MBS Blog

The government of Ukraine is back to the waiting game for another tranche from the IMF. Part of the expected deal, is pension reform, which translates into increasing Soviet era retirement ages.

Raising the retirement age in most nations is sound economics , especially with people are living longer. However, life expectancy has declined in Ukraine since the fall of the Soviet Union, especially among Ukrainian males, many of whom will die before reaching retirement age. Of course, this was how retirement and pensions systems were initially configured. In the United States, the retirement age for Social Security eligibility, was for many decades, higher than average life expectancy of Americans. It was one of the reasons the system worked so well for so long.

IMF May Decide on Tranche to Ukraine in April, Tigipko Says

The economic policies described below should do wonders for the Russian economy.  Sarcasm aside, Putin’s well intentioned (whatever one thinks of Putin, he believes he is a Russian patriot) restrictions-like all protectionist policies designed to help domestic industry-will backfire as the productivity that technology provides will not be available. That will be the effect of tariffs.

It is no surprise that xenophobic Russia employs protectionism. This fits into a historical pattern of encouraging development periodically, and then squashing it just as it bears fruit. A vast nation like Russia with an incredible array of resources should be the richest nation in the World, but protectionist and other anti-growth policies keep it underdeveloped. The excuse of protecting domestic companies and jobs is always used, though an examination of nations that allow competition shows that it increases wealth, tax revenues, and creates a greater numbers of jobs.

Our hope is that Ukraine does not adopt these restrictions. Given the cultural similarities between Russia and Ukraine, as well as the shared oligarchic influences in both governments, we would not be at all surprised if Ukraine went down the same road. It would be even more damaging to Ukraine since it does not have the same resources of Russia and must rely more on the industrial, service and consumer sectors of the economy.

 Restrictions and tariffs on farm equipment and machinery in a nation sitting on an under-utilized agricultural sector with the best farm land in the World, would damage a nation that has already suffered through ill conceived socialist collectivization decades ago.

Putin’s Tariffs Stall Russian Growth for Caterpillar

By Melita Marie Garza and Paul Abelsky

April 20 (Bloomberg) — Prime Minister Vladimir Putin’s trade measures are starting to keep Deere & Co. combines and Caterpillar Inc. trucks out of Russian wheat fields and coal mines, dimming the companies’ prospects for expansion abroad.

Deere and Caterpillar, reeling from the longest U.S. recession in a quarter century, were the companies most affected by loan restrictions and tariffs of as much as 25 percent that Putin imposed this year, according to a U.S. Chamber of Commerce survey of the top 50 American businesses operating in Russia.

Putin is trying to boost Russian industries with tariffs on everything from drugs to farm equipment as declining oil revenue saps the nation’s economy. The policies are hurting sales by Caterpillar, Deere and Agco Corp. in a market where revenue was forecast to rise as much as sixfold in the next decade.

“The new tariffs kicked these guys in the knees when they were down,” Larry De Maria, a New York-based analyst with Sterne, Agee & Leach Inc., said in a telephone interview. “Russia was supposed to be a $3 billion market in 2008 with potential to grow to $20 billion, possibly in as little as a decade.”

Emerging-market sales likely fell so far this year for Deere and Caterpillar, which reports first-quarter earnings tomorrow, De Maria said. Caterpillar is expected to report profit excluding certain items of 5 cents a share, the average estimate of 20 analysts surveyed by Bloomberg. The company earned $1.45 a share a year earlier.

“We are really going to struggle this year in Russia,” Ken Harding, Caterpillar’s regional execution manager for the Commonwealth of Independent States, said in a telephone interview.

‘Low’ Expectations

Caterpillar’s “expectation is low” that it will sell any of its 60-ton trucks, used for quarry and construction work, in Russia this year after selling eight last year, Harding said.

Starting in January, Peoria, Illinois-based Caterpillar and other foreign makers of off-highway trucks faced duties of 25 percent, an increase from 5 percent last year. BelAZ, a Belarusian equipment producer that dominates the region’s truck industry, isn’t subject to the tariff and will benefit, Harding said.

Caterpillar declined 59 percent on the New York Stock Exchange in the 12 months through April 17. Deere fell 56 percent, and Agco dropped 64 percent.

Deere, the world’s largest maker of agricultural equipment, and Duluth, Georgia-based Agco are being hurt by a program that gives Russian farmers a 20 percent discount on loans from Russia’s Central Bank if they buy domestic machines.

Loan Program

The deal is for loans made through OAO Sberbank, Russia’s largest lender, and Rosselkhozbank, the Russian Agricultural Bank, which both have local offices that farmers rely on for financing, Michael Considine, director of EurAsia issues for the Washington-based Chamber of Commerce, said in an interview.

“If a Russian farmer had the cash to buy a Deere combine, it would cost substantially more because of the tariff increase,” Considine said. “And if you didn’t have the money, you could just forget about it because you’d only be able to get the money to buy something made in Russia.”

Putin undertook the measures after a December visit to Rostov, Russia-based Rostselmash, the country’s leading combine maker.

Putin’s press secretary Dmitry Peskov wasn’t available for comment. Valeriy Khromthenkov, a Russian official in Washington with oversight of agricultural issues, declined to comment. A spokesman for Finance Minister Alexei Kudrin, who also is deputy prime minister, wasn’t available to comment.

‘Dramatically Reduced’

Agco’s sales are “dramatically reduced” in the region, because borrowing for a foreign tractor is now almost impossible, Greg Peterson, Agco’s head of investor relations, said in a telephone interview.

In its first-quarter earnings announcement in February, Moline, Illinois-based Deere said sales will decline in Central Europe and the Commonwealth of Independent States for the year. Ken Golden, a spokesman for Deere, declined to comment.

“Our main problems have been the lack of state subsidies on loans combined with insufficient operating cash and the general economic downturn, not the import tariffs,” Alexander Altynov, the general director of AgroSnab, an official John Deere dealer in Russia, said in a telephone interview.

Market Decline

Altynov predicted the foreign machinery market in Russia will decline as much as 75 percent this year.

Deere was expected to post second-quarter profit excluding certain items of $1.08 a share, the average estimate of 17 analysts in a Bloomberg survey.

The U.S. Trade Representative has worked with the U.S. combine harvester industry and at a meeting in Moscow in March expressed concern about the tariff, Nefeterius McPherson, a spokeswoman for the trade representative, said in an e-mail.

The tariff runs counter to Russia’s G20 pledge to avoid protectionist measures and is contrary to a November 2006 bilateral agreement that Russia will maintain a 5 percent tariff on combines until it joins the World Trade Organization, McPherson said.

The ruble’s 31 percent decline against the dollar since July also has made foreign products more expensive. Russia’s Economy Ministry estimates that imports have tumbled more than 30 percent in the first quarter of this year.

Last month, Russia allocated 25 billion rubles ($746.7 million) to OAO Rosagroleasing, the nation’s largest farm- equipment leasing company, and 45 billion rubles to state-run Rosselkhozbank as part of a 3 trillion-ruble stimulus package.

Rosagroleasing spent the money on Russian-made equipment, including 5 billion rubles on OAO KamAZ trucks, Agriculture Minister Yelena Skrynnik told Putin during a meeting on April 17, according to a transcript on the government’s Web site.

Farm Equipment

Russia’s Union of Farm-Equipment Producers, known as Soyuzagromash, asked the government last week to extend the 15 percent import duty on combines to all farm equipment. The tariffs may boost domestic market share for farm machines to 60 percent, the union said.

“The government wants both to help the domestic producers and keep the state funds allocated to the agricultural sector inside Russia,” said Mikhail Pak, an analyst with IFC Metropol in Moscow.

Putin’s efforts may hurt U.S. companies’ operations in the rest of the world, said De Maria, of Sterne Agee.

“There is a worry that these measures could spread to China and other emerging-market countries,” De Maria said. That “would be a blow to the Deere brand and others, stifling their growth strategy as local companies build share.”

(from www.bloomberg.com)

“Best kept secret in Europe!”  That is the cornerstone behind the founding of MBS Ltd.  Our philosophy is that we can help companies navigate and mitigate the pitfalls and obstacles of doing business here, to take advantage of the many opportunities. This requires vision, and a LONG TERM perspective. For those individuals and companies that have that, the rewards will be great as Ukraine is a “virgin” market, untapped and ready to be reshaped.

We believe Ukraine will at some point, break free from current restraints and “leap frog” over many of its more developed neighbors like Poland. With MBS Ltd. and very soon BOZONGO.COM, investors and entrepreneurs will have the tools they need to realize their goals here.

Hard-Core Investors Staying Put Despite Endless Crises

KIEV, Ukraine — Weak competition, high profits still make nation a promised land for some businesses. No matter what Ukraine throws at them, a small, hard-core group of foreign investors – from giant multinational corporations to lone expatriates – weathers the turbulence.

A conveyor line at the Trostyanets chocolate factory in Sumy Oblast, the biggest Kraft Foods factory in Ukraine.

They stay through crisis and boom times, “blue” and “orange” politicians, a hryvnia worth 4.6 to the dollar and a national currency that trades closer to 10.

They stay put when other foreigners get scared away by headlines of rampant corruption, a sea of bureaucratic red tape and political chaos. Who are these determined businesspeople? Do they make a lot of money here? If so, how do they manage to swim in Ukraine’s muddy waters?

“Ukraine is the best kept secret in Europe,” insisted George Logush, vice president of Kraft Foods International and area director for Ukraine, Eastern Europe and Central Asia. “The European media did a wonderful job, focusing on negative things and rarely showing positive aspects. [To them, I say]: ‘Thank you for sheltering this market for us from the competitors.”

Kraft Foods Ukraine is part of Kraft Foods, the world’s second-largest food and beverage company. It is one of the most successful investors in Ukraine, known by Ukrainians for Korona and Milka chocolate, Jacobs coffee, Lux potato chips, holding a leading position in all three categories. In 14 years, Kraft invested more than $150 million into Ukraine’s economy and increased its business by 100 percent, Logush said, a feat that “would not be possible in very many countries.” Today, the Kraft group boasts annual revenue in Ukraine of about $400 million on domestically-produced products, and more on imports, such as coffee.

The company arrived in 1995, when the economy was still reeling from the collapse of the Soviet Union four years earlier. The hryvnia, the new national currency, had not yet arrived. In its place, until 1996, Ukrainians used the karbovanets, a coupon-like form of payments.

One of the keys to Kraft’s success, Logush said, has been the company’s ability to take advantage of hard times to introduce new product lines. “Now we launch biscuits,” Logush said. “Crisis is the time when you can shake up the established order, because it’s being shaken anyway.”

Yet Kraft remains one of a relatively small number of multinational corporations and foreign investors who have ventured into Ukraine, a vast and largely untapped market of 46 million citizens.

The nation has attracted a mere $35 billion in foreign investment since independence. By comparison, nearly $200 billion has poured into neighboring Poland, a European Union member with eight million fewer citizens than Ukraine, since the Soviet Union’s collapse.

Many investors have stayed out because of corruption, red tape and political squabbles between ex-Prime Minister Victor Yanukovych’s “blue” forces and the “orange” ones led by the now-dissolved alliance of President Victor Yushchenko and Prime Minister Yulia Tymoshenko.

Jorge Zukoski, president of the American Chamber of Commerce, said Kraft’s success is shared by many foreign investors brave enough to tiptoe into the market. They stay, Zukoski said, because they’re generating higher profits than they might in other nations. By establishing themselves first, companies such as Kraft grew fast, faced limited competition and can look forward to high growth rates ahead.

Zukoski said it helps to be in a place for the long run.

“At the end of the day, the large strategic and institutional investors that we represent see the current global financial crisis as a short-term blip on the radar screen. They look at Ukraine as a 50- to 75-year play and understand that there are very few countries left in the world that have the potential to drive future growth for their companies.” Despite the challenges and difficulties, chamber members keep striving for a Ukraine that is “competitive and well-positioned when global growth resumes,” Zukoski said.

But for some investors, the headaches of doing business in Ukraine are simply too much. And, while normal economic cycles are manageable, sometimes Ukraine’s off-the-charts corruption is not.

“The crisis did not affect our business in Ukraine as much as the corruption,” said Hanan Mor, owner of an investment company, in an interview with Israel’s Calcalist newspaper. “That is why we are stopping any business initiatives in this country.”

But the cheerleading and individual success stories cannot hide the fact that, by many measures, Ukraine’s business climate remains unfavorable. The list of grievances is long: unstable legislation, corruption, red tape, non-transparent taxation system, raider attacks, abuse of intellectual property and auctioneer rights.

Politicians are aware of the problems, even if they seem unwilling or unable to improve the situation. As parliamentarian Nataliya Korolevska told an investors’ conference in February: “As the world investment capital reaches $1.5 trillion, Ukraine has to do everything to participate in the process under competitive terms.”

Hard-core investors say instability is part of the game.

“I’ve been here for 15 years and this country has never been stable. I wouldn’t advise anybody to stay out of Ukraine, just because they want to wait for the next election,” said Glen Willard, a 15-year business veteran in Ukraine and founder of Willard, an advertising and public relations company.

Willard admitted that the worst part of doing business in Ukraine is its unpredictability. “Other than that, business is not easy anytime, anywhere,” Willard said: “So just get over it.”

Kraft’s Logush also said Ukraine is not for the squeamish.

“If you need to find an excuse to leave the country, you’ll find it,” Logush said. “Particularly, in terms of political instability, I think people are just extremely shortsighted and purposely blind. How long has democracy been in Ukraine?”

American businessman Paul Waters is one of hundreds of expatriates who have thrived on the Ukrainian market. Since arriving 17 years ago, Waters appears to have done a little bit of everything in Ukraine and he has no intention of leaving. From steel trading to the construction business, software and solar panel systems development, Waters said that “Ukraine has been very kind to me. I could be sitting on my boat in California fishing. But in Ukraine, I am enjoying everything. It’s not a Disneyland, it is real,” Waters said.

Waters did, however, confess that it took him awhile to get accepted. He also was cheated several times by Ukrainian partners.

“When I arrived, there were all these Soviet bosses, running businesses and, certainly, they were not as open to our ideas,” Waters said. Ukrainian companies still lack efficient administrators, but they have plenty of highly educated people, computer wizards and other professional standouts to choose from, according to Waters.

Seasoned foreign investors have had success in the financial, insurance and telecommunication sectors, as well as food production and construction, according to Konstantin Stepanov, chief analyst at Sokrat investment group.

The leading individual foreign direct investment in Ukraine’s all-important metal sector came from the $4.8 billion re-sale of the former Kryvorizhstal steel mill in Kryviy Rih, the nation’s largest steelmaker, to ArcelorMittal Steel in 2005. The sale followed a scandalous purchase by a group led by Ukrainian billionaires Rinat Akhmetov and Victor Pinchuk, who bought the steel mill for six times less than what ArcelorMittal, the world’s largest steel company, paid in an open auction.

So, 18 years after independence, Ukraine still represents a big gamble with big potential payoffs – and terrible downsides. It’s a high-risk, high-reward game, Logush admitted. But many are betting that emerging economies will get out of the crisis more quickly than developed ones.

“Which of them will [foreign investors] gamble on first? The ones with the greatest multiplier effect, the largest scales, like China and Brazil. But they always want to spread the risks,” Logush said. “I think those who’ll go into the Ukrainian economy will do very well.”

(from the Kyiv Post)

The tension between Europe and Ukraine is increasing on another front. This article at www.unian.net seems to confirm some of the rumours swirling about; Ukraine is threatening to end the visa free regime that Europeans enjoyed over the last several years.  No word on how or if this will affect citizens of the United States or the U.K.

Several years ago, Ukraine broke with the cumbersome and expensive Soviet visa scheme still practiced in Russia. This has brought a small but measurable wave of investment, new business and tourism into Ukraine.

It has certainly made it easier for entrepreneurs to work and develop new businesses here. The continuation would certainly go a long way towards increasing further investment when the global economic crisis eases, and will facilitate an even greater transfer of wealth from West to East.

Many companies in Europe will relocate their manufacturing in the next decade. A positive atmosphere as evidenced by a visa free regime, would help with this process just as a streamlined visa process did in China during the 1990s. This does not take into account the agricultural sector which will see a flood of Euro investment when laws regarding the sale and leasing of land change.

As expats who look towards the future with optimism and hope for even more business and opportunities, let’s hope that this latest threat is merely a negotiation ploy designed to get the attention of bureaucrats in Brussels.

The Ukrainian government is certainly correct about the lack of reciprocity from the EU in terms of visa issues as well as immigration. The EU continues to treat Ukraine more as a threat than as an asset and until this mentality changes within the councils of Europe, Ukraine will have to swallow some pride, be tough and creative with regards to policy, and walk the “tightrope” between the EU and Ukraine’s powerful neighbor to the East.

Ukraine considers re-introducing visas for Europeans soon - official

Kiev, Apr 04, 2009 (BBC Monitoring via COMTEX) – 

Visa-free travels between Ukraine and Europe will be cancelled soon, maybe even before 7 May, the deputy head of the presidential secretariat, representative of the president [Viktor Yushchenko] in the Supreme Council [parliament], Ihor Popov, said in an interview with the Radio Liberty on Saturday [4 April].

“We will cancel visa-free regime with Europe soon and we will benefit from this. This will happen very soon, maybe even before the summit in Prague on 7 May 2009,” Popov said.

He said that “law-enforcement agencies complain that since Europeans come to Ukraine without visas, every three months police catch some kind of a ‘paedophile’ or a ‘maniac’”.

“Entering Ukraine, a foreigner shows a passport on the border, 10 seconds and off he goes. Later it appears that the man should not have been let in. As a result, he is put on the national wanted list since he entered without a visa and is not registered in the database,” Popov said.

Popov also said that this action can “push Europeans to cancellation of visas for us”.

Source: UNIAN news agency, Kiev, in Ukrainian 1843 gmt 4 Apr 09

OK…it is one thing for Ukraine to send letters begging for money to the USA, the EU, even China…but Russia? What are they thinking in Kyiv? Sure…Russia will loan you the money. They may be running a bit short due to propping up rubles and oligarchs, but they will find some spare cash as they know they will gain considerably from any arrangement.

After all, they promised the Kyrgyz Republic some money too. However, the conditions-regardless of what is officially denied-is that a U.S. base be closed. Imagine what they will demand of Ukraine?

From www.ft.com:

Ukraine pushes for loans to meet shortfall

By Roman Olearchyk in Kiev

Ukraine has appealed for emergency loans from the world’s richest countries to help support its economy, which has been battered by the global financial crisis.

Yulia Tymoshenko, prime minister of Ukraine, said her government had sent letters to the US, Russia, China, Japan and the European Union asking for loans to fill a shortfall in budget revenues for this year.

 “We have already received a positive response from some countries, including Russia,” Ms Tymoshenko said at the Munich Security Conference at the weekend. “Russia is ready to sign such loan agreements.” She did not clarify how much Kiev was seeking to borrow but reports in Ukraine suggested Russia could lend $5bn (€3.9bn, £3.4bn).

Ms Tymoshenko said Ukraine was keen to harmonise relations with Moscow, soured after last month’s gas prices dispute. She insisted Kiev would stick to a western integration agenda that included efforts to join the European Union and Nato.

News that Ukraine was seeking emergency loans amid frozen credit markets comes days after a senior International Monetary Fund delegation warned of “serious problems” brewing in Ukraine’s economy.

The fund delegation ended its one-week visit to Kiev last week but provided no clear signal on whether it would grant further disbursements from a $16.5bn standby facility agreed last year.

Ukraine received a first tranche of $4.5bn last November. Future disbursements depend on the implementation of tough conditions and are needed to keep Ukraine’s currency, the hryvnia, stable. It lost nearly 40 per cent of its value in 2008.

The IMF’s concerns centre on Kiev’s 2009 budget, which has a 3 per cent deficit in spite of a fund stipulation it be deficit-free. It also seeks a freeze on social spending at a time when more than 1m out of a population of 46m have lost their jobs.

Ukraine’s gross domestic product is expected to contract by around 5 per cent this , thus curbing budget revenues, complicating the state’s ability to rescueshaky banks and to provide unemployment benefits.

Ukraine is struggling to tame annual inflation of more than 20 per cent and toadjust to a fourth stiff price rise on natural gas imports from Russia in as manyyears.

The US and other western nations are keen to stabilise Ukraine for geopolitical as well as economic purposes, given its important position in Eastern Europe as a neighbour of Russia.

Technorati Tags: Ukraine, Russia, United States, European Union, China, Kyiv, MBS Ltd., Anton Olff, Kyrgyz Republic, military bases, loans, Roman Olearchyk, global financial crisis, Japan, Munich Security Conference, Yuliya Tymoshenko, Moscow, NATO, International Monetary Fund, hryvnia, gross domestic product, natural gas, geopolitics

Although this article in the Wall Street Journal (www.wsj.com)  is about a so-called “trend,” taking place in the United States due to the financial crisis, it is really old news for those who live and work in emerging markets.  Keeping money someplace other than a bank is normal in Ukraine, as well as Russia.  

China-which has seen the biggest growth of any economy in the last 30 years and has a more developed banking system, insurance (private…and nothing like the Federal Deposit Insurance Corporation in the USA), annuities, as well as brokerage accounts- money is literally stored in the mattress…or nearby… by a majority of people.

Mistrust of government and financial institutions particularly, is deeply ingrained in Chinese as well as other Asian cultures. Numerous financial panics throughout Chinese history may have something to do with it. The Chinese are big savers as a result.

By some estimates, the average Chinese person saves almost 40% of their income. This is true whether they reside in mainland China, Hong Kong or Taiwan or have migrated elsewhere. This thrift is also a contributing factor to the huge amount of foreign currency reserves that the Chinese Government can draw upon. “Mattress savers” make bank deposits too…at least in China.

Actually, for Americans…what is “new”, is also old. Our parents and grandparents were savers. They did not have credit cards, overdraft protection for their checking accounts, and were frugal due to memories-real or indirect-of the Great Depression. Interesting that my generation is re-learning what we used to dismiss as quaint stories from a bygone era.

By MARK PENN

With E. Kinney Zalesne

As the financial crisis swept across the nation these past few months, one of the first microtrend groups to emerge is the New Mattress Stuffers — people who have lost their trust in the financial world, and are preparing for the next meltdown.

Just as 9/11 created a vast industry in building security, so the recession could create a big industry in personal financial security — a new kind of survival kit. New Mattress Stuffers don’t care about the 10% interest rate on GE preferred stock that Warren Buffett snapped up; they care about making it through if hard times get even worse. As a result, firms which can offer ironclad guarantees of safety will appeal to this new group. These are people who have lost their faith in the housing market, the stock market, their bank, their big corporate employer, their auto company, and their last president. What is left but themselves? 

Forget about huge, sweeping megaforces. The biggest trends today are micro: small, under-the-radar patterns of behavior which take on real power when propelled by modern communications and an increasingly independent-minded population. In the U.S., one percent of the nation, or three million people, can create new markets for a business, spark a social movement, or produce political change. This column is about identifying these important new niches, and acting on that knowledge.

In the old days, Mattress Stuffers literally hid all their assets in their homes — construction crews today are still discovering tin cans of cash in walls hidden 75 years ago by people who died without having told anyone about their nest eggs. The New Mattress Stuffers aren’t crotchety misers, though — they’re active Baby Boomers who, until just a few months ago, were heading happily into their 60s with inflated assets, unlimited second-job opportunities, and IRAs crammed full of stocks.

Now, the shocks they are feeling are taking them into strange and uncharted territory. Most Americans are so far removed from holding physical assets that their first reaction is to stuff their money into Treasury Bills instead of into a tin can. But there are other ways they can calm themselves.

The price of gold is down as hedge funds unwind their positions, but the sale of gold coins is up — because New Mattress Stuffers are stockpiling them for themselves and their children. And this was happening even before the crisis hit in full force. Between May and September of this year alone, sales of U.S. Mint gold coins grew by more than 600 percent. Over one million coins have been sold so far this year.

While almost every company in America is seeing a downturn, sales of home safes and vaults are surging. Sales of guns this year are up 8 to 10 percent.

And cash is the new plastic. Our own just-completed Holiday Spending Survey shows that most Americans are going to use more cash and charge less on their credit cards than in the past. Although most of us have lived in a plastic world so long we can barely remember people like my dad who carried around wads of bills, Americans are now seeing the first real dip in credit card sales in decades. Fear of credit and credit cards is a renewed emotion.

To take advantage of these trends, some of the dying post offices might want to open spots for safe deposit boxes instead of P.O. boxes. Investment advisers may start talking about return of your money instead of return on your money. And jewelers may start to tell you to “don’t forget to stash away a diamond or two.”

If the post-war economic expansion brought us the baby boom, this crisis may bring us a baby squeeze — a sharp reduction in births nine months from now, as refraining from having kids is the ultimate consumer pull-back. And instead of staying home, the evidence shows that more couples are going to the movies, with attendance up for this relatively low-cost evening.

People don’t talk much about their mattress-stuffing behavior. It kind of defeats the purpose if you tell people where your stash is. But there’s a hunger out there for security hedges — a gun, some cash, a little gold, a small safe in the bedroom — in case all the ATMs suddenly shut down. The TV shopping channels could be hawking that “Safe Haven” combination right now, a complete home solution.

Technorati Tags: Wall Street Journal, ATMs, TV shopping channels, baby squeeze, movies, safe deposit boxes, jewelers, diamonds, home safes, vaults, guns, U.S. Mint Gold Coins, Americans, Treasury Bills, 9/11, cash, construction crews, Baby Boomers, IRAs, stocks, job opportunities, homes, building secruity, survival kit, GE preferred stock, stock market, corporate employer, Warren Buffet, Anton Olff, Mark Penn, mattress stuffers, frugality, credit cards, overdraft protection, the Great Depression, savings, thrift, China, Hong kong, Taiwan, foreign currrency reserves, financial institutions, Asian culture, Chinese history, Federal Deposit Insurance Corporation, insurance, annuities, brokerage accounts, mattress, www.wsj.com, United States, financial crisis, emerging markets, trend, Ukraine, Russia, China, banking system,

OK…here is a bit of gratuitous sex from the bloggers at MBS. Of course, we could tell you that our interest in the subject is strictly from a business standpoint and how prostitution is affected by the global financial crisis, blah, blah, blah.

Anyway, there are no photos (disappointed?) in this article from the International Herald Tribune (www.iht.com). Hey…isn’t the Tribune owned by the verging on bankruptcy  New York Times? Maybe if their columnists would write more articles like this one they would be doing better……..

World’s oldest profession, too, feels crisis

By Dan Bilefsky

Monday, December 8, 2008

PRAGUE: On a recent night at Big Sister, which calls itself the world’s biggest Internet brothel, a middle-aged man selected a prostitute from an electronic menu on a flat-screen television, pressing his index finger against it to review the age, hair color, weight and languages spoken by the women on offer.

Once he had chosen an 18-year-old brunette, he put on a mandatory burgundy terry cloth robe and proceeded to one of the brothel’s luridly-lit theme rooms, an Alpine suite decorated with foam rubber mountains covered with fake snow.

Nearby, in the brothel’s cramped control room, two young technicians used joysticks to control the dozens of hidden cameras that would film his performance and stream it, live, on Big Sister’s Internet site.

Sex is free at Big Sister, but that is not cheap enough for some men. Customers get the cut rate in return for signing a release form that allows the brothel to film their sexual exploits.

Even with this financial incentive, Big Sister’s marketing manager, Carl Borowitz, 26, a Moravian computer engineer, lamented that the global financial crisis had diminished the number of sex tourists in Prague.

“Sex is a steady demand, because everyone needs it, and it used to be taboo, which made a service like ours all the more attractive,” said Borowitz, who looks more like Harry Potter than a Czech Larry Flynt. “But the problem today is that there is too much competition, too many free pornography sites and people are thinking twice before making impulse purchases, including paying for sex.”

Big Sister is not the only brothel suffering the effects of a battered global economy. While the world’s oldest profession may also be one of its most recession-proof businesses, brothel owners in Europe and the United States say belt-tightening caused by the global financial crisis is undermining a once-lucrative industry.

Egbert Krumeich, manager of Artemis, the largest brothel in Berlin, said that the recession had helped dent revenue by 20 percent in November, which is usually peak season for the sex trade. Meanwhile, in Reno, Nevada, the multimillion-dollar Mustang Ranch recently laid off 30 percent of its staff, citing a decline in high-spending clients.

Big Sister is not struggling as much as some of its more traditional rivals; its revenue is largely derived from the €30, or $40 monthly fee each of the company’s 10,000 clients pay to gain access to its Web site.

But Borowitz said Big Sister hoped to offset a 15 percent drop in revenue over the past quarter by expanding into the United States. Big Sister also produces cable TV shows that air on Sky Italia and Television X in Britain, as well as DVDs like “World Cup Love Truck” and “Extremely Perverted.”

Ester, an 18-year-old prostitute at Big Sister who declined to give her last name, said that big-spending clients had diminished, but noted that she was still earning nearly €3,000 a month, enough to pay rent and to pay for her favorite Louis Vuitton purses.

“The reason I do this is for the money,” she said, after gyrating half-naked around a pole. Being filmed, she added, made her feel more like an actress than a sex object.

In the Czech Republic, where prostitution operates in a gray zone but is largely tolerated, the sex industry is big business, generating nearly €400 million in annual revenues, 60 percent of which is derived from foreign visitors, according to Mag Consulting, a tourism research company in Prague that also studies the sex industry.

Since the fall of Communism in 1989, the Czech Republic has become a major transit and destination country for women and girls trafficked from countries farther east, including Ukraine, Russia, Belarus and Moldova, the police say. Czechs and those transiting the country are most often sent to Western Europe or the United States.

Since 1989, tens of thousands of sex tourists have streamed into Prague, the pristinely beautiful Czech capital, drawn by inexpensive erotic services, an atmosphere of anonymity for customers and a liberal population tolerant of adultery.

Mag Consulting said 14 percent of Czech men admit to having had sex with prostitutes, compared with an EU-wide average of 10 percent.

Dozens of cheap flights to Prague have also ensured a steady flow of bachelor parties from across Europe. In 2005, an average of 30 flights arrived in Prague every day from Britain alone, a figure that analysts said has dropped by a third.

Jaromir Beranek, the director of Mag, said that when Germany and Britain - the two countries that send the most tourists to Prague - began to stagnate, sexual tourism suffered too.

The strength of the Czech crown against the euro, lower spending power and competition from even lower-cost sex capitals like Riga, Latvia, and Krakow, Poland, were threatening one of the country’s most thriving sectors, he said. “If you ski and there is no snow, you stay home. The same applies to sex.”

Many Czechs are more than happy to see Prague shrug off its reputation as one of the world’s top-20 sex destinations, but some in the hotel industry are so alarmed by the drop in tourists that they are lobbying the government to legalize the trade, in hope that it will help lure more clients.

Jiri Gajdosik, the manager of Le Palais, one of Prague’s top hotels, argues that regulating prostitution would help attract business by making prostitution safer. “We must ensure that the city loses its bad reputation of a city where foreigners are afraid that they will be robbed,” he said in an interview with Hospodarske noviny, a Czech financial daily.

While some critics have warned that legalization would effectively transform the Czech state into the country’s biggest pimp, the government is considering whether to emulate the Netherlands and Germany by regulating prostitution, just as it would any other industry. It is considering passing legislation by the end of this year that would require the Czech Republic’s estimated 10,000 prostitutes to register with the local authorities.

Dzamila Stehlikova, the Green Party minister for minorities and human rights who is shepherding the bill through Parliament, said that forcing the business out into the open would make it harder for human traffickers to thrive, while also helping to assure mandatory health check-ups for prostitutes. Other advocates argue that legalization would generate millions of euros in tax revenue from an industry that now largely operates underground.

Not everyone is enthusiastic, including the prostitutes themselves, who warn that being issued prostitution identification cards would further stigmatize them.

Hana Malinova, director of Bliss Without Risk, a prostitution outreach group, said she feared the current credit crunch was pushing more poor women into prostitution, since they could make more money selling their bodies - about €120 for a half-hour session at some upmarket sex clubs in Prague - than flipping burgers at McDonalds.

Even with the economic downturn, she added, prostitution was far more resilient than other industries, though the downturn was discouraging adultery.

“An Austrian farmer from a remote area who is not married will still cross the border to the Czech Republic looking for sex,” Malinova said. “On the other hand, the recession is helping to keep husbands at home who might otherwise be cheating on their wives.”

Near the border with Germany, in towns in northern Bohemia that were long blighted by a daily influx of sex tourists seeking cheap thrills, many are rejoicing in the decline.

Only a few years ago, the town of Dubi was so overrun by prostitution that a nearby orphanage was opened to provide refuge for dozens of unwanted babies of prostitutes and their German clients. Sex could be purchased for as little as €5 - the price of a hamburger in nearby Dresden - drawing a daily influx of more than 1,000 sex tourists.

The more than three dozen brothels that once operated in Dubi have been winnowed down to four, with several of the former brothels having transformed into goulash restaurants or golf clubs.

Petr Pipal, the conservative mayor of Dubi whose zero-tolerance policy is largely responsible for the change, said that installing surveillance cameras and police officers at the entrance of brothels had deterred sex tourists by depriving them of their anonymity. Rising prices for sexual services and the global financial crisis, he added, were also helping to tame demand.

“Two or three years ago, we would get 1,000 men coming here for sex on a Friday night, which is a lot for a town of 8,000 people,” Pipal said from police headquarters, where members of the anti-prostitution squad sat in a surveillance room, controlling outdoor cameras filming 13 now mostly deserted streets.

“The one good thing about the economic crisis is that it is helping to keep sex tourists away.”

Even brothels in areas of the Czech capital most popular with tourists complain that they are suffering from economic hardship. On a recent night near Wenceslas Square in Prague, dozens of young men outside a row of neon-lit sex clubs beckoned tourists with offers of complimentary alcohol and racy strip shows.

Inside Darling, a giant multifloor cabaret famous for cancan shows modeled on the Moulin Rouge in Paris, scantily clad young women stripped on a stage surrounded by leopard skin couches, flashing disco balls and French impressionist paintings of naked women.

Suzana Brezinova, the club’s marketing director, said sex tourism to Prague had been hit because prices had risen nearly to the levels of Rome. But she added that some high-spending businessmen still came to Darling to shrug off the economic doldrums, thinking nothing of splurging €1200 for a night of sexual pleasure and escapism.

“People have less money,” she said. “But hard times also mean that people want to be cheered up.”

Jan Krcmar contributed reporting from Prague and Victor Homola from Berlin.

Technorati Tags: gratuitous sex, MBS, Ltd., Jan Krcmar, Victor Homola, Suzana Brezinova, Rome, Darling, Moulin Rouge, Paris, French, Petr Pipal, Dubi, Dresden, Austrian, Bohemia, Hana Malinova, Bliss Without Risk, McDonalds, Dzamila Stehlikova, Green Party, human rights, Netherlands, Jiri Gajdosik, Le Palais, Hospodarske noviny, Riga, Latvia, Krakow, Poland, Jaromir Beranek, Germany, Britain, euro, Czech crown, Communism, Ukraine, Russian, Belarus, Moldova, Czech Republic, Mag Consulting, tourism, Louis Vuitton, United States, cable TV, Sky Italia, Television X, Britain, DVDs, Egbert Krumeich, Artemis, Berlin, Reno, Nevada, Mustang Ranch, brothel, Europe, Carl Borowitz, Prague, Harry Potter, Larry Flynt, Big Sister, internet brothel, Dan Bilefsky, Anton Olff, prostitution, global financial crisis, International Herald Tribune, www.iht.com, The New York Times, bankruptcy,

This is the kind of news….that is not really news…at least to someone who does business in emerging markets. Nonetheless, it is good to keep tabs on where bribes need to be paid to get business.

It an ironic way, the authors of this report-Transparency International-have raised the bar not only in emerging markets like Russia, China and Ukraine, but also in the developed economies like the United States. This would apply not only to the financing of political campaigns or the “sale” of Senatorial offices, but specifically to the types of financial instruments that may have been the catalyst for the Global Economic meltdown.

What is needed is greater transparency in the financial services industry. Many investors had been blinded or lulled into a false sense of security by the advice of institutions that have a direct financial stake in keeping information private. Indirectly, these companies were being “bribed” by their clients to give favorable ratings and analysis. As I was reminded during my short time on Wall Street, “when was the last time you heard of an investment bank urging their clients to sell?”

In some ways, emerging markets are more “honest,” as it is assumed that corruption is part of the normal process of doing business. While this doesn’t negate the need for reform, or diminish the fact that corruption is a huge obstacle preventing development in emerging market economies, it also means those with higher standings in the “least corrupt” category need to look at their own institutions more carefully as well.

 From www.ft.com:

Emerging powers’ companies bribe ‘routinely’

By Michael Peel in London

Published: December 9 2008 15:57 | Last updated: December 9 2008 15:57

Chinese, Indian and Russian companies bribe routinely to win overseas contracts, a global survey of executives claimed on Tuesday, highlighting fears that leading emerging economies are undermining international efforts to tackle corruption.

The bribe-payers’ index published by Transparency International, the anti-corruption group, ranks the three nations and Brazil in the bottom five of 22 countries surveyed.

The research highlights how intensifying global competition for natural resources and infrastructure projects threatens a “race to the bottom” between established western multinationals and leading companies from the new financial powers.

Huguette Labelle, Transparency International chair, called on all big exporting countries to join the landmark OECD anti-bribery treaty, which so far has been signed by 38 mainly rich nations.

Ms Labelle said Transparency International’s research “provides evidence that a number of companies from major exporting countries still use bribery to win business abroad, despite awareness of its damaging impact on corporate reputations and ordinary communities.”

The Transparency International index ranked Russia in last place with a score of 5.9 out of 10, with India and China also both scoring below 7.

Belgium and Canada topped the rankings jointly with a score of 8.8, while all the other members of the Group of Seven leading industrialised nations except Italy scored more than 8.

The countries ranked in the index account for about three-quarters of world foreign direct investment outflows and exports of goods and services. The survey – carried out by Gallup International, the polling organisation – is based on the perceptions of 2,742 business executives from 26 countries, including six in Africa, four in Central and South America, and eight in Asia.

The research says the most corrupt sectors among 19 surveyed are construction, real estate, energy, heavy manufacturing and mining, while the cleanest are information technology, fisheries and banking.

Many anti-corruption activists warn that the expansion of companies from emerging economic powers into resource-rich but often poorly governed countries in Africa and elsewhere could prolong and extend a tradition of bribery already established by western multinationals.

The OECD has launched a partnership with the African Development Bank to fight bribery on the continent, while Chinese officials will attend a meeting of the OECD’s anti-bribery working group this week .

Another TI index published in September accused the world’s wealthiest countries of failing to live up to their commitments to fight corruption, highlighting fears that only the US and a few other nations were serious about tackling graft by their businesses.

TI’s surveys are widely seen as useful yardsticks on corruption, although their basis on business executives’ perceptions rather than more objective measures means they are susceptible to individual prejudices.

Funders of the latest index include the German and Norwegian development agencies and Ernst & Young, the international accounting firm.

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One of the side effects of the Global Economic Crisis-and we have to come up with a new name for this “crisis,” is the steep falloff in the amount of money sent home by immigrants and workers abroad. Many emerging market economies depend on this income to sustain themselves. The fallout from the falloff could be huge…..

Technorati Tags: Global Economic Crisis, State Real Property Cadastre, Bishkek, Chisnau, Kyrgyz Republic, Akylbek Japarov, Armenia, Matthias Luke, Kiel Institute, Kazakhstan, Uzbekistan, construction, Russian government, Anton Olff, external finance, Russia, United States, Western Europe, Dushanbe, World Bank, IMF, Shigeo Katsu, Tajikistan, Moldova, NGO, CIS countries, recession, Clare Nuttall, Almaty, Organization for Economic Co-Operation and Development (OECD), remittance payments, emerging markets,

This article is from one of our favorite bloggers: Mike Hewitt provides the “big picture” of individual nations relative to the global economy.  The picture is not pretty for many.

http://www.financialsense.com/fsu/editorials/dollardaze/2008/1205.html

The extreme level of public debt in developed nations in particular…and these charts don’t measure corporate and private debt…portend an almost certain re-alignment of economic power.  China for example, can be compared to the United States at the beginning of the 20^th century. The United States is now like post World War II Britain. It may never fully recover.

The  result of the changes is the full emergence of transition economies.  Unburdened by massive debt, with growth oriented economies that have incorporated  free market mechanisms,  emerging market economies could  take the lead a lot faster than previously reckoned. Indeed, that may be the “silver lining” in the current economic cloud.

Technorati Tags: China, United States, World War II, Britain, www.dollardaze.org, Mike Hewitt, Wealth of Nations, debt, transition economies, emerging markets, corporate debt, private debt, Anton Olff, Intermational Monetary Fund, IMF, G-7, Japan, Germany, UK, France, Italy, Canada, government liabilities, Foreign Reserves, Sovereign Wealth Funds, United Arab Emirates, Abu Dhabi Investment Authority, Dubai Workd, Singapore, Temasek Holdings, Norway, Government Pension Fund of Norway, Kuwait, Kuwait Investment Authority, China, China Investment Corporation, Australia, Australian Government Future Fund, Qatar, Qatar Investment Authority, Libya, Libya Investment Authority, Alaska Permanent Fund, Brunei, Brunei Investment Agency, South Korea, Korea Investment Corporation, Kazakhstan, Kazakhstan National Fund, Chile, Copper Stabilization Fund, Russia, Russian National Wealth Fund, Malaysia, Khazanah Nasional, Canada, Alberta Heritage Fund, Taiwan, National Stabilization Fund, Bahrain, Bahrain Mumtalakat Holding Company, Iran, Oil Stabilization Fund, Oman, State General Reserve Fund, Saudi Arabia, Saudi Arabia Sovereign Wealth Fund, foreign reserve holdings, India, Brazil, Algeria, Mexico, Switzerland, Turkey, Hong Kong, Poland, Nigeria, Indonesia, Argentina, Romania, Venezuela, Netherlands, Spain, CIA,