Adam Posen attacks world's central bank over UK interest rate criticism

The Bank for International Settlements (BIS) warned in its annual report that the era of "near-zero" interest rates needs to end, and singled out the British central bank for comment.

Highlighting the fact that inflation in the UK has been above the 2pc target since December 2009, it said: "One wonders how long [the MPC's] current policy can be sustained."

Mr Posen, who has voted not only for rates to be left on hold but for the Bank to inject another £50bn of quantitative easing into the economy since October, said stagflation – low growth and high inflation – is unlikely in the UK and argued that BIS had made the wrong historical comparison by drawing parallels with the 1970s, when central banks left rates low for too long, unleashing dangerously high inflation.

In a speech at Aberdeen University titled Why Stagflation Is Unlikely, he said: "The underlying dynamic today is parallel to the 1930s."

Mr Posen has previously warned the global economy faces the same headwinds as in the Great Depression, when he claimed misplaced policy was so severe it led to social unrest that resulted in the Second World War.

He used the stage to unpick the BIS analysis. The 1970s saw "unanchored inflation expectations", "wage price spirals", an energy shock and "an unrecognised decline in trend productivity growth", he noted. "Only oil seems to possibly be at work [this time]," he said. "All of them have to interact to reproduce the 1970s.
"BIS said all central banks should raise rates, and pointed to the UK's above-target past inflation – nonsense," Mr Posen said. "In the UK and the West more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not yet a one-way bet."
Taking a non-consensus view, BIS made the strongest case yet for early and rapid rate rises. "Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks," it said. "Central banks may have to be prepared to raise rates at a faster pace than in previous tightening episodes."
It warned that high inflation is not a one-off, as the Bank has argued for the past two years, as "second-round effects" of soaring food and commodity prices have yet to feed into the system. Wages will have to rise in emerging markets as the prices of staples has soared, which will then feed back into higher goods prices for consumers in the developed world.
Mr Posen said: "Workers have limited bargaining power over wages." He also dismissed suggestions that the UK has less slack in the economy to absorb rising demand than thought, which would put upward pressure on prices.

"[There is] little risk of inflation let alone stagflation," he said. "But we still risk echoing that 30's show writ small."

SOURCE: telegraph.co.uk

U.S. Money Funds Risk Losses If Europe Crisis Sparks ‘Wildfire’

June 28 (Bloomberg) -- The European debt crisis would pose a threat to U.S. money-market mutual funds if a rash of sovereign defaults caused big banks to fail to meet obligations within the next three months.

“It would take a very rapid decline and not just in the smaller European countries” for the debt crisis to threaten U.S. money funds, George “Gus” Sauter, chief investment officer at Vanguard Group Inc. in Valley Forge, Pennsylvania, said in an interview. “You’d probably have to see Spain and Italy get into difficult shape.”

Greek lawmakers are scheduled to vote this week on a five- year austerity plan for the cash-strapped nation to secure more international aid and avoid the euro-area’s first sovereign default. Money funds could be hurt by a default because they have lent to European banks that, in turn, have lent to Greece and other heavily indebted European countries.

U.S. money funds eligible to buy corporate debt had about $800 billion, or half their assets as of May 31, in securities issued by European banks, Fitch Ratings estimated. European lenders held more than $2 trillion at year-end in loans to Greece, Portugal, Ireland, Spain and Italy, the most indebted European countries, the Bank of International Settlements estimated.

“It’s not about whether Greece defaults, it’s what happens after that, and there’s uncertainty behind that,” Alex Roever, head of short-term fixed-income strategy at JPMorgan Chase & Co. in New York, said in a telephone interview.

Austerity Package

European Union leaders vowed June 24 to prevent a Greek default as long as Prime Minister George Papandreou pushes a $78 billion euro ($111 billion) package of budget cuts and asset sales through Parliament this week. Greece needs to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August.

“Money-market mutual funds still remain vulnerable to an unexpected credit shock that could cause investors to doubt the ability to redeem at a stable net asset value,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a June 3 speech. Some funds have “sizable exposures” to European banks through short-term debt, he said.

The $2.68 trillion money-fund industry is the biggest collective buyer in the commercial paper market.

The bankruptcy of Lehman Brothers Holdings Inc. led to the Sept. 16, 2008, closure of the $62.5 billion Reserve Primary Fund when it suffered a loss on debt issued by the bank. Reserve Primary triggered a wave of redemption requests when it became the first money-market fund in 14 years to expose investors to losses.

Scaling Back

Customers were denied access to most of their cash for months as the fund liquidated. Investors, fearing that other funds might fail, withdrew $230 billion from the industry by Sept. 19 in a run that threatened to cripple issuers of short- term debt.

Money market funds are limited to securities that can be converted into cash within 13 months.

JPMorgan’s Roever and Peter Rizzo, senior director of fund services at credit rater Standard & Poor’s in New York, said U.S. managers have been reducing their European bank holdings and shortening the average maturities of those remaining. That would allow them to withdraw more quickly without having to sell securities into a potentially illiquid market.

S&P estimated that 80 percent of European bank holdings is limited to three months or less, and 95 percent to six months or less among the 500 U.S. and European money funds it rates.

Multiple Defaults

“The risk is if something takes the crisis from Greece to Portugal, Ireland and beyond and it spreads like wildfire,” Deborah Cunningham, head of taxable money-market funds at Pittsburgh’s Federated Investors Inc., said in a telephone interview. Federated is the third-biggest money-fund provider after Fidelity Investments and JPMorgan.

Multiple sovereign defaults could be managed if the banks don’t have to write down the bonds’ full value, said Anthony Carfang, a partner at Chicago-based Treasury Strategies Inc., which advises corporate treasurers.

“A whole lot of very bad things would have to happen very quickly for this to even approach a problem for money funds,” Carfang said in an interview.

Rules adopted by the U.S. Securities and Exchange Commission after the Reserve Primary debacle would also protect funds if investors spooked by the European crisis suddenly began withdrawing money, Carfang said. Funds now must keep 30 percent of holdings in securities that can be converted to cash within seven days.

The risk from securities issued by European banks has been “mischaracterized,” said Mercer Bullard, founder of Fund Democracy, a consumer group that advocates on behalf of U.S. mutual-fund investors.

“There is no empirical basis for the assertion that these holdings pose a threat to money-market mutual funds’ net asset values,” Bullard, a law professor at the University of Mississippi, said in testimony June 24 before a subcommittee of the House Financial Services Committee in Washington.

--With assistance from James G. Neuger and Jonathan Stearns in Brussels. Editors: Josh Friedman, Steven Crabill

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

JPMorgan's Contrarian Bet on Bank Branches

Charlsey Smedley, a retired schoolteacher in Orlando, started moving her checking account last month to JPMorgan Chase (JPM) from Bank of America (BAC), where she has been a customer for more than 35 years. "The service at Bank of America was O.K., but they just kept adding more and more fees," Smedley, 74, says outside the sleek, gray JPMorgan branch that opened last July on Town Center Boulevard. It's one of 18 JPMorgan outlets in Orlando and a five-minute walk from where Smedley used to bank. The $150 JPMorgan offered to put in her account as a promotional enticement helped seal the deal, she says.
Jamie Dimon, JPMorgan's chief executive officer, had people like Smedley in mind when he announced plans in February to open as many as 2,000 branches, more than half of them in Florida and California, expanding the New York-based bank's network by almost 40 percent. He's targeting states dominated by Bank of America, the biggest U.S. bank by deposits, and Wells Fargo (WFC).
The strategy runs counter to Bank of America's plan to close 10 percent of its offices as analysts question whether the industry needs a bank on every corner. As customers cut back on borrowing and mobile and online banking take hold, doubts about the expense of branches have arisen. "Two thousand is a mind-bending number, even for a bank the size of JPMorgan Chase," says Bob Meara, a senior analyst with Boston-based consulting firm Celent. "Branch building on a large scale seems tough to justify."
Dimon's plan is based on the theory that having more branches enables the bank to attract deposits, a cheap source of funding and a big edge in the post-crisis, Dodd-Frank era of stricter bank regulations. A larger branch network enables JPMorgan to sell investment products to customers and offer banking services to businesses, analysts say.
It also allows JPMorgan to expand its brand in markets such as Florida and California where it gained a foothold by buying Washington Mutual in 2008, according to Ryan McInerney, CEO of the firm's consumer bank and a member of its executive committee. "We don't have nearly the density or branch presence we think we need to serve our current customers or acquire new customers in those markets," he says. "We view it as a very big opportunity."
JPMorgan's five-year strategy calls for 525 to 700 new outlets in California, 375 to 500 in Florida, and an additional 800 elsewhere, according to an investor presentation. The bank had 5,268 retail branches at the end of 2010, the third-largest network in the U.S. behind those of San Francisco-based Wells Fargo, with 6,314, and Bank of America, with 5,856, according to yearend filings.
Dimon estimated at an investor conference on June 2 that each branch makes on average about $1 million a year in profit. That would mean the new outlets may contribute $2 billion to annual profit once they've been open for several years. Dimon's wager is that JPMorgan can soak up deposits from shuttered community banks or beat-up regional lenders forced to trim their footprint, says Brian Foran, an analyst with Nomura Securities International in New York: "They see blood in the water."
Other analysts point out that banks with large branch networks such as JPMorgan may gain little benefit from deposits since they have few attractive ways to deploy the funds amid a decline in borrowing and historically low yields on fixed-income securities. "I would love to know what advantage they see in their retail-banking model," says Nancy Bush, a contributing editor at SNL Financial, a bank-research firm in Charlottesville, Va. "It's good, but is it wildly superior?" With consumers trying to pay off debt and avoid new loans, "the macro trend would be for the entire financial sector to contract, and that means fewer branches, not more," she says.
Bank of America shut 200 branches in the last five quarters through March, CEO Brian T. Moynihan said in April. Wells Fargo, still digesting its 2008 purchase of Wachovia, has chosen to add resources to existing branches rather than open hundreds of new outlets. The bank, which opened 47 branches last year, placed about 5,000 more bankers into former Wachovia offices, CEO John G. Stumpf said on June 3.
Bank of America already has a fully developed branch network in Florida and California, says Walter Elcock, the executive responsible for branches. The bank has plans to add bankers to about 1,500 branches to sell more investment, mortgage, and small-business products. "Our strategy is much more focused on strengthening relationships with existing customers," he says. "It's not about customer acquisition."
A 2010 survey by the Washington-based American Bankers Assn. found that 36 percent of respondents preferred banking online compared with 25 percent who said they would rather bank in person. Even so, "the banks have figured out they need to be able to deliver their products through multiple channels, and branches are one of those that will be here to stay," says Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Me. "Banking has yet to find the killer app to make branching obsolete."
The bottom line: By adding as many as 2,000 branches in five years, more than half in California and Florida, JPMorgan would have the nation's largest network.

Vietnam's Labor Unrest

In May, Japanese motor maker Minebea broke ground in Phnom Penh for a 5,000-worker plant. The company had at first considered Vietnam but rejected it because strikes had become increasingly common there. "A strike would be trouble," Yasunari Kuwano, a spokesman at Tokyo-based Minebea, says of the $62 million plant, which will make motors for appliances and digital equipment. "Labor is the key focus for us in choosing Cambodia."
As Minebea was starting to build its plant, London-based cable maker Volex Group and Japanese lingerie company Wacoal Holdings (WACLY) were among the foreign investors in Vietnam facing illegal wildcat strikes. Workers are demanding better pay as the highest inflation in Asia hurts their purchasing power. Inflation quickened to a 29-month high of 19.78 percent in May, stoked by fuel and electricity prices. The key index for the Ho Chi Minh City Stock Exchange has declined about 14 percent over the last 12 months, the worst performance for that period in Asia, and the currency has slid 8.6 percent against the dollar.
Vietnam had 336 strikes in the first four months of 2011, according to its General Confederation of Labor: That's on course to beat the 2008 record of 762. Many are wildcat stoppages, which lack legal authorization, according to the Geneva-based International Labor Organization. "Every day, somewhere in the country there is a strike," says Youngmo Yoon, a Vietnam labor specialist for the ILO. Average wages should rise 12 percent this year.
The strikes have dented Vietnam's 25-year-old policy of offering foreign investors a stable workforce whose minimum wage, at $85 a month, is still half that of China. It was an effective policy, until now. Planned foreign direct investment in Vietnam fell 48 percent in the first five months of 2011, to $4.7 billion. "The nation is at a crossroads," says Victoria Kwakwa in Hanoi, the World Bank's country director in the Southeast Asian nation. "Vietnam can't assume that FDI will continue. Money can go elsewhere."
In March the government switched its focus to inflation rather than expansion and has cut its 2011 growth target to 6 percent from up to 7.5 percent. Since the credit-rating agencies lowered Vietnam's sovereign debt rating in December, some foreign investors have become wary of making a long-term bet. In June, Srithai Superware, a Bangkok-based maker of tableware, suspended plans for a $5 million expansion at its plant in southern Vietnam because of "economic instability," says Santi Sakgumjorn, general director of the Vietnamese unit. The company says it will set up a subsidiary next door in Laos. "In the short term, we have no confidence in the economic situation in Vietnam," Sakgumjorn said in an e-mail. Production costs have gone up after two salary increases this year, he says.
Vietnam's workers say they have to strike. At an industrial park in Hanoi, factory hand Le Kien scans job openings on a bulletin board, looking for better pay. He has just finished his shift at a plant that assembles cables used in Honda (HMC) and Yamaha motorcycles. "The price of everything—food, gas, electricity—has gone up by more than my pay raise," says Kien, 24, whose monthly salary is equivalent to $87. "I can't even afford to start a family. I wouldn't have enough to buy milk for my baby."

 

China must change for the world to prosper

Good news for poultry farmers; the ban on exports to China is being lifted. Good news all round; some £1.4bn of trade agreements with China were announced yesterday to coincide with premier Wen Jiabao's visit to Britain.

But that's where the positive stuff ends. Unfortunately, these deals will barely make a dent in Britain's yawning trade deficit with China. Nor do they address the underlying structural issues which act to keep British exports out.

In 2009, the last year for which detailed figures are available, China sold £17bn more to us in goods and services than we sold to them, making China far and away our biggest deficit country. Things plainly need to change.

Yet lamentable though the UK's export performance has been these past 30 years, the fault is more theirs than ours. They need to change a lot more than us if the UK is ever to exploit the glittering opportunities David Cameron is constantly banging on about.

What's needed, the Chinese ambassador to London said in a recent interview with The Daily Telegraph, is a big flagship contract to transform the Anglo-Chinese trading relationship. Why not, he suggests, exploit China's growing expertise in high-speed rail by giving the contract for the £17bn London to Birmingham link to China?

Clever man that he is, I'm not sure Liu Xiaoming fully understands the nature of the problem. We need to be exporting more to them, not the other way around.

Now if China were to finance the line as well as build it, making Chinese taxpayers liable for the risk rather than our own, that might be a different matter. The link would at least then count as a big capital investment in the UK, and thereby help offset the costs of China's ever-growing trade surplus.
But in any case, it's not going to happen. The high-speed rail link is to be a substantially UK taxpayer-funded project. Anything the Chinese manage to win from the tender will only add to the deficit rather than subtract from it. The ambassador's "solution" would make the problem worse, not better.
In recent days, Mr Wen has come surprisingly close to admitting publicly something that he has long implicitly acknowledged, that the capital imbalances caused by the extraordinary size of China's trade surplus with the rest of the world have been a contributory factor to the recent financial turmoil.
More than any other Chinese leader, he seems to recognise the need for change. The Chinese economy, he has said, has become "unstable, unbalanced, unco-ordinated and ultimately unsustainable".
Just as the UK economy needs to rebalance away from domestic consumption to net trade and investment, the Chinese economy must rebalance the other way from net trade and investment to consumption. But can Mr Wen deliver? So far, the practice has failed to match the rhetoric.
It's easy to see why. China's economic miracle was built on exports and investment, dynamos of growth which are now hardwired into the country's economic DNA. Change is not just difficult; both politically and economically, it's also exceptionally high risk.
Social stability – and what China's political leadership still self-interestedly imagines is the only guarantee of that stability, the continuity of Communist Party rule – is still prioritised over the sort of economic liberalisation that would allow for a more balanced world economy.
In recent years, consumption has grown strongly, creating the illusion that things are indeed changing. But it hasn't grown nearly as strongly as savings and investment, which still form a bizarrely high proportion of Chinese GDP.

It's not only Greeks who've lost their marbles

The essence of ancient Greek tragedy is that the audience knows it will end in disaster, but feels compelled to watch the horror unfold. And so it is with the modern version, a sovereign debt crisis of Sophoclean dimensions. Themes of the great dramatist's finer works are all there: how arrogance, pride and deception result in unbearable pain; the inevitability of retribution and (not yet witnessed in Athens or Brussels) the arrival of wisdom through suffering.

Tomorrow, Greek MPs are scheduled to vote on a fresh austerity package. If it's passed, the country will receive the next 12 billion euros of a 110 billion euro bail-out. Sadly, this is little more than a financial hors d'oeuvre. Still required is an additional 100 billion euro deal if Greece is to remain solvent until 2013. In effect, the country is borrowing enormous sums to service existing debts, which it cannot afford to repay. As Sophocles reminds us, when divine and human purposes conflict, the gods will always prevail. In this case, Athena, the deity of endeavour and reason, is deeply offended by Olympian self-indulgence. The upshot will not be a miraculous economic recovery, but a spectacular flame-out. As far as Greece is concerned, there is no deus ex machina. The tragic denouement will involve its default or withdrawal from the single currency, perhaps both.

Greece is bust; it already owes 160 per cent of its GDP. Its economy is staggeringly inefficient. Many in the public sector enjoy retirement at 50 and pensions close to full final salary. The private sector is blighted by corruption. The tax-collecting system operates on the basis of a tips box, with only 5,000 Greeks admitting to an income of more than 100,000 euros. When in January 2001 the country flagged its intention to ditch the drachma for the euro, the then prime minister, Costas Simitis, promised: "Our inclusion [in the eurozone] ensures for us greater stability and opens up new horizons". That was the comedy.

Now for the tragedy. Greece's entry was based on a false prospectus, as the European Commission admitted in 2004: "It is clear Greece would not have joined the euro with the figures we have now." Greece hid massive budget deficits between 1997 and 2003 by understating military spending, exaggerating VAT receipts and overestimating social security surpluses. Thereafter, while the Brussels elite was suspending disbelief, the Greeks were borrowing cheaply, paying themselves lavishly and spending uncontrollably. The state became a vehicle for pillage and patronage. Dionysos, god of parties and pleasure, had his day.

Those who lecture us on the European Union's "political will" to fix a looming Hellenic bankruptcy have, like the Greeks, lost their marbles. As Bank of England governor Sir Mervyn King warned: "Simply the belief that we just lend a bit more will never be [an] answer [to a problem] which is one of solvency." He added that Greece has only two options: one, to receive gifts or transfers from friendly countries; the other, to improve productivity, enabling it to turn a current account deficit into a surplus. It's inconceivable that German voters (the EU's main paymasters) will permit the former and there's no evidence that Greeks can achieve the latter.

The political party of Prime Minister George Papandreou is in hock to the unions, whose leaders, even as the country teeters on the brink of ruin, launch rolling 48-hour strikes. Organising a Pasok in a brewery appears beyond them.
Were Greece not locked in a synthetic currency that is run for the benefit of its most powerful members, Germany and France, it would have the option of devaluation to restore competitiveness. With that route blocked, however, and with no possibility of the Greek electorate accepting necessary reforms to welfare, work practices and taxation, the most sensible outcome in the short run is an orderly debt restructuring. This is a form of default, except that it is engineered and agreed to by creditors. In the long run, Greece may have to quit the euro.

How 'fairer pensions for women' will make millions of men worse off

You might think that Government plans to raise Britain’s meagre basic state pension from £102.15 a week to a new flat rate of £140 would be a thoroughly good thing but new calculations by the Pensions Policy Institute (PPI) show that millions of men will be worse off when pensions are made fairer for women.
According to the PPI, about 5.2m people will be an average of £18 a week worse off because they will have paid more than 30 years’ National Insurance Contributions (NICs) but will not receive any State Second Pension (S2P) – formerly known as the State Earnings Relate Pensions Scheme (SERPS) – if this is replaced by the new flat rate scheme for those retiring after 2016.
That is one option being considered by the Government, which would also have the effect of increasing 6.8m pensioners’ income by an average of £23 a week. According to the PPI’s analysis – commissioned by the National Association of Pension Funds (NAPF) – the winners will mostly be women and people who have interrupted work histories; perhaps to care for others or simply through unemployment.
However, the other option being considered – to switch S2P to a flat rate as part of two tier State pensions by 2020 – would mean no older people would be better off than they are now and 5m would be worse off. Niki Cleal, a director of the PPI said: “Those individuals who would have qualified for large amounts of state pension in the current system could lose out the most under a single-tier pension – often moderate to higher earners with an expected full career and NICs record.
“A single-tier pension could also significantly reduce the percentage of pensioner households eligible for Pension Credit from 35pc under the current system, to around 5pc of pensioner households by 2055.
“The single-tier pension could also place additional burdens on employers and employees in defined benefit schemes in both the public and private sectors as NICs would increase.”
For example, employers’ and employees’ NICs increased by one percentage point last April – to 12pc and 13.8pc respectively – and NIC rebates or refunds for final salary or defined benefit schemes that opt out of S2P will be cut from from 5.3pc to 4.8pc next April.  This will help the Government fund higher flat rate basic state pensions but make it more expensive for the minority of private sector employers who still offer final salary schemes to do so.
Zoe Lynch, a partner in pensions lawyers Sackers, said: “The headlines on the Government’s Green Paper on the changes to the state pension have been stolen by the good news story that everyone may receive a flat rate basic state pension of £140 per week.
“But the knock-on effects of this piece of good news have been tempered by the possibility of the closure of yet more defined benefit schemes following the potential withdrawal of the ability to contract-out of S2P.”
However, Joanne Segars, chief executive at the NAPF, said: “The UK has one of the meanest, most convoluted state pensions in Europe, and a radical overhaul is long overdue.
“A simpler, more generous state pension is a win-win that could lift millions out of poverty without hitting the taxpayer’s pocket. Those who are disadvantaged by the current system, like women and the self-employed, will be better off.”
Similarly, Dr Ros Altmann, director general of Saga, said: “All the evidence suggests that creating a flat rate, single tier state pension – above the Pension Credit level – is the only realistic choice.
“It will mean that our state pension system in future would finally be understandable and ensure that for younger generations, the threat of means-testing penalties to their private pensions on retirement will be almost completely lifted.”
It’s hard to argue against that. Unless, of course, you are one of the hard-working men who paid NICs for 30 years and now look set to get less pension.


SOURCE: telegraph.co.uk

There are still some people with faith in the euro

All eyes are firmly on Greece again this week as the country's beleaguered politicians debate (and hopefully back) the fiercely contested package of spending cuts proposed by prime minister George Papandreou.

Both the EU and IMF are demanding that Greece's parliament approve the measures before handing over the latest instalment of cash needed to bail out Greece.

Listen to some commentators and it's not just Greece's bailout which is hanging in the balance this week. The future of the entire Euro project is now apparently at stake.

New York University's Nouriel Roubini is among those to have warned in recent weeks that the Eurozone is heading for break up, while hedge fund manager George Soros claimed at the weekend that at least one country would leave the Eurozone.

The commentators may be predicting the end of the euro – but not, it appears, the world's speculators.

Data released by the US Commodity Futures Trading Commission (based on the activity on the Chicago Mercantile Exchange) late Friday night revealed that hedge funds are actually long (not short) of the euro. With 29,771 more bets on the euro rising against the dollar, than falling.

SOURCE: telegraph.co.uk

Hitler's drinking glasses expected to fetch around ??8,000, sold for just ??3,000

LONDON: A set of drinking glasses that once belonged to Nazi leader Adolf Hitler have been sold at an auction for 3,000 pounds.

The collection auctioned at the Northamptonshire Auction Centre in Britain , was expected to fetch up to 8,000 pounds, but was snapped up by a buyer in Sweden for just 3,000 pounds, The Sun reports.

Auctioneer Jonathan Humbert , of JPHumbert auctioneers, said the price was still reasonable for an item with no written proof of its background.

"Anything Nazi can be a little bit awkward to place and although we had an immense amount of worldwide publicity people were very cagey about expressing pre-sale interest," said Humbert.

"They sold to someone from Sweden who bid via the Internet. They have no paperwork, no written provenance, it was really based on the hearsay from the vendor in America," he added.

He said the goblets belonged to the vendor's late father, a highly respected militaria dealer .

The engraved goblets, edged in gold and etched with the distinctive Nazi eagle, a swastika and the initials A.H., are thought to have been used by the dictator in his Berlin bunker.

Rio Tinto cuts Q3 iron ore prices as spot drops

SHANGHAI: Rio Tinto Ltd , the world's No. 2 iron ore miner , will drop its prices by up to 3 percent for Chinese steel mills for the third quarter, sources with knowledge of the contract details told Reuters.

The modest price cut was in line with a decline in spot prices of the steelmaking raw material. Global miners have been using spot values as the basis for setting contract rates since the industry moved to a more flexible quarterly system after scrapping a decades-old annual pricing scheme.

Rio has asked some Chinese steel mills to pay $2.7234 per dry metric tonne unit (dmtu) for iron ore fines and $3.0109 per dmtu for lump ore for the July-September period, sources told Reuters on Thursday.

Those compare with Rio's second-quarter price of $2.7638 for fines and $3.1063 for lumps, the sources said.

The price puts Rio's 62-percent Pilbara Blend fines at $168.85 per tonne, compared with $171.35 in the second quarter, in line with initial industry estimates.

An official who buys iron ore for a mid-sized steel mill in northern China said the company had received the pricing details from Rio Tinto on Wednesday.

Several more steel mills in eastern China had received the notice with the same pricing details, another market source said.

US may land deal for re-engining of Indian Air Force's Jaguar Deep Penetration Strike Aircraft

BANGALORE: The US is likely to be the prime beneficiary of yet another lucrative military contract, after the defence ministry withdrew its commercial tender for the re-engining of the Indian Air Force's Jaguar Deep Penetration Strike Aircraft last month.

New Delhi is likely to proceed through the Foreign Military Sales route as the existing defence policy does not allow procurement from a single vendor.

The latest development is likely to propel the US-based diversified conglomerate Honeywell, which was one of the two vendors invited to supply new engines, as the prime contractor for the new engines, especially after British engine-maker Rolls-Royce pulled out of the competition in March 2011. The tender for the re-engining of the Jaguar aircraft, which was cancelled by South Block last month, has been estimated at $670 million, and calls for the supply of between 200 and 250 engines.

"Commercial tenders cannot end up in a single-vendor situation. This (Jaguar re-engining tender) is likely to be a government-to-government deal," a ministry source said on the condition of anonymity.

For the Jaguar re-engining programme, Rolls-Royce, the world's second-largest engine-maker, had offered its Adour MK-821 engine, an upgraded version of the Adour-811 engines that are currently powering the fleet.

In an emailed response to queries sent by ET, the Westminster, London-based company said it has informed the government, IAF and state-owned defence undertaking Hindustan Aeronautics that it "will not be responding to the RFP".

"The IAF RFP issued in November last year and later confirmed at the Bid Conference in Delhi now calls for a new engine not an upgraded engine," the company said in a statement.

However, Honeywell has elected to stay in the competition, through its offering, the F125-IN Turbofan engine. "Honeywell remains fully committed to supporting the Indian Air Force and the Indian Ministry of Defence in their procurement process for an engine upgrade for their fleet of Jaguar aircraft," Pritam Bhavnani, president, Honeywell Aerospace India, wrote in an email.

The IAF, currently, has about 125 Jaguar strike fighters, but the existing engines on the aircraft have been deemed underpowered as per modern-era battlefield requirements, and a decision to install brand-new engines with greater thrust, has been taken.

With Honeywell still angling for the contract, New Delhi is likely to work directly with Washington for the supply of the engines, with the deal being concluded at the government-to-government level, according to informed sources.

The IAF wants to retain its Jaguar fleet and have been insisting that new engines will increase its longevity. Operationally, the the Jaguars have been used by the IAF, with a great degree of success during the Kargil conflict, in conjunction with its Mirage-2000 fighters.

However, upgrades of existing fighter fleets have not met with much success in recent times, with the Mirage-2000 retrofit seemingly in limbo, as the government continues to be at logger heads with French defence vendors Dassault and Thales over costs.

China's boom beginning to show cracks: Analysts

SHANGHAI: New economic analyses of China provide further indication that the nation's supercharged economy is beginning to slow, and warn that soaring inflation, rising labor costs and mounting local government debt threaten to weaken growth even more.

Several economists in China have recently lowered their growth forecasts for this year and next year to about 8.5 per cent, down from earlier forecasts of 9 per cent to 10 per cent, while also warning about the possibility of a sharp rise in nonperforming loans at the nation's big state-owned banks.

On Monday, for instance, Credit Suisse said data recently released by the Chinese central bank showed that credit in China had expanded at "alarming levels," far more than previous government estimates suggested. Credit Suisse downgraded its profit forecasts for Chinese companies and state-owned banks, as it warned of slowing growth for the overall economy.

The reports come at a time of heightened concern about slower growth in other parts of the world, including the United States, Europe and Japan.

Since the financial crisis, China has been the world's leading growth engine. But for much of the past year, China has been trying to rein in overly aggressive bank lending as a way to tame soaring inflation and property prices.

Those tightening measures have not only weakened growth in China, analysts say, but have also begun to expose a host of other problems in the nation's financial system.

While few analysts expect China's growth to slow to below 8 per cent in the next year, they still paint a troubling picture. The Chinese stock market has been in a slump for much of the last two years, the property market looks weaker and inflation is running at a 34-month high.

Analysts said exports have begun to show signs of weakness in recent weeks. Credit Suisse said Monday that China's export growth could be flat in the coming months, partly because of weaker demand in the United States and Europe.

Credit Suisse's new figures also indicate that off-balance-sheet lending, much of which took place outside the banking system, pumped a large amount of additional credit into the financial system last year. As a result, Credit Suisse downgraded its ratings of Chinese companies and the big state-controlled banks, and warned of a possible rise in bad loans.

Vincent Chan, the head of China research at Credit Suisse, said that the nation's economy might avoid a "hard landing" but that growth over the next year was likely to be less robust.

"The market consensus is for a soft landing and two or three quarters of slowing down, then a growth rebound," Chan said in a telephone interview Monday. But, he said, "we're saying that after that, the growth may not re-accelerate and the indebtedness may be more serious."

Earlier this month, Wang Tao, the chief economist in China at UBS, said China's economy was still strong but warned that over the next few years, loans to local government investment companies could result in as much as $460 billion in nonperforming loans.

Although Beijing used state-run banks to bolster growth after the financial crisis hit in late 2008, the central government is ordering them to help rein in growth.

Chinese banks have already raised interest rates and set aside larger reserves. The government is expected to announced additional measures in the coming months.

LVMH co Sephora in JV talks with Mukesh Ambani's company Reliance Brands

MUMBAI: Reliance Brands, a privately held firm of Reliance Industries chairman Mukesh Ambani , has been in talks to launch Louis Vuitton Moet Hennessy (LVMH) owned beauty retailer Sephora, and a high-end women's clothing brand BCBG, as the company looks to add more international brands to the country's evolving fashion and personal grooming business.

This subsidiary of Reliance Retail has existing joint ventures and long-term distribution pacts with global brands like Diesel, Zegna, Paul & Shark, Timberland and Steve Madden. Industry sources briefed on the developments said Reliance Brands, spearheaded by fashion industry veteran Darshan Mehta, has been scouting for high-street locations for launching Sephora and BCBG (abbreviated for Bon Chic Bon Genre in French). The two brands fit into Reliance Brands strategy of bringing in international brands catering exclusively to women's wear, personal grooming and accessories business.

Reliance Brands CEO Darshan Mehta declined to comment on market speculation . LVMH could not be reached for immediate comments . The nature of the proposed alliance with Sephora and BCBG, whether it is JV or long-term licensing of the brand, could not be ascertained . The deal with Sephora was still in discussions and not sealed, sources added.

Saloni Nangia, vice president , retail and consumer products at consultancy firm Technopak Advisors, said the premium personal care segment is growing at a fast clip compared to the growth in the industry. The entire beauty and personal grooming segment is estimated to be $4.5 billion and is growing at 7-8 %. On the other hand, the premium category, which is 5% of the total market ($250million), is growing at 18% annually. Higher disposable incomes and consumers upgrading to premium products are driving growth in this category.

Paris-based luxury goods group LVMH has been working on Sephora's India strategy for a while, and came close to striking a deal with DLF . Sephora, with over 700 stores worldwide, sells beauty and hair care products under its own name as well as some 100 other well-known brands such as Yves Saint Laurent, By Terry and Issey Miyake. Some of the brands Sephora sells, for instance, Body Shop and Lancome are already present in India. "Sephora's entry will herald the first premium multi-brand retail channel for beauty products in India. Till now, it was the grey market and the mom and pop stores that catered to the high end multi-brand cosmetics retail," said Amit Bagaria , chairman, Asipac, a retail and mall management consultancy.

French designer Max Azria-owned BCBG clothing has been embraced by celebrities and trend-setters globally, and has found admirers in Bollywood stars like Kareena Kapoor and Preity Zinta. BCBG bridges the super-premium and luxury segments competing with rivals such as Roberto Cavalli, Prada, Burberry and Donna Karen. Reliance Brands, which also intends to invest behind indigenous fashion houses, operates 25 stores in seven cities between all its portfolio brands and reported a loss of Rs 6.23 crore in FY11.

Eye on talent, Wipro rolls out promotion offer for mid-level managers

BANGALORE: For the first time in nearly two years, top managers at Wipro have been promoted to become vice-presidents at different business units and functions, as India's third-biggest software exporter plans to offer more growth options for mid-level managers and retain key staff.

Coming out from an economic recession during 2009, when customers shelved software projects and tech firms like Wipro, Infosys and TCS were forced to freeze promotions and even trim payrolls, the challenge now is to ensure that key staff don't get poached by rivals offering lucrative posts and better salaries. Earlier this month, Infosys, the country's secondbiggest software exporter, handed promotion letters to dozens of its mid-level managers and promoted three of the company's next-gen leaders to the board.

According to at least three people familiar with the developments, Wipro will now have 30-40 vice-presidents, more than double the 15-odd managers it had at this level until two years ago. Rishad Premji , Wipro's chief strategy officer who joined the company as a business manager in 2007 and was promoted to become general manager two years ago, has also joined the vice-presidents' club.

"Good to see people talk of promotions now, after months of restructuring and bad press," said one of the managers who was promoted. He requested anonymity because he is not authorised to speak to the media. Sunita R Cherian, Supriti Bhandary, Priti Rajora and Isaac George are among the general managers promoted to become vice-presidents in Wipro's human resources division.

Ashok Tripathy , who heads Wipro's PC business, has also been promoted to the vice-president level along with Durga Prasad, who heads Wipro's Saudi Arabia unit.

As top customers such as Citigroup and BP increase outsourcing of IT and back-office projects, Wipro needs to promote its managers to handle bigger, more complex roles. "In the past few years there have been few promotions as there was the downturn and there wasn't too much longterm visibility. But this year a lot of general managers have been promoted to the vicepresident level and vice-presidents have become senior vicepresidents," said an official on condition of anonymity.

"There are several reasons for this - the market has opened up and there is buoyancy. Even peers such as Infosys, TCS and Cognizant have rewarded employees well, so in a way they are keeping up with the industry. Also, now that the restructuring is almost complete the company has a longterm view and wants to reward those who have done well," the official added. Wipro's appraisal process kicked off in April and ended on June 15. Employees have started getting letters and the process will be completed in the next few days.

"The total number of promotions is definitely higher. It's also an outcome of the fact that overall we have grown; we have added 20,000 employees in the past few years so the number will be higher. The promotions have been good across the board and there is also a feel-good factor," another company official added. Experts say as demand picks up companies like Wipro will reward team leaders.

"Companies are rewarding employees at the operating level (team leaders, projects managers, etc) because the opportunities for them in the market are much higher. While compensation is good, there is more sanity compared to the 2006-07 levels," said Ajit Isaac, managing director & chief executive officer, IKYA Global.

Earlier this year, Wipro announced 12-15% hikes for its offshore employees. The company also standardised its appraisal procedure, fixing the first quarter of the year as the appraisal cycle. The wage hikes are effective from June 1. TCS announced 12-14% hikes, while Infosys gave out increments of 10-12% earlier this month with retrospective effect from April.

India to issue another warning to US on hike of professional visa fees

NEW DELHI: India will issue yet another warning to the United States on the non-compatibility of the recent hike in professional visa fees and imposition of additional import taxes on government purchases with World Trade Organisation, or WTO, rules.

Commerce and industry minister Anand Sharma will take up the issue with US Trade Representative Ron Kirk later this week.

"We are seriously pursuing the issue with the US government as we feel that both the measures violate global trade rules. The minister will discuss the issue at length with the USTR," a commerce department official told ET. Sharma is scheduled to meet Kirk in Washington DC on Wednesday.

India had issued a non-paper or an informal communication to the US earlier this year stating that both the measures, that were part of the country's attempt to fund its enhanced border security plan and health programme for 9/11 victims, flouted multilateral trade norms of the WTO. The US, however, is yet to respond to the communication.

"The minister will try to drive home the point that we are not willing to let go of the issue as the measures have a significant negative impact on Indian business," the official said, adding that the commerce ministry is in consultation with WTO lawyers and is preparing the ground for filing a case if required.

The US increased professional visa fees (H-1B and L-1 visa) by a minimum $ 2,000 for all US-based companies that have more than half of their employees on such visas till 2015. It would mostly affect Indian IT firms, like Infosys and Wipro , and is expected to cost them $200 million annually.

It also imposed an additional import duty of 2% on all government purchases from countries like India that are not part of the government procurement agreement (GPA) of the WTO. Only a handlful of members are in the GPA including the EU, Japan, Switzerland, China, South Korea and Iceland.

A Delhi-based trade lawyer following the issue told ET that while prima facie there is no discrimination against Indians on the issue of visa fee hike, de facto there could be a case of distinction as mostly Indian firms are getting affected by the measure. "The visa issue could be disputed at the WTO if discrimination is proved," the lawyer said.

Levy of higher taxes on imports from non-GPA countries is a ``trickier'' issue because although it is in confirmity with the GPA, there could be compatibility concerns with the General Agreement on Tariffs and Trade or GATT (the agreement that preceeded the WTO) and the General Agreement on Trade in Services or GATS. "It will be interesting to see how the WTO dispute settlement panel will view the issue if India decides to file a dispute against the measure," the lawyer added. Sharma will also meet US under secretary for political affairs William J Burns during his three days visit and address the annual summit of the US-India business council

Spying devices come cheap and easy

NEW DELHI: For as little as a few hundred rupees, a bugging device can be bought off the shelf to listen into other people's conversations. Add a few hundred more rupees, and you can buy sophisticated miniature video cameras that can be hidden in a flower vase or behind books.

For all of these, there is a flourishing market in India, thanks to the perverse violation of privacy and officially sanctioned snooping activities that are undertaken by government agencies. And the completely illegal snooping activities by many private sector companies as part of corporate espionage, or for other reasons.

A trader in Delhi, who specializes in supplying snooping equipment, said he could sell a listening device for as little as Rs 500. "From Rs 500 to Rs 50,000 we have equipment," the trader , known for supplying hidden cameras to TV channels, said.

A listening device would include a transmitter and a recorder to which the voice is sent as radio waves. Similarly, there can be a hidden camera and its recorder.

For long, the Indian market for such devices was dominated by western companies. But in recent years, firms from Ukraine, Belarus, Russia and Israel have entered the market. "Former Soviet countries brought down the cost of these equipment significantly," an official said. He said snooping equipment were primarily bought for either audio or video recording. In both cases, a host of factors decide how effective the equipment is, how small the transmitter is, the life of its battery and the power of the transmitter to transmit to the maximum distance.

The official said he was aware of equipment that with batteries that could last from a couple of hours to an entire day. There are exceptional equipment where the battery life can last for several days, he added. The microphones (transmitters ) can transmit voice to a minimum of 40-50 metres to a couple of km. They transmit it to a pre-determined receiver.

"A listening device is nothing but a microphone that converts voice into radio waves and transmits it to a recorder kept at some distance," said Maj Gen V K Singh, a retired officer who was with the Army Signals and RAW. Technology was evolving in snooping, he said. "But the basic premise remains the same," he said.

Another former officer said snooping could be done in far better ways than using adhesives to stick microphones, as was found in Mukherjee's office . He said an agency could place a copper wire inside a phone, converting the receiver into a transmitter.

Another way is to modify three-pin plugs to transmitters. Agencies also flood rooms with high frequency radio radiations , using a laser beam focused on a windows to pick up micro-vibrations.

Rising infrastructure cost forcing MNC tech cos to allow employees to work from home

BANGALORE: The last time Kumar, a sales executive working with IBM India, visited his company's registered office in Bangalore was some six months ago to get his broken attendance card replaced. Kumar, 35, is among nearly 50,000 IBM India employees who are working from anywhere, but the office.

"I do not have to show my face to my boss anymore, well at least for a few weeks or months at a stretch," says Kumar, who requested that his first name not be revealed. "I used to miss catching up with other colleagues at office, but now there are hundreds of us on the road for the company," he adds.

For nearly 50,000 employees at IBM India and some 15,000 tech workers at HP's India operations, work-fromhome is no more an HR incentive meant for women going for early maternity leave, or a privilege for few - it's now an integral part of their work life.

While over 40% of IBM staff does not have any space in office, a quarter of HP India employees across the functions of sales, marketing and customer support do not have to mark their attendance or swipe employment cards.

Rising real estate costs and travel time, apart from other complexities of maintaining office space for a growing base of staff, are making a real business case for multinational tech firms like IBM, HP, Cisco and Microsoft.

What was once an option taken by those with personal problems or medical predicaments has now become a norm in some companies with the option of working from home finding more takers than ever before. Employees at IBM even receive Rs 15,000 more a month for this. This is because they save the company walloping infrastructure costs, one of the perils of rapid expansion.

This way the company can also drive home the point that it truly promotes work-life balance. The company says it also increases the productivity of employees. "We know that if we can successfully address the challenges of work-life balance, IBM will certainly gain a competitive edge in the war for talent," a company spokesperson said.

The company, however, denied paying these employees extra. At HP, the number is anywhere between 10,000 and 15,000, and the company, which did not confirm the figure as it does not share its India headcount, says it leads to better employee engagement.

Not to be outdone, Microsoft last year formalised the policy which had been practised in the company for a few years. It reimburses the broadband and telephone costs but does not throw in any extra amount to keep employees at home. Microsoft gives employees a choice of various flexible work options, and they can pick what best suits their needs.

"Not only does this lead to a better work-life balance for existing employees, and a cause for retention, it is also an attractive aspect for potential employees," said Joji Gill, HR director of Microsoft India. The software firm provides three options to work from home which include flexible scheduling, teleworking and part-time basis. Flexible scheduling is when an employee has the option of working from home for a few of his business hours on a recurring basis.

Teleworking lets him choose a schedule of days where he would work only from home. Part-time is when an employee clocks in only a few hours for work. Networking equipment maker Cisco says employee location is increasingly losing meaning in an interconnected world. The company even helps its employees set up home offices. It creates an office with email and intranet-enabled smartphones, provides Cisco Virtual Office equipment, laptops and data cards for employees who do not wish to be within the office walls.

"IP solutions from Cisco and emerging technologies are making location irrelevant, making remote working feasible. Companies can also reduce office space, thereby reducing operational costs associated with real estate and facility management," said Seema Nair, co-lead for India HR operations, Cisco. Companies say it is not just women but even men who take up this option very often.

At IBM, the percentage of employees working from home is 40% while at HP it is 25%. Microsoft's India headcount is not very large when compared to companies like IBM and HP. Domestic firms also offer this option but it is more needbased and not as rampant as their global counterparts. However, to allow employees to work permanently from home requires a company to have precise job description and agenda.

"There can not be any flab in the KRAs and the managers have to craft the jobs carefully where everything is templatised," said Saundarya, founder-member of Flexi Career in Chennai. She said problems creep in when companies look at it as a work-life balance initiative and not as an option that could help in their business goals. While most companies say they trust their employees to do a good job, there are several checks and balances like managers and the employees working closely with a set of deliverables.

India to West: Want food security? Give us technology

NEW DELHI: India will leverage the global concerns over food security to seek technological assistance from the developed world to raise farm productivity in the developing countries at the ongoing meeting of agriculture ministers of G-20 nations in Paris.

The G20 meet in Paris will focus on various hedges against price instability in food articles and will also consider the use of emergency buffer stocks and regulation of the commodity trading markets. "India will seek all forms of support from the developed world to enhance agricultural productivity," a government official told ET.

A recent report by OECD and FAO highlighted the problems of high and volatile commodity prices over the last year, and warned of steep price rise in the next decade. This will be particularly painful for the developing countries where a large proportion of the populations are spending most of their earnings on food.

A rise in productivity in the developing countries can help rein in prices. "The technology for improving agricultural productivity in developed countries is with the private sector, it is difficult to access such technologies," said Ashok Gulati, Chairman, CACP. "This meeting is a good platform for acquiring advanced technology," he said.

The developed world is sure to demand less restrictive farm sector policies in return, especially from India and China. "China and India in particular keep excessive stocks that push prices up. Hence, over issues of export control, India will come under scrutiny," added Gulati.

This will make a consensus difficult, as singed by high food inflation India is not likely to relent on export restrictions any time soon. India and China will also argue that policies in the developed world were responsible for price rise. "Excess liquidity created by loose monetary policies is being parked in commodity markets. India should raise its voice against such synchronized orchestrated policies," said Gulati.

In this context the discussion on regulation of the commodity trading markets will become crucial. Abheek Barua, HDFC Bank , Chief Economist cautions controls on commodity trading can be counter productive. "Unless regulation on commodity trading is adopted by all nations, it will result in arbitrage opportunities. What is required is a smoother trading system among partners," he said.

'Suspicious' Huawei to help set up telecom lab in India

NEW DELHI: Rather like letting the fox to guard the henhouse, India plans to entrust a Chinese company with a crucial role in helping ferret out spy software hidden in imported telecom gear.

Huawei Technologies , a major supplier to Indian mobile phone firms and the object of the Indian government's suspicion, has been enlisted to provide knowhow and equipment for a facility that will be a clearing house for all imported telecom gear, the draft of an agreement shows.

Huawei and the Indian Institute of Science in Bangalore, where the testing lab will be housed, will soon sign a memorandum of understanding under which the Chinese company will provide "documentation, expertise, methods and standards for studying telecom equipment," a government official said.

India was compelled to take the help of the Chinese company because no Indian firm makes telecom gear and no other foreign company was willing to assist because of worries about intellectual property rights, the official said.

Huawei is the world's second-largest telecom gearmaker after Ericsson, with 2010 revenues of $28 billion (Rs 1.27 lakh crore). The government has been suspicious that it and another Chinese company, ZTE, could use the telecom equipment they supply to snoop on India and even launch cyber attacks.

The lab at IISc is being built solely to address the concerns of intelligence and security agencies about the Chinese vendors. "In order for IISc to perform certain studies in respect of telecom equipments, IISc shall be requiring detailed understanding about various features, standards and related documentation. Huawei...agrees to share some information, knowledge, software, hardware and equipments with IISc for its studies," says the MoU, seen by ET.

It also says that both of them can visit each other's facilities, including Huawei's manufacturing plants and logistics centres. The IISc centre was given funding by finance minister Pranab Mukherjee in the 2010-11 budget. It is being modelled after the China Information Technology Certification Centre that operates and maintains a national evaluation and certification scheme for that country's IT and telecom security.

A pilot lab has started functioning in Bangalore and a fullfledged centre is likely to be established in next three years after the approval of the Cabinet Committee on Economic Affairs, minister of state for communications and IT Gurudas Kamat told Parliament in May 2010. Just a year ago, Huawei and ZTE were battling to avoid being banned from the world's largest market for telecom equipment.

Beginning February 2010 for six months, the home ministry refused to clear telecom equipment contracts worth hundreds of millions of dollars allotted to Chinese firms on fears that these companies had the capabilities of installing spyware and malware that could monitor voice and data traffic and disable networks. This delay disrupted the expansion plans of several mobile service providers.

Imports from Chinese vendors resumed only in August 2010 after Huawei and ZTE agreed to comply with new rules that make it necessary for foreign equipment companies to put their software in the equivalent of a sealed envelope to be opened by Indian authorities only in the event of a security threat.

In the same month, Huawei, founded by Chinese army veteran Ren Zhengfei, revealed details of its shareholding to the Indian government in what it said was an unprecedented disclosure.

India is the world's largest market for international vendors. Sales of telecom equipment are expected to increase from $12.5 billion in 2009-10 to $40 billion in 2020, according to telecom regulator Trai. On Wednesday, telecom journal Voice & Data said revenues of Huawei and ZTE in India fell by 23.5% and 12.8%, respectively, for the twelve months to March 2011 after they were barred for several months last year from supplying equipment to companies here.

Huawei's India sales were Rs 5,688 crore while for ZTE it was Rs 4,118 crore. Nokia Siemens overtook Ericsson with annual revenues of Rs 6,117 crore to be the largest equipment vendor in India.

A Huawei spokesperson declined to comment on the pact, but an executive close to the company confirmed that a deal had been struck. The person added that the move to share IPR and commercially sensitive information with a statefunded research agency here would go a long way in bridging the trust deficit.

Diesel, kerosene & LPG price hike coming in July

NEW DELHI: The government will raise diesel, cooking gas and kerosene prices next month after a gap of one year as cash-strapped state firms say their borrowings have risen alarmingly and they will be forced to cut fuel supplies, starting with cooking gas.

State-run refiners are facing acute liquidity crunch as their market borrowings have soared to Rs 1,20,000 crore from Rs 97,000 crore in March. They will now be forced to cut imports leading to shortage of fuel, two government officials with direct knowledge of the matter said.

The empowered group of ministers, which is authorised to raise fuel prices, is expected to meet early next month to decide partial price hike on individual products against companies' demand to increase diesel rates by Rs 15.44 per litre, kerosene by Rs 27.47 per litre and cooking gas by Rs 381 per cylinder, an official said requesting anonymity.

The government had frozen the prices of diesel, cooking gas and kerosene for a year fearing voter backlash against the inflationary move ahead of crucial assembly elections. The government last raised prices of politically sensitive fuel on June 25, 2010 when kerosene became costlier by Rs 3 a litre, diesel by Rs 2 a litre and cooking gas by Rs 35 per cylinder. Crude prices have risen from about $75 per barrel then to $110 a barrel.

Oil companies, that enjoy a pricing freedom for petrol since June 25, are expected to raise its price also. "They want to raise petrol price by Rs 2 a litre, but it will be done simultaneously," one official said.

Oil companies have so far revised pump prices of petrol 10 times since it was deregulated last year. Oil ministry officials said that state-run oil companies - IOC, BPCL and HPCL - were suffering a revenue loss of Rs 450 crore every day on sale of controlled fuel and a price hike was imminent.

Ministry officials said that they would place facts before the empowered group of ministers (EGoM) along with impact of a unit price increase of individual fuel on companies' revenues. "Final decision would be taken by the EGoM," an oil ministry official said.

At a press conference earlier this week, Oil Minister Jaipal Reddy had also indicated that a fuel price hike was imminent but he had declined to give specific details. "We are still exchanging notes, there are no specific suggestions by the oil ministry to EGoM," he had said. Reddy had met Prime Minister Manmohan Singh last week to explain financial condition of state-run oil firms and a pressing need to revise fuel prices.

Reliance Industries' Andhra offshore gas fields costs rose $3 billion in 2 years: CAG draft

NEW DELHI: Reliance Industries Ltd's investment plan for bringing its showcase Andhra offshore gas fields to production increased by almost $3 billion, a comparison between the cost of major elements of the company's initial and revised estimates shows.

Comparison of 13 elements of the two plans for D1 and D3 fields in the Comptroller and Auditor General's draft report shows estimates increasing from $2.39 billion to $5.19 billion. The comparison, carried as 'Annexure 4.3' in the report, a copy of which is available with TOI, points to "abnormal upward" revisions "without providing basis of such estimations".

Reliance discovered the field in 2002 and submitted the initial plan in 2004, envisaging a production of 40 mcmd (million cubic metres per day) of gas. It revised the plan in 2006, with an output of 80 mcmd.

Higher capex reduces government's returns from a field since companies are allowed to recover their costs before calculating profit. The annexure clearly puts a figure to the actual increase in Reliance's capex estimate. But the CAG report itself - first reported by TOI on June 13 - merely said the auditor is "unable to quantify" the government's loss which could be "huge".

Reliance did not respond to queries from TOI. Senior company executives, while maintaining they hadn't received the CAG report from the oil ministry, said the substantial rise in global rates for hiring drilling rigs, oilfield services and installations besides ships and helicopters contributed to the higher capex.

"The daily rate for a rig shot up to $500,000-550,000 around 2006 from $110,000-120,000 in 2004. Similarly, services cost of $125,000 per day in 2004 and rose to $150,000. With such a cost escalation, which is beyond RIL's control, obviously price of drilling a well would go up," an executive familiar with the fields planning said on condition of anonymity.

He said the company had one development concept in 2003, just a year after the "frontier discovery". But with subsequent inputs - data and domain knowledge from international experts - a new design concept was required in tune with the higher potential.

"This too may have contributed to the higher cost... CA or any auditor should have an understanding of the intrinsic characteristics of an industry before taking a critical view in isolation. There has been no wrong doing (in Andhra offshore field). Once we have a copy from the government, we will put all doubts to rest."

But the annexure points out delays in Reliance's tendering process and execution of contracts for engineering, design etc - activities that were under the company's direct control and may have contributed to the cost escalation.

Some of the major elements that saw substantial increase in costs are, development wells (from $944 million in initial plan to $1.16 billion in revised plan), production facilities ($1.34 billion-$2 billion), subsea control systems ($358 million-$722 million), deepwater pipeline ($142 million-$323 million), onshore terminal and site grading ($192 million-$550 million), control-cum-riser platform ($0-$446 million).

On development wells, CAG observed, "There was reduction in the number of wells from 34 to 22 in the revised FDP (field development plan) but cost per well was increased from $27.78 million to $52.94 million. Further, 18 wells were actually drilled till June 2009 with average cost per well of $56.8 million, ie actual cost more than double from FDP cost levels."

"Audit identified that one of the factors responsible for higher cost was non-finalisation of tenders, after bids invitation, for charter hire of deep drilling rigs... and piecemeal hiring," the annexure says on Reliance's project implementation.

Nokia N9: New flagship smartphone gets mixed reviews

SINGAPORE: Nokia's latest attempt to win back market share with its N9 phone received mixed reviews Wednesday but analysts said the real test will come when it releases new models using the Windows Phone 7 operating system.

Fans lauded the N9's ease of use without any "home" button -- a feature of the iPhone and other rivals -- while detractors mocked what they saw as its outdated Meego operating system.

Unveiled by Nokia chief executive Stephen Elop at the CommunicAsia telecoms fair in Singapore this week, fans crowded around the company's booth to try out the device.

The N9 has a 99-millimetre (less than four inches), 854 x 480 pixel display and weighs 135 grams (less than five ounces), putting it clearly in iPhone territory.

Its most distinctive feature is an "all-screen" display, with users swiping the screen to switch between applications.

The device also has a function that allows users to link it to dedicated accessories such as a headset or speakers by simply touching the phone against them.

"Being a user of Apple, an iPhone, this is light years ahead of what iPhone 3G does," declared Paul Krzystoszek, operations and marketing manager for Australian Satellite Communications.

"The ease of use... the intuitive nature of swiping across the screen instead of using a button, there's no button on it, the plastic casing, I think they're all things that make it a lot better than what we have already," he told AFP after trying the phone at the Nokia booth.

"Awesome" was how Shahiran Jaafar, chief executive officer of Malaysian firm Microtel Systems and user of an iPhone 3G, described the N9.

"The fact that you can just swipe it and it goes back to whatever screen that you need it to go back to, the fact that it can show all the open tasks that's available, that's fantastic," he said.

"It just dwarfs the iPhone, the iPhone is nothing now."

However, some were unimpressed by the fact that the N9 was still operating on Nokia's MeeGo platform despite the company's impending adoption of the Windows Phone 7 platform later this year.

"I have a problem with... the operating system ," said Phoosith Ratpiyasoontorn, a Thai systems integration engineer, lamenting that MeeGo lacked user volume and compatibility with many applications.

Stocks Cheapest in 26 Years as S&P 500 Falls, Earnings Rise 18%

For the second time since the bull market began, profits are surging and stocks are falling.
Standard & Poor’s 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven’t stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.
The combination of China raising interest rates, concerns about a Greek default and the end of the Federal Reserve’s $600 billion stimulus program have almost wiped out this year’s gains. The divergence between profit forecasts and economic indicators shows the challenge to investors after the S&P 500 gained 88 percent from a 12-year low in March 2009.
“The market is not willing to pay for future growth,” said Nigel Holland, who helps oversee $516 billion at Legal & General Group Plc in London. “Provided there is better data, it will stabilize,” he said. “The market probably has room to rise 10 percent by year-end.”
The S&P 500 climbed less than 0.1 percent to 1,271.50 last week, snapping its longest retreat since 2008, after reports on jobless claims, retail sales and Chinese industrial production exceeded economists’ forecasts and German Chancellor Angela Merkel retreated from demands that bondholders be forced to swallow losses in a Greek rescue.
The S&P 500 advanced 0.5 percent to 1,278.36 at 4 p.m. in New York today.

Longest Streaks

Equities also got a boost as retailers Best Buy Co. and Kroger Co. (KR) said they would match or exceed predictions for 2011 income. The advance pared the S&P 500’s loss from its 2011 peak of 1,363.61 on April 29 to 92.11 points.
At 34 days, the decrease is the second longest since the bull market began. The 16 percent tumble from April to July 2010 lasted 49 days, Bloomberg data show. This year’s retreat has coincided with a decline in predictions for 2011 gross domestic product growth to 2.6 percent from 3.2 percent, according to the median estimate of 83 economists surveyed by Bloomberg.
Losses since April have pushed the price of the S&P 500 to 14.5 times the past year’s earnings, compared with the average of 20.5 since June 1991, according to Bloomberg data. The gauge is valued at 8.7 times cash flow, cheaper than in 81 percent of occasions since 1998. The gauge is priced at 2.1 times book value, or assets minus liabilities, lower than it has traded 90 percent of the time since 1995.

Not Excessive

“Even in the assumption that earnings growth is zero, valuations would not be excessively high,” said Patrick Moonen, who helps manage $537 billion at ING Investment Management in The Hague, Netherlands. “We are below consensus in the estimated earnings growth, and still think the corporate momentum is very strong.”
Disappointing reports since May on housing, employment and manufacturing have heightened concerns that $600 billion in Treasury purchases by the Fed have failed to bolster growth. The S&P 500 posted its biggest weekly decline since August in the period that ended June 3 after the U.S. jobless rate unexpectedly climbed to 9.1 percent and payrolls expanded at the slowest pace in eight months. A report from the Institute for Supply Management on June 1 showed that manufacturing expanded at the lowest rate in more than a year.

Greek Swaps Soar

The cost of insuring against defaults on Greek, Irish and Portuguese government debt surged to records last week on concern governments will fail to impose spending cuts needed for a European Union debt restructuring.
Credit-default swaps on Greece soared as much as 459 basis points to 2,237 on June 16, according to CMA prices, meaning it cost more than 2 million euros ($2.9 million) a year to insure 10 million euros worth of the nation’s debt.
They traded at 1,932.75 basis points as of 4:30 p.m. in London on June 17 as Merkel backed down from her demands and said she’d work with the European Central Bank to avoid market disruptions.
Investors are concerned about slowing growth in the U.S. and Europe’s sovereign debt crisis at the same time policy makers in China, the world’s second-largest economy, are trying to cool expansion. The country’s central bank has raised the reserve-requirement ratio for lenders 11 times and boosted interest rates four times since the start of 2010 to keep inflation in check.

Lehman, 1980s

Analysts are boosting profit forecasts even with the global economy showing signs of weakness. S&P 500 earnings may rise to $99.61 a share in 2011 from $84.58 last year and $61.52 in 2009, according to data compiled by Bloomberg. That’s an increase from the forecast of $95.37 on Jan. 3 and $98.70 on April 29, the data show.
Should stocks stay at current prices and the analyst prediction come true, the S&P 500 would trade at 12.8 times income on Dec. 31, the lowest level since 1985 except for the six months after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 and nine months in the late 1980s, according to Bloomberg data. Companies in the S&P 500 are forecast to earn $24.31 this quarter, up from $24.16 at the start of April.
Concern the slowdown will lead to another recession will weigh on stocks even as companies report higher income, said Doug Cliggott, Boston-based equity strategist at Credit Suisse Group AG. He said the S&P 500 will be little changed through year-end.

Not Extreme

“We wouldn’t put the market now as extremely rich or in a sense extremely attractively valued,” Cliggott said in an interview on Bloomberg Television’s “InsideTrack” with Deirdre Bolton on June 13. “Price-earnings multiples will be at or below their historical averages because of all the uncertainties on future growth.”
Stocks may also have to do without more stimulus from the Fed, which will complete its second round of Treasury purchases this month. While Fed Chairman Ben S. Bernanke said during a June 7 speech in Atlanta that record monetary stimulus is still needed to boost the “frustratingly slow” U.S. economic recovery, he gave no indication that the central bank will start a third round of so-called quantitative easing.
Retreats in the S&P 500 that exceed 5 percent are common during bull markets, according to data from Birinyi Associates Inc., the Westport, Connecticut-based money manager and research firm. During the nine rallies between 1962 and 2007, the S&P 500 fell that much an average of seven times, the data show. The index has posted nine such retreats during the current advance.

‘Strong Backbone’

Global investors increased their cash holdings to the highest level in a year this month as hedge funds slashed the amount of borrowed money invested in stocks, a survey from Bank of America Corp. (BAC)’s Merrill Lynch unit showed on June 14.
“Valuation is a strong backbone,” ABN Amro Private Banking Chief Investment Officer Didier Duret, who manages about $200 billion in Geneva, said in a telephone interview. “It’s more or less a reflection of how reluctant investors have been to get back into the equity market.”
Kroger in Cincinnati rose 4.5 percent, the most since October 2009, to $23.99 on June 16. The largest U.S. grocery chain increased its fiscal 2012 earnings forecast to as much as $1.95 a share from $1.92. Analysts, on average, estimated $1.90.
Best Buy, the world’s biggest consumer-electronics retailer, rallied 4.6 percent two days earlier after reporting profit that exceeded analysts’ forecasts, helped by rising demand for smartphones. The Richfield, Minnesota-based company reiterated its full-year projection for earnings per share of $3.30 to $3.55, excluding restructuring costs. Analysts predicted $3.47.
To Alison Porter at Ignis Asset Management, stocks have priced in prospects for a Greek default and the end of the Fed’s bond-buying program.
“We are seeing stable growth, but it is not a strong cyclical recovery,” said Porter, who as U.S. equities fund manager in Glasgow helps oversee $123 billion. Still, “valuations in the market should provide some support,” she said. “Equities are reasonably well positioned from here.”

Stocks in U.S. Rise, Euro Recovers as Juncker Eases Concern on Debt Crisis

U.S. equities climbed for a third day, while the euro erased losses and European stocks pared declines, amid European assurances that a solution will be found to spare Greece from default. Treasuries reversed gains.
The Standard & Poor’s 500 Index increased 0.5 percent to 1,278.36 at 4 p.m. in New York and the Stoxx Europe 600 Index lost 0.5 percent, recovering more than half of a 1.1 percent slide. The 10-year Treasury note yield was up one basis point at 2.95 after sinking as much as six points. The S&P GSCI Index of commodities fell for a fourth day, with wheat, heating oil and coffee leading declines. The euro was little changed at $1.4301 after earlier sinking as much as 0.8 percent.
The 17-nation shared euro currency also erased its decline versus the yen as Luxembourg’s Jean-Claude Juncker said Italy was not in danger from the debt crisis. Juncker said Greek Prime Minister George Papandreou had assured him the government would do everything to ensure financial aid from the European Union and International Monetary Fund before the Greek parliament resumes debating a motion of confidence in the government.
“We may be past the point of maximum pessimism,” said Madelynn Matlock, who helps oversee $14.8 billion at Huntington Asset Advisors in Cincinnati. “Looking at the consequences of not funding Greece, they will do it,” she said. “The goal is making sure that the global financial system stays operating. The market is a whole lot cheaper than it was. Still, we’re going to have ups and downs on a daily basis. It’s not going to be calm and smooth sailing for the next several months.”

Greece Negotiations

Earlier losses in stocks and the euro were triggered by European officials’ failure to agree on a Greek loan payout. Euro-area finance ministers who met yesterday in Luxembourg put off a decision on whether Greece will get the full 12 billion euros ($17 billion) promised for July and pushed for the nation to press ahead with budget cuts. Prime Minister Papandreou faces a confidence vote this week.
Assurances by Luxembourg’s Juncker, who leads the group of euro-area finance ministers, helped reverse the market declines. Juncker said private investors will be “present” in any second rescue package for Greece, though he said he doesn’t know if they’ll be “enthusiastic.”
The IMF is focused on getting Greece’s first bailout program on track, Acting Managing Director John Lipsky told reporters in Luxembourg today. Greece hasn’t approached the agency to ask for additional aid, he said.

Third Straight Gain

The S&P 500 rose for a third straight day after snapping a streak of six weekly losses on June 17. The index is down 6.3 percent from an almost three-year high at the end of April, trimming its 2011 gain to less than 2 percent, as lower-than- forecast data on jobs growth and manufacturing spurred concern the economic expansion is slowing.
Caterpillar Inc. (CAT) rose 2.3 percent for the top gain in the Dow Jones Industrial Average after being raised to “strong buy” at Raymond James & Associates. DuPont Co. and Microsoft Corp. (MSFT) also climbed more than 0.8 percent to help lead gains in 25 of 30 Dow stocks.
Goldman Sachs Group Inc. reduced its second-quarter growth forecast for the world’s largest economy to 2 percent from 3 percent. Reports this week will probably show home sales dropped in May to the lowest level of the year, while orders placed with factories increased, according to economists surveyed by Bloomberg.

Falling Commodities

The S&P GSCI index of 24 commodities fell 0.3 percent for a fourth straight decline, the longest selloff since May 6, as wheat, heating oil and coffee fell at least 1.7 percent. New York-traded oil rose 25 cents, or 0.3 percent, to settle at $93.26 a barrel after sliding as much as 2 percent earlier. Copper fell 0.5 percent.
Bank shares were the biggest drag of 19 industry groups in Europe’s Stoxx 600, with Banca Popolare di Milano Scrl plunging 7.4 percent and Banca Monte dei Paschi di Siena SpA tumbling 2.6 percent.
The Swiss franc strengthened against its 16 major peers. The Australian dollar fell versus all of its biggest counterparts, losing 0.5 percent against the U.S. currency.
The U.S. currency rose against higher yielding counterparts such as the Australian and New Zealand dollars as strategists speculated that the Federal Reserve won’t signal a third round of quantitative easing after a meeting on June 22. The Federal Open Market Committee has kept its benchmark rate unchanged between zero and 0.25 percent since December 2008.
Greek 10-year bonds slid, driving the yield up 40 basis points to 17.34 percent. The extra yield, or spread, investors demand to hold the securities instead of benchmark German bunds increased 40 basis points to 1,438 basis points.

Italian-German Spread

The Italian-German spread widened three basis points after Moody’s put Italy’s Aa2 rating on review for a downgrade June 17, citing economic growth challenges, risks associated with efforts to reduce debt and the potential for higher borrowing costs.
The Markit iTraxx SovX Western Europe Index of credit- default swaps erased earlier gains, dropping 1.3 basis point to a mid-price of 221.
The MSCI Emerging Markets Index slid 0.4 percent, falling for a fourth day. The Bombay Stock Exchange Sensitive Index sank 2 percent after a report that the government sought to tax gains on investments routed through Mauritius. Turkey’s ISE National 100 Index lost 1.2 percent after regulators increased provisions that lenders must make against some consumer loans. Russia’s Micex Index slipped 1.2 percent on lower oil.
The MSCI Asia Pacific Index slid 0.4 percent as energy and raw-material producers led losses. BHP Billiton Ltd., Australia’s biggest oil producer, sank 1.4 percent in Sydney. Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, lost 2 percent in Hong Kong after Walter Kwok, a former chairman, said the city’s property prices may fall as much as 15 percent by the end of the year.
Japanese power companies advanced after the government said it may allow atomic reactors to restart following the worst nuclear accident in 25 years.