Global Inflation Starts with Chinese Workers

Government support and a tight labor supply are boosting wages in China. Over the next decade that will put inflationary pressure on the global economy 
By Sophie Leung and Simon Kennedy
Source: Bloomberg Business Week

Job seekers read help wanted ads at a labor market in Qingdao Yang Tongyu/Imaginechina/AP Photo

For decades low wages in China helped keep prices at bay around the globe. That era is roaring to an end. As China embraces wholesale wage increases, the world's No. 2 economy may soon drive up costs enough to erode corporate margins and scare inflation-wary investors away from bonds. The government is playing an important role in this shift. When Chinese Premier Wen Jiabao convenes the annual National People's Congress on Mar. 5, delegates will sign off on higher pay scales around the country as part of a plan to boost the domestic economy. All 31 Chinese provinces and regions are likely to boost their minimum wages in 2011 for the second consecutive year, according to Credit Suisse Group (CS).

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Economists say an epochal shift is under way. "When historians go back and describe 2010, the big story will be the massive increase in salaries that will redefine the global manufacturing model and redefine the inflation outlook for the next 10 years," says Dong Tao, chief regional economist for non-Japan Asia at Credit Suisse in Hong Kong.

Tao says China is fast approaching the so-called Lewis turning point, named after Arthur Lewis, the Nobel prize-winning economist whose work described that critical moment in a developing economy's rise when its surplus labor supply dries up, and hikes in wages, prices, and inflation ensue. In China's case, demand for workers will outstrip supply by 2014, Tao's team calculated in a January report.

Li Wei, an economist at Standard Chartered in Shanghai, says China may have already hit the Lewis point. If the country "continues to grow 9 percent to 10 percent per year, there will be a wage spiral" that pushes up prices and sends bond yields higher around the world, Li says. China's own inflation is gathering momentum, with inflation running higher than the official 2011 target of 4 percent in each of the past four months, according to the National Bureau of Statistics of China.

Despite the risks, China's government wants to encourage workers to spend, ease pressure on families struggling to afford food, and head off social unrest, says Sun Chi, an economist with Nomura Holdings (NMR) in Hong Kong. Higher pay should also make exports more costly. That would please China's trading partners, who fear being overwhelmed by cheap goods.

Wages are going up even without the government's prodding. The development of China's west has turned interior cities such as Chongqing into production centers that compete for labor with coastal factories. The pay of the migrant laborers who fuel China's export industry rose by 40 percent in 2010, according to Credit Suisse's Tao. It will continue climbing 20 percent to 30 percent in each of the next three years as Chinese leaders pump up domestic demand.

Workers are getting picky. A recent pay hike of more than 10 percent in a Shenzhen bra factory wasn't enough to keep some workers in town. Luo Chenen, a 33-year-old migrant worker who sews bras for Hong Kong-listed Top Form International, says "quite a few" of her colleagues left after the lunar new year for their hometowns. They won't come back because "there are jobs there as well. Right now is not like in the past, when finding a job was difficult." As proof of employers' desperation, the district of Shenzhen where Luo works is plastered with recruitment notices, some promising "High Pay for Urgent Hire."

China's wages now occupy the middle range of labor costs in Asia. Average monthly pay in 2009 for Shenzhen on the southern coast was $235, while Shenyang in northeast China had a mean of $197, both less than Yokohama's $3,099, Seoul's $1,220, and Taipei's $888, according to the Japan External Trade Organization. By comparison, monthly factory wages were $100 in Ho Chi Minh City, Vietnam, $148 in Jakarta, Indonesia, and $47 in Dhaka, Bangladesh.

It's not just in China's big cities where wages are rising fast. In the countryside, where small factories are popping up, per capita net income jumped 10.9 percent in 2010, to 5,919 yuan, according to a National Bureau of Statistics of China report in January. "Rural migrant workers' wages are now rising faster than ever before, and we can probably talk about a wage explosion here," Jonathan Anderson, chief economist for emerging markets at UBS (UBS) in Hong Kong, wrote on Feb. 3.

Policy makers may make changes in the hukou household-registration system, according to UBS analysts, a step that may ease the problems created by labor scarcity. The system, which authorities have already relaxed somewhat, requires Chinese to apply for residency permits when they move and can impede the free flow of workers. The more mobile workers are, the more quickly they can move to parts of the country that need labor the most.

Although reforming hukou will help, China's rising prices soon will feed into inflation elsewhere, if history is any guide. China's consumer price index has in the past decade preceded shifts in the so-called core U.S. rate for goods by about 20 months, according to data compiled by Société Générale and Bloomberg. While he predicts inflation in the U.S. will remain benign into next year, Rudy Narvas, a Société Générale economist in New York, says there is now an "upside" risk, partly because of Chinese costs. U.S. corporate clients are telling him they may start to "test the waters" to see how much of the price pressure from China and elsewhere they can pass along to customers, he says.

Apparel companies and retailers are already feeling the pinch from higher wages in China. Next, Britain's second-biggest retailer, said in January that higher labor costs in China will contribute to an 8 percent increase in its prices in the first two quarters. Trading group Li & Fung of Hong Kong, a top apparel supplier to Wal-Mart Stores (WMT), predicts the price of Chinese exports will rise as much as 15 percent this year as workers earn more. "The pressures aren't subsiding," says Randal J. Konik, an equity analyst at Jefferies & Co. (JEF) in New York, who identifies luxury handbag maker Coach (COH) and women's clothing retailer Chico's (CHS) as having "high exposure to Chinese manufacturing."

Coach started a four-year plan on Jan. 1 that will move some production out of China and into locales such as India, Chief Financial Officer Michael F. Devine III said on a Jan. 25 conference call. Gerry Weber International, Germany's No. 2 maker of women's clothing, is shifting production from China to sites with cheaper labor costs, CEO Gerhard Weber said in a Dec. 7 interview. The company is counting on its ability to move sourcing faster than rivals.
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Chico's, too, is seeking to diversify its production base away from China. Higher Chinese wages are a "major factor" behind the shift, says Robert C. Atkinson, head of investor relations at the company, adding, "It's not easy when most of the world is trying to do the same thing."

The bottom line: Over the next decade the inflationary impact of ever-higher wages throughout Chinese industry will raise prices around the world.

With Cotten Timberlake and Chris Burritt. Leung is a reporter for Bloomberg News. Kennedy is a reporter for Bloomberg News.

Is a Joint or Dual M.B.A. Right for You?

By Stacy Blackman
Source: US News
March 4, 2011
A few weeks ago, I wrote about a handful of the newest programs catering to students wishing to pursue the ever popular J.D./M.B.A. degree. This week, I'd like to broaden the discussion of joint and dual M.B.A. degrees for those of you wondering if specializing in more than one area could be the right path for you.

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Before we get started, let me clarify that a joint degree broadly refers to programs in which certain coursework counts toward both degrees. On the other hand, students pursuing dual degrees undertake separate coursework for each program, but often complete the dual degree with a reduced number of overall credits. So what areas of study compliment an M.B.A. education?

An M.B.A. degree is a bit like peanut butter: It goes well with just about everything. Whatever your intended profession–writer, doctor, public policy official, or educator–a strong foundation in general management can make you more appealing to employers and set you up to easily transition into management or administration.

To give you an idea of the breadth of joint and dual M.B.A. degree options, here a few examples:

• M.A. in Education/M.B.A.: For students pursuing careers in education management, policy, and/or technology.

• M.D./M.B.A.: For medical students interested in management, with many potential career opportunities including hospital management, HMO management, and medical school administration.

• Mater of Public Health (M.P.H.)/M.B.A.: For students interested in health policy and health care management.

• M.S. in Environmental Studies/M.B.A.: For students pursuing careers in green business, energy renewal, and/or environmental policy.

• M.S. in Journalism/M.B.A.: For students interested in media management and/or business communications.

• Master of Public Policy (M.P.P.)/M.B.A.: For students pursuing advanced public policy careers in business, government, and/or non-profit sectors.

And that's just the beginning. While the growing number of joint and dual degrees attests to their popularity, here are a few things you should keep in mind if you're planning on pursuing one:

Be certain it's necessary: As the recent Yale Daily News article pointed out, it's imperative to have a clearer purpose for pursuing a joint program than wanting more letters after your name. As current Yale joint J.D./M.B.A. student Christopher Hurtado says, "If you just want to practice law, you probably don't need the M.B.A."

Be prepared to spend longer in school: Whereas you can finish a standard M.B.A. program in two years, a joint or dual degree will take three years or longer. In the case of a joint M.D./M.B.A. program, you're looking to spend at least 5 years in school.

Be ready to pay more: Dual and joint degrees typically raise the already steep cost of getting an M.B.A. On the bright side, such programs are cheaper than pursuing a master's degree in journalism first, for example, then going back for an M.B.A. later.

Know that it will affect your b-school relationships: M.B.A. students typically develop very close relationships with their cohort, and those pursuing degrees in other departments may at times feel pulled in different directions. Of course, this can also be great for your personal development: Someone studying environmental science at the same time as business is bound to bring new perspectives about regulatory reform into an M.B.A. classroom discussion.

If you think a joint or dual degree is right for you, make sure you visit both programs at your schools of interest, and speak to current students and alums to ensure that the path you've mapped out will take you where you want to go.

Prostitutes are a bad investment

Hookers Are a Bad Investment, SEC Says
Source: Court House News
SAN FRANCISCO (CN) - A broker in UBS Financial Services' Walnut Creek office defrauded customers of millions of dollars and spent it on "luxury cars, prostitutes and large gambling debts," the SEC says. Then "to conceal the fraud," Steven Kobayashi "liquidated his customers' personal securities holdings" and sucked up "millions more by using a line of credit he had purportedly obtained on his investors' behalf," according to the federal complaint.

The SEC sued Kobayashi, 39, of Livermore - but not UBS - for the shenanigans he allegedly pulled off from 2004 though 2009.
Kobayashi was a UBS financial adviser and holds Series 7, 63, and 65 licenses, the SEC says.
According to the complaint, Kobayashi swiped at least $3.3 million from his customers, and "unrelated to any securities transaction, between 2006 and 2009 Kobayashi stole approximately $4 million in additional funds from LSP and from his UBS customers, including funds from the $3 million line of credit."
(LSP is Life Settlement Partners LLP, which Kobayashi set up in 2004, without informing UBS, though four of his UBS customers ended up investing a total of $1.4 million in LSP, according to the SEC complaint.)
The SEC seeks disgorgement and penalties and it wants a judge to tell Kobayashi never to do such a thing again.

Jobless? More Employers Say You Need Not Apply

Although More Americans Got Jobs in February, One Category of Workers Got Kicked to the Curb
Source: ABC News
By ALAN FARNHAM
March 4, 2011
Unemployment fell in February to 8.9 percent, and US companies added 192,000 people to their payrolls, but one category of workers is increasingly facing an overt form of discrimination.

In the bad old days of the 1800s, when it was legal for employers to discriminate against anyone they pleased, job postings used to say things like: "No Irish Need Apply." Now the unemployed, it seems, have become the new Irish: In advertisement after advertisement, employers come right out and tell them they're not wanted.

Right now CareerBuilder, one of the biggest job sites on the web, has a posting for an entry-level engineer. The candidate, it says, will perform structural analysis of telecommunications cell towers. A civil engineering degree is required, an undergrad GPA of at least 3.4 as is knowledge of AutoCAD. Some travel is required.

Oh, and there's one other thing: "No layoff candidates."

What?!

You heard right: If you've been laid off or are out of work, pal, scram -- this employer, like many others, doesn't want you. You're damaged goods.

Look anywhere where jobs are posted, and you'll see more examples. This discrimination isn't subtle. It's not covert. It's right out in the open, stated in the listings: A phone manufacturer looking to fill a marketing job stipulates "No unemployed candidates will be considered at all." An electronics firm looking for an engineer says it will "Not consider/review anyone NOT currently employed regardless of the reason." A Craigslist posting for an assistant restaurant manager in New Jersey says all applicants "Must be currently employed."

So prevalent is this new form of discrimination that the Equal Employment Opportunity Commission in February held hearings on it. The EEOC press release announcing them bore the catchy title "Out of Work? Out of Luck."

Testifiers included Christine Owens, executive director of the National Employment Law Project, a national nonprofit group that advocates on behalf of low-age and unemployed workers, and persons facing unfair or unlawful barriers to employment.

Owens says it's hard to know how widespread discrimination against the jobless has become, but she has seen human resource professionals widely quoted to the effect that turning away the unemployed is a growing trend.

As for the help wanted notices, "What you see stated in the advertisements is just the tip of the iceberg," Ownes says. "For every ad that's explicit, many more have the same policy but don't say so. We think it's widely happening and that it's grounds for concern, especially in an economy where job growth is so slow and so many qualified people are looking for work. It imposes an artificial and arbitrary barrier that job seekers shouldn't have to deal with."

She cited in her EEOC testimony the case of a Texas job seeker, an experienced pharmaceutical sales rep, who received from an executive recruiter an e-mail stating one express caveat: "Candidates must be currently employed or must have left the industry within the last six months."

In the 2½ years that Kelly Wiedemer, 45, has been out of work, she's received this kind of brush-off more than once.

Wiedemer, a former operations analyst, got a call last summer from a local technical college that was looking for an analyst. When she went in for her interview, the man who questioned her asked her about her experience and previous work. "He asked about my background, and I explained that I was an operations analyst." She felt she was doing a good job of selling herself. They talked for about five minutes.

"Then he asked me how long I'd been out of work," she says. "I told him." His facial expression changed. "As soon as he heard that, it was over." He asked her "in an accusatory tone" why she had been out of work for so long. What had she been doing? "I told him I'd been taking training courses to increase my skill set. I'd also done volunteer work. He did not respond."

"It was humiliating," says Wiedemer. "It's not like I haven't been looking for a job. It's not like I decided to take a couple of years off." On her way home, she says, "I didn't know whether to scream or cry."

In November she saw an ad on Careerbuilder.com for a business analyst. It sounded ideal. Not only was it just a few miles from where Wiedemer lives, it paid the same as her old job and had almost exactly the same responsibilities. The listing said the applicant would need to know how to implement a particular kind of software package -- the same one that Wiedemer had implemented in her prevous job. "I knew that system," she says. "I knew it better than the guys we called to come fix it for us."

She fired off her resume and got a response the very next day.

The recruiter, she says, was at first excited. Then the interview turned to how long Wiedemer had been out of work. The excitement cooled. Wiedemer says the recruiter said: "Here's what I'm going to do. I'm willing to submit your resume to the hiring manager -- but I'll be honest: Your long employment gap will be a tough sell."

Wiedemer never got another interview.

"It was such a perfect fit," she says dejectedly. "A perfect opportunity. I could have brought a lot to the table for them. They didn't even want to talk to me. It's like all my skill sets had no value to these people."

It's one thing, she says, "to get kicked to the curb." It's another to think, "I might never work in my old capacity again, at any rate of pay. The possibilities are slim for anybody who's been out of work as long as I have."

Owens says that while discrimination against the unemployed may be cruel and may be outrageous, it's not clear that it's illegal. That's one reason the EEOC held hearings -- to get opinions on that question.

Were the EEOC to decide to prohibit the practice, says Owens, there are two ways the commission could go about it. They could determine that such discrimination is itself illegal, or they could find that although legal it works a disproportionate hardship on certain categories of job seekers already protected by law, such as the elderly, the disabled, women and members of various ethnic minorities.

To the extent, says Owens, that an employer says the applicant must be recently employed or out of work no longer than six months, the stipulation disproportionately affects older workers, who tend to go unemployed for longer periods than the young. And the EEOC, she says, enforces laws against age discrimination.

Facebook valued at $65 billion in new investment

(Reuters) - Investment firm General Atlantic is investing in Facebook, valuing the leading social network at $65 billion, representing a 30 percent boost from its last big investment in January, according to a report on CNBC.

General Atlantic is purchasing a block of roughly 2.5 million Facebook shares from former Facebook employees, giving the firm a 0.1 percent stake in the company, CNBC said.

The deal, which has not closed and requires approval from Facebook, would give General Atlantic a 0.1 percent stake in Facebook, according to the report.

General Atlantic declined to comment on the reports. Facebook did not immediately return requests for comment.

In January, Facebook said it had raised $1.5 billion from investors including Goldman Sachs and Digital Sky Technologies, as well as through a private offering to overseas investors conducted by Goldman Sachs, at a valuation of roughly $50 billion.

Facebook is the world's No.1 Internet social network with more than 500 million users.

(Reporting by Alexei Oreskovic; Editing by Bernard Orr.)

Warren Buffett's investing lesson

Run, not walk, the other way
March 2, 2011, 12:01 a.m. EST
By Mark Hulbert

CHAPEL HILL, N.C. (MarketWatch) — Warren Buffett’s annual letter to Berkshire Hathaway shareholders is probably the most widely read commentary on Wall Street of the entire year.

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Strangely, though, in all the ink that has already been spilled since Buffett released this year’s letter this past Saturday, I’ve seen no mention of what I think is perhaps its most profound investment lesson: Long-term returns in excess of around 20% annualized are next to impossible to achieve.
Overlooked as this investment lesson is, though, it jumps out from the very first page of Buffett’s letter, where he reports the growth in book value of Berkshire Hathaway /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 85.84, +0.82, +0.97%)   since he took over the company in the mid 1960s. Though Buffett is widely recognized to be the most successful long-term investor alive today, that growth rate from 1965 through the end of 2010 was “just” 20.2% annualized.
That’s most definitely nothing to sneeze at, of course. The S&P 500 index /quotes/comstock/21z!i1:in\x (SPX 1,328, +19.82, +1.52%)   over the same period produced a dividend-adjusted return of not even quite half as much — 9.4% annualized. Cumulatively (on an un-annualized basis), these two rates of return work out to gains of 490,409% and 6,262%, respectively.
Yet, even though Buffett’s return has produced riches beyond the dreams of avarice, far too many investors won’t leave well enough alone. And who can blame them? There is no shortage of advisers and unscrupulous marketers who regularly promise returns several orders of magnitude higher than 20% per year. Claims of 100% per year, and more, are commonplace.
My advice: You should run, not walk, the other way from any adviser making performance claims of that magnitude.
Think about it this way: Whenever you come across an adviser making performance claims this high, you know one of three things is going on:

1. The adviser in question is a far better investor than Warren Buffett
   
2. The adviser in question is lying
   
3. The adviser is accurately reporting his historical performance, but it was produced over such a short period of time that regression to the mean will quickly cause his return to come back to Earth.
   

As for Possibility #1, I’ll leave it to you decide the likelihood that the ad you’ve received in your email inbox is from a superstar adviser who is genuinely better than Buffett. If your answer is “yes,” I have a bridge I want to sell you.
As for Possibility #2, I know you’ll be shocked to learn that lots of advisers regularly lie about their performance. If you don’t believe it, I want to sell another bridge to you too.
Possibility #3 is more insidious, since it enables an adviser to imply a falsehood while nevertheless telling the truth. To appreciate the role that regression to the mean plays, consider the evidence in the accompanying table.

Length of period	Annualized return of top investment newsletter over this period	Annualized return of top mutual fund over this period
Last 1 year	85.2%	76.4%
Last 10 years	21.7%	29.7%
Last 20 years	19.3%	15.6%
Last 30 years	15.3%	14.5%

The data in the table for investment newsletters, of course, comes from my Hulbert Financial Digest monitoring service. The mutual fund data comes from Morningstar and Lipper.
Notice the remarkable similarity in the pattern in both columns. The degradation in both series of returns, as the time period lengthens, is almost identical.
Luckily, you don’t need to determine which of these three possible factors is at work when you receive a performance claim well in excess of 20% annualized, since your proper course of action is the same regardless.
To do anything else would be a triumph of hope over experience.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

The real story of black capitalism

Letters to the Editor
Feb. 14, 2011, 4:23 p.m. EST
Source: Market Watch
By Charles Payne
Reading Rex Nutting’s piece on disappearing wealth of black families filled me with a range of emotions from sadness to shock but mostly anger.

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The overarching thought that somehow black people are underserved or victimized by capitalism has been the fodder of poverty pimps and politicians for too long. I agree, high-profile success stories of super-rich black people including the Bentley-driving rap artist mask the seriousness of the situation for the overwhelming majority. But blacks are not marginalized by capitalism. Read Rex Nutting’s column “Wealth of black families has disappeared.”

The fact that typical black household net worth is only $2,200 is heartbreaking but blacks do have capital. Blacks can leave their heirs something other than being alone. I found it interesting that the same day the article appeared, Polo Ralph Lauren Corp. /quotes/comstock/13*!rl/quotes/nls/rl (RL 126.76, +2.47, +1.99%) reported increased corporate profits and the stock soared to a new high up 680% since 2000. The success of Ralph Lauren underscores the two sides of capitalism.

Ralph Lauren was born in the Bronx to a housepainter father and stay home mom. He was born Ralph Lifshitz and early on decided he wanted to be a millionaire. He sold ties to fellow students in high school, changed his name and eventually found a backer for his first tie shop. The rest, as they like to say, is history. Fast forward a few decades to the birth of my godson in the Bronx.

He grew up in the projects and his parents never made a lot of money and often are between jobs. We bring him out to the house in New Jersey and help him with things like school clothes. A couple of years ago I took him and several other teens and young adults in the family to Burlington Coat Factory for back-to-school shopping. I saw great looking Ralph Lauren shirts for around twenty bucks. “Hey guys come check these out.”

The boys all came over and mulled over the shirts but none shared my enthusiasm. It turns out they were unhappy because these shirts had the small Polo logo while newer shirts had larger logos. As it turns out, the newer shirts are up to four times more expensive than the ones with the smaller logos.

Everyone in America is part of the capitalistic system, either they fuel wealth for others or they invest in the companies that provide products and services to the masses. Unfortunately, black people are too caught up in not just being consumers but consumers willing to spend money not commensurate with their income or savings.

Mr. Nutting pointed out that wealth is “a bit like sourdough bread — you need a starter to get it going.” Going further to point out each generation of black youth starts out with a deficit, not a legacy. I want to scream — being born in America is a legacy. Moreover, parents who smoke two packs of cigarettes a day could have $130,000 for their child to attend college or start a business, all they have to do is make the sacrifice.

There are so many ways to build wealth but it takes sacrifice and determination. That’s the financial starter but there are other ingredients for bread and for a successful life. I read another shocking and sad article recently about preparedness of high school graduates in New York. The Wall Street Journal reported that only 64% of black high school students graduate, and a pitiful 12% are prepared for college or a career.

I guess you could blame the video games, politically correct grade inflation, even discouragement of living in such an unfair and racist society. There is no greater wealth or better starter than education and more importantly a curiosity about the world. Again, it’s something black people can control just like all that capital that flows through their hands but ends up on the balance sheet of Ralph Lauren.

I’m not saying it’s easy. I am saying it’s time to stop the complaining and stop accepting second-class status in return for aide and help supposedly designed to make up for the loopholes in capitalism. Life isn’t fair but we black people better take advantage of the economic platform we have to change our circumstances.

Consider the excitement over the economic juggernauts of China, India and Brazil. Blacks in America earn so much more than the people in those nations but it flows out of the community faster than it flows in.

Consider black purchasing power will be more than $1.0 trillion this year versus $1.4 trillion for India. There are 40 million blacks and 1,000,000,000 Indians. In 1935 only 4 out every 10,000 Indian students enrolled in college and there was only 16,000 books for 350 million people.

Count me as one of those Americans that believe anyone can make it with hard work, sacrifice and determination. When any American stops counting their blessings and start counting the reasons why success is too hard to attain, they make an unfulfilled life self-fulfilling.

Charles Payne is founder and chief executive of Wall Street Strategies, a contributor to Fox News Channel and Fox Business Network, and host of “The Charles Payne Show.” MarketWatch and Fox properties are owned by News Corp.