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Business and financeGulliver

Donald Trump holds off hitting the Gulf carriers with sanctions

WHEN Donald Trump became America’s president nearly a year ago, lobbyists campaigning for protection for the country’s airlines against competition from the Middle East were overjoyed. But they were less happy on December 13th when it was revealed that Donald Trump has decided to hold off on imposing sanctions against the three big Gulf carriers—Emirates of Dubai, Etihad of Abu Dhabi, and Qatar Airways—for what America’s big airlines allege are unfair subsidies that they receive from their governments. For now, the administration will continue discussions with the UAE and Qatar, the trio’s home countries. But it has not taken off the table the possibility in the future of amending or terminating its Open Skies agreements that allow the Gulf carriers to fly to any American airport they want. A document from an administration meeting in September, obtained by Politico, a news website, states that “additional…Continue reading

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ApprovedBusinessBusiness and finance

The Santa clause

DEAR Team, I trust you are looking forward to your vacations and that the spirit of love and generosity infuses your family gatherings. I also hope that this spirit will be left next to the Christmas tree when you return to work at this incredible company on January 2nd. Because 2018 is going to be the year when America Inc loses its head after a decade of iron financial self-control. And I am not going to make that mistake. Let me drop some festive wisdom: when everyone else is throwing money around like Santa, it is best to behave like Scrooge.

During my workout at 5.10am this morning my trainer played U2. I love Bono for his personal advice on charitable giving, but he is also a perceptive lyricist. “It’s a beautiful day” captures the mood in business. Third-quarter results blew the roof off. Earnings per share for the S&P 500 are 23% above the last peak in 2007. The world economy is rocking. At this week’s digital town halls our sales teams in Houston and Guangzhou reported…Continue reading

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ApprovedBusinessBusiness and finance

An accounting scandal sends Steinhoff plummeting

Steinhoff goes on special offer

THE scale is staggering, even by the standards of scandal-worn South Africa. Steinhoff, a retailer that is one of the country’s best-known companies, admitted to “accounting irregularities” on December 6th when it was due to publish year-end financial statements. Its chief executive, Markus Jooste, resigned, and the firm announced an internal investigation by PwC. Within days Steinhoff had lost €10.7bn ($12.7bn) in market value as its share price fell by more than 80% (see chart). Much is unclear, but it is shaping up to be the biggest corporate scandal that South Africa has ever seen. The company has said it is reviewing the “validity and recoverability” of €6bn in non-South African assets.

Steinhoff traces its roots to West Germany, where it found a niche sourcing cheap furniture from the communist-ruled east. The company merged with a South African firm in 1998 and is based in Stellenbosch, near Cape Town—a…Continue reading

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ApprovedBusinessBusiness and finance

Not even “The Last Jedi” will reverse Americans’ retreat from cinemas

THE new “Star Wars” film opens this week. “The Last Jedi” arrives in cinemas in time to boost expected ticket sales for the year to about $11bn in America, only slightly down from last year’s record. But the American film industry is in trouble. Tickets sold per person have declined to their lowest point since the early 1970s, before the introduction of the multiplex. Expensive flops have prompted studio executives to complain that Rotten Tomatoes, a ratings website, is killing off films before their opening weekends. The studios count on remakes and sequels to attract fans; such films account for all of this year’s top ten at the box office.

It may get worse. Americans are losing the film-going habit as new sources of entertainment seize their attention. Netflix and other streaming services have made it more convenient to watch movies and TV programmes anywhere, on internet-connected TVs, tablets and smartphones. Apps such as Facebook and YouTube are fine-tuned to…Continue reading

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ApprovedBusinessBusiness and finance

America’s Public Company Accounting Oversight Board gets a new boss

THE collapses of Enron and WorldCom in the early years of this century turned book-cooking into front-page news. Investors lost over $200bn; in 2002 the stockmarket fell by over a fifth between April and July. In response, America’s Sarbanes-Oxley Act set up a new body, the Public Company Accounting Oversight Board (PCAOB), to supervise auditors.

Its quest to give auditors more teeth continues, with the introduction of new rules that James Doty, its outgoing chairman, bills as the most significant changes to reporting by auditors in over 70 years. The question now is whether Mr Doty’s successor, who was announced by the Securities and Exchange Commission (SEC) on December 12th along with four new PCAOB board members, will keep heading in the same direction.

New disclosures on auditors’ tenure and independence take effect this week. And from 2019 auditors must go above and beyond the low bar they have historically set themselves, which is a pass or fail “opinion” on…Continue reading

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ApprovedBusinessBusiness and finance

American business has concerns on tax reform

PRESIDENT DONALD TRUMP’S effort to change America’s tax code is approaching the finishing line. Republican negotiators from the Senate and the House of Representatives this week hashed out a consensus bill behind closed doors. On December 13th, Mr Trump expressed confidence that he would be able to sign the reform into law before Christmas.

The key provision is the slashing of the corporate tax rate, from 35% to 21%. Big business in America uniformly cheers this reduction. The US Chamber of Commerce calls it a measure to “grow the economy, create jobs, and increase paychecks”. The Tax Foundation, a right-leaning think-tank, claims that reducing the corporate rate to 20%, just one percentage point lower, would increase the size of the economy by 2.7% over the long run. Yet big firms are less enamoured of controversial international provisions that may make it into the final law. Both the Senate bill and the House bill try to stop the shifting of profits by American…Continue reading

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ApprovedBusinessBusiness and finance

The global property business tries to adapt to e-commerce

Stores of value

FIFTH AVENUE in New York is the most expensive stretch of retail property in the world, now festooned with lights in the approach to Christmas. The pavements heave with crowds eager to see the diamonds sparkling at Tiffany & Co, a jeweller, and festive displays at Saks Fifth Avenue, a department store. But storefronts further downtown in once-thriving shopping districts remain vacant.

The global retail property business is having to adapt as consumers spend more online. Consolidation is in vogue. On December 12th two retail property companies, France’s Unibail-Rodamco and Australia’s Westfield, agreed to merge in a deal worth $24.7bn to form the world’s second-biggest owner of shopping malls by market value. Westfield earns about 70% of its revenues from property holdings in America.

In November, Brookfield Property Partners, another mall owner, bid $14.8bn for the 66% of GGP, a rival, that it did not already…Continue reading

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ApprovedBusinessBusiness and finance

Companies in the region vote with their feet against political uncertainty

Employees, customers, separatists

“WE ARE used to dealing with political crises, but not a break in the rule of law,” says the boss of a big Barcelona cement firm, of Catalonia’s constitutional crisis. Fearing separatists in the region would declare independence, as they did on October 27th, he shifted its headquarters to Madrid. That ended decades of family tradition, but there is no plan to return. “It was a painful decision, but we had no alternative,” he says.

Catalonia accounts for roughly a fifth of Spain’s GDP and a quarter of its exports, but only a sixth of the country’s population. Its diversified economy is the envy of much of Spain, notes Jordi Alberich Llaveria of Cercle d’Economia, a business lobby in Barcelona, thanks to flourishing medium-sized, family-run industrial, textile and perfume-making firms. It has become a hub for multinationals, carmakers, pharmaceutical firms, fashion boutiques and hundreds of…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The WTO remains stuck in its rut

“THERE is life after Buenos Aires,” soothed Susana Malcorra, chair of the 11th ministerial meeting of the World Trade Organisation (WTO). Multilateralism may not be dead, but it has taken a kicking. Expectations were low as the meeting began in the Argentine capital. They sank even lower as it progressed. Delegates failed to agree on a joint statement, let alone on any new trade deals.

Many arrived with a culprit already in mind. Robert Lighthizer, the United States Trade Representative, was the face of an administration that is both questioning the benefits of multilateralism and jamming the WTO’s process of settling disputes. As negotiations progressed, some delegates groused that American leadership was lacking. Some even speculated that the Americans might be happy if multilateral talks foundered. What better proof, after all, that the system is broken?

Ms Malcorra, without mentioning the Americans by name, warned against creating scapegoats out of those…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The markets’ apparent calm over Brexit is deceptive

FOR all the sound and fury of the Brexit negotiations, it has seemed at times as if the financial markets have been barely affected. But as with the swans that glide on the Thames, a serene surface conceals some frantic paddling underneath.

The pound is the most reliable indicator of the Brexit mood. A rule of thumb is that, if the headlines point to a “hard” Brexit (creating trade barriers with the EU), sterling will fall; signs of a “soft” Brexit (something that is close to the current relationship) will cause it to rise.

But some feedback processes are at work. The big fall in the pound in the immediate aftermath of the referendum has led to a gradual rise in imported inflation. The annual inflation rate hit 3.1% in November, requiring Mark Carney, governor of the Bank of England, to write to Philip Hammond, the chancellor, to explain why the target (of 2%) had been missed. The bank has already raised interest rates once. More rises may follow, and expectation of such rises supports the pound.

The need for monetary tightening is not simply a result of higher import costs, which might prove temporary. More worryingly, the Bank thinks that the trend rate of growth of the British economy has fallen (a view it shares with the Office for Budget Responsibility, the government’s forecasting arm). In part, this is because Britain faces a more…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Oil and gas supply disruptions ripple around the world

The Baumgarten blast

CALL it the hydrocarbon equivalent of the butterfly effect. As oil and gas supplies tighten during the northern winter, disruptions as remote as a hairline fracture on a piece of Scottish pipeline, and an explosion in an Austrian natural-gas plant, have repercussions felt around the world.

Start with the pipeline. After Ineos, a chemicals company, detected a growing crack on a piece of pipe near Aberdeen, on December 11th it said it would shut the main Forties pipeline carrying North Sea oil and gas to Britain for weeks. The suspension of a pipeline carrying 450,000 barrels a day (b/d) of crude, in a global market of almost 98m b/d, would not normally be disruptive. Yet Brent crude, the benchmark for pricing much of the world’s seaborne crude, is itself partly priced on the flow of crude from 80 fields that feed the Forties pipeline, magnifying the impact.

Futures prices for Brent crude delivered in February and…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Cars, jewels, wine and watches have been good investments

DIAMONDS, they say, are for ever. They can be pricey, too. On December 5th 173 lots of jewels auctioned by Sotheby’s raised $54m. They included several pieces belonging to Sean Connery, known for playing James Bond. The following day a car favoured by Bond, the Aston Martin DB5, was auctioned for $2.7m. It was among 24 classic vehicles that together fetched $45m. The sales in New York last week by the world’s two biggest auction houses, Sotheby’s and Christie’s, also involved fine wines, watches and other luxuries. Between them they sold $200m-worth.

The Economist has compiled price indices for many of these items—diamonds, classic cars, fine wine, art, watches and other curios—and grouped them in a “passion” index. The index is weighted according to the holdings of high-net-worth individuals (HNWI)—defined as people with more than $1m of investable assets—as reported by Barclays. Our passion index has dropped by 2% a year, on average, for the past…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

A decade after it hit, what was learnt from the Great Recession?

TEN years ago this month, America entered the “Great Recession”. A decade on, the recession occupies a strange space in public memory. Its toll was clearly large. America suffered a cumulative loss of output estimated at nearly $4trn, and its labour markets have yet to recover fully. But the recession was far less bad than it might have been, thanks to the successful application of lessons from the Depression. Paradoxically, that success spared governments from enacting bolder reforms of the sort that might make the Great Recession the once-a-century event economists thought such calamities should be.

Good crisis response treats its symptoms; the symptoms of a disease, after all, can kill you. On that score today’s policymakers did far better than those of the 1930s. Government budgets have become a much larger share of the economy, thanks partly to the rise of the modern social safety net. Consequently, public borrowing and spending on benefits did far more to stabilise the economy than they did during the Depression. Policymakers stepped in to prevent the extraordinary collapse in prices and incomes experienced in the 1930s. They also kept banking panics from spreading, which would have amplified the pain of the downturn. Though unpopular, the decision to bail out the financial system prevented the implosion of the global economy.

But the success…Continue reading

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ApprovedBusinessBusiness and finance

The Ivanka Trump label repositions at home and soars in Asia

Waja to go, Ivanka

LAUREN, a Democrat from Maryland, makes an impassioned case for not shopping at Ivanka Trump, the business founded by Donald Trump’s daughter. First comes a predictable argument; she abhors supporting any brand that uses the Trump name. Second, the sparkly sandals she bought back when Ms Trump was a tabloid celebrity, not an adviser to the president, fell apart within a year. Shoppers will soon be able to take such complaints directly to sales staff: the brand is about to open its first standalone store, in Trump Tower in New York.

Floral frocks, stilettos and bangles aimed at the mid-market customer do not often inspire strong reactions, but Ms Trump’s fashion line is divisive. Though Ms Trump distanced herself from her company in January, she owns it and receives money through a trust. Some consumers are boycotting it. Others have purged their wardrobes of items they already own. Thredup, a second-hand fashion site, says…Continue reading

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Business and financeButtonwood's notebook

When politicians and executives get caught out

POLITICIANS and executives are held to different standards. That is pretty clear when it comes to issues such as sexual harassment, notwithstanding the resignation of Al Franken or the rejection by voters of Roy Moore. As others have pointed out, the tweets and remarks of Donald Trump would have seen him forced out of the leadership of an S&P 500 company long ago.

There are also big differences when it comes to the consequences of their regular actions. Politics is about making choices. Should public money be spent on defence or welfare benefits? Should taxes be cut for one type of voter and raised for another? The problem for politicians is that making those choices explicit may not be a vote-winning strategy. The losers will be more resentful than the winners will be grateful. So politicians get around this problem by making their promises very generic—tax cuts will go to hard-working families, public spending will be reduced through cutting waste and the like. 

The executives who run quoted companies face a…Continue reading

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Business and financeGulliver

Why the Trump administration has enraged flyers across America

FOR a president elected on a populist campaign message, Donald Trump is not doing much to make himself popular with flyers in America. On December 7th, the Trump administration announced that it was withdrawing a regulation proposed under Barack Obama to require airlines and other plane-ticket sellers to disclose baggage fees when customers begin the process of buying tickets. Airlines already have to display checked baggage fees on their websites. But the Obama administration’s proposal would have forced them to do so up front in the shopping process, so that travellers could compare the fees for various airlines and routes when choosing their itineraries. Mr Trump is also scrapping another Obama-era proposal to require airlines to report to regulators how much money they make from add-ons such as paid carry-on bags and seat selection.

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