Wednesday, May 1, 2013

Paper Money Has A Long History But Short Existence



In one of the most popular articles that appeared on this site, we explained how 600 different forms of paper based money have all disappeared. Recorded history shows not one case where a form of paper based money has continued its existence. At best, some have survived a bit longer than the others.


When talking about paper based money, we refer to forms of money that are not backed by any tangible assets like gold or silver. A promissory note or coin was once used to redeem a predefined amount of gold or silver. Since 1971, only the note or coin has left with a promise to fulfill the function of money (hence fiat money).


In their latest report, PIMCO, who oversees more than $ 2 trillion in assets with a focus on fixed income investments, points to the effects of creating unlimited amounts of money. While doing so, they loudly ask the question what money is  (source).


Read more:


http://goldsilverworlds.com/gold-silver-insights/paper-money-has-a-long-history-but-short-existence/



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InvestmentWatch




Paper Money Has A Long History But Short Existence

North Korea Sentences US Citizen To 15 Years "Hard Labor"


While details are somewhat sketchy of the reasons, Kenneth Bae (a US Citizen known by the Korean rendering Pae Jun-Ho and likely unrelated to this gentleman) has been sentenced to 15 years ‘hard labor’ for committing ‘hostile crimes’ against the regime. As AP notes, Bae was arrested in November after entering the China/North-Korea special economic zone city of Rason as a tourist. Of course, there could be well-reasoned facts that lead to the need for this man to serve this sentence – though it seems former-President Jimmy Carter may soon be traveling to North Korea (likely without Dennis Rodman) to seek Bae’s release. We hope this is not a temper-tantrum from the nation’s leader for not causing enough uproar with his rhetoric earlier in the month…mirroring 2009′s US-vs-North Korea standoff.


 



 


Via AP,








An American detained for nearly six months in North Korea has been sentenced to 15 years of “compulsory labor” for unspecified crimes against the state, Pyongyang announced Thursday.


 


The sentencing of Kenneth Bae, described by friends as a devout Christian and a tour operator, will further complicate already strained relations between Pyongyang and Washington as the countries pursue tentative diplomacy following weeks of warlike threats from North Korea.


 


Pyongyang’s official state media said Bae’s trial took place Tuesday, but the dispatch provided few new details. Bae was tried in the country’s Supreme Court on charges of plotting to overthrow the government. He could’ve faced the death penalty.


 


The exact nature of his alleged crimes has not been revealed.


 


Bae was arrested in early November in Rason, a special economic zone in North Korea’s far northeastern region bordering China and Russia, North Korea said.


 


The trial mirrors a similar situation in 2009, when the U.S. and North Korea were locked in a standoff over Pyongyang’s decision to launch a long-range rocket and conduct an underground nuclear test. At the time, North Korea had detained two American journalists, whose eventual release after being sentenced to 12 years of hard labor paved the way for diplomacy following months of tensions.


 


In North Korean dispatches, Bae, a Korean American from Washington state, is called Pae Jun Ho, the North Korean spelling of his Korean name.






    




Zero Hedge




North Korea Sentences US Citizen To 15 Years "Hard Labor"

Why inflation can be a good thing

David Gura has a report on Marketplace today making the case for inflation — a little bit of it, anyhow. Economists generally agree that a touch of inflation can have a positive effect. They point out that inflation can erode the cost of debt over time. More importantly, perhaps, it can boost wages and growth. Here’s an example from my book of how this can work.


Imagine a man with 10 children. He moves to a small town in the country that has just one store, which sells stuff that people in the country need, like hammers and tarps and animal feed. The McGivens store has some candy, but not much, because there aren’t that many kids in the town.


The newcomers kids love candy, however, and the first thing they do when they arrive is go exploring the town, to see what they can buy with their pocket money. Rose, the eldest, leads the procession, and it doesn’t take them long to find the McGivens store.


 Children (in unison): Hello Mister!


 Mr. McGivens: Good heavens! Where did you lot spring from?


 Rose: We’ve come from Chicago.


 Mr. McGivens: Well, that’s a long way away.


 Rose: Yes it is, and we’re hungry.


 Children: We want candy!


 Mr. McGivens: Well, I don’t have much in the way of candy here. I have some Red Strings and some lemon chews, and a big jar of hard candies. What would you like?


 Rose: We’ve each got two dollars in pocket money, so that’s $ 20 altogether. How much are the hard candies?


 Mr McGivens thinks for a moment. Usually he charges five cents a candy, because so few people want to buy them. But today the situation has changed. Now there is suddenly a lot more candy money in the town, and only one place to spend it: his shop. An opportunity has presented itself.


 Mr. McGivens: The hard candies are eight cents each. The lemon chews are ten cents.


 Rose: Okay. We’ll take a hundred lemon drops and … 125 hard candies, please. Here’s $ 20.


 Mr. McGivens: Here’s your candy


 Children (in unison): Thank you!


 They march out of the ship, just as Henry Tomkins enters.


 Henry Tomkins: Afternoon, John.


 Mr. McGivens: Afternoon, Henry.


 Henry Tomkins: I need a new shovel and a bag of fertilizer, please. And I’ll take a dozen of those lemon drops.


 Mr. McGivens: That’s $ 30 for the shovel, $ 25 for the fertilizer, and a dollar twenty for the candy.


 Henry Tomkins: A dollar twenty? They were sixty cents yesterday!


 Mr. McGivens: Sorry Henry. Inflation.


 The problem with inflation is that it makes your money worth less. Mr. McGivens store is a micro economy that has been flooded by the children’s candy money. The introduction of their $ 20 has doubled the price of the candy that Henry Tomkins likes to buy, or in other words his dollar can only buy half the candy it was able to buy the previous day. His dollar, then, has been devalued by 50 percent.


 But inflation isn’t all bad. In fact, governments quite like inflation – in moderation. Inflation may devalue existing currencies a little bit, but that can be offset by the fact that there’s a lot more money coming into the system: money to spend, or invest, or build, or even hire more staff. So, in moderation, inflation can help keep people employed.


Take Mr. McGivens. Now that’s he’s making a bit more money from his candy, he has to think about how to use those profits. He could spend the money. Or he could plow it back into his business. Either way, that keeps the money in the system. Say he spends the money on a new tie for himself. That helps the retailer who sells him the tie, plus the tie-makers, and the silk growers: there’s a whole chain reaction through the tie business that can help keep people employed. In plowing the money back into his business, Mr. McGivens could refurbish his store, which would help local lumber suppliers and building workers. Or he could hire someone one day a week, to help him with a stock count. That would give that employee an income, some of which she would likely spend, again sending positive, job-sustaining ripples through Mr. McGivens’ hometown.



Excerpt taken from my book, Man vs Markets, Economics Explained, Plain and Simple. Available most everywhere books are sold.


Latest Stories on Marketplace.org




Why inflation can be a good thing

Family sedans losing ground to crossovers on convenience, price



A Toyota Camry is seen at the Chicago Auto Show February 9, 2010. REUTERS/John Gress

A Toyota Camry is seen at the Chicago Auto Show February 9, 2010.


Credit: Reuters/John Gress






DETROIT | Wed May 1, 2013 8:20pm EDT



DETROIT (Reuters) – Family sedans like the Toyota Camry and Honda Accord are losing ground this year as American families and empty-nest baby boomers find they would rather handle life’s daily chores in a crossover.


Midsize sedans remain the single largest segment of the U.S. auto industry. But their share of the industry has shrunk this year, alongside a gain for vehicles like the Ford Escape, executives and analysts said on Wednesday.


“While the segment is still growing year-over-year, it’s nowhere near what it was growing last year as the industry was launching a lot of new midsize cars,” Bill Fay, the U.S. head of the Toyota brand, said during a call with reporters to discuss U.S. auto sales in April.


U.S. auto sales are being propelled by pickup trucks and sport-utility vehicles, as shown by U.S. auto sales in April by major automakers.


Crossovers, which are SUVs built on a car-based platform, are appealing because they offer more space for groceries and golf clubs than the typical sedan, and they are easier for people to enter and exit. And fuel mileage is improving.


Perhaps most importantly, the price gap has narrowed between midsize sedans and compact crossovers like the Ford Motor Co Escape, and the Toyota Motor Corp RAV4 and the Honda Motor Co CR-V.


A small crossover costs just $ 1,300 more than the typical family sedan, according to Kelley Blue Book. Excluding state taxes, this amounts to less than $ 20 in monthly payments in some cases.


“Fundamentally, both serve the family market,” said Mustafa Mohatarem, General Motors Co’s chief economist.


“Midsize cars have gotten smaller and more expensive, because of a variety of factors,” he said. “People are switching to crossovers, because they satisfy the family needs very well.”


JAPANESE AUTOMAKERS HIT HARD


The closing gap in price is encouraging some buyers to consider paying more for a crossover for the additional space and flexibility, said Jeff Schuster, senior vice president of forecasting with LMC Automotive.


“When there was a further separation between the two, there weren’t so much a substitution for each other,” he said.


Midsize sedans accounted for 17 percent of the U.S. auto market during the first quarter, compared with 17.7 percent during the same period last year, according to LMC Automotive.


The shift has hit Japanese automakers, which dominate the sedan segment. Camry sales fell 14 percent in April as overall U.S. auto sales rose 8.5 percent. Sales of the Accord, which Honda redesigned last year, fell 5 percent.


The falloff in sedan sales is also due to tough competition in the segment, where several top-selling models have been recently redesigned, including the Ford Fusion.


Midsize sedans also got smaller incentive during the month. Incentives on mid-size sedans averaged $ 2,098 in April, nearly 10 percent lower than industry incentives overall, according to data from Edmunds.com.


Toyota Motor Corp’s April sales fell short of estimates in due in part to tighter competition for the Camry in this bread-and-butter segment, said KBB analyst Alec Gutierrez. Camry is Toyota’s top-selling vehicle in the U.S. market.


“Camry will likely be quite strong but not as strong as if it were not facing Fusion, Altima and Accord,” Gutierrez said.


(Reporting by Deepa Seetharaman and Bernie Woodall)






Reuters: Business News




Family sedans losing ground to crossovers on convenience, price

S&P Predicts 20% Drop in Spain"s Housing Prices Over Next 4 Years; Bad Bank to Dump Distressed Properties on Market

Spain’s “bad bank”, Sareb to speed up distressed property sales in an ambitious new timetable for liquidation.

The bad bank is hoping to sell almost 42,000 housing units in the next five years. This is about half of the properties in its €50 billion (£42.5 billion approximately) portfolio.

However, falling house prices and a desire among buyers for modern properties in prime locations could hamper these plans for swift sale. Already the value of assets is being slashed by Sareb to clear their books, but attracting investors is proving to be no easy task.


At the beginning of March the International Monetary Fund (IMF) declared: “The clean-up of undercapitalised banks has reached an advanced stage, and key reforms of Spain’s financial sector have been either adopted or designed.” Sareb has also been praised for its receipt of distressed real estate assets from the country’s weakest banks. The bad bank has also finalised agreements with participating banks to manage the transfer of assets.


Cleanup “Advance Stage” Nonsense from IMF


To suggest the cleanup of undercapitalized banks is in an “advance stage” is complete nonsense. It only makes partial sense if there is a zero percent probability of haircuts on Spanish sovereign debt.


I suggest the probability of haircuts on Spanish government bonds is far greater than 50%. And since Spanish banks are loaded to the gills with sovereign debt, the banks are severely undercapitalized by implication.


S&P Predicts 20% Drop in Spain’s Housing Prices


Courtesy of Mish-Modified google translate from El Economista, please consider S&P predicts that housing in Spain fall by 20% over the next four years.

The credit rating agency Standard & Poor’s does not see “signs of improvement” in the Spanish property market given the “precarious economic conditions and the heavy weight of the ‘stock’ of unsold homes,” and anticipates that home prices will fall 20% over the next four years.

“We see little chance of that Spanish households become more solvent, as prices continue to fall, the purchasing power continues to decline and interest rates are stabilizing. This should keep demand very depressed,” said S&P in a report on the European property market.


Sareb’s plans to sell 45,500 homes in the next five years, about half of its portfolio, will likely determine the pace of declines in housing prices.


Should the divestiture from Sareb be gradual, housing prices in Spain will fall 8% in 2013 and 5% in 2014, after falling 10.5% in 2012 and 28% from their highs reached in March 2008.


Falls widespread in Europe


On the whole of Europe, the agency notes that the downward trend in most European property markets continue this year as a result of the economic downturn. In most countries housing prices will continue on a path “down” this year and only start to stabilize or slowdown in 2014.


After Spain, the largest decreases will occur in the Netherlands (-5.5%) and France (-5%).


S&P Optimistic


I am of the opinion the S&P is overly optimistic about Spain, about France, and about the Netherlands.


The European recession is worsening, credit conditions are awful, employment conditions are awful, and there are scant buyers of property because discounts are not large enough and credit is nowhere to be found.


None of this remotely takes into consideration the very strong likelihood of a Spanish debt writedown in the next year or so.


Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com


Mish’s Global Economic Trend Analysis




S&P Predicts 20% Drop in Spain"s Housing Prices Over Next 4 Years; Bad Bank to Dump Distressed Properties on Market

Pentagon prepares to ask Congress for break from "sequester"



U.S. Defense Secretary Chuck Hagel speaks during a joint news conference with Japanese Defense Minister Itsunori Onodera at the Pentagon in Washington April 29, 2013. REUTERS/Kevin Lamarque

U.S. Defense Secretary Chuck Hagel speaks during a joint news conference with Japanese Defense Minister Itsunori Onodera at the Pentagon in Washington April 29, 2013.


Credit: Reuters/Kevin Lamarque






WASHINGTON | Wed May 1, 2013 7:14pm EDT



WASHINGTON (Reuters) – The Pentagon is preparing to ask Congress soon for more authority to shift funds to cope with automatic spending cuts, confronting lawmakers with another exception to the “sequester” just days after they gave a break to the flying public and the airline industry.


The request may be sent to the House of Representatives’ Appropriations Committee as early as next week, a House Republican aide said on Wednesday.


The Pentagon won increased budget flexibility in March, but officials have told members of Congress they believe it was insufficient to cover shortfalls in training and operations.


The Defense Department move would follow closely the fix last week to ease airline flight delays caused by the temporary furloughs of air-traffic controllers by the Federal Aviation Administration.


The cuts, known as “sequestration,” were originally hatched by Washington in 2011 as a way to force the White House and Congress to find an alternative budget deal rather than have spending cuts kick in automatically.


But policymakers failed to reach such a deal earlier this year and the cuts – totaling $ 109 billion for the current fiscal year – took effect on March 1.


Defense spending has taken the single biggest hit from the automatic cuts, with a $ 46 billion reduction through the September 30 end of the fiscal year.


One House aide said the request would cite a shortfall in war-fighting because of higher than expected costs of withdrawing from Afghanistan.


Pentagon officials paved the way for the move in testimony to congressional committees over the past few weeks in which they expressed worries about the sequester’s impact on military readiness, particularly with tensions rising in Syria and Korea.


“With the events in the world today, with Korea, Syria, Iran, the continued fight in Afghanistan … the discussion on readiness could not come at a more critical time,” General John Campbell, Army vice chief of staff, told a U.S. Senate panel on April 17.


“The reality is that if sequestration continues as it is … we risk becoming a hollow force,” he added.


Members of Congress from states with a heavy military presence have been urging a shift of funds since the sequester took effect and might be hard-pressed to vote against it.


An April 18 bipartisan letter from Virginia senators and representatives urged Defense Secretary Chuck Hagel to move quickly to prevent furloughs and loss of pay for “thousands of Virginians.”


‘REPROGRAMMING’


The Defense Department is preparing the request to shift funds, said Lieutenant Colonel Elizabeth Robbins, a Pentagon spokeswoman, but has not “yet specified the timing or the amount” it wants to transfer, or “reprogram” in budget jargon.


Congress last week approved a similar request from the Justice Department to shift $ 313 million within its budget to avoid furloughing some 60,000 employees.


Robbins said it was not yet clear whether the Pentagon would submit several different reprogramming requests or one large omnibus-style request, but the budget shifts would be sought “soon.”


The Pentagon was one of several government agencies that won some budget flexibility in a stop-gap government funding measure passed in late March.


That allowed more than $ 10 billion that was locked up in other accounts to be shifted to the Pentagon’s operations and maintenance account, which funds training exercises and military readiness.


While that has helped, it did not make up for the deep budget cuts brought on by the sequester. The Army alone is facing about a $ 13 billion shortfall in training, operations and Afghanistan war costs, Army Secretary John McHugh and Army Chief of Staff General Ray Odierno told lawmakers last week.


(Editing by Fred Barbash and Peter Cooney)






Reuters: Economic News




Pentagon prepares to ask Congress for break from "sequester"

Pentagon prepares to ask Congress for break from "sequester"



U.S. Defense Secretary Chuck Hagel speaks during a joint news conference with Japanese Defense Minister Itsunori Onodera at the Pentagon in Washington April 29, 2013. REUTERS/Kevin Lamarque

U.S. Defense Secretary Chuck Hagel speaks during a joint news conference with Japanese Defense Minister Itsunori Onodera at the Pentagon in Washington April 29, 2013.


Credit: Reuters/Kevin Lamarque






WASHINGTON | Wed May 1, 2013 7:14pm EDT



WASHINGTON (Reuters) – The Pentagon is preparing to ask Congress soon for more authority to shift funds to cope with automatic spending cuts, confronting lawmakers with another exception to the “sequester” just days after they gave a break to the flying public and the airline industry.


The request may be sent to the House of Representatives’ Appropriations Committee as early as next week, a House Republican aide said on Wednesday.


The Pentagon won increased budget flexibility in March, but officials have told members of Congress they believe it was insufficient to cover shortfalls in training and operations.


The Defense Department move would follow closely the fix last week to ease airline flight delays caused by the temporary furloughs of air-traffic controllers by the Federal Aviation Administration.


The cuts, known as “sequestration,” were originally hatched by Washington in 2011 as a way to force the White House and Congress to find an alternative budget deal rather than have spending cuts kick in automatically.


But policymakers failed to reach such a deal earlier this year and the cuts – totaling $ 109 billion for the current fiscal year – took effect on March 1.


Defense spending has taken the single biggest hit from the automatic cuts, with a $ 46 billion reduction through the September 30 end of the fiscal year.


One House aide said the request would cite a shortfall in war-fighting because of higher than expected costs of withdrawing from Afghanistan.


Pentagon officials paved the way for the move in testimony to congressional committees over the past few weeks in which they expressed worries about the sequester’s impact on military readiness, particularly with tensions rising in Syria and Korea.


“With the events in the world today, with Korea, Syria, Iran, the continued fight in Afghanistan … the discussion on readiness could not come at a more critical time,” General John Campbell, Army vice chief of staff, told a U.S. Senate panel on April 17.


“The reality is that if sequestration continues as it is … we risk becoming a hollow force,” he added.


Members of Congress from states with a heavy military presence have been urging a shift of funds since the sequester took effect and might be hard-pressed to vote against it.


An April 18 bipartisan letter from Virginia senators and representatives urged Defense Secretary Chuck Hagel to move quickly to prevent furloughs and loss of pay for “thousands of Virginians.”


‘REPROGRAMMING’


The Defense Department is preparing the request to shift funds, said Lieutenant Colonel Elizabeth Robbins, a Pentagon spokeswoman, but has not “yet specified the timing or the amount” it wants to transfer, or “reprogram” in budget jargon.


Congress last week approved a similar request from the Justice Department to shift $ 313 million within its budget to avoid furloughing some 60,000 employees.


Robbins said it was not yet clear whether the Pentagon would submit several different reprogramming requests or one large omnibus-style request, but the budget shifts would be sought “soon.”


The Pentagon was one of several government agencies that won some budget flexibility in a stop-gap government funding measure passed in late March.


That allowed more than $ 10 billion that was locked up in other accounts to be shifted to the Pentagon’s operations and maintenance account, which funds training exercises and military readiness.


While that has helped, it did not make up for the deep budget cuts brought on by the sequester. The Army alone is facing about a $ 13 billion shortfall in training, operations and Afghanistan war costs, Army Secretary John McHugh and Army Chief of Staff General Ray Odierno told lawmakers last week.


(Editing by Fred Barbash and Peter Cooney)






Reuters: Economic News




Pentagon prepares to ask Congress for break from "sequester"

Merck Lowers 2013 Guidance




Pharmaceutical giant Merck  doesn’t have the goods for what ails you this quarter. First-quarter earnings came up short of top-line consensus estimates by Capital IQ analysts, even as it beat on the bottom line. Even so, it had to lower guidance for the full year as competition from generic drugs continue to sap its strength.


Merck reported revenues for the three months ending on March 31 of $ 10.67 billion, down 9% from the same period last year, when it recorded revenues of $ 11.73 billion, and falling short of analysts’ expectations of $ 11.10 billion. The pharma recorded GAAP profits $ 0.52 per share, 7% below the $ 0.56 it posted in the year-ago quarter but well ahead of the $ 0.46 in GAAP earnings Wall Street expected.


Merck now expects full-year 2013 non-GAAP earnings per share to be in a range of $ 3.45 and $ 3.55, or $ 0.15 per share lower than what it guided toward at the end of 2012. Generic competition for its asthma and allergy drug Singulair caused sales of the drug to plunge 75% in the quarter.


While saying he still remains confident of the pharma’s future opportunities, Merck Chairman and CEO Kenneth C. Frazier said: “Our first quarter performance reflects the challenges of major patent expiries coupled with the impact of currency and other headwinds. During the quarter, we took focused actions to reach our EPS target while at the same time advancing Merck’s pipeline in our laboratories and through strategic deals and partnerships.”


Merck operates and has customers in more than 140 countries around the globe. It had revenues of $ 47.3 billion in 2012.


The article Merck Lowers 2013 Guidance originally appeared on Fool.com.


Fool contributor Rich Duprey has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.





DailyFinance.com




Merck Lowers 2013 Guidance

Chairman of Ford Motor Company on why he wants to sell fewer cars


An auto company that thinks we should drive less? That could be the future strategy for Ford Motor Company, according to Bill Ford, executive chairman of the company.


“The car for most of its history has helped people live better lives,” he says. “As the world has gotten more affluent, the infrastructure, particularly in urban areas hasn’t developed to a point where this great new volume of new vehicles will fit comfortably into those cities.”


“I could not reconcile the traffic jams that I was seeing [in global cities] with the fantastic projections that some in our industry were putting out there for future sales in some of these markets.” Ford says an emphasis on public transportation is still in keeping with the greater goals of the Ford Motor Company. “What I’m talking about is providing mobility to the people who live in those mega cities in a way that might be slightly different than the way we have today.”


He hopes shareholders will bet on his long term vision for the company. “The world changes whether you change or not. So we are entering into an era where if we are open enough to embrace new business models and new technologies, then this actually will enhance the core business of the Ford Motor Company.”


Ford says, “technology is what’s going to ultimately set us free.” And in some ways, it’s here now — in the guise of self-driving cars. Vehicle-to-vehicle communication (cars that talk to each other) and vehicle to infrastructure communication (cars that pull data from their environment) are all bringing us closer to Ford’s vision.


But the future isn’t here yet and there are some roadblocks. “I’ve often advocated a gas tax,” says Ford, “but there really is no political will for that.” He says the U.S. needs a consistent energy policy. “Until our country really decides which fuel it wants to get behind and then builds out the infrastructure behind it, we are not going to have quick enough adoption to really help solve the issue.”


Latest Stories on Marketplace.org




Chairman of Ford Motor Company on why he wants to sell fewer cars

Federal Reserve issues FOMC statement

Federal Reserve issues FOMC statement
FRB: Press Release – All Releases



Federal Reserve issues FOMC statement

Hedge fund faces challenge in Tim Hortons shakeup bid



Tim Hortons Inc interim Chief Executive Paul House poses for a portrait at a Tim Hortons coffee shop in Toronto in this July 12, 2012 file photo. REUTERS/Mark Blinch/Files

Tim Hortons Inc interim Chief Executive Paul House poses for a portrait at a Tim Hortons coffee shop in Toronto in this July 12, 2012 file photo.


Credit: Reuters/Mark Blinch/Files






TORONTO/NEW YORK | Wed May 1, 2013 1:06pm EDT



TORONTO/NEW YORK (Reuters) – Highfields Capital, a U.S. hedge fund agitating for change at coffee shop chain Tim Hortons Inc, faces a difficult task in trying to persuade long-term institutional investors of the merits of its plan to shake up the Canadian company.


The Boston-based activist investor now owns around a 4 percent stake in Tim Hortons and wants the chain, which is ubiquitous in Canada, to boost its returns via debt-funded share buybacks, while scaling back its U.S. expansion plans.


The fund also wants Tims – as the company is affectionately known to Canadians – to spin off or sell its distribution business, create a real estate investment trust to house its property assets and bring in some new directors who have more financial experience.


But the proposals, exclusively reported by Reuters on Tuesday, may face an uphill climb. Shares of Tims – which claims eight out of every 10 cups of coffee sold in Canada – have posted strong gains over the last five years.


“This business ain’t broke and needs no fixin’,” said Barry Schwartz, a portfolio manager at Baskin Financial, which owns roughly 130,000 shares in Tim Hortons, according to Thomson Reuters data.


“The company is shareholder-friendly and has rewarded long-term investors with rising dividends and share buybacks, plus the stock performance since the IPO has been terrific,” he said.


Highfields, which last year had a 1.5 percent stake in Tim Hortons, has raised its stake, according to a source familiar with the situation. Based on Highfields’ increased stake, the fund would be Tims’ seventh-largest shareholder, according to Thomson Reuters data. It was previously the 10th largest.


The Highfields proposals represent the latest attempt by a U.S. hedge fund to shake up a Canadian company.


Last year, Bill Ackman’s Pershing Square won big change at Canadian Pacific Railway Ltd after a bitter public battle. Earlier this year, fertilizer company Agrium Inc fended off an attempt by its biggest shareholder, U.S. hedge fund Jana Partners LLC, to break up the company.


Highfields’ demands bear some similarities to those Jana made in its fight at Agrium, a fertilizer producer that also operates a retail farm-supply chain. Jana wanted Agrium to spin off, or sell, the retail arm and add people with more experience in retail to its board.


“Canadian Pacific had a tired board with weak management, chronic underperformance and restive shareholders,” said David Baskin, the head of Baskin Financial, referring to Ackman’s successful proxy fight, which resulted in a sweep for his slate. “None of that applies to Tim Hortons, which I think is still widely liked by institutional holders.”


Tim Hortons’ stock has risen about 60 percent over the last five years, while the Toronto Stock Exchange’s S&P/TSX composite index has fallen roughly 13 percent over the period.


That said, shares of some of Tim Hortons’ U.S. competitors, which also have a presence in Canada, have outpaced those of the Canadian chain.


McDonald’s Corp shares have risen about 70 percent over the same period, while those of Starbucks Corp have nearly quadrupled in value.


“Tim’s performance has been somewhere between good and very good, given economic conditions in a hyper-competitive sector. So I would guess it will be hard for these guys to get traction but maybe the stock will respond anyway,” Baskin said.


“A 1.5 percent position is not going to blow anyone’s socks off, but it does say you’re kind of serious.”


Tim Hortons’ shares were up 3.8 percent at $ 56.26 in midday trading on the New York Stock Exchange on Wednesday, while its Toronto-listed shares were up 4 percent at C$ 56.74.


TOUGH LANDSCAPE


Despite its growth and strong performance, analysts concede that the Canadian coffee chain faces strong headwinds.


Analysts have questioned whether the brand – which arguably trails only hockey and the maple leaf as a symbol of Canada – can continue to grow at home.


Tim Hortons – with some 3,400 stores in Canada, both company-owned and franchised – has virtually saturated the market. At the same time, U.S.-based rivals such as McDonald’s and Starbucks have stepped up their presence north of the border, limiting Tims organic growth potential.


“We don’t view either player as an immediate threat to Tim Hortons’ scale and strong brand perception,” said R.J. Hottovy an analyst at Morningstar. “But we believe competition will become increasingly fierce in the decade to come, leading to more aggressive price wars and keeping margin expansion in check.”


Highfields may have some success in building a case for spinning off Tim Hortons’ real estate assets into a new publicly traded REIT, a path that others in Canada have taken. Canada’s largest food retailer, Loblaw Cos Ltd, said earlier on Wednesday that it plans to complete the initial public offering of its REIT in early July.


“Canada is a more conducive market than the U.S. right now, when it comes to REIT conversions. There are provisions that actually make it easier here,” said Hottovy, adding that a company spinning off the assets can still maintain a controlling interest in a REIT in Canada.


Tim Hortons was not reachable for comment on Wednesday.


Highfields, however, may have a much tougher task convincing long-term investors that a debt-funded share buyback is a sound plan.


John Goldsmith, deputy head of equities at Montrusco Bolton, a firm that owns nearly 260,000 Tim Hortons shares, questions whether the strategy makes sense over the long term, even though low interest rates have made it more attractive for activists to push companies to take on cheap debt to fund buybacks.


“This might temporarily add value per share mathematically, the question is does this create sustainable value add or simply a one-time pop?” he said.


(Additional reporting by Solarina Ho and Allison Martell; Editing by Maureen Bavdek and Peter Galloway)





Reuters: Business News




Hedge fund faces challenge in Tim Hortons shakeup bid

What Causes The Growing Wealth Gap In America?


Submitted by Omid Malekan via OmidMalekan.com,


A major issue in America today is the growing gap between the rich and the poor, and the popular narrative is that the disparity is caused by capitalism run wild and only the firm hand of government can fix the problem. But what if this narrative has it backwards? What if the growing wealth disparity in America is actually caused by the government?


Take Warren Buffet, a man often at the center of this debate, as not only is he a billionaire, but also a vocal advocate for higher income taxes on the rich. Mr. Buffet’s focus on taxes on income is curious, as he didn’t become a billionaire by earning a high income, but rather from owning assets, like shares in Berkshire Hathaway. Many are aware of his acumen in making investments that have a “margin of safety” – or minimal downside – but few are aware of the greatest source of such safety for Mr. Buffet in recent years, the US Government.


During the 2008 crisis Buffet’s investment portfolio was full of wobbly financial companies like GE and Wells Fargo. In the span of 2 months Berkshire stock – and Mr. Buffets net worth – lost half their value. In response, Buffet invested more in collapsing financial companies like Goldman Sachs, then went public demanding a bailout. The Treasury Department and Federal Reserve responded with program after program to keep troubled financial entities alive, some of them invented specifically for Buffet holdings like GE. Just two years later, thanks to the impact of the bailouts and the Fed’s programs, Berkshire stock rebounded sharply. Mr. Buffet’s investment in Goldman Sachs, which he himself admitted was a bet on the bailouts, made billions and continues to earn him a profit years later.


Mr. Buffet wasn’t the only person that benefited from the bailouts, but wealthy citizens like him, who tend to hold the majority of assets in America, benefited disproportionately. The untold narrative of how Warren Buffet and others like him “get richer” is how they managed to not get poorer, even when their bad investment choices dictated such.


During the same 2 year span when Buffet’s net worth rose sharply, some 12 million Americans went on food stamps. Countless middle and lower class Americans lost their jobs and their homes. Small businesses were wiped out. These Americans didn’t get a bailout. Those that benefited the least from the boom years suffered the most during the bust. When people tell me that the bailouts saved the economy, I like to ask them, for whom?


On March 5th of this year, the Dow Jones Industrials Average recorded an all time high after an impressive rally from the 2009 lows. It’s widely agreed that the policies of the Federal Reserve are a big reason why. Fed Chairman Ben Bernanke often points to rising stocks as a measure of success for his programs. Perhaps he likes to boast about stock market gains because he can’t boast about major jobs creation or economic growth. In the 4th quarter of 2012 our GDP only grew by 0.1%, and the economy can barely create enough jobs to keep up with population growth. The latest report by the Labor Department showed only a paltry gain of 88,000 jobs in the month of March. Personal Income has been falling for years, and we are amid the worse period for wage growth in over a decade. The stock market has done well, but two thirds of all stocks are owned by the wealthiest Americans. Only the rich have benefited from the Fed’s largess.


The Fed has also lowered interest rates, and billionaire Mark Zuckerberg was able to get a mortgage at a rate of 1%. Most Americans would consider themselves lucky if they could get any mortgage, let alone at such paltry rates. Small business lending remains anemic and credit card rates remain high. Mr. Buffet on the other hand just announced a major acquisition financed mostly by cheap debt. Such leveraged buyout deals are lucrative when rates are this low, but ironically by law only millionaires are allowed to invest in the Private Equity Funds that utilize them.


The disproportionate gain by the wealthy from Federal Reserve actions as via the stock and bond markets is captured in a recently published Pew Research Center report on the first 2 years of the recovery. Their analysis reveals that from 2009 to 2011 the mean net worth of the top 7% rose by 28%, while the mean net worth of the lower 93% actually fell. The sharp rebound for the wealthy had nothing to do with their investment acumen, their risk-taking foresight or their hard work, as it was entirely driven by Government and Federal Reserve action.


There is one aspect of Fed action that impacts everyone, even the poor. The Fed’s easy money policies have driven up commodity prices. Despite gasoline demand being near a decade low, and supplies so plentiful that America now exports gasoline, the national price at the pump recorded another record this winter, and Americans are spending a higher percentage of their pre-tax income on gasoline than ever before. High gasoline prices hurt the poor and middle class disproportionately.


The next time you ponder the governments role in the growing wealth-gap, ask yourself this simple question: Since the start of the crisis our government has borrowed over $ 6 trillion and printed several trillion more. Into whose pockets did that money go?





    




Zero Hedge




What Causes The Growing Wealth Gap In America?

22 Facts That Prove That The Bottom 90 Percent Of America Is Systematically Getting Poorer



22 Facts That Prove That The Bottom 90 Percent Of America Is Systematically Getting Poorer - Photo by Joe MabelThe mainstream media is not telling you this, but the truth is that most Americans are steadily getting poorer.  The middle class is being absolutely eviscerated, and poverty is soaring to unprecedented heights.  The fact that 90 percent of the population is constantly sliding downhill is not good for our society.  The United States is supposed to be a land of opportunity with a vibrant free market system that enables average people to make better lives for themselves.  Unfortunately, free enterprise is being strangled to death in the United States today.  Entrepreneurs and small business are being pounded into oblivion by rules, regulations, red tape and oppressive levels of taxation.  At the same time, millions of jobs have been shipped out of the United States by corporate giants and sent to countries where it is legal to pay slave labor wages.  All of this has happened under both Democrats and Republicans.  Meanwhile, wealth and power continue to become even more heavily concentrated in the hands of big government and big corporations.  Our founding fathers warned that we should not allow such large concentrations of wealth and power, because they tend to funnel the rewards of society into the hands of a select few.  We need to change the rules of the game so that entrepreneurs, small businesses and average workers can thrive in this country once again.  If big government and big corporations continue to gobble up even more wealth and power, the wealth inequality that we see right now will only get even worse.


The following are 22 facts that prove that the bottom 90 percent of America is systematically getting poorer…


#1 According to the Pew Research Center, the top 7 percent of all U.S. households own 63 percent of all the wealth in the country.


#2 Between 2009 and 2011, the wealth of the bottom 93 percent of all Americans declined by 4 percent, while the wealth of the top 7 percent of all Americans increased by 28 percent.


#3 On average, households in the top 7 percent have 24 times as much wealth as households in the bottom 93 percent.


#4 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.


#5 According to the Economic Policy Institute, the wealthiest one percent of all American households have 288 times the amount of wealth that the average middle class American family does on average.


#6 According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.


#7 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.


#8 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.


#9 In the United States today, corporate profits as a percentage of GDP are at an all-time high, but wages as a percentage of GDP are at an all-time low.


#10 In 1980, CEOs at S&P 500 companies made 42 times as much as their employees did on average.  Today, CEOs at S&P 500 companies make 354 times as much as their employees do on average.  In fact, there are many CEOs that make more than 1000 times what the average employees in their companies make.


#11 According to a report recently issued by the Pew Research Center, Americans over the age of 65 have 47 times as much wealth as Americans under the age of 35 on average.


#12 U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.


#13 Back in 2007, about 28 percent of all working families were considered to be among “the working poor”.  Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.


#14 At this point, one out of every four American workers has a job that pays $ 10 an hour or less.


#15 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.


#16 The U.S. economy continues to trade good paying jobs for low paying jobs.  60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.


#17 As I mentioned yesterday, the homeownership rate in America is now at its lowest level in nearly 18 years.


#18 The United States now ranks 93rd in the world in income inequality.


#19 Approximately one out of every five households in the United States is now on food stamps.


#20 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.


#21 According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income”.


#22 At this point, the poorest 50 percent of all Americans collectively own just 2.5% of all the wealth in the United States.


Even if your income just stays the same, you are still getting poorer because inflation is a tax that is constantly chipping away at the value of every single dollar that you own.  The cost of everything that we buy on a regular basis (food, gas, health insurance, etc.) is constantly going up, and if your income is not keeping pace that means that you are getting poorer.


That is just one reason why the Federal Reserve system is so insidious.  They are killing the middle class with inflation.  For much more on the Federal Reserve and why it should be abolished, please see this article: “10 Things That Every American Should Know About The Federal Reserve“.


So if most Americans are getting poorer, then why aren’t our politicians doing something to fix it?


Well, the sad truth of the matter is that the big corporations fund the campaigns of our corrupt politicians.  They know that the candidate that raises the most money almost always wins, and so it provides an incentive for our politicians to be very good to those that have the money.


Plus, many of our politicians are way too busy having a good time to be bothered with doing anything for us.  Take Barack Obama for example.  According to The Telegraph, Barack Obama has spent twice as much time playing golf and vacationing as he has on attending economic meetings…


In an analysis of the presidential diary and newspaper reports, the Government Accountability Institute found that Mr Obama has spent 976 hours since his January 2009 election on holiday and playing golf.


In contrast, he has only spent 474.4 hours in economic meetings.


“As a government watchdog group, we just tabulate the numbers and let others decide how to interpret them,” said Peter Schweizer, president of GAI, which compiled the report.



But this is a problem that is not going away.  The bottom 90 percent of the country is systematically getting poorer, and if this continues it will inevitably result in massive social problems.  The video posted below does a great job of graphically illustrating the crisis that we are facing…


Abandoned_House - Photo by Daniel Leininger



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The Economic Collapse




22 Facts That Prove That The Bottom 90 Percent Of America Is Systematically Getting Poorer