March 31st, 2009
04:12 PM GMT
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LONDON, England – One of the five "pillars" of the G-20 meeting is protectionism. World trade has naturally fallen in this recession and British Prime Minister Gordon Brown is worried politicians will start to build up import barriers to "protect" jobs at home.

In reality, of course, jobs are often lost when barriers rise for two main reasons; other countries retaliate, hurting exports, and also because nowadays many companies import raw materials which become more expensive during a trade spat. Mr. Brown calls the danger of protectionism "de-globalization."

Now, you might think this means countries are resisting protectionism; clearly not. The World Bank estimates that 17 of the 20 G-20 "countries" (The European Union is treated as one country in this group) have erected barriers of one form or another to protect certain industries.

The United States has its "Buy America" provision signed into law by Barack Obama as part of the stimulus package.

France appears to have succeeded in its bid to keep auto jobs at home when Renault created 400 jobs at a plant outside Paris to make the tiny Clio automobile, claiming its Clio plant in Slovenia was at capacity. France's auto bailout came with calls for the French automakers not to cut jobs at home.

Then there was Russia's duty increase for imported used cars, etc. etc.

Martin Brougton, the president of the UK's Confederation of Business Industry (CBI), told me that even a bank bailout can be protectionist if it helps a domestic bank compete unfairly. He says most companies don't want protectionist measures and says it is politicians who can't help but fiddle with trade rules to please voters.

Remember, at the last G-20 Meeting just a few months ago, the leaders pledged to resist protectionism measures and then did it anyway.

You might say these moves are symbolic or minor and that's probably correct. But what happens after this G-20 meeting could set the trade tone for years to come.

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March 31st, 2009
07:50 AM GMT
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March 27th, 2009
11:39 AM GMT
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Spring has sprung, and of course that brings with it the inevitable claim that the "green shoots of recovery" are upon us.

This was emphasised by Larry Kantor of Barclays Capital writing in his latest client note that he saw signs of "green shoots."

His argument is that expectations are so low, the market is beaten and the prognosis so grim, that it is time to start being more aggressive in investment decisions to take advantage of the situation. He believes a turnaround starts in Asia and quickly moves to other markets not so badly affected by financial collapse.

In other words, countries like Britain and the U.S. which are at the center of the financial meltdown are going to be amongst the last to recover.

There is solid common sense in Kantor's views. There has been so much unprecedented action by policy makers on the monetary, fiscal and regulatory front that recovery is inevitable. It is just a question of when and how strong.

Are you seeing the green shoots of recovery in your economic life yet ?

March 25th, 2009
10:58 PM GMT
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Tonight's Profitable Moment....from Quest Means Business

So with what is the road to recovery paved ? We certainly know rose petals aren't being strewn in our path. But is it right to say we are on a road to hell as the Czech prime minister described Obama's economic policy.

No one doubts the road has deep pot holes. The evidence of a hard journey ahead is everywhere. Large budget deficits that will be millstones round our necks for decades are piling up. Homes are being lost, there is virtually no economic cheer – and the best we can hope for is a tepid growth later in the year. This much we already know.

But what makes the journey hellish ? Is it the fear of the unknown, or the near certain fact that our standards of living are going to fall. Perhaps we are now so much in love with the latest gadget and mobile gizmo that the thought of anything else sends us into despair. I find that hard to accept. We can do better than define our journey being consumed by the latest consumer trinket.

Whether it's the road to recovery or hell – there are many twists, turns and cul de sacs. We won't always agree on the best route to get us home. There is no Satnav to economic nirvana.

March 25th, 2009
12:38 PM GMT
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Toyota has unveiled the much-anticipated third generation of it's best-selling Prius hybrid car, promising greener credentials, better performance and a smoother ride - but with cheaper rides competing for its slice of the dwindling car market, can it deliver?

Similar in appearance to the previous two generations, the Prius 2010 stands out, say engineers, when you drive it.

"This time, we have both engine and motor strength. A balance between performance and fuel efficiency," says the Prius' chief engineer, Akihiko Otsuka.

The new version of the Prius, the world's best-selling hybrid vehicle, boasts 10 percent increased fuel efficiency, its makers say. Engineers claim their success with this version comes with increasing performance,  jumping engine size from 1.5 liters to 1.8 liters and boosting horsepower from 110 to 160. Engineers say the increased performance was met by keeping the weight of the car down and improving aerodynamics.

CNN was invited to test drive the prototype, due to release worldwide this year. The new Prius has three driving modes to give the driver options to increase fuel efficiency, from an "eco" to "EV" to "power" mode. The power mode focuses on performance, so the vehicle drives like a sporty sedan. The EV and eco mode will remind Prius fans of the first and second generation models.

Driving it on the Fuji Speedway, it seemed to deliver on the engineers' promise of performance, hitting 70 kilometers per hour in seconds. But that was in power mode. In eco-mode, the Prius matched the familiar, quiet (and much slower) pick up of the second generation. The engineers say to get the 10 percent fuel efficiency improvement, you can't exactly drive that sporty power mode all the time.

The Prius also continues to forge ahead with eco-friendly touches, like a new solar panel on the roof that runs vents in the summer to keep the car cooler when idle.

Toyota is banking on the popularity of the hybrid as a bright spot in what's been a sagging portfolio since the credit crisis began. But analysts say that expected profit could be smaller, thanks to a challenge from Honda.

Honda re-introduced its Insight, an updated model of Honda's first stab at the hybrid race. The Insight is priced lower than the Prius, approximately US $3,000 less. Toyota says despite media speculation that it would lower the price of its 2010 Prius, the current price won't waver. Analysts say the success of the new Prius depends on what the car buyer is willing to pay for in this recession.

"No doubt the Insight is a lot cheaper than the Prius," says Credit Suisse auto analyst Koji Endo. "But at the same time, the Prius is supposed to be a little higher quality and little bit more luxury segment. The Prius should have low emission, better fuel mileage and higher quality standards. So the question is, are you going to pay for price or are you chasing the performance?"

The Prius goes on sale in the US in late spring, mid-May in Japan, and early summer in Europe.

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Filed under: AsiaRetail

March 25th, 2009
06:54 AM GMT
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The cat is out of the bag in Britain in a big way. The warning by the governor of the Bank of England AGAINST a further large stimulus package was a slap in the face to Gordon Brown's government .It is in the very nature of Central bankers to be cautious – to proceed ponderously when others wish to rush, but Mervyn King left no doubt as to his views. ""Given how big these deficits are", King said, "I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of the those deficits."

In Quest-speak Whoa....time to start worrying about how we are going to pay the bills when this is all over.

The Gov. was speaking before a parliamentary committee and would have been well aware of the bomb he was dropping on the UK governments head. Normally he would never be so blunt. Coming just a week before the G20 meeting it is an explosion Gordon Brown's European counterparts Angela Merkel and Nikolas Sarkozy good ground for saying "hang on, even your own central bank chief believes enough is enough !"

The issue isn't more needs to be done: The problem is so much has been done already, in such a short period of time, and not just in the UK.

We have had record breaking cuts in interest rates (in less than two years they have fallen 5.25 per cent !) to record breaking lows. We have had record breaking Stimulus Packages and Bailout packages and we have seen central banks embark on record breaking printing of money known as Quantitative Easing. All of which will create record breaking budget deficits ! That's a lot of record breaking, even in record breaking times !

There is a tsunami of money slowly, but inexorably working its way through the economy. And all the Governor was saying it's time to watch and wait and see the effect of all of this stuff before doing anymore.

Let there be no doubt – all this record breaking stuff will have an effect and we will see it, albeit later rather than sooner. By which time it may be too late.

Which is why the Governor made his, almost, record breaking comments.

March 20th, 2009
03:26 PM GMT
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(CNN) – Mayfair has been the playground of London's super rich for centuries.

Berkeley Square, one of London's most exclusive addresses, has lost some of its luster.
Berkeley Square, one of London's most exclusive addresses, has lost some of its luster.

Since the 1990s, it's also been home to the hedge fund and private equity crowd, joining the private banks dotted around Berkeley Square in Georgian townhouses or low key new buildings.If you've shopped on New or Old Bond Street or Savile Row, if you've stayed at Claridges or the Dorchester or just played Monopoly, then you know Mayfair; the ritzy area surrounded by Piccadilly, Regent Street, Oxford Street and Hyde Park.

The past decade, Mayfair's players have attempted to keep a low profile. You'd never know you were walking by the headquarters of Blackstone, Carlyle or, at No. 1 Curzon Street, AIG Financial Products where many of the losses occurred and where many of those infamous bonuses were paid.

And you certainly would not have known that the small townhouse known as No. 12 Berkeley Street was the London offices of Madoff Securities International Ltd.

Those offices are now up for rent. Someone I talked to recently said he had a good look around at place to relocate now that Mayfair has become more "affordable" but felt the place had bad karma.

He noted as well that the office had swipe card entry access to every cabinet which he thought excessive. That goes along with reports that Madoff had a camera installed in the London office so he could keep in better contact from New York.

Property group CB Richard Ellis estimates that rental prices in Mayfair have fallen between 25-30 percent since prices topped £120 ($173) per square foot in 2007, the most expensive place on earth for office space at the time. Now new rent prices have fallen behind rents in New York and Tokyo and likely Hong Kong.

Still, occupancy stands at 94 percent so it's not as if the property market has collapsed. After all, a hedge fund might be three people and a secretary in one small office. The impact would be much greater if a private equity group were to move out.

On the day I walked around Mayfair, there was a Rolls Royce and Maserati outside Gordon Ramsay's at Claridges. There were plenty of Bentleys roaming as well. No surprise really since one of the premium corner spots is filled by the Jack Barclay Bentley dealership (there is a Porsche dealer opposite).

And that seems to be the key to Mayfair; after private money flies into London and checks into Claridges or the Dorchester or the Hilton, it wants a private banker or wealth advisor within walking distance. Then it's lunch nearby at Ramsay's or Nobu and maybe a drink at Mayfair's most exclusive (and hardest to find) club, Annabelle's.

AIG, UBS and other big names all have big offices in the City of London or in the Docklands, but they want their private banking and alternative investments arms separate.

Whether its Mayfair or Greenwich, Connecticut, the super wealthy and those who cater to them like to be off on their own, tucked away from the day-to-day banking operations.

Yet, thanks to Mr. Madoff and those at AIG getting big bonuses, the spotlight is uncomfortably focused on them and the neighborhoods they like to walk around - usually without a tie.

Watch my report on how the financial crisis is hitting Mayfair.

March 19th, 2009
07:45 PM GMT
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NEW YORK - This week Ben Bernanke threw out the central bank rule book.

Bernanke has been picking up new nicknames as he battles the financial crisis.
Bernanke has been picking up new nicknames as he battles the financial crisis.

First he did a sit-down interview for a major media outlet that aired just two days before a policy meeting, in violation of the traditional black-out period.

He then shocked markets by announcing the Fed would start buying billions in long-term treasury bonds, as well as billions more in mortgage-backed debt and agency bonds.

The response has been dramatic. Mortgage rates dipped below 5 percent Thursday.

Almost everyone I know is calling to try and refinance. Officials hope new home buyers will also move off the sideline and start to chip away at the inventory of unsold homes.

Bernanke is following through on his promise to use every tool the Fed has to help fight this global crisis.

In cartoons he has gone from being depicted as Helicopter Ben, willing to throw money into the economy, to Bomber Ben ... dropping crates full of cash across the U.S. economy.

Most traders and analysts are applauding Ben's bold action. Some, however, do worry the solution will just spawn new problems, especially rising inflation.

I'm sure Bernanke is worried about that too, but in triage you do what you can to save the patient and worry about everything else later.

I don't know if he has the right answer, but for now I am willing to put my trust in Ben.

What about you? Do you think the Fed chairman is taking the right approach or is he just laying the ground work for another bubble?

March 18th, 2009
02:27 PM GMT
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The AIG bonus issue has me on the defensive – and all because I was silly enough to open my mouth in support of the rule of law. I opined out loud that it seemed very heavy handed for any government, let alone the US Federal Government to try and overturn existing contractual arrangements – a true slippery slope argument if ever I saw one.And then the flood gates opened. Most of you thought I was wrong. The malfeasance at AIG being so great that anything short of the Public Stocks of Victorian England would be too good for the executives who got retention bonuses.

So let me clarify – I agree that the way AIG was run into the ground is amongst the most heinous of corporate acts. I don't believe retention bonuses should be paid, or indeed any bonuses. But if you were lucky enough to get some sucker to agree to such a term in your contract then it has to be honoured.

I am pleased that the US government appears to have found a way out – by deducting the bonus amount , $160m, from bailout funds being paid to AIG. After all, it is the US government money keeping the company afloat and it is entitled to say what should be done with it. The old phrase He who Pays the Piper...comes to mind.

A simple solution that preserves the rule of law – decisions have consequences and the result of this one leaves the mess where it belongs: With AIG and its ill-deserving employees.

March 17th, 2009
03:02 AM GMT
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SHANGHAI, China - When Xiao Hongjun, a 38-year-old engineer, went looking to buy his first car he knew exactly what he wanted: a Buick.

GM China President Kevin Wale, left, attends the unveiling of the Volt sedan in Shanghai last year.
GM China President Kevin Wale, left, attends the unveiling of the Volt sedan in Shanghai last year.

"Because from my heart, I like American goods. Buick is a very good brand," he said shortly before paying almost $20,000 cash for a new car.

Xiao is not alone. First-time car buyers in China are driving this market. Helped by the government's cut in sales tax on smaller models and vehicle subsidies for farmers, sales surged 25 percent in February compared to the same time last year.

And the best selling brand in China: General Motors. The struggling American giant has held that position for the past four years. GM China President Kevin Wale is expecting another good year.

"The market unlike the rest of the world looks like it's going to be stable, and in fact we think it is going to grow a little bit, between 5 and 10 percent. We've been able to start the rollout of our new product introductions, and we've got a lot of momentum."

In many ways GM China is everything GM North America is not.

"GM's operations in China are flexible and efficient and profitable. And the things it does in China are applicable to its North American operations which are right now the opposite - they're inflexible, inefficient and losing money," says John Casesa, an auto industry analyst in New York.

He estimates that in a good year, GM makes around a billion dollars profit in China, and not only has that kept the company out of bankruptcy in recent years but makes a strong case to U.S. policy makers that the company is worth saving.

"Its Chinese experience underscores that this company, under the right conditions, can be very competitive, be competitive globally in markets outside North America and position itself for the best growth opportunities in places like China, India, and Brazil."

GM China operates new plants, wages are low, and there are no financial liabilities like health plans or pension schemes that are the main issues facing the operations in North America. But Wale argues there's more to the company's success than that.

"The secret to winning in any marketplace is to provide the products the customers want to buy, which is why we say we listen very closely to what the market wants, and we react very quickly to put it in place."

Analysts believe China will become the world's biggest car market within the next five years, and if the big auto makers are to survive, they'll need to be successful here, and General Motors is well placed. It just needs to ride out the great recession.

Xiao, the new car buyer, has no concerns.

"I am confident in America. I think that the financial crisis will pass quickly."

Watch my report on what's driving GM's success in China.

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Filed under: BusinessChina

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