« January 01, 2006 - January 07, 2006 | Main | January 15, 2006 - January 21, 2006 »
Do Europeans who hate U.S. foreign policy hate U.S. brands? Apparently note. My latest in Slate.
Posted by dan at 10:33 AM
Generally, it's academic presses that traffic in discourses about the nature of truth and the inevitable shading of fact and fiction that is a component of our post-modern culture. With its reaction to theSmokingGun.com's brilliant unmasking of James Frey as a fabulist, Doubleday has apparently gone all intellectual.
Edward Wyatt reports in the New York Times:
And on the second day, Doubleday shrugged.Two days after an investigative report published online presented strong evidence that significant portions of James Frey's best-selling memoir, "A Million Little Pieces," were made up, the book's publisher issued a statement saying that, in essence, it did not really matter.
"Memoir is a personal history whose aim is to illuminate, by way of example, events and issues of broader social consequence," said a statement issued by Doubleday and Anchor Books, the divisions of Random House Inc. that published the book in hardcover and paperback, respectively. "By definition, it is highly personal. In the case of Mr. Frey, we decided 'A Million Little Pieces' was his story, told in his own way, and he represented to us that his version of events was true to his recollections.
"Recent accusations against him notwithstanding, the power of the overall reading experience is such that the book remains a deeply inspiring and redemptive story for millions of readers."
As far as the charges, which were made by the Smoking Gun Web site, "This is not a matter that we deem necessary for us to investigate," said Alison Rich, a spokeswoman for Doubleday and Anchor Books.
Peter Osnos, who published one of my books, has it exactly right.
Not everyone in the publishing world agreed that it was unimportant whether Mr. Frey's book is true. "Obviously a book that's called nonfiction has to be, in every fundamental respect, nonfiction," said Peter Osnos, the founder and editor at large of PublicAffairs, which specializes in nonfiction books, and a former Random House executive. "It's dismaying that a book of this visibility and stature is clearly not up to the standards that any reader would expect it to be."
Posted by dan at 10:37 AM
Ian Urbina's front-pager in the New York Times on diabetes is yet another piece of evidence arguing against the notion that the solution to the health care crisis is for the system to treat health care more like a consumer good.
With much optimism, Beth Israel Medical Center in Manhattan opened its new diabetes center in March 1999. Miss America, Nicole Johnson Baker, herself a diabetic, showed up for promotional pictures, wearing her insulin pump.In one photo, she posed with a man dressed as a giant foot - a comical if dark reminder of the roughly 2,000 largely avoidable diabetes-related amputations in New York City each year. Doctors, alarmed by the cost and rapid growth of the disease, were getting serious.
At four hospitals across the city, they set up centers that featured a new model of treatment. They would be boot camps for diabetics, who struggle daily to reduce the sugar levels in their blood. The centers would teach them to check those levels, count calories and exercise with discipline, while undergoing prolonged monitoring by teams of specialists.
But seven years later, even as the number of New Yorkers with Type 2 diabetes has nearly doubled, three of the four centers, including Beth Israel's, have closed.
They did not shut down because they had failed their patients. They closed because they had failed to make money. They were victims of the byzantine world of American health care, in which the real profit is made not by controlling chronic diseases like diabetes but by treating their many complications.
Insurers, for example, will often refuse to pay $150 for a diabetic to see a podiatrist, who can help prevent foot ailments associated with the disease. Nearly all of them, though, cover amputations, which typically cost more than $30,000.
Patients have trouble securing a reimbursement for a $75 visit to the nutritionist who counsels them on controlling their diabetes. Insurers do not balk, however, at paying $315 for a single session of dialysis, which treats one of the disease's serious complications.
Not surprising, as the epidemic of Type 2 diabetes has grown, more than 100 dialysis centers have opened in the city.
"It's almost as though the system encourages people to get sick and then people get paid to treat them," said Dr. Matthew E. Fink, a former president of Beth Israel.
Posted by dan at 10:35 AM
Michael Eisner is going to have a talk show on CNBC. Laura Holson reports in the New York Times. In the Wall Street Journal, Joe Flint uses the occasion to let us know just how much of its audience CNBC has lost in the last several years.
"CNBC's overall audience has endured sharp declines during both the day and evening. In 2000, during the dot-com stock boom, CNBC averaged almost 370,000 viewers, but last year it drew only 180,000. In prime time, the networks' audience fell to 131,000 people last year from 382,000 people in 2000."
My prediction for Eisner's audience and the Dow: both will end the year at about 11,500.
Posted by dan at 10:31 AM
Jesse Eisinger has a good column in the Wall Street Journal today about how all these hedge fund activist shareholders should focus more on executive compensation:
There hasn't been much good research measuring just how much executive pay affects shareholders, but there's enough to conclude that pay does matter.Lucian Bebchuk, a Harvard Law scholar of executive-pay practices, published a study in the fall with Cornell's Yaniv Grinstein that attempts to measure pay as a portion of earnings. The results are eye-opening: From 1999 to 2003, the five top dogs at each of the 1,500 largest publicly traded firms cumulatively took down $122 billion in salary, bonus and stock, compared with $68 billion from 1993 through 1997.
That's real money by any measure, but as a percentage of earnings, it's downright astonishing: In the period from 2001 to 2003, top-executive compensation amounted to 9.8% of the companies' net income, almost double the 5% in 1993 to 1995. That's money that otherwise would end up in shareholders' pockets.
Prof. Bebchuk, a critic of the disconnect between pay and performance, says executive compensation might not by itself send activist shareholders storming into boardrooms. But, he says, "This is a big deal economically, one shareholders should care about."
Lots more good stuff in there.
Posted by dan at 10:28 AM
Whole Foods yesterday committed to power its stores exclusively with wind-generated energy. That's great.
But the company stepped on its line a little. Check out the quote in this article:
The decision follows the publicly traded company's mission of environmental stewardship without losing sight of the bottom line, Whole Foods regional president Michael Besancon said."It's a sales driver rather than a cost," he said. "All of those things we do related to our core values: help drive sales, help convince a customer to drive past three or four other supermarkets on the way to Whole Foods."
So Whole Foods is going to pay above-market prices for energy that doesn't burn fossil fuels, in the hopes that customers who like the policy will burn more fossil fuels by driving past several other supermarkets to get to Whole Foods.
Posted by dan at 10:24 AM
The estimable Martin Wolf of the Financial Times points us to an analysis of the costs of the Iraq war by Nobel laureate Joseph Stigliz and Linda Bilmes of Harvard. When you tally up cash spent already, future spending, V.A. costs, treatment of injuries, disability payments, demobilization costs, higher defense spending, and interest on the debt created by all this spending, the moderate scenario says the cost is $1.184 trillion.
Posted by dan at 10:18 AM
James Mackintosh of the Financial Times reports that GM's fat 9.6 percent dividend may not be long for this world.
A close adviser to Kirk Kerkorian, one of the largest investors in General Motors, will on Tuesday call for the troubled US carmaker to cut its dividend, according to people familiar with his plans.Jerry York, who is advising Mr Kerkorian on his $1.7bn investment in GM, is understood to be planning to make his call in an address to financial analysts in Detroit on Tuesday.
On Monday, GM shares closed 7.7 per cent higher at $22.41 after Robert Barry, motor analyst at Goldman Sachs, said it was “very unlikely” that the world’s largest carmaker would file soon for Chapter 11 bankruptcy protection.
But Mr York’s call, first reported by the Detroit News, could worry investors as it suggests Mr Kerkorian holds a dim view of GM’s recovery chances.
Last month Mr Kerkorian sold close to a fifth of his shares, saying in a regulatory filing that he was realising a loss for tax purposes. The sale came weeks after GM laid out plans for 30,000 north American job cuts and factory closures over the next three years.
GM’s pays $1.1bn a year in dividends at a time when it is burning cash because of multi-billion dollar losses in its US division. GM’s quarterly dividend of 50 cents a share gives it a dividend yield of more than 9 per cent, among the highest of large US companies.
Posted by dan at 10:05 AM
Christopher Cox is showing signs of being a worthy successor to James Donaldson at the SEC. Kara Scannell reports in the Wall Street Journal:
WASHINGTON -- The Securities and Exchange Commission, responding to rising criticism of soaring -- and partially hidden -- executive pay, is poised to propose the most sweeping overhaul of pay disclosure rules in 14 years, seeking to push companies to divulge much more about their top executives' perquisites, retirement benefits and total compensation.The proposed changes, according to SEC officials, would for the first time require corporate proxy statements to provide a column with a total annual compensation figure for each of a company's five highest-paid executives and be far more specific about the value of their various benefits. Total compensation is an elusive number under the current system, and one for which investor advocates have long sought greater disclosure.
In addition, the SEC would force companies to take the monetary value of the stock-option grants given to top executives and place those figures side-by-side with salary and bonus information. Under a new accounting rule, companies must start expensing the value of their stock options.
These and other proposed changes will be presented at a public SEC meeting on Jan. 17, where commissioners will question staff members and vote whether to proceed with the plan. If approved, the proposed overhaul will be subject to a period of public comment, followed by a final SEC vote.
While it's too early to tell how the SEC will vote on the proposals -- and details of the plan could be altered in the coming week -- Christopher Cox, the agency's new chairman, appears to have the commissioners' support. With the term of his predecessor, William Donaldson, ending in fractious debate, Mr. Cox has worked hard to make the commission -- composed of three Republican and two Democratic commissioners -- more harmonious by trying to get consensus on major issues. Just last week, he won unanimous backing for new guidelines on how much to fine a company that has engaged in financial fraud.
Mr. Cox, a free marketer and former congressman who worked in the Reagan White House, has signaled in recent months that executive compensation is going to be a major issue for him, and indeed the proposal will be the biggest change he has championed since taking over five months ago.
Posted by dan at 10:00 AM
President Saparmurat A. Niyazov of Turkmenistan has long seemed like a character out of a Mel Brooks movie. Now it seems he's taking cues from the Producers. Ethan Wilensky-Lanford reports in the New York Times:
President Niyazov - who likes to be called Turkmenbashi, or "the great leader of all Turkmen" - appears to have struck deals with Russia and Ukraine that exceed his country's production, even as he sought more buyers in recent weeks.Those deals have raised a wide array of doubts. In the final days of last year, Turkmenistan committed itself to sell 40 billion cubic meters of gas (roughly 1.4 trillion cubic feet) to Naftogaz of Ukraine, and 30 billion cubic meters more to Gazprom, the Russian monopoly. But Turkmenistan exported 45 billion cubic meters of gas in 2005, according to the Interfax news agency, and produced 63 billion cubic meters in total, a vast quantity but less than it had agreed to export in 2006.
Analysts say that the figures raise the question of whether Turkmenistan can ramp up production enough to meet its commitments to both Russia and Ukraine. At the same time, Russia controls the pipelines between Turkmenistan and Ukraine, and has said that they are full.
In another puzzling aspect, the agreement that settled Ukraine's supply crisis set starkly different price levels for Russian and Turkmen gas. Under the terms of the deal, Russia will sell gas to a Swiss-based company, RosUkrEnergo, at $230 for each 1,000 cubic meters. That company in turn will sell gas to Ukraine for $95 per 1,000 cubic meters. It would presumably make up some of the difference with cheap Central Asian gas from, among other places, Turkmenistan - which will charge $50 per 1,000 cubic meters.
The gas promised from Turkmenistan would increase Ukraine's imports by around 50 percent, raising the possibility that other gas would be sold for high prices outside the country. No information on this has been released.
The role of RosUkrEnergo has come under particular scrutiny. The company is half-owned by Gazprom, and half by Raiffeisen Investment, an Austrian company and a unit of the RZB group. Ukraine's national security service investigated Ros- UkrEnergo last summer after accusations of links to organized crime. Those efforts proved unavailing.
The lack of transparency in the deal and precisely how RosUkr- Energo will make up the lower prices to Ukraine have raised accusations of corruption from industry analysts and from Yulia V. Tymoshenko, a former prime minister of Ukraine and a leading figure in the political upheaval there a year ago in which the post-Soviet leadership was ousted. She was dismissed from office late last year.
Ukraine approached Turkmenistan in December, apparently as a way to sidestep Gazprom. President Niyazov agreed late in the month to sell gas to Ukraine in a meeting with Vladimir Petruk, deputy chairman of the board of Naftogaz, according to Turkmen television. The Ukrainians confirmed the purchase the next day, with President Viktor A. Yushchenko saying that they would be buying Turkmen gas at a rate of $50 for each 1,000 cubic meters, starting in January. Why Turkmenistan agreed to so low a price is unclear.
Even if Turkmenistan manages to produce enough gas to meet its commitments, it is unclear how it could get the gas through Uzbekistan, Kazakhstan and Russia to Ukraine. Gazprom controls the only pipeline between Turkmenistan and Ukraine, which operates nearly at capacity.
If you got it, flaunt it!
Posted by dan at 09:43 AM
The Federal government may be set to crash through the debt ceiling once again, but there are signs -- here and there, if you look carefully enough -- that American consumers are taking steps to reduce their debt ever so slightly. The Federal Reserve has reported consumer credit figures for November. The surprising conclusion: the total amount of consumer credit outstanding actually fell by $600 million in November, the second straight month in which the total fell. Either: (1) consumers were spending less; or (2) consumers were using cheaper money (mortgages, home equity lines of credit) to pay down the more expensive money they were borrowing from credit card companies.
Posted by dan at 08:49 AM
George Melloan's piece in the Wall Street Journal op-ed page today on Ariel Sharon's legacy and the past 100 years of history in Israel is generally on target. Except for this sentence:
"[Israel] has gradually modified the socialism that hampered its economic development."
How precisely did socialism hamper Israel's economic development? Israel's Bureau of Statistics website isn't responding today, but this article by Linda Sharaby in the Middle East Review of International Affairs has some information about the growth of Israel's economy.
It includes the following:
Driven by Jewish immigration and capital, the yishuv economy, based largely on agriculture and small manufacturing, grew at an annual rate of 13.7 percent between March 1919 and December 1947. Although violent skirmishes with the local Arab population (which had doubled during the same period)did occur, the yishuv economy was able to prosper in a relatively secure environment given that, beginning after World War I, the British mandate authorities maintained basic law and order while the Haganah, forerunner of the modern-day Israel Defense Forces (IDF), protected specifically Jewish interests.In sum, Israel saw tremendous economic growth in the 1950s and 1960s. Its GDP increased by an astounding 30.1 percent in 1951, and averaged a rate of 9.2 percent for the 1950-1968 period, second in the world only to Japan’s 9.7 percent. Private consumption grew by 9 percent for the same period. A World Bank mission to Israel in October-November 1968 labeled Israel’s performance an "economic miracle" given its dearth of natural resources, hostile neighbors, and large-scale immigrant absorption. The mission attributed Israel’s success to two factors: human skill ("a capable and determined population with a broad base of well-educated and energetic people who proved able to overcome the difficulties of economic development with great ingenuity") and foreign capital ("originating chiefly from private donations of American Jews and from reparation payments by West Germany.")
This, of course, was the period in which the Socialist Labor Party utterly dominated Israel's government and economy. Melloan may not know much about Israel's economic history, but he does know that socialism always hinders economic growth everywhere.
Posted by dan at 08:17 AM
Obviously, Sebastian "full employment" Mallaby (see the post below) doesn't read Steven Roach of Morgan Stanley, the chairman of the Gloom and Doom Caucus. He think the case for full employment is full of it. Read it here.
The overall pace of job creation in December (108,000) was half that expected by the market consensus (200,000). Consolation for this miss was taken from a big upward revision to the original job count in November (from 215,000 to 305,000). As if that’s all that mattered. Never mind that the two largest contributors to this upward revision were temporary hiring agencies and the so-called leisure industry (mainly restaurants); the basic point is that the underlying hiring trend is decidedly on the wane. You can’t tell that by fixating on the vigor of average gains in November and December -- they were hugely distorted by a post-Katrina rebound effect. The four-month average, which covers the storm-related disruption -- which held employment growth to a mere 21,000 in September and October -- and its subsequent rebound, was a mere 114,000. That’s the only accurate way to measure the underlying trend in job growth during this storm-distorted period, and it represents a decided shortfall from the more robust pace of job creation that had prevailed over the preceding 18 months (197,000 per month).But context is key in understanding that subpar job creation is now the norm in America. The US economy has just completed the 49th month of an expansion that began in November 2001. At this juncture in the four long cycles of the past -- the ones that began in 1961, 1976, 1982, and 1991 -- job growth was cruising ahead by about 210,000 per month. Moreover, in those earlier cycles both the economy and labor market were considerably smaller than is the case today. Adjusting for the scale effect, the 210,000 cyclical norm from earlier cycles would translate into about 325,000 per month in today’s economy. On that basis, the latest four-month average of 114,000 on the hiring front looks all the more pathetic -- literally 35% of the pace that would be expected at this phase in a normal business cycle expansion. Of course, this has never been a normal business cycle expansion insofar as hiring has been concerned. For the first two years, it was the infamous “jobless recovery.” While the pace of hiring has picked up somewhat in the subsequent two years, growth has been chronically weak when compared with any expansion of the past 40 years. Had hiring followed the trajectory of the previous four expansions, our calculations suggest about 11 million more workers would have been added to nonfarm payrolls by now.
Unfortunately, for the American worker, this jobless recovery has also been “wageless” -- characterized by an extraordinary stagnation in real wages. This also shows up loud and clear in the just-released December employment report -- a 3.1% increase in average hourly earnings, which falls short of the 3.4% CPI-based reading of inflation over the 12 months ending in November.
Posted by dan at 03:50 PM
In his column today, Sebastian Mallaby of the Washington Post reaches the correct conclusion about the viability of the temporary Bush tax cuts, but he takes an awful strange route to get there.
He writes:
“Faced with strong growth, full employment and a productivity miracle, Democrats insist that something is profoundly wrong. Responding to President Bush's economic speech on Friday, the Senate's top Democrat complained that "the benefits of economic growth still have not reached many hardworking middle-class families."Sorry, but that's only half right. It's true that wages have done badly. But in five of the past six years, average compensation -- that is, wages plus benefits -- has risen faster than inflation, according to the Labor Department's Employment Cost Index.”
Full employment? Has he read the most recent jobs report from the Bureau of Labor Statistics? The employment-population ratio is 62.8 percent, lower than it was for all of the second half of the 1990s. This is not what full employment looks like.
Oh, and average compensation has been rising faster than inflation only because health care inflation has been off the charts for several years. So people who work get (1) lower cash wages; and (2) the same or somewhat less in terms of health benefits. In fact, with each passing year, jobs today are less likely to come with health benefits than they were in the past. As the Census Bureau noted, the percentage of Americans whose health care was covered by employers fell from 60.4 percent in 2004 to 59.8 percent in 2005.
Next he argues that job insecurity isn’t noticeably higher than it was in the past. The evidence: studies with data that run through 1998 and 2002, respectively.
The issues causing insecurity for workers at all levels of the income ladder today are three-fold. And too many of the people who write about economics and make economic policy don’t adequately grasp them: (1) job insecurity and volatility. Whether you work for Delphi, Refco, or Unilever, your job is potentially in jeopardy. It’s a fact of life in the global economy. Your company can get acquired, merge, go out of business, restructure, or succumb to competition. This was always true, but it's more true today. (2) income insecurity and volatility. As Peter Gosselin of the Los Angeles Times has noted,
an increasing number of people find that their incomes fluctuate and are less predictable from year to year. In part, it’s due to job insecurity. In part, it's due to the bonus/profit-sharing culture in the financial services world, which has spread into other parts of the economy. But in part it’s due to the large increase in the number of people who work on commission, or who are self-employed: mortgage brokers, real estate brokers, salespeople, etc.; (3) benefit insecurity and volatility. I’d recommend that Mallaby and others read everything that Mary Williams Walsh of the New York Times writes about pensions. Here’s her latest.
The death knell for the traditional company pension has been tolling for some time now. Companies in ailing industries like steel, airlines and auto parts have thrown themselves into bankruptcy and turned over their ruined pension plans to the federal government.Now, with the recent announcements of pension freezes by some of the cream of corporate America - Verizon, Lockheed Martin, Motorola and, just last week, I.B.M. - the bell is tolling even louder. Even strong, stable companies with the means to operate a pension plan are facing longer worker lifespans, looming regulatory and accounting changes and, most important, heightened global competition. Some are deciding they either cannot, or will not, keep making the decades-long promises that a pension plan involves.
And here’s the kicker:
For many workers, the movement away from traditional pensions is going to be difficult. Already there are signs that people are retiring later, or taking other jobs to support themselves in old age. Participation in a pension plan is involuntary, but most 401(k) plans let employees decide whether to contribute any money - or none at all. Research shows that many people fail to put money into their retirement accounts, or invest it poorly once it is there.Even skillful 401(k) investors can be badly tripped up if the markets tumble just at the time they were planning to retire. Mr. Schieber of Watson Wyatt ran scenarios of what would happen to a hypothetical man who went to work at 25, put 6 percent of his pay into a 401(k) account every year for 40 years, retired at 65, then withdrew his account balance and used it to buy an annuity, a financial product that, like a pension, pays a lifelong monthly stipend.
He found that if the man turned 65 in 2000 he would have enough 401(k) savings to buy an annuity that paid 134 percent of his pre-retirement income. But if he turned 65 in 2003, his 401(k) savings would only buy an annuity rich enough to replace 57 percent of his pre-retirement income.
When a company switches from a pension plan to a 401(k) plan, the transition is hardest on the older workers. That is because they lose their final years in the pension plan - often the years when they would have built up the biggest part of their benefit. They then start from zero in the new retirement plan.
Jack VanDerhei, an actuary who is a fellow at the Employee Benefit Research Institute, offered a hypothetical example. If a man joins a firm at 40, works 15 years, and is making $80,000 a year by age 55, he might expect to have built up a pension worth $16,305 a year by that time, Mr. VanDerhei said. If he keeps on working under the same pension plan, that benefit will have increased to $27,175 a year when he retires at 65.
But if instead when the man turns 55 his company freezes the pension plan and sets up a 401(k) plan, the man will get just the $16,305 a year, plus whatever he is able to amass in the 401(k). It will take both discipline and investment skill to reach the equivalent of the old pension payments in just ten years, Mr. VanDerhei said.
We're in the midst of (1) a giant cram-down, in which companies are simply walking away from promises they've made to workers; and (2) what amounts to a giant experiment that 401(Ks) will be successfull retirement-planning vehicles. Combined, they are making people feel more financially anxious--no matter what the unemployment rate alleged tells us about the job market.
Posted by dan at 11:15 AM
Aaron Elstein reports in Crain’s New York Business. (Subscription required) that the hedge fund craze may have already peaked.
The hedge fund fad is fading fast.Hundreds of whiz kids, who fled jobs at stodgy investment banks and money management firms to make millions running their own funds, are closing up shop.
After years of explosive growth, the number of hedge funds declined by 16% through the nine months ended Sept. 30, to 3,235, according to fund advisory firm Lyster Watson & Co. The drop is expected to accelerate this year.
One reason: The cost of running a fund is soaring as the government begins to more aggressively regulate these mostly small, lightly scrutinized investment companies. But even more important is a growing sense among investors that most hedge fund managers simply aren't very good and aren't worth the huge fees they charge to manage money.
The numbers back up those concerns. Hedge funds on average have performed worse than the Standard & Poor's 500 for three consecutive years, according to S&P, though most funds fared better than the index during the bear market that ended in 2002. That's an especially poor showing for an industry with a reputation for posting outsized returns.
"A lot of people's dreams of becoming hedge fund millionaires will be just that," says Marc Freed, managing director at Lyster Watson.
Erik Knutzen is one money manager who's lived the nightmare. After nine years at mutual fund giant Putnam Investments, he left to start a hedge fund in early 2005. Unfortunately, institutional investors weren't comfortable with his strategy of using derivatives to buy into markets around the world and declined to put money into his fund. Last month, Mr. Knutzen shut down his one-man operation and took a job as director of sales, marketing and client service at a unit of Mellon Financial Corp.
"I had a decent story to bring to the marketplace," he says. "But the hedge fund industry is becoming far more discerning." . . .
The costs of hiring compliance staff and archiving e-mails or instant messages can reach as high as $300,000 per year, says Barry Colvin, former president of hedge fund and advisory firm Tremont Capital Management Inc. Considering that a fund with $100 million of assets--and most have less--generates only about $2 million per year in fee revenue, rising compliance costs are enough to knock a fund manager out of the game if he hasn't produced stellar investment gains.
Posted by dan at 09:59 AM
There's one big difference between hedge funds and mutual funds. For a mutual fund, being down 8 percent over an 18-month period is a bummer. For a new hedge fund, it's fatal.
Bloomberg News reports via the New York Times:
Severn River Capital Management, the hedge fund manager that raised $750 million from investors, announced yesterday that it would close its two funds, which have declined 8 percent since opening in 2004."We continue to focus on liquidating our positions and fund assets in a way that minimizes liquidation costs," the chief operation officer, Eric Wood, said in an e-mail message to investors, which was sent on Wednesday.
The remaining cash in Severn River Capital Fund Ltd. and Severn River Capital Partners will be returned to investors by March 31, with a 1 percent holdback, an amount usually retained until an audit is completed, the e-mail message said.
Scott Roth, 40, Severn River's founder and managing member, opened the funds in July 2004.
Mr. Wood and Mr. Roth declined to comment.
Hedge funds, lightly regulated private partnerships for wealthy investors and institutions, had an average return of 7.42 percent in 2005 through November, according to Hedge Fund Research Inc., which is based in Chicago. At that pace, the year would be the worst for the industry in three years. Hedge-fund assets have more than doubled, to $1.1 trillion since 2000, and there are more than 8,000 funds.
Several funds closed in 2005, including the convertible-bond fund Marin Capital, which had $2.1 billion at the beginning of last year, and a $600 million fund managed by EB & Associates.
Severn River, which is based in Greenwich, Conn., used trading strategies including bets on convertible bonds, takeovers and distressed securities, according to its Web site. Investors had been withdrawing money as losses mounted through last year.
Posted by dan at 09:45 AM
Robert Pear reports in the New York Times on the slow-motion Medicare roll-out fiasco. This is going to be a rich vein of journalistic enterprise.
WASHINGTON, Jan. 7 - Low-income Medicare beneficiaries around the country were often overcharged, and some were turned away from pharmacies without getting their medications, in the first week of Medicare's new drug benefit. The problems have prompted emergency action by some states to protect their citizens.Although there are no hard numbers, concerns expressed by state officials and complaints from pharmacists suggest a widespread pattern of problems.
At least four states - Maine, New Hampshire, North Dakota and Vermont - acted this week to make sure poor people received the drugs they were promised but could not obtain through the federal Medicare program.
Gov. Jim Douglas of Vermont, a Republican, said the state would pay drug claims for low-income people until the federal government fixed problems in the new program, known as Part D of Medicare. Michael K. Smith, the state's secretary of human services, said, "The federal system simply is not working."
On Thursday, the Vermont Legislature passed a bill declaring, "There is a public health emergency due to the federal implementation of Medicare Part D, which has resulted in serious operational problems, causing Vermonters to be turned away at the pharmacy without the drugs they need."
Many factors contributed to the initial chaos. Some people who enrolled in Medicare drug plans did not have any proof of coverage. Pharmacists could not get the information needed to verify eligibility for drug benefits and low-income subsidies. Insurance companies and their pharmacy benefit managers were swamped with calls, so pharmacists often had to wait an hour or more on telephone help lines.
Federal officials promised improvements, but state officials were growing impatient.
In Maine, Gov. John Baldacci, a Democrat, agreed to pay drug claims to provide medications for those in need. Since Tuesday, the state has incurred $2 million of expenses for Medicare beneficiaries
Posted by dan at 09:25 AM
Steven E. Kaplan of the University of Chicago, perhaps the leading academic expert on private equity, and Antoinette Schoar of M.I.T., conclude that, after accounting for fees, the average private equity firms essentially turns in the same performance of the S&P 500.
Posted by dan at 09:18 AM
For economic anthropologists, two recent articles provide an excellent case study in the different been the fundamental dispositions between American and German executives.
Exhibit A: Micheline Maynard in yesterday's New York Times spotlights the near-manic Mark Fields, who has been tapped to turn around Ford's operations--and quick. The can-do effort has been dubbed "Way Forward."
Exhibit B: Richard Milne today reports in the Financial Times that Volkswagen has essentially written off the rest of this decade:
Volkswagen, Europe's largest carmaker, does not see "light at the end of the tunnel" for its core VW brand until five years' time and results would remain unsatisfactory until then, the brand's top executive said.Aggressive cost-cutting - with some analysts believing up to 30,000 jobs are at risk - would mean the large problems at the carmaker would be tackled by 2008 but profitability then would still lag behind internal return targets, Wolfgang Bernhard, head of the VW brand, told journalists at the LosAngeles motor show.
The irony: I think Volkswagen probably has a better shot at turning things around more quickly than Ford does.
Posted by dan at 09:10 AM
David Luhnow and Geraldo Samor report on the front page of the Wall Street Journal about Brazil's efforts to use sugar-based ethanol as a path to energy independence:
"RIO DE JANEIRO, Brazil -- After nearly three decades of work, Brazil has succeeded where much of the industrialized world has failed: It has developed a cost-effective alternative to gasoline. Along with new offshore oil discoveries, that's a big reason Brazil expects to become energy independent this year.To see how, take a look at Gildo Ferreira, a 39-year-old real-estate executive, who pulled his VW Fox into a filling station one recent afternoon. Instead of reaching for the gasoline, he spent $29 to fill up his car on ethanol made from sugar cane, an option that's available at 29,000 gas stations from Rio to the Amazon. A comparable tank of gasoline would have cost him $36. "It's cheaper and it's made here in Brazil," Mr. Ferreira says of ethanol. If the price of oil stays at current levels, he can expect to save about $350 a year.
At current prices, Brazil can make ethanol for about $1 a gallon, according to the World Bank. That compares with the international price of gasoline of about $1.50 a gallon. Even though ethanol gets less mileage than gasoline, in Brazil it's still cheaper per mile driven. As a result, ethanol now accounts for as much as 20% of Brazil's transport fuel market. The country's use of gasoline has actually declined since the late 1970s. The use of alternative fuels in the rest of the world is a scant 1%.
Yet countries wanting to follow Brazil's example may be leery about following its methods. Military and civilian leaders laid the groundwork by mandating ethanol use and dictating production levels. They bankrolled technology projects costing billions of dollars, despite criticism they were wasting money. Brazil ended most government support for its sugar industry in the late 1990s, forcing sugar producers to become more efficient and helping lower the cost of ethanol's raw material. That's something Western countries are loath to do, preferring to support domestic farmers.
With government support, sugar companies and auto makers' local units delivered cost-saving breakthroughs. "Flexible fuel" cars running ethanol, gasoline or a mixture of both, have become a hit. Car buyers no longer have to worry about fluctuating prices for either fuel because flex-fuel cars allow them to hedge their bets at the pump. Seven out of every 10 new cars sold in Brazil are flex-fuel.
If global trends break your way, sometimes industrial policy can work.
Posted by dan at 09:06 AM
A small item buried in the Wall Street Journal today: GM plans to roll out a cheap hybrid car later this year:
"General Motors Corp. is rolling out a hybrid engine on the 2006 Saturn Vue Greenline that it says delivers 80% to 90% of the fuel savings of its competitors for less cost. . . Next year, GM will offer a 2-Mode hybrid drive on the Chevrolet Tahoe and GMC Yukon. The Saturn Vue Greenline, set to hit dealerships this summer, will be priced at under $23,000, about $4,000 less than the nearest hybrid competitor, said Saturn General Manager Jill Lajdziak. The hybird option costs less than $2,000 and gives the Vue Greenline an estimated 27 miles per gallon in the city and 32 on the highway."
Posted by dan at 09:01 AM
My Economic View column in today's New York Times, on globally flattening yield curves.
Posted by dan at 01:06 PM