July 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

This is the week that the Bank of England and European Central bank will have their say.

Another month has been and gone, and on Thursday we will learn what the interest rate wil be over the next month.

Pity the poor older members of the ECB. They normally get August off, but this time around they will be deliberating and discussing. Last month, when the bank chose to keep rates on hold, it said that will be meeting up again in August - unlike, in previous years, and markets took this as a sign that a rate rise was sure to be announced. Most pundits expect rates to rise to 3 percent.

Meanwhile, most expect the bank of England to keep rates on hold, again - the last time UK rates were changed was in July last year

But while the majority expect rates to stay on hold, some economists expect a rise

With inflation picking up and with signs of a High Street recovery, many fear rates rises are inevitable, and that if August sees no change, then it is just a matter of time before they do go up.

Conversely, others argue that the higher inflation we are seeing at the moment was predicted by the Bank of England, and that core prices, that’s with food and energy taken out, are still modest.

The general feeling is that the UK economy is set to slow down in the second half of this year. But will inflation ease with this slowdown. If it doesn’t, and the bank is forced to raise rates when the economy is slowing - then the economy will suffer a nasty shock.

Watch this space

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July 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

History tells us that the housing market cycle begins in London. Last year, while London and the South East saw only modest prices rises, areas such as the North East enjoyed a boom - classic final throws of a bull run. Now, it’s gone the other way. Is it possible, that this time, we have missed the downturn altogether, and that we really are at the beginning of a new boom? Is it really possible that the great house price-crash of the second half of this decade, will be consigned to the dustbin for false economic projections?

The latest data from Hometrack would suggest this is the case. House prices rose 0.6 percent in July, says Hometrack, taking the annual rate up to 3.2 percent, that’s the highest rate of annual increase for 18 months.

Examine the data more closely, and you see the signs of a new cycle written all over it. Prices in London soared by 1 percent, but in the East Midlands prices were static, with the area recording zero inflation, while Yorkshire and Humberside saw a modest 0.1 percent rise.

Richard Donnell, director of research at Hometrack said “‘The survey shows there is strong market activity - such as in London - but in reality across two thirds of the country house prices remain unchanged.”

With the well publicised shortage of new houses, and with immigration, theories abound about how house prices will rocket. Recently, for example, a study by Oxford Economic Forecasting said that the average house prices are set to soar from £195,000 in Q1 2006 to £286,500 in 2011.

The current evidence might appear to support that view, but sometimes appearances can be deceptive. And we suspect, we are seeing a good example of this.

Thanks to low inflation, your typical 25 year mortgage is much more expensive, for any given rate of interest, than we have previously seen in modern times

It’s more expensive over 25 years, but, thanks to low rates, often cheaper in the short term.

And when things cost more over a long period of time, it takes longer to feel the full ramifications. But feel them we will, - eventually.

And peer below the headlines, even the Hometrack report was not all bullish projections. The data also revealed that July saw a 0.9 percent decline in the volume of new buyers registering with agents. It was the first decline seen this year.

Low inflation has distorted the market. The lower rates that come with low inflation promote higher house prices in the short turn. Lower inflation in the long term makes mortgages less affordable. But because the phenomenon of low inflation and low rates is still relatively new, the new pattern is still only emerging.

Investment and Business News is a succinct, erudite and informative roundup of today’s top news stories on business and the economy, with analysis thrown in. It’s free, and to subscribe: visit this link

July 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

When all around they have been saying their free service is the cheapest, BT has been sitting on the sidelines, talking about quality. For BT, the snag with using price as a key marketing tool is this: the regulator. While competitors offer free services, and slash prices, the regulator has forbidden BT to follow suit. Some would argue this was necessary, to help counteract the legacy of its former monopolistic power. Although many staff at BT have described it as living under the tyranny of regulation, and to them, it has felt like a straight jacket, with the company unable to implement the bolder ideas discussed internally.

But from tomorrow, the former state controlled telecom power will be freed of Ofcom’s shackles and able to compete on price.

BT slashing prices, that’s good news for the public isn’t? Well maybe, but some fear, the company will reduce the cost of calls, but up line rental, effectively funding price cuts by charging more to the basic user, often on a low income.

You can imagine the headlines: “BT takes from the poor, to give to the rich.”

In practice, however, price competition with line retail is just as fierce, and BT has pledged to minimise the increase in the cost of its basic service.

But, in the broadband prices wars the handcuffs are still on. Ofcom is still maintaining restrictions on BT’s broadband pricing, forcing it to remain a bystander in the battle to offer free fast Internet access.

While the great broadband virtual land grab moves ahead, BT looks like just another player. Its BT Vision service is ambitious, but means it’s going head to head with marketing experts BSkyB and NTL - a tough market, although, we have a certain respect for the company with its plans.

But while attention focuses on the mass market for broadband, BT is frying a much bigger fish, one that makes use of its key strength, its formidable RD facility at Martlesham.

The technology that really could catapult the company back into poll position in the UK telecom market is WiMax. Hailed as the eventual successor to Wi Fi, its exciting technology that could enable wireless broadband Internet across cities and ultimately, threatens to undermine the mobile phone network providers’ business model.

This weekend, we learnt that Motorola is trailing a WiMax network in Tokyo.

The Motorola move is exciting, but shows just how far away we are from mass market availability. And that brings us to the biggest snag with WiMax. Its technology that has been touted and discussed for some time, as a result, to some, it feels like old news, and technology that has never materialised. This has created a degree of flippancy, in the city.

But, its ultimate success is a certainty, and expect fireworks- eventually.

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

Where do you stand on holidays in the sun and global warning? We know what the Bishop of London thinks, recently he said “Making selfish choices such as flying on holiday or buying a large car are a symptom of sin. Sin is not just a restricted list of moral mistakes. It is living a life turned in on itself where people ignore the consequences of their actions.”

Yesterday, Ryanair’ boss, Michael O’Leary, not a man known to hold back even at his worst, had this to say:

Speaking at a press conference he said “The Bishop of London has got empty churches - presumably if no one went on holiday perhaps they might turn up and listen to his sermons. God bless the bishop. The bishops have got their own crosses to bear. Goodness knows what he would know about greenhouse gases. He was obviously at some dinner party with the chatterati.”

Apparently, air travel isn’t the problem at all. According to Mr O’Leary 25 percent of global warming is caused by animals, most notably methane from widespread and industrialised cattle farming. To O’Leary, a world full of vegetarian jet-setters must be Nirvana; we await his conversion to Hinduism with much anticipation.

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

Inflation in the Land of the Rising Sun seems to be settling in nicely. It seems strange to celebrate rising inflation, but in Japan, prices going up is like a breath of fresh air - after a decade of deflation. In all, consumer prices rose 0.6 percent in June, from 12 months ago. It was a similar story last month.

That’s hardly runaway inflation, but even so, it’s enough to make further rises in the interest rate likely to follow.

It’s an odd quirk of economics. For years, economists have been bemoaning the Japanese economic malaise, saying that if only the world’s second largest economy could shake off the demon of deflation, it could help propel the global economy forward.

Now this is happening, some are panicking. Why? Because it marks the end of the carry trade, where individuals and organisations borrow from Japan at rock bottom rates, and lend overseas. Some fear that as rates rise in Japan, we will see the end to cheap and easy credit, spelling doom for consumer spending, and house prices.

They are right to worry, and yet we shouldn’t all sell up just yet.

Long term economic growth is built on a foundation of fundamentals, not on reckless borrowing, which feeds property prices and creates the illusion that our borrowing is within reason, because it is backed by a strong asset price.

No period of economic growth can be sustained simply by consumer borrowing. An end to the carry trade could spell economic problems in the short term, but only in the sense that it will cause our economic chickens to come home to roost.

In the long term, we need a successful Japan. An end to deflation will help boost international trade, and will be a key factor in helping the Anglo-Saxon world grow through exporting products and services, rather than through increasing our debt pile.

Investment and Business News is a succinct, erudite and informative roundup of today’s top news stories on business and the economy, with analysis thrown in. It’s free, and to subscribe: visit this link

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

Are the profits posted by oil companies excessive? Should they be taxed up to the hilt, so that Joe Public can see some return on the exorbitant prices paid for petrol?

It’s perhaps not surprising. After all, with oil up there in the $70s, Exxon Mobil has just posted second quarter net income of $10.4 billion. That’s the second highest level ever achieved by an American company. The highest ever level of net income was $10.7b, set six months ago by, yes you guessed it, Exxon Mobil.

Royal Dutch Shell did not do so bad either, it’s net income came in at $7.32bn, a whisker ahead of BP’s $7.27.

There has been talk of late that BP is looking to merge with the Dutch-Anglo oil company. But, yesterday, Shell’s boss van der Veer ‘no commented’ all question posed by the press on that subject.

In fact it’s not all roses at Shell. While profits are impressive, the company was forced to make a $1/2 billion provision for legal action relating to the overstatement in oil reserves.

With these massive profits, there is no doubt that calls for a windfall tax will grow. Equally, it could be argued that right now with energy costs rising so fast, the oil giants need profits to fund investment into further oil exploration, and into exploiting other forms of energy.

BP’s Lord Browne recently said he believed there was more oil lurking in the oil sands of Canada than has yet been found throughout the world, ever. But extracting oil from these sources is very expensive, and requires massive initial investment.

With China’s and India’s thirst for oil and other forms of energy growing so fast, the global economy needs more finds, and alternatives to oil. A windfall tax could do little more than penalise us all, in the years ahead. It is clear to us that with record profits, oil firms are likely to be able to make record investment; perhaps the best thing for Joe Public is to let the experts in energy make their decisions without interference, in the hope that Browne and van der Veer use the money to progress the inevitable conversion to renewables. Oil is too useful to burn.

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

Here’s one to make the accountants rub their hands together, and up their charges. How about including brand value in a company’s balance sheet? And before the accountants amongst our readers say “we already do” let’s point out an important point. Apparently, current accounting standards allow only for the recognition of acquired brands, not internally developed brands.

Coca Cola’s brand is worth a staggering $67 billion, and is still the world’s leading brand, ahead of Microsoft and IBM, says Interbrand.

It won’t surprise you to learn that Google has seen the fastest improvement in the value of its brand over the last year, jumping to 24th place, with Starbucks (91st place) and eBay (now at 47th place) the second and third fastest risers in Interbrands top 100.

But just as impressive was the performance put in by Nokia and Toyota. Sure, neither of the companies saw their brand value increase in percentage terms to the same extent as Google, eBay or Starbucks, but then as they were already in the top ten, it was always going to be harder for them to grow so fast.

They were, however, the fastest risers in the top ten.

Of late there have been signs that Motorola is slowly chipping away at the Finnish company’s share of the mobile phone market. While that may be so, and certainly helped by its “Hello Moto” ads, the company did see a big improvement in its brand value, but then again, while Nokia occupies a lofty 6th place, Motorola is way down the pecking order at 69th.

Of all the car manufacturers, Toyota is top in 7th place, Only Mercedes in tenth, and BMW in 15th put up any serous rivalry in the brand stakes. Honda is 19th, while Ford languishes at 30th.

That’s all very well, but how do Interbrand decide these things? This is what they say: “We identify the revenues from products or services that are generated with the brand. From these branded revenues we deduct operating costs, applicable taxes and a charge for the capital employed to derive intangible earnings. Intangible earnings are the earnings that are generated by all of the business’s intangibles, including brands, patents, RD, management expertise, etc…through our proprietary analytical framework, called #147;role of brand#148;, we can calculate the percentage of intangible earnings that is entirely generated by the brand. In some businesses, e.g., fragrances or packaged goods, the role of brand is very high - as the brand is the predominant driver of the customer purchase decision. However, in other businesses (in particular B2B), the brand is only one purchase driver among many, and the role of brand is therefore lower. For example, people are buying Microsoft not only because of the brand but mostly because the company has an installed base of 80% of the market and it would be for most users extremely difficult to switch their existing files to a new software platform.”

There are, however, some noticeable absences from the Interbnand list. It only includes PLC’s, so that means no inclusion for Mars (privately owned) and no BBC. Visa and the Red Cross are also excluded.

According to Interbrand in 2006, the top ten brands, the value of their brand in $bn and percentage change on last year are as follows.

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Best Global Brands 2006 Interbrand

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

Have you ever tried speaking to technical support at your broadband supplier? One of our readers recently told us of his experience with Talk Talk, running up a £60 mobile phone bill just trying to speak to them. But then the problem is not unique to that company. The author of this article once found his will to live severely tested after giving up the best part of the day trying to get BT’s technical support to answer some fairly simple questions.

We know that Carphone is worried about poor service. Its boss Charles Dunstone has said so. Similar problems at Bulldog eventually led Cable and Wireless to decide to shut the operation down.

And yet issues with poor service can work to a supplier’s advantage. Try switching. By the time you have finished listening to automated voice systems, your ears will be ringing. It’s tempting to give up and stick with your existing supplier.

That’s got to help churn, and one of the reasons we say for a supplier, barriers to exit are fairly high in the industry.

But, to the consumer’s rescue comes Ofcom. It’s conducting an investigation into the whole practice at the moment, results out soon.

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

It’s good see two British tech companies posting results to make you sit up. We are so used to reading about extraordinary growth from companies based on the other side of the pond, that is makes a pleasant change to hear that British techs Wolfson and CSR are both making the money men very happy indeed.

The two companies both supply technology to bigger well known brand oriented companies.

Wolfson, for example, a 20 year old Scottish business that specialises in providing chips to turn digital signals into sound, is cashing in on the growth of MP3 players. Its technology sits inside the iPod, and the market number two, Zen from Creative.

Meanwhile, CSR knows its Bluetooth. It designs Bluetooth technology for well known mobile phone companies, for example, and recently secured 20 Samsung design wins, 10 Nokia design wins, 5 LG design wins and 2 Motorola design wins.

The two companies occupy healthy positions. As B2B players, they are protected form the cutthroat world of consumer competition.

And as for the results: Wolfson saw profits double, hitting $11.5 million in the latest quarter, while CSR saw revenue for the first half of 2006 rise by 97 percent with operating profit jumping 127 percent to $66.2 million.

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

According to CIPS and the Office of National Statistics, British manufacturing is enjoying a mini renaissance, but according to the CBI, order books are still down on a year ago. But even the CBI, the bears of the manufacturing business, are looking decidedly optimistic about the future.

According to the latest CBI industrial trends survey, the difference between the number of manufacturers saying order books are up on a year ago, and those saying were down is minus 11 percent. It’s bad that the index is still negative, but according to our record of the CBI index, its the best score since February last year.

But the real hope comes from exports. According to the CBI “Export orders, by contrast, rose for the first time in a year, with a balance of seven per cent reporting an increase over the past three months. This was driven largely by demand for intermediate goods such as components, parts and building materials. A balance of 13 per cent of firms expect export orders to increase over the next three months; if this expectation is realised, this would see the fastest growth in export orders since 1995.”

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