August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

When was the last time you worked out? What about the last time you had a chocolate bar? Is it the wrong way round? If so, you are with the majority. According to Deloitte, while the government worries about obesity, more and more of us are leaving the gym. During the year to June, membership of health clubs fell 53,000 to 1.42 million.

Adrian Balcome, leisure partner at Deloitte, said “The leisure industry, like all consumer-focused businesses is entering a tough time.”

Northern Ireland and the West Midlands seem to be the areas with the biggest problems, with membership declining by 7.6% and 6.5% respectively.

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August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

We will save a detailed look at this topic for a later date, but can’t let today go by without a reference to the tabloid newspapers, spreading their message of hate and intolerance.

Why do they always want to find victims, and why does their editorial look more like bully boy rhetoric with each passing day?

The fact is, immigration has boosted the UK economy. As Peter Spencer from the Item club recently pointed out, Immigration from Poland, by creating a greater level of supply in the UK, has helped keep inflation down, and as a result, the UK rate of interest is at least a quarter of percent lower than it would have been.

It’s quite ironic that as the tabloids try to talk up house prices, headlining every report that has prices up, they should take such a short sighted and economically ignorant view of immigration, something which has helped keep house price inflation going.

The biggest trouble with immigration from Eastern Europe, or so it seems to us, is that the phenomenon is likely to be temporary. First of all, most immigrants say they only plan to work here for a year or two, and it seems likely that as their home economies take off and offer more opportunities, they will return home faster than they came here in the first place.

Secondly, Eastern Europe sits on just as serious a demographic time bomb as the west. Their population is aging too.

Here’s the real sticking point. For Europe to continue to support its retirees, there is a simple choice to make - either import supply from developing economies that have a youthful population (Africa, Continental Asia, SE Asia) and get over the xenophobia, or prevent the free movement of a global workforce and end up with a country that is neither integrated with the global economy, nor able to take care of its elderly.

Ultimately, we can but wait for positive tabloid comment on the subject, but we’re not planning to hold our breath in the meantime.

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August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

The UK supermarket sector was firing on all cylinders in the 12 weeks to 13 August. It grew by 6 percent, the best 12 weekly growth period since August 2004, said TNS recently.

Combine that with what TNS described as the “…collapse of the Kwik Save fascia, which has dropped from 1.7% share a year ago to 0.2% now…” then the other supermarkets found themselves with their best opportunity for growth for some time.

Waitrose and Aldi saw the fastest growth, expanding by 12% and 16% respectively, although they were both helped by recent acquisitions. It’s harder for Tesco, of course, with its massive market share, growth is becoming more elusive. Even so, the retail giant increased its market share from 30.3 percent a year ago, to 31.6 percent.

Sainsbury enjoyed another good period, seeing 8 percent growth, with its market share rising from 15.7 percent to 16 percent. Its rival for second place in the supermarket league Asda saw its market share stay unchanged at 16.6 percent.

“The Kwik Save break-up has also benefited Somerfield with further fascia changes lifting their share to 4.4%, a level not seen since March 2000,#148; said TNS.

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August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Uneasy lies the head that wears the crown exclaimed Henry IV, or at least Shakespeare reckons he did, but then maybe the same principle could be applied to Apple Computers.

It rules the music download industry with no serious contenders to challenge its dominance. But there are plenty of would be kings lurking. Nokia for one, which recently bought Loudeye Corp, the world’s largest music distributor, or Microsoft with its Zune product, planned for launch soon, which will provide FM radio.

The battle over the next couple of years will be fought over several fronts. The Mobile phone companies are crowding in. Then there’s talk of MP3 products, including the iPod, boasting Wi Fi and the opportunity to offer Internet radio, and the ability to buy tunes heard from the radio.

Then of course, there the big video opportunity, as many players in mobile phone industry all look towards 2007 as the year of video for mobile.

But now, a threat has emerged from another quarter. And, strangely it’s from Universal Music, the world’s leading music company, which is looking at offering free music over the Net - or at least that’s what the FT says.

Of course, Universal, along with its main rivals in the music business have blamed internet piracy every time they make a disappointing profits announcement. So is it a case of game-keeper turned poacher? In a way, perhaps it is. For, according to the FT report, Universal is planning to fund the free model through advertising.

It’s a bold move, and one that could really make the likes of Apple sit up.

But we would like to make this observation. While the music industry blames piracy for its woes, in some ways it was the architect of its own crisis. It was too conservative in the choice of acts it signed up, often leading to accusations that the industry was stifling innovation. The Internet has in part changed that, with many top acts coming from the Net, with word of mouth their main marketing weapon.

It won’t be easy for Universal to embrace the medium of anarchy and innovation.

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

August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Across the Anglo Saxon World the housing market seems to follow the sun. The cycle tends to kick off Down Under followed by the UK some 12 to 18 months later, with Uncle Sam’s market coming last. If we want to know what is going to happen, then a look at the market in Australia gives a good indicator, while in the US they often take a look at the British market.

Except, that is, for this. While the UK has got away with a soft landing - so far - talk of a crash is getting more urgent on either side of the Pacific pond.

According to a recent article in Sydney Morning Herald house prices are falling. The article cited as an example a property in Sydney which recently sold for $260,000, 42 percent less than it was bought for in 2003.

Meanwhile, this weekend, the Observer business section led with the headline “US housing slump fuels crash fears.” It focused on a report saying that the number of new homes sold in July were 22 percent down on a year earlier, and quoted Paul Ashworth, chief Us economist from Capital Economics who said “Freefall is a strong word, but I think it’s the right one to use here.”

In fact, economists are beginning to bandy about a nasty word when describing the US economy at the moment: recession. The same Observer report also referred to a recent prediction from Stephen Roach, chief economist from Morgan Stanley who reckons US growth will drop by 2 percentage points next year, thanks to the weak US property market. In the second quarter of this year, the US economy expanded by an annual rate of just 2.5 percent, which was half the rate enjoyed in the previous quarter. A further 2 percent off that, and the US will be dangerously close to experiencing the R word again.

These worrying sentiments, are not just restricted to Morgan Stanley. Liz Ann Sonders, chief investment strategist at Charles Schwab Co. in New York reckons the chances of a US recession next year are 50-50.

A US slow down was always inevitable. The US consumer could not possibly continue to prop up the global economy by spending borrowed money for much longer. The hope was that as the US took its feet off the consumer spending pedal, Japan and the EU would take up the slack. But recent evidence suggests that even the Eurozone recovery seems to be slowing.

We will report on the latest data when it is available, but the fear has to be we are returning to an environment of sluggish growth and rising inflation. That would spell an era of higher interest rates at a time when the economy badly needs lower interest to kick start demand.

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

August 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

When companies grow at a near exponential rate there’s danger lurking. Markets always seem to overdo things, and when growth finally slows (as it inevitably does) many investors are often left holding stock they paid too much for. Clearly investors in Google and eBay have been vulnerable to this threat from some time, and that’s why any hint of a slow down often leads to sharp falls in the share price.

For Google, the problem is this. So strong is its position in the internet advertising market that it is beginning to lose scope to grow within the industry. In fact, in the years ahead it’s likely to see growth restricted to the rate at which the industry expands. But, for all that, so far so good, as there have been few signs of a slow down in the company’s extraordinary growth in profit.

For eBay, the threat seems imminent. In its last quarter, profits came in at $250 million. That’s less than the results from a year earlier of $291 million. In fact, the company engaged in share buy backs recently, a practice usually restricted to mature stocks with only modest growth to look forward to.

But yesterday and this morning saw announcements from the two companies that could keep Google on its growth trajectory for many more years, and could see eBay return to the fold as one of the world’s sexy growth stocks.

The two companies are to club together with a joint venture. Google ads will feature on eBay pages viewed outside of the US (the auction company already has a deal with Yahoo for advertising on its US pages). But, perhaps more interestingly, the Google eBay partnership will entail what’s called click to call advertising. Customers will be provided with the opportunity to ring advertisers using VoIP, just by clicking the ads shown.

Both Google and eBay have their own VoIP technology and, theoretically, the click per call venture will support formats from both companies. In practice, however, it seems likely that the eBay owned Skype service will carry the most weight, and indeed some are interpreting the deal as a sign Google is ceding the VoIP market to Skype.

Meg Whitman, president and chief executive of eBay said “By combining the power of eBay in ecommerce and Skype in communications with Google’s leadership in search and advertising, we can increase the usefulness of the Internet for shoppers, merchants, and advertisers around-the-world.”

Eric Schmidt, Google’s chief executive added “This agreement underscores how much we value eBay as a partner. Our technologies will allow us to connect users to relevant advertising across eBay’s international properties. By working together to promote click-to-call functionality through Google Talk and Skype, we are offering advertisers one more innovative way to connect with customers.”

It’s a significant deal for both companies. For Google it represents a new way to generate advertising revenue and for eBay it provides added scope to monetise its Skype asset.

When the company bought Skype many asked how the VoIP platform was going to make money - after all it’s free amongst users. Yesterday’s announcement goes some way to answering that question, and shows how for Internet companies revenue tends to follow innovation, even if it’s not obvious how this will happen at first.

But Google is nothing if not a multi-tasker. And it was not content to limit itself to the eBay announcement this week. It has now revealed details of a new software product. While Yahoo seems to be the main victim of the Google eBay announcement, Microsoft is seen as the big target for the software launched. With Microsoft’s Vista delayed, Google’s suite of products will come in two versions - free (read funded by advertising) or paid for, to be launched later in the year.

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

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

The conclusion of a new report, is so staggering that it
needs time for the true ramifications to sink in. According to debt advisors and solution
providers, Thomas Charles, there are 1.7 million adults in the UK with debt problems,
and no less than one million of them are “quite likely’, ‘very likely’ or ‘ certain’ to declare
themselves bankrupt or take out an IVA (Individual Voluntary Arrangement).

The research, conducted by YouGov in April, established that 19 per cent of the adult
population, around 8 million, has unsecured debts of £10,000 and over. The research focused in
depth on a sample of 1366 adults, with high levels of unsecured debt, from this group and revealed
a worrying picture of debt repayment problems and likely personal insolvency.

Thirteen per cent of those interviewed said they were ‘quite likely’, ‘very likely’ or ‘certain’ to
declare themselves bankrupt or take out an IVA. This equates to over one million adults across
Great Britain. The latest figures from the DTI show that there were 78,000 personal insolvencies in
England and Wales last year, and recent forecasts have predicted this figure will soon reach
100,000. Even allowing for the fact that the DTI figures do not include Scotland (about 9 per cent of
the UK), the latest Thomas Charles research suggests that this figure could more than double in the
next few years. Another key stat supporting this concern is that 11 per cent of respondents have
already sought help from a debt solutions company, equivalent to 900,000 nationally.

In most danger are those living in rented or council houses, with the research suggesting 28
per cent of this sector are close to insolvency. Also indebted, are the divorced, those living in
Scotland, and, perhaps surprisingly, as this is such a broad category, - females.

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

They criticize Gordon Brown for making things complicated. Means testing is held out as an example of a measure that costs too much to administer - or so some say, and the flat taxation brigade site these costs of administration as one of the big benefits of imposing a one for all tax system. But on Friday, the Office of National Statistics revealed the other side to the argument. Cash benefits, such as Income Support, Child Benefit, Incapacity Benefit, and the state Retirement Pension are making the distribution of income in the UK, a lot more even.

Back in the ’70s and early ’80s, the gap between the rich and poor before taxation was smaller. But under the Thatcher era this slowly changed. By 1987 the average income of the wealthiest 20% of the UK populace was 21 times greater than the poorest 20%. Today, and despite massive city bonuses reported in the press most weeks, the difference is sixteen fold. Apparently, the average salary for the top 20% is now £66,300, but just £4,300 for the poorest 20%.

But after taking into account the effect of taxation and benefits, it’s a much closer call. And it’s benefits, rather than taxation that has the main distribution effect. According to our official compiler of statistics, cash benefits make up 60 per cent of gross income for the poorest fifth of households, 36 per cent for the next group, falling to 2 per cent for the top fifth of households. And after the effect of taxation and benefits is taken into account, the ratio between the top 20% and the bottom 20% is just four to one.

Apparently taxation has little effect. Although income tax is progressive, meaning the more you earn the more you pay, VAT tends to hit the poorer harder. In the year just ended the top fifth of households paid 25 per cent of their gross income in direct tax while the bottom fifth paid 10 per cent But this distributive effect, was partly cancelled out, by the impact of indirect taxes. For the top fifth of households, indirect taxes account for only 11 per cent of gross income, compared to 27 per cent for the bottom fifth.

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

How can you reconcile these two pieces of information? The number of individual insolvencies has soared, more than doubling over the last two years, and yet average disposable wealth is rising rapidly too, (although admittedly not quite as fast as debt) seeing a 7% jump in the last year.

There are no prizes for guessing one cause for the rise in debt. We have been borrowing too much, the buy now pay later culture, the plethora of TV ads trying to persuade us to put it on credit, has led to irresponsible borrowing - or is it lending? It was obvious it would end in tears; it always does.

And yet, is the UK plc worse off as a result? It is largely thanks to our overspending consumer that the UK avoided recession at the beginning of this decade, and as an aside, remember it’s our Anglo Saxon cousins across the pond taking an even more relaxed attitude to debt that is propelling the world economy forward. As an advertisement for the economy might say: ” the cost of borrowing: the rate of interest; the cost of the UK avoiding economic recession - priceless.”

Some say that the real reason for the number of bankruptcies is the loosening of rules concerning personal bankruptcy. They say it’s easier to go bankrupt today, therefore the number is rising. But that claim is not, in our view, borne out by the data, since individual voluntary arrangements, (IVAs) in which interest payments are often frozen and debt reduced in return for a monthly payment being made, are increasing at a much faster rate than the number of bankruptcies.

Some would argue that actually it’s all a symptom of the same problem. IVAs are up because these days the media is awash with companies promoting their ability to solve “your debt problem,” whereas in the good old days, people just struggled on, making their payments - somehow. The rise in the number of bankruptcies is a symptom of the same problem - goes the argument - we as a society are softer on debt.

And yet…According to KDP, the average disposable wealth available to British households has topped £40,000, for the first time ever. Disposable wealth is defined as savings, shareholdings and housing equity net of mortgages and other debt. Apparently, in the South East disposable wealth is now £68,534, £63,548 in the South West, £53,030 in East Anglia, £36,574 in the Northeast, £31,369 in the Midlands, £30,834 in Wales and a mere £30,756 in the Northwest. The average Londoner has £81,732 of wealth at his or her disposal.

Actually, it’s quite easy to reconcile the two figures. It’s partly down to the rise in house prices - and it’s partly down to the fact the UK economy has been doing pretty well over the last few years. And you can’t ignore the fact that high borrowing, including individuals taking out mortgages up to the hilt has been behind all this.,

In short, debt and wealth could be added to that song from My Fair Lady; “It goes together like love and marriage.”

But there is another point. For the UK to truly move up the value chain, for the UK to compete on the world scale, it needs entrepreneurs, and by definition, these people are risk takers. A softening on the law regarding personal bankruptcy might encourage some to borrow irresponsibly, but it will encourage others to take business risk. Those who argue against limiting risk for our entrepreneurs are like those who argued against the move down from the trees a couple of million years ago.

August 25, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

We have been staring into our crystal ball, or to be more precise, PricewaterhouseCoopers have been getting their slide rules out to predict what the global economy will be like in 2050. The conclusions: over the next 45 years India will be the fastest growing economy, and by one measure at least, China will overtake the US and becomes the world’s largest economy. As for the UK, by 2050 it will be relegated to eighth or ninth place behind the US, China, India, Brazil, Japan, Mexico and Indonesia. Projections suggest the British and Germany economies will be roughly same size by then.

The PWC report also said that the seven new emerging superpowers of the world economy (that’s China, India, Brazil, Mexico, Indonesia, Russia and Turkey) will boast a combined economy which is larger than the current G7.

GDP data is a little like a cat’s hide. You can skin the figures in more than one way.

The obvious method is to measure GDP by a currency, say the dollar. But that method doesn’t always tell the true story. Sometimes goods, and in particular services, are cheaper in some countries than others. Over time the gap should be closed for some products by the effect of competition and the Internet providing almost perfect information. But, for some services, such as a haircut, the international price mechanism for levelling prices just doesn’t work. And to take account of this, PWC uses a measure known as Purchasing Power Parity. It concluded, by the PPC measure China’s economy is already five times bigger than the UK’s, and India’s economy overtook the UK some time ago. And by the Purchasing Power Parity index, China will be almost half as much again bigger than the US by 2050, and the Indian and US economy will be the same size.

By 2050, the Russian and French economies are expected to be of a similar size, and Turkey is expected to have caught up with Italy.

This does not mean, of course, that the average Chinaman will be wealthier than the average citizen of the US. GDP per capital looks at average Gross Domestic product. And by this measure, of the world’s 17 largest economies, the UK will have the second highest GDP per capita. It’s currently in third place, behind Japan.

A key factor behind the projected growth is expected changes in population. India, followed by Turkey and then Brazil are expected to see the biggest percentage rise in working population. Japan, South Korean and Italy will see the biggest fall. But the current eurozone should see big falls across the board with France, Germany and Spain all joining Italy with a substantial percentage shrinkage in the size of the working population.

But the US is expected too see working population growth, whilst back in Blighty, the change is expected to be neutral, with neither growth nor contraction.

Bear in mind, that these population figures relate to the absolute size of the working population, and take no account of working versus retired population.

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