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

This time last year Big Blue was still in the PC business. The industry it invented had become tough; margins tight, and the company could no longer command a premium just for using the letters IBM.

As a result it sold the PC arm to Chinese firm Lenovo for $1.7bn.

That’s boosted the cash flow, and facilitated greater focus but inevitably sales are now lower.

Yesterday IBM revealed its latest results, and revenues, thanks to the fact that PC sales were included last year, were down 10%.

But, profits were up 21%

“We continue to improve our profit performance with our strategic focus on higher value-segments of the marketplace, as well as our emphasis on productivity and global integration,” said IBM’s chairman and chief executive officer Samuel Palmisano.

Shares rose 1.4% in after hours trading.

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

They always said Ben Bernanke was a plain speaker, and believed in keeping monetary policy as transparent as possible. Unlike his predecessor at the Fed, “irrational exuberance” Alan Greenspan, who would often couch his words in so much subtlety that an industry of commentators grew up interpreting what he meant.

But the latest minutes from the Fed seem simple enough to understand: “Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy”.

The run of interest hikes, that has seen the cost of borrowing rise every time the Fed has met since June 04 is coming to an end.

The US rate of interest is now 4.75%, the highest it’s been since April 2001, and now higher than the UK rate. Two years ago, the UK rate was 3¼ % higher.

Most are now predicting one more hike and that rates will then stand still at 5% for a while.

All eyes now turn to the EU and Japan. Rates have been zero in Japan for some time now, but now the expectation is that the land of the rising sun is about to become the land of the rising interest rate.

In the EU rates have risen from 2% last October to 2.5% today. More hikes are expected.

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

The Easter season has seen the unveiling of two key property market reports, and the finding: while First Time buyers struggle, owners of more expensive properties are moving further up-market, leading to a surge in the price of more expensive houses.

One of the problems with surveys is that they only measure average price. An increase in average prices does not necessarily mean prices are going up at all. It could mean that up-market properties are proving more popular than cheaper properties, distorting the overall picture.

According to property web site Rightmove: “The average national asking price of 138,259 properties marketed by estate agents on Rightmove.co.uk in the last 4 weeks rose by 1.1% (£2,275) to a new record of £205,674. This is the 3rd successive month that a new record has been set.”

“So what is driving the national average ever upwards against a backdrop of falling consumer spending and increasingly stretched affordability?” asks Rightmove. “Following the spring trend, the market features heightened buyer demand and a shortage of property coming to the market. However, an increasing number of aspiring buyers are unable to afford to get on or
move up the property ladder. This ‘mini-boom’ is actually driven by demand from buyers for higher priced property types and the more affluent regions in the southern half of the country, with local hotspots in higher net worth locations. More affluent buyers are less likely to face affordability constraints and they therefore have the confidence, as well as the means, to move further up-market. Detached properties are consistently outperforming other property types with an increase of 5.7% (£16,043) over the past 3 months, compared with the overall market rise of 4.8% over the same period. The result is that prices are being pulled upwards by higher percentage increases in detached property than in lower value property types. Also, the more expensive southern regions of the country outperform.”

Contrast the Rightmove report with the RICS survey. Every month the Royal Institute of Chartered Surveyors asks its members whether prices went up or down. The survey carries a lot of weight and many see it as a signpost to what’s going to happen and often seems to be a good indicator of what the reports from the likes of Nationwide and Halifax will say.

The RICS index went negative in the summer of 2004, and stayed there until last Autumn.

Since then the index has been gradually climbing, until that is last month. It fell from plus 18 in February to plus 13 in March.

Perhaps of even more interest, is the RICS index for new buyer enquiries. Now this index seems to correlate quite well with its main index, but preceding it by about six months.

For example, while the main index went out of negative territory in November 05, the new buyer enquiry index went positive in May 05. It peaked with a reading of 23 in October, but has since fallen, and in March this index stood at 11.

Ed Stansfield at Capital Economics said: “With little clear evidence that
economic growth is likely to improve markedly in the near future and the labour market still getting softer, it seems likely that housing market conditions will continue to ease over the remainder of the year. Indeed, it may well be that the past few months mark the high point for sales activity and house price increases in 2006.”

Just bear this in mind. In the long term you can’t have a situation in which the property market is sustained by existing homeowners. If Mr Five bedroom house decides to buy a sprawling mansion, presumably Mr and Mrs four bedroom house bought his property, someone else bought theirs, and somewhere down the line there would have been a beginning as younger Freddy first timer jumps on the ladder. In the long term if up-market houses are selling but cheaper houses are not, then something has changed with the fundamentals. Either houses are sitting empty, Mummy and Daddy are letting the grown up kids live in their old house, or renting is on the rise.

Sources

Affluent buyers drive prices up Rightmove

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

Oil duly hit a new all time high last night, passing $71 a barrel in New York for the first time ever, and similarly smashing $72 a barrel for Brent Crude.

The reason isn’t hard to find. With demand for the black stuff ever growing, with China and India consuming more, with the US driving season due to kick off soon, consumers want more, and thanks to the row over Iran’s nuclear research programme, supply is not altogether stable.

Gordon Brown wants to see the G7 work together to combat the problem, to press producers to increase output, to ensure greater transparency on oil usage and reserves, to throw more resources into developing cleaner alternatives and to enable the World Bank to provide China and India with financial incentives to use cleaner fuel. He will be saying as much later today, when he addresses the G7.

But there is something a little odd about the high price of oil. Sure it’s just hit a new high, but actually last August it was only a tad cheaper. In fact the all-important natural resource has been making headlines for its high price for over two years now. 24 months ago the idea of oil going over $50 provoked some experts to warn that recession would follow. Oil north of $70 seemed to some to be the stuff nightmares were made off

And yet the global economy continues to enjoy brisk growth. In fact recently the IMF upped its estimates, the US economy seems to be growing nicely, even those recent dullards of the economic scene, Germany and Japan, appear to be clawing their way back.

In the past when oil went up, inflation went up with it, causing panic, industrial relations disputes as workers wanted their pay to keep track with inflation, and the UK in particular seemed to lurch from one crisis to another, with oil often held up as the scapegoat.

Today, not even inflation has made a return.

There are several reasons. Firstly, while oil is at record prices in monetary terms, after allowing for ordinary inflation, it’s been much higher before. In today’s prices, oil was over $100 in the ‘70s and early ‘80s.

Secondly, oil is high, thanks largely to success.

The growing economies of India and China have been helping keep prices down, It’s cheap imports from these countries that has allowed retailers to slash prices.

So, in a way, the high price of oil is a consequence of low inflation, or at least a consequence of the factors that have created low inflation.

It’s not so good for manufacturers. Input inflation has been much higher, and oil has been a major factor behind this. As Capital Economics calculated: “When deflated by producer prices, today’s levels match the peaks reached in 1979.”

But there are dangers in the escalating price of oil, however.

No one knows how close we are to peak oil - that’s the point when oil production each year starts to fall. But as demand rises, then peak oil day must inevitably get closer all the quicker.

But at least the high price of oil is forcing governments to look for alternatives. Most governments might be slow to deal with the issues of global warming, some might not even ratify Kyoto at all, but as oil goes up in price, greener, cleaner, self-sustaining alternatives look more and more attractive.

Should oil continue its rise and go north of $100, or even $150, recession might well follow. But if the side effect is that the planet is saved, then maybe that’s a price worth paying.

The trouble with the democratic public is this; more and more people accept global warming, but few accept the price that needs to be paid to stop it. Taxes need to rise, individuals must accept wind turbines in their neighborhood. A short sharp shock would be better than death by a thousand knives, which is the alternative.

April 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Oil is approaching a new all time high. Both oil as measured on the New York Mercantile Exchange, which we monitor at the top of this bulletin and Brent Crude oil passed $70 over the bank holiday weekend, and stayed there.

On either measure, it’s now within a whisker of the record.

Fears over Iran’s nuclear research program are behind the latest spike

Gold and silver both broker records too. Gold moving north of $620 an ounce for the first time in 25 years, while silver rose to its highest level since 1983, $13 an ounce.

April 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

India hopes to see a jump in growth, exceeding even China with 10% GDP expansion each year. Indian Prime Minister Manmohan Singh said this morning: “As I look ahead, I feel that we can not only sustain the current rate of economic growth of around 8 percent but can realistically hope to target a rate of 10 percent.”

April 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

London might be seen as a dynamic and cosmopolitan city, arguably with the best choice of restaurants in the world, and often cited as a big hit with international businessmen, but in terms of providing quality of life, it is a long way behind some of the world’s top business cities.

Human Resource Consulting Group, Mercer, published its annual quality and cost of living reports for the world’s top cities last week.

The survey measures cities against New York which is given a score of 100, and takes into account political, social, economic and environmental factors, personal safety and health, education, transport, and other public services.

And Switzerland boasts the two cities with the highest quality of living rankings, with Zurich in first place and Geneva second. Vancouver is third, then a few hundred miles across the Swiss border, Vienna is in fourth place and Auckland New Zealand is in fifth.

The German economy might not be what it was, but Dusseldorf, Frankfurt, and Munich occupy positions six, seven and eight, and the top ten is completed with Bern and Sydney.

The US has its first entry at number 27, with Honolulu, immediately followed by San Francisco.

But there is just one British city in the top 50, London way down the rankings at number 39, with Birmingham and Glasgow tying for 55th place.

The Top 25 is dominated by cities from northern Europe, Canada and Australia and New Zealand. Paris is missing from the top 50 altogether, New York only scrapes in at 46, and beautiful architecture clearly has little impact on the rankings, because Italy has just one city in the top 50 charts, Milan which is in bottom place.

Across the chart overall, Baghdad is rated as the worst performer.

But while London might score badly in terms of quality of living, in terms of cost of living it’s in third place behind Tokyo and Osaka. Paris, and New York manage 12th and 13th places respectively, and while the eternal city is absent from the top 50 for quality of Living, Rome manages 17th place for cost of living

April 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

As Oscar Wilde might have put it; to lose one senior executive who has been at Apple Computers since the year dot may be regarded as unfortunate, to lose two seems like carelessness.

And yet, on the eve of announcing its latest results, Apple has lost two of its long serving influential senior managers.

First off was top engineer at the firm, John Rubenstein, to be followed swiftly by Avie Tevanian, Apple’s Chief Software Technology Officer, the man credited with building the core of Mac OS X operating system.

At the close of today’s play, Apple will be unveiling its second quarter results, and some fear that the rapid growth spurt must be coming to an end soon, that the iPod is close to market saturation, and that the force of gravity will inevitably exert pressure on the company’s recent remarkable profits.

In the first quarter of 2003, the company lost eight million dollars, three years on and it was making $565mn.

That’s good news if you have held shares in the company throughout the period, but some fear that an end to the rapid period of growth could spell bad news for those who recently piled into the stock.

And with the news that two top execs are bailing out, some are asking exactly what is it these Apple old timers know?

Of course, it’s equally possible that the two men, with their stock options, felt that they have quite simply made all the money they need, and that it’s time to enjoy the fruits of their labour; nothing more sinister than that.

And while it’s possible iPod sales might be close to peak, there is growing evidence that the halo effect, when users are so enamoured with their iPods that they go out and buy a Mac, is beginning to work.

PCs are of course cheaper than Macs, but these days it’s possible to buy Macs for less than £500. The elasticity of demand for personal computers might well be such that a price point below £500 will represent a mass market level, even if it’s possible to buy conventional PCs for less.

With the new Boot Camp system which enables Macs to run both Mac and PC software, and with the delays to the new Windows upgrade - it could equally be argued that the prognosis at Apple has never been better.

But the latest staff changes at Apple will, if nothing else, remind analysts how reliant the company is on its people, and in particular, how much it needs one person, a certain Steve Jobs.

April 18, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

IBM, in conjunction with the Economist Intelligence Unit has some good news for the City of London and private investors. The next ten years is likely to see London cement its position as the “cosmopolitan capital of commerce.” And there will be a massive influx of highly educated and skilled workers in the financial services market, with mathematicians and actuarial workers from Eastern Europe and high flyers from the US helping the City of London work its way right up to the top of the value chain.

But look beyond that, and the future looks a good deal more murky, with Suzanne Dence of the IBM Institute for Business Value saying that much of the services offered by stock exchanges makes them “little more than a glorified eBay.”

IBM’s Institute for Business Value and the Economist Intelligence Unit interviewed over 400 top executives from the world’s leading stock exchanges and financial markets to produce its report: “Financial markets in 2015.”

And it would appear the middleman has got problems. Increased transparency and competition means commission and mark ups on trades will reduce to a very small level, and the private investor will be left with a much higher chunk of the value generated in a deal.

It’s the individuals who provide real value by providing their expertise, rather than simply being in a position of market strength, who will benefit.

The IBM report said the next decade will see two “inexorable trends
Accelerate;” the move towards “transparency and speed. As these two forces approach their limits - transparency can’t exceed the point at which everyone knows everything, and speed can’t move beyond the instantaneous - many of today’s profit engines will stall, while new value engines will begin firing on all cylinders. Firms must be able to succeed in an environment where analysis, not
knowledge, is the value creator, and where it’s not seconds that count,
but milliseconds. Power will shift from the traders who have benefited from
merely facilitating transactions to the buyers and sellers who take positions
on either end of the trade, and that which is most highly prized in financial
markets - the ability to create value - is likely to experience a renaissance as
transformational as anything the industry has ever witnessed.”
As for London, thanks to the Sarbanes-Oxley regulations, introduced after the Enron collapse, New York is no longer so attractive for firms looking to IPO. Gradually, London is taking its mantle, and there’s a massive influx of US talent moving into the UK.

Some press reports seem to suggest this could represent the return to the World War 2 days when Americans were seen as “over sexed, over paid and over here.” But this time around, the level of competition is likely to keep a lid on wages, and while a certain level of resentment could be created as the UK’s labour pool struggles to compete with the brain drain, and London’s gold plated pavements become awash with foreign originated cerebral flooding, the UK plc will benefit, the UK exchequer will see a rise in tax receipts, and consequently our struggling pension industry, education and health could be given the fillip they need.

The IBM report also had good news for the private investor saying: “It’s the little guy, the individual investor, who stands to gain the most. The industry leaders surveyed overwhelmingly believe that more profit will flow to investors as an increasingly transparent marketplace drains the value from any middleman. Traders, analysts, fund managers: all who stand between investors and their money will come under withering pressure to deliver or depart by 2015.”

The IBM report also predicts a rise in the merger mania seen in stock markets. With the NASDAQ acquiring a 15% stack in the LSE, talk that the New York Stock Exchange wants to own the LSE, and with talk one moment that Euronext also wants to own London’s premier market and the next moment rumours circulating that Euronext and Deutshe Boarse plan to merge, it’s clear that the game of musical chairs which is stock market consolidation is seeing the number of chairs available reduce rapidly.

The report even suggests that by 2015, it’s by no means certain there will be a stock market for one country, rather the market will be centralised in locations such as London.

But beyond that, all the players in the stock exchange market could find themselves circulating to make their corporate swoops one moment, only to find that when the music stops that are no chairs at all, and their market and speciality has been replaced by the power of the net.

“The big question is not which exchanges are going to win or where these exchanges will be based. The real question is what will exchanges look like in 10 years’ time and will there be any need for them at all,” said Suzanne Dence. “While exchanges provide a level of unique value in providing surety about the counterparty that you are dealing with, much of the rest of their service is little more than a glorified Ebay,” she added.

April 13, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Google is the news again, making waves in China and moving with the tide against Microsoft.
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