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

The fortress America politicians are unhappy again, and this time their malcontent relates to the proposed purchase of British company P&O, by Dubai Ports World.

The furore is all down to P&O ownership of six ports in the US: New York, New Jersey, Philadelphia, Baltimore, New Orleans and Miami. The White House okayed the proposed buy out, but some senators in Congress are up in arms about the idea, with Bill First, leader of the Republican Party in Congress, the man who should be one of George W’s main allies, wanting Congress to block the deal.

It all boils down to security and the war on terror. But it is all very well for American politicians rooted in domestic issues to oppose the deal, but look at this on a global scale, and America is in danger of, at best, appearing inward looking and, at worse, seen to be discriminating on grounds of religion or culture.

Dubai is of course on America’s side in the war on terror, and in any case, it’s not the company that owns ports that has control over security, it’s the coast guard.

As for George W, this puts him in a difficult position. He needs the support of countries like Dubai, and although he is not a man who has endeared himself to the Arab world, paranoia in congress could undermine even the efforts of Mr Bush.

But the US president said yesterday that he would veto any law blocking the deal.

It is quite ironic, of course that the country that puts much of its success down to promoting the free market, should be so torn over the deal, when the UK government, and remember, that P&O is a British company, seemed altogether a lot more relaxed about the saga. Ironic, maybe, but not at all surprising.

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

‘Hindsight is a wonderful thing… if only they had listened to Alchemy. The Venture Capital Company wanted to buy Rover out during that period a few years ago, when Phoenix eventually picked up the prize. Alchemy wanted to focus on the MG, but at the time this was hailed as bad news for the workers of Longbridge, and unions were heavily opposed to the idea. It is a classic example of how a strategy that puts jobs before business pragmatism is, in the long run, bad news for the very jobs the policy was designed to protect.

The good old British sports car is still remembered fondly in parts of the world, even today, and if the venture capital firm had won over the Phoenix four, we suspect it really would have turned the base metal that was Rover, into the gold that is the MG brand. By now workers at the Longbridge plant, after a period away from the firm, would have been back, and once again the work force would be booming.

Instead of that, the debacle of Rover’s final few years followed, and in the end the famous British name ended up under Chinese ownership, with Nanjing Automobile choosing to focus on the MG anyway, but with much of the manufacturing centred in China.

But yesterday there was some good news. The Chinese firm has agreed a 33-year lease with property developer St Mowden for a part of the former Longbridge site, in Birmingham. Back in 2003 and 2004, before the Phoenix controlled venture fell back into the ashes, St Mowden bought 412 acres from MG Rover, and leased it back to the company. The agreement with Nanjing Automobile is for 105 of these acres.

The deal will entail the creation of between 600 and 1,000 jobs. But….

The Nanjing agreement has a six-month break clause, and the Chinese firm needs to give one month’s notice if its wishes to exercise this, so in effect its got five months to decide whether the move is viable.

Details also emerged that the tooling for the MG is still owned by Phoenix, who wants £2mn for the vital equipment.

When the Nanjing bid was first unveiled, the talk was that the company would manufacturer 80,000 cars a year in Britain, creating 2,000 jobs.

February 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

The Fed issued the minutes from its latest meeting yesterday. The news from across the pond would appear to be that one or two further rates hikes are due, but then again, maybe not. The minutes said “Although the stance of policy seemed close to where it needed to be given the current outlook some further policy firming might be needed to keep inflation pressures contained.” But the fed added “However, all members agreed that the future path for the funds rate would depend increasingly on economic developments and could no longer be prejudged with the previous degree of confidence.”

February 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It often seems to us that India is the forgotten man of economic speculation. The media focuses its attention on China and yet, India too, is set to grow and grow.

And where India differs from China, is that it is not sitting on a demographic time bomb. While China is a generation away for paying the price of its family planning policy limiting each family to one child, and joining the west with an ever dwindling working population to its retired population, India is set to see population of working age expand by 100 million over the next ten years. So the opportunity for India to become a major economic super power is obvious.

By the end of this year, annual growth will have been 7.6%, the third year of 7½% or more expansion. Next year while a slight slowing is expected, the country is still likely to grow by 7%.

But the IMF, in its latest pronouncement of the India economy, has warned that “while India appears poised to grow rapidly in the future, such an outcome is by no means assured.”

The International Monetary Fund warned that the government must not let the pace of economic reforms relent (a real danger, with many fearing that this is precisely what is happening.) The IMF wants the Indian government to rise to the challenge. India’s budget is due to be unveiled soon, and many fear a return to conservative, and only gradual reform.

February 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It would appear the UK is an economy of two halves. The retail and consumer sector are struggling. Yet business to business and the City in particular appear to be booming. And firms that export overseas are doing nicely. If you agree with us and think this is an accurate reflection of UK plc, then the latest results from Barclays would seem to reflect that précis perfectly.

Profits at the Barclaycard division were down 19% to £687mn.

But the UK banking sector saw an 8% rise in profits to £2.4bn with the banking sub division the pick of the arm seeing profits up 10% and accounting for £1.4bn of the total.

As for Barclay Capital, the investment arm of Barclays, profits seemed to reflect the rise in the popularity of equities, coming in at £1.4bn.

But perhaps the real success story is the overseas arm. Five years ago this accounted for just 20% of the business, now its makes up 40%, and the company aiming for 50% within three years, and more to the point expects to achieve this without any major purchases.

Add all that together, throw in results from smaller subsidiaries, including a disappointing performance from Woolwich, and profits for the year were up 15% to £5.28bn.

Results from the other main banks to follow over the next few weeks.

February 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

You can tell a lot about the modern business, just by taking a look at words recently introduced to the dictionary, or by considering new phrases that suddenly seem to permeate conversation or media reports. An example of a new word that says it all is the verb “to google.” A phrase which seems to sum up the Anglo Saxon mentality of spend now, pay later is “retail therapy,” not new necessarily, but a phrase used a lot more often. Another phrase which seems to get bandied about more and more, is “better than chocolate”. Maybe its got something to do with the fall in the popularity of smoking in the UK, and maybe its got something to do with the media reflecting the views and sensibilities of females over males more often, but chocolate fast seems to becoming the yardstick by which all other pleasures are measured.

And while the dictionary becomes fatter with words for the modern era, we demand ever higher quality. The growing popularity of more expensive wines is well documented, and the UK consumer’s more exacting standards in food are obvious and well illustrated by the ever growing popularity of cooking TV programmes. Even the world of snacks has received the upmarket treatment, with Kettle’s leading the way, our taste in the no longer humble potato chip is decidedly “posh” these days.

And perhaps inevitably then, chocolate moves towards the luxury end of the market, with the media showing ever more interest in more expensive forms of the brown cocoa derivate product.

Perhaps it’s no surprise then, that Cadbury Schweppes saw a 13% rise in profits over the last year, with its recently bought subsidiary Green and Black, with its ‘oh so better than chocolate’ chocolate, enjoying a 49% rise in sales.

Globally, though it was the growing might of the drink Dr Pepper that was the main contributor to the rise in profits, as the company overtook Mars as the world’s number one in the sector.

The company is a lot more focused these days, having recently sold its European beverages arm for £1.3bn, with more sell offs planned. It’s using the money to plug its pension deficit and grow into developing markets.

But focus is all very well, but what about the dangers of putting all your eggs into one basket? If we are going to be a purest about this, the company should sell off its cash cow, the Dr Pepper business in the US, and just focus on chocolate. Indeed rumours have circulated that this is precisely what the company plans to do, but yesterday the company tried to distance itself from this speculation.

But before you conclude, as we nearly did, that you can predict a company’s profits just by looking at the dictionary of new phrases, spare a thought for Thorntons. Like for like sales at the retail chain in the first half were down 6.4%, with chief executive Peter Burdon talking about the worse conditions in living memory.

February 21, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

The London Stock exchange, reminds us a little of Manchester United. Like the famous football club, the users of its product are, or in the case of the football team, were, its shareholders.

And when a hostile bid was mounted, these users were not happy. But that is where the similarities end. Fans of Manchester United were no match for Malcolm Glaser, but when it comes to the LSE, its users are the ladies and gentlemen of the city, fund mangers for example. So when, within 24 hours of the story breaking, the likes of Threadneedle Asset Management and Scottish Widows said they were against the Macquarie Bank’s bid, it seemed as if the writing for the hostile bid was on the wall.

And sure enough, the graffiti came down yesterday, and the writing was promoted from supposition, to fact, as the Australian bank confirmed it was pulling out.

Not everybody could figure out how the Banks’ other assets, such as Toll roads and airports were complementary to that august institution known as the London Stock Exchange. Add to that the fact that shares in the LSE have increased 50% since the bid was firstly declared, and take into account the promised doubling in dividends, then it would appear the Macquarie bid never had a hope.

So with the Aussies out of the race and internal opposition from shareholders forcing Deutsche Boerse to pull out, the LSE is running out of suitors. There’s still Euronext, which controls a number of European exchanges including London’s Life market, but then again the LSE, and its boss Clara Furse, are quite happy to stay independent, and no doubt, its shareholders/customers are happy with that.

February 21, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Like many others we have seen the impending release of the Sony PlayStation 3 as one of the most important consumer electronic product launches ever. And for Sony, which after all is often seen as Japan.plc, it’s an incredibly important product.

The list of feature are enough to make the most cynical enthusiast (sounds like a oxymoron, but we are sure you can be both - Ed) drool.

First there’s the IBM Cell chip, the wonder chip that is supposed to represent an acceleration of Moore’s Law, which says processors double in speed every 18 months.

Then there’s Blu-ray DVD, one of the two potential successors to DVD, and then throw into the mix WiFi and Sony’s record of dominating the games playing industry, and you have a product which could be the first genuine machine for converging games, internet functions, and video.

But there are problems. First of all Microsoft has beaten Sony to the punch. And while the Xbox 360 might not be quite the wonder machine the PS3 promises to be, its is till very impressive.

Then there’s the component cost. Merrill Lynch has calculated the component cost on launch at $900. After three years, it expects this to fall to $320. Now that’s a high material cost. And the question many have asked is how much will Sony have to sell the product for? Bear in mind, that in the UK, there’s retailer margin, and VAT.

Of course, Sony will have no choice but to subsidise the machine, and make money from games. No doubt the men and women at Sony are busy puzzling on other money making ideas too, such as tying up with a broadband ISP, for example. Even so, its seems likely that this will be the most expensive games machine ever, and could perhaps mark the first time a games console is more expensive than a PC.

But now another problem has emerged, the PS3 was due for launch this spring. But rumour has it that, thanks to delays over finalising the specification of the Blu-ray standard, August is looking like the date for release. And maybe we would go backwards from there.

February 21, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Gordon Brown is said to have once quipped that the difference between a good and a bad chancellor is all down to the timing of their departure from number 11. Time it right, and history will recall you as a good chancellor. Get it wrong like Nigel Lawson did (the Tory who held that office for the most time under Mrs Thatcher and who for a while was described as the UK’s best chancellor ever) and you end with up with the ignominy of having your name prefixed to the term “boom” in economic text books describing “a specific period of unsustainable economic growth.”

But, of the men who have laboured at number 11, Gordon is thought of by many as a Titan. But then, to others he is just plain “Lucky Gordon.”

One of Gordon’s great ideas was his golden rule. This allows you to spend and spend on current account items at certain times stages in the economic cycle, providing you pay it back before the cycle is up.

But the commentators, economic think tanks and some newspapers have been sharpening their knives waiting for the Gordon to break his own precious rule. And there has been a queue, from London to Dunfermline and West Fife, of experts warning that the rule is about to be broken.

But every time Gordon’s rule looks like being broken, the future PM says “told you so”. Yesterday, was just another example.

According to the Office of National Statistics, the UK’s current account posted a surplus of £15.3 billion in January, the best January figure since 1998. As for net borrowing, (that includes capital investment) fell to £-12.6 billion, compared with £8.8 billion in January 2005.

The surprise improvement was down to a fortuitous combination. The timing for corporation tax receipts from the oil companions had been changed, and, thanks to the high price of oil, these were at a record level.

But while Gordon might have got away with it this time, the doubts still linger.

The Item club, for example, which uses the same model as the Treasury, has predicted problems next year. Some have pointed out that while tax from oil companies was up, other corporation tax payers are likely to post a fall in profits because of the high price of oil. And yet others remind us that Gordon has only kept to his golden rule by changing, or so they say, the goal posts, the latest of a long stream of examples being changing the timing of the current economic cycle.

Okay, Gordon has been lucky and he is good at playing with economic terms to prove he is right. Even so, he has presided over the longest run of economic growth in the UK, ever. His tenth budget is coming up next month, and if he can follow that by surviving another 12 months of keeping his golden rule intact, then he might well move next door with the record of being the only chancellor to have been lucky for ten years in a row.

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

Last summer, British economic consultants Lombard Street Research issued a report in which it concluded the cost of measures required to avoid global warming would be in the region of $18 trillion (£9.9 trillion,) and that was a conservative estimate. The reports author, Charles Dumas said “This is orders of magnitude greater than the cost of dealing with higher sea levels and freak weather, net of land gains in Canada, Siberia and other cold areas in thousands of square miles.” He added “the proposed Kyoto treaty limits would in no way prevent global warming. In reality, nobody seriously proposes a cure for global warming, because adequate measures would cause economic catastrophe and probably world war.”

The view expressed by Lombard has echoes across the pond. Back in the late ’90s, Thomas Gale Moore of the Hoover Institute said that moderate global warming could actually make the US better off, and said “The costs of doing nothing appear to be quite small, and the costs of a commitment to limit the emissions or atmospheric concentration of greenhouse gases appear to be very large.” Around that time William A. Niskanen Chairman of The Cato Institute told the Senate Committee on Energy and Natural Resources that “My judgement, however, is that many political officials have over-reacted to this warning, and that many scientists have themselves been swept up in this momentum…There are too many scientific, economic, and political issues yet to be resolved, however, to support an early commitment to control the emissions of greenhouse gases. A global warming treaty in the next decade or so would be a rush to judgement.”

But these cynics of global warming spoke before last year’s hurricane season, and before a raft of reports were published talking about Greenland melting and Polar bears going extinct - surely today, a consensus is emerging.

Yet, even in the last few days there have been plenty of arguments against being too hasty on climate change. According to The Rev Jerry Falwell, US TV show host and chancellor of Liberty University “global warming is an unproven phenomenon and may actually just be junk science being passed off as fact… In addition, I believe that so-called solutions to global warming - and particularly the Kyoto Protocol, which is the politically correct international agreement to fight greenhouse gas emissions - would devastate the American economy if adopted by our nation. Further studies have shown that costly efforts to stem greenhouse gas emissions would just barely reduce global temperatures. ”

Elsewhere is it was recently argued that while there is evidence for global warming, arguments this is a man made phenomenon are probably false. According to Senator Robert Pittenger, a Charlotte Republican and member of the N.C. Legislative Commission on Global Climate Change: “A study by Jager and Barry from 1990 found that over the past 1 million years, there have been eight periods of glaciers and ice caps advancing and retreating - all of this occurring without automobile and power plant pollution from humans. In fact, on a much smaller scale, there is evidence of warming and cooling every 1,500 years. Typically, proponents of global warming point to the past century following the increase in carbon emissions from the Industrial Revolution to present time and blame humans solely for the increase in temperatures. However, from 1860 to 1940 the climate warmed, followed by a cooling period from 1940 to 1975, and subsequently has warmed since then (Fred Singer, “Climate Policy from Rio to Kyoto”). Supporters of global warming have been unable to explain this cooling during a period of economic growth and increased output of carbon emissions.

Many in the US fear that the Kyoto agreement requires the US to cut back on global warming gases while the likes of India and China have carte blanche to pollute. It may be time for the US to seize the mantle of global responsibilty and lead by example.