As Osama Bin Laden talked of further “air strikes on the US” yesterday, the price of gold and oil soared. Gold saw its biggest daily rise since September 11 2001, and was worth $559 an ounce at the end of the day, the highest closing price for 25 years.
Oil too rose, $67 a barrel at time of writing, to the highest level we have recorded this year. Some are now warning further hikes will follow.
It would appear you are damned if you do and damned if you don’t.
Pension funds reacted to the stock market collapse earlier this decade by migrating to bonds. Many bailed out at or near bottom.
Since then shares have enjoyed substantial rises, but thanks to the falling long term rate of interest, bond yields have fallen, and the pension funds have seen their deficit fall even further.
Now, research from Deloitte has revealed a £35bn fall in the deficit for final salary pensions relating to all FTSE 100 companies since the end of last year, with the total deficit plummeting from £65bn to £100bn in just a few weeks.
Tony Osborn-Barker, a director in consulting at Deloitte, said: “What a difference two weeks makes. This is a direct result of the “double whammy” that we always feared - a rise in inflation expectations and a fall in bond yields.” Although the value of the assets held by pension schemes will have increased in line with the recent rise in markets, this has been outweighed by falling real interest rates, which increase the value of pension liabilities. In the last 15 years, real interest rates have collapsed from 4% to less than 1%, thereby hiking pension liabilities.
“To think that it can’t get worse is to ignore the experience of Japan over the last 25 years,” Osborn-Barker continued. “The Holy Grail for companies wanting to stabilise their pension deficit is to find assets that ‘match’ their pension liabilities and we are seeing significant movements towards liability-driven investment strategies.”
Mr Osborne-Baker added: “If buoyant equity markets continue through 2006 and beyond, schemes and sponsors will not benefit. This risk is easier to manage than people think and we have advised schemes to invest in appropriate derivatives, whose value increases in line with equities once the equity market reaches a certain level. How to best fund the deficit will depend though on several factors including the objectives of the company, the risk attitude of the trustees and the size of the deficit”.
Global sales of music donwloaded from the Internet or onto Mobile phones was $1.1bn in 2005, almost three times more than the $380mn enjoyed in 2004.
According to research from IFPI, 420million single tracks were downloaded last year, a 20 fold increase on 2003, and Digital music now accounts for about 6% of record companies’ revenues, up from practically zero two years ago.
The Mobile phone, which made its debut as a global portable music device last year, now represents 40% of all digital music.
The IFPI report also had good news for those worried about piracy with IFPI CEO John Kennedy saying:”Already in the UK and Germany - two of the biggest digital markets worldwide - legal buyers from sites like iTunes, Musicload and MSN actually exceed illegal file-swappers. We expect this trend to spread as new and pioneering legal music distribution channels open up to consumers. ”
While James Blunt topped the first European singles chart, music publishers will be saying that the it’s the US which is beautiful. In all, 353million singles tracks were downloaded in the US last year, from 143million the year before. The UK was second with 26.4million (up from 5.8million) and Germany was third with 21 million. Eight millions tracks were downloaded in France.
Often, in the world of technology, Japan gives a taste of things to come. And in land of the rising sun mobile sales reached US$211 million, representing 96% of all digital music sales, for the first quarter of the year.
Michel Lambot, Chairman of IMPALA (Independent Music Companies Association) said: “The walkman changed the way people used to listen to music, turning it into a mobile experience. Now we have iPods, portable PCs and millions of mobile phones; all are becoming mobile music players. I love it. My job is about developing artists and making sure they are paid for their music. Mobile music is fantastic as far as exposure is concerned, but I have now to worry about bringing the revenue back home.”
While, Ed Kershaw, Head of Music Vodafone, gave the mobile phone company’s angle. “There are certain artists whose music appeals very strongly to the mobile customer base but not necessarily to the 30-something male with a broadband connection downloading from iTunes. There are gaps in the market that are not filled by record shops or online services that can be filled by mobile. There are a number of different access points for music and over-the-air is the most convenient for impulse purchasing when you are on the move.”
It’s being hailed as the battle between techies and the mass market. Tesco joined the ranks of companies offering internet phone calls yesterday, with the launch of a £19.97 VoIP handset kit, which includes £5 of free airtime.
Users of the Tesco product will be able to ring other users over the net for free. Calls to a landline will cost 2p a minute while calls to a mobile phone will be charged at 10p a minute.
The Tesco product will be supplied with a CD containing the software.
The market leader in Internet telephony is Skype. But the Skype software has to be downloaded from the their web site, and hardware is bought separately. This has led to speculation that the Tesco product will be used by the less technically savvy.
Skype charges 1.2p to access a landline, but also charges for incoming calls.
Other companies competing in the market include Dixons’ owner DSG and Vonage. And all competitors seem to be after the mantle of “user friendly” and “mass market.”
When Vonage revealed its offering back in May, its chief executive, Kerry Rittz said: “Our business is positioned as a replacement phone service. You pick up the phone, dial normally and talk to anyone in the world. People tend to do other things while talking on the phone… they don’t want to be tethered to a PC or have to speak on a headset. She added: “We’re targeting the mass market. We’re interested in selling to aunties, grannies, parents and sisters - as opposed to being focused on a particular niche.”
All eyes now turn to BT. Having seen VoIP completely undermine its traditional business model, the company must be successful with this new technology. Given that so many other companies have beaten the former state monopoly to launch, its product will have to be special, and worth the wait.
Meanwhile, BT questioned the viability of the Tesco product. John Petter, BT Retail’s chief operating officer, said: “This is actually a poor deal for customers. Why would anyone want to pay £1.20 for a 60-minute call at the weekend or evenings when the same call would be just 5.5p with BT, which is 21 times cheaper.”
Yesterday we brought news of disappointing figures from Intel. We said some feared AMD was eating into the giant chipmaker’s bottom line. And sure enough, the results from AMD last night appear to back that up. Intel’s smaller rival saw profits of $95.6mn in its latest quarter, from a loss of $30mn a year ago. Sales were up 45% to $1.84bn.
The US CPI index fell by 0.1% last month, following a 0.6% fall the month before. But there’s no reason to panic about a resurging threat of deflation. Strip out volatile food and energy and the index was up 0.2%.
For the year as a whole, CPI was up 3.4% and without food and energy 2.2%.
Fears of deflation appear to be over. In 2003, the CPI index rose by just 1.1% adding to fears of impending falling prices. At that time the US rate of interest was a mere 1%.
But, since then, despite US rates going up and up, inflation has picked up, but is still very modest.
Maybe the panic is over. After three days of decline, culminating in an Enron style corporate scandal, shares in Japan jumped 2.3% yesterday, alleviating fears of meltdown.
Panic hit crescendo the night before last, when in the full glare of the media, Japanese authorities launched a probe into internet company Livedoor. The scandal led to panic selling, forcing the Stock Exchange’s Computer System to crash; yet many of the more conservative Japanese types were quietly cheering.
Livedoor is headed by tee shirt wearing, university drop put, Takafumi Horie. The controversial entrepreneur, who has seen his company grow through acquisition, and in the process deviating from the established Japanese way of growth though sales, has polarised Japanese opinion. He compares himself with Bill Gates, takes offence to comparisons with Rupert Murdoch, because he says the Australian is merely a media mogul, whereas he is both a media and financial magnate, and says that his only requirements in life are making money, food sex and sleep.
He denies any wrongdoing, but if he is found guilty of manipulating the figures at his company, then his downfall will mean victory for the establishment. This one would make better reality TV than the latest Big Brother.
The good old fashioned cathode ray TV is set to join VHS video recorders, and 35mm film cameras in that great dustbin of history, said John Clare, chief executive of DSG International, the company which owns Dixons, PC World and Currys yesterday.
He was speaking at the unveiling of the retailer’s Christmas trading results. Like for likes were up 2% over the 8 weeks to January 7, with Dixons leading the pack and Currys and PC World following in its wake.
The quarter saw a 111% rise in unit sales of flat TV screens, and consumers embraced iPods and Satellite Navigation Systems with new vigour.
It does seem to us that DSG, like everyone else, is suffering from competition posed by the supermarkets, but such is the range of new Hi Tech consumer electronic goods, which in turn has created a level of excitement from the customer, that the competition does not show up on the radar.
But compare the Dixons of today, and the extraordinary range of products it now sells, with the company of yester year. That its parent company DSG, is not a much bigger company than it is, and a much more influential force on the High Street, is down to the supermarkets, and the online retailers.
But, DSG still continues to innovate. The company which brought no fee Internet Access to the UK with Freeserve, and last year announced its move into VoIP, has now revealed plans for a chain of stores for the computer illiterate. Ten stores will be opened, called F1, which will offer customer help services.
A year ago, there were signs things were peaking at eBay. Profits and sales were still heading north, but the crucial US and German markets appeared to have levelled out, and shares fell.
A year on, and growth in Germany and the US is accelerating again, net income in its fourth quarter was up from $205.4mn a year ago to £279.2mn, and net revenue was up 42% to $1.33bn.
But, despite all this, shares fell again and are now almost 28% down from 18 months ago.
What did the damage is that the company chose not to up its sales projections for the quarter ahead, from what it predicted in October.
But, the eBay purchase of Skype could prove to be a massive future earner for the company. As VoIP inevitably takes over from traditional fixed line telephony, eBay is beautifully poised for market leadership. While the eBay technology could also be used to facilitate the eBay auction process.
Only time will tell, if the Skype purchase lives up to potential. Right now, It would appear that the eBay business model is approaching a level of maturity, but that there is a chance that the Skype purchase could kick start another period of dramatic growth.
Investors and analysts could be forgiven for using words like golden and delicious yesterday, when describing the latest set of results from Apple.
It really has been an extraordinary few years for the company, and there is a real danger of running out of hyperbole in describing the growth.
A year ago, the headline writers were buzzing. The company had posted a $295mn profit in its first quarter, almost three times up on the previous quarter, and almost five times more than the same profits from a year earlier
The problem with meteoric growth is that it has to stop eventually, and when it does, there can be a nasty shock. But, the good news for investors in the company, and its legions of fans, is that there’s no sign of the slow down yet.
In its latest quarter, the company made a net profit of $565mn, $270mn more than in the same period a year ago and $135mn more than in the previous quarter.
IPod sales soared to a remarkable 14million units, taking total sales to date of the music player to over 40 million.
In contrast, the pick up in Mac sales seemed quite contained, but actually even in this, the traditional part of the business, things are going great guns.
Mac sales for the quarter were 1.254 million, 200,000 up on a year ago, and almost 1/2 million more than two years ago.
But, in amongst the extraordinary figures, markets thought they had detected some bad news. Apple is shifting camps, with the Intel processor to appear in future Macs. And while this happens the company expects a modest break in Mac sales growth. And at first, this was enough to see shares tumbling - down 7% at one point, before, on reflection, markets decided this was likely to be no more than a temporary hiccup, and shares picked up again.
For some time, we have worried that the iPod is just a fashion accessory, and that its popularity could wane just as quickly as it developed. We fretted over the level of rising competition from other MP3 players, and noted that the company wasn’t even close to defining the standard for music software.
But, in recent months, there has been an extraordinary growth in the number of iPod accessories. 40% of new cars sold in the US this year will have a built in adaptor for running iPods, for example.
It might not be close to defining the standard for software, but Apple is close to defining the only standard that matters for MP3 accessories. Furthermore, the company receives a royalty for accessory sales, promoting the opportunity to make money from the MP3 market in the longer term. Maybe, a situation could emerge in which every MP3 player is compatible with iPod accessories, so that the company will be guaranteed an income stream, even when the iPod itself goes out of fashion.
