WSJ : Vodafone Says Phones on Its Global Network Are Tapped

Vodafone Says Phones on Its Global Network Are Tapped
Telecoms Firm Says Tapping Was Used Widely In Some of 29 Countries Where It Operates

LONDON— Vodafone Group VOD.LN +1.40% PLC Friday said secret wires allow government agencies in many countries to listen to conversations on the mobile telecommunications giant's global network—publishing the first comprehensive report about how many governments tap into its global telecommunications infrastructure.

Publishing a 20-page report on mass surveillance by governments entitled "Law Enforcement Disclosure", the U.K.-based operator, which is the world's second-largest mobile operator after China Mobile Inc., says the tapping was widely used in some of the 29 countries where it operates.

The report lays out the procedures and infrastructure used by governments to request information and, when they deem necessary, tap into one of the world's largest telecommunications networks with relative opacity.

Since the start of leaks by former National Security Agency contractor Edward Snowden, revelations and allegations of U.S. and British government-sanctioned eavesdropping have been widespread. But the Vodafone report is essentially the first global survey of many of the practices used by other governments around the world. It also comes from a company with firsthand experience working with these governments and complying with their requests.

In Albania, Egypt, Hungary, India, Malta, Qatar, Romania, South Africa and Turkey it is unlawful to disclose any information related to wiretapping or interception of the content of phone calls and messages, Vodafone said.

And in about six of the countries in which Vodafone operates, the tapping is a legal requirement. Vodafone says it is not disclosing the countries involved for fear of local sanction and retaliation by governments against its staff.

The group said while its customers have a" right to privacy" enshrined in international human rights law, it has to abide by the laws of every country in which it operates which require it to disclose information about its customers to law enforcement agencies or other government authorities, or to block or restrict access to certain services.

"Refusal to comply with a country's laws is not an option," Vodafone said.

"If we do not comply with a lawful demand for assistance, governments can remove our license to operate, preventing us from providing services to our customers."

Vodafone says it is publishing the information to further the debate on government surveillance systems. It says the report will be updated annually.

"The need for governments to balance their duty to protect the state and its citizens against their duty to protect individual privacy is now the focus of a significant global public debate," Vodafone said.

"In our view, it is governments—not communications operators—who hold the primary duty to provide greater transparency on the number of agency and authority demands issued to operators."

(BFW) Bouygues Rises; Raymond James Says Disposals Likely to Succeed

Bouygues Rises; Raymond James Says Disposals Likely to Succeed
2014-06-06 08:38:51.746 GMT


By Sam Chambers
     June 6 (Bloomberg) -- Bouygues is the best performer in the
CAC 40 today, up as much as 3.1%, as Raymond James upgrades
stock to outperform.
  * Raymond James: shrs aren’t pricing in the likelihood of
    Bouygues successfully selling its telco business to Orange
    and Alstom selling its energy business
    * Telco sale would likely be approved by regulators as
      unit is loss-making and French govt. favors a three
      operator mkt
    * With GE and Siemens having both offered to buy Alstom’s
      energy business, chance of no deal happening is low
    * Bouygues would likely use proceeds for special div.,
      bond repurchases and construction investment
  * June 4: Kepler Cheuvreux said Bouygues’s share price ignores
    risks associated with proposed deals
  * June 4: Reuters reported Orange hired banks to assess
    potential purchase of Bouygues Telecom
  * NOTE: Bouygues holds 29% stake in Alstom: Bloomberg data

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Sam Chambers in London at +44-20-7673-2021 or
schambers7@bloomberg.net
To contact the editors responsible for this story:
James Ludden at +44-20-7673-2645 or
jludden@bloomberg.net
James Cone

FT : US warns on China air force modernisation

China is modernising its air force on an “unprecedented” scale and is “rapidly closing the gap with western air forces”, the Pentagon said on Thursday in its annual report on the capabilities of the Chinese military.
The improvements in the Chinese air force were apparent not only in its aircraft but also in its use of jamming communications and electronic warfare, said the report. China also appeared to be operating a drone for reconnaissance at sea.

The Pentagon said that China’s headline defence budget of $119.5bn was understated by about 20 per cent, with the real figure for spending on the military closer to $145bn.
The report is an annual publication by the Pentagon which is mandated by Congress. However, it comes at a time of increasing military tensions between China and the US and its allies in Asia.
US and Chinese officials sparred verbally at a major regional security conference at the weekend, with Chuck Hagel, US defence secretary, accusing China of using coercive tactics in its maritime disputes while Wang Guanzhong, deputy chief of the Chinese general staff, said that Mr Hagel’s comments were “full of hegemony”.
China’s dispute with Vietnam in the South China Sea has escalated in recent weeks after China started drilling for oil in an area claimed by both countries while Chinese and Japanese fighter jets twice came dangerously close to each other in the East China Sea.
According to the Pentagon report, China conducted its “largest open sea exercise to date” last September when its three navy fleets took part in drills in the South China Sea – one of the growing number of signs that China’s military focus is shifting beyond its traditional emphasis on Taiwan.
The section on the air force provided the most new detail. The Pentagon said that within a few years, the air force would use largely fourth-generation fighter aircraft. The report also claims that China is trying to buy Su-35 aircraft from Russia which has a sophisticated radar system and which would allow it to undertake longer patrols in the East China and South China Seas.
The Pentagon said it was “probable” that China used a drone for a reconnaissance mission in the East China Sea in 2013 and it had revealed details of four different drones under development. It cited another Pentagon report that claimed the China drones programme enjoyed “unlimited resources” and “might allow China to match or even outpace US spending on unmanned systems in the future”.
While the US Justice department in May filed charges against five Chinese military officers for allegedly stealing trade secrets of US private companies, the latest Pentagon report did not provide any new details on Chinese cyber activities.

(The Telegraph) Mario Draghi takes historic gamble with negative rates but still

Mario Draghi takes historic gamble with negative rates but still stops short of QE
ECB's revolutionary move aims to force banks to pay a charge if they continue to park money for safe-keeping in Frankfurt

The European Central Bank has become the first of the world’s monetary superpowers to cut its deposit rate below zero, taking a leap into the unknown as it tries to drive down the euro and head off deflation.
The bank opened the door to direct purchases of private assets or quantitative easing, and announced a €400bn blast of long-term lending at cheap rates for banks.
The benchmark interest rate was cut to a record low of 0.15pc, tantamount to zero. The revolutionary move was to lower the deposit rate to -0.1pc, forcing banks to pay a charge if they continue to park money for safe-keeping in Frankfurt.
“Are we finished? The answer is no,” said Mario Draghi, the ECB’s president. “If required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using unconventional instruments within its mandate should it become necessary to further address risks of prolonged low inflation.”
The rate cuts prompted fury in Germany, where the head of the German Association of Savings Banks, Georg Fahrenschon, accused the ECB of expropriating savers. “We are tearing a hole in the pensions of savers. Over time these low rates will destroy the value of assets,” he said

Der Spiegel deemed it was the “end of capitalism”, while Die Welt described Mr Draghi as Europe’s Bismarck, a near autocrat beyond control. It is a foretaste of what may happen if the ECB does graduate to QE later this year, once the machinery is ready.
David Marsh, head of the financial forum OMFIF, said the latest stimulus is mostly window dressing and may backfire. “The fear is that it cannot and will not provide the massive impulse needed to return the euro area to full health. But it will nonetheless be more than sufficient to antagonise public opinion in Germany,” he said.
The anti-euro party Alternative fur Deutschland won seven seats in the European Parliament in last month’s elections, giving it a platform for the first time.
In an extraordinary development, Germany’s finance minister, Wolfgang Schäuble, has called into question the backstop plan for Italian and Spanish bonds unveiled with spectacular effect by Mr Draghi two years ago, saying the scheme cannot go ahead without German consent and “we will not approve of such a programme”. The comments yet again call into question how far Germany is willing to go keep the system together.
David Owen, from Jefferies Fixed Income, said the lending measures offer more than meets the eye and amount to a mini-bazooka. “Draghi has drawn a line in the sand and is telling us that he is not going to raise interest rates for four years. This is highly significant,” he said.
Banks will be able to borrow €400bn for four years at near zero rates at LTRO (long-term refinancing operation) auctions in September and December. The magic is in the details. While the sums are far lower than earlier LTRO auctions, the banks will be able to tap the ECB for funds equal to 7pc of their private loan book without using up collateral. “They can get free money for four years so long as they lend it to the real economy,” he said.
ECB officials hope that this will unlock a surge of lending. The aim is to stop “passive tapering” as banks rush to repay loans and beef up capital ratios, a phenomena that has caused the ECB’s balance sheets to shrink by €800bn.
Mr Draghi has also copied a tool deployed by the Bank of Japan in February, letting banks obtain liquidity equal to three times their lending. The first trickle of QE is coming through as €165bn bonds held from an earlier scheme are no longer “sterilised”, but the pace will be glacial.
The ECB package of emergency measures is in striking contrast with developments in the US and Britain, where central banks are moving toward the exit door, deeming the job done.
It underscores the gravity of the crisis in Europe, where lending to the private sector is declining at a rate of 1.8pc and several countries are in deflation. Italy, Holland and Portugal relapsed into economic contraction in the first quarter, while France fell back to zero growth. The recovery is in danger of withering on the vine.
The blitz comes late, with EMU inflation already down to 0.5pc. The ECB slashed its inflation forecast for this year to 0.7pc, making a mockery of the coming stress test for banks, which deems 1pc to be the most extreme “adverse scenario”.
The ECB also lowered its inflation estimate to 1.1pc in 2015 and 1.4pc in 2016, showing how far it has strayed from its 2pc target. Mr Draghi has warned in the past of a “pernicious negative spiral” in prices, but insisted that their is currently no “self-fulfilling” dynamic at work pulling Europe into a trap.
Even so, the prolonged effects of “lowflation” are serious, since any drop in the rate at this stage can have powerful effects on the intensity of debt-deflation in the crisis countries. It is a key reason why debt ratios keep spiralling higher despite austerity cuts.
Danae Kyriakopoulou, from the Centre for Economics and Business Research, said the negative deposit rate may do more harm than good. Banks hold just €30bn in cash reserves at the ECB – down from €700bn in mid-2012 – so the move will not free up much money for lending.
“What we may see instead is deposit flight as savers look for banks more willing to take on their cash elsewhere, as happened in Denmark. This in turn could even lead to a fall in lending, making the rate cut effectively contractionary, and do little to raise eurozone inflation,” she said.
The negative deposit rate risks causing havoc in the money market industry, one reason why the US Federal Reserve never tried it. The industry is worth €843bn in Europe, of which €375bn is from foreign funds.
The ECB is clearly hoping that some of this money will drift away, pulling down the euro exchange rate, which has strengthened 5pc in the past year and pushed the bloc closer to deflation. Early on Thursday the euro plunged one cent against the US dollar to $1.35 but bounced back and ended slightly higher.
Hans Redeker, currency chief at Morgan Stanley, said it will be a struggle to weaken the euro for long given the eurozone’s ballooning current account surplus of €280bn and the repatriation of funds by banks shoring up defences at home. “The ECB has bought time but Europe’s banks are incapable of recycling the surplus,” he said.
The stock markets rallied by 1pc in France, 1.1pc in Spain and 1.5pc in Italy on the historic measures, though reaction in Germany was muted. Many of the details were flagged in advance. Jens Nordvig, from Nomura, said credit markets have already priced in near perfection. It may take “broad-based” asset purchases to keep the rallies going.
Full-blown QE is not yet on the cards, though the ECB has a €1 trillion plan for use in extremis. Mr Draghi said the bank wants to “signal” that it is willing to buy asset-back securities if need be. They would be packages of loans but not the incendiary concoctions that led to the US subprime crisis. “They should be simple, not CDS (collateralised debt securities) cubed, or squared. They should be real loans, not based on derivatives,” he said.
It is an immature market in Europe, with just €700bn of assets to buy, and it is unclear whether purchases of asset-backed securities can direct much lending to small businesses, where it is most needed. It is costly to put together packages of sellable loans for family firms. “Their importance to politicians far outstrips their attractiveness to creditors,” said Matt King, from Citigroup.
In the end, the ECB may have to bite the bullet and resort to full-blown purchases of sovereign debt, just like the central banks of the US, Britain and Japan. That thorny issue has been put off for a few more months while the ECB prays for a miracle.

Barron's : Convertible Bonds: Nice Yield, Lower Risk

Convertible Bonds: Nice Yield, Lower Risk
Convertible bonds offer much of the upside during bull markets while limiting losses in bad times.

As hybrid securities that don't fit neatly into either the stock or the bond categories, convertible bonds rarely get the attention they deserve. They lose out to common stocks during bull markets and to straight bonds during bear markets.

Yet convertible bonds can play a valuable role in your portfolio, especially right now if you—like many investors—have the dual goals of wanting to participate in any remaining upside of this incredible bull market but also wanting to protect yourself if stocks turn south.

Convertible bonds hold out this dual potential because they are part bond and part stock. They pay a regular interest rate like an ordinary bond, but can be converted into a preset number of shares of the issuing company's common stock.

The performance of a convertible bond depends on many factors, including the value of the shares into which the convertible can be converted, as well as the prices of nonconvertible bonds with similar maturities, interest rates, and credit qualities. In some circumstances a convertible bond will act a lot more like a stock than a bond, and in other situations just the opposite.

In other words, it's possible that a portfolio of convertible bonds can be a good all-weather portfolio.

Sounds good in theory. But how do convertible bonds perform in the real world?

The Hulbert Financial Digest for more than 20 years has been tracking an investment newsletter that invests solely in convertible securities: The Value Line Convertibles Survey. Even during a rough period for investors, the newsletter's recommendations have fared well. Since the bull market top in October 2007, just as the Great Recession and associated bear market was beginning, the newsletter's model portfolio has produced a 9.6% annualized return, according to the Hulbert Financial Digest, versus 5.9% for buying and holding the stock market as a whole.

Better yet, this outperformance was turned in with 41% less risk, as measured by volatility of returns. That's a winning combination. The newsletter is in second place for risk-adjusted performance since October 2007 among the 129 advisory services the HFD has followed over this period.

To be sure, over the entire 20-year period since May 1994, Value Line's convertibles service has lagged the broad stock market—producing a 7.5% annualized return, versus a total return of 9.5% for the Wilshire 5000. But it's hardly surprising that a portfolio of convertibles will have lagged during a period which, on balance, has experienced such strong gains for the broad stock market.

In any case, the performance of the Value Line service has matched that of the average convertibles mutual fund tracked by Lipper. Compared to Value Line's 7.5% annualized return over the past 20 years, for example, the Lipper index of convertibles mutual funds gained 8.3%. However, because Value Line's model portfolio was more than 10% less volatile, or risky, than the Lipper index, their two performances are almost identical on a risk-adjusted basis.

All in all, it appears that convertibles have potential both in the real world as well as in theory.

The accompanying table drills down into the data further and shows how convertibles performed during the last two major bear markets and bull markets, and how traditional portfolios performed over the same time period.

Two themes emerge.

First, in bear markets in particular, convertibles provide substantial downside protection. For example, the Value Line Convertibles Survey lost less than half of what the overall stock market suffered during the 2007-2009 bear market, and only two-thirds the loss of a diversified 60% stock/40% bond portfolio. Its record relative to the overall stock market was almost as good in the 2000-2002 bear market, though in this case notice that it didn't do any better than the diversified stock/bond portfolio.

A second theme: A price is paid for this downside protection. Convertibles' bull-market returns are not as great as those of an all-stock portfolio. Still, it's worth emphasizing that their bull-market returns are nothing to sneeze at, either. And notice that the Value Line Convertibles Survey in bull markets does outperform the diversified stock/bond portfolio.

Even more than the usual care needs to be exercised right now when picking a convertible, however, since many of them trade well above the value of the shares into which they can be converted and, therefore, have elevated risk. Their hefty premiums are the result of investors' willingness to pay a big price for the downside protection that convertibles offer. For these and other reasons, you may want to follow the lead of an advisor, such as the Value Line Convertibles Survey.

Or, rather than buying individual securities, you may want to go with a mutual fund that holds convertible securities. For example, you'd need at least a six-figure portfolio to purchase even the smallest-possible lots of each of the positions recommended in the Value Line Convertibles Survey portfolio. And commissions and bid/ask spreads can impose a particularly large cost when buying small lots.

The convertibles funds with the best 10-year returns, according to Lipper, and which are both no-load funds and have relatively small minimum investment levels, are Fidelity Convertible Securities Fund (ticker: FCVSX ), with a 0.72% expense ratio; and Vanguard Convertible Securities Fund ( VCVSX ), with a 0.63% expense ratio.