September 28, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

At last we have some good news about the UK economy. In fact, to our way of thinking it really is good news.

According to the latest data from the Office of National Statistics, business investment during the 12 months to the end of Q2 was 4.2% up on the previous year, while the quarter on quarter growth was 1.5% up.

Originally the ONS said investment had grown a mere 0.5% in Q2 on the previous quarter, and at the time commentators bemoaned the only gradual improvement in UK investment.

Back in 2003, the UK missed a technical recession in investment by a whisker, with two quarters that year showing negative month on month growth.

The good Q2 performance came thanks to increases in capital spending from private sector manufacturing and construction industries and non-manufacturing public corporations.

Investment is a key factor behind productivity, and low productivity per unit of labour has haunted the UK economy, with the US, France and Germany producing far more per hour worked.

September 28, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

All of a sudden there’s talk that the price of oil could fall back to earth again.

It’s a jigsaw puzzle, but put all the pieces together- and who knows for sure, but maybe oil could head down south.

First of all, there’s the news from Saudi Arabia that the extra 2 million barrels of oil per day it has released are not being used. There’s no real surprise here; commentators, including this publication, warned that Gordon Brown was using OPEC as a scapegoat for the high price of oil.

In fact the recent surge in the price of oil was due to a shortage of refining capacity, caused by hurricane damage, and when that is fixed, the combination of full refining capacity at a time when political expediency means that there is plenty of surplus oil out there, could mean…

And on the subject of wind damage, the latest news suggests that in terms of damage to oil rigs, Rita was the most costly storm ever, with rigs used for exploration particularly badly damaged.

Then comes news from the world’s largest oil company Exxon Mobil that there’s a lot more oil left to be uncovered than previously thought. In fact the company’s president Rex Tillerson said yesterday that there could be as much as 7 trillion barrels of oil still waiting to be found, and even on a conservative estimate said: “There’s still 3 trillion barrels out there” and that said Mr Tillerson is “more than twice all the oil recovered up to now in all of human history.”

Finally, in the US, Peter Beutel, president of Cameron Hanover was reported as saying: “It does appear we’ve turned the corner here in this market. I don’t think we’ll see prices at these levels again anytime in the next five years.” He predicts oil falling to $25 to $35 a barrel within two years.

But before you go out and buy put options in oil,- we know that’s what you were thinking, there’s another side to the coin.

Other analysts are not so bullish. For example, banker Matthew Simmons says there have been no major oil finds recently, Saudi productions is declining, and we are near peak oil - that’s the point at which oil production globally starts to fall as there are less and less oil fields to exploit.

September 28, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The UK, France and Germany are all falling down the league of the world’s most competitive economies, but Scandinavia remains in the driving seat.

Every year The World Economic Forum publishes its list of the world’s most competitive countries. It says that 11,000 business leaders are interviewed, and a raft of factors are taken into account, and “particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation.”

And for the second year in succession Finland tops the chart. The US remains firmly in the number two slot, with Sweden completing the top three. Just off the podium is Denmark, and in fifth and sixth place are Taiwan and Singapore. The Scandinavian domination is completed with Iceland, next on the chart.

The UK has slipped two places to 13th, Germany has fallen from 13th to 15th and France from 27th to 30th.

Of the G7 economies, Italy is bottom of the pile in a lowly 47th, just ahead of China and India.

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Sony has problems at the moment. There was a time when it was officially the second most world known brand name in the world - behind Coca Cola. But now, after failing to build upon the success of the Walkman, losing dominance of the portable music industry to Apple, with its share of the LCD markets diminishing, and with margins from the sales of consumer electronics disappearing down a silicon plug hole, at least it’s got both its next games machines and Blu Ray DVD.

DVD, which is approaching its tenth birthday now, (the war for dominance between the original two DVD standards never got off the ground and was settled in board rooms in 1997) is after all getting long in its tooth.

DVD offers a mere 4.7gigobytes of storage, and is set to be replaced by a new standard.

But which standard? At the present there are two: There’s the HD-DVD from Toshiba, and Blu-ray from Sony.

We have long considered that the inclusion of Blu -Ray DVD in the new Sony PlayStation 3- which promises to be so much more than just a games machine - offering music, video, broadband internet access etc, and due for launch next spring, will give Sony an unassailable lead. It has its allies too: Hewlett-Packard, Dell, Apple Computer, Vivendi Universal, Twentieth Century Fox, Walt Disney, Electronic Arts, Panasonic, Philips, Samsung, Sharp and Sun Microsystems.

But, then again, the Toshiba camp, which also boasts Sanyo and NEC on its side, seems to have the advantage of time. The first HD-DVD has already been announced by Toshiba, and world-wide roll out is set for the first quarter of next year. Blue ray is not likely to be available anywhere until next spring.

But now, the Toshiba format has got two more big advantages going for it: Microsoft and Intel. The two companies have joined its camp. Richard Doherty, Microsoft’s program manager for media entertainment convergence said: “There are several reasons the two companies went with HD DVD. HD DVD requires that movies may be copied to a consumer’s hard drive, making it easier for people to send movies around home networks; HD DVD supports regular DVD recordings on the flip side of the disc, letting people sell hybrid discs to consumers who have DVD players today but fear their discs will be obsolete; and HD DVD offers more capacity.”

But Sony’s ally, Philips, hit back. Marty Gordon, vice president of Philips Electrics said: “This announcement does little to shift the momentum that’s been building for the Blu-ray Disc. It has dramatically more support from the consumer electronics industry, the PC manufacturers and the games hardware manufacturing side, as well as strong support form movie studios, music companies and game software developers.”

Blue-ray will boast both 25 gigabyte and a dual layered 50 gigabyte disc. HD- DVD, on the other hand, starts at 15 gigabytes, but the Toshiba product announced last week will offer 30 gigs.

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s been a long time now. The first time we can recall writing prose about how Gordon Brown’s predictions for the UK economy were looking optimistic was roughly about the same time we started publishing this newsletter - getting on for three years ago.

Over and over again, economic think tanks, analysts and the media have warned that Gordon has get his sums wrong, and time and time again, Mr Brown has replied by saying he knows something we don’t know.

Then last week he finally bowed to the inevitable. The UK economy, said our Gordon, is to grow at around 2.5% this year. Maybe as slow as 2%, and well short of the original estimates of 3 to 3.5%. But oil is carrying the can. Our chancellor made it clear that the high price of oil is the culprit for the slowdown, and that is clearly not his fault.

“Don’t you believe it” say Gordon’s detractors.

Howard Archer, an economist at Global Insight was quoted in the Business paper as saying: “The strength of oil prices can provide the chancellor with some excuse for missing his growth target, but in reality the causes are much deeper than that.”

Roger Bootle, the head of Capital Economics, which has long been predicting a massive short fall in UK growth compared to official targets, used his regular column in the Sunday Telegraph to say: “Brown, the always right chancellor has been finally forced to admit that he was wrong.”

Two pillars have supported the UK over the last few years. First of all there was that column known as consumer spending. When our euro partners, and even the US, slowed, or even went into recession, the British consumer, whose confidence was fired up by rising house prices, went out and spent.

Then, as debt hit all time highs, and fears over a possible property bubble in the making led to a sharp slowdown in consumer activity, in stepped the government. It spent where our consumers had stopped.

But these two pillars were built on shaky foundations. Neither could last forever, and the prayer was that as they eased, other parts of the UK economy would come to our rescue.

But the high level of consumer and then government spending, meant that the Bank of England was unable to lower the rate of interest like its brethren at the ECB and Fed. As a result manufacturing was hit on two fronts. Despite a massive balance of payments deficit, the pound stayed high, making it harder to allow our manufacturers to compete. And the higher rate of interest made it more costly for them to borrow.

But now, with the UK dipping, some are talking about things getting a lot worse. Yesterday, the Centre of Economics and Business Research warned that slowing growth means taxes will have to rise to fund a growing shortfall in public finances. CEBR chief executive, Douglas McWilliams, said: “He (Gordon Brown) has only two choices - cut spending growth or raise taxes. If the latter, watch out for a mixture of stealth taxes that will be the equivalent of three pence on income tax.”

Of course, there are certain newspapers we know who will spare no words in describing Mr Brown’s shortcomings. Take the lead article in the Business, for example. It said: “From now on, commentators and voters will start to realise - as this newspapers long has - that Emperor Brown is running out of clothes and begin to blame him (rather than the usual ministerial fall guys) for his many failings, from the utter shambles that is tax credits to failing public sector pensions, to rising unemployment, the strangling of business by red tape, to Britain’s growing welfare dependency culture, to an income- tax guidebook which has doubled during the Brown years because of his passion for complexity and tinkering.”

It is worth bearing in mind, however, that despite all the Brown bating, the economic slow down he has foreseen is exactly in line with the prediction by the Item Club, reported here on 19 September, that oil, at its current price, would slow the UK economy down to 2% this year. So in other words, oil is no scapegoat. It is in fact a bona fide reason.

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Wouldn’t it be good if the next time you wandered into a shop, a sales assistant said: “Thank for you visiting us, here is £1 for giving us your attention.” You could set off in the morning skint and end the day with a pocket bulging with readies.

Just maybe, the Internet equivalent of that service is about to be launched.

Pure profile, www.pureprofile.co.uk, claims to turn the Internet shopping experience on its head. Customers type in data about themselves and what products they are after. Merchants can then send these individuals messages about their relevant offerings, and pay their prospective customers for the privilege.

At core, the idea extends the Google key word advertising concept. Perhaps the most cost effective form of advertising ever invented, Google key words allow merchants to carefully target their marketing, paying per visit to their web site from prospective purchasers who typed in certain key words on the Google search engine.

But Pureprofile takes this push technology a stage further.

Remember, Google went from nothing to the massive media giant it is today in six years; maybe Pureprofile, or a company offering a similar service, could duplicate this explosive growth.

There are problems with the concept, however. We would question the motivation of individuals who are paid money for receiving ads: are they really serious about buying the product?

Retail is in a mess. Margins are under enough pressure as it is, and given this, can retailers afford to give money back to customers without sacrificing something in return, such as price?

Then there is brand advertising. So far, the Internet has failed to become a medium for creating brand loyalty, and until it manages this, it will never pick up the lion’s share of the advertising cake. Unless, that is, push technology becomes so dominant that brand loyalty loses its hold, and product and its key features, becomes the overriding purchasing driver.

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

German car company Volkswagen, has always been safe from a foreign takeover, thanks to a rule known as the VW law, which says that no one individual can own more than 20% of the company. The trouble is the EU is expected to decide this law is illegal, thus opening the floodgates. Last week, rumours had it that overseas investors were planning to invest in the company.

But Porsche has come to VW’s rescue, buying up a 20% stake in the company, costing 3bn euros. With the government of lower Saxony owning an 18% stake, it would appear the company is to remain safely in German hands.

Wendelin Wiedeking, Porsche’s chief executive, said: “With this commitment, we want to secure our business relations with VW and safeguard an essential part of our future planning over the long term.”

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

How often do you try to access the Internet from your mobile phone? It takes an age doesn’t it?

In Japan, it’s different. They have i-mode with its 43 million subscribers. But now it looks as if the sun is rising on i-mode in the West, as mmo2 plans the launch of its own i-mode compatible phone. The announcement was made yesterday, with content supplied by the likes of BBC and BSkyB. In fact in all there will be around 80 content suppliers, and services available will include 3 D games, online shopping and banking.

Meanwhile, it’s emerged that the former BT subsidiary is now number one in the UK. According to research from Continental Research, 02 now has 24.1% of the UK market, just ahead of Orange, the previous number one, with 23.8%. Vodafone is third with 22.7%.

But all this could be about to change radically if the latest rumours are to be believed.

According to the Business Paper, Deutsche Telekom, the company which owns T-Mobile is planning an £18bn takeover of the British mobile phone operator.

O2, of course is also a big player in Germany, and while a united T-Mobile and 02 would control around 40% of the UK industry, the German market share would be nearer 50%. So the smart money seems to be riding on the German company selling 02 Germany, and getting a large chunk of the purchase price back that way. It could even fund the entire cash element of its bid by selling 02 Germany, and using shares for the remainder of the deal.

But yesterday, Deutsche Telekom denied any plans to make a swoop for 02. “We have no interest.” Deutsche Telekom Chief Financial Officer Karl-Gerhard Eick said: “The topic for us is closed.”

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Despite all the Brown bating from the anti Labour press, (see story today) our prize for the most miserable economic prediction this weekend goes to the Observer. Jim Mellon, author of “Wake up! Survive and prosper - the economic turmoil” said that: “In a few short years at most - the rich West and Japan will have a terrible shock.”

Mr Mellon said that certain trends threaten to come together and drag down the global economy. They are firstly an anti Americanism, at a time when the US is slowly being replaced by China as the world’s superpower. - A similar vacuum, he said, occurred at the beginning of the 20th Century, with Germany taking over from the UK, with World War 1 the result, and warned that Taiwan could be the hot spot.

Secondly, the massive trade and fiscal deficits threaten to spill over. The US trade deficit is funded by foreigners, especially from China, buying up US Treasury bonds. If this stops, the dollar will go crashing.

Thirdly, he warns over consumer debt at a time of high asset prices. He predicts a 50% fall in house prices across the Anglo Saxon world, and says that UK and US consumers have “been using house prices as a kind of ATM.”

Finally, he predicted a crisis as environmental issues conflict with the growing demand for raw materials.

So what should you do if the author, who describes himself as a natural optimist, is right? The answer: go liquid; make sure you have lots of cash and little debt. And above all, he says, when the crash occurs don’t jump back on again too soon. Apparently, in 1929, the biggest losers were those who bought when shares had halved, “not realising that cheaper was to get a lot cheaper.”

September 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

George Davies exerts a lot of influence over M&S. The man behind Next and the Asda George range, was brought in under the previous Marks regime of Luc Vandevelde. Since then, his Per Una brand has lit up the doom at Marks like a beacon. But there’s a snag with all this. Maybe M&S needs George more than he needs the former High Street darling.

During that period when Philip Green was making his attempted swoop for the retailer, doubts started to emerge on who owned what, until in October last year when M&S finally forked out £125mn for full ownership of the Per Una”company, brand and people.”

Now it’s been reported that M&S boss, Stuart Rose, is ready to fire George Davies. According to the Sunday Telegraph, one director of Marks has said Rose was tired of “playing the patsy” and “George has been stringing M&S along, presumably in the hope of securing a better deal from someone else.”