Thursday, December 31, 2015

Uber Is About to Make Traveling Much Easier - Business Insider

Posted: 30 Dec 2015 12:07 PM PST
Uber isn’t only about booking cars. It looks like it’s thinking of becoming a travel agent.
On December 24, Uber secured a new patent that could be used to plan trips.
Called “Uber Travel” in the images, it looks like a normal flight search like you would see on Expedia, but it adds Uber cars into the mix.
A traveler could input their start location, date, and time, alongside a destination, and Uber would recommend an itinerary for them. The “magic” as Uber calls it in the diagram is being able to also incorporate plans for transportation.
It’s a deviation from how conventional travel is typically booked segment by segment now. You start with booking your flight, then choose a hotel, then eventually a rental car or some other transit.
Uber’s idea, according to the patent, is to take the trip information and show a recommended flight, hotel, and the cost of an Uber to get you from point A to point B all-in-one.
In the whole process, Uber is acting as the facilitator, much like a Kayak.com, rather than the provider. These deals will probably be orchestrated by a team overseen by the patent’s author, Howard Jaffe, who is the head of Uber’s global procurement and supply chain.
In the patent, Uber states that it will tap into the network of airlines, looking at things like the planes’ on-time performance and an individual’s preference for aisle and window seats. It will also work with traditional hotels and “shared-economy systems” that allow people to rent out their apartments, likely Airbnb.
 US PTOThe patent also covers a way to make travel so much easier.
Once Uber knows your scheduled flight, the patented system is designed to know when a flight actually lands at the airport so it can start calculating when you should call an Uber, taking into account customs and baggage times.
“The information may include a location at the airport where the user can be picked up in connection with receiving the on-demand transportation service, and a timing indicator to indicate when the user should make a request to receive the on-demand transportation service based on a real-time determination of a number of available service providers in a vicinity of the airport,” the patent states.
Essentially, Uber is taking the guesswork out of when to call for a ride when a traveler lands by pre-emptively notifying them when they should.
It’s an interesting move for a company that hasn’t been welcomed by airports with open arms. Many airports still forbid Uber for operating on their property, often levying heavy fines on the drivers themselves who respond to pick-up requests. Uber has been working hard to change this, and in early December, Uber finally was granted permission to operate at Las Vegas’ McCarran International Airport.
Uber declined to comment.
This article originally appeared on Business Insider.

Wednesday, December 30, 2015

Goodbye, 2015, the Year Before the Campaign Storm - New York Times

Goodbye, 2015, the Year Before the Campaign Storm 
Good Wednesday morning. As we will not be publishing on New Years Eve or New Years Day, we have come to the last newsletter of 2015. After several debates and months on the trail, the candidates have only a few weeks before the actual voting begins, time enough for a fond look back and a renewed focus on the frenzied weeks ahead.

This year, there were 17 Republican presidential candidates, six Democrats, and a race that was upended by the presence of one flamboyant New York billionaire, Donald J. Trump.

As 2015 draws to a close, there are 12 Republican candidates and just three Democrats. And Mr. Trump remains, as the race heads into a new, uglier phase of engagement among the candidates, particularly among the Republicans.

The race on the Republican side has hinged on fears of an increase in immigration, as well of the terrorist threat posed by the Islamic State. But undergirding it all is the fear of a dwindling working class and an anger over the financial crisis of 2008. A sense that no one was properly punished has pervaded.

That is also true among the Democratic base, which has given Senator Bernie Sanders of Vermont a lift in the race against Hillary Clinton, who has led national polls for months. Mrs. Clinton has tried to forge lasting connections with Hispanic voters and to re-establish old ones with black voters, whose support she will need in the primaries beyond the first two contests in the heavily white states of Iowa and New Hampshire, as well as in a general election.

As January draws near, the Republican candidates competing in the establishment lane are taking aim at one another. With four weeks until the Iowa caucuses and five until the New Hampshire primary, there is little time to spare. The candidates need to draw contrasts and pick up scraps of support, and they are doing their best to paint themselves as the best choice. At the same time, Mr. Trump is vowing to spend millions on television ads in the early states in the final weeks.

In reality, that is on a par with what others are already spending. Mr. Trump has only recently tried to mobilize voters and use the Republican National Committee voter file to establish which supporters to turn out. Because, at the end of the day, it all comes down to turnout. 

Tuesday, December 29, 2015

ETFs to play main role in the next crisis - Financial Times

http://www.ft.com/intl/cms/s/2/53b5b728-a9ae-11e5-9700-2b669a5aeb83.html#axzz3vi7Yz816

The next financial crisis will be played out in indexes and exchange traded funds. That is inevitable given the huge share that ETFs now take of investor fund flows, and their popularity as hedge fund trading vehicles. 
What is less clear, and deeply controversial, is whether the structure of ETFs will itself contribute to the next crisis, or even cause it. Regulators, worried by past incidents when untested financial innovations helped exacerbate financial crises, are worried that it could. 



FirstFT is our new essential daily email briefing of the best stories from across the web
ETF providers indignantly counter that they make the market more liquid, and less prone to sudden stops. Indeed, they complain that well-intentioned regulations exacerbate a problem they were meant to cure. 
The scale of the ETF industry is not in question. They now hold more than $3tn in assets. But this raises the question of whether they have come to lead the market rather than follow it. This operates at two levels. First, there is a concern that the power of the indexes distorts markets over time, and second, there is the possibility that the structure of ETFs and index funds worsens market shocks when they happen.
Indexes’ influence spreads to virtually all institutionally managed funds. Benchmarking by the consultants on whom institutions rely when choosing fund managers is so widespread, that active managers have no choice but to watch the index they are compared to very closely, and are obliged to follow any major changes in its composition. 
Examples are easy to come by. When the Russell indices — highly popular among US fund managers — are updated each year, they often drive the heaviest trading of the year. In June this year, Chinese A-shares peaked and began to fall shortly after MSCI, the most important index provider for emerging markets, decided to delay including them in its flagship index. This came as a surprise. Showing the importance of indexers, Chinese authorities had lobbied hard for inclusion, as this would have driven capital into the A-shares market. Many investors at the time said that the subsequent sell-off could in part be attributed to the knock to confidence that came with MSCI’s decision. 
Indexers do their best to limit their impact on the market. Russell makes its methodology very public, so investors can see weeks in advance what changes are likely to its indices. MSCI conducts public consultations.
But while indexing and benchmarking remain so prevalent, the problem of overpowerful indexes seems impossible to avoid. It can merely be mitigated. For passive investors, rules for indexes must remain as clear as possible. For active managers, the solution may be to change benchmarking. Rather than looking at past performance, which does not predict the future, consultants could look at investors’ past behaviour, or rate them on their degree of style discipline. If clients show that they are more interested in highly concentrated funds taking contrarian positions, and not in funds that merely shadow an index, then the industry would adjust to meet the demand, and the systemic problems caused by indexes should reduce.
Then there is the issue of market structure. Two incidents in 2015 raised concern. First, there was August 24, when US share prices gapped downwards at the opening in New York, and ETF prices were not available for a while. Second, in December, a gradual sell-off in high-yield bonds turned into a rout for ETFs holding high-yield bonds.

FT series


Was this due to liquidity mismatches? It is a fair question. ETFs only offer prices throughout the trading day because market makers trade to ensure that there is no gap between the market price and the underlying price of the securities in the index they track, so this has to be a risk — especially when, as in the case of high-yield bonds, the underlying security is fundamentally less liquid.
There are two theories. One, held by the industry, is that the problems were driven if anything by regulations. Mandatory trading pauses following the 2010 “flash crash” made it harder for ETF managers to get a handle on the underlying price of their securities, and created problems. The other theory: there is indeed a mismatch.
Debate is healthy. The echoes of credit derivatives, which in 2008 helped to turn a serious housing downturn into a near-collapse of the world financial system, are clear enough. Without a major market disruption — and 2015’s turbulence barely ranks compared with the events of 2008 — it is hard to test whether new financial instruments will work as intended when under stress. Better for everyone, including ETF providers, to err on the side of caution.

Monday, December 28, 2015

5 Reasons Why the Fed’s Rate Hike Is a Good Thing - TIME


Posted: 16 Dec 2015 11:40 AM PST
Investors will complain. Markets will react. But America’s central bankers are doing the right thing to raise interest rates Wednesday. Here’s why.
There’s nothing more the central bank can do to goose the real economy.
This is the fundamental thing to understand: The Fed is extremely powerful, but it can only stimulate demand; it can’t create it out of thin air.
The reason that the Fed’s program of quantitative easing and low rates has done so much for asset prices — which are near record highs in many categories — but much less for the well-being of Main Street consumers is simple: Throwing a lot of money into financial markets and encouraging people to take on debt will, by definition, raise asset prices. Putting more money and leverage into the system always does that.
But the Fed can’t create new inventions that result in real world jobs, or factories that employ people here in the U.S., or more skilled workers to populate them. That only happens at the ground level. The Fed isn’t in charge of that – politicians and businesspeople are – and we need to cut the morphine drip of easy money that has made us believe it could be otherwise.
It’s possible the markets will correct after the rate hike. But that’s not a bad thing either.
The last time the Fed hiked interest rates, back in 2006, Main Street was actually doing better than Wall Street (as measured by workforce participation, compared to a weighed index of asset prices in major markets). This time around, there’s never been a bigger divide. Wall Street is doing better than ever before in history, while Main Street’s workforce participation is as low as it’s been since the 1970s.
Eventually, all things revert to the mean. If the Fed were to delay a rate hike and let the market bubble continue to brew — and the disconnection between finance and the real economy to grow — it would only mean more pain for all of us later.

Rates are going to rise slowly. That means there’s still a chance to have a real conversation about tax reform that would favor equity over debt.
One of the reasons that we still have a record amount of debt in the global economic system ($57 trillion more than before the financial crisis) is because we have a tax code that subsidizes it. We need a tax code that rewards savers rather than borrowers.
That will mean giving up deductions for interest payments on McMansions. But it would also mean a financial system that isn’t structurally set up to reward risk and brew dangerous bubbles every five to 15 years. As interest rates go up, debt will get more expensive and painful, and nobody will want to talk about taking away tax deductions for it. The time to have the tax reform conversation is now. The Fed’s indication that rates will rise slowly is giving us our last, best breathing room to reform our tax system.
A more prolonged period of low interest rates will make it even harder for many of us to retire.
As a new S&P study shows, multiple years of low rates means that anyone who has had their money in fixed income products now needs a seven figure 401(k) to retire, assuming even a modest yearly payout. Savers have given up trillions of dollars in interest payments, while stock prices (buoyed by the Fed rather than fundamentals) have soared. This isn’t desirable — or sustainable.
Corporate America needs to figure out how to create real, sustainable economic growth.
A rate hike that officially ends the sugar high of easy money and the easy stock spikes that come with it is just the kick in the pants that the private sector needs.
Nearly every smart investor I know thinks that equity prices have been disconnected from the real world for some time now. Yet when CEOs can just take on low interest debt and do buybacks to kick up their share prices — as has been the case thanks to the last few years of monetary policy — there is little impetus to invest in the Next New Thing, let alone workers. That’s why you have lower research and development spending relative to stock buybacks as well as stagnant wages. This isn’t a sustainable paradigm. We need a private sector focused on business models that create real economic growth, not goosing share prices.
None of this is to say that Janet Yellen and the other Fed governors haven’t done the right thing by trying to buoy the real economy in lieu of fiscal stimulus from Congress or more responsible corporate governance (meaning a focus on the long term rather than the quarter) in the private sector. But they can’t do any more to help. The party has been over for some time. It’s time to turn off the music.

Sunday, December 27, 2015

What Russia is up to in Ukraine - Economist

http://www.economist.com/blogs/economist-explains/2015/02/economist-explains-10?fsrc=scn/tw/te/bl/ed/whatrussiaisuptoinukraine
MANY Westerners find Vladimir Putin’s war in Ukraine mystifying. It has brought Russia economic woe (sanctions and a shattered credit rating) and international isolation. Why fight so hard for a slice of another country’s rust-belt? Is it part of a sinister strategy to divide and weaken the West, an irrational outbreak of paranoia about an imagined outside threat to Russia, or a desperate attempt to distract domestic opinion from the regime’s political and economic failure?
The Kremlin has annexed the Crimean peninsula (the site of an important Russian naval base) and stoked a separatist rebellion in two of Ukraine’s easternmost provinces, Lugansk and Donetsk. The rebels, with strong Russian military and intelligence backing, have proclaimed “people’s republics” there and have continued to advance into the rest of Ukraine, in defiance of a ceasefire agreed in Minsk in September. Ukraine is losing the war and is desperate for financial and military help from the West. America is mulling arms deliveries, but holding back to see if a last-ditch Franco-German diplomatic deal can bring a truce. Few outside Russia believe the Kremlin’s justification for the war. Russians in Ukraine were not being persecuted. The government in Kiev is not “fascist” (extreme-right parties fare worse in Ukraine than they do in Western Europe). Far from menacing Russia, NATO countries have slashed defence spending, just as Russia is rearming. The three main theories about Vladimir Putin’s motivations could be summed up as “bad”, “mad” or “sad”.
Advocates of the “bad” theory think that Russia is exploiting, and accentuating, Western weakness and over-stretch. Europe is divided, America distracted. This is a good time to re-establish a soft hegemony, based on energy, bribery, propaganda and subversion, over a large chunk of the former Soviet empire. The supporters of the “mad” theory think this is too complacent. Mr Putin, like many autocrats before him, has concocted a toxic ideological cocktail of ethno-nationalism, Soviet nostalgia and Russian imperialism, and drunk it. He is countering an invented Western threat with increasing recklessness. The “sad” camp thinks that the fundamental point about Russia is its weakness. A stagnant economy, endemic corruption, crumbling infrastructure and disillusion from the elite to the grassroots are insoluble problems for the Russian leader. He came to power on a surge of oil and gas revenues but as that tide runs out, he is stranded. Propaganda and sabre-rattling are no substitute for what matters: economic strength. The West needs to be firm and patient, but not to exaggerate the threat from Russia.
These approaches are not mutually exclusive: all three have elements of truth. They have one big thing in common. They offer little hope to Ukraine. Whether Mr Putin is cynically destabilising the country to humiliate the West, or because he truly fears that it might one day be a European-style success story, or simply to feed the mob at home, does not greatly matter for the families of the thousands of dead, or for the millions who are now facing poverty and misery.

Saturday, December 26, 2015

Online Buying Booms as Christmas Shoppers Avoid Stores - Fortune

Posted: 24 Dec 2015 08:18 AM PST
In the final weekend before Christmas, a growing number of Americans went online rather than to stores to wrap up their shopping.
According to RetailNext data cited by the Wall Street Journalsales at physical stores fell 6.7% over the most recent weekend, while traffic declined 10.4% compared to a year earlier. RetailNext tracks shopper traffic via software it provides clients.
These results are worrisome for brick-and-mortar retailers and malls given that the weather almost everywhere in the United States last weekend was conducive to shopping, with few disruptions from snow or ice.
And therefore, the past weekend’s trends are yet another signal this holiday season that show how e-commerce is hitting an inflection point in how Americans shop: A NRF survey last month found more shoppers (103 million) went online than to stores (102 million) over the Thanksgiving/Black Friday weekend.
This past weekend included Super Saturday, a day that year in, year out, runs neck and neck with Black Friday as the top shopping day of the year. So it was key to retailers looking for improve what is shaping up to be a so-so holiday season, in part because of record-setting warm weather.
The National Retail Federation said last week sales have been below expectations so far but said it had to do with the lower prices retailers are charging. The NRF still expects total sales to be up 3.7% for the season. (Next week is a big shopping too, so retailers, buck up- there is still time.)
Meanwhile, e-commerce has continued to soar this season. On Cyber Monday, shoppers spent $3 billion.
And on Monday this week, online sales rose 27% on a day that had until this year never really been a major online shopping day, according to Slice Intelligence.
Many retailers like Walmart, Target and Macy’s have spent billions in the last few years to raise their e-commerce game, to some success.
But again, Amazon has been dominant: Slice said Amazon accounted for 55% of all online sales on Monday.
Traditional stores like to say that 90% of sales still happen in store when seeking solace from the e-commerce boom. But with each passing holiday season, that will become less true.
This article originally appeared on Fortune.com.

Friday, December 25, 2015

Choke point: tackling terrorist finance - Economist

Choke point: tackling terrorist finance
Can the caliphate be cut off from markets? And what difference would it make? Today America’s treasury secretary, Jack Lew, chairs a summit of the UN Security Council on how to deprive Islamic State of finance. Over the past decade Western governments, led by America, have grown much better at disrupting the ability of terrorist groups (notably al-Qaeda) to raise, move and use money. They have imposed specific financial sanctions and tracked transactions more closely, for instance via the SWIFT financial-messaging service. But IS is less vulnerable because it doesn’t depend principally on moving money across borders: it derives most of its income—several hundred million dollars a year—from activities inside territory it controls in Syria and Iraq, such as oil sales and extortion. The meeting will focus on improving information-sharing and monitoring terrorists’ use of money transfers and pre-paid cards. But the ministers’ arsenal lacks a silver bullet.

Thursday, December 24, 2015

China’s forex reserves suffer third-largest monthly decline - Financial Times

December 7, 2015 11:24 am
China’s foreign exchange reserves posted their third-largest monthly decline on record last month, central bank data showed on Monday, renewing worries about capital outflows after reserves had appeared to stabilise.
Forex reserves fell $87bn in November, near the record $94bn decline suffered in August — the same month that the central bank surprised global markets by allowing the renminbi to depreciate by 3 per cent in three days.
China’s reserves have fallen for nine of 11 months this year and stand at $3.43tn, as investors sell renminbi assets to protect themselves against depreciation and the central bank sells dollars from its reserves to curb renminbi weakness. Falling interest rates in China and expectations of an imminent rate hike by the US Federal Reserve have also fuelled outflows. Reserves rebounded mildly in October, suggesting outflows had diminished.
China’s forex reserves — the world’s largest — have long been seen as the ultimate guarantor of financial stability, since they can be used to hedge against capital flight or to bail out domestic financial institutions struggling with a rise in bad debts.
chart: China foreign currency reserves
The unprecedented declines have raised worries that the reserves could quickly evaporate if capital outflows continue and the central bank continues to defend the exchange rate. Most analysts believe the central bank will eventually be forced to curtail its intervention in order to prevent further depletion of its reserves.
The People’s Bank of China has long intervened in foreign-exchange markets to hedge against excessive volatility. Since August, however, such intervention has expanded from the domestic spot market, which covers daily transactions, to include the offshore renminbi market in Hong Kong, as well as both onshore and offshore futures markets, traders say.
Following the devaluation in mid-August, the renminbi rallied in September and October. Devaluation resumed in November, however, and the renminbi closed at its weakest level in three months at 6.4082 to the dollar on Monday.
“Since October many countries around China have experienced some capital outflow, and China has had its share,” said Xie Yaxuan, economist at China Merchants Securities in Shenzhen. “The strengthening dollar is bound to cause some repositioning into dollar assets.” 
Ms Xie estimates that around 40 per cent of the decline in November — about $35bn — is attributable to valuation effects related to the weakening of the euro and other currencies against the dollar in November, rather than outflows. When the non-dollar currencies weaken, the dollar-denominated value of non-dollar assets held in China’s reserves declines.

Wednesday, December 23, 2015

Martin Shkreli’s Replacement at Turing Pharma Has a Questionable Past - Fortune

Posted: 21 Dec 2015 02:21 PM PST
When Martin Shkreli stepped down as CEO of Turing Pharmaceuticals last week—following his arrest for securities fraud—the controversial company named chairman Ron Tilles as interim CEO. Not terribly surprising, even if Tilles has deep ties to Retrophin Inc., a different biotech company at the heart of Shkreli’s alleged transgressions. (Tilles was mentioned in the complaint against Shkreli, but was not charged with any wrongdoing.)
What was strange, however, was how Turing Pharma described Tilles in the press release announcing his appointment:
“Mr. Tilles began his career at Merrill Lynch in 1985 and subsequently worked with several other securities firms. Ron’s experience includes numerous private equity and venture capital positions in the pharmaceutical and medical device industries over the last 20 years.”
Unfortunately, there is no publicly-available evidence that Tilles ever held even a single private equity or venture capital position in the pharma or medical device industries, let alone “numerous” ones. In fact, his official bio on the Turing Pharma website omits any mention of venture capital or private equity work.
Tilles is registered as an active broker-dealer with Robert W. Meredith & Co., although a person who answered the phone at Robert W. Meredith could not confirm his current involvement. According to a document Tilles filed with the Financial Industry Regulatory Authority (FINRA), he previously was registered with six other securities firms—dating back to Merrill Lynch between 1985 and 1987. There are a few short gaps in the history—and a bit of overlap—but the longest lag is well short of a single year:
  • Robert W. Meredith: 12/04-present 
  • Cripple Creek Securities: 10/04-1/05 
  • Condor Securities: 11/93-1/03 
  • Yamaichi International : 1/92-8/93 
  • LIT America: 4/89-5/91 
  • Nikko Securities: 4/88-1/89 
  • Merrill Lynch: 9/85-7/87 
In that same document, Tilles writes the following:
“With Robert R. Meredith’s permission, I provide consulting advice on a part-time basis to several privately held companies in the biotechnology industry. These companies are typically financed by venture capitalists and angel investors. I provide introductions on behalf of these early stage companies and receive fees from time to time for these introductions. The work hours devoted to this effort have not averaged more than 20 hours a month at any given time, partially during trading hours, and partially outside of trading hours.”
There is a world of difference between providing part-time consulting to venture-backed biotech companies and holding a “venture capital position” within said biotech company.
Perhaps the Turing press release referred to how Tilles served as Retrophin’s director of business development, a position that sometimes involves venture capital or private equity activities. But Retrophin was hardly an active investor, with S&P Capital IQ showing not a single equity investment in a privately-held company (unless you include a few strategic acquisitions). It also is worth noting that neither Retrophin nor Turing are mentioned by Tilles on his FINRA doc under a section titled “employment history,” which is supposed to cover the past decade.
Tilles is listed as a board member on the website of an enterprise software company called QuantumID Technologies, but his QID email no longer works and phone calls to the company redirect to what seems to be a personal voicemail.
A Turing Pharma spokesman has not returned requests for comment, and an email sent to an alternate address for Tilles has not been returned.

Tuesday, December 22, 2015

A new Chinese export — recession risk - Financial Times

http://www.ft.com/intl/cms/s/0/486bc716-5af0-11e5-9846-de406ccb37f2.html#axzz3v3KSSdDM

Is a global economic recession likely? If so, what might trigger it? Willem Buiter, Citi’s chief economist and the Financial Times’ erstwhile Maverecon blogger, answers these questions: “Yes” and “China”. His case is plausible. This does not mean we must expect a recession. But people should see such a scenario as plausible.
Mr Buiter does not expect world output to decline. The notion here is a “growth recession”, a period of growth well below the potential rate of about 3 per cent. One might imagine 2 per cent or less. Mr Buiter estimates the likelihood of such an outcome at 40 per cent.
His scenario would start with China. Like many others, he believes China’s growth is overstated by official statistics and may be as low as 4 per cent. This is plausible, if not universally accepted.
It might become even worse. First, an investment share of 46 per cent of gross domestic product would be excessive in an economy growing 7 per cent, let alone one growing at 4 per cent. 
Second, a huge expansion of debt, often of doubtful quality, has accompanied this excessive investment. Yet merely sustaining investment at these levels would require far more borrowing. 
Finally, central government, alone possessed of a strong balance sheet, might be reluctant to offset a slowdown in investment, while the shares of households in national income and consumption in GDP are too low to do so.
Suppose, then, that investment shrank drastically as demand and balance-sheet constraints bit. What might be the effects on the world economy?
One channel would be a decline in imports of capital goods. Since about a third of global investment (at market prices) occurs inside China, the impact could be large. Japan, South Korea and Germany would be adversely affected. 
Commodity chart
A more important channel is commodity trade. Commodity prices have fallen, but are still far from low by historical standards. Even with prices where they are, commodity exporters are suffering. Among them are countries like Australia, Brazil, Canada, the Gulf States, Kazakhstan, Russia and Venezuela. Meanwhile, net commodity importers, such as India and most European countries, are gaining.
Shocks to trade interact with finance. Many adversely affected companies are highly indebted. The resulting financial stresses force cutbacks in borrowing and spending upon them, directly weakening economies. Changes in financial conditions exacerbate such pressures. 
Among the most important are movements in interest and exchange rates and shifts in the perceived soundness of borrowers, including sovereigns. Changes in capital flows and risk premia and shifts in the policies of important central banks exacerbate the stresses. At present, the most important shift would be a decision by the US Federal Reserve to raise interest rates.
Foreign exchange chart
As Warren Buffett said: “You only find out who is swimming naked when the tide goes out.” 
According to the Bank of International Settlements, credit to non-bank borrowers outside the US totalled $9.6tn at the end of March. A strong dollar makes any currency mismatches costly. These may start on the balance sheets of non-financial corporations. But the impact will be transmitted via their losses to banks and governments. Thus, reversal of “carry trades”, funded by cheap borrowing, might wreak havoc.
A visible shift is a decline in foreign exchange reserves, driven by deteriorating terms of trade, capital flight and withdrawal of previous capital inflows. 
This might cause “quantitative tightening”, as central banks sell holdings of longer-dated safe bonds. This is one of the ways that these shocks might be transmitted to the high-income countries, including even the US. But this also depends on what the holders of the withdrawn funds do with it and on the policies of affected central banks.
What we might see, then, is a series of real and financial linkages: declining investment and output in China; weaknesses in economies dependent on that country’s purchases or on prices set by its buying; and reversals of carry trades and shifts in exchange rates and risk premia that stress balance sheets. 
Private debt chart
How might policymakers respond? China will surely let its currency fall rather than continue to lose reserves, not least because usable reserves are smaller than headline numbers, which include infrastructure investments in Africa and elsewhere that cannot quickly be sold. The policy space of other emerging economies is greater than in the past, but not unlimited. They will be forced to adjust to these shocks rather than resist them. 
Meanwhile, the policy choices of high-income countries are restricted: politics has almost universally ruled out fiscal expansion; the intervention rates of central banks are near zero; and, in many high-income economies, private leverage is still quite high. If the slowdown were modest, nothing much might be done. The best response to a big slowdown might be “helicopter money”, created by the central bank to stimulate spending. But its use seems quite unlikely. The conventional rules.
In brief, a global growth-recession scenario “made in China” is perfectly plausible. If it were to happen, a decision by the Fed to tighten now would come to look downright foolish. We are not talking about the sort of disaster that accompanies a global financial crisis. But the world economy will remain vulnerable to adversity until China has completed its transition to a more balanced pattern of growth, and the high-income economies have recovered from their crises. That is still far away.

Monday, December 21, 2015

Lunch with the FT: Sepp Blatter - Financial Times

Lunch with the FT: Sepp Blatter


His reputation may be spoiled but his legacy remains intact, the suspended president of Fifa insists over ‘Mama Blatter’s salad’ in Zurich
Illustration by James Ferguson of Sepp Blatter©James Ferguson
Sepp Blatter likes to start the day just before 6am. He skips breakfast but drinks a cup of coffee and does a little dance to stay in shape. “Rhythm, rhythm of life is very important. Also in football, but everywhere,” he says. 
But on May 27, 15 minutes after he woke up, his morning routine was broken by a phone call. Swiss police, acting on extradition requests from the US Department of Justice, launched a raid on Zurich’s Baur-au-Lac hotel and arrested seven senior Fifa officials on suspicion of taking more than $100m of bribes between them. 
The arrests, which were followed by another raid on Fifa’s headquarters on a hill above Zurich, came as hundreds of football officials were gathering in Switzerland for an election to choose a new Fifa president. “I felt like a boxer who was just going into round 12 and said, ‘I’m going to win.’ But then: BONG!” says Blatter, 79, mimicking a knockout blow. 
The effect was seismic: although the vote went ahead two days later, and Blatter was re-elected for a fifth term, he stepped down the week after, claiming he needed to “protect Fifa”. It was not enough. Swiss prosecutors put Blatter under investigation and, on October 8, he was suspended from all football activities and evicted from his office at Fifa. While you can physically remove Blatter from Fifa’s headquarters, separating the man from the organisation he has built in his image for the past 40 years — first masterminding football programmes in Africa, then becoming general secretary and finally president — is a tricky proposition. 
We meet at Sonnenberg restaurant, which in its literature describes itself as the “Fifa Club”, run “under the patronage of Joseph S Blatter” and as a place “where football fans from the worlds of Swiss business, politics and sports meet with their guests for business lunches, exquisite dinners and networking”. I arrive early but Blatter is already waiting, chatting to the restaurant’s head chef, whose white jacket is embroidered with Fifa’s blue logo. We are ushered into a private room with magnificent views over vineyards, then over the city and all the way down to Lake Zurich. 
The door shuts behind us and there is an awkward silence. The man who has served for years as a lightning rod for so many shocking accusations of corruption and backroom-dealing suddenly seems frail as he fidgets with his cutlery and rubs his hands together. It turns out that he has a great deal to get off his chest, and several grenades to toss into the fragile process to find his successor, but it is difficult to know where to begin.
We clink glasses of a Swiss sauvignon blanc and I ask him how he feels now that the end is in sight. In February, he will permanently leave Fifa after a fresh presidential election. Others have told me that it will be an existential crisis for Blatter and hinted darkly that he may not be able to bear it. He freely admits that he is a monomaniac who cannot, and will not, stop thinking about Fifa. 
He lives alone in an apartment in Zurich and works from a “very small” office with a desk, a computer, a football and a picture of the Matterhorn on the wall. “I regret I cannot go back to my office [at Fifa HQ], because my office [there] was a little bit more than an office; it was the ‘salon’ we were living in,” he says in accented and slightly topsy-turvy English (he is most comfortable in German or French but also speaks Italian and Spanish). 
Blatter still wakes early, however, and scans the news for any developments about Fifa. “I answer my personal mail; there is a lot of mail. I am following very carefully what is happening in the office of Fifa and around this office. For the time being, I have not had any possibility to say, ‘Now I go a few days on holiday’,” he says. “I am following everything. I cannot just say I switch off because I am not any longer in the office. Because my office is my memory,” he says, tapping a finger to his forehead.
. . .
A waiter enters with a treat from the head chef: plates of salmon, cucumber and caviar. But Blatter is allergic to seafood, he says, shooing the dish away. “They know this. I do not know why they serve it.” He orders cured beef instead, which he eats with his hands, together with some bread. 

Sepp Blatter interviewed over Lunch with the FT
An edited and condensed transcript of Sepp Blatter’s Lunch with the FT interview at Sonnenberg restaurant in Zurich.
As we settle into our conversation, he quickly pinpoints the moment when Fifa’s troubles — and his downward spiral — began. “It is linked to this now famous date: December 2, 2010,” he says, referring the day he pulled Qatar’s name out of the envelope as host of the 2022 World Cup. 
“If you see my face when I opened it, I was not the happiest man to say it is Qatar. Definitely not.” The decision caused outrage, even among those who do not follow football. “We were in a situation where nobody understood why the World Cup goes to one of the smallest countries in the world,” he says. 
Blatter then drops a bombshell: he did try to rig the vote but for the US, not for Qatar. There had been a “gentleman’s agreement”, he tells me, among Fifa’s leaders that the 2018 and 2022 competitions would go to the “two superpowers” Russia and the US; “It was behind the scenes. It was diplomatically arranged to go there.” 
Had his electoral engineering succeeded, he would still be in charge, he says. “I would be [on holiday] on an island!” But at the last minute, the deal was off, because of “the governmental interference of Mr Sarkozy”, who Blatter claims encouraged Michel Platini to vote for Qatar. “Just one week before the election I got a telephone call from Platini and he said, ‘I am no longer in your picture because I have been told by the head of state that we should consider . . . the situation of France.’ And he told me that this will affect more than one vote because he had a group of voters.” 
Blatter will not be drawn on motives. He says he has only once spoken to Sarkozy since the vote and did not raise the issue. He does admit that the vote for the World Cup, carried out by a secret ballot of Fifa’s executive committee, was always open to “collusion”. “In an election, you can never avoid that, that’s impossible . . . when you are only a few in the electoral compound.” 
One month after Fifa’s 22-strong executive committee voted 14-8 in a secret ballot in Qatar’s favour, the Arab state announced that it had begun testing French Dassault Rafale fighter jets against rival aircraft for a fleet upgrade. In April 2015, Qatar bought 24 of the jets for $7bn, with an option to buy 12 more. 
. . .
The waiter arrives with our “Fifa salad”, a mix of lamb’s lettuce, croutons, lardons and diced egg. “This is Mama Blatter’s salad,” Blatter says cheerily. “We always made it with whatever greens were in season, and you put some croutons and a little bit of bacon.” 
Blatter is from the small Alpine town of Visp (population: 7,500), about two hours from Zurich by train. A Roman Catholic, he plans to return there this weekend for All Souls’ Day. His father worked in a chemical plant and his only daughter, Corinne, still lives there, teaching English. He has a 14-year-old granddaughter called Selena. Blatter admits that his troubles have hit her hard. “I think she was suffering more than me,” he says, indicating that he lets criticism wash over him while she takes it personally. 
When I ask Blatter what he thinks of Platini, he sits back in his chair, pauses, and then gives a diplomatic, if strained, response. “Platini was an exceptionally good player. He is a good guy. He could be a good successor, yes. It was foreseen, once, that he shall follow [me].” 
Platini is still in the race for the Fifa presidency, but his campaign was effectively derailed following his suspension, at the same time as Blatter, after a SFr2m payment from Fifa to his bank account in 2011 came to light. “You do not need to have a contract written down [ . . .] according to Swiss law,” Blatter says of the Platini payment, adding that even witnesses are not necessary. “Handshake contracts are valid. The Anglo-Saxon system is not the same as the system here in central Europe.” 
Handshakecontracts are valid. The Anglo-Saxon system is not the same as the system in central Europe
He is correct — Swiss law does provide for oral contracts — but I point out that this is not the way that large companies behave. “But we are a club,” he responds. When I point out that the payment was not accounted for, he shuts down the conversation. 
While Blatter pays lip-service to the idea of reform at Fifa, saying there “must be more than a few changes”, he remains brass-necked about the culture of handshakes, favours and secret deals that he encouraged. “The system is not wrong,” he says, adding that if he had been allowed to remain as president, “then we would be in the right way”. His successor, he believes, should not try to change what he has created.
I ask him about the money, the allegations of bribery and corruption that have dogged him for years. Did he, or people working on his behalf, ever hand out cash to win the support of Fifa’s members? 
He invokes his parents as he denies it all. “We have a principle in our family. The basic principle is to only take money if you earn it. Secondly, do not give money to anybody to obtain the advantage. And the third one is if you owe money, pay your debts. These are the principles I have followed since [I was] 12 years old,” he says. “That is why I am claiming that my conscience, as far as money is concerned, I am totally clear and clean.” 
Is he a rich man? No, he says, he only earns what Fifa pays him — a sum that he refuses to disclose because Fifa releases its leadership payments only in aggregate; last year it paid $39.7m to its “key management personnel”. 
“What do I do with my money? My daughter has an apartment. I have an apartment, one here and one there. That is all. I am not spending money just to show I have money. If you look at the richest Swiss people, I cannot approach the richest 3,000, because they are up to $25m.” 

Sonnenberg
Hitzigweg 15, 8032 Zurich, Switzerland

2 x Passuger sparkling water SFr22
Bottle of Clavien Sauvignon
Blanc SFr73 2 x Fifa salad
(Mama Blatter recipe) SFr30
Veal chop SFr59r
Potato rösti SFr9
Boiled beef with julienned vegetables SFr37
2 x espresso SFr13
Total: SFr243 (plus SFr20 tip)
The waiter returns with our main courses. For me, a surprisingly large veal chop; for Blatter, a plate of boiled beef and julienned vegetables. He picks at it slowly. “I have to tell you that I don’t eat so much because you cannot eat more than you burn,” he says. 
After a pause, he sketches out what he thinks were his two main achievements at Fifa: the Goal project, which sends millions of dollars to the world’s poorest countries and claims to have built more than 700 football facilities since 1998, and the decision to rotate the World Cup around the continents and, especially, to bring it to Africa in 2010.
He bats away my suggestion that the development money was another way of distributing favours and was a source of money for corrupt officials: “There is a percentage, perhaps 2 per cent or 3 per cent, which have not worked.”
His success in maintaining an iron grip on Fifa hangs partly on the support of African countries, which he has courted assiduously. The shadow of colonialism still lingers, and African football officials often feel that Europeans treat them as second-class. Blatter, by contrast, is unwavering in his vocal support for African football and worked tirelessly to bring the World Cup to South Africa. He has also delivered commercial success: in the four years leading up to the 2014 World Cup in Brazil, Fifa had total revenues of $5.72bn. 
In his view, he has created a virtuous circle: Fifa helps kids in developing countries play football by building them pitches and then benefits when they get home and watch big matches on TV. This work, he insists, cannot be undone: “My reputation is spoiled, because I was bitterly attacked, as responsible for everything. But it will not damage my legacy.” With the benefit of hindsight, he wonders whether it might have been better for him to stand down after the high of the 2014 World Cup in Brazil.
When I ask about the ISL case, in which it was revealed in 2008 that a sports agency founded by Horst Dassler of Adidas had paid SFr138m in bribes to senior Fifa officials, Blatter refuses to discuss it. He was not found guilty of any wrongdoing and, he says, the case is now closed and jokes about double jeopardy: “In American law it is said you cannot be condemned twice!” 
I bring up the case in the US in 2006 where Fifa paid a $90m settlement to MasterCard for reneging on a contract in order to sign a more lucrative sponsorship deal with Visa. “We were not very very clever,” admits Blatter. “It was wrong. But sometimes, because you were working hard you make mistakes. You cannot just hang somebody.” 
As we pass over the thorny questions about his wealth, about Fifa’s corruption and secrecy, Blatter is calm. He believes he is a man more sinned against than sinning, and he repeats that he has little control over the behaviour of Fifa’s executive committee, whose members were not appointed by him, but by the six continental football federations. 
“Regrets? I do not regret,” he says. “The only regret I have is that in my life in football I am a very generous man in my thoughts and I think people are good and then I have realised that most of the time I was, let’s say, trapped by people. You trust someone 100 per cent and then you see that all this trust was just to get some advantage. I have done it not only once, I have done it more than once. I have to bear that and I bear it.” 
Meanwhile, he lambasts Switzerland for not protecting him. “I am a Swiss citizen. I was even a soldier! I was the commander of a regiment of 3,500 people. I served my country!” he protests, referring to his service in the 1960s as colonel in command in the army’s supply unit during the cold war. 
These days, he has few allies left. He says he counted on one hand the number of friends he could call on for help when deciding whether to step down after years at the top of football. He admits his reputation has been destroyed. But he cannot stop. He remains proud of his life’s work. “Could somebody else have done it? If he was fool enough to only live for football, then he could have. But it is difficult to find people that have been in the game with not only their body, not only their mind, or with their heart, but with their soul. And I was therein. And if you ask me what I am doing later, I am still therein.” 
We do not order any dessert, simply a cup of espresso and some petits-fours in the shape of small footballs. Blatter is looking forward to the evening, when his girlfriend, Linda Barras, a 51-year-old with two children, is flying in to see him. She lives in Geneva, but Blatter is happy with the situation. 
“The distances are not detrimental to a good understanding,” he says. “Perhaps it is even better for the guy who has devoted all his life to football. When you are 100 per cent in your job and your job is really something you believe in, then obviously even by being a generous man, at a certain time the person living with you cannot be happy,” he says. 
Then he stands up, suddenly small and frail again, signs a football for the restaurant’s manager and disappears into a black Mercedes. 
Malcolm Moore is the FT’s leisure industries correspondent