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Worries mount about car finance in America and Britain

THOUSANDS of second-hand cars, ranging from dented clunkers to Bentleys, glisten under the evening floodlights at Major World, a car dealership in Queens, a borough of New York. “Business has been good,” says a crisply-dressed salesman, scurrying between prospective customers. Almost everyone who wants to buy a car at Major World can get approved for a loan, he explains, regardless of their credit score, or lack of one: when banks turn buyers down, the dealership offers them its own in-house financing.

In both America and Britain new-car sales reached record levels last year (2.7m cars in Britain and 17.5m in America), as did second-hand-car sales in Britain. So too did car loans: £31.6bn ($42.8bn) in Britain and $565bn in America. Even folk with poor credit records (“subprime” borrowers) have been able to find financing. So some are asking whether this latest credit boom might have sown the seeds of a new crisis.

In America worries have centred on rising delinquencies in subprime asset-backed securities (ABSs) based on car loans. Bundling car-loan repayments into ABSs to sell on to investors represents an important source of financing, particularly for non-bank lenders. Cumulative net losses on subprime car-loan ABSs issued in 2015 are at levels not seen since 2008—over 6% after only 15 months.

Some hear echoes of the financial crisis….Continue reading

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Cancer drugs are getting better and dearer

THE debate in rich countries about the high price of drugs is a furious and frustrating one. The controversy is already having an impact on spending on drugs, suggest new figures from the QuintilesIMS Institute, a research firm. The rate of growth in spending on prescription medicines in America fell to 4.8% in 2016, less than half the average rate of the previous two years (after adjusting for discounts and rebates). Michael Levesque of Moody’s, a rating agency, reckons that pressure over pricing is contributing to a deceleration in earnings growth at pharma firms. Public scrutiny constrains their flexibility over what they can charge and allows payers to get tougher.

In one area, however, earnings are expected to keep rising: cancer. Oncology is the industry’s bright spot, says Mr Levesque. The grim fact is that two-fifths of people can now expect to get cancer in their lifetime because of rising longevity. This is one of the reasons why the number of new cancer drugs has expanded by more than 60% over the past decade. The late-phase pipeline of new medicines contains more than 600 cancer treatments. New cancer drugs are being approved more quickly.

More are…Continue reading

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Harvard Business School risks going from great to good

YOU will all be aware that a book has just been published about our institution, Harvard Business School (HBS). Entitled “The Golden Passport”, by Duff McDonald, it makes a number of unflattering claims about the school’s ethics and its purpose. While often unbalanced, it is likely to galvanise hostility to HBS both inside Harvard University, of which we are a part, and among the public. This memorandum, circulated only to the most senior faculty members, assesses HBS’s strategic position.

Our school has been among the country’s most influential institutions since its foundation in 1908. Our forebears helped build America’s economy in the early 20th century and helped win the second world war. HBS educates less than 1% of American MBA students but case studies written by our faculty are used at business schools around the world. Our alumni fill the corridors of elite firms such as McKinsey. Many bosses of big American companies studied here. Even in Silicon Valley, where we are relatively weak, about a tenth of “unicorns”—private startups worth over $1bn—have one of our tribe as a founder.

We have a business model that monetises the Harvard brand…Continue reading

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America’s Treasury ponders issuing 40-, 50- or 100-year bonds

HOW can governments borrow most cheaply? The answer matters hugely for taxpayers. Take America: it has $14trn in outstanding national debt, fully three-quarters of GDP. Interest payments alone are expected to reach $280bn this fiscal year—ie, more than three times the combined budgets of the Departments of Education, Labour and Commerce.

The problem largely comes down to deciding how much long, medium and short-dated debt to sell. Almost every country issues a combination of these maturities. In the current low interest-rate environment, however, many argue that governments should sell proportionately more long-dated bonds to make sure they are able to pay historically low rates for many decades to come, thereby saving taxpayers money in the long run.

Some countries have already ploughed ahead. In recent years Britain, Canada and Italy have sold 50-year bonds; Mexico, Belgium and Ireland have issued 100-year debt. The latest country to flirt with the idea is America: last month the Treasury sent out a survey to bond-dealers to gauge market appetite for 40-, 50- and 100-year bonds. On May 3rd officials said that Steve Mnuchin, the…Continue reading

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Might legalising the rhino-horn trade actually help the rhino?

Pricier than snake-oil, and deadlier

A DEAD rhino, with a bloody stump in place of its horn, means different things. For the species it is the danger of imminent extinction; for wildlife-lovers it is barbarism; for law-enforcers it is failure. For its poachers it means income; the horn will be exported illegally to fetch tens of thousands of dollars. For economists, it means market forces are at work.

South Africa is in the throes of a poaching epidemic. Official figures show poachers killed 1,054 rhinos in 2016, up from just 13 in 2007. In Kruger National Park, home to the world’s largest rhino population, numbers are dropping despite a fall in recorded poaching incidents. Tom Milliken of TRAFFIC, a wildlife-trade monitoring network, worries that poachers have become better at hiding the carcasses.

The problem is international. The rhino-horn supply-chain sprawls from South Africa, home to nearly three-quarters of the world’s rhinos, to Asia, and in particular to Vietnam, where rhino horn is coveted as medicine, prescribed for fevers, alcohol dependency and even cancer.

Prohibitionists call for better law-enforcement. Demand for…Continue reading

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Neste uses animal waste to make a cleaner form of diesel

Protected species

IN ALDOUS HUXLEY’S “Brave New World”, the human corpses in Slough Crematorium are turned into a phosphorous-based fertiliser. “Fine to think we can go on being socially useful even after we’re dead,” a character enthuses.

An engineer at Neste, a Finnish oil company, wryly echoes that observation while showing visitors around a novel diesel refinery in Porvoo, an industrial town 50km (31 miles) east of Helsinki. But the sickly-smelling brown gloop fed into the town’s pre-treatment plant has nothing to do with humans. It is made from the rendered fat of slaughtered cattle and pigs, transported by tankers in heated vats to stop it congealing. No reindeer, either. “Too lean,” he says.

In a triumph of the “circular economy”, Neste has found a way to make transport fuel more sustainable. After heating and filtering the gunk, what is left of it is mixed with hydrogen in a refinery, producing diesel-like hydrocarbons that are then tailored so that they can be poured straight into the tanks of everything from cars to passenger jets. “You could put this in your VW diesel and drive off,” says Joshua Stone of…Continue reading

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Warren Buffett has many fans in China but few true followers

AS THE second-richest person in the world, and with a half-century record of investing success, Warren Buffett is a household name worldwide. But in China, he is something more: a celebrity. In March a special edition of Cherry Coke, featuring a cartoon image of the 86-year-old investor, hit Chinese shop shelves (Mr Buffett not only loves the sugary beverage; he is Coke’s largest shareholder). On May 6th thousands of Chinese investors will descend on Omaha for the annual meeting of Berkshire Hathaway, his holding company, and many more will tune into a live-stream of the event. Mandarin is the only foreign language into which the proceedings will be simultaneously translated. Those who miss the broadcast can pick up one of the hundreds of Chinese books about his approach to minting money.

Mr Buffett’s stature in China stems partly from good timing. China’s modern stockmarket was launched in 1990. Just as neophyte investors grappled with earnings reports and trend lines, the Oracle of Omaha’s reputation as the world’s best stock-picker was blossoming. Compared with the regular booms and busts of the Chinese stockmarket, the steady returns of Berkshire Hathaway…Continue reading

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