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Updated: 5 min 38 sec ago

Warren Buffett has many fans in China but few true followers

Thu, 05/04/2017 - 14:55

AS THE second-richest person in the world, and with a half-century record of investing success, Warren Buffett is a household name worldwide. But in China, he is something more: a celebrity. In March a special edition of Cherry Coke, featuring a cartoon image of the 86-year-old investor, hit Chinese shop shelves (Mr Buffett not only loves the sugary beverage; he is Coke’s largest shareholder). On May 6th thousands of Chinese investors will descend on Omaha for the annual meeting of Berkshire Hathaway, his holding company, and many more will tune into a live-stream of the event. Mandarin is the only foreign language into which the proceedings will be simultaneously translated. Those who miss the broadcast can pick up one of the hundreds of Chinese books about his approach to minting money.

Mr Buffett’s stature in China stems partly from good timing. China’s modern stockmarket was launched in 1990. Just as neophyte investors grappled with earnings reports and trend lines, the Oracle of Omaha’s reputation as the world’s best stock-picker was blossoming. Compared with the regular booms and busts of the Chinese stockmarket, the steady returns of Berkshire Hathaway are...

Investors are both bullish and skittish about share prices

Thu, 05/04/2017 - 14:55

TEN years ago this month investors were pretty confident. True, there were signs that problems in the American housing market would mean trouble for mortgage lenders. But most people agreed with Ben Bernanke, the Federal Reserve chairman, that “the impact on the broader economy…seems likely to be contained.” The IMF had just reported that “overall risks to the outlook seem less threatening than six months ago.”

That was reflected in market valuations. In May 2007 the cyclically-adjusted price-earnings ratio (CAPE), a measure that averages profits over ten years, was 27.6 for American equities (see chart). That ratio turned out to be the peak for the cycle. As the problems at Bear Stearns, Lehman Brothers and others emerged, and as the world was gripped by recession, share prices plunged. By March 2009 the CAPE had fallen by more than half.

Central banks then kicked into action, slashing interest rates and buying assets via quantitative easing (QE). The stockmarkets recovered rapidly and the S&P 500 is now more than 50% higher than it was ten years ago. And the American stockmarket’s CAPE, at 29.2, is also higher than it was...

Puerto Rico declares bankruptcy at last

Thu, 05/04/2017 - 09:33

THE government of Puerto Rico said in 2015 that the island could not pay its debts. Yet it was only on May 3rd that it kicked off the biggest bankruptcy case in America’s history. Public-sector debts total almost $74bn (around 100% of GNP). The drawn-out fiscal crisis has both imperilled Puerto Rico’s economy and upended the island’s politics.

Something akin to bankruptcy is possible only because of a federal law passed in 2016. Until then, the island’s legal status as a territory afforded it no escape from its debts (were Puerto Rico a state, its public utilities could have declared bankruptcy). The law established a “financial oversight board”, appointed in Washington, with the task of reaching a deal with bondholders. But it also allowed for bankruptcy-like proceedings should negotiations fail.

A two-thirds majority of bondholders would have forced all of them to accept a reduction in the value of their debt. Yet agreement was always unlikely. Puerto Rica’s constitution says payments to holders of so-called “general obligation” bonds have priority over all other expenditure. But another group of creditors have first dibs on revenue from the sales tax....

Price-bots can collude against consumers

Thu, 05/04/2017 - 08:54

MARTHA’S VINEYARD, an island off the coast of Massachusetts, is a favourite summer retreat for well-to-do Americans. A few years ago, visitors noticed that petrol prices were considerably higher than in nearby Cape Cod. Even those with deep pockets hate to be ripped off. A price-fixing suit was brought against four of the island’s petrol stations. The judges found no evidence of a conspiracy to raise prices, but they did note that the market was conducive to “tacit collusion” between retailers. In such circumstances, rival firms tend to come to an implicit understanding that boosts profits at the expense of consumers.

No one went to jail. Whereas explicit collusion over prices is illegal, tacit collusion is not—though trustbusters attempt to forestall it by, for instance, blocking mergers that leave markets at the mercy of a handful of suppliers. But what if the conditions that foster such tacit collusion were to become widespread? A recent book* by Ariel Ezrachi and Maurice Stucke, two experts on competition policy, argues this is all too likely. As more and more purchases are made online, sellers rely increasingly on sophisticated algorithms to set prices. And algorithmic...

Euro-area GDP growth outpaces America’s

Wed, 05/03/2017 - 10:40

THE appeal of GDP is that it offers, or seems to, a summary statistic of how well an economy is doing. On that basis, the euro-area economy is in fine fettle; indeed, it is improving at a faster rate than America’s. Figures released on May 3rd show that GDP in the currency zone rose by 0.5% in the first quarter of 2017, an annualised rate of around 2%. That is quite a bit faster than the annualised 0.7% rate reported for America’s GDP.

These figures probably overstate the gap between the two economies. In recent years, first-quarter estimates of GDP growth in America have later been revised upwards substantially. Still, the euro-zone economy is clearly picking up speed, even as America’s goes through a soft spot. A jump in car sales in March saw Europe as a whole overtake America as the world’s second-largest market (behind China). Euro-zone manufacturing grew at its fastest pace for six years in April, according to the purchasing managers’ index, a closely watched gauge...

Euro-area GDP growth outpaces America’s

Wed, 05/03/2017 - 10:40

THE appeal of GDP is that it offers, or seems to, a summary statistic of how well an economy is doing. On that basis, the euro-area economy is in fine fettle; indeed, it is improving at a faster rate than America’s. Figures released on May 3rd show that GDP in the currency zone rose by 0.5% in the first quarter of 2017, an annualised rate of around 2%. That is quite a bit faster than the annualised 0.7% rate reported for America’s GDP.

These figures probably overstate the gap between the two economies. In recent years, first-quarter estimates of GDP growth in America have later been revised upwards substantially. Still, the euro-zone economy is clearly picking up speed, even as America’s goes through a soft spot. A jump in car sales in March saw Europe as a whole overtake America as the world’s second-largest market (behind China). Euro-zone manufacturing grew at its fastest pace for six years in April, according to the purchasing managers’ index, a closely watched gauge...

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