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

Warren Buffet has always said that he will give most of his money to charity. However there’s a snag, and the snag is this. He would quite like to be alive when the good causes he bequeaths his money to actually get it. As a result, the world’s second richest man has started the giveaway ahead of time. In all, he plans to give away 85% of his fortune, selling shares in Berkshire Hathaway in stages. This year is expected to see the man, who is currently worth around $44bn, sell stocks worth around $1.5bn.

Five charities will receive the Buffet money, but the lions share will go to the Bill Melinda Gates Foundation. Bill Gates and Warren are reported to be good friends, and indeed the Buffet thinking was a key factor in influencing Gates into forming his foundation.

In fact Warren Buffet, who seems to conduct business with an altruistic bent, also influenced the Google team of Brin and Page who are his great admirers. Perhaps they were thinking about him when they defined their company motto as “do no evil.”

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

Lakshmi Mittal is a happy man. Apparently, Mittal director, Wilbur Ross, received a phone call from the steel company’s eponymous boss last night, in which the jubilant Lakshmi said: “We got it, we got it’” about twenty times.

And yet, eyebrows would surely have been raised, if Arcelor had not finally agreed to the deal on offer. The price Mittal is paying is 40% up on the Arcelor share price before the initial overtures were made. The new board will consist of 18 members, six of whom will be from Mittal and six from Arcelor. The Mittal family will control just 40% of the new business, and Arcelor shareholders will have 50.6% of the company, which will be called Arcelor Mittal . Of the seven strong management team, four will come from Arcelor, and its chairman, Joseph Kinsch will be non executive chairman of the new company, while it’s been reported that Arcelor chief executive Guy Dollé will be the chief executive of the new company. Okay, Lakshmi Mittal will be life-time president, but it might be worth while pointing out that Mittal is buying Arcelor, not the other way round.

Russian company, Severstal, is not too happy. It had already agreed terms with Arcelor, and is likely to press for $140mn in termination fees.

When Mittal first made its offer for Arcelor, Thierry Breton, the Finance Minister, said of the Indian businessman who is currently the richest man living in the UK, that he was ignorant of “business grammar.”

Yet Arcelor, it appeared, was prepared to go to any extreme to stop Mittal. But finally, shareholders, who felt the company was not acting in their interests, finally forced the company to reject the Severstal deal, just as the Mittal offer was looking really very good indeed.

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

When the George W regime lowered taxes at a time of rising US government spending, commentators were not impressed. Yet, forward-wind the clock a few years, and there are signs the US federal deficit is improving. Maybe the government on this side of the pond should adopt a similar approach. Reducing taxes when the government is being forced to increase borrowing may seem like economic foolery, but that is exactly what a number of top economists are recommending in a letter they sent to the UK government this weekend.

How can the public deficit possibly shrink if you are cutting taxes? Economic theory does have an answer. Back in the ’80s, during the period of Reaganomics, the US Professor Art Laffer argued that to begin with a rise in taxes increased the revenue the government received. But, after a while, a further rise in taxes had the effect of being a disincentive for people to work. Today, it’s also argued that higher taxes increase tax avoidance, whereas lower taxes encourage the formation of new business, and the resulting improvement in profits means more, not less, revenue for the government.

The professor came up with the famous Laffer curve as a way of defining this relationship.

So far this year, the US federal deficit is almost $50bn down on the same period in 2005, much better than had been expected. In all, the US deficit for the first 8 months (the US authorities have their year starting in October) was $272.3bn. And although the May figures showed a monthly deficit of $42.8bn, compared with $39bn a year ago, many economists see the May figures as a blip, and believe that at last the US is gradually getting things under control.
Last week, the UK’s latest public deficit figures were also announced. May saw the highest level of government borrowing for that time of the year ever recorded. And two months into the UK financial year, borrowing is both higher than last year, and worse than Gordon Brown had estimated. .
Many are, as result, predicting an imminent rise in taxes. But, if the Laffer curve is any guide and if the recent US economic experience is proof that it works, maybe the UK government should do the opposite.
For further information

Flat tax - is the new economic Shangri-la coming to the UK? Investment and Business News July 5 05
UK set to pay more tax than Germany Investment and Business News 16 January 06

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

Google has set the cat amongst the pigeons with free movies from its new video search web site. The move leaves a host of companies, including BT, which is already being forced to compete against free broadband, facing a ferocious, if not unexpected competition from the world’s most dynamic company.

When news broke last week that Apple and Hollywood were locking horns over the pricing model the computer company wants to apply to content downloaded for the video iPod, many thought it was just a matter of time before Hollywood rolled over, and followed the music industry in jumping to Apple’s tune. But then, to misquote Harold Wilson, a week is a long time in technology, and just a few days on it would appear that a host of major players are jostling for position to create their own brand of Internet TV. And while the future is unquestionably bright for the viewing public, the line up of competitors, which includes many of the world’s largest companies, shows just how tough this market is going to be. Betamax versus VHS will be nothing on this war; while riches will be created, some very large companies indeed could ultimately be brought to their knees.

BT, with its efforts to fight back at the price war raging in broadband, is to launch its video download service in the Autumn. But some say that the challenge posed by BSkyB, with its ownership of Easynet, will prove too much. Last week Channel 4 also announced its latest move in the video down load market - Vodafone and T-Mobile both made major announcements on their video download plans, while Microsoft is talking about launching a rival to the iPod and video iPod.

Now throw the British public’s favourite Auntie, the BBC (which is coming under increasing attacks from competitors saying the TV license gives it unfair advantages on the Internet) into the melting pot of Internet TV and you will see just how far reaching the current developments could ultimately prove to be.
The latest Google product has severe limitations. Free videos on offer include old Charlie Chaplin flicks, Alfred Hitchcock’s ‘39 Steps’ and a range of other old movies. Few people, other than students of the history of the film industry, would want to invest 90 minutes of their life into viewing some of the product on offer.

Even so, Google already has ad sponsors including HP, LowerMyBills.com, Netflix, Burger King and Shopzilla.com. The sponsors have a banner ad displayed above the video window. Apparently, an ad for the sponsor also appears at the end of each free film, although we confess to not finding ourselves suitably inspired to sit through the full length of any one movie to have this confirmed.

The current service has such limitations that we wonder whether the experiment is doomed to fail.
There is no point in testing an idea if the idea has been improperly presented.

But, somehow, we suspect that Google will plough on with this service, regardless. And what does seem to be an absolute certainty, is that it will get better - much better.
In fact, if you spend a while surfing the Google video site not just viewing the new free movies just launched, but checking out the other services that have been available for a few months now, you will experience a product that isn’t half bad.
If Video and other TV services present opportunities for the major players in converging industries throughout the world, the Google service illustrates how much danger lurks in these plans.
It seems to us, that the ultimate winners though are likely to be the producers of content, as companies armed with multi-billion dollar budgets attempt to woo them to their side.
For further information
video.google.com Google
Google begins trial of free TV content Independent

Video on demand gets 4 play Investment and Business News
Into the unknown: broadband sees dawn of new era Investment and Business News
For more information, to to our web site, and select Internet TV, under topics Investment and Business News

June 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Yesterday, when we wrote about the Bank of England’s decision to keep the interest rate steady for another month, we told how the one dissenting voice was David Walton. We were a little taken aback to discover that just minutes after publication, Mr Walton’s death was announced.

Mr Walton was 43, joined the Monetary Policy Committee on July 1 last year, and made his mark as something of a hawk, often going against the pack voting for a rise

Mr Walton spent most of his working life at Goldman Sachs, and it was while there, that he and a colleague, Gavyn Davies, came up with an idea that guarantees them both a place in the economists hall of fame. They devised the golden rule and sustainable investment rule as a way for keeping government borrowing in check. These are the very same principles so enthusiastically adopted by Gordon Brown.

Bank Of England governor Mervyn King said of Mr Walton: “David had a wonderfully clear mind, an independence of thought, and was a warm and generous colleague. His contributions to MPC meetings were marked by all three attributes. He will be deeply missed, both as a friend and professional colleague.”
Gordon Brown said: “David Walton made a great contribution to economics and economic policymaking in this country and I am deeply saddened by his sudden and early death.”

June 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Earlier this week we told how British manufacturing has not expanded since 1987. With employers facing competition for staff from the City forcing wages up and reducing the unit cost of output, with the pound high in value and with RD investment lagging behind levels seen in competitor’s economies, it’s perhaps no surprise to see that the latest figures from the CBI show that the number of manufacturers with orders up on last year are still fewer in number than those who have seen a decline.

In fact the CBI Industrial trends survey for order books has been negative now since August 2004, but let’s be grateful for small mercies.

The index might still be negative but throughout most of last year and the first few months of this, it was much worse.

Even more encouragingly, the proportion of manufacturers expecting to increase output over the next three months is the highest since February 2005 - a positive balance of 14 per cent, with 31 per cent expecting an increase and 17 per cent a decrease

CBI Chief Economic Adviser Ian McCafferty said: “The outlook for manufacturing is positive in the short-term, driven by export growth and continued strong performance in the eurozone. Longer-term prospects, however, are more uncertain for the sector. There are some signs of a US slowdown, more volatility in financial markets and profit margins are still under pressure from the relentlessly rising cost base.”
Earlier this month the CIPS new export orders index hit its highest level since January 2004 and the manufacturer’s organization, EEF said output indicators for the sector are now at the highest level for ten years.
With the German economy gradually moving up from 1st gear, and with a Eurozone recovery of sorts occuring, there are clearly signs that manufacturing is improving. But then again, as as we said above, output is no greater today than nine years ago, so when EEF hail the best figures in ten years, just remember to put that in perspective

June 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It’s the battle of ditched suitors. Both Goldman Sachs and Australian Bank Macquarie have been sent packing this year. Macquarie, a subsidiary of Hill Samuel Co until it was spun off in the mid ’80s, was one of the failed suitors for the London Stock Exchange, while Goldman Sachs is still smarting over its failed bid for BAA, a battle it lost to Spanish company Ferrovial, which, ironically, is advised by Macquarie.

Now the two companies have their sights set on Associated British Ports, which owns 21 ports across the land and was privatised by Mrs T back in 1983.

The ports business is hot property. Recently Peninsular Oriental was bought by Dubai DP for £6.8bn while the UK’s Mersey Docks and PD Ports have also been bought out recently.

As for Associated British Ports, profits have doubled in the last five years to just south of £100mn, and with lucrative deals signed up with Australia’s BHP Billiton Ltd, and a new port opened in Immingham on the North East coast, the two suitors it would appear, want it badly enough to enter into a a bidding war.

Goldman Sachs started it all in March offering 730p a share and since then their bid had gone up and up, finally hitting 910p a share last night. Now it’s over to the Aussie bank. It has advised shareholders to do nothing while it reviews the situation

It must have been at terrible dilemma for Macquarie’s management yesterday. Should they celebrate their country’s qualification to the next round of the World Cup despite having to contend with Croatia’s Josep “Three Yellows” Simunic, or focus on their ports bid? After all, neither of the protagonists in the battle for Associated British Ports wish to see their bids left all at sea.

June 23, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

It was very nice of BA to give passengers advance notice of a rise in fuel surcharges, but was there an ulterior motive? Were they in fact sending out a signal to competitors, in effect a kind of nod and wink? BA is under investigation for price fixing, and if found guilty could face a fine of as much as £850mn, or 10% of turnover. None of us like paying fuel surcharges, but with the price of oil so high, you can understand why they exist. But, the issue is this: are BA and other airlines upping fuel surcharges in a deliberate and planned way, or is their similar behaviour simply down to market forces?
BA first imposed a fuel surcharge back in 2004, when oil was still in the $30 a barrel range. Since then the company has upped the charge an additional six times and, for some flights, the fuel surcharge is actually more than the normal ticket price. The suspicion lies in the fact that other airlines have followed a similar pattern of pricing.
The airlines deny collusion, saying that they all face the same costs, and that similar pricing moves are simply down to the fact their costs are all broadly the same. But, if that is so, it’s hard to explain why last June both BA and Virgin increased their respective fuel surcharges by 50% on the same day, and yet at the time oil itself had only risen by 5% from when the two airlines had previously upped their charges.
There is another explanation for the airlines raising their surcharges in tandem. It stands to reason that all airlines will seek to raise prices to cover increased costs, but are worried about how the public will react. Therefore, as soon as one company makes the upward change, all the others rapidly follow suit, because there will be less backlash. It’s not collusion, it’s just safety in numbers - a kind of herd instinct
The fact is that BA has admitted that both U.K. Office of Fair Trading and the U.S. Department of Justice “are investigating alleged cartel activity’”. The airline has also put two senior members of staff, that’s commercial director Martin George- the man who fired ad agency MC Saatchi last year, and head of communications Iain Burns, on leave for the duration of the investigation.
The OFT has not revealed the names of other airlines being investigated, although Virgin Atlantic has said it is helping with enquiries. Back in February an investigation into price fixing over cargo flights was kicked off. As that famous airline expert, Oscar Wilde, once said “to suffer one investigation with the OFT over price fixing is unfortunate, to suffer two seems careless.”

June 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

What do you think of when you hear about the Indian economy and the UK. Do you think of cheap labour? Do you think of jobs moving east? A lot of us do, says a committee of MPs, and that is a big problem.

The Indian work force is made up of highly educated individuals and for the UK it represents an outstanding investment opportunity. With our cultural, not to mention linguistic ties, India could be the key to our future prosperity.

But “UK investors don’t yet really understand the opportunities that India presents,” said the parliamentary committee chairman, Peter Luff. UK investors have been too heavily influenced by media reports promoting India as a threat, and are wasting the opportunity.

Perhaps the problem for India, in the psyche of many Brits, that it has become synonymous with call centres. Most of us hate the phenomena of call centres, with their touch button instructions, and pressure on operators to deal with as many calls as possible.

June 22, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Gordon Brown appeared to nail his mask to the new labour camp again yesterday in his annual Mansion House address. He warned against clinging to the past and said: ” In some economies energies are devoted to sheltering the last job, when the job is redundant…in the successful economies of the future like Britain, energies will be focused on helping people move into the next job.”

He said: “Britain will have to become a more flexible economy - more ready to change, with more local and regional pay flexibility, better equipped for the long term, with more focus on the jobs and skills of the future.”

Mr Brown didn’t drop the idealism, though, saying: “Britain will need a stronger sense of national purpose, clear long-term national direction and a sense of our destiny that will enable us to move beyond the old short-termism that held us back in the past.”