Quotulatiousness

February 11, 2011

How “those evil speculators” actually provide a very useful public service

Filed under: Economics, Food, History, Liberty, Politics — Tags: , , — Nicholas @ 07:59

Tim Worstall has a very good summary of Adam Smith’s explanation of the very useful public service provided by speculators:

Back to food: this is exactly the argument that Adam Smith put forward to explain the activities of a wheat merchant (Wealth of Nations, Book IV, Chapter V, start at para 40, here, for a decent dose of 18th century prose). When wheat is plentiful (although he calls it corn — the English did not call maize corn until some time later), say after a harvest, the merchant buys it up and stores it. He then waits until prices have risen before he sells it. If his expected shortage in the future doesn’t arrive then he’s shit out of luck and loses money. If it does, then the happy populace now have wheat to eat. For, and here’s the crucial point: what our merchant, our speculator, has done is move prices through time.

If we all ate wheat like it was that bounteous time just after harvest all the time then we would run out of wheat entirely before the next harvest. Prices would, at that point, become really rather high. However, by buying in the time of plenty, he’s raised prices in that time of plenty: thus making everyone consume a little less in that Harvest Festival gluttony. He’s also lowered prices in the Hungry Time (in medieval times, the six weeks before the harvest was indeed known as this, it was the worst time of year for food supplies) because he has at least some grain available rather than none.

So we’ve reduced price volatility, stretched the available supply over more time, possibly even stopped some starvation, by someone being enough of a bastard to speculate on food prices.

Now note, this is physical speculation, actual purchase, taking delivery and storage.

Derivatives speculation, using futures and options, has less effect on prices. It gives us information about what people think prices might be in the future, for sure, but it will only affect today’s prices if high future prices lead to that actual physical storage and hoarding. Which could happen, to be sure, but won’t necessarily.

All of this leads us to what people like M Sarkozy are trying to say and what the WDM are screaming about. The latter, in their report linked above, come right out and say that as more people are playing with food derivatives, this is what has been pushing up food prices. This is nonsensical, in the absence of any physical hoarding. For a start, WDM seems not to realise than a futures market is zero sum: for any profit made by someone then someone else must have made an equal and opposite loss. For everyone going long (betting on a price rise) someone else must have made an equal and opposite bet going short (betting that prices will fall). That’s just how these markets are. It really doesn’t matter to spot (current) prices whether three people are betting £50 or 30,000 are betting $50bn: there will be an equal and opposite number of people long as there are short, by definition.

So it absolutely cannot be that “more people speculating increases food prices”.

WDM’s second point is that more speculation means more volatility in prices: something that almost all economists would regard with a very jaundiced eye. For the general assumption is that futures act upon prices as does Smith’s wheat merchant: they reduce price volatility. Fortunately, the WDM, in its own report, provide us with an example of this. In the 2006/8 price rises, it notes that there’s a deep and liquid speculative market for wheat and corn (maize), while there’s only a very thin one for rice. And yet it was rice that was vastly more volatile in price in this period: despite the fact that it was wheat and maize which people were turning into ethanol for cars (the true cause of the price rises) rather than rice.

The price of a good is also a signal of availability: the more scarce the item is, the higher the price will go. The higher the price goes, the greater the incentive to either limit the use of the item or to search for substitute goods. This is a key feature of free markets: without the price change signalling, consumers cannot accurately guage whether to increase or decrease their use of a particular good. This is why the worst possible reaction to a sudden price increase is price controls: remember the first oil crisis in the 1970s? Price controls meant that people could still buy gasoline at the “old” price . . . until there wasn’t enough to go around. Controlling the price creates artificial shortages and fails to rationally indicate to consumers to conserve or limit their consumption.

Taming the US defence budget

Filed under: Bureaucracy, Economics, Military, USA — Tags: , , , , — Nicholas @ 07:29

The US government is in a financial bind — that’s not exactly news. What is new, however, is that the military may actually have to take cuts, not just smaller increases in the annual budget:

On one side of the argument are fiscal hawks like Rand Paul, newly elected senator from Kentucky, who fear that a national debt heading towards 100% of GDP by the end of the decade is in itself a menace to the nation and defence must take its share of the pain. The sheer size of America’s defence budget puts it in the crosshairs. At around $700 billion a year including war expenditures, it as big as those of the world’s next 20 highest military spenders combined. Last year American defence spending exceeded the average spent during the cold-war years by 50% (adjusted for inflation), while in the past 10 years it has grown by 67% in real terms.

[. . .]

Mr Gates, a canny operator whom Barack Obama retained after he took over from George Bush, began to sniff which way the wind was likely to turn in 2008. He calculated that if he took the initiative, he might stave off deeper and more unwelcome cuts. So he curbed or cancelled more than 30 weapons systems including the army’s Future Combat System, the F-22 Stealth fighter, two missile defence systems and the Zumwalt-class destroyer. Last year he went further, proposing the closure of the Joint Forces Command in Virginia and a 10% reduction in the budget for contract workers for each of the next three years. He asked the armed services to find at least $100 billion worth of “efficiency savings” over the next five years, which he promised to reinvest in other programmes.

[. . .]

Buck McKeon, the Republican who now leads the House Armed Services Committee, has responded with predictable fury to the Gates plan, saying it was “a dramatic shift for a nation at war and a dangerous signal from the commander-in-chief”. Mr Gates can take some comfort from the fact there has been at least as much “incoming” from critics who say he has not gone nearly far enough. They point out that what is being planned is not so much a cut as a small reduction on what the Pentagon had been planning to spend over the next four to five years. The budget will still creep up in real terms until it flattens off in 2015. Given his intention to retire from office later this year, Mr Gates may not have the stomach for attempting anything more radical on his watch.

Human hacking: the overconfident CEO

Filed under: Law, Media, Technology — Tags: , , , — Nicholas @ 07:19

An interesting story at PC World talks about the methods used to get inside information on individuals and companies:

“He was the guy who was never going to fall for this,” said Hadnagy. “He was thinking someone would probably call and ask for his password and he was ready for an approach like that.”

After some information gathering, Hadnagy found the locations of servers, IP addresses, email addresses, phone numbers, physical addresses, mail servers, employee names and titles, and much more. But the real prize of knowledge came when Hadnagy managed to learn the CEO had a family member that had battled cancer, and lived. As a result, he was interested and involved in cancer fundraising and research. Through Facebook, he was also able to get other personal details about the CEO, such as his favorite restaurant and sports team.

Armed with the information, he was ready to strike. He called the CEO and posed as a fundraiser from a cancer charity the CEO had dealt with in the past. He informed him they were offering a prize drawing in exchange for donations — and the prizes included tickets to a game played by his favorite sports team, as well as gift certificates to several restaurants, including his favorite spot.

The CEO bit, and agreed to let Hadnagy send him a PDF with more information on the fund drive. He even managed to get the CEO to tell him which version of Adobe reader he was running because, he told the CEO “I want to make sure I’m sending you a PDF you can read.” Soon after he sent the PDF, the CEO opened it, installing a shell that allowed Hadnagy to access his machine.

When Hadnagy and his partner reported back to the company about their success with breaching the CEO’s computer, the CEO was understandably angry, said Hadnagy.

“He felt it was unfair we used something like that, but this is how the world works,” said Hadnagy. “A malicious hacker would not think twice about using that information against him.”

Takeaway 1: No information, regardless of its personal or emotional nature, is off limits for a social engineer seeking to do harm

Takeaway 2: It is often the person who thinks he is most secure who poses the biggest vulnerability. One security consultant recently told CSO that executives are the easiest social engineering targets.

Reif produces first Canadian raisins

Filed under: Cancon, Food, Randomness, Wine — Tags: — Nicholas @ 07:14

I always figured that we were too far north to produce raisins, despite our large-and-growing grape crops. Just because it was widely thought doesn’t mean it’s true:

“Originally, the idea was to make an appassimento-style wine that involves the drying of grapes that is common in a region of Italy where they make Amarone-style wines,” explains Reif Estate winemaker Roberto DiDomenico. DiDomenico and Reif Estate owner Klaus Reif, a 13th-generation winemaker who immigrated from Germany in the early 1980s and bought his uncle’s Niagara winery in 1987, had some contacts in Simcoe’s tobacco country. “We learned that there would be some kilns available as the tobacco industry has been waning,” says DiDomenico. They purchased two refurbished kilns that were shipped up to Reif Estates in the spring of 2009. And that’s when the process began. Almost. Explains Reif, “Our grapes that we use for the appassimento winemaking process were not yet ready, so we had these two kilns sitting here and we thought, what should we do with them now?”

Wine is made from grapes with seeds while raisins are generally made from seedless grapes. Niagara is wine country, but as luck would have it, a friend of Reif’s, John Klassen, who grows table grapes for supermarkets, happened to stop by the winery for a visit. “He was telling us that his grapes were ripe, but the supermarkets didn’t want them anymore,” says Reif. With those plump, juicy Sovereign Coronation grapes destined for the birds, Reif said, “Bring them in; we’ll try to make raisins.” (While most raisins are made from green grapes, these Niagara raisins are made from red grapes.) DiDomenico and Reif put the grapes in the tobacco kilns for three to four weeks to raisin-up.

February 10, 2011

Reason.tv responds to Hillary Clinton

Filed under: Economics, Law, Liberty, Politics, Wine — Tags: , , , — Nicholas @ 12:55

Workplace diplomacy

Filed under: Bureaucracy, Randomness — Tags: , , — Nicholas @ 12:42

An aside to an email discussion we were having provoked DarkWaterMuse to post his thoughts on the matter:

Diplomacy is a major cause of workplace inefficiency. Mostly, it doesn’t actually matter how things get said.

dwm tends to say whatever is rattling around at the top of his head. Too often what rattles around up there then manages to roll down mysterious passageways carved throughout his brain before it tumbles off the tip of his tongue.

Sometimes the words that escape just lay there, stunned and motionless on the floor, as other people in earshot simply glare at them.

Even worse though is when dwm doesn’t say anything at all. That probably means either there’s a log jam of words building up pressure inside his head, a clear sign of imminent unbounded and unpredictable cranial flatulence, or he’s mentally undressing one of the women who happens to be trapped in the same meeting room.

dwm has never really appreciated the need for diplomacy. Especially when there’s clearly work to be done. He subscribes to the notion that people like to be part of success, however it manages to manifest.

As it turns out, diplomacy isn’t necessary for success. It’s just necessary to manage the people who aren’t focused on it.

I’m not convinced, as I’ve found diplomacy to be one of the most frequently used “tools” in my arsenal. I suspect DarkWaterMuse, as primarily a “producer” of essentially original content has less functional need for the social lubricant of careful wording than someone like me (a “consumer” if you will), who generally requires the active co-operation of others to provide me with the raw material I happen to need to accomplish my tasks.

His point about diplomacy being “a major cause of workplace inefficiency” would more closely hit the mark if he were using it to describe weasel wording rather than diplomacy. As Sir Humphrey Appleby says “A good Civil Servant must be able to use language not as a window into the mind but as a curtain to draw across it.” What is ideal for a civil servant is toxic for good working relationships in non-bureaucratic environments.

No more manned fighters?

Filed under: Military, Technology, USA — Tags: , , , , , , , — Nicholas @ 12:24

As I said the last time this topic came up, “This is not a repost from 1957”. We may actually be looking at the last generation of manned fighters, if this update from Strategy Page is true:

On February 4th, the U.S. Navy X-47B UCAV (unmanned combat air vehicle) made its first flight. It was three years ago that the navy rolled out its first combat UAV; the 15 ton X-47B. This pilotless aircraft has a wingspan of 20 meters/62 feet (whose outer 5 meter/15 foot portions fold up to save space on the carrier). It carries a two ton payload and will be able to stay in the air for twelve hours. The U.S. is far ahead of other nations in UCAV development, and this is energizing activity in Russia, Europe and China to develop similar aircraft.

[. . .]

All of these aircraft are stealthy and can operate completely on their own (including landing and takeoff, under software control). The UCAVs would be used for dangerous missions, like destroying enemy air defenses, and reconnaissance. Even air force commanders are eager to turn over SEAD (Suppression of Enemy Air Defenses) missions to UAVs. SEAD is the most dangerous mission for combat pilots. But until quite recently, all these projects had either been cancelled, or were headed in that direction.

Now, the U.S. Department of Defense wants the new UAV combat aircraft in service by the end of the decade, some twenty years ahead of a schedule that was planned in the 1990s. The F-35 is expected to cease production in 2034, more than a decade after the first combat UAVs, that can match F-35 performance, enters service.

Unable to buy new aircraft designs (because they are too expensive, or simply take too long to get into service), and facing the prospect of unmanned aircraft (UAVs) displacing more and more manned ones, the American military is spending a growing chunk of its budgets on upgrading and refurbishing the combat aircraft they already have. This was not a deliberate, long term plan, but simply a reaction to shortages of new aircraft. A lot of the new electronics and weapons involved in these upgrades can also equip UAV designs still in development, so such efforts are a double win.

More and more, it looks like the new 36 ton F-22 and 27 ton F-35 are the end of the road for manned fighter-bombers. Not just because the F-22 and F-35 cost so much to develop, but because so much new tech has arrived on the scene that it simply makes more military, and economic, sense to go with unmanned aircraft. Meanwhile, the existing F-15s, F-16s, F-18s, A-10s and all American heavy bombers are being equipped with new targeting pods and combat Internet connections, along with new radars and all sorts of electronics. Older aircraft are having worn out structural components rebuilt or replaced. This buys time until the unmanned aircraft are ready. F-35s will also fill the gap, which may be a very small one.

Usual caveats apply of course, and you could do worse than reading the comment thread on that original post for some of the caveats spelled out.

The Netherlands go nuke, downplay wind power

Filed under: Economics, Environment, Europe, Technology — Tags: , , , , — Nicholas @ 09:50

Of all the EU states, the last one you’d expect to give up on wind power would be the one that everyone associates with windmills:

In a radical change of policy, the Netherlands is reducing its targets for renewable energy and slashing the subsidies for wind and solar power. It’s also given the green light for the country’s first new nuclear power plants for almost 40 years.

Why the change? Wind and solar subsidies are too expensive, the Financial Times Deutschland, reports.

Holland thus becomes the first country to abandon the EU-wide target of producing 20 per cent of its domestic power from renewables. This is a remarkable turnaround from a state that took the Kyoto Agreement seriously and chivvied other EU members into adopting renewable energy strategies. The FT reports that instead of the €4bn annual subsidy, it will be slashed to €1.5bn.

I did a quick Google image search for a typical Dutch windmill image, and decided that this one was too amusing to pass up:

XM-25 man-packable artillery piece takes the field

Filed under: Asia, Military, Technology, USA, Weapons — Tags: , , — Nicholas @ 09:17

Lewis Page has some information on the first field use of the XM-25:

First reports are emerging on the performance of the futuristic, Judge Dredd style XM-25 computer smartgun, which went into combat with frontline US troops in Afghanistan in December. The hi-tech rifle — almost a portable artillery piece — is said to have been dubbed “the Punisher” by soldiers who have used it.

The US Army news service reports that the existing five custom-made prototype XM-25 weapons, which have long been trialled and tested in the States, arrived in Afghanistan in November and were first used in combat on 3 December. Since then, as of the army report, some 55 explosive smartshells have been fired in combat and hundreds more in practice.

“We silenced two machine-gun positions — two PKM positions,” said Major Christopher Conley, describing some of the firefights in which the XM-25 has been used. “We destroyed four ambush locations, where the survivors fled.”

Earlier post on the XM-25 here.

Update, 1 April: The XM-25 program is now under contract:

The US Army’s futuristic Judge Dredd style computer smart-rifle project, the XM-25, is moving ahead. Developer ATK, which has so far made just five prototype weapons, inked a $65.8m deal this week to move the weapon into manufacturing.

[. . .]

US troops in Afghanistan, who are trying out the initial five prototype weapons, apparently don’t favour Judge Dredd references. They have reportedly chosen to dub the new smartgun “the Punisher” instead.

Feedback from these users has apparently been positive, with the AM-25’s ability to strike out accurately and speedily at Taliban snipers or machine-gun teams lurking in cover at long range highly prized. The soldiers don’t much care for the gun’s battery system, however, which reportedly has the same flaws as an iPhone’s: it can’t be swapped for a new one and must be plugged in to charge up. ATK are apparently to sort this out as the design develops.

The new engineering and manufacturing development deal is to run for 30 months.

I’m not sure what the change from XM-25 to AM-25 in that report means . . . that is, if the weapon’s designation has changed with the switch to production, or if it’s just a typo in the write-up.

Re-interpreting the theme to “The good, the bad, and the ugly”

Filed under: Media — Tags: , — Nicholas @ 08:48

H/T to Nick Packwood and Paul Jané.

Some basic sense about mergers

Filed under: Economics, Media, Technology — Tags: , — Nicholas @ 00:08

Megan McArdle thinks back to the great fiasco that was the AOL/Time Warner merger:

Austan Goolsbee (now the head of the CEA) spent a class getting us to describe all the reasons that the deal was a good idea — and then systematically demolishing all of our rationalizations. Mergers are not a good idea merely because one company has an asset the other company can use (in the case of the AOL/Time Warner deal, the idea was that AOL’s content and Time Warner’s delivery mechanism were two great tastes that taste great together.) AOL had a perfectly good way to get access to Time Warner’s cable network: the companies could contract to share space. When you buy a company, the price the owners will want you to pay is going to be at least as much money as they could make by holding onto the stock, so there’s no way to generate profits by buying some company simply because it has assets you want to use. In order for the merger to make sense, there has to be something that you can’t do as a separate firm, but can do together.

And that thing has to be pretty profitable in order to make up for the costs of the merger. Acquiring firms usually pay a premium for the companies they buy, which means that the new entity needs to exceed the combined profits of the old just to break even. Beyond that, mergers are extremely costly to the organization. Integrating redundant departments takes up enormous managerial time, involves most of the company in vicious internicene battles to protect their turf, and often involves sacking some of your most talented people simply because there’s an equally talented person already doing their job. Unless it’s a really hands-off acquisition — in which case, why bother? — the conflict between corporate culture often saps morale.

The couple of times a former employer of mine got “merged”, the pattern just about exactly matched what Megan describes. In neither case did the merged entity reap the expected scale of benefit that must have motivated the acquisition in the first place.

February 9, 2011

QotD: (Historical) weather and climate

Filed under: Environment, History, Quotations — Tags: , , , — Nicholas @ 13:01

I read a lot of history and thus know a fair bit about how weather impact has been perceived by humans over time. It is a fact that the 20th century was an abnormally lucky hundred years, meteorologically speaking. The facts I managed to jam into tweets included (a) the superstorm that flooded 300 square miles of the Central Valley in California in the 1860s, (b) rainfall levels we’d consider drought conditions were normal in the U.S. Midwest before about 1905, and (c) storms of a violence we’d find hard to believe were commonly reported in the 1800s. I had specifically in mind something I learned from the book Wicked River: The Mississippi When It Last Ran Wild, which relays eyewitness accounts of thunderstorms so intense that travelers had to steeple their hands over their noses in order to breathe air instead of water; but a sense that storms of really theatrical violence were once common comes through in many other histories.

We had a quiet century geophysically as well — no earthquakes even nearly as bad as the New Madrid event of 1812, which broke windows as far north as Montreal. And no solar storms to compare with the Carrington Event of 1859, which seriously damaged the then-nascent telegraph infrastructure and if it recurred today would knock out power and telecomms so badly that we’d be years recovering and casualties would number in the hundreds of thousands, possibly the millions.

(I’m concentrating on 19th-century reports because those tended to be well-documented, but earlier records tell us it was the 20th century calm that was unusual, not the 19th-century violence.)

The awkward truth is that there are very large forces in play in the biosphere, and when they wander out of the ranges we’re adapted to, we suffer and die a lot and there really isn’t a great deal we can do about it; we don’t operate at the required energy scales. For that matter, I can think of several astronomical catastrophes that could be lurking just outside our light-cone only to wipe out all multicellular life on Earth next week. Reality is like that.

Eric S. Raymond, “Heavy weather and bad juju”, Armed and Dangerous, 2011-02-03

Real usage-based billing might work, but not the current form

Filed under: Cancon, Economics, Media, Technology — Tags: , , , , — Nicholas @ 12:25

Tim Wu contrasts the way the UBB issue is being presented and how it might actually be successful:

The issue of usage-based billing is a little tricky because such systems are not inherently evil. When you think about it, we usually pay for things on a usage basis. Gasoline, electricity and even doughnuts are generally billed based on how much you use. And the fact that usage-based billing sounds reasonable in theory is surely why the Canadian Radio-television and Telecommunications Commission approved the new rules.

But take a closer look and something far more insidious is going on. If bandwidth were actually billed like electricity or water, that might be fine. But what the CRTC approved is something different. Claiming that its profit and consumer welfare are exactly the same thing, Bell wants to remake Internet billing. It wants to make use of the most lucrative tricks from the mobile and credit-card industries by preying on consumer error to make money. And this ought not be tolerated.

Any rule that asks the consumer to guess at usage, and punishes you if you’re wrong, is abusive. Imagine being asked to guess how much electric power you need every month, with a penalty for mistakes. Yes, that’s what cellphone companies do — or get away with — but that hardly makes it a model. It’s a system of profit premised on human error, and this begins to explain Bell’s deeper interest in usage-based billing. Bell wants to make the horrors of mobile billing part of the life of Internet users. And that’s a problem.

H/T to Michael O’Connor Clarke for the link.

Nokia: the company on the burning platform

Filed under: Technology — Tags: , , , , , , — Nicholas @ 07:57

Nokia has a problem. The ordinary cellphone market which mere years ago they bestrode like a Colossus has been overshadowed by the smartphone market, and they’re just an ordinary company in that market.

In the memo, Mr. Elop shares his vision of the current state of the mobile landscape, where Apple controls the high-end of the wireless market with its iPhone, where Google’s Android not only is making its mark in the smartphone arena but now conquering the mid-range market with Android and how Nokia is even losing the fight to control the low end of the cellphone market — an arena in which the company has traditionally dominated — as it struggles to compete with China’s MediaTek for market share and mind share in emerging markets.

“The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience,” he writes.

“Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable … And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.”

Update: Eric S. Raymond thinks the memo shows that Nokia’s new CEO has the courage to grasp the nettle:

If this memo does nothing else, it proves that Elop is not afraid to look facts in the eye and propose drastic remedies for a near-terminal situation. I cannot recall ever hearing in my lifetime a CEO’s assessment of his own corporation that is so shockingly blunt about the trouble it is in. The degree of candor here is really quite admirable, and does more than any other evidence I’ve seen to suggest Elop has the leadership ability to navigate Nokia out of its slump.

It’s clear from the memo that Elop is preparing his company to change their flagship smartphone OS. You can’t get more obvious than ‘We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.’

The available alternatives are Android or WP7. Apple’s iOS is right out because Nokia needs to be able to sell cheap on a huge range of handsets. RIM and WebOS are tied to one company each. MeeGo’s been tried and failed. There are no other realistic contenders.

I think we’re being given some subtle clues that it will be Android.

Update, 12 February: Andrew Orlowski has some post-tragedy analysis of Nokia’s collapse into the arms of WP7:

There are times when you don’t want to intrude on public grief, but Nokia has spent 15 years (or more) trying to avoid this day.

New CEO Stephen Elop would argue otherwise, but giving up control of your platforms means giving up control over your destiny – and Elop has given Nokians not one twig of consolation around which a bit of dignity could be wrapped.

He’s also signalled the end of Nokia as a high R&D spend technology company. “We expect to substantially reduce R&D expenditures”, said Elop bluntly in this morning’s webcast. The new Nokia will be a global brand and a contract manufacturer whose primary customer is itself.

“Disaster” and “stitch-up” are two of the texts I received this morning from Nokians. Finnish press reports 1,000 staff in Tampere walking out. A surprise? Not really. For 15 years Nokia has defined itself, to its partners and customers, as the Not-Microsoft. Now it’s utterly dependent on them. There’s no Plan B.

[. . .]

How does Nokia recreate the product-centric, almost skunkworks development culture of the 1990s, while retaining its global logistical strengths, such as its ability to customise for local markets? How does Nokia prevent Microsoft from stealing its ideas? How does it create services that don’t brass off its biggest customers, the operators? Some of these are very old questions, and the Microsoft tie up does nothing to resolve them — it might even complicate them.

The impact on morale is probably the most immediate thing Elop has to address — it’s a huge blow to Finnish national pride. Elop’s brutal assessment in his “Burning Platforms” intranet post is that Nokia was hopeless at strategy, rubbish at marketing, and couldn’t write software. He all but told Nokians that they should have stayed in the rubber boot business.

What a motivator!

LSE to buy TSX

Filed under: Britain, Cancon, Economics — Tags: , , — Nicholas @ 07:36

It’s a crafty move, but it’s not clear whether it’s the buyer or the seller being the craftier:

London Stock Exchange Group Plc, the 210-year-old bourse operator, agreed to buy Toronto Stock Exchange owner TMX Group Inc. for about C$3.2 billion ($3.2 billion) in stock as the companies cut costs to counter lost market share. LSE surged to a two-year high.

LSE shareholders will own 55 percent of the company, while TMX investors will hold the rest, the exchanges said today in a statement. TMX shareholders will receive 2.9963 LSE shares for each they own, valuing the Toronto-based company at about C$42.68 a share, 6 percent more than yesterday’s closing price.

Xavier Rolet, LSE’s chief executive officer, will reduce 35 million pounds ($56 million) a year in costs and expand into new businesses such as derivatives as competition from alternative trading platforms increases as do mergers among rivals. His predecessor Clara Furse fought off five takeover offers in two years and bought the operator of the Milan stock exchange. The LSE’s share of U.K. equity trading was 63.8 percent last quarter, compared with 75 percent in 2009, data from the London- based company show.

It could be a way for London to diminish the impact of European rules on their business (by having a non-EU place to land if necessary) or it could be a way for the EU to extend their rule-making to the Canadian market. Or, and this is the least believable scenario, it might just be an ordinary acquisition by a company that happens to run stock markets.

Update: What is presented as a take over in other markets is being positioned (spun?) as a “merger” for domestic consumption:

TMX Group, which operates the Toronto Stock Exchange, and the London Stock Exchange announced Wednesday they are merging to create one of the world’s largest stock exchanges.

The merger, which is subject to regulatory approvals, is unanimously being recommended by the boards of both exchanges.

The merger, if approved, would give the new firm a value of just over $6 billion (Cdn.) and give LSE shareholders just over 50 per cent of the combined company.

TMX Group is valued at $2.99 billion, while the London Stock Exchange Group’s value is slightly higher, around $3.25 billion.

The new company will have the world’s largest number of listing, more than 6,700 companies with an aggregate value of $5.8 trillion, the partners said in a statement early Wednesday.

[. . .]

The company will be co-headquartered in Toronto and London with Xavier Rolet, the CEO of the London Exchange, retaining that position with the new company. The president will be Thomas Kloet, the CEO of TMX. The FO will be Michael Ptasznik, who currently holds the same post with TMX, and the company director will be Raffaele Jerusalmi, the Milan-based CEO of Borsa Italiana.

Expect this deal, even if it eventually gets regulatory approval, to drag on for most of this year.

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