« January 15, 2006 - January 21, 2006 | Main | January 29, 2006 - February 04, 2006 »
Caroline Daniel and Edward Alden report in the Financial Times on the growing momentum behind industrial policy in the U.S.
George W. Bush, US president, is to embrace a “competitiveness” agenda advocated by big US technology companies in his State of the Union address next week. Amid growing concerns that the US is lagging behind in cutting-edge research and has fallen behind China and India in training science and technology graduates, he is expected to highlight the need for measures to improve US industry’s competitiveness.In a press conference in Washington on Thursday, Mr Bush said: “We live in a competitive world, and so policies must be put in place to recognise the competition of the global economy and prepare our people to be able to continue to compete so America can continue to lead.”
Business groups have been urging the administration to support higher spending on research and development, expanded education in science and engineering and liberalised immigration laws to bring more foreign scientists and engineers to the US.
And there's a great quote buried in here that I hadn't seen before.
Last week, [GE CEO Jeff] Immelt told the Economic Club of Washington, “If you want good manufacturing jobs, one thing you could do is graduate more engineers. We had more sports exercise majors graduate than electrical engineering graduates last year. If you want to be the massage capital of the world, you’re well on your way.”
Posted by dan at 09:14 AM
Troy McMullen reports in the Wall Street Journal on how some wealthy wanna-be ranchers have tired of life on the range.
For sale, by celebrity owner: the wild, wild West.A decade or so after big names in entertainment, sports and business turned the rugged ranch into a real-estate fashion statement, many of them are packing up the wagon trains and pulling back out.
Actor Rick Schroder is offering nearly 15,000 acres of ranch land in Colorado for $29 million. Val Kilmer just listed his 1,800 acres in New Mexico for $18 million. Leon Hirsch, former chairman of U.S. Surgical, is selling his 17,000-acre Montana spread for $21.9 million (cows included). On the cozier side, singer Carole King's 128-acre Idaho property just went on the market for $19 million.
Why the reverse land rush? Many wealthy ranch owners -- celebrity and otherwise -- are hoping to cash out after years of gains in real-estate, according to John Frome, a ranch appraiser in Afton, Wyo. Also, for some who've made their second or third home on the range, ranch life has turned out to be anything but simple. Yearly maintenance costs can run $150,000 and up. The remoteness and roughing-it that once seemed so alluring can get tiresome.
"They want second or third homes with lots of amenities and good cell service," says Jerry Ricordati, a real-estate broker at Baird & Warner in Chicago. "They don't want to freeze their butts off roping steer or bailing hay."
There are indications that now ranch properties have been backing up on the market. Mr. Schroder's southwestern-Colorado ranch has been sitting on the market for 15 months, while Mr. Hirsch's Montana ranch has gone unsold for more than a year. Spreads owned by tennis's Martina Navratilova and novelist Warren Adler both found buyers late last year, after more than four years on the market apiece.
Meanwhile, Harris "Whit" Hudson, the former co-owner of baseball's Florida Marlins, has been trying to sell his 60,000 acres in Colorado for two years -- first for $25 million, then for $20 million, and now he's planning to part with the property at auction.
Posted by dan at 08:44 AM
Wall Street Journal columnist Daniel Henninger is never one to let a few facts get in the way of The Truth. In a column today on the Abramoff scandal, he writes:
"Poll after poll says the public thinks both parties are equally corrupt. It depends, of course, on what the meaning of corruption is. If by corrupt you mean lobbyist sleaze, quid pro quo, the pork barrel, earmarks to nowhere and grossing out even the public's generally low expectations, then yes, both parties are equally corrupt."
Um, here are the results from the most recent New York Times/CBS News poll, published in today's Times.
Look at Question 54: "Who do you think is more likely to accept bribes or gifts that affect their votes, the Republicans in Congress or the Democrats in Congress?"
Answer: Republicans, 28%; Democrats, 13%; Both equal: 36%;
Posted by dan at 08:34 AM
Jackie Walmes in the Wall Street Journal writes about budget fantasies in Washington:
"WASHINGTON -- The Congressional Budget Office projects that war and hurricane-relief costs will widen the annual deficit to about $360 billion after it had narrowed last year.But a decade out, the nonpartisan office sees either a small surplus or a nearly $400 billion deficit in 2016 if President Bush's tax cuts are extended.
In its annual 10-year Budget and Economic Outlook released yesterday, the CBO calculates that if the numerous tax cuts of Mr. Bush's first term don't expire as they are scheduled to in coming years, federal revenue would be sliced more than $2.6 trillion. While the administration argues that tax cuts bring economic growth and, in turn, increased revenue, the budget office said that on balance any such "macroeconomic feedbacks would be too small to have a substantial effect on the estimates." . . .
The CBO projected that the deficit for this year, which ends Sept. 30, will be about $360 billion, or the equivalent of 2.8% of gross domestic product. That compares to last year's $318 billion deficit, or 2.6% of GDP, which marked the first decline in the deficit since Mr. Bush took office. This year's deficit would be $181 billion greater -- or about $540 billion -- if the Social Security surplus isn't counted.
The budget office sees declining deficits through fiscal 2011 and then small surpluses annually through 2016. But that is only if Mr. Bush's tax cuts expire, and it is based on spending-growth projections for defense and domestic programs that are lower than what is likely to be spent. Moreover, as a separate CBO report last year demonstrated, after 2016 annual deficits would take off again as Social Security's annual surpluses turn to deficits and entitlement programs' costs balloon further.
Posted by dan at 08:30 AM
From Geraldine Fabrikant's article in the New York Times on CBS CEO Les Moonves's meeting with analysts yesterday:
One analyst asked Mr. Moonves why CBS was keeping the publishing unit, Simon & Schuster, which appears to have little synergy with CBS's other content businesses. While acknowledging that the synergies were not evident, Mr. Moonves gave no indication that he planned to sell the unit."To tell the truth, it is not the most synergistic group, but it is a content provider and we are working on different ways of using the books," he said.
Right, because it's not like books can be turned into, say, television movies or used as fodder for news magazines. And we all know that people who appear on television and radio never, ever, write books.
Of course, in Hollywood, from which Moonves hails, "different ways of using the books," may include propping up furniture.
Posted by dan at 08:23 AM
Bernard Simon reports in the Financial Times on Delphi's latest efforts to slash labor costs:
Delphi, North America's largest car parts maker, is to ask a bankruptcy judge to tear up labour contracts with its 33,000 US blue-collar workers as a way of stepping up pressure on trade unions to accept deep pay cuts.The court application, likely to be made next month, would form part of a package of measures aimed at improving Delphi's competitiveness, especially in North America.
The court will also be asked to nullify supply contracts with General Motors, Delphi's former parent and biggest customer. Delphi says it incurs heavy losses on its business with GM, which recently agreed to cancel price cuts on components.
Delphi would stop short of seeking to impose new labour contracts for at least two to three months. "You need to create the environment for consensual agreements," said one person familiar with the plans. "That means continuing with talks."
But he added: "Everybody understands that labour is going to be restructured." The challenge was to "calibrate" the terms so Delphi met its goal of improving its competitiveness without provoking a strike.
The threat of a strike at Delphi has been a critical concern for GM, which is struggling with high labour costs and the loss of US market share to foreign rivals. Fears of supply disruptions have helped draw the carmaker into the labour talks.
When Delphi sought Chapter 11 protection last October, Steve Miller, chief executive, warned that "our labour contracts are simply unaffordable and must be changed". The company is also planning to sell or close many of its 44 US factories.
Delphi initially set a mid-December deadline for concessions from the United Auto Workers and five other unions. Its demands included cuts of up to two-thirds in wages and benefits, sharply reduced healthcare and pension benefits and an end to the "jobs bank", that provides full pay and benefits to 2,500 laid-off workers.
But Mr Miller backtracked in November after an outcry over the sacrifices demanded from blue-collar workers and simultaneous plans for hundreds of millions of dollars in severance packages and bonuses for senior managers.
Posted by dan at 10:27 AM
Brooks Barnes reports in the Wall Street Journal on the slow-motion erosion of the audience for ABC News programs.
The prime-time schedule at ABC is on fire, with juggernauts such as "Grey's Anatomy," "Dancing With the Stars," "Desperate Housewives" and "Lost" helping the network close in on the No. 1 spot.But the rising tide hasn't lifted the boats very much at ABC News: Although news magazines "Primetime Live" and "20/20" have had ratings improvements lately, most of ABC's news programs, including "World News Tonight," are stuck in second place or running a distant third.
More than its rivals, ABC has tried to shake up how television news is gathered and presented. Earlier this month, ABC News tried officially to step out of the old television news era and into the new, with the installation of Elizabeth Vargas and Bob Woodruff as co-anchors of "World News Tonight."
Instead of sitting behind a desk reading headlines, the two would-be globe-trotting correspondents run the evening newscast from the field while filing daily dispatches for video iPods and the Web. But the bold approach hasn't paid ratings dividends yet.
Since September, ABC, a unit of Walt Disney Co., has experienced an 8% drop in total viewers for "World News Tonight" compared with the year-earlier period. General Electric Co.'s NBC, meanwhile, has had a 7% drop in total viewers for its "Nightly News," while CBS Corp.'s "Evening News" is down 2%. Over the past two weeks, ratings for the ABC newscast have been flat compared with last year, while its two rivals have notched increases. . . . . .
At "Nightline," which passed from Ted Koppel's hands to three young anchors in November, the average total audience dropped 9% to 3.5 million viewers for the period from Sept. 19 to Jan. 16, compared with the year-earlier period, according to Nielsen. The show's ad revenue, for a two-month period starting in September, fell 12% over the year earlier, according to TNS Media Intelligence. And although the Sunday morning program "This Week," hosted by George Stephanopoulos, notched its best fourth-quarter ratings since 2002, it continues to run a distant third to rivals on CBS and NBC.
Perhaps most publicly, "Good Morning America" appears to have lost the momentum that nearly catapulted it past "Today" on NBC. In May last year, "Good Morning America" closed the ratings gap with "Today" to just 45,000 people. But while "Good Morning America" continues to expand its audience -- ABC says the 30-year-old show had its best year ever in 2005 -- "Today" has pulled away again. Lately, the daily gap between the two programs, both highly profitable, is closer to a million viewers."
It's also quite amazing what is considered to be progress in the vast wasteland that is network news coverage.
The competition in TV news is such that even flat ratings are considered a success: ABC notes that "World News Tonight" is improving in certain markets by double-digit margins, particularly on the West Coast. ABC has made an effort to cover more West Coast stories closely, and it now provides a live broadcast for the West Coast instead of re-airing the East Coast newscast, with news updates as needed. The "World News Tonight" team has been credited with getting better week to week and won attention for dispatching Ms. Vargas to West Virginia to cover the recent mining disaster.
Wow, a live broadcast for the West Coast? Sending a reporter 150 miles or so from New York to cover a story? What will they think of next?
Posted by dan at 10:06 AM
Craig Karmin and Aaron Lucchetti report in the Wall Street Journal that, by some measures, the U.S. is losing its edge as a financial capital.
NEW YORK -- When Indiabulls Financial Services Ltd. decided to list its shares on an overseas stock market last year, the New Delhi firm considered the U.S. But even though many of Indiabulls' biggest investors are U.S. money managers, the company opted for a London listing instead."The U.S. requirements are far more rigorous," said Gagan Banga, an Indiabulls executive director. "And the process would have been much more time-consuming." While it would consider a future U.S. stock offering, he says, for now Indiabulls is pleased with its shares trading in Mumbai and Europe.
This would have been an unusual move as recently as 2000, when nine out of every 10 dollars raised by foreign companies through new stock offerings were done in New York rather than London or Luxembourg -- the two other main choices for listings like these -- according to data from Citigroup.
A significant reason for the shift: Sarbanes-Oxley, the 2002 legislation that toughened accounting and disclosure rules for American companies in the wake of the Enron Corp. and WorldCom scandals. Sarbanes-Oxley generally holds foreign companies with a U.S. listing and registered with the Securities and Exchange Commission to the same standards.
The Sarbanes-Oxley Act required companies to strengthen their corporate governance and financial disclosure, but many international firms say it increased the cost of issuing shares in the U.S.
Another factor in the shift was U.S. stocks' underperformance relative to foreign markets. Companies prefer to do their listing in the market they perceive as getting them the highest price for new shares.
In 2005, 13 companies priced new stock offerings in New York, including Baidu.com, an Internet-search engine often referred to as the Google of China. By contrast, in London and Luxembourg, 48 companies sold their new shares, including Korea's Kookmin Bank.
"If you're a company that believes you can raise money without having to tap the U.S. retail [or individual] investor, the allure of London is growing," says Chris Sturdy, a managing director at the Bank of New York.
Posted by dan at 09:58 AM
The fact that computers are continually getting smaller, cheaper, and more powerful is, on balance, a tremendous boon to modern life. But occasionally there are reminders that the fact that you can pack tons of data into a small portable computer can cause problems. Eric Dash reports in the New York Times:
Ameriprise Financial, the investment advisory unit spun off from American Express last year, said yesterday that lists containing the personal information of about 230,000 customers and advisers had been compromised.A security breach occurred in late December, Ameriprise said, after a company laptop was stolen from an employee's parked car. The laptop contained a list of reassigned customer accounts that was being stored unencrypted, a violation of Ameriprise's rules.
The information on the laptop included the names and Social Security numbers of about 70,000 current and former financial advisers and the names and internal account numbers of about 158,000 customers, about 6 percent of its 2.8 million clients.
An Ameriprise spokesman, Andrew MacMillan, said it was unlikely that the thief knew that the information was on the laptop and the risk of "any data being used or discovered is very low."
Mr. MacMillan said that the laptop was protected by a password but that the data was being stored unencrypted in violation of company rules. The employee involved has been fired.
"This information should not have been removed from the corporate office without the security measures in place," he said. "This individual violated a few written company policies."
Posted by dan at 09:50 AM
Milt Freudenheim reports in the New York Times on some of the issues surrounding Health Savings Acccounts:
In a way, the early results do offer some hope. More than two million people have signed up for the plans, which were created as part of Medicare overhaul legislation in 2003 but were not an option for many people until the health insurance sign-up season last fall. While that is a tiny fraction of the 180 million Americans with health insurance, some experts say the numbers show a notably fast adoption rate for a complicated new consumer program.By other measures, though, workers and employers have been slow to embrace health savings plans, which are intended to reduce corporate health care costs while giving individuals more control of their medical spending.
In essence, health savings plans are high-deductible insurance policies that people can obtain through their employers or buy independently from insurance companies. In exchange for paying at least the first $1,050 of their medical expenses each year (or for families, a deductible of the first $2,100, consumers are supposed to benefit in two ways: lower monthly premiums and the ability to put pretax dollars into a savings account that grows tax-free.
Those savings, in theory, could be used toward the deductible in future years and help pay additional health bills not covered by the underlying insurance policy. As with a 401(k) retirement account, the health savings are the individual's to keep when changing employers — a portability feature that Bush administration officials like to cite.
But in many cases, people have evidently signed up not because they are eager to direct their own medical spending but because the plan looked cheap or they had no other insurance option. And at least half of those enrolled have not put money in their health savings accounts. So there will be no money building up for next year's out-of-pocket expenses — a big selling point for these health plans.
So more than half of the people who have opened Health Savings Accounts hvaen't actually put any money in them? Maybe they should just be called Health Accounts.
Posted by dan at 09:46 AM
President Bush lost Michigan twice, and the state has a Democratic governor and two Democratic senators, so, on one level, it's not surprising that he's not overly concerned about the potential demise of General Motors and Ford. On the other hand, the two companies do have plenty of workers and dealers in states in which Republicans are competitive.
In an interview with Christopher Cooper and John D. McKinnon of the Wall Street Journal, here's what Bush had to say about the struggling U.S. automakers:
WASHINGTON – President Bush said General Motors Corp. and Ford Motor Co. should develop "a product that's relevant" rather than look to Washington for help with their heavy pension obligations, and hinted he would take a dim view of a government bailout of the struggling auto makers.In an Oval Office interview, Mr. Bush said that his administration has discussed the development of new fuel technologies with the nation's top two auto makers, which might make them more competitive, but that he has had no talks about the companies' finances.
Asked if he had spoken to GM Chairman and Chief Executive Rick Wagoner or Ford Chairman and CEO William Clay Ford Jr., Mr. Bush replied: "Not about their balance sheets." He added: "And I haven't been asked by any automobile manufacturer about a bailout."Earlier this week, Ford announced sweeping layoffs and plant closings, amid falling sales and increased foreign competition that have sparked concerns one or both of the auto makers may seek bankruptcy protection. Both have denied such plans. But the prospect has fueled speculation that the federal government could face pressure to bail out the companies, as President Carter's administration did in 1979 with $1.5 billion in loan guarantees for Chrysler Corp.
Mr. Bush said little to suggest the companies should find comfort in that precedent. "I have been very reluctant -- I'm mindful of the past where at one point in time, a predecessor of mine was faced with that same dilemma," he said. "I would hope I wouldn't be asked to make that decision."
Asked if the government should take any pre-emptive action, he said: "I think it's very important for the market to function." He suggested he felt optimistic about the companies' prospects.
President Bush may have only foggy memories of the late 1970s and early 1980s. But he might want to read up on what happened at Chrysler. The loan guarantees actually worked out quite well. Chrysler avoided Chapter 11, restructured many of its debts and got concessions form its workforce. Chrysler paid back the loans in 1983, seven years ahead of schedule. In exchange for the guarantees, taxpayers got warrants in the company, which it later sold at a nine-figure profit. Not bad for a bit of misguided industrial policy.
Posted by dan at 09:06 AM
A piece by me in today's Los Angeles Times, on the comparative price of influence in Washington and New York.
Posted by dan at 08:52 AM
My latest in Slate, on CEOs who acquire themselves out of a job.
Posted by dan at 08:51 AM
Jesse Eisinger writes in today's Wall Street Journal on a radical restructuring plan for General Motors:
"What's needed is a radical solution that breaks the restructuring cycle and saves GM. The United Auto Workers union says a national health-care plan would solve a big chunk of the auto industry's cost problems. But such a solution is highly unlikely in the current political climate.So here's another idea: Transform GM's workers and retirees into owners in exchange for benefit givebacks.
Rod Lache, an analyst for Deutsche Bank, has been mulling over such a plan to save GM. Here's how it would work:
GM had a pension liability of about $90 billion at the end of 2004. Mr. Lache estimates GM has health-care liabilities of about $65 billion.
That's $155 billion in liabilities. The vast amount, but not all, is attributable to hourly, unionized workers.
Now let's look at the assets supporting those obligations. The pension plan had assets of almost $90 billion at the end of 2004. GM says that after investment gains of 13% last year, the plan is overfunded by $6 billion. The health-care obligations are underfunded to the tune of $50 billion. (For the purposes of this exercise, we assume simply that the pension fund is adequately funded. When GM reports 2005 year-end results tomorrow, it will be easier to assign more-accurate numbers to all of these.)
Mr. Lache proposes to give the money that is socked away for pensions and health care to the auto workers. Then, he proposes that GM transfer GMAC, the financing unit, to the workers. GMAC has about $23 billion in book value. Add that to the existing $15 billion long-term health-care trust, which employees then manage. The pension plan becomes an employee-run retirement plan.
OK, that amounts to $128 billion in assets, leaving workers far short of the $155 billion in estimated liabilities. The plan needs a sweetener: Give the workers $20 billion in GM equity. But GM's market value is just $11 billion today. So, how is that possible?
After getting out from under the benefit costs, GM would be a nimbler competitor. And it would throw off plenty of cash. Indeed, Mr. Lache estimates that GM would generate a little less than $13 billion in earnings before interest, taxes, depreciation and amortization a year under his plan.
The market would give the company a multiple of five times that cash flow, Mr. Lache estimates, for an enterprise value (market capitalization plus gross debt) of about $63 billion. GM would have about $32 billion in debt remaining. There is other cash, but for this exercise, we allocate the cash and other things like the short-term health-care trust to cover restructuring costs. There would be $31 billion of equity value at the newly restructured company.
The shareholders sacrifice the potential upside from a restructuring but would avoid a bankruptcy filing. Thus, with GM's market cap growing to $31 billion from $11 billion, they can let the workers have the remaining $20 billion in additional value created by the radical restructuring.
In this plan, the workers would get about $148 billion in assets for the $155 billion that they are owed. That amounts to almost $250,000 of value, on average, for the roughly 600,000 active workers, retirees and spouses covered under the pension plan.
To be sure, workers would still come up short $7 billion and many older workers would be counting on risky shares in a difficult industry to make up for reduced benefits. But what's the alternative? It's probably more than they would get after years of deterioration led to bankruptcy. And shares would provide a chance for upside.
"There is almost a universal recognition that the union already owns the majority of this enterprise. This crystallizes it," Mr. Lache says.
Posted by dan at 08:37 AM
Adam Lashinsky and Nelson Schwartz have a smart piece in Fortune about the future of ethanol.
Posted by dan at 08:36 AM
My latest in Slate, on celebrity stockpickers.
Posted by dan at 08:35 AM
The CW network? Who was the genius consultant who came up with this one? Aren't CNN and MSNBC already the CW networks?
Posted by dan at 03:27 PM
Jackie Calmes has a good piece in the Wall Street Journal on the Republican fiscal train wreck in recent years.
"WASHINGTON -- When President Bush reveals his budget request in two weeks, he likely will repeat a boast from recent speeches: "We've now cut the rate of growth in nonsecurity discretionary spending each year since I've been in office."But such spending -- for everything from air-traffic control to education and prisons -- amounts to one-sixth of a $2.5 trillion budget. And it is the only piece that isn't ballooning.
What are mounting are the political untouchables: defense and the so-called mandatory entitlement programs of Medicare, Medicaid and Social Security. The bottom line? Total spending this year and for fiscal 2007, which starts Oct. 1, is heading in the same direction it has since the start of the Bush administration: up. . .
Here is a guide to spending during Mr. Bush's watch:
The big picture: The budget request for fiscal 2007 is expected to total about $2.7 trillion -- up from nearly $1.8 trillion when he took office. According to the Congressional Budget Office, or CBO, total spending rose from 2001 through 2005 by an average 7% annually, double the pace of the previous five years -- and nearly triple the average inflation rate. . .
What's growing, what's not: Mandatory spending for entitlement programs with benefits set by law accounts for more than half the total budget. Last year, Medicare, Medicaid and Social Security cost more than $1 trillion; additional programs benefit farms, veterans, civil servants and others.
An analysis by the Center on Budget and Policy Priorities, a liberal think tank, shows that mandatory spending grew to 10.8% of GDP this year, from 10% at the start of the Bush administration. Medicare has been growing twice as fast as Social Security amid rising health costs -- and that is before the tab for Mr. Bush's new prescription-drug benefit. Entitlement spending is projected to explode as baby boomers retire. "We're going to have to do something about" such spending, Mr. Bush said at an economic forum last week in Virginia. But he added, reflecting the failure of his push to overhaul Social Security, "a lot of folks in Washington don't want to do anything about it -- it's too hard politically."
Discretionary spending for defense and domestic programs is what the president and Congress haggle over in yearly appropriations bills, and the type of spending many Americans associate with the budget. But at $894 billion in spending authority for 2006, it is less than a third of the entire pie. The center found that funding for discretionary programs has grown to 7.7% of GDP, counting expected war funding, from 6.8% in 2001 and "all of this growth came in defense and related security areas." . . .
Also off-limits is interest on U.S. debt. After declining from 1998 through 2003, payments to creditors here and abroad jumped a near-record 14.2% in 2005, CBO reported. They are now 8% of all spending -- roughly half the size of all domestic discretionary spending, or more than the entire budgets of the departments of Agriculture, Education, Energy, Homeland Security, Health and Human Services, Interior, Justice and Labor combined.
With debt payments, defense, homeland security and entitlements off the chopping block, Mr. Bush and Congress are left whittling at the one-sixth of the budget that goes to domestic discretionary spending. Only this funding has fallen as a share of the economy -- to less than 3.1% in the current year -- from 3.4% before Mr. Bush arrived, the center found."
Much more good stuff in the article.
Posted by dan at 11:10 AM
So Disney is thinking about acquiring Pixar. A potentially bold move by CEO Robert Iger to secure the future of Disney's animated picture business. But he's got to consider this. Disney's mix of big-media properties, movies, and theme parks is still (a) something of a mish-mash; and (b) subject to large secular, profit-killing trends; and (c) tightly levered to the health of the economy. Lets say he acquires Pixar and Disney's stock continues to muddle along in the mid-20s as it has for, oh, the last 10 years. How many months will it be before investors start clamoring for Pixar CEO Steve Jobs, who will (a) have some role with the combined company going forward; and (b) have a huge chunk of Disney stock (he owned 60 million Pixar shares as of the most recent proxy) to take over from Iger? I say 8 months.
Posted by dan at 10:48 AM
Richard Beales reports ($ required) in the Financial Times on Indiana Gov. Mitch Daniels's latest fiscal ventures. He's selling the state's only toll road.
Indiana is set to become the first US state to privatise a toll road after it unveiled a winning $3.85bn bid for its only toll road from Macquarie Infrastructure Group and Cintra, the Spanish toll road investor.The state’s deal to sell a 75-year concession to run the Indiana Toll Road could open the door for other cash-strapped states to invite private investment in roads and bridges, assets traditionally owned and run by state and local governments.
“We’re blown away by the price,” said Charles Schalliol, Indiana’s chief financial officer. He added that the transaction could set a new benchmark for other deals in the US, eclipsing the pioneering $1.83bn sale of a toll road by the city of Chicago a year ago.
“This really proves there is a strong, viable marketplace for these assets,” said Mark Florian, a managing director at Goldman Sachs, which acted as financial adviser to Indiana.
The 157-mile ITR, in operation since 1956, helps connect the city of Chicago to the eastern seaboard of the US. It also links with the Chicago Skyway, the only other privatised toll road in the country. Macquarie and Cintra – two of the world’s biggest transport infrastructure investors – were also the buyers of a 99-year lease on that road last January.
To buy the ITR concession, Macquarie and Cintra will contribute about $770m, with the remaining 80 per cent of the required funding coming from loans, according to Cintra.
Indiana has faced concerns about the quality of maintenance, foreign ownership and the rate of toll increases on the ITR. Mitch Daniels, Indiana’s Republican governor, also had to specify where in the state the sale proceeds would be spent.
Posted by dan at 10:45 AM
Now supporters of U.S. policy in Iraq can put their money where their mouths and keyboards are. Joanna Chung reports in the Financial Times that Iraqi bonds are now trading:
Iraq's new bonds started official trading yesterday at prices below earlier indications but amid forecasts that future demand couldbe underpinned by investor demand for higher-yielding emerging market investments.The bond issue, which has a face value of about $2.7bn, accounts for about $14bn of commercial debt dating from the Saddam Hussein era. The bond has had strong gains in trading in the so-called grey market on an "if, as and when issued basis".
Trading in the first few hours was light. However, analysts said that demand could grow over time, partly because the bonds offer diversification and are backed by a country with the world's third largest oil reserves. The latest quoted price of 70 means the Iraqi bonds, maturing in 2028 and carrying an 5.8 per cent annual coupon, currently yield about 9.25 per cent.
"This is a slightly lower price than had been anticipated by the when-issued market, even though a number of analysts have started to recommend the bonds as a high-yielding oil play," said Richard Segal, chief strategist at Argo Capital, the hedge fund.
Mehmet Simsek, strategist at Merrill Lynch, said that current holders of debt might sell bonds soon after the exchange, which might cause initial price weakness but that investor interest in the longer term is likely to be strong.
"The only other bond that yields higher is Ecuador," he said. "The bonds are very attractive if you look at the country's long-term fundamentals.
Given the state of affairs, that interest rate is actually stunningly low.
Posted by dan at 10:38 AM
A depressing study from the Pew Charitable Trusts on the complex literacy skills of college graduates.
"Twenty percent of U.S. college students completing 4-year degrees - and 30 percent of students earning 2-year degrees - have only basic quantitative literacy skills, meaning they are unable to estimate if their car has enough gasoline to get to the next gas station or calculate the total cost of ordering office supplies, according to a new national survey by the American Institutes for Research (AIR). The study was funded by The Pew Charitable Trusts."
Posted by dan at 10:07 AM
Howard Gleckman in Business Week reports on the Republicans' breathtaking cynicism on dealing (or not dealing) with the Alternative Minimum Tax. ($ required.)
"The Bush Administration has signed on to congressional Republicans' strategy to play a high-stakes game of political chicken over the alternative minimum tax. After years of reining in the AMT with stopgap measures, some GOP leaders now plan to leave the unpopular levy unchecked, threatening as many as 16 million more high-end taxpayers with a stiffer tax tab for 2006. Their hope: Increased public pressure to fix the AMT will help the GP extract concessions from Democrats, including lower rates on capital gains and dividends. But if the gamble goes wrong, millions of corporate managers and white-collar workers could be steaming mad at both parties for playing games with their tax returns."
Gleckman is too fair to the Republicans. Given that the Decmocrats don't control any branch of the government, it's hard to see how they can be playing games with tax returns.
"In the short run, some conservatives want to use AMT relief as leverage to lock in the current low rates on capital gains and dividends, which are due to expier at the end of 2008. "A potential AMT crisis in the spring gives us an opportunity to get cap gains and dividends," says Heritage Foundation Vice-President Michael Franc. GOP leaders want to increase the pressure on Senate Democrats to cut a deal by Apr. 15, when accountants will start warning clients that the higher AMT culd boost the estimated tax payments they ened to make. . . .""In the longer run, some Republicans believe that growing public pressure for fixing the AMT will drive efforts for fundamental tax reform. Their logic: Repealing the AMT will cost up to $1 trillion over 10 years, and the only way to pay for that is to raise other taxes by killing deductions. House Ways & Means Committee Chairman William M. Thomas (R-Calif.), along with other key lawmakers and top Administration advisers, figure that taxpayers will have to feel the AMT's sting before they'll embrace that trade-off."
Jon Chait of The New Republic is right. Washington has clearly lost its mind. Eliminating the AMT will cost $1 trillion over ten years. But in the parallel universe of the Heritage Foundation and Republican fiscal policy, that somehow makes it easier to extend temporary tax reductions on dividends and capital gains? If anything, it makes it harder. Oh, and eliminating popular deductions isn't the only way to offset the revenue that would be lost if the AMT was fixed. Congress could simply let the temporary tax cuts they passed a few years expire -- as they were designed to do.
Posted by dan at 09:52 AM
The U.S. Chamber of Commerce has a new report out about the audit industry. Executive summary: accountants have done such a poor job in their audits of public companies that they now need special treatment from insurers, regulators, lawyers, the government, and their clients.
Posted by dan at 09:42 AM
The Financial Times editorial page catches the French and the Germans acting in a self-parodic manner:
The internet graveyard is already filling up with Google-killers, challengers that have failed to knock the US internet search engine off its perch. Now a European challenger is stepping into the ring, in the form of Quaero - a Franco-German project to create a competitor capable of finding audio, photographs and video online, in addition to text. The likelihood of success for a state-funded challenge to the likes of Google and Yahoo is, however, low.The Quaero project - its name means "I seek" in Latin - was cooked up last April by France's President Jacques Chirac and Gerhard Schröder, then German chancellor. It is one of several supported by Mr Chirac in an effort to combat US hegemony in the digital era - the CFII international satellite television news channel is another. He dragged Quaero into the limelight in his New Year address, with grandiose promises to challenge the internet search dominance of the US groups.
Despite the change of government in Berlin, the Franco-German partnership remains intact, though it would not be surprising if there were moves to turn Quaero into a European Union project. It currently brings together a consortium of organisations in the public and private sectors, including France Telecom, Thomson, the French media services and equipment group, and Bertelsmann, the German media group. While initial funding could be modest at about €300m (£206m), a much larger budget is being discussed between the parties.
Mr Chirac's gung-ho enthusiasm has already drawn derision from the blogosphere and in France. The sum is small in comparison with what Google, Yahoo and other US internet groups spend annually on research. Previous French attempts to take the lead in technology, such as the Minitel information terminals, came to little internationally, despite hefty investment.
Some European state-sponsored attempts to compete with the US have proved successful, however - Airbus among them. The Galileo satellite navigation network has offered technical advantages as well as providing European countries with an alternative to the US network, where access is at the discretion of the Pentagon.
Yet there must be widespread scepticism about the ability of a government-sponsored enterprise to outstrip US entrepreneurs on the internet. The main innovators in information technology have been individuals such as the founders of Google, Yahoo, Microsoft and Hewlett-Packard. They have proved nimbler and more productive than lumbering industrial giants - an advantage that gains in importance as the flexibility of the internet grows.
This is not to underestimate the role of government in creating the conditions under which innovators and entrepreneurs flourish. Many studies have shown how the legal and business environment in the US has encouraged risk-taking and individual effort - a fact the EU has implicitly acknowledged in the so-called Lisbon agenda for making Europe more competitive. Sadly, most EU member states have yet to take the necessary steps to make their economies more friendly to innovators and entrepreneurs.
Governments can also help by supporting research and development in new fields, while leaving it to individuals and companies to exploit the results. Sadly Europe also lags behind, with few world-class universities and an EU budget that recently cut planned spending increases on R&D in order to continue supporting farmers.
Posted by dan at 09:16 AM