fitting. As creator of a firm that caters to salespeople, he is himself a fiercely ambitious salesman. In its 2018 fiscal year, which ends on January 31st, Salesforce is expected to reach $10bn in annual revenue for the first time. It plans to more than double that figure over the next four years. Even that is not enough. In 20 years Mr Benioff’s “dream” is $100bn of revenue, he muses.

Can his towering expectations be met? Founded in 1999, Salesforce claims a combination of longevity and size that few tech companies…

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Canada frets about anonymously owned firms

WHEN reports surfaced in 2016 of foreign students with no known income buying homes worth millions of dollars in Vancouver, locals said it was yet more evidence that foreigners were inflating prices in Canada’s dearest property market. It was also evidence of a home-grown problem. The students turned out to be figureheads for anonymous firms whose ultimate owners cannot be identified because the information is not legally required by the land registry. Canadian authorities are concerned about the abuses caused by such opacity. The property market may well be attracting foreign criminals and corrupt officials seeking to launder dirty money, notes David Eby, the attorney-general of British Columbia.

Other countries have taken steps to make sure that anonymous ownership of firms does not help criminals. In 2014 G20 leaders agreed to make the ultimate ownership of legal entities more transparent. Britain, for example, set up a searchable, public database of beneficial or ultimate owners of all firms,…

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South Korea’s antitrust tsar has a good shot at taming the chaebol

AS KIM SANG-JO was preparing last May to make the switch from snappy shareholder activist to a regulatory role as South Korea’s fair-trade commissioner, he had a simple message for the country’s big conglomerates: “Please do not break the law.” Not one to make bosses quake in their brogues, exactly. And yet the chaebol, as the country’s family-controlled empires are known, are responding to his call for reform. Addressing complaints about governance, a few have brought far-flung businesses into a simpler holding-company structure. Others have set up funds to provide support to suppliers, which have long accused the giants of treating them badly. Another group is paying out record dividends to once-disregarded shareholders.

Mr Kim was preaching, if not yet to the converted, then to the disconcerted. The chaebol have had a bruising couple of years. Nine of South Korea’s most powerful bosses, some rarely seen in public, were grilled on…

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