Tag: Business and finance

TECHNOLOGY has transformed finance. Consumers bank and buy their insurance policies online. They use technology to manage their pensions and other investment portfolios. But can tech improve returns? Only if it is used wisely.

If it is cheaper to trade, then costs will take a smaller chunk out of long-term returns. Technology also allows fund managers to replicate stockmarket indices, giving investors access to broadly diversified equity portfolios for a fraction of a percentage point in annual fees.

But the ease and cheapness of trading, along with the vast range of options available, create a terrible temptation. Worldwide there are nearly 7,400 exchange-traded funds (ETFs) and related products. These funds are not used only by “buy and hold” investors. Nearly half of the top 20 traded securities on American markets, by value, are ETFs.

Just because you can trade does not mean you should. And just because there is a fund specialising in smaller Vietnamese companies, or one…Continue reading

MICROECONOMISTS are wrong about specific things, Yoram Bauman, an economist and comedian, likes to say, whereas macroeconomists are wrong in general. Macroeconomists have borne the brunt of public criticism over the past decade, a period marked by financial crisis, soaring unemployment and bitter arguments between the profession’s brightest stars. Yet the vast majority of practising dismal scientists are microeconomists, studying the behaviour of people and firms in individual markets. Their work is influential and touches on all aspects of social policy. But it is no less fraught than the study of the world economy, and should be treated with corresponding caution.

For decades non-economists have attacked the assumptions underlying economic theory: that people are perfectly informed maximisers of their own self-interest, for instance. Although economists are aware that markets fail and humans are not always rational, many of their investigations still rely on neoclassical assumptions as “good…Continue reading

The new NAFTA model has many moving parts

ONE year ago, a member of President Donald Trump’s administration drafted a short executive order to withdraw America from the North American Free-Trade Agreement (NAFTA), a trade deal with Canada and Mexico. The obvious interpretation was that Mr Trump was irresponsibly bullying the Mexicans and Canadians into giving America better terms. A kinder view held that he was aiming at a domestic audience. Congress was dragging its feet at the time over the confirmation of Robert Lighthizer, the president’s chosen trade negotiator. Mr Trump’s threats were a way to kick it into action.

One year on, with Mr Lighthizer long since in place, America’s attitude to NAFTA seems no less hostile. Its threat of withdrawal still hangs over the talks, and in March Mr Trump waved the stick of tariffs on steel and aluminium in case a deal to revise NAFTA could not be reached by May 1st. This tough talk may yield an agreement within the next few…Continue reading

THE pattern is familiar. Computer geeks develop technology that threatens to overturn established markets and habits. Regulators then scramble to understand and tame the beast. This is what is happening in the financial world in the wake of an explosion of crypto-currencies. Over the past year the pool of virtual currencies has both deepened, from $30bn to $400bn, and widened, with the spread of “initial coin offerings” (ICOs, a form of fundraising in which investors in young companies are issued with virtual tokens). Hedge funds, students and pensioners have all been caught up in the crypto craze.

This worries authorities, because the crypto-sphere is far from risk-free. Valuations can leap and plunge: after a giddy rise, between December and February the price of bitcoin dropped from nearly $20,000 to less than $7,000. (It is now around $9,000.) Several ICOs have turned out to be scams. Legitimate tokens are in danger of being stolen. Some crypto-currency exchanges have been…Continue reading

AS LONG as dirty money has been around, so has money-laundering. Between $800bn and $2trn, or 2-5% of global GDP, is washed annually, estimates the United Nations Office on Drugs and Crime. Criminals have swapped money for precious metals, mis-stated invoices, rinsed cash through casinos or simply strapped it to their bodies and flown to places where banks don’t ask questions. Now they have a new detergent: crypto-currencies.

Such data as there are suggest that crypto-laundering is still a small share of the whole. But crypto-currencies’ attractions—global availability, the speed and irreversibility of transactions and the ability to hide identities—are plain. Rob Wainwright, head of Europol, Europe’s police agency, has estimated that 3-4% of the continent’s annual criminal takings, or £3bn-4bn ($4.2bn-5.6bn), are crypto-laundered. He thinks the problem will get worse. America’s Drug Enforcement Administration believes international gangs are using crypto-currencies…Continue reading

THE late Hans Rosling is best known for his Ted talks (here is one on the wonders of the washing machine). Sadly he died last year but before he did so, he worked with his son and daughter-in-law to write «Factfulness: Ten Reasons Why We’re Wrong About the World – And Why Things Are Better Than You Think.» It is a wonderful book, full of humour and humility, and it paints an optimistic picture of progress.

Take his 13 question test and you will probably be surprised. For example, has the proportion of people in the world living in extreme poverty over the last 20 years almost doubled, stayed the same, or almost halved? Over the last 100 years, has the number of deaths per year from natural disasters more than doubled, stayed the same or more than halved? In both cases, the answer is the most optimistic one; the latter statistic is particularly remarkable given the increase in the size of the population over the last century. 

Perhaps because the…Continue reading

FOUR years ago, Cho Hyun-ah, an executive at Korean Air made headlines around the world when she threw a fit because she was served macadamia nuts in their packaging rather than on a serving dish in first class on the airline. She reportedly insulted the cabin crew, threw documents at them, and forced them to kneel and beg forgiveness. At the time, she was a company vice president, and she made the plane return to its gate in order to remove the offending flight attendant. After spending several months in prison for breaking aviation-safety laws, Cho Hyun-Ah was able to return to her father’s conglomerate, this time managing hotels rather than Korean Air. But a new scandal may have finally accomplished what “nut rage” could not.

This month, police opened an investigation into Hyun-ah’s younger sister, Hyun-min, a marketing executive at Korean Air….Continue reading

AMERICANS, and people who travel to America, have good reason to celebrate this month. By the end of April, the four major credit-card networks in the country will all stop requiring retailers to collect signatures from customers when completing transactions. Visa, the world’s biggest credit-card issuer announced in January that signatures would no longer be required from month for retailers in North America with chip card readers. For Mastercard, the world’s second largest, the same change became effective on April 13th, covering purchases in the United States and Canada. American Express, in third place globally, is dropping the signature requirement this month for retailers around the world. Discover, the fourth, is Continue reading

THE Bralima brewery in Kinshasa, the capital of the Democratic Republic of Congo (DRC), is an island of modernity in a city where chaos is the norm. Inside a building near the docks where barges begin the journey up the Congo river, conveyor belts rattle as thousands of glass bottles are washed and filled with amber liquid. A generator hums to power the new brewing machinery, creating enough booze to fill 28,000 crates every two days.

Yet the real achievement of Bralima, which is owned by Heineken, a Dutch brewer, is not making the beer. It is what happens when it leaves the factory. Congo is one of the worst-connected, most dysfunctional countries on Earth. Four times the size of France, it has almost no all-weather roads. In large parts of eastern DRC, the state is a fiction and rebels control the roads. Yet there is scarcely a village where it is impossible to get a beer.

Bralima was founded in 1923. Its main competitors, Bracongo and Brasimba, both owned by Castel, a…Continue reading

DURING his spectacular rise from London beancounter to the globe-trotting boss of WPP, the advertising powerhouse he created out of a backstreet wire-basket and trolley company, Sir Martin Sorrell was rarely sentimental. The man who helped turn a ramshackle but chic industry into a global force poached accounts mercilessly and often pitted his own firms against each other in the quest for clients.

Not for nothing did the late David Ogilvy, one of the industry’s founding patriarchs, reputedly describe him as an “odious little shit” when WPP came after the Ogilvy Group in the late 1980s at the dawn of its decades-long acquisition spree (see chart). But Ogilvy later became WPP’s non-executive chairman, and the company turned into the world’s largest marketing conglomerate with more than $20bn in annual revenues. In business, Sir Martin charmed as well as cajoled.