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

How has the global economy managed to perform so well while oil hits an all time high?

At any other time this would have caused a recession.

A part of the reason is simply that the high price of oil is counteracted by the low cost of other products - clothing for example

But another reason is simply this. After allowing for inflation, oil is not that expensive, at least it was much more expensive in the late ‘70s and for the first half of the ‘80s.

Look at the graph and you will see what we mean. Taking 2005 as the base price, after allowing for inflation, oil has been much higher before

The IMF warns that the price is likely to stay at its current highish levels. .

But some fear, things could get a lot worse. If the Iran nuclear research programme crisis gets deeper, some are warning of oil doubling in price- and that really would be bad news.

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

The world is booming and according to the IMF will continue to do so, at least for the next couple of years.

The IMF has global growth for the year just ended at 4.8%, it expects a slight improvement for 2006, with 4.9%, growth and for things to be just a tad slower in 2007 at 2.7%.

There are the usual caveats of course.

The massive US trade deficit, and the high price of oil could de-rail things, so the IMF predictions could prove overly optimistic. Even so the IMF reports a reasonable degree of certainty in its predictions.

China is expected to grow by 9.5% this year, India by 7.3%, Asia excluding China by 7.9%.

Of the economic superpowers, the US is expected to top the pack with 3.4% expansion; Japan is expected to enjoy 2.8%, the UK 2.5% and the eurozone 2%.

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

It was just like old times at Google. Or to be precise it was like any other results announcement at the company.

The performance was startling, no other word will do.
The company which made a $27mn profit in the final quarter of 2003, and made just under $400mn throughout the whole of 2004, made a profit of $592mn in the first quarter of 2006.
Revenue hit $2.25nb, up 79% on a year earlier,
Google doesn’t do things the way investors like. It makes mistakes with tax calculations; it accidentally posts slides at presentations that none is supposed to see,;and it doesn’t do forecasts.
It doesn’t do things the way Congress wants either, censoring its Chinese search engine.
And here a statistic to make enthusiasts of ‘dot com bubble burst 2’ theory go smug. The latest set of profits come in at $1.95 a share, and yet as of last night shares were trading at $448. That’s a big, big ratio of valuation to profit. (Although don’t forget we are comparing the share price with quarterly profits, not annual.)
The key of course lies in what Google will make next year and the year after it’s the forward pe ratio that counts.
With the company trying to make it big in the world of Internet TV, now the talk is that it’s planning to launch a VoIP product for mobile phones in the US. Rumour has it the company is gunning to buy out a major wireless provider.
The profit is growing at an extraordinary rate. Ambitions at the company seem not at all diminished.
The snag is this; the share price can only be justified if this stellar growth performance continues.
Then again Internet advertising is big but its still small beer compared to TV and press advertising. There’s a lot of scope for growth yet.

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

It’s beginning to look as if GM will make it.
Last year the company made a loss of $10.6bn. Its massive cash and asset pile is diminishing; it’s now down to $21.6bn, but there are signs things are improving.
Yesterday the company revealed its sixth straight quarterly net loss. But this time, after one off gains, the loss came in at a mere $323 million, from $1.25 billion the quarter before. And that includes $1bn health care provision; remove that from the equation and the company was profitable.

In Europe something very strange happened. It made a profit and turned in net income of $48mn from a net loss of $514mn a year earlier.

And its new SUV vehicle is proving something of a hit, boosting the bottom line.

But, while it looks increasingly likely that chapter 11 will be avoided, it still has big hurdles to climb.

The company is due to fork out $1bn in 2006, 2007and 2011 in health care provision for retired workers.

Then there’s problems at Delphi. The auto parts maker used to be owned by GM but today it’s under chapter 11 and a key supplier to the auto giant.

If its potential strike amongst workers is not avoided, supply to GM will be disrupted, hitting the bottom line very hard indeed.

And even if the dispute can be avoided, the cost to GM is likely to be in $billions as it attempts to settle aggrieved workers pension fears

But perhaps the biggest indicator of the weakness at GM lies in its recent success. At a time when petrol prices are going through the roof, at a time when Toyota is putting big emphasis on hybrid cars, GM looks to gas guzzling SUVs as its saviour.

It’s as if that while it attempts to live off the past, spending its cash pile acquired in better days, culturally it’s stuck in the past too.

sources

GM’s Numbers Signal a Turn Business Week

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

Oil hit yet another record yesterday, this time passing $72 in New York, and for a while Brent Crude, which not so long ago was cheaper that the oil as measured on the New York Mercantile exchange passed $74.
See yesterday’s lead article Oil hits all time high; is this good or bad? Investment and Business News

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

It was bad news all round at Intel. Its losing market share to AMD, and the market is in any case currently contracting.
PC sales are stalling, inventories are building and customers want less Intel chips.
It was the worst quarterly performance from Intel since the bursting of the dot com bubble.
Maybe the company is in the wrong field, because semi-conductor makers in the mobile phone arena had a bumper period.
Qualcomm which supplies chips for CDMA - a wireless technology popular in the US, and W_CDMA, a burgeoning fast wireless technology becoming popular in Europe, saw profits jump to $93mn, up 11 on a year earlier.
Texas Instruments, Qualcomm’s main rival posted equally impressive results earlier in the week.

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

But while Apple surges, eBay stuttered forward yesterday.
Just as Apple faces the danger of a saturated market for iPods, there are fears that the online auction market has gone as far as it’s going.
The latest profits at eBay were affected by the change in US regulation meaning share options have to be included as costs now. As a result it’s not easy to make a comparison with the last quarter or year before. Net income was $248.3milloin, compared with $256.3mn a year earlier. That works out as 17 cents a share, versus 19 cents a share 12 months ago, but after excluding the effect of share options, the latest quarter results were the equivalent of 20 cents a share - a slight improvement then on a year earlier, but only just.
More to the point eBay is predicting sales and profits for 2006 at below market expectations.
So is this the end of eBay as a high growth stock?
We very much doubt it. Online auctioning is still the domain of a minority. For many, the process is still a mystery, hence the number of books out there on the subject.
Earlier this week, we told how stock exchanges are increasingly looking like glorified eBays. Maybe in time eBay could become a vehicle for trading shares too - especially in unquoted companies.
Then there’s Skype. Time will tell, but the purchase of the global leader in VoiP may yet prove to be a very shrewd move.

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

The second quarter at Apple is never one of the best of the year’s quartet of results, and the last Q2 results were no exception.
Even so, profits at $410mn were 41% up on a year ago and while the company made even more bucks in the previous 3-month period, the figures were better than expectations and shares rose in after hours trading.
But actually, it was the falling cost of NAND flash memory in its iPods that took markets by surprise. This helped boost profits.
Actual sales were a little lower than expectations.
For the Mac, this is understandable. The company is in a transition phase, recently launching new computers that can run both Windows operating system and MAC OS X.
MAC sales in the quarter were 1.1million, compared to 1.3 million in the previous quarter.
Of more concern were the sales of iPods. Sure these figures were up on a year before, way up, from 5.3 million unit sales to 8.5 million. But in the previous quarter sales were 14 million. Markets had expected more, and a year earlier Q2 iPod sales were greater than Q1 sales.
Everyone, and every company have to pause for breath eventually, even Apple. But the iPods sales slow down is a worrying sign; maybe the market is becoming saturated.
Maybe, the onus will shift away from the iPod and back to the Mac again. With the new operating system and prices that are more in keeping with mass market levels (never mind the fact that PCs are still cheaper- the elasticity of demand might be such that at the current pricing, quality becomes more important than whether some machines are even cheaper) perhaps the second half of this decade will see the Mac as a true mass market product.

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

It’s hard to believe inflation is so low. Listen to the news on popular radio, or read the mass media and the talk is that the high price of oil is hurting. Drivers are calling for the government to slash tax on oil (proof again that Joe Public only likes to talk about helping the environment) and look at certain aspects of the economy and it’s as if we are experiencing runaway inflation.

Utility bills are soaring, service providers up their prices with gay abandon, and as for Council Tax, it’s rising like no one’s business.

The inference is that these rising prices are making us worse off. But in truth, that’s missing the point. The money we fork out for products, food, drink, clothes, iPods, PCs, email newsletters, is falling - in some cases products that we used to pay for -such as newspapers, are being replaced by free online products.

So it really is a case of swings and roundabouts. The balance of our expenditure might be changing, but according to the Office of National Statistics at least, our overall budget is rising at a snail’s pace.

The snag is it doesn’t feel like that, and when it comes to determining future inflation, expectations are key. During the early ‘80s, when inflation was still a beast that had not been brought under control, macro economic theory seemed to revolve around inflation, and consumer’s and worker’s expectations were held up as the key factor for determining inflation and the overriding reason why the trade off between unemployment and inflation seemed to have vanished. (James Callaghan said during the midst of this era - “We used to believe you could spend, spend your way out of recession, but I tell you in all candour that this option no longer exists.” And the reason for this, according to economic theory, is that expectations of inflation were discounting the effect of extra government spending designed to lift the economy.)

And now the latest news from the Bank of England is that individual perceptions of inflation are out of kilter with reality. According to the Bank of England NOP survey the current perception of inflation is 2.8%, and expectation of future inflation is 2.7%.

The ONS has consumer inflation at 2%, but the fear is that with perception so much higher, this very perception could lead to inflation busting pay rises, forcing prices to start to rise.

In any case, argue some, are the ONS stats accurate? Does it really take full account of the increasing weight in our monthly budget that services carry?

The latest minutes from the Bank of England showed one member of the Monetary Policy Committee voting to lower the interest rate, but now, all of a sudden some are predicting that the next change in rates could be up.

Meanwhile, across the pond, US inflation has taken a nasty turn for the worse. The US Bureau of Labor Statistics publishes inflation figures both including food and drink and excluding these volatile items. In recent months, inflation data stateside has made the headlines because the overall index was up; it hit 0.7% in January for example. But this index is really not so important, and while it can rise one month, it can fall the next, or vice versa. Last November it was minus 0.7% for example.

Of more importance is the US CPI index with food and energy stripped out, and in March this index rose to 0.3%, the biggest monthly increase in 12 months.

And returning to the UK, Jeremy Warner argues in the Independent that the UK is becoming increasingly polarised, with higher inflation, especially in services in areas centred on London’s financial hub. He argues that maybe the time is coming for two rates of interest in the UK.

Sources

Jeremy Warner’s Outlook: Inflationary expectations are rising with the oil price: Bank’s next rate change may be up Independent
Consumer prices jump CNNMoney

April 19, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Markets had been pessimistic about Yahoo. Reports suggested it was losing share of the search engine market to Google, and sure enough, at face value, Yahoo did as badly as expected, with Q1 profits down 22%.

But actually, that’s not a like for like comparison. The rules have changed, and these days companies have to include the cost of employee shareholder options as a cost. Yahoo and the like are heavily into stock options as a form of remuneration and therefore the company’s results were hit especially hard by this change.

After taking this into account, profits were up 18% and in after hours trading the share price lifted.

All eyes now turn to Google. If underlying profits are up at Yahoo, while it is losing market share, what will the bottom line look like at the company which is winning market share?

Sources

Yahoo Q1 earnings drop but meets views Business Week