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

The question is this: even if Enron’s former boss Kenneth L. Lay and chief executive Jeffrey Skilling didn’t know about the fraud around them, was that because they chose to deliberately not know. Were they, in effect, burying their respective heads in the sand. It’s bad news if that was the case, because recently the judge presiding over the case ruled that if the duo had effectively followed “ostrich instruction” then that was illegal too, and even if they were only found guilty of this, they would still face years in prison.

But for Lay, even if he gets away with it, and the jury find him innocent of any knowledge, or even innocent of avoiding knowledge, of the disaster awaiting Enron, he could still go to prison for the rest of his life.

For the hapless Mr Lay is now facing a new set of charges relating to his personal affairs. But this time he has a multiple defence.

The accusation is that he borrowed money from banks, a lot of money, loans were for around $75mn, and used most of the proceeds to buy shares - this is illegal and Mr Lay signed an agreement saying he would not do this.

His defence goes like this. First of all the law he was breaking was set after the 1929 stock market crash, and as far as anyone in the Lay team can gather, no one has ever been prosecuted for breaking it. The inference is that prosecutors are just determined to get Lay, even if that means dragging up antiquated laws that no one worries about anymore.

The Lay team also say that actually he didn’t sign the documents, rather his staff affixed his signature using a high tech electronic device. And in any case, Mr Lay was far too busy to worry about fine details, and small print, besides he had sufficient access to fund so he didn’t even need the loans for this purpose anyway.

But against him, prosecution witnesses include staff from the banks where he took out the loans who say they personally talked him through the limitation of share dealings, and that he signed the agreement that he would not do this, annually.

Sources

Lay’s Second Trial Starts As First Jury Deliberates Washington Post

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

What payment terms do you demand? And what are you willing to pay? Usually it’s 30 days - often extending to 60 or even 90 days, and sometimes we pay upfront But do you ever pay quarterly in advance? Chances are you do for your rent, and retailers are getting fed up with it. It’s a practice that goes back 500 years. And yesterday the British Retail Consortium wrote to the bosses at the UK top 80 landlords calling for an end to what it calls, this antiquated practice.

The BRC’s Kevin Hawkins said: “Requiring rents three months in advance is at odds with standard business practice…It’s a historic and costly practice rooted in the days when communications were governed by the speed of a horse.”

Apparently, the three month in advance model is followed throughout Western Europe, but in the US and central Europe payments are normally made one month in advance.

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

The High Street enjoyed a surprise pick up in April, at least so says the Office of National Statistics. According to our official compiler of statistics the month saw a 0.6% rise, which followed an even more impressive 0.7% rise the previous month. The World Cup has helped, with anecdotal evidence to say sales of flat screen TVs are soaring. But perhaps the improvements are only temporary. For one thing, Easter was late this year, that helped, for another, it is feared that any surge in spending for the World Cup is merely having the effect of bringing expenditure forward, and that the sale of relevant items will fall in the aftermath of the world’s premier sporting event.

There’s also evidence that much of the sales increase came at the expense of margins. The retail sales deflator slipped from -1.1% to -1.2%. And while the last two months saw a significant pick up, the quarter as a whole saw a mere 0.1% rise.

Earlier this month the British Retail Consortium released figures which also showed a rise in sales over April. In fact it had like for likes 6.8% up on a year earlier. But alas its director general, Kevin Hawkins, spoilt it all when he said: “While any uplift in sales is welcome, the distortion arising from the timing of Easter and the weather underlines the need for caution in interpreting these figures. Discounting has also played a big part in these results. We need to see the figures for this month, which will be directly comparable with last May, before forming any tentative conclusion about the underlying trend.”

SPSL’s Retail Traffic Index also showed a mixed picture when it was released at the beginning of this month. The index showed an encouraging 1.4% year on year rise in footfall, but according to its Director of Knowledge Management Dr Tim Denison: “the figures are distorted by Easter. If we combine March and April’s footfall together, the RTI is down 4.7% year-on-year, showing the downward trend in shopper numbers remains unchanged.”

“Consumers unquestionably have lingering economic concerns which are
discouraging them from going out shopping. Some are here-and-now
factors, such as fuel and utility prices; but the majority are niggling
doubts and concerns for problems which may affect us around the corner;
such as council tax rises, higher inflation, doubts about job security
and prospects, uncertainty over pensions and price trends in the housing market.”

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

Not so long ago they were writing BT off. It had sold 02, VoIP threatened its underlying business model, price competition was hammering its margins, what future could the former state monopoly possibly have?

Its critics perhaps underestimated the company’s resilience and the ability of its RD facility at Martlesham.

Competition remains tough, the threat posed by Carphone Warehouse with its free broadband service, must have given management at the company something of a shake. And local loop unbundling is increasing. That’s where telecoms install their own equipment at exchanges, and today there are 356,000 lines in the UK which are free of BT’s infrastructure. But this number is expected to increase rapidly hitting 1.5 million soon.

As for broadband, at the end of March there were 7.9million broadband users of its infrastructure, but only 2.58 million actually had BT as its ISP, the rest used ISPs that worked off the BT network.

But more competition means more freedom, and less control for the regulator. The company will be able to compete more heavily on price: and that brings us to the extra features the Company says separates its broadband service. At the moment it’s emphasising security, but later this year it’s TV, with the launch of the company’s TV Vision planned for Autumn. And now its signed up Dreamworks, meaning films including Shrek, Madagascar, and Wallace and Gromit will be available to download.

For the last quarter, the company saw Revenue of £5,134 million, up 7 per cent from last year, and Profit before taxation, specific items and leaver costs of £629 million, up 4 per cent.

The traditional side of the BT business, that’s fixed line revenues did in fact see a 3% fall in the last quarter, but during the same period new wave revenue of £1,851 million, up 28 per cent, represented 36 per cent of total revenue .

Ben Verwaayen, Chief Executive, said: ” This quarter’s results are a terrific set of numbers. They show BT firing on all cylinders, with EBITDA, revenue and earnings per share all growing. These results provide further evidence that our strategy of embracing change is working. We have now delivered sixteen consecutive quarters of growth in earnings per share”.

It’s a tough market out there, and BT faces more competition than ever before. But TV over the Internet could change the paradigm. And BT has not been shy with its initiative. Whether, however, there is scope for BT to effectively change to becoming a supplier of content over the net, when that too is a world with fierce competition, remains to be seen. The launch of TV Vision will tell us a lot more.

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

Xstrata firmly nailed its flag to the “no bubble in commodities” camp yesterday, when it revealed plans to make a £9.6bn cash offer for Canadian copper mining company Falconbridge. Xstrata already owns 20% of the company, and if its
bid is successful will become the fifth largest diversified miner in the world.

But the Canadian firm is not keen on the idea. It would rather be bought by fellow Canadian mining company Inco.

And for its part Inco has been laying out the benefits of its offer.

Its chairman and CEO, Scott Hand, said: “The Inco and Falconbridge combination creates a Canadian-based global powerhouse that will
be the world’s No. 1 nickel company and a leading copper producer, with a truly outstanding portfolio of growth opportunities in
these two great metals.”
He added: “A key feature of our offer is the unique opportunity to deliver significant, tangible value from the enormous
synergies available in the Sudbury Basin… While others make vague promises about future joint ventures with unspecified partners,
we’ve calculated the after-tax net present value of our Sudbury synergies at about $3 billion, based on year-to-date metal
prices.”
There are snags with the Inco bid, however. First of all it’s being stalked by zinc miner, Teck Cominco. If this takeover goes
ahead, then the Inco buyout of Faolconbridge is off. Secondly, it’s faced a number of regulatory hurdles in completing its offer,
and the Inco Falconbridge saga has been running for some time. Thirdly, it just doesn’t have Xstratsa’s financial muscle.

As for the Swiss, Xstrata, it’s been a busy week. On Tuesday it offered $750mn for a copper mine in Peru from BHB Billiton.

Of course, if commodities do crash in price, it will all end in tears, and companies could rue the day they forked out so much in
pre bubble bursting merger mania.

For feedback and comment contact the
editor

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

Very soon, the streets of Westminster, Cardiff, Birmingham, Edinburgh, Leeds and Liverpool could be paved with surfers. Yesterday, BT announced agreements with six cities to become wireless pioneers as part of its plan to create a first phase of 12 Wireless Cities across the UK. The agreements will mean Wi Fi Internet access will be available across each of the city centres.

Intel has been working with BT to develop the technology, and is sharing its expertise of developing these services in cities like Philadelphia in the US and was one of the lead organisations involved in the Wireless Westminster project.

BT says that it’s “strategy is to work with Intel, other leading partners in wireless solutions and local authorities to roll out a wide area of wireless broadband in metropolitan areas. This will be based around wireless broadband in the home, BT Openzone, Wi-Fi hotspots, Wireless Cities, and high speed mobile access. The result will be that customers can do anything, anytime, anywhere.”

The BT move also represents a threat to the mobile phone networks, since Wi Fi Internet access will enable Phone calls over the net.

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

Markets tumbled again last night, and this morning in Asia, but don’t you think there’s a contradiction in the stance taken by the bears?

It seems to us that either there is a bubble in commodities or there’s a bubble in equities; its unlikely there’s both.

For some time the bears have been warning us that the commodities price boom is set to burst. It’s not just gold, but a raft of commodities have seen records smashed in recent weeks, but even these rises in price were outdone by the rise in press speculation that commodity prices were going to crash. Some said that if there was ever a bubble it was in the high prices of commodities; you could say the same about press coverage on the subject.

And yes the bubble has burst. Not in commodity prices, but in bear talk about a crash in those prices. Instead, the bears have jumped to the stock markets, saying that with commodities so high, inflation will creep up and the rate of interest will rise across the globe. Ergo, they say, it’s bad news; sell, sell, sell.

And yet not so long ago speculation was rife that there was no correlation between high commodity prices and inflation. The high price of oil, we were told, was having the effect of depressing consumer demand, and a year or so ago, they were saying it was having the same impact on the economy as a 1/2% rise in the rate of interest.

As recently as the beginning of this month, some commentators went as far as to say that the apparent link in the past between inflation and oil was in fact a coincidence. Certainly, a monetarist would argue that inflation is caused by rises in the money supply and increase in commodity prices should have no impact on inflation. On a similar vein, that’s why the Thatcher government of the early ’80s increased VAT and said it would have no long-term inflationary effect.

The crux lies not in commodity prices - because they do rise and fall over time, but in how labour markets react. We have said before that there is a perception that inflation is in fact higher than it really is. This leads to a rise in wage demand, and the danger is that this will filter through the economy and lead to inflation. That’s why markets panicked when they heard US manufacturing was doing well, the fear being that the sector is near capacity, and that if demand for US manufactured goods continues to rise, prices will therefore go up.

Unemployment in the UK is much lower than in the US. But the difference is this: In the US the labour market is improving - meaning wages are more likely to rise. In the UK, unemployment is rising. Yesterday, for example, the Office of National Statistics released data to show UK unemployment up 44,000 over the last quarter, and 177,000 over the last year. There are now 1.59 million people out of work, that’s 5.2% of the workforce, and the highest level in four years.

If markets are worrying about inflation because they fear low unemployment, meaning we are nearing peak capacity, and that there is therefore heightened danger that high commodity prices will lead to higher wages, leading to inflation, then we have this question to ask. Why are markets suffering more in the UK than in the US, when it’s the US that is seeing falling unemployment and the UK which is seeing it rising?

To put this in context, the Dow fell to 11205 yesterday. That’s the level it was at in mid April; in effect, in the US, markets have reversed the gains seen in the last four weeks or so. The FTSE on the other hand fell to 5675, the last time it was that low was in February.

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

Justin King, Chief Executive at Sainsbury’s told his own version of the prodigal son yesterday. His parable related to the tale of Sainsbury’s and Tesco. Recently, Tesco unveiled a ten point plan to do more to help the environment, but yesterday, Mr King said the publicity that the rival store had earned from the move was out of proportion with reality. He said that ethical business practice was “Sainsbury’s turf” and added: “It’s a more newsworthy story if somebody starts doing something that they weren’t doing before.”

But while Mr King tried to draw comparison with Tesco over its policy to the environment, markets were more interested in the comparison in the share price. The mighty Tesco, the store that can do no wrong, has a ratio of share price to earnings of around 15, and yet Sainsbury’s boasts a stunning 25. That’s partly justified by hopes that the company is enjoying a renaissance. After all, it’s much harder for a retailer with near market domination to grow.

Sainsbury’s is in the midst of a three year recovery plan and yesterday revealed good news, but not enough to make markets happy, and the share price tumbled 5%.

The good news: underlying profits for the 12 months to 25 March rose to £267mn, from £238mn a year earlier. Like for like sales were up 3.78%, and the retailer is ahead of schedule. It also announced plans to rapidly up the pace at which new sites are opened, from the current level of 1% expansion to nearer 4% or 5%. It was also announced that £1.3bn has been set aside to fund this growth.

But Mr King admitted that the company still had a “tremendous amount to do,” and then revealed the bad news. Energy costs have soared, trebling to £75mn, thanks to a three-year price contract coming to an end. Analysts didn’t like the sound of that, and that’s why the share price fell.

Sainsbury’s lost its number one market position in 1995, and more recently was relegated to third behind Asda. But, it’s clawing its way back, and the last data from TNS indicates that it now has 16.3% of the market, from Asda’s 16.4%. And even Asda admits that soon, Sainsbury’s will overtake it.

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

UK inflation picked up last month, but at 2% its bang on target, so there’s no reason to panic.

Despite the high price of oil and other energy costs, UK CPI inflation was just 2% in April, compared to the previous month’s below target 1.8%. The older Retail Price Index was up to 2.6% from 2.4%.

Core inflation, that’s excluding energy, food, alcohol and tobacco was just 1.3%. It seems that oil is more likely to fall in price than rise over the next year or so, and that would suggest the UK’s inflation is under control. Recent talk of impending rises in the rate of interest could, therefore, be overdone

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

Economists took a look at the world from their half empty glasses again yesterday. US manufacturing enjoyed its best month since April, while official figures showed that US inflation with food and energy stripped out is just 0.1%, down from last month. And yet analysts and commentators chose to focus on the negative. It’s bad news US manufacturing is up so high, they said, the sector is now running at near capacity meaning that further increases could lead to inflation, while US inflation including food and energy soared to 0.9% last month. Woe they cried.

And yet they ignored the good news lurking in the data, choosing to ignore the problems they have been warning us about for the last few years.

The big problem with the US, we have been warned over and over again, is the massive trade deficit. It can’t last forever. Yet, signs that manufacturing in the US is booming has to be a sign that Uncle Sam is selling more abroad. US manufacturing isn’t quite as important to the country’s balance of payments as it is in the UK, but it still represents a lot of exports. For example, Texas Instruments recently talked about increasing sales in India, while Boeing is finding its order book is getting full, with many of its sales literally flying overseas.

And while US manufacturing is approaching peak capacity now (in fact its running at 81.9% of capacity) some argue that recently there has been high investment in machinery and equipment, meaning capacity is increasing.

Sure inflation including food and energy is high, but the real litmus test is this, are the higher prices in these notoriously volatile items filtering though to the rest of the economy, and the answer to that is no. The Fed is unlikely to panic over these figures, as it puts far more importance on underlying inflation - that’s with food and energy stripped out.

So while the negative mood purveying markets has put a negative gloss on these latest figures, it seems to us, that there was just as much reason to celebrate