January 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s madness. As pension funds attempt to reduce risk, and follow rules set down by the FSA, the crisis becomes deeper. In attempting to reduce risk, it would appear the FSA unconsciously took an even bigger risk with our long-term prosperity.

As equities tumbled during the first few years of this decade, pension funds were forced to sell at or near bottom, and buy supposedly risk free bonds.

This led to a boom in the price of bonds, the yield fell, until yesterday the yield on a 50-year inflation-linked bond was just 0.46 per cent, the lowest ever recorded since these particular bonds were first launched in 1981.

And yet, because the yield is low, the long term value of the pension falls, leading to a rise in the deficit, and the pension fund managers are then being forced to buy more bonds, making the situation even worse.

Despite the rock bottom rate of yield in yesterday’s offer, it was over subscribed.

Of course, it was good news for the government- it may be borrowing, but at that rate of interest it will hardly notice the repayments

Maybe, from an individual’s point of view, the best way forward is to manage his or her own pension and make their own risk assessment, one that takes into account there is no such thing as zero risk, and a minimal risk strategy can in the long term, be highly risky.

January 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Not so long ago, Roy Disney, nephew of the great man himself and his colleague Stanley Gold wanted blood. They were after the scalp of no less a heavy weight than Michael Eisner, who in his day was the most influential man in Hollywood. He brought Disney back from mediocrity, and under his leadership the movie company became a formidable force in the animated movie business, starting with the Little Mermaid, and including Lion King, Beauty and the Beast, Aladdin etc.

Then things changed after a high profile recruitment move turned sour. And then all of a sudden it was Pixar, and then of course Dream Works who led the world in innovation.

The good news from Disney’s point of view was that it was the Pixar distributor, but when even that deal turned to rancour, even the mighty Eisner fell.

At the time relationships between Pixar and Disney appeared to hit an all time low, with Pixar boss Steve Jobs saying words to the effect: “I don’t care who distributes our products, as long as it’s not Disney.”

But then under the new leadership of Bob Iger things started to change. Last July, Roy dropped his save Disney campaign, Iger and Jobs declared a mutual respect, and all of a sudden talk was that the Disney/Pixar deal could be saved.

But not many people suspected the way it would happen. Under Eisner it would have been inconceivable, but Disney is to buy out Pixar in a two for one share swap (two Disney shares for each Pixar share) in a deal worth $7.4bn.

And the deal was welcomed by Roy Disney himself, saying: “Animation has always been the heart and soul of the Walt Disney Company and it is wonderful to see Bob Iger and the company embrace that heritage by bringing the outstanding animation talent of the Pixar team back into the fold. This clearly solidifies the Walt Disney Company’s position as the dominant leader in motion picture animation and we applaud and support Bob Iger’s vision.”

Now eyes turn to Steve Jobs. Forget about the iPod. Steve Jobs has been a miracle worker to date. After he was famously ousted from Apple, the company he formed, the computer maker hit hard times, but only after the return of Jobs, did the decline slowly move into reverse.

Jobs bought Pixar from George Lucas back in the ’80s, and with the launch of Toy Story, its fate as one of the most innovative movie companies was set.

Add to that the stunning iPod achievement and you know Jobs would appear to be capable of almost anything.

But if there is one man’s name that stands above all forms of entertainment like a colossus, that name surely is Walt Disney.

But now, Jobs is the largest shareholder in the company and is to become a director. The question is this: will Disney now get the Jobs treatment?

Jeffrey S. Young, co-author of iCon Steve Jobs: The Greatest Second Act in the History of Business was quoted in Business Week as saying “If things don’t go as well as promised at Pixar, look for Steve to bring the Disney board into his fiefdom.”

Jobs himself was more sanguine. “I’m going to be a board member, and my job will be to do whatever Bob asks to integrate these (Pixar and Disney) companies.”

And Iger said: “Steve will be a big voice in many respects, and that’s a good thing.”

Who know for sure? But in twenty years time, maybe it will be Jobs land that rules the roost on theme parks.

DISNEY TO ACQUIRE PIXAR - Disney Pixar

January 24, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Wander around Liverpool Street Station during a busy working day, and you may notice executive looking types immersed in a little gadget they are holding in the palm of their hands. We are of course talking Blackberry, the mobile phone, which has proven so popular, thanks to its ability to send and receive email.

But it is just possible it will be sending and receiving no more, at least in the US, thanks to a legal dispute with NTP.

Although, in fairness, it would seem that there are far too many bucks involved, for that eventuality being allowed to transpire.

The legal tussle started in 2002, when NTP sued Blackberry, won the case and had an injunction granted against Blackberry, but which was stayed pending appeal.

Last year, an out of court settlement was reached, in which Research in Motion, the company behind Blackberry agreed to pay $450mn. But three months later, NTP, or so it appears, changed its mind about the deal, and pressed ahead with their legal claim.

So it was back to appeal, with RIM arguing that since the server used for the Blackberry service is in Canada, the NTP patent does not apply. But yesterday, the Supreme Court made its judgement. It said it didn’t matter where the patent infringement took place and turned down RIM’s request to have a review.

Some are now saying that the days for the Blackberry device in the US are now numbered. But RIM tried playing down the ruling yesterday, and its vice president of corporate marketing, Mark Guibert said: “RIM has consistently acknowledged that Supreme Court review is granted in only a small percentage of cases and we were not banking on a Supreme Court review.”

Now the company is focusing attention on technology, which it could make available for using the Blackberry service without infringing the NTP patent.

Lawyers representing RIM have argued that an injunction against Blackberry would go against the public interest, and could even have national security implications.

January 24, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Google and Apple topped the latest poll from brandchannnel for the brand with the most impact, in 2005. Surprisingly, Skype, the VoIP company recently bought by eBay, came in at third place, ahead of Starbucks and Ikea.

In Europe Nokia topped the poll, with Ikea in second place and Skype third.

Sony was top in the Asia/Pacific region.

What, perhaps, is most telling about the brandchannel survey is the name of companies missing from the charts.

Last year, Virgin was ranked as the second top brand with impact in Europe. And brandchannel said at the time: “Richard Branson continues to delight or disgust depending on one’s perspective, but we suspect the voters for Virgin in this ranking are definitely fans. Sir Richard’s tremendous talent for making us feel like winners just for choosing Virgin cannot be underestimated.”

Yet a year on, and there’s no sign of the name.

Two years ago, eBay went from nowhere to number three worldwide, and yet in 2005, its only representation in the charts came in the form of its VoIP subsidiary.

Other brands who have done well in recent years but are now missing, include, Mini, Al Jazeera, H&M (third in Europe in 2004,) and that once mighty brand that left others gasping for breath in its wake, Coca-Cola.

Apple and Google, however, have been topping the chart for some time, often swapping first and second place from one year to the next.

Brandchannel.com presents Readers’ Choice Awards annually to the brands that had the most impact (negative or positive) on our lives. 2,528 people from 99 countries voted in the 2005 Readers’ Choice survey, which was conducted from November through December 2005.

Voters are allowed to choose up to five brands per region and complete the demographics section once. No single section is mandatory and rankings are compiled purely on the basis of readers’ choices.

January 24, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

The two top British mobile phone companies, one the largest in the world, the other soon to be swallowed up by Spain’s Telefónica, were at the opposite ends of press analysis this morning. O2, in its swan song before takeover, posted an impressive set of results. Customer numbers in the third quarter were up 1.75 million, taking total numbers to 27.4mn, which is 18% higher than a year earlier. In fact it was the best ever quarter at 02 as an independent company.

In the UK, customer numbers were up 895,000 to 16mn, while in Germany, it put on 823,000, taking the total to 9.8mn.

In all it would appear the company is gearing up nicely for it £17.8bn sale to the Spanish telecom giant.

Meanwhile, Vodafone has been on the receiving end of growing negative publicity. The FT and a host of other publications reported on a view, which seems to be gaining increasing acceptance, that the company should sell off its 45% shareholding in Verizon Wireless, giving up on the US market. Some have been speculating that it should also divest itself of its Japanese Venture.

Apparently, the company is too heavily geared to increase its stake in Verizon, and so goes the argument it should focus on the areas where it is already strong.

But this morning, the company released its latest customer numbers for the last quarter, and preliminary analysis indicated it was a better quarter than markets had expected. With both the US and Japn performing well.

In total 4.9% more mobile phone customers were signed up in the quarter, taking the total up 8.33 million to 179.3milion. That performance was 30% up on the same period last year.

As the market in Europe matures, Vodafone is looking to expand in Europe by launching 3G services such as TV onto mobile phones, and it’s looking to grow overseas through acquisition. Since October it has forked out $8.5 billion on acquisitions, building stakes in companies based in in India, Turkey and South Africa.

A Vodafone statement said: “Underlying trends for service revenue, excluding the impact from changes in termination rates in Germany, Italy and the UK, saw lower growth as a result of the impact of increased competition and price declines. Offsetting this were good performances from Spain and the US with Vodafone’s emerging market operations also continuing to perform well with strong service revenue growth of 39% in Romania, 36% in Egypt and 22% in South Africa.

“3G sales continue to develop in line with expectations, with 3.1 million net additions in the quarter, bringing the closing total to 8.0 million, including 7.4 million consumer devices. 3G net additions in the quarter are over 80% higher than recorded in the quarter to September. Non-messaging data revenue growth in the quarter was 24% year on year, including 53% growth outside of Japan.”

January 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It will come as no surprise to learn that Internet shopping boomed this Christmas. Anecdotal evidence from the High Street had made this obvious. Even so, the latest statistics from IMRG made startling reading.

In its latest report, IMRG says that in the ten weeks to Christmas shoppers spent £4.98bn over the net, compared to £3.33bn in the same period last year.

The IMRG index hit 2,602 in December. To put this in context, the index was launched in April 2000 with a score of 100. So that’s 2,600% growth in less than six years.

And the growth is set to continue, with IMRG predicting internet shopping growth of 36% in 2006.

IMRG’s CEO, James Roper, said: “A surprising number of goods are still either hard to find or unavailable online. Large gaps exist in the supply market, such as high-end fashion and real estate. Even leading retailers often only make a small proportion of their total inventory available online, and many don’t bother with spares at all. So huge growth potential remains for the merchants who plug these holes.”

Cast your mind back to April 2000 when the IMRG index was launched. Dotcoms had become a dirty word, with investors turning away internet start ups with gay abandon.

We have argued previously, that thanks to the internet shopping boom, internet advertising is changing too, and that there is a new rationale for advertising which did not previously exist. The three Ps of successful retailers were once said to be position, position and position. But for the e-retailer, position on the net is what matters, and that comes from advertising. For such a company then advertising should replace rent in the balance sheet.

From an accountancy point of view, this might be nonsensical, but from a practical point of view, internet advertising, or to make the semantics right, internet promotion, is perhaps the only P that matters.

January 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Is investing in equities really that risky? Providing your portfolio of investment is sufficiently diverse, it could be argued that in the long term, equity investments are less risky than bonds. The yield from bonds can after all be reduced to next to nothing, after taking into account inflation.

And yet, two years or so ago, when equities were still plummeting, fund managers, and most noticeably Standard Life, were forced to sell equities in order to stay within the rules for insolvency introduced by the FSA. That was of course, at just about the time when markets had bottomed. As a result, many fund managers suffered at the hand of a falling market, moved into bonds, and then continued to suffer as the long term rate of interest fell, and equities started their comeback.

On Friday, we brought you news of a report from Deloitte that it was advising funds to invest in derivatives, hitherto thought of as the most risky investment you could make.

The Sunday papers leapt on the report, with the Observer headlining “pension fund urged to take risks.”

The Independent put it more forcefully, with Hamish McRae saying: “it is nuts. The people behind our pension schemes understand zilch about markets.” He said: “Our regulators and advisors should be aware of the enormous damage they are doing in forcing pension funds into poor investment choices.”

January 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

According to the latest report from Ernst and Young’s Item Club, the UK is set for recovery. And, just as we outlined above, it’s exports that will lead the way.

The Item club report, published this morning, predicts UK growth picking up to 2.3% this year, not brilliant, but better than the 1.7% of 2005. Meanwhile, inflation, as measured by the CPI index, is expected to stay at around the target rate of 2%.

But, says Peter Spencer, Chief Economic Advisor to the Ernst & Young ITEM Club: “We are certainly not out of the woods yet,” he says. “Growth is still well below par - just hitting the EuroZone average - and with consumer spending dropping and the pressure piling on exports to take up the slack, we could be in for a bumpy 2006.”

The Item Club believes, that moving forward, our exporters will come to the rescue.

In the Item club press release, Spencer said that he believed a fall in the pound would help (as UK interest rates are overtaken by those in the US) to aid growth in exports and investment - potentially into the Middle East and Europe. This would underpin a predicted modest revival in UK exports this year, partly due to the rapid growth in markets like OPEC where the UK is strong.

Spencer explains, “If the UK is to reach 3% growth in 2007, exports (and investment) must take up the slack in the economic rebalancing act as consumers continue to save rather than spend. However, it is difficult to see how this can successfully be achieved with sterling at present levels.”

As for the rate of interest, the Item club says it’s a tough call, and that the rates may well stay on hold this year.

January 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

If you ever had the misfortune to study Economics at A Level you would have been told that the rate of interest going up leads to an improvement in our balance of trade.

And yet, the real world is more complicated than that. A high rate of interest also attracts money from abroad, often pushing the value of the currency up, making life difficult for exporters and easier for importers. In short, in reality, a rise in the rate of interest can have the indirect consequence of making the balance of trade worse.

And for the last few years, the UK is stuck right in the middle of this paradox.

The UK economy had become reliant on the consumer. We avoided recession earlier this decade, when both the US and Eurozone fell foul of that curse, thanks to our consumer bailing us out.

The difficultly is that with debt reaching worrying heights, and inflation appearing to be on the verge of making a come back, the UK’s central bank had to put a stop to the consumer boom, and so upped the rate of interest.

The UK cannot rely on its consumers forever; it cannot rely on the government spending propping up the economy for long either. Right now what the UK needs is an export driven recovery.

But for as long as Sterling remains so high, that would appear unlikely. And now with talk that the Bank of England may need to reduce the rate of interest soon, the question is will that help our exporters, because it will mean less money coming into the UK leading to a fall in Sterling; or will it have the opposite effect, leading to consumers buying more goods from abroad, propping up the pound.

It could be that this time, luck is with the UK. And for Gordon Brown, whose image as the formidable Chancellor has been coming under increasing scrutiny in recent months, it might be that it will all happen just as he moves next door, restoring his credibility in the nick of time.

Because, returning to the paradox of the relationship between the rate of interest and balance of payments, what really matters is the rate of interest in the UK compared to the rate abroad.

And at last the runes are good. The US rate of interest is now within a quarter of a percent of the UK rate, and is likely to move higher, and while the eurozone rate at 2¼% is still much lower than the UK’s rate, it is thought the ECB will be upping the cost of borrowing soon, closing the gap slightly.

This could, and one would hope will, lead to a fall in Sterling.

Couple this with the fact that our oil exports are reducing, which in turn will put pressure on the pound, at last maybe the turn around is near.

?In recent months a growing chorus of voices has been arguing that the UK needs our producers, be they traditional manufactures, or service companies, to save the UK; that we had become too reliant on consumer borrowing, which is after a all just a merry- go-round. Peter sells to Paul and uses the money to pay Simon, who borrowed from Paul in the first place.

But while a fall in Sterling, boosting our exporters is what the UK needs for long-term wealth, there could be some nasty fallout.

A falling pound would bring pressure on inflation, and could lead to hikes in the rate of interest. Not enough to stop the fall in Sterling, but enough to stop the consumer.

For the UK to really enjoy an export boom, the balance between consumer spending and exports needs to change. That could lead to a short-term recession on the High Street, and put house prices under more pressure.

January 20, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Not so long ago, it seemed as if the managment at Pixar, (that’s Steve Jobs to you and me) and Disney could barely stand being in the same room together. But, with Michael Eisner, now replaced by Bob Iger, its entente cordial again.

And now there’s talk that Disney might actually be buying Pixar out. The story was first revealed by the Washington Post, and some are even saying that Steve Jobs, the same man who heads Apple, and who recently agreed a content deal with Disney for the video iPod, could end up as a Disney Director.

These days, Disney appears to be little more than a bit player in the animated movie business. Pixar, on the other hand, has released a string of major hits: Toy Story 1 and 2, Monsters Inc, A Bug Life, the Incredibles and Finding Nemo. Of that line up, Finding Nemo grossed $865mn making it the second biggest grossing animated movie ever. But none of the Pixar big releases grossed less than $300mn.

Pixar’s next movie, Cars, is due for release soon.