Saturday, October 31, 2015

States to Help Workers Save for Retirement

Australia put in place enforced retirement savings some 20 years ago. Interesting again how this is just starting to come to the USA. Aivars Lode
By David Harrison
Rose Hackenbruck knows she should be saving for retirement. But with a mortgage and a daughter to raise on about $43,000 a year, the 39-year-old bartender in Portland, Ore., doesn’t have much left at the end of the month. 
“That money quickly goes away if you don’t have something structured already set up,” said Ms. Hackenbruck, who is divorced. Her employer, like many bars and restaurants, doesn’t offer retirement benefits.
Something structured could be coming her way soon. 
In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work. The plans are an attempt to cushion the blow for millions of workers who could someday find themselves too old to work but short of savings, state officials said. They are also an attempt to protect taxpayers in the future, said Oregon Treasurer Ted Wheeler. 
“If people have not saved, they’re completely dependent upon government safety-net programs,” Mr. Wheeler said. 
The gradual but broad shift away from old-fashioned pensions—which provided lifetime retirement payments to retirees—has left millions of Americans unprepared for retirement, experts say.
In the private sector, nearly 44% of prime-age workers don’t have access to a retirement plan at work, according to Labor Department figures analyzed by Nari Rhee, a researcher at the University of California, Berkeley. About 46% of private-sector workers now take part in a workplace retirement plan, meaning almost 10% of workers have access to a plan but don’t participate.
“It’s shocking…that less than half of employed adults are covered by any kind of employer plan,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, which is working with Connecticut to set up a program. “There’s just a huge coverage gap out there.”
California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. Connecticut’s plan could be in place by next year, and legislation is pending in New Jersey and Massachusetts. In some states, such as Maryland and Maine, efforts have foundered in the legislature. For now, only Democratic-controlled legislatures have enacted the plans. 
The initiatives differ in the details, but all would feature automatic paycheck deductions—California, Oregon and Illinois are contemplating 3%—to be placed in individual retirement accounts. In all three states, workers would be automatically enrolled a feature designed to overcome people’s inertia about saving, but would be allowed to opt out. State boards would manage the programs. In Oregon, the plans would apply to all employers regardless of size, but California and Illinois exempt smaller employers.
The Oregon plan also could benefit self-employed and temporary workers. That would be good news for Diana Bartlett, who left a full-time job with benefits four years ago after she had her second child. Since then, she said she has worked a series of short-term jobs without retirement plans. “It makes me nervous that I have so little retirement savings,” said Ms. Bartlett, who hasn’t contributed to a retirement plan since she left her full-time job and estimates she has about $3,000 saved from her previous job.
For now, the state plans—even those passed by legislatures—are in the development stages, and none has yet begun withdrawing money from paychecks. But the idea has caught on. At least 18 bills have been introduced in 15 states this year dealing with state-sponsored retirement plans, up from 10 bills in seven states in 2013, according to the National Conference of State Legislatures.
“Given the proliferation [of bills] over the past few years, I think in 2016 you’ll see even more,” said Sarah Mysiewicz Gill, senior legislation representative at AARP, which has been advocating for the plans.
But a 41-year-old federal law protecting workers’ retirement investments could complicate the state efforts. The Employee Retirement Income Security Act places record-keeping requirements on employers who offer retirement plans and could make them liable if employee contributions aren’t invested properly.
The question is whether those requirements would apply to employers under the state-run plans, even if their role is limited to setting up the automatic deductions in the same way they set up payroll-tax deductions. If they do, that could be costly to employers and could erode support for the plans.
The Obama administration supports the state initiatives and has promised to unveil rules this year to help states navigate the regulatory pitfalls, which could clear up the ERISA question. The financial-services industry and some state chambers of commerce, however, oppose the plans, saying they risk drawing employers into the regulatory thickets of ERISA. 
“This is simply a state-government approach to try to solve a retirement problem that is better left to the private sector,” said John Mangan, regional vice president for state relations at the American Council of Life Insurers. “We question whether the state should enter a private marketplace that already has robust options for retirement plans for individuals and businesses.”
In response to industry concerns, Washington state enacted a compromise encouraging the private sector to set up voluntary individual retirement accounts for workers without access to workplace plans. Employers wouldn’t be charged administrative fees. Management fees on employees would be capped at 1%. And the state government would promote the accounts.
The idea, which industry supports, could be a model for states where the Oregon model is politically unfeasible, said state Sen. Mark Mullet, who sponsored the bill. That is likely to depend on how popular the plans are with employers, but Mr. Mullet is optimistic.
“The business owners, to be honest, most of their hearts are in the right place,” he said. “They would be happy to offer something, if it’s no skin off their backs.”
Whatever their design, the state plans wouldn’t guarantee a comfortable retirement for future generations. A study by the Employee Benefit Research Institute, a think tank funded by insurers, companies, unions and others interested in retirement issues, found that a mandatory 3% deduction would reduce the overall retirement-savings shortfall for working-age households by only 6.5%, in part due to the rising cost of long-term care for the elderly. Still, supporters see the plans as a first step, one that can be expanded upon later.
In Portland, Ms. Hackenbruck said she is ready to give up a bit of her paycheck for a slightly more comfortable old age. “I’m not trying to get rich,” she said. “I’m just trying not to be an impoverished old woman.”

Vodka Falls Out of Vogue in U.S., Posing Challenge for Pernod

I was fortunate enough to meet the president of of the Louisville Slugger some 14 years ago in Louisville. As discussions of a business transaction merged into dinner I was introduced to Mr Pickwiks 1968 vintage Bourbon. After sampling this delectable spirit I sat back and wondered why this was not a more widely known spirit. Previously, I had only experienced atrocious Jack Daniels and coke. Now I was sipping a spirit which was as sophisticated as Cognac and whiskey, however with a unique character. Aivars Lode
By Jason Chow
In the U.S., bourbon is in and vodka is out. That’s making Pernod Ricard SA, owners of the Absolut vodka label, a laggard in the world’s most important liquor market. 
For now, the shift isn’t hurting profits. Pernod, which owns a multitude of brands including Irish whiskey label Jameson and cognac marque Martell, is still expected to post sales and profit growth when it releases its results on Thursday. 
Boosted by a rebounding Europe, the stabilization of cognac sales in China and higher sales of local-distilled whiskeys in India, the company is expected to post a 7.9% increase in sales to €8.57 billion ($9.63 billion) and a 30% increase in net income to €1.32 billion, according to a FactSet poll of 29 analysts.
Revenues and income are also boosted by the low euro, which makes sales in stronger currencies count for more when converted into the company’s home currency. 
But in the U.S., Pernod’s organic sales are lagging at a time when the country represents the industry’s brightest opportunity as emerging markets start to shun high-priced drinks. 
In recent years, Pernod relied on countries like Brazil and China to increase sales as a growing middle class in rapidly developing countries indulged in imported spirits. However, the stalled economies in South America have slaked thirst for expensive liquor while an anticorruption campaign in China hit cognac sales particularly hard. 
Meanwhile, the U.S. market for spirits is booming as cocktail culture continues to grow and millennial drinkers renew their interest in American bourbon. The one casualty of this shift in tastes is the category that Pernod dominates: Vodka is out of vogue. 
Globally, the number of nine-liter cases of vodka consumed declined almost 2% between 2010 and 2014, according to the IWSR, a liquor market-tracking association. Meanwhile, whiskey consumption has risen almost 17% in the same period. 
In the all-important U.S. market, vodka volumes last year decreased 0.3% while whiskey sales grew 2.7%. American-made bourbons and Tennessee whiskey led the trend, up 7.4%, as drinkers also shunned Scotch whisky. 
Absolut, known for its splashy colorful campaigns and flavored liquors, has fast become an underachiever in a losing category: Sales volumes of the vodka label declined 3.3% in the past quarter, according to figures from the U.S. industry association NABCA. Absolut makes up about a quarter of all Pernod’s U.S. sales. 
“It’s not universal doom and gloom, but they’re in a tough situation,” said Trevor Stirling, a liquor analyst at Sanford C. Bernstein in London. “There are no quick fixes for Absolut. You have to reinvent the brand, and it’ll take three to five years.”
To be sure, Pernod has a large brand portfolio and is geographically diversified, deriving about 15% of its revenues from the U.S., 29% from Europe and another 42% from Asia and Africa. India is a particular bright spot, as its local-distilled whiskeys, led by its Royal Stag brand, are gaining market share. 
Still, if Pernod is ever going to reach its goal of overtaking U.K. giant Diageo PLC as the world’s top liquor company, it will have to find more pours in the high-value U.S. market with Absolut or via acquisition, the analysts say. 
Pernod’s rivals have already adapted to consumer trends. Diageo is building a distillery in Kentucky to expand capacity for its Bulleit brand bourbon, while Bacardi Ltd., best known for its rum brand, bought the Kentucky-based whiskey brand Angel’s Envy in March. 
“The U.S. is still growing as a market—unlike Western Europe. It has all the features of an emerging market but it’s a high-value one,” said Jeremy Cunnington, head of alcoholics drinks research at Euromonitor. “Pernod is short of brands there, particularly of American bourbons.”
Corrections & Amplifications
Absolut vodka makes up about a quarter of Pernod Ricard’s U.S. sales. A previous version of this article said the brand makes up half of U.S. sales.

How Do Innovators Spot Market Opportunities?

The following article articulates how innovators spot market opportunities, this is why I have written a couple of books as we bring knowledge from having seen it somewhere else before. Aivars Lode

By Leslie Brokaw
Executives need the ability to quickly spot both new opportunities and hidden risks. Asking the right questions can broaden perspective and shake up existing assumptions.
How well do you understand the implications of broad market trends and less visible undercurrents for your business? How much have you thought about how those trends impact your own strategic choices? 
Those are questions posed by Paul J.H. Schoemaker (Wharton School) and Steven Krupp (DSI) in their article “The Power of Asking Pivotal Questions,” in the Winter 2015 issue of MIT Sloan Management Review . The article builds on the authors’ book Winning the Long Game: How Strategic Leaders Shape the Future (PublicAffairs, 2014).
The authors provide three tips for companies whose goal is to stay at the front of their industries:

1. Learn from startups.

Innovators pay attention to what new companies are doing — and why. They ask: What do those companies see that I don’t? Schoemaker and Krupp recommend examining startups’ moves to detect market shifts and emerging opportunities from the outside in.

2. Go to conferences outside your function or industry.

“In its ‘Connect + Develop’ innovation program, Procter & Gamble Co. reaches out to companies outside the consumer products industry to share lessons and explore joint challenges,” write Schoemaker and Krupp. “Follow events in other regions and sectors, even if they seem unrelated to your business at first.”

3. Leverage current networks and join new ones.

How might you engage your existing networks more systematically to stay on top of new developments? Schoemaker and Krupp suggest joining interest groups in adjacent businesses or areas to expand your worldview and examine questions you don’t typically consider.
“The best entrepreneurs excel at peeking around the corner and seeing the future sooner,” the authors write. “We’ve found that leaders can learn to anticipate better by simply being more curious, looking for superior information, conducting smarter analyses and developing broader touch points with those in the know.”
Schoemaker and Krupp highlight the entrepreneur Elon Musk of Tesla Motors, SpaceX and SolarCity as a model for his ability to spot unmet market needs. 
Musk has said that his forward-thinking style, exemplified in his vision of commercializing electric vehicles for the mass market, comes from “just trying really hard — the first order of business is to try. You must try until your brain hurts.” Musk envisioned electric vehicles as the future for the automotive industry but also thought that traditional car companies would take too long to fully embrace the challenges and opportunities.
One of Musk’s biggest tasks with Tesla was to demonstrate that electric cars could be a mainstream product. He expanded his enterprise to include global distribution and battery manufacturing shortly after Consumer Reports rated the Tesla Model S the number one car it ever tested.
“Strategic leaders are focused on the future and are masters at asking discerning questions and exploring ideas and options that are outside the mainstream,” Schoemaker and Krupp note. “They are wary of status quo views and prefer honest, transparent questions that focus on how much, or how little, is really known about the issue at hand.”

Global Gold Demand Drops 12% in Second Quarter

Like oil, gold is hitting a 6 year low and the US currency which was predicted to demise has not. Aivars Lode

Gold has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011

By Ese Erheriene

Global demand for gold plummeted 12% to a six-year low in the second quarter, as vital buyers in Asia lost their appetite for the metal, the World Gold Council said Thursday.
Demand for the precious metal weighed in at 914.9 tons between March and June of this year, down from 1,038 tons during the same period in 2014, according to the industry body’s latest Gold Demand Trends report.
The price of gold for immediate delivery has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011, falling more than 40% as production outstripped demand and inflation stayed mainly low, taking away a usual prop for the precious metal, among other factors. Gold prices ended the quarter down 3%.
“This has actually been a challenging quarter; you’ve [the] evidence in the data,” said Alistair Hewitt, head of market intelligence at the London-based World Gold Council.
The decline came as global demand for jewelry fell by 14% in the second quarter to 513.5 tons, compared with 594.5 tons the year before. Jewelry makes up about 60% of global gold consumption.
A rise in equity purchases and expectations of a rate increase by the Federal Reserve sapped global demand for gold, an asset that doesn’t pay interest and struggles to compete with other assets that offer a return and are deemed safe, like U.S. Treasury bonds.
Global investment demand was down 11% year-over-year, to 178.5 tons from 199.9 tons in the same quarter in 2014. However, fears of a Greek exit from the eurozone managed to support bar and coin demand in the Eurozone countries in the second quarter, with demand up 19% to 46.5 tons from 39.2 tons last year.
Global gold supply declined 5% year-over-year to 1,032.6 tons. This was driven by a drop in gold recycling to 251.1 tons, an eight-year low.
India and China, which together account for roughly half of global gold consumption, both saw demand slide.
The biggest loser was India, where lower rural incomes due to difficult weather conditions over the quarter and fewer auspicious days on which to hold celebratory events in the third quarter dented demand. Planning for these events is usually done a couple of months prior, hence the effect being felt between March and June.
Total gold demand in India slid 25% to 154.5 tons in the second quarter, from 204.9 tons last year. Jewelry purchases were 118 tons in the second quarter, down 23% from 152.6 tons a year earlier.
Meanwhile in China, the attraction of the stock market bubble meant investors piled their money into equities instead of gold. Total gold consumption in China fell 3% to 216.5 tons in the second quarter, compared with 224.1 tons over the same period in 2014. Demand for jewelry fell 5% to 174.4 tons in the second quarter, from 184.6 tons over the same period last year.
In the second half of the year, demand is expected to pick up on the back of gold’s sharp price drop in July, which should attract bargain-hunting by buyers in Asia. Prices shed almost 7% of their value last month. Gold is priced in dollars and so it becomes more expensive for buyers who use weaker currencies to fund their precious metal purchases.
Certainly, the start of wedding and festival season in India, the return to gold by investors burned by the stock market in China and the recent devaluation of the yuan by the Chinese central bank should bolster demand.
“What we’ve seen ... with the devaluation will continue to support the investment case for gold. We often see people turning towards gold when threatened by weak currencies and I think that’s clearly the situation we’ve seen in China over the past few days,” said Mr. Hewitt.
According to the World Gold Council, full-year gold demand is forecast at between 4,200 tons and 4,300 tons. For India and China, the 2015 outlook remains the same and both are seen to weigh in between 900 to 1,000 tons.
Spot gold was trading up 1.4% at $1,124.48 troy ounces on the London spot market, a three-week high.

Yuan’s Devaluation Brings Losses for Some

At the bottom of the article it says that the volatility causes difficulty in doing business. So, how can Bit Coin become a real currency with it's volatility? Aivars Lode

Investors assumed China would keep the currency stable. They were wrong.

By Wei Gu And Anjani Trivedi 

HONG KONG—When China’s government abruptly pressed the yuan lower last week, it upended Antonio Huang’s plan to quintuple a profit on a commodity deal.
Acting as the middleman on a US$3 million trade in the commodity coke, the former banker sought to sweeten his expected gain with a currency and interest-rate play. It didn’t work out. The weak link in his strategy: a bet China’s currency would remain strong.
In the rough-and-tumble world of global currencies, where exchange rates can swing by double-digit percentages in days, the yuan’s 3% fall against the U.S. dollar marked a minor change. But it is proving cataclysmic for investors like Mr. Huang who watched the yuan climb for a decade and anchored bets around the notion it would hold steady.
It has been a dismal summer for the Chinese economy. WSJ's Hong Kong Bureau Chief Ken Brown explains what it means for exporters around the world.
The People’s Bank of China surprised markets by pushing the yuan lower on Aug. 11 in the nation’s biggest devaluation in two decades. A widespread view had taken hold that Beijing would support the yuan, rather than letting it fall in a bid to help exporters as China’s economy weakens, in order to prove its value as a global reserve currency.
Globally, the U.S. dollar has made powerful gains in recent months, but through early August, it had risen only 0.09% against the yuan since the start of 2015. For many investors, the low volatility was interpreted as low risk.
The currency change now adds to woes for China’s increasingly sophisticated investors, who tend to formulate strategies around predictions for government policy, including support for a strong exchange rate. Likewise, a plunge in Chinese stocks in mid-June confounded widespread views among investors that the government wanted a bull run, battering those who borrowed money in hopes of bolstering their equity returns.
In recent years, China has increasingly sanctioned the use of its currency in financial investment strategies. Nearly 150 banks in the internationalized market of Hong Kong now take deposits in the currency, and by last count those had reached nearly 1 trillion yuan, some US$160 billion.
To make use of that money, the financial industry has created investment opportunities involving the yuan. Some are plain vanilla: Investors can buy so-called dim-sum bonds that are denominated in yuan. Issuance by companies including non-Chinese ones exceeded US$35 billion worth in the past two years.
More sophisticated yuan-trading strategies include structured financial products, such as those that involve bets on the currency’s future value versus the U.S. dollar or euro. Tactics involve borrowing U.S. dollars to take advantage of low American interest rates while simultaneously making yuan deposits in higher-yielding, yuan-denominated wealth-management products, fixed-income investments and certificates of deposit, in a basic foreign-exchange play called a carry trade.
Some wealth advisers promise to turn a 3% annualized return into a 10% gain. But a prerequisite for a profit is that the yuan doesn’t fall. Suddenly, many of those deals are threatened.
Two days after last week’s devaluation, the cutting-edge Hong Kong fashion retailer I.T. Ltd. said it lost money because its deposits included 1.2 billion yuan, which is also known as the renminbi. I.T. told its investors in a statement that due to “recent volatility in the exchange of the Renminbi” the company anticipates a currency loss of 60 million Hong Kong dollars (US$7.7 million), an amount equivalent to a fifth of the company’s net profit in 2014.
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The depreciation of the Chinese Yuan may lead to the devaluation of other currencies. What does this mean for the Fed’s plan to raise short-term interest rate? WSJ's Jon Hilsenrath explains. Photo: Getty
Following the devaluation, I.T. said it converted its remaining yuan deposits into Hong Kong dollar instruments.
“There has been a fair amount of pain,” said Khoon Goh, a currency strategist at ANZ Bank in Singapore, referring to investors caught off guard by China’s move.
Though the yuan’s 33% climb against the U.S. dollar since 2005 made it appear like a bastion of strength before last week’s currency move, past episodes have heralded the risk of volatility and even weakness in the Chinese currency.
Last year, the yuan took a hit against the dollar when the Chinese central bank suddenly increased the limit on daily moves in the yuan to 2% above or below its so-called daily fix, from 1%. The move caused a shakeout in the market for products called target redemption forwards, which gave investors a way to magnify gains from a rising yuan by deploying leverage, but exposed them to big losses when the yuan declined. It slid 1.4% during the week the band was widened. 
Some investors appeared to heed the warning. As of March 2014, investment in currency- linked structured investment products—around one-fourth of them had a yuan component—had fallen by HK$114 billion from HK$214 billion in 2012, according to a survey published last year by the Hong Kong Securities and Futures Commission.
Another sign of rising caution about the currency is that once-booming growth in yuan deposits at banks in Hong Kong began to slow this year, just as China’s economy did. While total yuan deposits were still up 7% in June from a year earlier, according to figures from the Hong Kong Monetary Authority, they had fallen by 1% in the previous six months.
Rocky Cheung, head of investment product and advisory in wealth management at DBS Bank in Hong Kong, said more of his clients are now considering how to hedge their yuan exposure against possible further weakness, for instance by buying forward contracts that would offer insurance against further falls. He said others are keeping yuan in cash and short-term bonds, giving them more latitude to sell the currency quickly if conditions change more significantly.
China’s currency move shocked Mr. Huang, who runs his own firm in Hong Kong, Huihai Group.
The 39-year-old native of Jiangsu province had formerly worked at international banks in Singapore and Hong Kong, most recently as head of the Asia trade-finance business for a Spanish bank. At Huihai, opened a year ago, he puts together commodity trades and uses his finance skills to gain an edge.
In July, he paid a Chinese building-materials company $3 million for about 60,000 metric tons of coke, a commodity used in steel production. He had already lined up a buyer in Singapore who would pay a little more than that in September, giving him a profit in the range of 0.2% to 0.3% of the deal value.
Yet his real payoff would hinge on a 60-day deal he structured with a bank in Hong Kong that involved depositing US$3 million worth of yuan of his own money and borrowing the same amount in U.S. dollars, which he used to pay the Chinese coke exporter. The yuan deposit would yield an annualized return of 3.3%, more than the 2% annual interest he would pay on his two-month loan.
Instead of earning about $7,500 on the coke deal, he stood to gain more than five times as much, some $39,000 including the interest-rate arbitrage.
But when China’s central bank devalued the yuan, it slid as much as 3.8% in the offshore market, where the currency trades freely. Mr. Huang’s bank promptly emailed him with a request to deposit an additional 800,000 yuan, or roughly US$130,000, since the now-devalued deposit had served as collateral for his U.S. dollar loan.
Mr. Huang had the cash, moving it from another business. But it wiped out his profit on the coke-financing deal, leaving him with a paper loss of US$90,000.
“I never expected the yuan to fall off the cliff like this in such a short period of time,” said Mr. Huang. “This huge volatility is really bad for conducting normal business activities.”