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

Be grateful the health and safety boys weren’t here when we lived in the trees. Can you imagine what the risk assessment strategy people would have to say about the proposed move towards the Savannah. We would never have come down from the trees.

Sometimes it seems, in the modern business world, that risk takers are being paralysed by the cost of insurance. Schools are growing more reluctant to arrange fiield trips, some have even banned parent races on sports day. Similarly business appears to becoming risk averse to a degree that will surely see the West lose out to the burgeoning economic powers from the East.

And yet contrast that micro scale risk aversion with the extraordinary risks we take on a macro scale. Governments, and one government in particular, play fast and loose with the well being of future generations, taking a massive risk, which might affect us now, but will surely affect our children and grandchildren.

This contradiction between risk aversion on a trivial scale and risk taking with the environment is probably explained by insurance. Insurance companies have to pick up the tab if something unlikely actually happens, and if you insure many thousands of companies, then a disaster with some clients is inevitable. They therefore insist that companies and local authorities take measures to avoid potential problems, even if the individuals witnessing their implementation see the chances of them being required as remote.

But on a global scale there is only one environment, which we all share.The costs of global warming are not obvious (although with the recent spate of hurricanes that could be changing) and while business costs relating to safety measures escalate, economists baulk at the costs of reducing global warming. In this one-off issue of Investment and Business News we try to find out who is right, and what are the options.

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

We have learnt a lot about Nuclear energy, and say its advocates anti public sentiments is based on what it used to be like. As professor Lefteri H. Tsoukalas, Head of the Nuclear Energy Department of Purdue University said in an interview with Zaman online “the press release for nuclear technology was Hiroshima and Nagasaki, it understandably invokes a lot of apprehension and fear in the public.” He and many other experts say that these days nuclear power is safe - very safe. And with modern methods even most nuclear waste can now be used to generate more energy.

But according to the New Economics Foundation (NEF) a new report from the foundation, and Mirage and Oasis “Nuclear power has been promoted in the UK and globally as the answer to climate change and energy insecurity. But, …as a response to global warming, nuclear power is too slow, too expensive and too limited. And, in an age of terrorist threats, it is more of a security risk than a solution. Instead, renewable energy offers as safe, secure and climate-friendly energy supply system. It leaves no toxic legacy and is abundant and cheap to harvest both in the UK and globally.”

The NEF said “Renewable technology is in its infancy compared to nuclear, meaning that research and development invested in renewables will reap exponentially more benefits than for nuclear. And, even if a commitment were made now to new power stations, nuclear power could not come on line in time to assist the UK in meeting its climate change targets. In addition, nuclear energy is capital intensive and one of the least labour intensive methods of energy generation. By contrast, renewable energy has rich potential for job creation. The UK has an over-abundance of resources to meet the Government’s target of cutting greenhouse gas emissions and increasing the uptake of renewable energy. Without even taking account of savings from effective measures for energy conservation and increased efficiency that reduce demand.”

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

Renowned British environmental scientist, James Lovelock, made famous by his ‘Gaia hypothesis’ of the late 1970s, is again rattling the geo-political cage. His hypothesis then suggested that the earth is a ’super-organism’ where life on Earth contributes to the maintenance of a balance, which keeps the temperature, the weather and the balance of atmospheric gases suitable for the long-term sustaining of life. While environmentalists have embraced this theory since, scientists including Richard Dawkins and Ford Doolittle have presented contrary arguments.

However, Lovelock has recently released a new view on this hypothesis in his latest book, “The Revenge of Gaia” where he suggests that society has gone too far in its exploitation of natural resources, and that the negative feedback mechanisms of the 1970’s Gaia have been stressed beyond their ability to cope.

He suggests that we are now in a system of positive feedback: carbon dioxide in the atmosphere promotes warming; warming promotes the melting of polar ice and the release of the methane and carbon dioxide locked therein, creating more warming, and that …the Earth is about to catch a morbid fever that will last 100,000 years.” Late 20th century ’smoke’ pollution, including CFC’s, had the effect of reflecting solar energy back into space; as we reduce these pollutants, our environment will actually become hotter.

Lovelock is a supporter of nuclear power as an alternative to fossil fuels, arguing “…I am a Green, and I entreat my friends in the movement to drop their wrongheaded objection to nuclear energy.”

There is one enormous caveat to bear in mind when considering Lovelock’s position - is it possible to make a single hypothesis about a system as complex as Earth?

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

At periodic intervals our chancellor comes under the wrap for the high price of tax on petrol. Pressure groups protest, and the tabloids jump on the bandwagon. And yet high tax on oil is completely justified in economic theory. The argument goes thus: For the price mechanism to effectively allocate resources the price must reflect the full and true cost of supply. And yet with oil, producers do not pay the social cost, and therefore the interaction of supply and demand distorts price. A tax on petrol, merely restores the balance to what the true market price should be.

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

Of course, while the US has its fair share of cynics arguing we are better to wait and see, here in Europe there is a general acceptance that global warming is fast becoming a reality, and we are in danger of leaving it too late to do anything about it.

In the Independent newspaper recently it was argued that we had already passed the point of no return, that the proportion of Carbon Dioxide in the atmosphere is already beyond the level of irreversible damage, and that we are now in a damage limitation phase.

The cost of last season’s hurricanes to the US economy is reckoned to be around $200bn. And it’s generally accepted that there is a link between global warming and the rise in the number and severity of the hurricanes. (hurricanes do after all have their rootes in warm water.) Previously, we referred to Lombard’s view that the cost of measures designed to avoid global warming would be $18trillion, so by our reckoning that means last years hurricanes accounted for 1% of that total already.

There’s another way of looking at. According to the International Strategy for Disaster Reduction there was an 18% rise in disasters in 2005, affecting 157 million people-seven million more than in 2004.

According to the well known global warming cynic, Bjorn Lomborg, the cost of implementing the Kyoto agreement would be $150-$350 billion globally every year. Yet, as was argued in the Jerusalem Post recently, this cost, compared to an expected global GDP of $600trillion a year by 2010, is barely a blip.

Setting aside the costs of global warming, it seems to us, that even if global warming was not a reality, there are other overwhelming arguments in favour of looking for alternative means of generating energy.

The recent shocks to the global economy caused by the rise in the price of oil, are clear examples.

And while Lombard Street Research also argues that taking the measures to reduce global warming could lead to world war, is it not the case that current energy policy is also leading to global conflict?

Recently Russia’s decision to shut down gas supply to Georgia, violence in Nigeria leading to a reduction in oil exports from that country, threats and counter threats to and from Iran, are all obvious examples of how reliant the world is on supply that is far from stable.

Moreover, as global warming is likely to hit the poor hardest and first, is that not in itself going to lead to greater resentment in the developing world towards the West, which in turn increases the chances of conflict?

While the US focuses efforts on the war on terrorism, others try to remind us that many of today’s problems have their rootes in previous policy, such as support for Sadam Hussain or the Taliban. Are we in danger of making the same mistakes over again?

It seems to us that if global warming really presents the danger that many think, surely the cost of doing nothing is too horrendous to contemplate. And if the scare mongers are wrong? Surely this would be analogous to a company implementing fire and safety procedures, only to find they don’t need them, today.

February 17, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Plain speaking Ben has been talking to Congress, and the new Fed Chairman dropped a strong hint that there are more rises in the US rate of Interest to follow.

Ben Bernanke, who took over from Alan Greenspan a few weeks ago, is known for his plain “this is what I think” approach. His style is supposed to contrast with “irrational exuberance” Alan, whose pronouncements on the US economy needed to be decoded.

And yesterday Mr Bernanke told Congress, “Gauging the economy’s sustainable potential is difficult, and the Federal Reserve will keep a close eye on all the relevant evidence and be flexible in making those judgments…Nevertheless, the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately — in the absence of countervailing monetary policy action — to further upward pressure on inflation.”

Ummm, so that means US rates have got further to rise? Earlier this month the Fed upped rates to 4 ½%, the same as the UK level. But the expectation is for the UK rate to fall soon. So it would seem that very soon, and for the first time in a very long while, US rates will be higher than the UK’s.

February 17, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

If we know the UK press, then many will interpret the latest data from the Council of Mortgage Lenders as evidence that first time buyers are returning to the housing market in droves, but don’t you believe it.

According to CML, back in January a mere 30% of all new mortgages were to First Time Buyers. This level compares to 48% in 1998. Yet, the latest data shows that by the final quarter of last year the First Time buyer ratio had risen to 38%. Does this mean the market is back in rude health again? Not on your nelly!

CML has changed its method for collecting data. Data used to be supplied via a voluntary survey and inevitably the sample size was quite small (sometimes as low as 5% of all mortgage providers.) But since April it’s been compulsory to provide all information on mortgage lending to the Financial Services Authority, and it’s this information, which theoretically at least has 100% coverage, that CML now taps into.

The question is, does the change in method of collecting data explain the reported pick up? According to Capital Economics, it probably does. For five months last year, CML was collecting information using both methods, and during that period the older small sample indicated hardly any increase in First Time Buyers at all.

As we all know, when buying a house a critical factor is the length of the chain. If a First Time Buyer is buying off you, and you are not planning to buy a property, then it’s nice and simple. Equally if you are selling to a buy to let investor, things should go smoothly too. First time Buyers and Buy to Let investors are the entry point for the chain. The Buy to Let investment rationale has diminished in recent years, and therefore the First Time buyer is crucial to maintaining the market.

The CML data is therefore vital to for getting a feeling of underlying strength. It’s a shame then that we are no longer able to compare like with like.

Meanwhile, still with the housing market, the Royal Institute of Chartered Surveyors (RICS) released the January instalment of its barometer index yesterday. RICS asks surveyors if prices were up or down in the month and the balance forms the RICS index. Many argue that the RICS survey is perhaps the most reliable indicator of the strength of the market since it reflects underlying sentiment. Other reports might be more accurate for measuring what is actually happening, but can be distorted by the transaction type. For example, if cheaper houses proved quite sticky, but more expensive houses were still selling, then average house prices would actually rise quite significantly. Ironically a surge in First Time Buyers should, on paper, lead to a fall in average house prices, since this sector of the house buying public tend to purchase cheaper homes.

This statistical quirk could explain why the RICS index was negative throughout the second half of 2004 and most of last year, while all around other surveys were reporting rises.

All the more interesting then, when we report the RICS index was up again in January. With the balance between surveyors saying prices rose and those saying they fell standing at 9, that’s the third month in succession the index has been in positive territory.

At plus nine, the index is still much much lower than two years ago, and only time will tell if the reported resurgence is set to continue, or if it will prove to be no more than a blip, mirroring the High Street’s pre Christmas rise, followed by sharp fall.

February 17, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

As we all know US foreign policy consistently applies morality before political expediency. On no occasion for example, has the US propped up corrupt regimes because it’s in their economic interests to do so. Therefore, we can say there wasn’t even a hint of hypocrisy in the US yesterday when members of a Congressional Sub committee grilled representatives from Yahoo, Google, Microsoft and Cisco on their policies in China.

Google follows the motto of “do no evil” and yet California Representative Tom Lantos said to the executives from the companies being quizzed, “Your abhorrent activities in China are a disgrace I simply do not understand how your corporate leadership sleeps at night.”

Yahoo seems to be under the spotlight more than the others, because the data it recently provided to Chinese authorities led to the arrest of a human rights activist.

Google has been criticized for supplying a censored version of its search engine for the Chinese market.

But the companies were quick to defend themselves. Michael Callahan, General Counsel for Yahoo said, “Ultimately U.S. companies in China face a choice: comply with Chinese law or leave.” He added, “I couldn’t sit in an office in California and tell a Chinese citizen in Beijing not to follow a lawful demand of the Chinese government.” Microsoft’s counsel said, “The benefits far outweigh the downside in terms of promoting freedom of information.”

For its part, Google argued that state censorship should be defined as a barrier of trade, another chip to bargain with in trade talks.

We confess to being a little suspicious of the US policy to China, and wonder whether it’s got more to with paranoia over China’s growing strength, which will ultimately see it overtake the US as the world’s premier superpower. That this will happen is inevitable. The question is, how do we ensure that China embraces western values of freedom in the mean time? We suspect the answer does not lie in criticising tech companies for trading in China. The Internet is the antithesis of censorship, and by providing China’s 110 million Internet users with access to some of its information, we suspect that ultimately ideas of freedom of expression will gradually seep through the information great wall.

February 17, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

So far, in the battle to dominate the new music player business, Apple has won every game to love. The Big guns have queued up to have a go at wrestling market domination from Apple, and so far have failed.

But now, if rumours are to be believed, a new challenger is set to have a go, and this time, the battle could be much closer.

For a while now, Amazon has been looking like a mature business. Growth has slowed, leading to speculation that there’s no more juice to squeeze out of the online book market. In the last two quarters profits actually fell and reports suggested the company was looking at launching a TV channel about books, to try and increase demand.

But Amazon isn’t just about books. It sells DVDs and, that relic from a bygone age, CDs too - do you remember CDs?

And the rumours in circulation suggest that Amazon plans to build upon this to launch an online music download store, a rival to iTunes.

But whilst Amazon needs another major success, the competition is tough. Apple stands alone in the Premier league of MP3 players, and its strength seems to lie with the host of accessories which are iPod compatible.

Even if Amazon were to focus on just trying to dominant the also rans, the competition is still tough. Other players include Napster, MSN, Wal-Mart, Rhapsody, Virgin, HMV and Yahoo.

February 17, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Now the official statistics are out, and it’s bad news for the High Street. The volume of retail sales in January fell by 1.3%, the first month on month fall since July. According to the Guardian, High Street revenue was flat compared with the same month last year, the worst performance since World War II.

Look beyond the headlines and it’s not quite so bad. The Office of National Statistics likes us to look at the three monthly trend and says that over the period retail sales volume was up 1.3% on the previous three months.

But then again, that’s not surprising. Before Christmas, it was widely agreed the High Street was enjoying a recovery, so you would expect data that includes November and December to be reasonably positive. The question is this: is February seeing an improvement? It’s too early to tell, so now eyes avert to the CBI and BRC whose reports on February should be coming soon.