Think-3 Investment Idea Sharing Platform

PBC《2004年中国区域金融运行报告》

中国人民银行《二○○五年第一季度中国货币政策执行报告》
《中国货币政策执行报告（2005年第一季度）》

中国人民银行发布《货币政策执行报告》增刊——《2004年中国区域金融运行报告》
1、2004年中国区域金融运行报告.pdf
2、各省、自治区、直辖市金融运行报告

《2004年中国区域金融运行报告》is brand new disclosure, of course, the timing and purpose of its release is highly political. A very intersting reading material.

posted by Henry @ 9:56 PM 0 comments

NYT : Bad Business for Magazines About Business

By DAVID CARR

WHEN the Meredith Corporation announced its purchase of Gruner & Jahr's women's magazines last Tuesday, Meredith said that Gruner's business magazines, Fast Company and Inc., were not "material" to the sale. What that means is that two magazines that sold for more than half a billion dollars four years ago now have a value of zero.

As it flees toward its exit from a billion-dollar experiment gone horribly wrong, Gruner & Jahr, a division of the German media giant Bertelsmann, may salvage a few dollars, if not its dignity, by selling Inc. But Fast Company, always more of an idea than an actual magazine, is probably gone for good.

The decline of these two business magazines may reflect management pratfalls - usually a good guess at Gruner - but the bottom line may be darker and broader than that. Business publications, which spent years as the ugly cousins of mainstream media, were transformed into prom queens when the Web took off and gorged on the deal flow until they became as over-inflated as the sectors they covered. After the market bust, the herd was winnowed and publications returned to earth, but something funny happened when it came to touch bottom: there was none.

No one is surprised that Red Herring, a magazine that once weighed two pounds an issue, is now brochure size. But longstanding business franchises like Fortune, Forbes and BusinessWeek are finding little traction in a post- Enron world. Thus far, 2005 has been bleak, with all three magazines flat or off from last year's miserable advertising numbers. As one of the arch headlines that are their stock-in-trade might suggest, "Stuck to the Bottom in a Rising Tide?"

During the bubble years, a windfall of an additional 35,000 advertising pages flowed into existing business publications, along with a bunch of newly thrown-together magazines, some cynically conceived just to get a place at the trough. But never mind the dreamy days of 2000 - business publications would love to get back to the good old days of 1995, pre-boom, pre-bust, practically pre-history. Last year, according to Media Industry Newsletter, the big three in business sold just over 10,000 advertising pages, a shadow of the 18,300 they sold in 2000.

That drop is almost axiomatic, but they have yet to crawl back to their 1995 level of more than 11,500 pages sold. Collectively, the three are reporting almost half a billion dollars less in revenues in 2004 than they did in 2000. Those ad revenue numbers are notoriously inexact, but still represent a breathtaking hemorrhage.

The boom, the would-be salvation of a publishing sector that got no respect, has left it maimed. The day Gruner bought Fast Company was when the first cracks appeared, at least for me. On December 19, 2000, Daniel B. Brewster Jr., Gruner's chief executive, met with reporters in a conference room to explain why Fast Company, a five-year-old magazine, was worth $360 million, plus another $150 million if certain performance targets were met. (Mortimer B. Zuckerman, the seller, timed the market nicely.)

"This magazine's profitability, circulation and ad revenue has doubled in all five years of its existence," Mr. Brewster said, perhaps unconsciously invoking Moore's Law, a maxim that held computing power doubled every 18 months. He cut a very convincing figure, but I can remember making nervous jokes at the briefing with my fellow reporters - even then, the brawny pronouncements sounded brittle, past their prime and not a little scary. Could we, the lowly business press, become what we covered?

Sadly, yes, as it turned out. Skeptical readers now reserve special distrust for the business press, which blew air into faux companies and created princes out of people who turned out to be frogs, and felonious ones at that. ("The Brand Called You," was a trope for Fast Company, while Forbes reveled in "The Upside of Optimism.") Just as the sports pages are a first-read when the home team is hot and fish wrap when they are not, consumers tuned out when the market tanked, snapping off CNBC and leaving their business magazines in the to-do pile.

Many potential advertisers are happy to stay out of magazines altogether - image ads do not seem like a great idea when every other headline is about corporate executives on trial. ( Morgan Stanley and BP now require business publications to pull their ads if an issue contains negative coverage of their businesses.) Detroit, which provided such durable horsepower for the business press, is stuck in a ditch of its own and as telecom, financial services and wireless have merged and rolled up, the pool of potential advertisers has become shallower.

Some of those advertisers are more than happy to branch out into the online world, the place where many of their potential customers live. The five top advertisers on the Web - financial services, Internet sites, computers and software, telecom and travel companies, according to TNS Media Intelligence - are all traditional business publishing categories. Together, they spent more than $3 billion on the Web, a 42 percent increase in just the last two years. As a result, Dow Jones acquired MarketWatch as a hedge, CNN/Money continues to grow and a Forbes executive said the digital version of the storied brand will produce more revenue than the print version within the next two years.

Women-oriented magazines retained their value in the Gruner deal - Meredith paid $350 million for Family Circle, Parents, Child and Fitness - because advertising for packaged goods, the backbone of women's magazines, has been slow to come online. Family Circle, which has been known to put needlepoint on its cover, was seen as a much more vital property than Fast Company, which is more prone to slogans that look good in needlepoint, quaint artifacts of a by-gone era.

Fast Company may be imprisoned by a rhetorical set that cannot be used without inviting derision - spare change agents, anyone? - but the big three business magazines employ some of the best journalists in the business; it was Fortune that first revealed the Enron house of mirrors. But the general interest business magazine continues to suffer long after the correction because there is no longer general interest in business. And even as journalists write and edit articles about a creeping economic recovery, they stare at their own bottom lines and see no evidence of the same.

posted by Henry @ 12:54 AM 0 comments

U.S. Personal Spending And Income Rose in April

By JEFF BATER DOW JONES NEWSWIRES May 27, 2005 4:41 p.m.

WASHINGTON -- Americans' incomes grew faster during April but their spending rose at a slower pace, while a key gauge on inflation eased and the savings rate reached a three-year low.

Personal income increased 0.7%, after rising an unrevised 0.5% in March, the Commerce Department said today. It was the largest increase since income climbed 4.0% last December.
April personal consumption rose 0.6%, after climbing a revised 0.9% the month before. Spending was initially seen increasing 0.6% in March.

The median forecast of 21 economists surveyed by Dow Jones Newswires and CNBC called for personal income to increase 0.7% and consumer spending to climb 0.8% in April.
Disposable personal income -- income after taxes -- rose 0.5%, following a revised 0.4% advance in March.

The growth of wages and salaries in April more than doubled. Wages and salaries increased $39.3 billion, after rising $16.5 billion the month before.

Spending on durable goods increased 0.7% in April, after a revised 3.5% increase. Recent auto industry data showed North American vehicle sales totaled 17.46 million last month, up from 16.62 million a year earlier.

Nondurable goods spending rose 1.1% in April, after rising 0.2% in March. Spending on services gained 0.3%, after a 0.7% increase in March.

A price index for personal consumption expenditures, or PCE, excluding food and energy inched up 0.1% in April compared to March. The rate rose 0.3% in March compared to February. Year over year, the price index for personal consumption expenditures minus food and energy rose 1.6% compared with April 2004. The year-over-year climb in March was 1.7%; it was 1.6% in February.

The Federal Reserve watches the PCE price index closely as an inflation indicator. The central bank's so-called comfort zone for the gauge ranges from 1.0% to 2.0%.

Personal saving as a percentage of disposable personal income was 0.4% in April, down from 0.5% in March and 0.9% in February. It was the lowest savings rate since a 0.2% decline in October 2001.

Separately, the University of Michigan's full-month report on consumer sentiment for May was said to show that its index fell to 86.9, from 87.7 in April. The preliminary reading had been reported at 85.3. The University of Michigan report is released only to subscribers. Economists had expected a reading of 86.0 for May. The university's index for consumer expectations was said to have fallen to 75.3 in May from 77.0 in April. The current conditions index for May was said to show an increase to 104.9 from 104.4 in April.

posted by Henry @ 12:57 PM 0 comments

WSJ : China's Game of Musical Chairs

By TED OSBORN [Mr. Osborn is a partner at PricewaterhouseCoopers Hong Kong/China specializing in NPLs.]

May 27, 2005

Today's non-performing loan market in China sometimes looks like a merry-go-round. With much fanfare, a state-owned company recently held an auction that ended up with the NPLs being sold to a sister company.

It was first of two auctions by Cinda AMC, one of China's four asset management companies charged with disposing of the country's $300 billion plus of non-performing loans, to sell off two batches of prime NPLs it acquired from Bank of China in 2004. Cinda stated that it was appointing foreign financial and legal advisers to oversee the sale of a $845 million pool of NPLs in Qingdao, followed by a second auction involving a $615 million pool of NPLs in Tianjin, both of which would target the international investment community. Starved for deal flow, international investors readily ponied up the stiff $40,000 registration fee for the Qingdao auction.

But then it emerged that Great Wall AMC, a sister AMC to Cinda had registered as a bidder. That provoked an immediate outcry from the international investment community, who argued that AMCs are supposed to be disposing of NPLs, rather than acquiring them on the open market. When Cinda did not back down, several experienced foreign investors including Morgan Stanley decided to skip the auction altogether. Why spend all that time and money on due diligence when a state owned AMC was bidding -- an entity with no real investment return targets who could therefore bid whatever they liked? And finally came the outcome they most feared: on May 10 Great Wall was quietly announced as the auction's main winner.

From Cinda's perspective the auction was a success. After all, they reportedly bought the loans in question for 31 cents and then successfully sold them for 42 cents -- a tidy profit of $93 million they can crow about to their supervisory body. As long as Great Wall manages to collect more than they paid -- and doesn't resell the NPLs to another AMC -- then Cinda's profit will be real and the loans will have been dealt with.

But the foreign investment community views the Cinda Qingdao NPL auction as nothing more than musical chairs involving loans. Instead of selling to a genuine third party investor who would not only cough up real cash for the loans but also actually do something about resolving them, Cinda instead chose to pass the loans from the government's left hand to its right, accomplishing nothing in the process. The problem with this, they say, is that by selling to Great Wall the buck hasn't stopped as it would have if they had been sold to genuine third party investors. And if such sales continue it is not clear it ever will.

The real shame is that by allowing Great Wall the opportunity to bid in the first place Cinda has shot itself in the foot with the very investors it was hoping to cultivate for future auctions, including its Tianjin auction scheduled for June 15, which is now off to a rocky start after both Great Wall and China Orient AMC have been reported to have registered as bidders. With foreign investors now complaining to Beijing and threatening to stay out of the game until the playing field gets level, Cinda is reportedly rethinking its approach for future auctions.

But can Cinda really be faulted for allowing the AMCs as bidders? As the AMCs have it in their mandates that they can acquire NPLs on the open market, what is the problem with their selling to other AMCs? As long as they pay up -- and take the NPLs off the merry-go-round -- absolutely nothing. Should Cinda really be concerned with the perceived investment targets of its bidders? Or simply getting the highest absolute price?

From a seller's perspective, in order to maximize the value from the sale of a portfolio of NPLs, they need only follow the tried and true formula: Drive-up market participation, provide bidders with quality information and a fair and transparent process, assemble portfolios of assets that appeal to the bidders and voila -- competition and high bids. Other than driving-up market participation Cinda has followed this approach and they got their high bid.
But from a broader perspective, the question is whether in the long run China's AMCs can afford to drive away international investors by selling to each other.

The merry-go-round cannot continue forever. And when it stops, will anyone be on it?

posted by Henry @ 4:02 PM 0 comments

WSJ : House of Cards?

If Rates Don't Kill the Boom, What Will?
Plus, a Bubble-Proof Buy and a New Hedge

May 27, 2005

Choose Your Weapon

Mark Gongloff: Watching the housing market is sort of like a game of Clue before the murder. The victim is still alive and well, but we know he's going down. After the housing market is cold, it should be easy to finger the perpetrator. But for now, we're left to guess (Colonel Greenspan in the conservatory with the lead pipe?), and the perp might not be whom we expect.

Most players think a spike in long-term interest rates will be the bad guy, pushing 30-year mortgage rates out of the Garden of Eden and pricing would-be home-buyers out of the market. But what if long-term rates don't rise?

They've shown a stubborn unwillingness to budge in the past few years, despite robust economic growth and the Federal Reserve's campaign to tighten credit.
In fact, housing can fall even if long-term rates don't rise. Lehman Brothers chief economist Ethan Harris thinks the more likely scenario is that some minor event will spook speculators, leading to a "contagion effect" that chases them from all of the hot markets. "The history of speculative bubbles is that often they collapse for what appear to be minor causes," he says.

Other possible culprits? A recession would certainly do the trick. Interest rates would stay low in that case, but lousy job markets and falling paychecks could make that $500,000 two-bedroom condo in Sarasota lose its luster in a hurry. Or prices could simply get so ridiculous that first-time buyers couldn't reach them, no matter how rickety a financing ladder they build.

Another potential market-stopper could already be at work, according to UCLA economics professor Edward Leamer: a flattening yield curve. With long-term rates as sluggish as sea cows and Greenspan & Co. relentlessly raising short term rates, the gap between the two has tightened to nearly nothing. When the spread was very wide, banks raked in profits by borrowing at super-low short-term rates and then lending at high long-term rates. When the spread narrows, their margins get pinched, and they have less incentive to lend. Also, they have less extra cash to cover defaults, so they scrutinize new borrowers more carefully.

"[Lenders] will look at you with a much greater degree of scrutiny when that yield curve is flat," Mr. Leamer says, noting that an inverted yield curve (short rates higher than long rates) may have murdered the S&Ls during the last housing boom. Fewer borrowers mean fewer buyers, and you don't need a UCLA economics professor to figure out the rest.

The good news? According to two different models, one used by Mr. Leamer and the other by Lakshman Achuthan at the Economic Cycle Research Institute, the death of the housing boom is not imminent. Dr. Leamer believes it's still about a year away – maybe there's still time to buy!

What do you think will stop the housing market? Or is it just unstoppable? Write to us at tradingshots@wsj.com. If you want to share your thoughts but don't want your letter published, please make that clear.

Steady as She Goes

David Gaffen: If the housing market is akin to Nasdaq, circa 2000, Salt Lake City is a health-care stock: a slow and steady gainer that pays little heed to the frenzy all around it.

Since 1988, homes in Utah's capital have been practically risk-proof and bubble free. The Salt Lake housing market has posted just one annual decline over the period, a skimpy 0.5% decline in 2003. Median prices have never risen more than 16% on a given year; they have posted an average annual increase of 5.5%, according to the National Association of Realtors.

Such consistent growth is hard to come by. Even markets that have been closely associated with the bubble have gone through periods of retrenchment since 1988. Prices in San Francisco, for instance, actually fell between 1988 and 1993.
So if you're looking for a new place to settle -- or somewhere to run when you flip that Sarasota condo -- sunny Salt Lake City may be for you. Think picturesque views of the Wasatch Range and ice-cold winters.

Still, even Salt Lake might not remain froth free. There are signs speculation is emerging, says Kevin Larsen, broker and manager at the Salt Lake branch of Coldwell Banker. It's "becoming less of a bargain, as a result of bidding wars starting in the last three or four months," he says. "It's being fueled by a lot of California people who are priced out of their market."

Is there any such thing as a bubble-proof market? Would you move to another part of the country just to buy a cheap house? Write to us at tradingshots@wsj.com. If you want to share your thoughts but don't want your letter published, please make that clear.

Betting Against the House

Scott Patterson: As investors burned in the dot-com blowup painfully recall, a popping bubble can devastate a portfolio. But investors who shorted tech and telecom stocks in 2000 made out like bandits. These days, wouldn't it be nice if you could go short the housing market – or hedge some of the gains in your home's value?

Robert Shiller knows bubbles, and he might have just the solution.
The Yale University finance professor – and author of "Irrational Exuberance," a book that deftly called the dot-com bubble – is a lead figure at Macro Securities Research. The New York research group has developed financial instruments – called "MACROs" – that will be tied to a housing index that tracks property values in certain cities. By purchasing Up MACROs or Down MACROs, investors would be able to place bets on whether a property market is going to keep rising, or whether it's going to fizzle.

In effect, speculators could play the bubble: They could short the City of Angels and go long on the Big Apple, or vice versa. Homeowners in bubbly markets could hedge against a pop. They could stand to gain if the value of their homes go down. If property values keep rising, of course, the homeowners lose on their MACRO investments -- but at least their homes would be worth more.
These days Mr. Shiller is convinced the U.S. housing market is rife with bubble-like behavior. Home-buyer psychology today "fits in with the model of a bubble," he says. "It's a wishful-thinking atmosphere that develops the idea that everything is going to be all right, and there's the sense that you have to get in at any cost because prices are going to keep going up."

Robert Hartwig, chief economist at the Insurance Information Institute, says the MACRO securities may be the best -- and only -- way homeowners can protect the value of their homes. Speculators, including hedge funds, could help add liquidity to the market, he says.

MACRO Securities has filed plans for the new securities with the Securities and Exchange Commission. The company intends to roll out its MACRO securities later this year and, in its filing with the SEC, said it hopes to list the securities on the American Stock Exchange. It also has a deal to develop housing-price-indexed futures with the Chicago Mercantile Exchange.

Are you interested in hedging the value of your house? What market would you short? Where would you go long? Write to us at tradingshots@wsj.com. If you want to share your thoughts but don't want your letter published, please make that clear.

Parting Shots:

Warren Buffett, at Berkshire Hathaway's annual shareholder meeting, May 1:
"Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."

* * *

The Wall Street Journal, March 6, 2000:

"… for now, the frothy buying conditions in some of the nation's biggest housing markets, especially for high-end-homes, worry economists, who remember how the housing market crashed in the late 1980s after some markets overheated."

posted by Henry @ 3:57 PM 0 comments

WSJ : China's Demand For Steel Products

Entrepreneur Mines China's Demand For Steel Products
Mr. Forrest's Vast Ore Claims, Deep in Australian Desert,
Draw Money and Questions

Buyers Said to Be 'Desperate'

By PATRICK BARTA Staff Reporter of THE WALL STREET JOURNALMay 27, 2005; Page A1

NEWMAN, Australia -- Andrew Forrest is known for wild plans with long odds. He once imported alpacas from the Andes to sell in Australia and used Cuban technology to build a high-risk nickel plant in the middle of nowhere.

Now, Mr. Forrest is onto an even more ambitious project that has the world's mining giants taking notice. He is planning to develop, in an unlikely alliance with China, what may be one of the planet's largest untapped mother lodes of iron ore.

It isn't clear that this mammoth venture will actually materialize: Doubts remain about the quality and accessibility of Mr. Forrest's ore, and his prospective Chinese partners have yet to fully agree to the deal. But the fact that the maverick entrepreneur is finding himself under a global spotlight showcases just how desperate manufacturing nations like China have become to ensure supplies as prices for raw materials soar.

China is the world's biggest maker of steel. It has been especially hurt as suppliers this year pushed through a global 72% price increase for iron ore, a key steel-making ingredient. Liu Yongshun, president of mineral resources for Baosteel International, a subsidiary of Baoshan Iron & Steel Co., China's largest steel company, has warned that the country's entire $140 billion steel industry could become unprofitable -- perhaps as early as this year -- if alternative sources of ore don't open up. "The whole Chinese steel industry would like to see more suppliers," he says.

That is where Mr. Forrest comes in. A 43-year-old who goes by the nickname Twiggy and often flies coach, Mr. Forrest has amassed rights to vast ore resources deep in the deserts of northwestern Australia.

Extracting and transporting that ore will require massive investment. Chinese officials informally agreed in a meeting late last year that it was "in line with China's natural-resource strategy" to develop Mr. Forrest's assets despite the risk, according to the Web site of one corporate participant in the meeting, China Metallurgical Construction Group Corp. Meanwhile, China Metallurgical and two other state-run companies reached a separate agreement with Mr. Forrest to front as much as $1.4 billion for the plan, though the Chinese maintain that further negotiations -- and more proof of Mr. Forrest's ore -- are necessary before final terms are settled.

Such upfront investments to secure raw materials aren't uncommon for China, which seeks to protect its burgeoning manufacturing sector as global mining giants show wariness of expanding too quickly. "They're desperate -- that's the bottom line," says Len Dean, managing director of Sesa Goa Ltd., an iron-ore mining company in India.

"We plan to be the next major iron-ore power in the world," Mr. Forrest says. "With the resources we have, it would be irresponsible to shareholders to plan to be anything else."

In an indication of investors' eagerness to cash in on new mining ventures, shares of Mr. Forrest's company, Fortescue Metals Group, soared nearly 11-fold on the Australian Stock Exchange between October 2004 and March 2005, as positive word of mouth about the project spread. Since March, the shares have fallen more than 50%. Despite the recent decline, the company has a market capitalization of about $430 million. Mr. Forrest, who says he was already financially secure from his past ventures, now holds about 100 million shares valued at around $190 million.

The rights that his company holds are in a desolate stretch of the Australian Outback known as the Pilbara, one of the world's richest known iron-ore deposits. Anglo-Australian concerns BHP Billiton PLC and Rio Tinto PLC, which along with Brazil's Companhia Vale do Rio Doce SA control three-quarters of the world's seaborne iron-ore trade, have long operated in the area.
They own the only two railroads there as well as some port facilities. Until recently, most other investors weren't interested in the Pilbara because iron-ore demand wasn't growing rapidly, and the cost of building their own ports and railroads was deemed prohibitive.

Mr. Forrest thought otherwise. Gambling that demand would rebound in a big way, in early 2003 he began assembling mineral rights, including large sections that previously were controlled by BHP Billiton and Rio Tinto, and that were generally considered too remote and containing ore of excessively low quality to be of much value. He says he has spent more than $6 million of his own money to launch the company, which now has more than 80 employees.

To date, Mr. Forrest has identified two billion metric tons of iron ore, according to an independent consultant he had hired. By Mr. Forrest's estimates, those holdings could produce as much as 45 million metric tons a year, enough to make Fortescue one of the world's largest suppliers.

'They're Not Laughing Anymore'

On a recent day, with the mercury topping 110 degrees, crews hired by Mr. Forrest drilled holes up and down the Pilbara. Their equipment, similar to oil rigs, extracted dirt samples that geologists use to gauge where more minerals might be found. Some of the samples were light brown -- not a hopeful sign. Others were a deep red or rust color -- a possible indication of iron-ore deposits.

"A year ago, all this was a bit of a giggle" to the Australian mining community, which assumed the area couldn't be profitably mined, says Fortescue's senior geologist, Doug Kepert, who left a job at BHP Billiton to join the team. As more iron ore is discovered, he says, "they're not laughing anymore."

The project may still never amount to much. Rival mining executives and some analysts contend that Mr. Forrest is simply trying to take the Chinese for a ride, cashing in on their desperation for raw materials with a substandard mineral.
"He's glossing over technical issues that are significant to the viability of the operation," says Peter Hickson, a basic-materials analyst for UBS in London.

The Australian Stock Exchange has issued several demands for more information, including details about the potential for cost overruns. Fortescue responded with a letter indicating that costs could indeed rise beyond initial estimates due to higher labor, fuel and other costs.

A descendant of a famous Australian Outback explorer, Mr. Forrest says he came to love big mining projects as a young man, after visiting a Pilbara mining operation whose size and complexity dazzled him. Later, in the 1980s, he moved to Sydney, where he became an investment banker.

A few years later, he hatched a plan to import alpacas, the furry South American animals whose wool is used to make sweaters. Mr. Forrest raised $2.3 million to bring them in from Chile and Peru. The project ran into trouble after a legal dispute over the animals' ownership. Mr. Forrest concedes there was a dispute, but says his alpacas ultimately formed the foundation of a thriving industry in Australia. His mother still owns some.

By the mid-1990s, Mr. Forrest was ready for far bigger game: a complex mining project in Western Australia called Anaconda. Although he lacked any meaningful experience running a mine, Mr. Forrest thought his contacts in the investment community would enable him to pull off the plan. He left the execution to experts.

Geologists agreed the area he had in mind contained large deposits of nickel, a metal that is used in everything from jet engines to kitchen utensils. But they figured it wasn't commercially viable, partly because of its low quality -- the same kind of concerns heard about Mr. Forrest's current iron-ore plan.

Mr. Forrest sought to solve the mine's challenges through technology used in Cuba that involved building a massive facility in the middle of the desert to process the mineral. Although many mining experts said the project would never work, he managed to raise more than $1 billion, including $420 million in junk bonds in the U.S. Major investors included Glencore International, the Swiss trading company founded by former U.S. fugitive financier Marc Rich.

The project soon ran aground amid huge technical problems and ballooning costs. After bitter infighting, large shareholders forced Mr. Forrest out and persuaded bondholders to sell their stakes at a loss. Lawsuits emerged. In one case, two bankers claimed Mr. Forrest and others failed to meet an obligation to pay more than $1 million in fees for their work. In its ruling in favor of the bankers, the Supreme Court of New South Wales determined "it would be unsafe to rely on any account" given by Mr. Forrest, calling him "quite untruthful." Mr. Forrest disputes the judge's characterization.

Last year, Fluor Corp., a U.S. engineering firm involved in the project, agreed to pay more than $100 million to the mine's current owners, settling claims that it had been responsible for many of the project's flaws. A Fluor spokesman declined to comment beyond previous news releases.

Mr. Forrest says the project was ultimately a success: Today, with nickel prices high, Anaconda -- now known as Minara Resources -- is a profitable operation for its remaining shareholders, which include Glencore.

It wasn't long before Mr. Forrest was hungry for another megadeal. He eventually chose iron ore, in part because he knew the Pilbara well, befriending local Aborigine leaders. He doubted that BHP Billiton and Rio Tinto had depleted the area's resources.

BHP Billiton and Rio Tinto executives responded by warning investors and iron-ore buyers that it wasn't wise to trust untested players, especially in times of tight supply. "When you are operating a very large steelmaking facility, you want absolute surety of supply -- not only in terms of volume, but in terms of quality," cautioned Sam Walsh, CEO of Rio Tinto's iron-ore business. The two giants announced their own Pilbara expansion plans. They also refused to grant Mr. Forrest access to their rail lines and questioned the quality of his minerals.
Industry analysts say the ore mined by BHP Billiton and Rio Tinto is often as much as 64% iron. Mr. Forrest says the iron ore at his main deposit is on average between 58% and 60% iron. This isn't necessarily a problem, since widely accepted technologies exist to upgrade the ore. But doing so will add costs that could make it harder to make a profit on the finished product, especially if iron-ore prices come back down. Although many commodity prices have declined some in recent months, iron-ore prices are typically set according to annual contracts that won't be renegotiated until later this year at the earliest.

Tensions mounted. Last year, Mr. Forrest was quoted in the Australian press calling the other companies "un-Australian" and a "duopoly." In a speech last September, Rio Tinto's chief executive, Leigh Clifford, shot back, responding that the "glib" use of such terms wasn't helpful to the industry.

Cultivating an Alliance

Through all this, Mr. Forrest was cultivating his crucial alliance with China. This included a late-2003 trip to the city of Ma'anshan to pitch his project to steel makers that grew increasingly nervous about the dominance of global mining giants.

By November of last year, Mr. Forrest announced a series of contracts with Chinese companies to buy his product. More importantly, he enticed three state-owned companies -- China Metallurgical, China Railway Engineering Corp. and China Harbour Engineering Co. -- to reach an agreement announced before a room of Beijing reporters to finance a rail line, port and other infrastructure.

Some of the Chinese partners were later annoyed that Mr. Forrest boasted about the infrastructure-financing agreement and treated it as if it were final. The Chinese believed the agreement was subject to additional negotiation, according to a person familiar with the matter. Mr. Forrest has maintained that the companies are bound by the deal.

More recently, the relationship has gotten rockier. In March, the president of China Metallurgical was quoted in an Australian newspaper saying China wasn't yet fully committed to the project and wanted more assurances about the size and quality of the ore. Shares of Fortescue Metals tumbled on the news.
Mr. Forrest responded by accusing the company of trying to bully him into giving up a bigger stake in the project. He released copies of the companies' past agreements and announced he was in talks with other parties to build the necessary infrastructure if China wasn't interested.

He has also retained outside consultants to help promote the project, including a U.S. steel-market analyst named Peter Marcus whose firm, World Steel Dynamics, produces market-forecast reports that are widely read in the industry. Although Mr. Marcus says he hasn't done his own due diligence on the ore, he is willing to put his reputation on the line in part because he trusts Mr. Forrest.

"I have not detected a man who lacks integrity," he says. He says "at least three" undisclosed international steel companies are now interested in investing.
An official at one of the three Chinese companies says the Chinese still want to develop Mr. Forrest's ore and are hoping to gain more control over the project. "Only a controlling stake could cover the business risks we are taking," this official says. Even so, "we have no intention to withdraw."

Bankers who are involved in the project, meanwhile, say they believe China simply wants to send a signal that it isn't gullible, and will play hardball to make sure it maintains maximum control over the ore.

In the meantime, Mr. Forrest is plowing ahead. One recent day in the Pilbara, he bounced around from meeting to meeting in the vicinity of the mining town of Newman. The walls of his local headquarters, a ranch house, were covered with maps of ore deposits. Next to them hung a poster of Latin American revolutionary Ernesto "Che" Guevara, emblazoned with the words "Hasta la victoria sempre" -- "Onward to victory, always."

posted by Henry @ 3:53 PM 0 comments

WSJ : China's Obligation

By JOHN W. SNOW [Mr. Snow is the Treasury secretary.]

May 26, 2005; Page A12

When finance ministers and central bank governors meet at various fora such as the G7, the discussion regularly turns to the broad subject of global imbalances and what can be done about them. Our deliberations on the subject have led to a shared framework which begins with the recognition that addressing imbalances in the global economy is a shared responsibility among the world's major economies.

We recognize that we all have a part to play in addressing the issue and in fact through the G7 have put in place a broad conceptual framework for addressing it. This framework recognizes that imbalances occur as the patterns of trade and investment flows shift between economic regions. They reflect uneven rates of growth in the major economies and are exacerbated by policies that restrict an efficient adjustment process. Economic policymakers must address these imbalances now; waiting only increases the risk that imbalances will occur abruptly and cause greater damage to the international financial system.

Most observers agree that the international economy performs best when large economies embrace free trade, free flow of capital, and flexible currencies.

Obstacles in any of these areas prevent smooth adjustments. At best, such obstacles result in less than maximum growth; at worst, they create distortions and increase risks. The U.S. is doing its part to address global imbalances by aggressively attacking our fiscal deficit and our long-term unfunded obligations. With the strong economic growth we have seen for the last several years, governmental receipts are up significantly and the fiscal deficit is coming down. We are committed to bringing the deficit down over the next few years to a level well below the historic average. Doing so requires continued economic growth and controls on government spending. We also recognize that we must increase household savings rates in the U.S. and have put in place policies to do so.

Other major economies -- Europe and Japan -- must do their share to reduce imbalances. Large imbalances will continue if growth in our major trading partners continues to lag. These economies must implement necessary structural reforms to achieve higher growth rates -- to benefit their own citizens and to prevent the build-up of imbalances in the global economy.

* * *

Last week I sent to Congress a report outlining the currency practices of America's major trading partners. The report addresses the third and most immediately pressing element of the effort to address global imbalances: the imperative of exchange-rate flexibility, especially in large emerging Asian economies. My report did not cite China as a "currency manipulator," but it would be a mistake to interpret this as acquiescence with China's foreign exchange policies. In fact, we are actively engaged with several economies to promote the adoption of flexible, market-based exchange policies. Most notable among these is China.

As China is now a larger participant in the global economy, its currency practices become a larger concern for its trading partners and for the international financial system. China's rigid currency regime is highly distortionary and poses risks to China's economy -- sowing the seeds for excess liquidity creation; asset price inflation; large speculative capital flows; and over-investment. It also limits the ability of China's neighbors to follow independent, anti-inflationary monetary policies because of competitiveness considerations relative to China. Sustained, non-inflationary growth in China is important for maintaining strong global growth and a more flexible and market-based renminbi exchange rate would help the Chinese achieve this goal.

A more flexible system will also support economic stability, which we understand is of paramount concern to Chinese leadership. China's 10-year-long pegged currency regime may have contributed to stability in the past, but that is no longer the case today, as China has grown to be a more significant participant in global trade and financial flows.

A more flexible system will allow for a more efficient allocation of resources and higher productivity. The current system is fueling over-investment and excessive reliance on export-led growth while underemphasizing domestic consumption. Moreover, much of the investment and capital flows into these favored sectors and projects may be going to businesses that do not best reflect China's competitive advantage, which ultimately could lead to another investment hard landing, more nonperforming loans and a weakened banking sector.

A more flexible system would also quell speculative capital inflows that are costly to China's government and increasingly likely to prove disruptive. China's ability to sterilize capital inflows is increasingly limited and harmful to its banking sector.

Finally, recent history has taught us that it's better to move from a fixed to a flexible currency system from a position of strength, and not when economic weakness compels reform.

Chinese officials have publicly acknowledged the need to move to a more flexible system, they have repeatedly vowed to do so, and have undertaken the necessary and appropriate steps to prepare for such a move.

Unfortunately, the debate on China's currency regime is clouded by a number of misconceptions of U.S. policy. First, we are not calling for an immediate full float with fully liberalized capital markets. This would be a mistake at this time -- China's banking sector is not prepared for such a move today. What we are calling for is an intermediate step that reflects underlying market conditions and allows for a smooth transition -- when appropriate -- to a full float.

Second, we recognize that a more flexible system in China, in and of itself, will not solve global imbalances. As I have said, this is a shared responsibility.

However, greater flexibility in China and other Asian economies is a necessary component and will contribute to that result.

Third, some argue that a more flexible system will prove deflationary and increase Chinese unemployment. In fact, a flexible system will provide China with a more sophisticated array of policy tools -- namely an independent monetary policy -- that will prove much more effective in achieving price stability and the ability to adjust to shocks.

Our engagement with China over the past two years, including fruitful accomplishments associated with Treasury's joint Technical Cooperation Program, leaves me with little doubt that China is now prepared to begin reform of the currency regime. In fact, I believe that the risks associated with delay far outweigh any concerns with immediate reform. The current system poses a risk to China's economy, its trading partners, and global economic growth.

It is critical that we address the issues of imbalances aggressively and in a cooperative spirit with the goal of raising global growth. Nothing would do more damage to the prospects of increasing living standards throughout the world than efforts to inhibit the flow of trade. However, it is incumbent on China to address concerns before the mounting pressures worldwide to restrict trade harm the openness of the international trading system.

posted by Henry @ 12:20 AM 0 comments

GDP Grew 3.5% in First Quarter

Unemployment Claims Rise,But Are Below Expectations

By JEFF BATER
DOW JONES NEWSWIRES May 26, 2005 10:22 a.m.

WASHINGTON -- The U.S. economy grew faster in the first quarter than first believed, partly because Americans didn't increase their foreign purchases as much as previously thought.

Corporate-profit growth slowed sharply in the first three months of 2005 and inflation was slightly weaker than originally thought.

Gross domestic product rose at a 3.5% annual rate January through March, the Commerce Department said Thursday in its first revision of economic growth for the quarter. GDP is a measure of all goods and services produced in the economy. The median estimate of 22 economists surveyed by Dow Jones Newswires and CNBC survey was for a 3.6% increase.

The government a month ago said GDP grew 3.1% last winter, far slower than the fourth-quarter's 3.8% pace. The revision upward to 3.5% was due to a smaller surge in imports.

"A downward revision to imports, which are a subtraction in the calculation of GDP, was partly offset by a downward revision to inventory investment," the Commerce Department said.

Corporate profits after taxes rose 1.0% January through March. Earnings grew 12.5% in the fourth quarter. Profits climbed 8.1% as compared with the first quarter of 2004.

Inflation gauges for the first three months of the year were mixed. The government's price index for personal consumption rose 2.1%, matching the previous estimate for the quarter but below the fourth quarter's 2.7% climb.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose at a 2.9% rate, lower than the previously estimated 3.0% increase and the same as the fourth-quarter rate. The chain-weighted GDP price index increased at a 3.2% rate, less than the previously estimated 3.3% increase but above the fourth quarter's 2.3% climb.

For its first estimate of a particular quarter's GDP, Commerce makes assumptions for the various components of economic activity, including trade. In its original calculation of first-quarter GDP, the government's assumptions for March imports and exports were overly pessimistic. Thursday's data showed U.S. exports rose by 7.2%, instead of the earlier reported 7.0% increase.

Imports advanced by 9.1%, smaller than the originally estimated 14.7% rise. Fourth-quarter exports grew 3.2% and imports were up 11.4%.

GDP growth is reduced when the rate of increase of imports tops the rate of increase of exports. Thursday's report showed the trade component lopped 0.67 percentage points off GDP growth. The initial report a month ago had said trade cut GDP by 1.49 percentage points.

Commerce not only revised trade numbers but adjusted inventories as well. It said businesses expanded inventories by $68.4 billion, lower than the $80.2 billion accumulation first estimated but still above the fourth-quarter's $47.2 billion increase.

The $21.2 billion quarter-to-quarter change added 0.78 percentage points to GDP growth in January through March. Commerce originally estimated change for the quarter had added 1.21 percentage points to growth.

Analysts say the smaller $68.4 billion inventory accumulation figure for the first quarter implies less inventory drawdown in the second quarter, which runs April through June. And less drawdown could mean more production of goods for that quarter -- which, in turn, would give a boost to overall economic growth.

In other economic news Thursday, the Labor Department said new claims for unemployment insurance rose by 1,000 to a seasonally adjusted 323,000 last week. The four-week average climbed to a one-month high of 330,500 -- but that was well within the range economists associate with moderate job growth.

Wall Street expected a larger increase in initial claims. The average forecast of economists surveyed by Dow Jones Newswires and CNBC had called for a gain of 4,000 claims.

Although the volume of initial claims has fluctuated from week to week this year, the number has consistently stayed below 350,000 since the first week of January. Most economists, as a result, expect the job market to improve steadily.

U.S. employers added 274,000 jobs to their payrolls in April, and many forecasters say job growth is likely to be strong in May as well.

In its report, the Labor Department said the number of workers drawing unemployment benefits for more than a week fell in the week that ended May 14, the latest period for which data are available. That number -- known as continuing claims -- dropped by 22,000 to 2,574,000. The unemployment rate for workers with unemployment insurance held steady at 2%.

The GDP report said real final sales of domestic product -- that is, GDP less the change in private inventories -- advanced at a 2.7% annual rate in the first quarter. That was higher than the previously estimated 1.9% increase but below the fourth-quarter's 3.4% growth.

The biggest component of GDP is consumer spending, accounting for about two-thirds of economic activity. First-quarter spending climbed 3.6%, slightly up from the previously estimated 3.5% gain but below the fourth quarter's 4.2% advance. Purchases of durable goods increased 1.7% and nondurables rose 5.4%; previously, durables were seen as flat and nondurables seen up 4.9%.

Business spending rose 3.5%, down from the earlier estimated 4.7% increase and far below the fourth-quarter's 14.5% surge. Investment in equipment and software rose 5.6%.

First-quarter federal government spending went up 0.4%, a bit lower than the earlier estimated 0.6% climb; fourth-quarter spending went up 1.2%. State and local government outlays decreased 0.5%; it was earlier seen rising 0.5%. Fourth-quarter spending went up 0.6%.

Reports: GDP

posted by Henry @ 12:14 AM 0 comments

Paring Back, Shifting Focus

Interview With Warren Isabelle, President, Ironwood Capital Management

By SANDRA WARD

THE IRONWOOD TREE, FROM WHICH Isabelle's $400 million Boston-based Ironwood Capital Management, takes its name, is a slow-growing, long-lived desert tree, with hard and dense wood, that eventually becomes the tallest tree on the landscape. When Isabelle picks stocks for his ICM Small Cap Value fund or the private accounts he manages, he is often looking for companies that exhibit the same potential as the ironwood tree. It is his special talent to be able to see through a company's plight and recognize the possibilities. That's how he has been able to deliver solid returns since launching the fund nearly seven years ago. Over that span, the fund is up 5.6% a year, on average, compared with 5.31% for the Russell 2000. The small-cap value style has struggled this year and the ICM Small Cap has taken its lumps, too. Not one to hide, Isabelle blames the underperformance on -- what else? -- bad stock picks.

So what's a portfolio manager to do? If you're Isabelle, regroup, rebalance and add some new names.

Barron's: What's your outlook for the economy?Isabelle: My concern is the yield curve. It is flattening, which suggests a recession. But I'm not sure I see us headed toward recession. The dollar is again on the verge of being really weak. I don't see how the dollar can stay weak and how rates can stay low. What if short rates continue to creep up by virtue of the Fed and long rates let go because the dollar weakens and inflation comes back?Every company I poll is seeing price increases in raw materials and is getting price increases in what they sell.

Unless I'm totally missing something, inflation has got to come out somewhere, even though so far none of the indicators have shown we've got much of it. If inflation pops up and the dollar weakens, then long rates, it would seem, would have to go up.My fear is that long rates jump rather sharply, and that won't be good for anybody. On the other hand, if long rates go up and the yield curve shifts in an orderly fashion, rates will still not be so high as to crimp capital spending.And that's the other question mark: Will capital spending pick up?

Either there will be no pickup in capital spending here because it's been soaked up by China and India, or we are just not there yet in terms of the cycle. In other words, the return on investment for some companies, given what they see in the future, still is not high enough for them to begin to reinvest.We could still see a pickup in capital spending mid-market that could sustain the economy and strengthen it. People keep saying the economic recovery is long in the tooth at three and a half years. But it hasn't felt like an across-the-board solid recovery to me. We kicked along the bottom for a while, companies got real conservative and built up cash and reduced their debt, but it's not as if there's been a big cycle change yet.

People are still skeptical about price increases sticking.Look at Aleris [ticker: ARS]. They did over $1 a share in earnings for the quarter. Their margins popped up and everything is working right, but they said they don't think results will be quite as strong next quarter. Now everybody is saying that's it, it's all over, and the stock price has retreated.Olin [OLN] is another company that produced very nice earnings and is at $18 a share now. They reported a fabulous quarter and everybody said, well, that's as high as chlor-alkali margins can go, they are at peak levels and that's all there is in the company. Well, there is also a metal segment, a big brass segment they bought that hasn't really been doing much and I'm not so sure the chlor-alkali business is over and done with in Olin's case because they have contracts that roll off over a period of time. So maybe there's another year to this, maybe a little longer. I'm not so sure we've seen a peak in margins despite what people are saying.

Even though the indicators aren't showing inflation, companies have been able to raise prices.

You've pared back your portfolio to 45 stocks. What kinds of sectors or companies did you exit?We probably had too many companies in the biotechnology area, partly because we invest a little bit like venture capitalists and take relatively slim positions. In terms of weighting it didn't do much, but it amounted to a lot of names. We also reduced the number of service and consumer-related stocks.We're trying to focus our attention on companies with operating leverage. We exited some companies that did perfectly well, but they didn't have quite the operating leverage I wanted. InfoUSA [IUSA], Lightbridge [LTBG], TeleTech [TTEC] and U.S. Physical Therapy [USPH] were some we got out of. We also got out of some stocks that we got wrong, such as Hanger Orthopedic [HGR] and Advanced MarketingAnything I'm looking at is something that has an investment story to it, is really undervalued and preferably one we can hold for a while and make a significant return.

Small-cap value has come under pressure. What's your outlook for the sector?

The Russell 2000 Value index is 34% financial-based -- more than a third. I'm not even close to that. We're much more attuned to the Russell 2000. We just try to pick stocks that have economic value, that's all. The biggest negative for us has been the pressure that some people have felt to move away from small- caps because the mantra has been that large-caps have the more modest valuations.There's been a rotation out of good performers and that has been a little bit vexing for us. But, by and large, we just keep searching for undervalued companies.

What has made the difference in the market this year? Why has it been so difficult to get positive results?It has been a litany of factors. That kind of uncertainty does not make markets happy. Smaller caps have taken it on the chin because they are more volatile in general and they've had a good run.

Financials have been much weaker this year because rates are going the other way. But overall there's been concern about budget deficits, consumer debt, oil prices and the weak dollar. Every other week we have some shudder of nervousness.

What have you been adding to your portfolio?

We used our cash to bulk up on the names we felt had lots of valuation room and selectively added some new positions.We added one company that is unusual for us: Western Silver, a mining company. Tom Patton runs it and he has excellent credentials. The bulk of their property is in the Chile Colorado and Penasquito region of Mexico. In the Penasquito region alone, they have about 150 million ounces of silver potential, 300 million ounces of gold and then about a billion ounces of zinc and lead, though their values pale in comparison to the values for the silver and gold. But still, at that level you can make some serious money. And Chile Colorado deposits are even bigger in size.Add all that up, and it comes to several billions of dollars in aggregate value. The stock has a market value of $400 million today. So you just have to say to yourself, how real are these deposits, and how difficult is it for them to get them out, and do you have confidence that they can do it? But the potential asset value is so far greater than the market price, even if we are off by some reasonable factor we are still going to have a lot of upside potential. That's the key here.

How close are they to developing this potential?

Originally we thought they would document all the finds, pick up a big partner and then develop it. Now they say they want to do it themselves. I believe that they are capable of doing it, but they will have to raise about $250 million in cash to build the mining facilitiesBy 2008 they could do it and earn between a $1.50 and $2 a share. The stock is at $7.50 a share. Based on their assets, we think it could be valued at $20 a share.

Wow. Think about it. The market value is $400 million. The silver and gold potential is about $2.3 billion. Add a few hundred million for the lead and the zinc and that brings you close to $3 billion. That's seven times the value of today's stock. To go from $7.50 to $20 is a little more than two times, so I'll take that. It may not hit the bull's eye but I know it is going to be in the general neighborhood.

Seems like an unusual stock for you.We usually like stocks that already have cash flow. This is unusual. It's a little earlier stage than we would like, but the economics, or apparent economics, are compelling. It is also an area that has had some renewed interest, and that was a catalyst.

What else have you been buying?A controversial one, Broadwing. We like to buy something for nothing. They are losing money, although they have a pretty good cash pile of about $300 million. They have convertible debt they can pay either in cash or stock. If they pay it all in cash and take their operating losses, a case can be made they can pay it off and go through their cash by year's end.What's killed the stock is the convertible arbitrageurs have been shorting the stock and buying the convertible. If they decide to pay in stock, the convert people can get the stock at a much cheaper price basically and cover their shorts. However, the company elected last quarter to pay the convertible holders in cash.

It's still not clear why you like this.Broadwing bought fiberoptic equipment from Cincinnati Bell. They bought $3 billion worth of equipment for $200 million. Now naysayers say there is a glut of fiber. But I say that's still a pretty good deal, and fiber is not obsolete by any means. They have cash.And they have $1 billion in net operating losses that could be attractive to another company and could be folded in and save people real money. The final thing, and most important of all, is its foundation of 5,000 customers and 18,000 miles of nationwide fiber- optic lines.

Any sense of what company would be interested in this?

It has been suggested if Qwest can't get MCI, they might turn around and buy something like Broadwing.

What else have you been buying? Maytag.

You? Maytag?Maytag is now a small-cap. Everything is going against it and I'm not claiming victory. Everybody hates it and they had a big fat dividend they just cut in half. But it has $4.6 billion in sales and it's market cap, drum roll please, is $899 million.

Contrast that with its peak market cap in 1998 of $5.5 billion. I believe the brand name carries some weight. I also believe that the level of debt is not insurmountable for a company with that level of sales. They have about $970 million of debt, which is a lot. Then they have $1.2 billion of pension liabilities.

Hefty, but not insurmountable.The guy now running it is Ralph Hake, a finance guy, not a marketing guy. And Maytag's long-term survival depends on getting some innovative products. That is critical. Hake has been able to do his cost-cutting judicially and allow the company to get on track again. But they need some innovative products. There is a lot of private equity money out there, so who knows? But Maytag is a company that by no means is dead.[Early Friday,
Maytag announced it was being acquired by an investment group led by a private-equity firm, Ripplewood Holdings, for $14 a share in cash.] We're voting against it [the buyout]. They are stealing the company. Essentially they are getting it free. Before the recent earnings announcement, Maytag was trading at 16 a share, and this values it at 14. We're hoping a higher bidder comes along. This is thievery.

What else do you own?

We took the plunge and own a couple of utilities. They are definitely the ugly ones: the Aquilas and Dynegys of the world.The basic reason we own them is they started out as pretty good utilities with some pretty fair numbers. Then they got caught up in the merchant-power fad and found themselves with upside-down contracts and so on. If they can revert to the mean, we'll make a lot of money. Dynegy has already bought out a number of their contracts and reduced their plant and equipment. They plan to sell their natural-gas subsidiary, and that should bring in a good chunk of money. And consolidation is occurring. Duke Energy is buying Cinergy for $9 billion.

You usually have an interesting biotech company, or are you shying away from biotech now?We like Durect. We've owned this for a while. It makes drug-delivery technologies and is run by former Alza Bioscience executives. Its market value is $160 million, and so it is relatively tiny. It has about $60 million or so in cash. The enterprise value is about $100 million.Durect is coming into its own at the moment. One of their products is Chronogesic, which is a thin tube that is implanted in somebody and releases pain medication at a set rate over a 90-day period. The stock had been very strong a few years ago but suffered a setback when 2% or 3% of their pumps failed within the last few days of the 90-day period. They pulled the product to fix it rather than try and seek approval of it. It might be reintroduced soon, which is a positive. But there are other technologies to be excited about also.Another technology, called Saber, is to treat post-operative pain for up to three days.

They are also working with Endo Pharmaceuticals on a seven-day drug adhesive patch called Transdur. They are working on something to treat tinnitus in ears.

They have so many different products, that's what we like. It's all based on related technology, and it allows them to build a nice platform with multiple avenues for commercialization. The chief executive, Jim Brown, likes to say they have multiple shots on goal.

How do you value this?

With any of these companies you look at the intellectual property and the management. You look at the cost to duplicate this technology. You look at whether the potential market is large enough and underserved enough. Then you can determine to a fuzzy extent what it is you are shooting at. So if you think each product could take 10% of a $5 billion market, and I'm just picking numbers now, and go through that with each of the different products, it gets you to $5 million. If you figure a good operating margin is 25%, that's $125 million in operating income.It's got a nice balance sheet on top of that. That's the kind of stuff we want. The whole key is whether you can place some reasonable economic probability to the story and whether you're buying it for something less than it would otherwise cost to have it today.In this case, Durect got down to a $1.50 a share for an implied market value of about $80 million when they probably had about that much in cash. We were basically paying nothing for their technology. Durect looks like it is going to be a very interesting company going forward.

Warren Isabelle's Picks
Company / Recent Price / Comment
Western Silver / $7.45 / Silver and gold assets in Mexico.
Broadwing /4.20 / Takeover candidate, operating losses.
Maytag / 11.56 / Buyout offer of $14 is "thievery."
Dynegy / 4.12 / Restructuring. Consolidation candidate?
Aquila / 3.27 / Back-to-basics electric utility.
Durect / 3.25 / Platform of drug-delivery technologies.

Source: Thomson Financial/Baseline

posted by Henry @ 10:05 PM 0 comments

BARRON: HDTV: Who Wins, Who Loses

Over the next two years, HDTV will brighten the lives of couch potatoes and send a jolt through a range of industries.

By BILL ALPERT

AFTER MORE FITS THAN STARTS, high-definition television is finally showing up...just about everywhere. When a few over-the-air stations started sending HDTV signals in 1998, there were hardly any shows -- or TV sets -- available in the wide-screen, high-resolution format. Today, the transition to HDTV is in full swing. You can watch most prime-time shows in this crystal-clear format, you can get a set for under $1,000 and you can't find a sports bar without one.

The trend is affecting just about every business connected to television. New gaming consoles from Microsoft and Sony will power high-def displays. Movie studios will sell consumers yet another format of titles like Star Wars and Snow White. Production gear will be updated, from Avid Technology and Autodesk. Satellite networks like PanAmSat Holding and SES Global will fill transponders, as HDTV channels become competitive weapons among cable, satellite and -- soon enough -- telephone companies. The HDTV build-outs of those rivals, in turn, will benefit the suppliers of network infrastructure, like Scientific Atlanta and Motorola.

High-def is certainly good news for the TV sales of Sony and Matsushita's Panasonic, but they face fierce competition from Sharp, Samsung, LG Electronics, Philips, Thomson -- and now even Dell Computer and Hewlett Packard. All those big screens are a new market for graphics semiconductor makers like Texas Instruments, ATI Technologies, NVIDIA, and little specialists like Trident Microsystems and Zoran.

A high-def picture has six times the digital information of standard television, so computers and entertainment gear will need bigger hard drives from Seagate Technology and Western Digital.

The incoming tide of HDTV will lift most boats, but maybe not all of them. Programming originally shot on standard video -- like Home Improvement and other sitcoms from the 'Eighties and 'Nineties, or the old music videos shown on Viacom's VH-1 -- won't look great on high-def screens. Struggling video-rental businesses like Blockbuster will face another round of inventory investment. And the heavy bets on high-def programming by the DirecTV Group and British Sky Broadcasting will pressure rivals like EchoStar Communications.

HDTV HAS BEEN A LONG TIME COMING. It's been 10 years, in fact, since an FCC advisory committee chose a digital HDTV standard with up to 2.1 million pixels' worth of resolution in a picture that can be either 720 or 1080 lines tall. The last time American TV standards changed had been in 1954, when color sets first appeared with a picture of 480 lines and a few hundred thousand pixels in resolution.

America's move to HDTV began in the early 1980s, when most people still got their television over the air, instead of from cable and satellite. Engineers from networks like CBS alerted the Federal Communications Commission and Congress to the plans of Japanese broadcaster NHK for a satellite-based HDTV service.

The FCC adopted the digital standard in 1996 and then set out a 10-year timetable for broadcasters and television manufacturers to move from analog to high-definition digital. Just as the compact disc had improved on analog LPs, the digital HDTV transmission encoded the picture as a series of 0s and 1s, for better quality and efficiency.

The first NFL football games and live newscasts appeared in high-def the next year, and Panasonic sold a $5,499 56-inch display in August 1998. In 1999, CBS started sending out prime-time series like Everybody Loves Raymond in HDTV, while NBC started with The Tonight Show and ABC with Monday Night Football.

Over-the-air broadcasters, like Sinclair Broadcast Group (ticker: SBGI), got free spectrum from the government so they could simulcast in digital and analog formats. The FCC timetable called for all 1,300-odd stations to start some digital broadcasting by 2002. All programming was supposed to be simulcast digitally by April of this year. The satellite broadcasters DirecTV (DTV) and Echostar (DISH) offered their first HDTV channels in 1998 and 2000, respectively.

Table: HDTV

Consumer-electronics firms also got an FCC mandate, requiring them to include digital tuners in television receivers. The largest sets, of 36 inches and above, had to start going digital by July 2004. At least half of the most popular-selling sizes -- from 25 to 35 inches -- are supposed to have digital tuners by July of this year, with that size range having to go digital by July of 2006.

SO ARE WE THERE YET? There are now more than 5,000 hours in weekly high-def programming. Sports and most scripted series are now broadcast in HDTV form (even when they're still created on film cameras). Most multi-camera sit-coms now use high-def cameras. Reality shows like American Idol are just beginning to film in high-def, as are daytime soaps like The Young and the Restless.

News programs, by and large, still use standard-definition video. But one of the sensations of the recent National Association of Broadcasters show in Las Vegas was the new HDV camera from Sony (SNE), which brings the entry-level price of high-def down from about fifty grand to about $5,000. Sony sold 35,000 of the new, inexpensive model in the first month.

A comparably priced high-def camera will arrive in the fall from the Panasonic unit of Matsushita Electric Industry (MC), that records on flash-memory type cards instead of tape. These cheap high-def cameras will trigger the proliferation of HDTV material, in news and indie-program production. And they point the way toward high-def consumer camcorders.

Feature films and big-budget television commercials are still mostly using film cameras. The resolution and color subtlety of film will exceed high-def video for the foreseeable future. But some well-known films have been done on high-def video, including last week's finale of the Star Wars series.

High-def programming has been one side of HDTV's chicken-and-egg challenge. The TV set is the other side. There are now more than 800 models of HDTVs -- using plasma displays, liquid-crystal displays and projection technologies like the digital-light processor from Texas Instruments (TXN). Although still more expensive than analog sets, the average price of an HDTV has come down 75% in five years. Digital sets are now as cheap as $500, versus $3,500 back in 1998.

New video-gaming consoles from Sony and Microsoft (MSFT) won't hurt high-def demand, either. High-def displays will be supported by both the Microsoft Xbox 360, due out this fall, and Sony's PlayStation 3, due in spring of 2006.
Dollar sales of digital TVs rose 78% last year, to $10.7 billion in the U.S., according to the Consumer Electronics Association, accounting for more than half of the dollar sales in television sets. Unit sales rose 63%, to 7.3 million.

Some of those digital TVs had only standard-definition displays, but most were high-def. Most important to television programmers, the installed base is about 18 million HDTV sets in more than 12 million households. The CEA expects those numbers to pass 50 million next year, and 80 million in 2007.

WHEN HDTV WAS JUST STARTING in the late 'Nineties, some observers thought it was getting off to a slow start. But consumer adoption of HDTV has grown as fast, or faster, than previous technologies like color TV, satellite TV and the DVD. Color took decades to catch on. The satellite-television market took more than five years to reach 10 million customers. The relatively cheap DVD player took less than four years. HDTV passed a million users in two years, and 12 million in under six years.

Now, the government and broadcasters are debating the deadline for completing the transition to HDTV. Texas Republican Joe Barton, chairman of the House Energy and Commerce Committee, wants to iron out the final details of the switchover to digital TV, in a bill he hopes to introduce soon. Existing law calls for broadcasters to shut off analog broadcasts at the end of 2006, except in areas where fewer than 85% of households have digital sets. Barton favors a firm switchover date, but with digital receivers in only about 13% of households now, broadcasters and some in Congress want to push the cutoff date back a couple of years.

While America finishes its transition to HDTV, most of the world will be going high-def, too. Japan was first, of course, with its satellite service. Terrestrial stations in Japan and Korea have provided HDTV broadcasts for a few years. Canada's CBC started high-def broadcasts in March. The first pan-European high-def programming started in 2004. Free French service is beginning this year. Luxembourg-listed satellite operator SES Global (SESG.LX) will launch German-language HDTV service in November. China should get its first HDTV satellite service this year, too. Meanwhile, Rupert Murdoch's British Sky Broadcasting Group (BSY) will launch high-def service next year, and the BBC will send out all its programming in high-def by 2010.

As more of the world has high-def displays, film and television studios will want to distribute their programming in high-def form -- if they want to keep viewers' eyes from wandering off to high-def video games. That won't be a big deal for the majority of movies and classic TV shows, which were shot and archived on film. Studios have been rescanning their film libraries into HDTV form, and that's generated business for post-production houses and their equipment suppliers.

One of those suppliers is Autodesk, of San Rafael, Calif. While best known for its mechanical-design software, Autodesk (ADSK) has grown sales of its special-effects software at a fast clip in recent years. In the quarter ended April 2005, sales of video products rose 10%, to $41 million in sales -- contributing about 12% of the company's $355 million in sales.

Special effects have become a selling point for films, TV shows and video games, says the firm's head of media-product marketing, Martin Vann. He guesses that only about 30% of the post-production business has upgraded to high-def.

At a recent 36.56, Autodesk shares go for a handsome 32 times the consensus earnings estimate for the January 2006 fiscal year (as tallied by Thomson Financial). That may be a price worth paying. Reporting on its April '05 quarter Thursday, Autodesk said new products had helped lift sales about 20%. It suggested that analysts boost their estimates.

WHILE FILMED SHOWS CONVERTED to high-def look good, some programs could look terrible. Mark Cuban, owner of the Dallas Mavericks basketball team and co-founder of a couple of high-def channels called HDnet, shuns stuff that was originally shot on standard-def video. That's a problem for the long-term value of many sit-coms created in the 'Eighties and the 'Nineties, as well as the older music videos that fill channels like VH-1, which is owned by Viacom.

Barron's sought comment from Viacom (VIA), with no luck.

High-def DVDs aren't yet out. A Betamax-versus-VHS-type war has been threatened between rival formats: The Blu-ray format is backed by Sony, Panasonic and other consumer electronics firms, and HD-DVD format promoted by Toshiba and movie studios. After consumers and retailers like Best Buy complained, the two camps started trying to settle on a standard. In one format or another, high-def DVD recorders and players will reach the market next year. Then studios will get to sell you another copy of Home Alone, and another onerous round of inventory investment will burden the struggling rental businesses of Blockbuster (BBI), Movie Gallery (MOVI) and Netflix (NFLX).

Meanwhile, any producer who wants her product to have shelf life will have to consider editing it in high-def. That's modestly good news for Apple Computer (AAPL), whose Final Cut Pro software is fancied by indie movie-makers, but powerfully good news for Avid Technology (AVID), the leading vendor of video editing systems for show biz and TV news. The Tewksbury, Mass., firm's chief executive, David Krall, says that the desire to work in high-def seems to be accelerating the upgrade cycle among Avid's customers. The company only introduced a high-def version of it's bread-and-butter product, the Media Composer, in the December quarter and will sell hardware accelerator cards that speed up high-def work, later this year.

Reality shows like American Idol are only starting to work in high-def, and broadcast news is at the very beginning, leaving a big upgrade opportunity for Avid. Krall says HDTV will be a nice sales driver for the rest of the decade. At the recent price of 53.53, Avid shares go for 20 times the consensus estimate of this year's earnings, so the stock might not fully reflect its high-def upside.

Once programmers have high-def content, they'll need to get it to viewers.

PanAmSat (PA) chief Joe Wright can't wait. After an industry downturn that sent satellite operators -- including, for a time, PanAmSat -- into the arms of private-equity firms, demand for transponder capacity is perking up. Revenues for the Wilton, Conn., firm rose just 2% in the March quarter, to $209 million, but TV distribution revenues rose 8% over the prior year period.

With 23 satellites, PanAmSat covers 9,200 cable TV downlinks across North America-far more than rivals SES Global and Intelsat. So PanAmSat has gotten contracts for about 70% of all full-time HDTV channels from such programmers as Fox, the NFL, TNT, ESPN and HDnet. As cable firms, phone firms and satellite broadcasters battle for customers, Wright expects high-def to become a selling point, and sees it hogging satellite capacity.

"Demand in the U.S. is so strong that we're looking at additional capacity," says Wright. "And pricing is going to strengthen...I don't see how it doesn't." That would be welcome news for the private-equity firms KKR, Providence and Carlyle -- whose 58% stake in PanAmSat is worth $1.3 billion at the stock's 18.43 price and remains locked-up until September. Payouts have already reduced their $550 million investment to a basis of about $50 million, so public investors might rightly worry that the buyout firms will sell into HDTV's good news. But that control group also gets PanAmSat to pay $1.55 in annual dividends, so the 8.4% yield may soothe investors.

DirecTV is another big play on HDTV. The El Segundo, Calif., company just launched the first of four leading-edge satellites that will reach most of the U.S. with the high-def broadcasts of 1,500 local stations and 150 national channels, by 2007. Rival EchoStar hasn't yet matched those plans. That's not only a potential business problem, but a legal problem for EchoStar, which is scrambling for enough capacity to satisfy a government requirement that it carry local broadcasters' programming.

Consumer electronics gear will need better data-storage and graphics processing to handle HDTV. Happily for hard-drive suppliers like Seagate (STX) and Western Digital (WDC), an hour of uncompressed high-def would fill 500 gigabytes. Computer graphics chips are starting to show up in HDTV gear, courtesy of ATI Technologies (ATYT), Nvidia (NVDA) and smaller firms like Trident MicroSystems (TRID) and Zoran (ZRAN).

HDTV sets themselves will come from Sony, Sharp and from Matsushita, whose Panasonic unit is making the bold bet that for screen sizes above 36 inches, consumers will prefer bright plasma panels to LCDs, or the cheaper but bulkier projection technologies.

But the consumer-electronics business is getting ferociously competitive, with the Japanese battling traditional rivals like Samsung, LG Electronics and Philips, and new ones from China and the U.S., including computer firms like Dell and Hewlett-Packard. Says Panasonic's U.S. TV-marketing boss Andy Nelkin, "Virtually every technology company is trying to capture this market."

As the HDTV makers duke it out, consumers can only win.

posted by Henry @ 9:58 PM 0 comments

WSJ : Oil Industry's Refining Squeeze Limits Prospects of Price Relief

By BHUSHAN BAHREE and THADDEUS HERRICK
Staff Reporters of THE WALL STREET JOURNAL May 24, 2005; Page A1

Even if high oil prices ease, prospects for cheaper gasoline, diesel and jet fuel are likely to be limited for at least several years by a growing global problem: a severe crunch in refining capacity.

Previously, the shortage of plants to refine and process crude oil into usable products has been largely a problem for the U.S., by far the world's largest oil consumer. But growing demand for oil from China, India and other rising powers is aggravating the shortfall in refining and threatening to keep prices elevated for years.

Global demand is expected to grow by nearly two million barrels a day this year -- from 82.5 million barrels a day last year -- but the world's capacity to refine and process crude oil is expected to grow by less than half that.

As a result, the recent move by the Organization of Petroleum Exporting Countries to crank up production of crude oil to nearly its limit isn't likely to translate into major price cuts for consumers any time soon. That could keep pressure on airlines, auto makers, trucking lines and other industries particularly sensitive to prices of oil-based fuels.

It's a problem that the world's energy and economy czars are focusing ever more closely on. "There is a bottleneck in refining world-wide," said Saudi oil minister Ali Naimi, the effective leader of OPEC, in a recent interview. He suggested that until the bottleneck is eliminated, demand for refined products will keep pressuring oil prices. Mr. Naimi's country has been under political pressure over the rise in oil prices.

Last week, Federal Reserve Chairman Alan Greenspan warned in a speech that "besides feared shortfalls in crude-oil capacity, the status of world refining capacity has become worrisome as well."

Oil prices began a long climb in early 2004 amid fears of a supply shortage and instability in the Middle East, rising as high as $58.28 a barrel on April 4 on the New York Mercantile Exchange. They have trended downward since then, but remain volatile; yesterday, the price of a barrel of oil delivered in July closed up 51 cents a barrel, at $49.16. Adjusted for inflation, oil prices remain well below the highs reached during the crunch of the late 1970s and early 1980s.

Some of the recent drop in crude-oil prices has translated to the pump. Since April 11, the price of a gallon of regular unleaded gasoline in the U.S. has fallen about 6%, to $2.13 this week, though it remains up six cents from a year ago.
Moreover, the rise in crude-oil prices has hit other types of refined products even more severely. Jet fuel has been about $1.44 a gallon in recent days on the New York Harbor, where it is traded, down from $1.75 on April 1 but still up 47% from a year ago. Diesel fuel currently costs about $2.16 a gallon, down from $2.32 in mid-April but up from $1.75 a year ago.

A slowdown in the world economy could reduce demand for gasoline and other refined products. But the economy continues to grow despite soaring energy prices, and demand for oil remains on the rise. Many industry analysts are forecasting a second peak in crude-oil prices later this year, to more than $60 for a barrel of U.S. benchmark crude, because of tightening refining capacity.
"We don't know if they [refiners] can meet demand for the right products in the fourth quarter," says Roger Diwan, an analyst at Washington, D.C.-based PFC Energy.

Industry analysts say the refining shortage hits especially hard in the U.S. Refiners here haven't built a new plant since 1976, and remain reluctant to do so for a variety of reasons, including public resistance, expected returns on investment and environmental regulations.

In February, the most recent month for which figures are available, the U.S. imported about 12.5% of its gasoline -- nearly three times as much as a decade ago. Much of it comes from Europe, where motorists have been shifting to diesel-powered autos. In coming years, India and China are likely to slurp up more imported gasoline and diesel.

Though Saudi Arabia and other countries are adding refineries, it can take years to expand existing facilities and much longer to build new ones. Consequently, industry analysts and OPEC officials expect the refining crunch to keep product prices high until 2008 at the earliest. Global demand for oil products is once again expected to outpace refinery capacity growth next year.

"The first year that the situation could change is 2007," says Lawrence Goldstein, president of New York-based Petroleum Industry Research Foundation. He estimates that demand for oil products grew by 4.6 million barrels a day in 2003 and 2004, while refinery capacity grew by only 700,000 barrels a day.

Tight refining capacity has been an often overlooked factor in the rise in oil prices in the past 18 months. The world has plenty of so-called heavy crude -- much of it in Saudi Arabia -- but most refineries around the world aren't equipped to handle this high-sulfur oil.

Even when plants can refine heavy crude, it's a more costly process than refining light crudes, which are lower in sulfur and easier to refine but less widely available. As a result, refiners are in a bidding war for light crudes -- pushing their cost up. (Refined heavy crude also tends to sell at a better price for refiners than light crude.)

Contributing to the pressure, countries around the world have been tightening emissions standards for diesel and gasoline. Many refineries, especially in developing nations, aren't equipped to meet their standards.

In part, that's because refining was long an industry stepchild, earning modest profits at best because of the world-wide glut in capacity. Until the recent crunch, many of the world's biggest oil companies were reluctant to invest in refining. Some even shed such operations over the years, directing investment dollars to the much more profitable business of finding and producing crude oil.

Today, the squeeze is proving to be a bonanza for refiners. Valero Energy Corp., the U.S. refining giant, expects its financial results for the second quarter, historically a weak period for refiners, to be the best for the period in its history.

The refiners' advantage shows up best in the refining margin -- that is, the difference between the price of refined products like gasoline and jet fuel and that of a barrel of crude oil. Since 2003, refining margins have been rising for all kinds of oil products, most sharply for diesel fuel, jet fuel and heating oil.

The current refining margin for gasoline in the U.S. Gulf Coast, for instance, is $7.64 for a barrel of benchmark West Texas Intermediate -- a type of light, sweet crude. That's more than double the average of $3.66 a barrel from 1994 through 2003, according to Aaron Brady, an analyst at Cambridge Energy Research Associates of Cambridge, Mass.

Margins for diesel fuel are in the stratosphere, especially abroad. Refiners in the Netherlands, using a type of oil known as North Sea Brent Crude, had margins of $16.25 a barrel in the first quarter, compared with $13 in 2004 and an average of $5.80 in the period from 1998 to 2003.

Given such margins, Philip K. Verleger, a senior fellow at the Washington-based Institute for International economists, says truck drivers in the U.S. may see diesel prices rise to $3 a gallon this winter, and to $4 a gallon in winter 2006.

posted by Henry @ 9:53 PM 0 comments

WSJ : China Is Considering A Currency Basket As Option for Yuan

By MARY KISSEL Staff Reporter of THE WALL STREET JOURNAL
May 23, 2005; Page C1

BEIJING -- Even as China has fended off demands to revamp its currency system, its central bankers have fanned out around the world to solicit advice on the matter. They are paying close attention to Singapore's unusual setup.

International pressure on China to change its exchange-rate system has accelerated in recent months, partly because of the country's surging exports and economic growth. U.S. and European critics say Chinese products are unfairly inexpensive, because the yuan has effectively been pegged to the U.S. dollar for more than a decade and now is undervalued. Last week, Treasury Secretary John Snow appointed a special envoy to China to "continue and intensify a constructive dialogue with China" on exchange-rate and other issues.

Beijing has said little more than that it is studying a change. "So long as conditions permit, China will push reform of the exchange rate on its own initiative, even without outside pressure," Premier Wen Jiabao said at a forum in Beijing last week.

China's central bank is examining a range of options, from expanding the yuan's trading range beyond its current 8.28 to the dollar, to taking a more complex and creative approach, according to people knowledgeable about its thinking.

The People's Bank of China has sought advice from private-sector banks, consultants and a number of central banks, including the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the U.S. Federal Reserve, as well as from the International Monetary Fund.

Lately, China's central bank has given special attention to how Singapore deals with its currency, the Singaporean dollar, says a banker advising the central bank. Implemented in 1981, Singapore's currency regime is a "managed float" -- a compromise between China's effective peg, set by its government, and the U.S. approach, in which the dollar "floats," its value determined by market forces.
Singapore pegs its dollar to a basket of currencies that mirror the city-state's trading patterns. Its central bank, the Monetary Authority of Singapore, doesn't announce what is in the basket; the authority's bankers just tweak the mix as needed, depending on how Singapore's trade flows change.

Some economists say such an approach could prove to be a neat compromise, enabling China to say it has moved to a more flexible regime without opening the floodgates to volatile capital flows.

The system has worked well for Singapore, which is about three times the size of Washington, D.C., and has a gross domestic product that is roughly half of Wal-Mart Stores Inc.'s annual revenue. From 1981 to the present, income per person in Singapore has risen sharply, inflation has remained contained and interest rates have stayed low, encouraging consumers to spend. Despite essentially open borders for goods and capital -- a chief reason Singapore needed a tool like the basket, since it can't control its own interest rates -- the Monetary Authority of Singapore has managed to keep the Singapore dollar relatively stable while it slowly trends upward.

China's exchange rate isn't whipped around by the gobs of capital pouring into its country, either, but that is because its central bank keeps the currency fixed by buying many of the dollars that flood into the country. The result has been a massive buildup of foreign-exchange reserves. Many economists agree that while China can easily afford to do this today, eventually it will become too expensive an exercise. Almost all agree that if China were to move to a basket or a type of floating regime today, like Singapore's, the yuan would steadily strengthen.

"Moving to a basket makes sense," says Nicholas Lardy, an economist at the Institute for International Economics, a Washington think tank, and a longtime advocate of such a move.

Some economists worry that a basket would increase volatility in China's exchange rate, creating new problems for the country's corporations, which have little experience managing exchange-rate risk. Singapore also can steer its economy through a variety of unofficial policy measures, a task that would be much more difficult in a country the size of China.

--James T. Areddy in Shanghai contributed to this article.

posted by Henry @ 12:46 AM 0 comments