Monthly Archives: February 2012

Naoki Tanaka: Japan May Pull Out of Multi-Billion Dollar Deal with Lockheed Martin

Japanese Defense Minister Naoki Tanaka

Japanese Defense Minister Naoki Tanaka told the Japanese parliament that Japan may be forced to back down from a deal with Lockheed Martin for the purchase of 42 F-35 stealth fighter jets if prices for the state-of-the-art craft continue to climb or if manufacturing delays adversely affect their delivery date.

Last year Japan announced its intention to purchase the fighters in a proposal valued at more than $5 billion. The F-35 is poised to become the fulcrum of the US armed forces and allied military organizations internationally, but the planes development and construction has been the victim of delays and over-budget costs.

Japan is expecting delivery of its first F-35s in 2016, priced at about $120 million each.

“I think we will reach a formal agreement before the summer,” Tanaka told a session of Parliament. “If we cannot reach an agreement at that time, this would create a great deal of uncertainty for our national defense and preparedness. We would naturally have to view the possibility of canceling our plan or selecting another aircraft.

The program to build the F-35s is a partnership between Lockheed Martin, Northrop Grumman and BAE Systems. They hope to build a total of 2,400 fighter jets for sale to the US military and US partner nations, with three different models planned for each of the three main armed services divisions, Air Force, Navy and Marine Corps. The cost of the program was originally established to be a total of $233 billion, but now estimates predict costs to top out closer to $385 billion. Some analysts believe that over the coming 50 years the cost of manufacturing the F-35 could even reach $1 trillion.

The F-35 will replace the old Cold War-era fighters such as the Air Force’s F-16 fighter and the F/A-18 Hornet favored by the Navy.

Robert Gates, the previous defense minister, said last January that the Marine’s version of the F-35 was placed on a two-year probationary period due to “significant testing problems.”

Leon Panetta, his successor as defense minister, nullified the probation at the end of last month.

Still, the Pentagon wants to slow down its schedule of purchasing the plane to save money, which can have consequences on the timely delivery of the jet fighters abroad as well as adding to the already high cost of the plane; therefore Japan’s concern that they might be forced to either choose an alternate plane, or pull out of the deal altogether.

Quote of the Day: No Substitute for Hard Work

Business opportunities are like buses, there’s always another one coming. – Richard Branson

There is no royal, flower-strewn path to success. And if there is, I have not found it. For if I have accomplished anything in life, it is because I have been willing to work hard. – C.J. Walker

To think is easy. To act is difficult. To act as one thinks is the most difficult. – Johann Wolfgang Von Goeth

European Stocks Up as Bailout Talks Continue

European stocks are maintaining a six-month high, rising for a fourth day as China takes action to boost growth and EU officials work on another Greek bailout.

TNT Express increased by an impressive 60% after turning down a significant offer from United Parcel Service, while TNT shareholder PostNL climbed 50% as well. Meanwhile, the Stoxx Europe 600 Index rose 0.8%, to 268.16.

“It is in most countries’ interest to preserve the European Union and the euro,” explained Peter Garnry of Saxo Bank AS. “We think there will be a deal, the Chinese will come into the game and play a more stabilizing role for Europe because it is one of their largest export markets.”

A meeting held in Brussels this week aims to settle new loans for Greece. Some have suggested contributions from a number of banks, as well. Private investors are another option for alleviating some of the pressure on the region.

“We still have a bit of work to do,” conceded Wolfgang Schaeuble, German Finance Minister. “We’ve set out to wrap up the decision on a new aid program for Greece. I’m confident.”

The Highest Grossing Movies are Usually Not Oscar Material

This year’s best money makers are famously not Academy Award films, sticking to a tradition that only serves to highlight the apparent fact that audiences go the movies to be entertained, not to think.
Last year the highest grossers were:

1.    Harry Potter and the Deathly Hallows: Part 2- bringing in over $381 million at the box office.
2.    Transformers: Dark of the Moon($352 million)
3.    The Twilight Saga: Breaking Dawn — Part 1 ($281 million)
4.    The Hangover Part II ($254 million)

One must continue down this list until position 13, when one finally gets to a Best Picture nominee, The Help, which made $170 million last year.

In fact there has been scarcely any film which merited Best Picture recognition while also cashing in. According to the statistician William Briggs, since 1940 15 Best Picture winners made 25% or less of that year’s highest grossing films. In the past ten years this has happened four times:

1.    In 2004 Shrek 2 made $441 million compared to Million Dollar Baby’s $100 million.
2.    In 2005 Star Wars made $380 million while Crash made $54 million
3.    In 2007 Spider Man 3 with $336 million trounced No Country for Old Men at $74 million
4.    In 2009 the hi-tech spectacle Avatar raked in a gargantuan $750 million compared to the relatively minuscule take of The Hurt Locker at $17 million

“If this trend continues, in 20 years nobody but Academy members will even have heard of the Best Picture,” Briggs said in a pre-Oscars blog post last year. “On the other hand, if the previous 5 Most Popular pictures are any guide — Shrek 2, Star Wars: Episode III — Revenge of the Sith, Pirates of the Caribbean: Dead Man’s Chest, Spider-Man 3, The Dark Knight, Avatar — the Most Popular movie two decades from now will be targeted at audiences who are still attempting to master pasting and scissoring skills.”

IMF Warns Global Economy in Face of Rising Oil Prices

As debt crisis and economic turmoil sweep across Europe, the International Monetary Fund has identified another looming threat to global economy; rising oil prices. The fund strongly suggests monitoring tension between Iran and the Western world.

The United States have sanctioned Iran’s oil consumers, and the EU is considering an embargo as well. Seeing as Iran is one of the top five oil exporters in the world, the resource’s price has risen significantly in recent weeks.

Officials from around the world participated in a meeting in Mexico City, where central bankers from the Group of 20 and finance ministers discussed the price increase and the issues it will potentially cause.

Concerns are strengthened by a Tehran threat to block the Strait of Hormuz, which is the main shipping lane of oil through the Gulf.

IMF First Deputy Managing Director David Lipton said “A new risk on the horizon, or maybe not on the horizon, maybe right in front of us, is high oil prices.The situation in Iran is a risk that we have to be thinking about. Our assessment is that the global economy is not really out of the danger zone,” he continued.

Timothy Geithner, U.S. Treasury Secretary, revealed that Washington is considering using the U.S. oil reserve in order to alleviate some of the global pressure. However, Organization for Economic Cooperation and Development Secretary-General Angel Gurria said the oil prices rise is related purely to politics. Reserves, he said, will do little to remedy the issue.

“There is a lot of tension, these discussions every day over the Straits of Hormuz and Israel,” Gurria said, stating that the $100- a-barrel prices are the “new normal.”

“We are not seeing a situation today where there is something wrong with (market) fundamentals; in fact, we are seeing a slowdown in the global economy. There should be a reduction in consumption,” he said.

Increasing Gas Prices Sparking Worry About Recovery

Price of Gasoline Going Up

If we use the past to predict the future, then there may be cause for concern as we watch the cost of gasoline continue to climb. The upward movement of gas prices can’t help but remind us of a similar scenario, when early in 2011 the political turmoil in the Middle East caused oil prices to climb, which in turn threw the US economy back into recession mode after showing signs of recovery.

The past few weeks Americans have been nervously watching the price of oil at the pump climb, wondering if this is 2011 redux. Luckily most analysts think not, saying that today’s economy is in a much better position to absorb any blows it might take from rising oil prices.

“This is the dark cloud in an otherwise brightening domestic economic picture. It’s something we need to watch right now, but not panic about yet,” said Jerry Webman, chief economist at OppenheimerFunds in New York.

Since the beginning of 2012 US gas prices have soared by 8.8 percent, says the Energy Information Agency. The average price of gas in the US peaked at $3.65 per gallon last week. That amount is a record high for the season, winter usually being a slower time for demand.

“Fortunately the U.S. economy is on an upswing, not strong but on the way up. It’s in a better shape to deal with the oil prices,” said Sung Won Sohn, an economics professor at California State University Channel Island. “We don’t have the Japanese tsunami to worry about, business and consumer confidence has improved, and the job market is growing nicely.”

Top 4 Businesses and Trends for 2012

  1. Senior Care

Medicine and related technology have changed the senior world today; Americans are living longer and more independently as they age. Still, mobility and daily tasks can be difficult, and so businesses and services in the senior care industry are booming.

  1. Health and Wellness

Whether it’s a fitness center or a healthy salad bar, the nationwide trend of healthy eating and fitter lifestyles has boosted the industry’s consumer potential. Wellness plans, gyms, training and healthy food products are all up there in the popular category.

  1. Shipping and Logistics

No matter what the state of economy, products and goods will still need to be moved. Logistics include insurance claims, packaging, shipping and pricing. Smaller businesses do not have the resources to hire top professionals, and so smaller logistics and shipping companies have been popping up across the nation.

  1. Outsourcing

The recession has helped businesses learn to make cuts without severely damaging their productivity. Technology has played a big part in compensating for the losses. Programs like QuickBooks replace bookkeepers, and online outsourcing is a great way to hire cheap, temporary staff for any type of business.

Great Google Perks

So why is it so great to work for Google anyway? For one thing, they make sure that their employees are happy with a capital ‘H.’

Out in Silicon Valley in Northern California Google employs about 32,000 people, working on projects as diverse as cell phone software to search algorithms.

“People have a tendency in larger organizations to create their own hierarchy, so we do a lot of things to counteract that and make it feel more intimate,” says Laszlo Bock, Senior Vice President of People Operations at Google.

Included in those efforts at keeping the feelings warm and fuzzy are some particularly unique benefits that very few other companies have the wherewithal to offer. Included among many other fantastic perks are free gourmet food, on-site laundry, dry-cleaning and alterations, an outdoor sports complex and a lineup of great speakers to make your head turn.

India Optimistic About Coming Economic Growth

C. Rangarajan

In spite of the lagging global economy, analysts believe that India could experience economic growth to the tune of 8% in the coming fiscal year.

A leading government panel in India is looking at Indian growth with an optimistic eye even though Asia’s third largest market lost some of its momentum as a response to the 13 hikes in interest rates by the central bank since March 2010 as a way to control runaway inflation. Today what was close to double-digit inflation is down to 6.5 percent, its lowest rate in 26 months.

"We might be able to reach a growth rate of eight percent" in the next fiscal year to March 31, 2013, said C. Rangarajan, head of the Prime Minister's Economic Advisory Council, putting the range at between 7.5 and eight percent.

The coming year should see inflation staying in the vicinity of 5 to 6 percent.

"But to get back to nine percent growth we need a more hospitable global environment," Rangarajan said. "Until the global environment clears, we should be able to achieve eight percent (annual) growth."

The government is desperate to see an Indian growth rate close to 9 percent, the minimum they see as a way to meaningfully reduce the devastating poverty which is the scourge of hundreds of millions of Indian citizens.

Wal-Mart Offers Insight on New “Consumer Normal”

Americans will spend money despite the hesitant economic recovery as long as they believe they are buying at the lowest prices, according to Wal-Mart Stores Inc., the U.S.-based multinational retailer.

The department store chain discovered the nation-wide habit by guaranteeing the lowest prices in the market throughout this year’s holiday season. Last year’s fourth quarter was mobbed by shoppers, drawn by Wal-Mart’s bargains, helping the business achieve its first traffic increase since 2009. Still, Wal-Marts limitations were hit.

“Core customers remain cautious about their finances,” said Mike Duke, president and chief executive of the chain. Despite the downsides to the strategy, he added “You can expect us to invest even more in lower prices.”

The new consumer trait will likely have widespread effects, as a diverse range of companies struggle to adjust their prices without cutting too much into their profits. Wal-Mart is a prime example, as it attracts around 10% of the U.S.’s nonautomotive spending.

During last year’s fourth quarter, net sales increased to $122.28 billion, though analysts had predicted revenue of $123.9 billion. The sales included membership fees from Wal-Mart’s Sam’s Club as well.

Brian Sozzi, analyst at NBG, said: “They’re (Wal-Mart) working extremely hard just to see improving sales. But it’s coming at the expense of profits on each sale. Just imagine if they weren’t doing this.”

Still, Charles Holley, Wal-Mart’s chief financial officer, said January’s performance was significantly improved. Sales are expected to gain momentum throughout the quarter.

“I do think there’s a new normal with customers,” he said. “The markets are more volatile. Gas prices are more volatile. Customers are looking for new ways to save money because they don’t know around the corner.”