February 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

How many times do you hear the following gripe? “Government red tape is stifling British business, we need to be more like the US”. Then there’s the classic, “its too difficult for companies to obtain finance in this country. If you need backing you are better off going to the US.” There’s an implicit belief that the US economy provides a more enterprising culture, and that for your average entrepreneur, the US is the place to be. No wonder, goes the argument, that the US economy enjoys a higher level of GDP per capita and that productivity is higher.

But all these deeply held views could be false. According to a report published on the Cambridge MIT institute web site produced in conjunction with the CBI, American managers are even more concerned than Brits over red tape, and more American business leaders cited difficulty in obtaining funding as a major barrier to business.

The report was produced after surveying 3,600 companies on both side of the Atlantic. It seemed to cover the entire gamut of issues that determine efficiency. The survey found that UK business and universities are doing more to link up with each other than in the US, that British companies face more competition from abroad, a higher proportion of British companies get government support and, most significantly of all, US companies are more worried than their British counterparts about particular constraints including ‘red tape’ (legislation, taxation, regulation), access to finance, and the availability of skilled labour.

But it’s not all a one-way street. Take business and universities working together. The Brits might be engaged in more link-ups, but American businesses seem to feel they get more out of University collaboration. It’s similar with government support for R&D. More British firms make use of government schemes, but when American firms actually get federal government support, it tends to be more meaningful and worth a lot more money. And while British firms face more competition from abroad, the domestic level of corporate rivalry is so fierce in the US, that American firms do, on the whole, face more competition than their British counterparts.

The findings of this report are surprising. We wonder whether the results could partially be explained by US mangers simply having higher expectations. So while US firms cite difficulty in finding finance as a major handicap, we wonder whether that this is down to American business wanting and expecting more funding in the first place.

Culturally, the US is in our view still a lot more conducive to entrepreneurialism. Risk takers are accorded more respect and there is a greater degree of forgiveness for business failure - although not for dishonesty.

The American dream does encourage risk taking, and business is stronger as a result.

February 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Details emerged yesterday that for a short time after the Bush administration had okayed the Dubai ports purchase of five US ports owned by P&O, the US coast guards had doubts. Well, not so much doubts, as questions. It simply did not have enough information to make a judgement on whether there were security implications arising from the takeover. The good news: those questions were eventually answered, and satisfactorily so. But for Congressmen trying to block the takeover, this piece of news was like a red flag to a bull. And we suspect there’s a lot of political capital to be made out of this revelation.

February 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Of all the top dotcoms, Amazon has disappointed the most in recent years. While the likes of Yahoo, Google and eBay grow, grow and then grow some more, Amazon has looked increasingly like a mature stock, with single digit growth, concerned about protecting its market position.

It hasn’t even engaged in major corporate purchase since the dot com crash.

But all that changed yesterday, with the news that Amazon was buying out fashion online retailer, Shopbop.com, a web site which specialises in selling luxury brands.

However, some analysts felt it smacks a little of desperation. Amazon likes to talk about its huge selection. But for web sites which sell such exclusive products, association is all important, and some fear that the Shopbop.com reputation could be tarred by the Amazon link.

February 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

And then there were three. RBS became the third of the big five banks to publish its results this morning trouncing Barclays and Lloyds TSB with a 21% rise in pre tax profits. Barclays only managed a 15% increase, and Lloyds TSB was only able to muster a 10% rise.

In total RBS profits came in at £7.9bn, or $13.8bn

The last couple of years was a period for takeovers, with the bank forking out £1bn for a stake in the Bank of China last year, and 5.8bn for Charter One Financial in the US.

But despite this, there was enough money in the coffers for the bank to announce a £1bn share buy back yesterday.

February 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

“It’s just an accounting change” said Vodafone’s Finance Director yesterday. But despite this, shares in the word’s leading wireless operator fell, at one point falling to a three year low, and headline writers sharpened their knives and prepared to talk about the tale of woe that is Vodafone.

Apparently, under changes to International Financial Reporting Standards, companies no longer amortise goodwill over time, instead, each year they take a look at their assets, and based on current market conditions, work out a value for goodwill. And over the last year telecom assets, especially the German subsidiary Mannesmann, have been falling in price. Yesterday Vodafone reflected this in its balance sheet effectively knocking up to £28bn off its total goodwill value, which prior to the change was £82bn. The change should have taken no-one by surprise.

Why then, have the critics come out? The Telegraph’s headline is, for example “Pressure grows on Vodafone’s Sarin.” There are several reasons.

Firstly, Vodafone had some more bad news. It has lowered its expected growth for mobile revenue, from 6-9% to 5- 6%.

But yesterday, the company also talked about growing competition. In Germany T-Mobile is slashing prices, and in the UK, the company is worried about the growing strength of virtual operators such as Tesco.

The company did refer to concerns about individuals making phone calls over the Internet via their mobile phones. But right now the impact of VoIP via wireless technology such as Wi Fi and Wi Max sill seems barely understood. In public, at least, the mobile phone network providers seem to have buried their heads in the sand over this issue. But, more surprisingly, the press and City analysts don’t yet seem to have cottoned on to this.

Right now, the fire that is VoIP is no more to mobile phones than a careless chef in Pudding Lane was to London in 1666. But it will take hold, and the ensuing blaze will be devastating. Right now, it seems, the industry and its analysts are doing little more than playing the fiddle.

February 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

House prices enjoyed their best run in February for over 18 months, say both Rightmove and Hometrack in their latest surveys. Elsewhere evidence mounts of the Buy to Let market surging too, with the beleaguered First Time Buyer seeing that first step on the property ladder become more elusive than ever.

Up to now, of all the house market reports, Hometrack has been the most pessimistic, often reporting the opposite to everyone else. So wide was the discrepancy in the readings that there had been occasions over the last couple of years when it seemed as if Hometrack was in fact reporting on a completely different market altogether. In January last year, for example, Hometrack said prices fell by 0.4%, while Halifax had them rising 0.8%. And, for a fifteen month spell ending last November, Hometrack had prices down every month, while Nationwide and Halifax reported modest rises during the period.

You can be sure, therefore, that if Hometrack has prices up, then the others must have them racing. And now Hometrack says February saw a 0.4% rise in house price. That’s the highest monthly increase it has reported since June 2004.

Richard Donnell, director of research at Hometrack said “It is a general shortage of homes for sale that really underpins the growth in average values over the last month. Prices are likely to continue to rise over the next month or so as a result of buyers returning to the market and supply remaining limited.”

Earlier last week, Rightmove said that prices surged a massive 2.7% in the month. That’s the highest increase the property web site has reported since October 2003. Its commercial Director Miles Shipside said “Buyers are back, particularly at the lower end of the market. We believe this will lead to further sales as successful sellers move up the property ladder. However, sellers must not get too ambitious or the recovery could run out of steam as afford ability is overstretched again.”

And while Hometrack and Rightmove repors on a property market that is seeing a high degree of rudeness returning to its health, other reports have suggested that buy-to-let Investors are returing in droves, with the Council of Mortgage Lenders reporting a record six months for mortgages to buy-to-let investors.

If anything this trend is likely to become even more pronounced in the months ahead, thanks to the lenders relaxing their criteria. Nationwide, is the latest. Until recently, it restricted lending to just two properties per landlord. Now the building society is prepared to provide lending for up to ten properties per investor. This news follows earlier reports that mortgage providers are now typically willing to lend against properties that are only expected to generate 125% of the payments in income. Previously, the lending criteria was limited to 130%.

But while the bulls start talking about buy to let investors boosting the property market providing long- term strength, with a shift from individuals owning their home to rental, it does seem to us that the commentators have overlooked a point

For over twenty years we were told that the reason why house prices were so much lower in France and Germany than in the UK was because renting was more popular in these countries. Why is it then that no-one has pointed out that the rise in popularity of buy-to-let, and the disappearance of First Time Buyers could lead to the UK market mirroring the markets in France and Germany, with runaway house prices inflation a thing of the past, and with prices crashing until the ratio of price to income is similar to the French and German level?

The British pre-occupation with house prices is seriously damaging the UK economy. The UK population seems to want to put every spare penny into property. Some individuals even suggest their home in their pension. It’s no wonder UK business investment lags behind that seen in competitor countries.

The UK badly needs a change in this psychology, with investing in business taking over from investing in property as the most popular dinner party conversation.

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

UK manufacturing has just enjoyed its best month since last March, said the CBI yesterday. The CBI industrial trends survey found that 18 per cent of manufacturers reported their order books as above normal and 36 per cent below - a balance of minus 18 per cent. This is up from minus 28 per cent in January and following an average of minus 26 over the past six months.

Ian McCafferty, CBI Chief Economic Adviser, said:

“With energy costs up sharply in recent months, and some disappointing developments in the global economy, there is no doubt that UK manufacturers still face a challenging business environment.

“Nevertheless, this survey provides some encouraging news. Demand conditions facing the sector are the best for nearly a year. And if respondents’ expectations are realised, the decline in output through 2005 may finally be coming to an end.”

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

Talking of the rate of interest, the minutes from the Bank of England’s last meeting were released yesterday. There was just one dissenter from the MPC’s nine members. For the third month in a row, Stephen Nickell voted for lowering rates to 4.25%, the rest, worried about renewed energy in the housing market, voted for no change. The minutes said “there was some concern that a reduction in interest rates at this stage would provide further support to the housing market and consumption at a time when GDP growth was already strengthening.”

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

The scaremongers would have you pressing the panic button - US Inflation was up to 0.7% in January. If that level becomes the norm, US rates would need to go up and up, and the US economy would catch a nasty cold in the process. But then again, look at the US CPI with fuel and energy stripped out, and it was a sedate 0.2%, higher than last month’s 0.1% but not at a level to have the Fed screaming for upping the rate of interest.

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

“What I don’t understand is this, you said that the Amstrad dual phone and emailer would be a no brainier, yet it failed. Where’s the magic in Amstrad today? You used to lead British business with your forward thinking and smart ideas for repackaging products in a way that consumers would want them. But today, is this the best you can do? You’re fired.”

Now, there’s a speech that contestants in BBC2’s programme the Apprentice might dream of making. Yesterday, Amstrad revealed it latest results. Profits in the six months to the end of last year were down 12% to just £12.5mn. Its Sky Plus Set Top Box is the key product at Amstrad these days, but the real money is with the advanced version. And in the last six months, this was not so popular, and as a result the bottom line was hit.

Recently the company admitted that its dual phone emailer, launched in 2000, had not been the success expected. The company just could not sell it in sufficient quantities, even after slashing the cost.

Amstrad made its name by packaging products in a new, user-friendly way. The Amstrad Hi Fi systems were the first high profile products to contain two tape decks, a move that was not popular with the music industry, but it raked in the bucks. Then there was the Amstrad PCW. The first mass market computer, monitor and printer all in one. Now that really was Sugar at his best. He took technology that was commonly available, but threw it all together, made it easy to operate, and the UK experienced the benefits of word processing on a mass scale for the first time.

Then Amstrad turned the PC market up side down with the launch of cheap PCs, at a time when £3,000 plus was the going rate for what was then called an IBM compatible Personal Computer.

But since then, the veneer of brilliance has lost its varnish. The talk now is for the company to enter VoIP. Unquestionably this is a product which confuses the consumer. And maybe an Amstrad VoIP product could sweeten up the Amstrad P&L. But then again, the same could have been said of the email phone.