August 24, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

And so the butterfly flapped its wings and set off a chain of events that would affect the weather on the other side of the globe. The butterfly effect is the idea that in a system a small localised change results in an unpredictable and disproportionate disturbance across the entire system. The principle applies to economics, and this time the relationship could stretch from the Bank of Japan to house prices in the UK and US.
Advocates of the idea that the housing market is stable and that we are now in for only small inflationary rises in the sector often base their belief on the idea that house prices are determined by the supply and demand of properties. With the population growing and more people living on their own, coupled with the relatively rate of interest that we are expected to enjoy for the foreseeable future, there will be no crash in house prices, or so goes the argument.
We have often questioned this, arguing that in the modern environment of low wage inflation, it will take many years of low house price inflation before the ratio of house prices to average income returns to the historical average, and that throughout this period we are vulnerable We have also suggested that in the long term paying off a mortgage is more expensive than it used to be, because in the past mortgages rapidly become cheaper over time as wage inflation meant that income rose year in year out, while mortgage payments stayed the same.

When we combine these two arguments we see potential pit falls ahead for the market. Without a crash in prices, average price to average wage will remain high for many years and in the long term a mortgage is more expensive today than it used to be. Any kind of one off shock, and the property market, rather than being built on the solid foundations of low interest and a shortage of housing, could look more like a house of cards.
And maybe, such a shock is just around the corner. The butterfly in this case is the Bank of Japan.
We said above that price is determined by supply and demand. But maybe, in the case of the UK housing market, it’s the supply and demand of credit, rather than houses that sets price.
And let’s face it, credit is both cheap and easy.
While first time buyers are looking like an endangered species, the Buy to Let Investor seems to be making a return. According to the Council of Mortgage Lenders, “Mortgage lending to Buy to Let investors leapt an impressive 47% by value in the last six months of 2005, compared to the first half.” There’s also been relaxation in lending criteria, and the average maximum loan to value ratio jumped from 80% in 2004 to 85% in the second half of the year. Back in the year 2000 the average ratio was 76%. Lenders don’t expect income to be quite so high either. They are now willing to accept an average income of 25% of mortgage payments, whereas they previously wanted 30%.
Some argue that the fundamental reason why cheap credit is so easy to obtain lies in the incredibly low rate of interest in some countries and in particular in Japan. In the economy of the rising sun the rate of interest has recently moved from zero. Zero, or near zero interest, has led to a practice known as the “carry trade.” This is where speculators and markets borrow at a very low rate, and then lend in other countries where the rate is much higher. This in turn, goes the argument, has created the bubble in bonds. With government bonds now paying such a low return low risk investors who like to invest in this area, are realising such a low return that the policy of bond investing is actually looking quite risky.
So, they look further afield, look for other ways to lend, and ergo, it’s suggested, mortgage lenders make it easier for Buy to Let Investors.
But with Japan overtaking the US in GDP growth, with the country seeing back to back inflation for most of this year, many expect a run on Bank of Japan’s increases in the rate of interest.
And that many say, will spell the end of the “Carry Trade.”
Some argue that equities will be the casualty, others, oil, but for our money, to see which causalities will be first, look for the bubbles. And there are two major bubbles at the moment: bonds and house prices. And the implosion in the former could lead to a crash in the latter.

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

style=”color:#35;333333″gt;Some predict doom for the pub trade. Smoking has been banned from pubs, restaurants and that public place where you like to relax. The pro smoking lobby and David Hockney predict the end of civilization.

Much of the fears from the pub trade relate to the Irish experience.

Recently at a gathering of the Scottish pub industry, Tadg O’Sullivan, chief executive of the Vintners’ Federation of Ireland, said that the ban in Ireland had been an “absolute disaster” for publicans, with 600 closures and 12,000 mainly full-time job losses. In fact the Licensed Vintners Association has released figures showing that in Dublin sales rapidly fell by 16% and employment levels reduced by 14%.

Erudite artist David Hockney put it in more personal terms, when in a recent letter to the Guardian he said: #147;Gordon Brown is a P.R.I.G. prig, a dreary atheistic Calvinistic prig, who I’m sure will never be elected in England. He goes along with a “health lobby” whose view of life itself I detest.#148;

#147;I have utter contempt for it. I feel I am entitled to my opinion. I don’t mind prigs but when they want to take my little corner as well, I have a right to argue against their dreary view of life contaminating mine.#148;

#147;This utterly over the top legislation is tyrannical (mine Host gone for a Burton) and is spreading a dreadful intolerance.#148;

Reading between the lines, and allowing for the language of diplomacy then, we deduce that Mr Hockney is against the ban.

Yet there is another side to the argument. According to the Irish Central Statistics Office, bar sales in Ireland have continued to rise steadily since the ban. And according to the office of National Statistics, 20% of people said they would visit pubs more often if smoking was restricted, while only 4% would visit less often.

In the UK, press attention has been focused on the Irish experience, but while the world - and Dame Edna at the closing ceremony of the Commonwealth Games criticise Americans for not considering the outside world, it does seem that the UK press is equally guilty of not taking into account what happens Stateside.

In fact the US experience has been quite different from what the pessimists expect in Scotland. Smoking was banned in New York, for example, on March 30 2003 and a year on, business tax receipts from restaurants and bars were up 8.7 percent from the previous year.

In California, smoking was banned in 1997 and both restaurant and bar receipts have improved every year since.

As for Mr Hockney’s call for freedom to smoke, and the threat to our liberties the ban represents, it could equally be argued that smoking in pubs is a threat to the freedom of non smokers’ rights to breath clean air. And then there’s the health implications.

According to a report entitled “Lifting the smokescreen: 10 reasons for a smoke free Europe#148; published by the Smoke Free Partnership (not altogether neutral then) 79,000 people die each year throughout the EU as a result of passive smoking.

Just like smoking, going to the pub for many people is a habit. A habit that many non-smokers just don’t have. After a ban, gradually over time, we suspect a gradual influx of new regulars as they find the clean air pub habit.

But in the short term, it would appear that business will probably take a turn for the worse. And the pattern will no doubt be repeated in England when the ban is enforced south of the Scottish border.

And some pubs will struggle as a result, with many going out of business.

Our biggest fear is this. The pubs that survive will probably be the ones owned by companies with greater resources. And the danger then is more privately owned pubs being replaced by nationwide clones.

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

style=”color:#35;333333;”gt;Be grateful the health and safety boys weren’t here when we lived in the trees. Can you imagine what the risk assessment strategy people would have to say about the proposed move towards the Savannah? We would never have come down from the trees.

Do pass me another banana, would you? I’m not covered for grassland.

Sometimes it seems, in the modern business world, that risk takers are being paralysed by the cost of insurance. Schools are growing more reluctant to arrange field trips and some have even banned parent races on sports day. Similarly business appears to becoming risk averse to a degree that will surely see the West lose out to the burgeoning economic powers from the East.

And yet contrast that micro scale risk aversion with the extraordinary risks we take on a macro scale. Governments, and one government in particular, play fast and loose with the well being of future generations, taking a massive risk, which might not affect us now, but will surely affect our children and grandchildren.

This contradiction between risk aversion on a trivial scale and risk taking with the environment is probably explained by insurance. Insurance companies have to pick up the tab if something unlikely actually happens, and if you insure many thousands of companies, then a disaster with some clients is inevitable. They therefore insist that companies and local authorities take measures to avoid potential problems, even if the individuals witnessing their implementation see the chances of them being required as remote.

But on a global scale there is only one environment, which we all share. The costs of global warming are not obvious (although with the recent spate of hurricanes that could be changing) and while business costs relating to safety measures escalate, economists baulk at the costs of reducing global warming. In this one-off issue of Investment and Business News we try to find out who is right, and what are the options.

Last summer, British economic consultants Lombard Street Research issued a report in which it concluded the cost of measures required to avoid global warming would be in the region of $18 trillion (£9.9 trillion,) and that was a conservative estimate. The reports author, Charles Dumas said “This is orders of magnitude greater than the cost of dealing with higher sea levels and freak weather, net of land gains in Canada, Siberia and other cold areas in thousands of square miles.” He added “the proposed Kyoto treaty limits would in no way prevent global warming. In reality, nobody seriously proposes a cure for global warming, because adequate measures would cause economic catastrophe and probably world war.”

The view expressed by Lombard has echoes across the pond. Back in the late ’90s, Thomas Gale Moore of the Hoover Institute said that moderate global warming could actually make the US better off, and said “The costs of doing nothing appear to be quite small, and the costs of a commitment to limit the emissions or atmospheric concentration of greenhouse gases appear to be very large.” Around that time William A. Niskanen Chairman of The Cato Institute told the Senate Committee on Energy and Natural Resources that “My judgement, however, is that many political officials have over-reacted to this warning, and that many scientists have themselves been swept up in this momentum#133;there are too many scientific, economic, and political issues yet to be resolved, however, to support an early commitment to control the emissions of greenhouse gases. A global warming treaty in the next decade or so would be a rush to judgement.”

But these cynics of global warming spoke before last year’s hurricane season, and before a raft of reports were published talking about the Greenland ice shelf melting and polar bears going extinct - surely today, a consensus is emerging.

Yet, even in the last few days there have been plenty of arguments against being too hasty on climate change. According to The Rev Jerry Falwell, US TV show host and chancellor of Liberty University “global warming is an unproven phenomenon and may actually just be junk science being passed off as fact#133; In addition, I believe that so-called solutions to global warming - and particularly the Kyoto Protocol, which is the politically correct international agreement to fight greenhouse gas emissions - would devastate the American economy if adopted by our nation. Further studies have shown that costly efforts to stem greenhouse gas emissions would just barely reduce global temperatures. ”

Elsewhere is it was recently argued that while there is evidence for global warming, arguments this is a man made phenomenon are probably false. According to Senator Robert Pittenger, a Charlotte Republican and member of the N.C. Legislative Commission on Global Climate Change: “A study by Jager and Barry from 1990 found that over the past 1 million years, there have been eight periods of glaciers and ice caps advancing and retreating - all of this occurring without automobile and power plant pollution from humans. In fact, on a much smaller scale, there is evidence of warming and cooling every 1,500 years. Typically, proponents of global warming point to the past century following the increase in carbon emissions from the Industrial Revolution to present time and blame humans solely for the increase in temperatures. However, from 1860 to 1940 the climate warmed, followed by a cooling period from 1940 to 1975, and subsequently has warmed since then (Fred Singer, “Climate Policy from Rio to Kyoto”). Supporters of global warming have been unable to explain this cooling during a period of economic growth and increased output of carbon emissions.

Many in the US fear that the Kyoto agreement requires the US to cut back on global warming gases while the likes of India and China have carte blanche to pollute. It may be time for the US to seize the mantle of global responsibilty and lead by example.

Of course, while the US has its fair share of cynics arguing we are better to wait and see, here in Europe there is a general acceptance that global warming is fast becoming a reality, and we are in danger of leaving it too late to do anything about it.

In the Independent newspaper recently it was argued that we had already passed the point of no return, that the proportion of Carbon Dioxide in the atmosphere is already beyond the level of irreversible damage, and that we are now in a damage limitation phase.

The cost of last season’s hurricanes to the US economy is reckoned to be around $200bn. And it’s generally accepted that there is a link between global warming and the rise in the number and severity of the hurricanes. (hurricanes do after all have their roots in warm water.) Previously, we referred to Lombard’s view that the cost of measures designed to avoid global warming would be $18 trillion, so by our reckoning that means last years hurricanes accounted for 1% of that total already.

There’s another way of looking at. According to the International Strategy for Disaster Reduction there was an 18% rise in disasters in 2005, affecting 157 million people-seven million more than in 2004.

According to the well known global warming cynic, Bjorn Lomborg, the cost of implementing the Kyoto agreement would be $150-$350 billion globally every year. Yet, as was argued in the Jerusalem Post recently, this cost, compared to an expected global GDP of $600bn a year by 2010, is barely a blip.

Setting aside the costs of global warming, it seems to us, that even if global warming was not a reality, there are other overwhelming arguments in favour of looking for alternative means of generating energy.

The recent shocks to the global economy caused by the rise in the price of oil, are clear examples.

And while Lombard Street Research also argues that taking the measures to reduce global warming could lead to world war, is it not the case that current energy policy is also leading to global conflict?

Recently Russia’s decision to shut down gas supply to Georgia, violence in Nigeria leading to a reduction in oil exports from that country, threats and counter threats to and from Iran, are all obvious examples of how reliant the world is on supply that is far from stable.

Moreover, as global warming is likely to hit the poor hardest and first, is that not in itself going to lead to greater resentment in the developing world towards the West, which in turn increases the chances of conflict?

While the US focuses efforts on the war on terrorism, others try to remind us that many of today’s problems have their roots in previous policy, such as support for Sadam Hussain or the Taliban. Are we in danger of making the same mistakes over again?

It seems to us that if global warming really presents the danger that many think, surely the cost of doing nothing is too horrendous to contemplate. And if the scare mongers are wrong? Surely this would be analogous to a company implementing fire and safety procedures, only to find they don’t need them, today.

August 21, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

style=”color:#35;333333″gt;Do you remember the domino theory? During the era of 20th century US paranoia it was feared that that unless the West took action, one country after another would fall to the idealism of Marx. At the core there was a belief that communism was a kind of contagious disease spreading westwards from the Soviet and Chinese political regime of that time.
Ironically, a new kind of domino effect seems to taking hold. Yes, it has its roots in the former Soviet Union. Yes, it is powered by the economic threat posed by China. However, this time it’s not communism that is spreading, it is the purest form of capitalism.
In fact, it’s so pure that up to now not even the US has dared take the idea seriously. The contagiousness of this new mutation of economic idealism is powered by competition. Either embrace this new adaptation of economic fashion or natural selection will force you into the economic dung heap.
That, at least, appears to be the argument.
We refer to the concept of flat taxes. It was recently put forward by Steve Forbes when he ran for US President in 1996 which was firmly ridiculed at the time, with Bill Clinton describing the republicans as “the party of flat-earthers and flat-taxers.”
A flat rate of tax, according to Victor Keegan writing in the Guardian, is an idea which in an early guise, roused the wrath of Wat Tyler in 1381 when he led the peasants revolt against the government of Richard II, and an idea not dissimilar in concept to the poll tax, which ultimately proved the downfall of Margaret Thatcher.
Now, flat tax is back on the global agenda.
Estonia was first. Fourteen years ago, under the leadership of the then 32 year old Mart Laar, whose knowledge of economics was limited to a book he had read by the arch proponent of free markets, Milton Friedman, and who believed that flat taxation was the norm in prosperous western economies, introduced a flat rate of 26%. Today Estonia is an economic success story - inflation down from 1000% to 2.5%, unemployment from 30% to 6%, and growth at 6%. Today, the country has a flat tax rate of 23%, with a personal allowance of £877. VAT is 18%, the Estonia equivalent of NIS is 33% for employers and the self-employed, corporation tax is zero, and inheritance tax zero.
The idea has now been adopted by Latvia and Lithuania. Four years ago Russia joined the club and today Serbia, Ukraine, Slovakia, Georgia and Romania are all flat taxers.
Greece is planning to implement a flat tax system in 2007. Spain is considering the move.
In Germany, voters in the last election reacted badly to the apparent support given to flat tax by Angela Merkel’s Christian Democrats. As a result, Merkel squeezed through by a much smaller margin than was expected, and the flat-tax crusaders suffered a considerable setback.
In the US, the idea is at last gaining momentum. Back in 1996, a TV advertising campaign said that Steve Forbes’s proposals would lead to a collapse in house prices destroying his campaign - but with the economic tectonic plates on his side, the billionnaire is back, making the same arguments more forcefully than before.
Flat taxation saves a kings ransom in red tape, goes the argument.
The current system is unfair too, say advocates, because larger companies and wealthier individuals can afford more expensive accountants, and thus avoid tax. Under a flat rate, there is no avoidance - as a result tax receipts can go up - even if the average tax rate goes down.
But flat rate advocates are at heart also fans of lower taxation. As Steve Forbes argued recently: “Very simply, tax cuts work. Our nation’s (that’s the US) past experience with major tax cut initiatives proves this point — the Harding-Coolidge tax cuts of the 1920s, the Kennedy tax cuts of the 1960s, the Reagan tax cuts of the ’80s and the Bush tax reductions of 2003 all were catalysts for an economic rebound and robust consumer spending after people were able to keep more of what they earned. ”
But what about the UK? According to the Times, Simon Sweetcorn, vice-chairman of tax at the Federation of Small Business, says that members’ compliance costs often exceed the amount they pay in taxes.
The Telegraph reckons that the treasury’s study into flat taxation was fudged. You may recall, that when the study was published it was disparaging about the idea- now it has emerged that before the report was published a section entitled #96;Efficiency and Compliance#96; was edited out. The unedited version said “The driving concept behind flat taxes is the idea that the effect of eliminating distortions on the tax base is sufficiently large to enable a lower rate to actually maintain or even increase revenues. The reduction in rates and thus, in the tax burden faced by individuals should, in theory, stimulate further economic growth by increasing rewards.”
A number of British broadsheet newspapers are anti Gordon Brown to a point of almost embarrassment- but on this occasion the Telegraph has really let rip, saying “The Chancellor prefers to review his Red Army of tax inspectors and officials, parading past his window.” Elsewhere the paper said “One of the Browned-out pieces even said there could be an “economic mini-boom” if a flat tax were introduced” The newspaper also headlined “Whatever Brown says, the flat tax rate is coming.”
Meanwhile both the Tories and Lib Democrats seem to be embracing the idea. The Shadow treasury spokesmen, George Osborne recently returned from a fact finding tour of Estonia and said, “There is a powerful argument for flatter taxes and simpler taxes, as well as lower taxes”.
Meanwhile Vince Cable, the Lib Dem treasury spokesman, has been making noises about his party - which in recent years has been the party of high taxes, recommending a flat system, with some progressive elements.
The anti flat taxers point to Sweden, an economic success story - but which has a complex and fair system of progressive taxation. They also say both the UK and Germany are far too complex to introduce a system of flat taxation.
At Investment and Business News our biggest fear is this: radical ideas, such as flat taxation, are rarely accepted unless the mood of the relevant economy is ripe for change. This has clearly been the case in Eastern and Central Europe. In Greece, government finances are in such a mess that there was growing acceptance of a need for drastic change.
Even in Germany, years of economic malaise, coupled with the realism that the UK could overtake it as the economic powerhouse of Europe, is softening up the electorate to new ideas.
But in the UK, things are still good. We are in the midst of the longest running period of economic growth ever. The last time the UK accepted radical change was after the economic mess of thirty years of growing bureaucracy, union power and state subsidies created a country on its knees - ripe for Thatcherism.
There is no doubt we face more competition than ever before. But would the UK electorate seriously vote for a new radical idea - be it flat taxation or some other theory, unless the UK was back in dire straights again? We doubt it: such is the stuff long term economic cycles are made of; only in disaster will economies reform. It would take a degree of foresight indeed to overhaul the UK, while we are still enjoying a form of economic utopia - low inflation, low unemployment, uninterrupted growth. And while the economies of Eastern and Central Europe may seem to some to resemble forms of economic Shangri-la, to others they represent no more than a dream - and there is no point in chasing a dream when reality for the time being is not too bad.
Last September, the Observer quoted the Director of the National Institute for Economics and Social Research, Martin Weale, who said: “Flat taxes are plausible only if they aren’t very flat.” He said: “When you talk about sweeping away all allowances would they sweep away Families Tax credits? Are they talking about sweeping away allowances on pension contributions? Are they going to abolish exemptions on Peps and Isas.” The Observer declared that to keep government finances at their current level, 30 million people in the UK would be worse off. Furthermore, higher rate taxpayers would enjoy windfall earnings, increasing the wealth gap.

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

The price of oil fell for the fourth time this week, so that it is now just 14 percent up on the price at the beginning of the year. And markets breathed with relief.

It seems odd to celebrate that oil is “only” up 14 percent on the year. It ended 2005 at around $63 a barrel, and, on the New York Mercantile Exchange, at 5 am this morning when we took our daily oil reading, it stood at $70.54. In fact, at one point last night, it was below $70.

It was the fourth day in a row oil fell in price - a week ago oil stood at over $76 a barrel.

Oil prices have been falling for two main reasons: ceasefire in the Middle East, and news from BP that it will still pump half of the normal oil flow from the Prudhoe Bay field. The company had found corrosion in the pipes, and at one time it seemed as if the United States’ biggest oil field would cease production altogether for a while.

But the prognosis for the next few months is not so good. Many are predicting that oil will pass the $80 mark, a level that would have been considered unthinkable two years ago. Much depends on the hurricane season, due to kick off imminently.

A repeat of the turbulence seen last year could spell serious trouble.

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

Yesterday we brought news that a consortium of private equity investors was bidding to buy NTL. The price offered has now been revealed - around £10 billion. This means Sir Richard Branson’s 10.5 percent equity stake in the business is valued at over £1 billion, not bad when you consider NTL only paid £962 million for Virgin Mobile, a company Sir Richard had a 71 percent stake in. You do the maths. In the four and half months since the NTL bid for Virgin was accepted, he has potentially made himself a very nice return.

And yet, according to the FT, Sir Richard may stop the deal from going ahead.

The UK’s most famous balloonist since Phileas Fogg, benefits from the Virgin Mobile NTL deal in more ways than one.

Firstly, Virgin Enterprises, a company that Sir Richard owns 100 percent, is due to receive a 0.25 percent royalty from NTL for the use of the Virgin name.

Secondly, the Virgin supremo is currently the largest shareholder in NTL, conferring on him media mogul status.

But, whether this deal goes through or not, perhaps the real questions should be asked of the private equity consortium made up of Providence Equity Partners, Blackstone Group, Kohlberg Kravis Roberts, and Cinven. Sure they are flushed with cash, and maybe they have enough readies to solve the NTL balance sheet problem - the massive level of borrowings. Even so, this is a tough market, incredibly competitive, with some serious players launching innovative products. It’s tempting to say, “don’t do it.” And to Sir Richard, “sell”

NTL, after all, does not have a good track record. Its previous pile of debts, brought about by the cost of digging up roads, took it to its knees, leaving original investors a good deal worse off. Now that it has combined with Telewest, and, thanks to the Virgin Mobile purchase, meaning it can offer “four play” - that’s broadband, TV, fixed and mobile telephony, it does have advantages.

But many question the relevance of Virgin Mobile. They say that families make decisions about which broadband, TV and fixed line telephone company to use, while the choice of mobile service is an individual decision. In any case, goes the argument, Virgin Mobile’s customers are typically less upmarket, and less likely to determine the family decision about broadband supplier (in other words, Virgin has more kids as customers).

On the other hand, we can see a reason for the private equity interest. TV transmitted over mobile phones is expected to be the big thing next year, and economies of scale in Four Play will exist in content production. And in the new Internet and mobile phone TV era, content really will be king.

NTL does not have enough money to compete with BSkyB in purchasing big sports rights. Witness the way it was trounced in the recent bid for Premiership football. Yet BSkyB’s success lay in its willingness to use sports coverage as a loss leader.

If the private equity investors are willing to put up enough money for TV content on a grand scale, then the combination of TV over mobile phones, over the net, and over cable could just about make NTL a hit.

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

But then again, some question the releenve of the Virgoin Mobile custoemrr base- typically more down market than some the .

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

Time was Dell and its eponymous founder (pictured) could do no wrong. But those days are gone. Is it for good, or a just a temporary set back?

Profits are falling. In the third quarter of 2006, the company’s net income came in at $502 million, compared with $1002 million in the same quarter a year ago. In fact, you have to look a long way back into the company’s records to see the last time it made so little.

#147;We are not pleased with our performance,” said Dell Chief Financial Officer James Schnieder. “But we priced too aggressively in a face of slowing industry demand, and component costs came down less than we had expected.”

So is that the problem then? The company got its pricing wrong - an embarrassing faux-pas, but one easily fixed.

Some say Dell is also experiencing temporary problems with the changeover from Intel to AMD processors. Apparently, in the past, Intel contributed to Dell’s marketing costs, and, although the PC company says the move will reduce its costs in the long run, analysts theorise that the changeover was not smooth, and the fall in profits is mainly down to teething problems with that.

But if Dell’s woes are either down to pricing mistakes, or margin problems associated with the changeover from Intel to AMD, why is it that it’s not growing as quickly as its rivals? According to Gartner, the company has seen an 11.6 percent growth in the last quarter, but the PC world’s numbers two, three, four and five all saw even better growth, and Acer, which is currently in fourth place, saw growth of 34.7 percent.

Mind you, it must be worse for the smaller players. All of the top five saw their market share grow, and while Dell was bottom of the pack for growth, its market share still rose from 19 percent a year ago, to 19.2 percent today.

But then the company has two other rather nasty problems to contend with too.

Earlier this week we brought news that the company had to recall 4.1 million notebooks, because of a handful of PCs caught fire, thanks to a fault with the Sony batteries.

Then yesterday it emerged that US financial watchdog The Securities and Exchange Commission has kicked off a so-called “informal investigation” into Dell’s accountancy practices

These days PCs are becoming so cheap, it’s a wonder the PC players make any margin at all. Maybe Dell has become a victim of its own success. After all, it’s difficult to improve on being the market leader, and even the company that made its name by selling cheaper PCs than its rivals, must see profits fall when price falls too low.

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

As the Broadband and TV broadcasting market becomes ever more competitive, private equity firms are moving in.

Recently the third largest TV company in Holland was bought, a big chunk of equity in Deutsche Telekom was acquired by Blackstone, and now it’s NTL’s turn.

Rumour has it that a consortium consisting of Providence Equity Partners, Blackstone Group, Kohlberg Kravis Roberts, and Cinven want to buy the entire company.

If the consortium is successful, it will inherit a massive management challenge as it oversees the coming together of NTL, Telewest and Virgin Mobile - the three companies have recently merged.

NTL is highly geared, and really needs an injection of capital.

With competitors jostling to see who can offer the cheapest package of free broadband, BT moving in on the TV broadcasting turf, and the likes of Google and its plans, this is a market which is getting ever more competitive.

Private equity companies are run by clever people, and we assume they know what they are doing. But even so you can understand why BT, BSkyB and NTL are doing what they are doing. They have to expand to survive. They are already in the market, and have to diversify into broadband or television, or the market will leave them behind. In a way the recent rush to offer free broadband, and the rush to offer TV over the net, is an example of companies pursuing defensive strategies. Innovate or die, but, maybe, die anyway.

If the NTL deal does go through, then one man will be a clear winner. Sir Richard Branson will sell his stake - he is currently the biggest shareholder in NTL, a stake he acquired with the merger of Virgin Mobile - and he will still keep the revenue for the use of the Virgin name.

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

If there’s a leak in your water bottle, it might not matter too much if there’s water coming in the other end. The same principle applies to the UK property market.

We all know that first time buyers are finding it tough. The big fall in the number of first time buyers we have seen in recent years would have caused prices to plummet in the past. But this time, the Buy to Let investors have kept the market up, with landlords buying properties and renting them out to would-be first time buyers who just can’t raise the deposit.

And the latest data from the Council of Mortgage Lenders shows that the trend continues.

In fact, in the first half of this year, Buy to Let mortgage advances rose 17 percent on the same period last year, to hit a new all time high.

Actually, the market isn’t quite as buoyant as the data suggests. Because of the 152,000 advances made, only 65,700 were used to buy a property. The rest came in the form of mortgage top ups. So maybe some landlords are feeling the pinch.

As Capital Economics said last night: “Although the threat of further increases in financing costs may test investors’ mettle a bit in coming months, we believe that stretched affordability for house buyers and rising wages will support tenant demand, rental growth and returns in the BTL sector.”

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

When Ben Bernanke chose to do nothing last week, markets worried. The Fed chairman appeared to sew his colours to the dove mast, when he, along with his panel of interest rate setters, chose to keep the US rate of interest on hold. Many fretted, saying the Fed’s new boss was soft on inflation. It was a little harsh. After all, when markets took a nasty tumble back in May, the big fear was that the Fed was going to be tougher than it needed to be.

But, yesterday, along came the US Bureau of Labour Statistics with the latest inflation score, and analysts breathed a sigh of relief.

The BLS gives a lot of information. It doesn’t just tell us about the CPI level, it gives us data with energy taken out, with food taken out, and other data with a whole lot more taken out.

But there are only two pieces of information most folks are interested in - core inflation, and inflation without food and energy. And the good news is that inflation without food and energy is down again, to just 0.2 percent - a level that should keep the Fed happy.

The CPI rate was up to 0.4 percent, but in the US this is a notoriously volatile index - and, in any case, 0.4 percent, given the oil hikes we saw a few weeks ago, is really not too bad.

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