June 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

In the US markets took a bit of a tumble yesterday with the Dow down 120 points. It’s that demon again - the rate of interest. We will know the worst this week, and as a result, markets are getting anxious. Yet the consumer, the very person that is supposed to be hit the hardest by these rate rises, doesn’t seem that bothered at all.

The US Consumer Confidence Index, as published by the Conference Board, rose in June to 105.7. That’s up a whole point. But actually, the jump is really more significant than that. The Conference Board also upped their score for May. If you were to read the reports from this time last month, you will have noticed that the index was a mere 103.2. For you see the Conference Board, like all the big compilers of economic statistics, revises its figures every month. Chances are, the figures for June will be revised next month. By then everyone will be looking at the July figures; the true implication of the June figures will be lost. So, to anticipate this omission in advance, by comparing the current June reading with the May score as it stood this time last month, you realise that in actual fact the index is doing very nicely.

Not that Capital Economics sees it this way. According to its international economist, Keith Gyles: “The months supply of unsold homes rose again in May to 6.5, from 6.1 before. Looking forward, it is this excess supply of housing that should drive the moderation in price growth we are expecting in the months ahead.” He concluded: “This data does not change our view that real consumption spending is set to slow further. For now the Fed and the markets are focused on the incoming inflation data, which guarantees at least one more rate rise. But, over the coming months, the focus should shift to the prospect of rate cuts in 2007 as the housing market continues to cool.”

Meanwhile, still with economics, there was more room for optimism from the land of Jurgen Klinsmann. The German IFO index of business confidence is up, and unexpectedly so. Apparently, it’s not only business expectations that are doing well. Manufacturing is expected to grow too, with the latest IFO survey on manufacturing implying growth of 10%, while even the German High Street is expected to see growth, after seeing a big jump in retail confidence. Actually the IFO retail index is still negative, but only just: 0.3 percent, compared to negative 15.7 percent in January.

June 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

The spectre of Tesco looms high in so many things these days. Take newspaper and magazine distribution. One of the key players distributes to 22,000 retailers, and handles 36% of all UK national newspapers, but here’s the snag. The company is called WH Smiths. Maybe, a few years ago that wasn’t a problem. Sure some retailers might have been concerned about having their stock delivered by a competitor, but such was the standing and dominance of the 200 year old retailer, it seems unlikely it gave that much of a monkeys. The little independent newsagents, or even some of the other chains in the sector, were perhaps too small to have much alternative.

Today, however, Smith’s does not rule the world of magazine and newspaper retail like it used to. Tesco et al offer credible competition. It’s a problem if you want to have them as customers.

But now it’s all change. WH Smith is splitting in two. The traditional retail arm, with its 671 outlets in High Streets and railway station concourses throughout the land will keep the name. The distribution arm will be called Smith’s News.

The distribution arm will raise £70mn in debt; £50mn of this will be used to reduce the overall pension deficit to £38mn. Once the two companies have been separated, Smith’s News will inherit £14mn of this pension deficit, and WH Smith will retain £24mn.

Kate Swann, who is the current boss of the company, will remain the head honcho at WH Smith, while erstwhile sales director Mark Cashmore will be the chief executve of Smith’s News.

Opinion in the city seems mixed on whether the two companies will be worth more separately. On a straight asset count, there will be little difference. But if you believe that success in business is all about people and focus, then it would seem likely that in the long run, the move can only be a good thing.

June 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Talking of toast, the three former Nat West bankers, David Bermingham, Gary Mulgrew and Giles Darby will be off to Houston, Texas, where they will be tried for their alleged part in the collapse of Enron.

The three men all say they are innocent, but it’s not strictly justice at the centre of this story. The business and legal world is upset about this one because of the way the UK is cowtowing to US instruction, without so much as a whimper. The rules that are being implemented to enforce the extradition of the three men were designed to help fight terrorism, not corporate fraud. While the zeal to bring down everyone associated with the Enron collapse has approached an almost religious fervour in some parts, not even the most fervent have accused them of being terrorists.

In the UK, were we to want to extradite a US citizen to these shores on charges of fraud, our legal system would have jump through a few hoops. It has left the business community, which is supposed to be marching in protest over the unfairness of it all, hopping mad.

For further information

Jeremy Warner’s Outlook: Business leaders urged to march as long arm of fate reaches out for the NatWest Three Independent

June 28, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Messrs Skilling and Lay of Enron fame might be toast these days, with a very long run in jail to look forward to, but amongst firms of accountants across the globe they might well be the subject of toasts. According to a report in Accountancy magazine due to be published later this week, the UK’s top 60 accountancy firms have seen their income surge a cool £1bn, jumping to £7.7bn. Why is that? In part at least, it’s thanks to the tough Sarbanes Oxley regulations brought out in the wake of the Enron collapse to avoid a similar scandal in the future. EU bureaucrats did their bit too, with the International Financial Reporting Standards also helping boost the coffers at accountancy firms.

While former staff for the once mighty Arthur Andersen, the firm that audited the books at both Enron and Worldcom, might see things differently, the woes created by the shock collapse of the two firms seem to have acted as a boost to the UK.

The City, for example, is booming in part because London is becoming an ever more popular home for IPOs; the stringent Sarbenes-Oxley regulation makes US flotations less attractive. As a result, the London property market has seen a 2006 boom with the more expensive houses in the most upmarket areas doing especially well. The recent merger and acquisition frenzy for control of stock exchanges has, at least in part, been helped by the tough new US rules too, with both NASDAQ and the New York Stock Exchange trying to diversify abroad.

The big winner amongst the accountants last year was the UK third biggest, KPMG, which saw fees jump 20 percent to £1.3bn. The world’s largest accountancy firm, PricewaterhouseCoopers, saw income up 13 percent hitting £1.8bn.

Overall, growth amongst the 60 firms averaged 14 percent, compared to just 4 percent the year before.

June 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

This is the week the Fed chooses the rate of interest for another month. The odds are that there will be a rise this week, followed by another rise at the next meeting. It was all different a few months ago, when the pundits were saying rates should have peaked by now. It’s been these fears over the rate of interest that have largely been behind the recent market turmoil. And now, as if it wasn’t something we needed like a hole in the head, the Bank of International Settlements (BIS) has warned that inflation pressures are building.

It also seemed to put its finger on a problem that has been plaguing producers of economic text books. In recent years governments have followed precisely the policies that in the past have led to inflation. However, this time, prices have stayed low. We all know the reasons: the Internet promoting price competition and cheap Chinese imports. But, warns the BIS, this has masked the real problem, and as a result we are now likely to pay the price.

But, maybe it’s not time to panic yet. Recently we reported how the first quarter of this year saw four times more days lost to industrial action over pay disputes than in the whole of 2005. But, according to the Industrial Relations Services, pay increases have averaged just 3 percent of late, and only a quarter of pay rises were bigger than a year ago, whereas 50 percent were lower.

Writing in the Telegraph on Sunday, acclaimed economist and head honcho of Capital Economics, Roger Bootle, argued that fears China will move up the value chain and thus lead to higher prices are overdone.

Firstly, he argued that as China moves upmarket, we will still see cheap imports from behind the Great Wall, it’s just that the products will be at a different level on the value chain. Secondly, he argued there are plenty of countries to replace China as a supplier of goods available at rock bottom prices.

June 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Pity the poor old Londoner. Not only do they have to contend with living in the fifth most expensive city in the world, but, for quality of living, the UK’s capital is right down the league table, languishing at a miserable 39th place.

Mind you, according to Mercer Human Resources Consulting, the Moscovites have got it worse. The city of the Kremlin is now the most expensive on Earth, boasting a higher cost of living than Tokyo, which topped the poll last year. And for quality of living, the city does not even figure in the top 50 at all.

In fact the most pleasant city to live in is apparently Zurich, with Geneva in second, then Vancouver, followed by Vienna and then Auckland.

As for the most expensive, behind Moscow, sits Seoul, followed by Tokyo, then Hong Kong, and then London.

New York has risen up the ranking thanks to the stronger dollar last year rising from 13th most expensive city to 10th. No doubt then, it will improve this year, as the dollar softens. It was in 46th place for quality of life.
Paris was 15th and 33rd place for cost of living and quality of living respectively.

The question is this. How exactly does Mercer define quality of living? With the greatest respect to Zurich, it’s not exactly a hive of activity on a Sunday afternoon. Samuel Pepys once said: “Once you are tired of London you are tired of life.” And no doubt these days similar sentiments could be expressed for the world’s other great cities. If the index put a higher weighting on excitement and buzz, then maybe the numbers would look quite different.

June 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

One day, India will be the richest economy in the world - probably. Russia, too, with its vast natural gas resource, is likely to become an ever more important economic superpower, while Europe will no doubt be forced to live off old glories, and will attempt to compete by staying as high up the value chain as it possibly can.

The three way tussle between Mittal, Severstal, and Arcelor over the fate of the European steel company which claims to put quality before quantity, is perhaps the first indication of the palpitations that will follow over the course of this century.

In India they are celebrating. Sitaram Agarwal, president of the Federation of Rajasthan Trade Industry, the area where the young Lakshmi first earned his stripes, said: “‘We are all proud of him (Mittal). Rajasthan has now become a global name, thanks to this man.” Meanwhile, his younger sister said: ‘He does not give up easily. That is his strength.” While her husband added: “‘This is a day when every Indian shall feel proud.”

But in Russia the response was cold. Boris Gryzlov, the speaker of the Duma, Russia’s lower house of parliament, said: “I consider the events taking place around this deal as an example of Russian business facing serious obstacles when trying to expand into global markets. The unprecedented propaganda campaign that has been launched around the merger of Russian company Severstal with Europe’s Arcelor shows that people don’t want to let us into global markets.”

Elsewhere, it’s been reported that Severstal, which is likely to ultimately enforce a $140m penalty clause on Arcelor for pulling out, is planning to up its bid. It’s even been reported that other Russian oligarchs might come to the aid of the billionaire owner of Severstal, Alexey Mordashov. Even Roman Abramovich, the one man who can pose a serious threat to Lakshmi Mittal’s crown as the richest man resident in the UK is said to be considering allying himself with Mordashov.

As for Arcelor, despite reports yesterday that Arcelor chief executive Guy Dollé was to also hold that position with Arcelor Mittal, it appears he is on his way out. So robust was his defence against Mittal, that is seems hard to believe he will hold a senior position in the new company. Instead, the management must unpick the mess created by Arcelor’s determination to avoid the merger with Mittal, including what to do with the Canadian subsidiary Dofasco, which Mittal wants to sell, but which Arcelor has apparently ring fenced from a sale.

So far, the story is one of Europe doing everything possible to fight off an Indian takeover, only to relent when it becomes clear that blocking India involves siding with Russia. Is this a pattern that will repeat itself over the next few decades?

June 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Grant Thornton have been polishing the chestnuts. These days, with the euro economy only very gradually recovering from years of tottering on the brink of recession, while the UK has done very nicely thank you, the debate about whether the UK should sign up to the euro has been forgotten by many. In truth it’s difficult to make a strong argument for joining the euro at the moment. Take a look at Spain. Here is a nation whose economy was at a different stage of the economic cycle from most other eurozone members. When the rate of interest in the region was too low for the German economic machine to start grinding away, in Spain it was too high. As a result, many fear the economy has overheated, house prices rose by 120% between 1997 and 2005, and there are warnings that Spain is danger of falling into a boom bust cycle once typical in the UK. Now Grant Thornton has revisited that old chestnut of whether business leaders want the UK to join.

We are sure it will come as little surprise to you to learn that support for the UK joining the euro is at an all time low amongst medium sized companies in the UK.

The Grant Thornton survey found that just 32% of medium sized companies polled are in favour of entry, that’s down from 42% last year, and 50% the year before. Apparently, only in Northern Ireland - where the trading links with its Eurozone neighbour are strong, does euro entry have more than 50% support.

The survey found that Germany is our biggest trading partner amongst the companies polled with France second and the US third. But, trade is down on recent years, with Jim Rogers, Head of Growth and Strategic Services at Grant Thornton saying: “We were very surprised that the proportion of businesses in the EU that export is actually lower now than in 1993, when the Single European Market was completed. For UK exporters this reflects the weakness of demand from Germany, the major export market, and lower Asian labour costs. This is a real worry as relying on domestic demand could lead to problems if there is a economic downturn in the UK.”

June 27, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

When was the last time you heard a song on the radio you liked? Don’t be too cynical now - surely it wasn’t that long ago. Supposing you could buy the song there and then, just click a button saying ‘buy me’. Radio would then become a form of music retailer, generating revenue through selling product, rather than advertising, and Auntie BEEB, and her music radio channels would find a whole new string to her bow. It could also have a catastrophic effect on some music High Street retailers, not to mention certain online music stores - but it would make the consumer king and, inevitably, chart based radio stations would become even more the vogue, and would only play tunes they think you will want to buy.

It’s an interesting idea, but what’s even more interesting is that someone it about to try it. UBC media, which is the largest independent producer of radio content for the BBC is about to go live with a service being tested on Chrysalis Group’s Heart station, which is received in the Birmingham area. It will be the first test of its type anywhere in the world. Who would have thought it; Brum, the start of a music revolution.

UBC has secured £3mn of investment to put behind the service and predicts that the service will generate £95mn a year by 2012. This projection assumes that by that year, 25% of mobile phones will be equipped to play digital radio, and 10% of owners will buy six songs a month. Tunes will typically cost £1.20, that’s 21p more expensive than iTunes, but then mobile phone services always do carry a premium.

UBC’s chief executive, Simon Cole said: “Because we own most of the interactive digital spectrum in the UK, we’re in position to create a barrier to entry.”

LG and Samsung Electronics are leading the way with the hardware, and according to UBC’s Cole, they are predicting sales of half a million digital radio enabled phones in the UK over the next 18 months, and 10 million by the decade’s end.

For Apple the danger is this. The iPod came to dominance, making the Walkman yesterday’s product in hardly any time at all. But its sales have partially been led by fashion, and fashion comes and goes. The UBC model seems to be altogether more robust.

June 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

UK advertising saw a 2.6% rise in 2005, hitting £19bn. “It’s the fourth year of positive growth since the 2001 recession,” says the Advertising Association.

No prizes for guessing who the big winner was. Internet advertising was up 65.6%, and was worth a total of £1,355mn last year.

TV advertising also saw a rise on the year, up 3% to £4.8bn. National and regional newspapers saw a decline, however, falling 2.8% to £1.9bn and 4.4% to £2.99bn respectively.

For further information

Advertising expenditure in the United Kingdom reaches almost £19 billion in 2005 Advertising Association