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Citadel Investment Group LLC, known for its hedge funds, pulled in about $1 billion last year in a unit that does high-frequency trading.

The figure, which emerged this week in a Chicago court battle involving Citadel, shows just how lucrative this often-secretive trading practice can be.

High-frequency trading, in which traders use computers to make rapid-fire decisions to capture fleeting moves in the market, last year proved one of the rare successful market strategies, as traders capitalized on the market's volatility. But some of the most influential players, such as Goldman Sachs Group Inc., have kept results close to the vest.

The court case in which the Citadel figure emerged involves allegations by Citadel that several former employees violated noncompete agreements when they set up a firm, Teza Technologies LLC, to trade securities this year shortly after leaving the Chicago hedge fund. The ex-employees denied the allegations in court filings.

In testimony this week in the Chancery Division of Cook County, Ill., Circuit Court, Citadel senior investment manager James Yeh, along with former Citadel trader Mikhail "Misha" Malyshev, one of the defendants in the suit, revealed details about the unit's activities, which besides high-frequency trading also includes other strategies such as European options trading.

Mr. Malyshev in testimony Thursday detailed the Citadel unit's growth in recent years. It posted returns of $892 million in 2007, up from $75 million in 2005 and about $3 million in 2004, according to Mr. Malyshev. Those figures didn't reflect costs such as compensation, according to a person familiar with the matter.


MADRID (MarketWatch) -- Retail sales fell 4% in August on an annual basis, the Instituto Nacional de Estadistica said on Tuesday. That compares to a fall of 4.9% in July. The biggest falls were in household equipment, down 12.8%, and food products, down 4.5%. Single retail stores saw the biggest fall of 6.3% in sales, followed by small chain stores, 4.9% and department stores, 4.4%


Trading Strategies from the Street / Proposed Ban on "Flash" Trading
« on: September 18, 2009, 08:41:33 AM »

Published: September 17, 2009

It is an obscure art of Wall Street, a technique that gives a scattering of traders an edge over everyone else — and the Securities and Exchange Commission wants to stamp it out.

The S.E.C. on Thursday proposed banning what are known as flash orders, which use powerful computers to glimpse at investors’ orders. The practice is often associated with a controversial corner of finance called high-frequency trading, which has grown, largely hidden from view, into a potent force in the markets.

The proposed ban was announced on the same day that the S.E.C. put forward new rules for credit ratings agencies, which were widely criticized for their role in the financial crisis. Together, the moves telegraphed a tougher line from the commission after a series of prominent missteps, including its failure to spot the Ponzi scheme orchestrated by Bernard L. Madoff.

Critics say flash orders favor sophisticated, fast-moving traders at the expense of slower market participants. Using lightning-quick computers, high-frequency traders often issue and then cancel orders almost simultaneously and get an early peek at how others are trading.

Mary L. Schapiro, the chairwoman of the S.E.C., said on Thursday that in prS
“Flash orders may create a two-tiered market by allowing only selected participants to access information about the best available prices for listed securities,” she said during a meeting in Washington. Other modern market practices, she said, are similarly opaque.

Fast-moving electronic exchanges have upended old-fashioned stock trading. Buyers and sellers no longer must interact on exchange floors and haggle over prices. Today, traders employ powerful computer programs to execute millions of orders a second and scan dozens of marketplaces simultaneously.

While anyone can gain access to flash orders for a fee, only very powerful computers can process and act on the information. In July, flash orders represented 2.8 percent of the roughly 9 billion shares of stocks traded in the United States.

According to Richard H. Repetto, an analyst at Sandler O’Neill who studies stock exchanges, the average trade is executed, or completed, in less than 10 milliseconds and often as fast as 5 milliseconds.

The proliferation of high-frequency trading has pushed up average daily volume on the nation’s stock exchanges by 164 percent since 2005. Proponents of the practice argue such trading enhances the liquidity and greases the wheels of the markets.

“High frequency trading has made the markets more efficient, and generally speaking, markets that are more efficient are better for all participants,” said Justin Schack, a vice president at Rosenblatt Securities.

Even so, Mr. Schack said he was pleased the S.E.C. was moving to ban flash orders, which he said tended to “benefit everyone except for the customer.”

Direct Edge, an electronic exchange, has benefited the most from the use of flash orders, analysts said. But other electronic exchanges, including Nasdaq and BATS also jumped into the market, prodded by competitive pressures.

Getting flashed an order offers traders a distinctive edge. When buy and sell orders come into an exchange, they are first flashed to those paying to see them for 30 milliseconds — 0.03 seconds — before they are available to everyone else. In the blink of an eye, the systems can detect patterns and get a jump on other investors. Before others even sees the order, high-frequency traders swoop in and then out.

The move to ban flash orders drew praise from some on Capitol Hill.

“This ban, as proposed, is pretty much water-tight and should not be weakened by the commission as the rule-making process goes forward,” said Senator Charles E. Schumer, Democrat of New York. “This proposal will once and for all get rid of flash trading.”

The parent of the New York Stock Exchange, NYSE Euronext, which never adopted flash trades, trumpeted the proposal. “I think this was a practice that gave unfair access to information flow to a select group of brokers, disadvantaged customer orders and led to a two-tier market system,” said Larry Leibowitz, head of United States markets and global technology at NYSE Euronext.

The S.E.C. on Thursday also passed rules aimed at improving transparency at credit rating agencies and reducing conflicts of interest at the companies.

One rule will force certain investors to rely less on credit ratings and more on their own research. Another requires the agencies to disclose rating histories and requires them to share information about securities they have rated with competitors so they too can rate the securities.

“These are baby steps, clearly,” said Jerome S. Fons, an independent consultant and former managing director at Moody’s, one of the major ratings agencies. He said even greater public disclosure was needed from the agencies.

Trading Strategies from the Street / High Risk of Economic Relapse
« on: September 17, 2009, 10:39:40 AM »

By Peter J. Brennan, Christine Harper and Scott Lanman

Sept. 16 (Bloomberg) -- Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to President Barack Obama, said there’s a “long way to go” before the economy returns to pre-recession levels.

“It will be a long slog -- a matter of years -- with the risk of some relapses along the way,” Volcker said today at a financial conference in Beverly Hills, California. While Volcker said he sees signs that the economy is in the “early stages of recovery,” he also warned that “it is way too soon to resume business as usual.”

He echoed Fed Chairman Ben S. Bernanke’s assessment yesterday that while the recession is probably over, “it’s still going to feel like a very weak economy for some time.” Volcker, who pushed the federal funds rate as high as 20 percent to throttle inflation in 1980, also renewed his call to restrict the activities of banks so large that their collapse would threaten the financial system.

“We have a long way to go to get back the point of fully utilizing our economic resources and restoring something approximating full employment,” Volcker, 82, said at a conference hosted by the Association for Corporate Growth, a group for executives who deal with mergers and acquisitions.

At the same time, the economy is seeing “some bounce” from the lows of the downturn, Volcker said.

Banking Limits

In his speech, Volcker urged limits on the activities of banks that are considered “too big to fail,” going beyond what other officials in the Obama administration have advocated.

“I do not think it reasonable that public money --taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,” Volcker said.

Since January, Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy -- those considered “too big to fail” -- from engaging in certain types of trading and investing activities. The administration wants stricter oversight for such companies and tighter capital and liquidity requirements.

“Extensive participation in the impersonal, transaction- oriented capital market does not seem to me an intrinsic part of commercial banking,” Volcker said. “Substantial involvement in heavily leveraged finance and heavy proprietary trading almost inevitably entails risks.”

“I want to question any presumption that the federal safety net, and financial support, will be extended beyond the traditional commercial banking community,” he said.

Job Losses

Keith Hembre, a former Fed researcher who’s now chief economist at U.S. Bancorp’s FAF Advisors Inc. in Minneapolis, said he agreed with Volcker’s economic outlook, given the jobless rate declined by less than 1 percent a year after past recessions.

“It’s multiple years before you get back to a point where you’re anywhere close to where anyone would view full employment,” Hembre said.

Bernanke, 55, who was nominated for a second term by President Barack Obama, told Congress in July that projected declines in the jobless rate over the next two years “would still leave unemployment well above” what Fed policy makers prefer in the long run.

Warren Buffett, the billionaire investor who runs Berkshire Hathaway Inc., said separately in an interview shown today on CNBC that the U.S. economy has “hit a plateau at bottom.”

Stocks Rise

U.S. stocks and yields on the 10-year Treasury note rose for a third day after a Fed report showed output at factories, mines and utilities climbed 0.8 percent last month. The Standard & Poor’s 500 Index climbed 1.5 percent to 1068.76, while the yield on the 10-year note rose to 3.47 percent at 5:14 p.m. in New York from 3.46 percent yesterday.

The unemployment rate reached 9.7 percent in August, a quarter-century high, and employers have eliminated almost 7 million jobs since the recession started, the biggest drop in any post-World War II economic downturn. The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists.

In a question-and-answer session after his speech, Volcker said he backs putting a single agency like the Fed in charge of overseeing the financial system, instead of a committee made up of the heads of different agencies. The Obama administration has proposed giving the Fed oversight of the biggest financial companies, while some top lawmakers prefer a council.

“I don’t think that function can be fulfilled by a conclave of regulators,” he said. “I do think we need an institution that has clear responsibility for overseeing the financial system.”


General Discussion / Low Cost China Jets
« on: September 14, 2009, 11:32:59 AM »
Sept. 8 (Bloomberg) -- Commercial Aircraft Corp. of China, the government-controlled planemaker, said its first commercial jet will “surely be cheaper” than comparable Boeing Co. and Airbus SAS models, heightening competition in the world’s fastest-growing aviation market.

The 168-seater C919, due to enter service in 2016, will use as much as 15 percent less fuel than current Boeing 737s and Airbus A320s, Chen Jin, Comac’s sales head, said at the Hong Kong air show, where the company is showing a model of the plane for the first time.

Comac will initially target Chinese customers for the single-aisle C919 before seeking to challenge Boeing and Airbus overseas in the largest segment of the plane market. China’s carriers will likely need 3,710 new planes over 20 years, of which 70 percent will be single-aisle aircraft, Chicago-based Boeing said in October.

“In the medium- to long-term, Chinese aircraft manufacturers will be able to challenge the larger planemakers like Airbus and Boeing,” said Jack Xu, an analyst at Sinopec Securities Asia Ltd. in Shanghai. Price will be a “major advantage,” he added.

The plane is part of China’s push to develop its own technologies in a range of industries to move beyond being a low-cost assembler for overseas companies.

Aircraft Orders

The plane’s development schedule will likely coincide with a surge in aircraft orders worldwide as airlines move ahead with fleet plans delayed by the global recession, Comac’s Chen said. The first test flight is set for 2014, he added.

Boeing expects to be able to add new technologies to the 737 that will make it more fuel efficient, Randy Tinseth, the company’s marketing chief said today.

“We have to find new ways to consistently reduce the cost,” he added.

The C919 threatens Boeing and Airbus in China, which Boeing expects to be the world’s fastest-growing domestic air-travel market.

“Our home market is the biggest market and has the most potential, so it’s unnecessary to pursue overseas sales just yet,” Chen said. “In the future though, we will surely go into Europe and the U.S.”

The company’s first customers will likely included China’s big three carriers, Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp., he said. Comac will offer also financial support to win customers, Chen said.




UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’

By Jonathan Tirone

Sept. 7 (Bloomberg) -- The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.

“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”

The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.

Enhanced SDRs

While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.

Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.

“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”

The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, “promotes integration of developing countries in the world economy,” according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.

The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.

The UN Trade and Development report is being held for release via print media until 6 p.m. London time.


Aug. 26 (Bloomberg) -- Toyota Motor Corp., Japan’s biggest carmaker, will cut domestic production as car sales in the country fall to the lowest in more than 30 years.

Toyota will reduce output by about 220,000 vehicles at its Takaoka plant from the fiscal first quarter of next year through the second half of calendar year 2011, spokeswoman Ririko Takeuchi said by phone today. The company will cut global capacity by 1 million vehicles this fiscal year, the Nikkei newspaper reported earlier.

Global car demand has plummeted due to the global recession, forcing General Motors Corp. and Chrysler LLC into bankruptcy. Toyota, the world’s largest carmaker, earlier this month forecast a net loss of 450 billion yen ($4.8 billion) for the year ending in March.

“Toyota is desperate to cut costs,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo. “The company needs to stop building unpopular and unprofitable cars.”


Aug. 25 (Bloomberg) -- The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.

Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.



ATLANTIC CITY -- The Hilton Casino Resort failed to make its monthly loan payments last month due to the recession's impact on Atlantic City's smallest casino, according to a report in the Press of Atlantic City.

The report said financial statements filed with the New Jersey Casino Control Commission shows the Hilton defaulted on its mortgage. The casino, which the report said was in negotiations to revise the mortgage agreement's terms, had an outstanding debt of $348.2 million, plus $868,000 in accrued interest, as if June 30, the report said.

WASHINGTON (AP) -- The Obama administration is developing plans to wind down the popular Cash for Clunkers program and could announce by Friday when the incentives will no longer be available.

Transportation Secretary Ray LaHood said Wednesday the department would announce within 48 hours how it intends to discontinue the program that offers car buyers rebates of $3,500 or $4,500 for trading in older vehicles for new, more fuel-efficient models. Department officials met with car dealer trade groups on Wednesday to discuss how the program will eventually end and respond to complaints over a backlog of rebate payments to dealers.

Through early Wednesday, auto dealers have made deals worth $1.81 billion and are on pace to exhaust the program's $3 billion in funds in early September. The incentives have generated more than 435,000 vehicle sales but dealers want a clear plan on when the rebates will no longer be available so they don't end up on the hook for any of the incentives.

"We want to make sure that dealers know when we're getting close" to running out of the money that was allocated for the program, LaHood told reporters. LaHood said he recognized that "dealers are frustrated. They're going to get their money."


Aug. 19 (Bloomberg) -- The U.S. must address the massive amounts of “monetary medicine” that have been pumped into the financial system and now pose threats to the world’s largest economy and its currency, billionaire Warren Buffett said.

The “gusher of federal money” has rescued the financial system and the U.S. economy is now on a slow path to recovery, Buffett wrote in a New York Times commentary yesterday. While he applauds measures adopted by the Federal Reserve and officials from the Bush and Obama administrations, Buffett says the U.S. is fiscally in “uncharted territory.”

The government is trying to spark business and consumer spending through a $787 billion stimulus plan spanning tax cuts and infrastructure projects, while the Treasury and the Fed have spent billions more on separate programs to rescue financial institutions and resuscitate the banking system. The U.S. budget deficit is forecast to reach a record $1.841 trillion in the year that ends Sept. 30.

“Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects,” Buffett, 78, said. “For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.”

The “greenback emissions” will swell the deficit to 13 percent of gross domestic product this fiscal year, while net debt will increase to 56 percent of GDP, Buffett said.

Record Deficit

The U.S. budget deficit reached a record for the first 10 months of the fiscal year and broke a monthly high for July. The excess of expenditure over revenue for July climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history, the Treasury said Aug. 12.

Officials must still do “whatever it takes” to get the U.S. economy back on its growth momentum, Buffett wrote.

“Once recovery is gained, however, Congress must end the rise in the debt-to-GDP ratio and keep our growth in obligations in line with our growth in resources,” Buffett said. “With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.”

Dollar Index

Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an Emerging Markets Watch report that the dollar will weaken as the swelling U.S. deficit erodes its status as a reserve currency. The Dollar Index, which tracks the greenback against a basket of currencies, has fallen 12 percent from this year’s high in March.

“Unchecked greenback emissions will certainly cause the purchasing power of currency to melt,” Buffett said. “The dollar’s destiny lies with Congress.”

Buffett is the chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. Buffett built Berkshire into a $155 billion enterprise over four decades with dozens of acquisitions, buying companies that sell ice cream, lease private jets and operate power plants.

Berkshire has been buying securities issued by governments outside the U.S. The company held about $11.1 billion in foreign government bonds in its insurance units as of June 30, compared with $9.6 billion three months earlier, Berkshire said in a regulatory filing on Aug. 7.

The value of holdings in U.S. Treasuries and so-called government sponsored enterprises slipped 5.3 percent in the three months ended June 30 to about $2.5 billion.

Aug. 17 (Bloomberg) -- The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody̢۪s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.

While financial-market conditions “have improved considerably in recent months,â€Â the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,â€Â the Fed and Treasury said.

The central bank said it doesn̢۪t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn̢۪t rule out a future expansion.

Door Open

Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.â€Â

While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.

In June, the Fed extended other emergency-loan programs by three months to Feb. 1.

“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,â€Â said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,â€Â Buchta said.

Restart Market

The Fed began the TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.

TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.

Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.

Citigroup Inc., Ford Motor Co. and JPMorgan Chase are among companies that have sold auto and credit-card debt through the TALF. Brookfield Properties Corp. is “thinking aboutâ€Â using the emergency program, Chief Executive Officer Richard Clark said July 29.

Shield From Losses

As of Aug. 12, the Fed̢۪s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury̢۪s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion.

The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.

Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.

‘Reasonable Chance’

TALF loans for older CMBS have a “reasonable chanceâ€Â of being extended past March, said Aaron Bryson, an analyst at Barclays Capital in New York.

New York Fed President William Dudley said in June that “there’s a huge administrative hurdleâ€Â to expanding TALF to cover residential MBS because each security is different and must be separately evaluated for the size of the haircut that should be applied. The haircut is how much capital investors put up for the Fed loan.

Separately, the Fed is buying as much as $1.25 trillion of residential MBS this year to lower interest rates in housing.


Trading Strategies from the Street / Markets Will 'Abruptly' Drop 25-50%
« on: August 18, 2009, 10:44:23 AM »
Markets will drop 25 to 50 percent and it will happen abruptly, Deighan told CNBC.

“There’s no basic foundation for the run-up we’ve had, been far too rapid. It continues to run up on what’s normally considered bad news,” he said.

Deighan said in the past, Wall Street “shoved things down Main Street’s throat.” And now, he believes, "Washington" is trying to do the same. Main Street is slowly finding out "what’s going on with the banks, health care and the Federal Reserve’s moves" and they are “absolutely angry.”


July 23 (Bloomberg) -- Warren Buffett’s option to buy shares of Goldman Sachs Group Inc., part of an agreement reached at the depths of the credit crisis, has earned a profit on paper of about $2 billion, a return of more than 40 percent.

Goldman Sachs today passed $162 in New York trading for the first time since rival Lehman Brothers Holdings Inc. collapsed in September. Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. has warrants to buy $5 billion of Goldman common stock for $115 a share any time in the next four years.

“It must feel good to be Warren Buffett,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington, who has studied the billionaire’s investing history. “That number just flies in the face of people who like to say he’s lost a step.”

The difference between the strike price and the share value translates into a $2.09 billion paper profit for Berkshire. The U.S. government got a 23 percent annualized return for its investment in the firm after an agreement yesterday by the bank to repay $1.1 billion to settle warrants.

Goldman Sachs turned to Buffett in September, agreeing to sell $5 billion in preferred shares paying 10 percent interest, after Lehman’s bankruptcy and the emergency takeover of Merrill Lynch & Co. by Bank of America Corp. Amid the crisis, Goldman earned an explicit endorsement from Buffett, the so-called “Oracle of Omaha” who is celebrated for his investing savvy.

The warrants, Buffett said, were tacked on to give him an incentive to sell some of Berkshire’s existing stock holdings to fund the deal at a time when he had an increasing number of investment opportunities as the economy froze and markets plummeted.


Published: August 10, 2009

BEIJING — Shanghai and Beijing are becoming new lands of opportunity for recent American college graduates who face unemployment nearing double digits at home.

Even those with limited or no knowledge of Chinese are heeding the call. They are lured by China’s surging economy, the lower cost of living and a chance to bypass some of the dues-paying that is common to first jobs in the United States.

“I’ve seen a surge of young people coming to work in China over the last few years,” said Jack Perkowski, founder of Asimco Technologies, one of the largest automotive parts companies in China.

“When I came over to China in 1994, that was the first wave of Americans coming to China,” he said. “These young people are part of this big second wave.”

One of those in the latest wave is Joshua Arjuna Stephens, who graduated from Wesleyan University in 2007 with a bachelor’s degree in American studies. Two years ago, he decided to take a temporary summer position in Shanghai with China Prep, an educational travel company.

“I didn’t know anything about China,” said Mr. Stephens, who worked on market research and program development. “People thought I was nuts to go not speaking the language, but I wanted to do something off the beaten track.”

Two years later, after stints in the nonprofit sector and at a large public relations firm in Beijing, he is highly proficient in Mandarin and works as a manager for XPD Media, a social media company based in Beijing that makes online games.

Jonathan Woetzel, a partner with McKinsey & Company in Shanghai who has lived in China since the mid-1980s, says that compared with just a few years ago, he was seeing more young Americans arriving in China to be part of an entrepreneurial boom. “There’s a lot of experimentation going on in China right now, particularly in the energy sphere, and when people are young they are willing to come and try something new,” he said.

And the Chinese economy is more hospitable for both entrepreneurs and job seekers, with a gross domestic product that rose 7.9 percent in the most recent quarter compared with the period a year earlier. Unemployment in urban areas is 4.3 percent, according to government data.

Grace Hsieh, president of the Yale Club in Beijing and a 2007 graduate, says she has seen a rise in the number of Yale graduates who have come to work in Beijing since she arrived in China two years ago. She is working as an account executive in Beijing for Hill & Knowlton, the public relations company.

Sarabeth Berman, a 2006 graduate of Barnard College with a major in urban studies, initially arrived in Beijing at the age of 23 to take a job that would have been difficult for a person her age to land in the United States: program director at BeijingDance/LDTX, the first modern dance company in China to be founded independently of the government.

Ms. Berman said she was hired for her familiarity with Western modern dance rather than a knowledge of China. “Despite my lack of language skills and the fact that I had no experience working in China, I was given the opportunity to manage the touring, international projects, and produce and program our annual Beijing Dance Festival.”

After two years of living and working in China, Ms. Berman is proficient in Mandarin. She travels throughout China, Europe and the United States with the dance company.

Willy Tsao, the artistic director of BeijingDance/LDTX, said he had hired Ms. Berman because of her ability to make connections beyond China. “I needed someone who was capable of communicating with the Western world.”

Another dynamic in the hiring process, Mr. Tsao says, is that Westerners can often bring skills that are harder to find among the Chinese.

“Sarabeth is always taking initiative and thinking what we can do,” he said, “while I think the more standard Chinese approach is to take orders.” He says the difference is rooted in the educational system. “In Chinese schools students are encouraged to be quiet and less outspoken; it fosters a culture of listening more than initiating.”

Mr. Perkowski, who spent almost 20 years on Wall Street before heading to China, says many Chinese companies are looking to hire native English speakers to help them navigate the American market.

“I’m working with a company right now that wants me to help them find young American professionals who can be their liaisons to the U.S.,” he said. “They want people who understand the social and cultural nuances of the West.”

Mr. Perkowski’s latest venture, JFP Holdings, a merchant bank based in Beijing, has not posted any job openings, but has received more than 60 résumés; a third are from young people in the United States who want to come work in China, he said.

Mick Zomnir, 20, a soon-to-be junior at the Massachusetts Institute of Technology, is working as a summer intern for JFP. “As things have gotten more difficult in the U.S., I started to think about opportunities elsewhere,” he said. He does not speak Chinese but says he will begin studying Mandarin when he returns to M.I.T. in the fall.

A big draw of working in China, many young people say, is that they feel it allows them to skip a rung or two on the career ladder.

Ms. Berman said: “There is no doubt that China is an awesome place to jump-start your career. Back in the U.S., I would be intern No. 3 at some company or selling tickets at Lincoln Center.”

For others, like Jason Misium, 23, China has solved the cash flow problem of starting a business. After graduating with a degree in biology from Harvard in 2008, Mr. Misium came to China to study the language. Then, with a friend, Matthew Young, he started Sophos Academic Group, an academic consulting firm that works with Chinese students who want to study in the United States.

“It’s China’s fault that I’m still here,” he said. “It’s just so cheap to start a business.” It cost him the equivalent of $12,000, which he had in savings, he said.

Among many young Americans, the China exit strategy is a common topic of conversation. Mr. Stephens, Ms. Berman and Mr. Misium all said they were planning to return to the United States eventually.

Mr. Woetzel of McKinsey said work experience in China was not an automatic ticket to a great job back home. He said it was not a marker in the same way an Ivy League education: “The mere fact of just showing up and working in China and speaking Chinese is not enough.”

That said, Mr. Woetzel added, someone who has been able to make a mark in China is a valuable hire.

“At McKinsey, we are looking for people who have demonstrated leadership,” he said, “and working in a context like China builds character, requires you to be a lot more entrepreneurial and forces you to innovate.”


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