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

Could corn kill three birds with one stone? Could this crop be used to kickstart trade talks, lead to an end to food subsidies, and solve the global warming crisis? At first glance, it actually looks like it could. Unfortunately take a second glance, and the argument falls apart. But don’t despair, corn might not be the panacea some say it is, but there are alternatives out there.

Trade is important. The world’s agricultural nations don’t like the food subsidies applied by the US and EU. Quite rightly, they say, it gives farmers in Europe and the US unfair advantages, and that the subsidies are keeping the developing countries down by removing their biggest opportunity to trade their way to wealth.

But yesterday media mogul Ted Turner said something that has got the world thinking. He said: “Biofuels could do more than fight problems like pollution and global warming. They can also provide wealthy countries with a means of keeping their farmers in business, instead of subsidizing products that can be grown more cheaply in poor countries, products like cotton, sugar beet, sugar cane and rice.”

The price of biofuel crops are soaring. As the world looks for alternatives to oil, the price of these alternatives will rise. However, there’s a snag. People eat corn too, and for the poor it is being priced out of reach in some regions and that, many argue, is just not ethical.

But, by limiting corn subsidies to biofuel crops, the problem could be solved. The West could subside this new, previously unconsidered use for corn, and thereby allow corn as a food product to trade freely on the open market. The trade talks can then be kickstarted, and since some economists believe the stalemate in the Doha round of trade talks represents the biggest single threat to the global economy, we will all be able to celebrate.

But here’s the snag. An increasing body of scientific opinion is fearing that corn as a fuel does not help reduce carbon emission.

First of all, corn requires a lot of land. According to Worldwatch, if 9 percent of all agricultural land across the world was devoted to growing corn to create biofuel, a mere 10 percent of transport fuel would be biofuel based. Other studies indicate the world would need twice as much land as it currently has, to grow enough corn to solve the energy crisis.

Other scientists argue corn is not efficient. According to David Pimentel at Cornwall University New York, ethanol creates more greenhouse gases than burning fossil fuels. While other scientists disagree, and think it isn’t that bad, the point is well made. Corn, with its requirement for artificial fertilisers and other mass farming techniques, is no miracle cure to the problem of fuel heating up the world.

Never mind that - what about sugar? Brazil already sees it that way, and two thirds of all cars in Brazil run on biofuel, and the big sugar producer is set to export this crop as a sweet alternative to oil.

But here too there’s a problem. Sugar is a thirsty beast, and the growth of sugar can lead to water shortages, as is currently occurring in regions of India.

But the big snag with sugar, and indeed with corn is this. The land used to grow the crops is often former rainforest. The use of sugar as a means of fuelling our cars could lead to further deforestation.

Many believe that deforestation is a far more serious factor behind global warming than the use of fossil fuels, and so, sugar too has big drawbacks.

The answer may not lie with biofuel at all, rather with biodiesel, which is made from certain vegetables oils, such as soybean, palm and rapeseed. Apparently, these crops can be grown without using extreme mass farming techniques and their production is carbon neutral.

Even more exciting is the potential for woody plants such as switch grass or poplar. Watch out for stories in the media about these crops as the world’s press wake up to their potential.

And finally, there’s algae. As it comes from the sea, and let’s face it, there’s plenty of ocean, you don’t need much land to develop it.

Back in 1908, the model T Ford was initially designed to run on ethanol. Before Henry Ford said: “You can have any colour you like providing it’s black,” he was an eco-warrior without knowing it.

All things come in circles, just don’t bet on corn as the next oil.

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

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

Biofuels could save the planet. Rather than use up our scarce supplies of oil, and add billion of tons of carbon dioxide to the atmosphere, why not grow our fuel instead? Sure it emits the global warming gases when its used, but then, as it grows it soaks up these same gases.

But we have noticed a growing steady stream of negative publicity regarding biofuel. It’s all very well, they say, but it costs energy to produce it, there’s danger deforestation could be the price we pay for the extra land required and a huge amount of land will be needed for growing this fuel. Tomorrow, we examine the case more thoroughly.

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

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

Today is a momentous day for US corporate law. Former milkman, club bouncer, and boss of Woldcom when it went down, Bernie Ebbers begins his 25 year jail sentence. The 62 year old said he wasn’t good at maths and the problems at Worldcom weren’t his fault. He was just a simple man who believed what the money men told him. Sadly for him, the court didn’t believe him.

Meanwhile, what of the architects of the Enron collapse? Andrew Fastow, who was the financial chief at the company who concealed its financial weaknesses through the infamous LJMs while pocketing a tidy profit, will hear his jail sentence today.

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

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

“Sell in May and go away” is a famous adage, and in 2006, at least, it appears to be spot on. Cast your mind back to the 7 May. The Dow Jones hit 11577, just 145 points short of its all time peak, and the bulls celebrated. Two days later, it was disarray. Markets plummeted, and people started to talk about the rises of the previous few months, being no more than a temporary blip in the first great bear run of the 21st century.

But, as the rain comes down, and the heady days of summer recede like a long lost dream, up she rises. Yesterday the Dow Jones Industrial average closed as 11575, just a whisker short of the May high. The SP 500 hit a five and a half year high.

All it took was the continuing good news about oil, and the increased likelihood the Fed will drop rates next year, and the market celebrated.

But in the UK, on the other hand, it’s still all rather sad. On May 8, we wrote: “The FTSE 100 still has a long way to go. Okay, at its close of day price on Friday it was at 6091.7, almost 70 points up on the week, but it was higher in the middle of last month.”

And now, four and half months on, the FTSE 100 is languishing at 5798, still almost 100 points down on its high back then. More to the point, while the Dow closed at its all time high of 11,711.98 set on January 14 2000, the FTSE 100 was a thousand points down on the 6990.2 high set on December 30 1999. Who said the millennium bug never happened? It’s just that the bug related to the way companies are valued.

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

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

Manufacturing stutters along in its rut. Retail and housing have just gone through a nasty slowdown, and yet the UK continues to grow at more than a respectable pace. How can this be? We are sure you can probably have a good guess, but here’s the answer anyway. Financial Services have been the UK’s saving grace.

According to a report published by International Financial Services, London, Financial service’s contribution to the UK’s GDP has risen from 5.5 percent in 2001 to 8.5 percent last year. The sector stands near the top of the value chain too, because it accounts for just 4.1 percent of the UK’s employment.

Professional services, (which the report defines separately from Financial Services) has also seen its share of GDP grow, from 2.6 percent to 3.6 percent over the last ten years.

Two of the big problems that plague the UK economy at the moment are the sizes of the budget and trade deficit. Financial Services is certainly helping to reduce these problems, with the sector generating a “trade surplus over the past decade, up from £6.9bn in 1995 to £19.1bn in 2005, although the latest year represented a rare setback with the trade surplus dipping from £20.4bn in 2004,” says IFSL.

But while Financial Services contributes more than its fair share to the UK’s tax revenue, the share has fallen, while the sector has grown. In 2001, the sector accounted for 34.9 percent of the UK corporation tax, and 13.6 percent of income tax. But, by 2004 this share had fallen to 26.2 and 11.6 percent respectively.

Not surprisingly, London holds the lion’s share of the market, accounting for 42 percent. In fact, says IFSL, As much as 16.8 percent of GDP in London was generated by Financial Services.

The South East contributes 11.2 percent and Scotland 7.7 percent to the sector.

But, that’s all very well, but Financial Services is a broad brush. What about the sharp end, what the Centre for Economic and Business Research calls ‘City types’. Apparently, jobs falling into this category have risen from 294,000 in 1998 to 332,000 in 2006.

For further information

Economic contribution to UK of financial services IFSL

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

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

Pity the poor unfortunate American who took out a new mortgage in May 2004. It must be especially unfortunate if this US house buyer took out a big mortgage, the maximum he could borrow, for example. We say this because two years on, the US rate of interest has risen from 1 percent to 5.25 percent. That’s a 525 percent increase. No wonder bodies such as the IMF have been warning of the dangers of a potential crash in US house prices. And now the omens are not looking good. According to The National Association of Realtors, the median price of US homes for sale has fallen by 1.7 percent from a year earlier in August. That’s the first fall since April 1995, and the biggest yearly drop since November 1990. And yet, US housing experts are still talking soft landing, predicting modest falls lasting only a year, before normal service is resumed. They point to the UK and Australia, and say no crash occurred, and the pattern will be repeated in the US. They could be right, but alas, there are many reasons why they could be wrong.

First potential nail in the US property market coffin is the rise in interest rates we referred to above. In the US, mortgages often hold a fixed rate of interest, and the market is not quite so vulnerable to rises in the rate of interest as the UK market. Even so, a 525 percent increase is a big jump. Over this cycle the UK rate of interest has gone from 3.75 percent to 4.75 percent, a much more modest change.

The second nail relates to the number of properties on the market. In the UK, just as demand is low, so too is supply. An Englishman’s home is his castle, or so they say, and the response to a fall in demand for property prices in the UK has for many been a case of upping the drawbridge, topping up the moat, and preparing to withstand a siege. But, in the US, the supply of homes is up too. Moreover, the US does not suffer from the land shortage issues that beset the UK. While the UK suffers from a long-term shortage of housing, in the US there has been a 38 percent rise in the number of homes on the market, compared to a year ago. There’s a 7.5 month supply of homes for sale, compared to just 4.5 percent a year ago. April 1993 was the last time the monthly supply ratio was so high.

Then there’s the contrast between the US’s role in the global economy and the UK or Australia’s position. As the property market had its hiccup last year, both here and down under, which combined with (or more likely caused) the retail slowdown, the UK was to an extent bailed out by the US. The UK stuttered, but the rest of the world was immune, and as result, the UK’s sneeze never got more serious.

But while the UK accounts for just 5 percent of global output, the US accounts for 33 percent. Uncle Sam is less able to look outside of his borders for a cure to the festering illness.
It’s all very serious, of course, because if US house prices do crash, recession may well occur in the US, and the rest of the world may well find themselves confined to bed, as the germs spread.
But then#133;..
Oil is down in price. Most economists in the US expect the rate of interest to fall next year, and actually the stats for the last month on month change in median house prices were not too bad. David Lereah, chief economist for The National Association of Realtors put it quite mildly when he said in the group’s statement: “We do expect an adjustment in home prices to last several months as we work through a build-up in the inventory of homes on the market.”

Time has the answer. Right now, the US is walking a tight rope, and for our money, it could go either way.

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

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

For some time now we have been warning that the deflationary effect of Chinese imports could come to an end, and with it inflation will rise. When economists look at inflation they need to be able to separate one-offs from trends. A rise in the price of oil is not necessarily inflationary, and is only likely to lead to a sustained rise in prices elsewhere if producers pass on the extra fuel costs they pay and workers receive higher wages to fund their more expensive petrol. Indeed if neither of these things happen, a rise in the price of oil could actually be seen to be deflationary, as it helps reduce demand. Conversely, a fall in the oil price could be inflationary.

But then these arguments work both ways. Sure the high price of oil might not be inflationary, but equally, the fall in prices promoted by cheap Chinese imports could also be a one-off. If China starts moving up the value chain or if the yuan appreciates in value, forcing up the cost of Chinese imports, then inflation could set in.

We have been warning as much for some time, and this morning the FT published an interview with Sir John Gieve, the Bank of England’s Deputy Governor for Financial Stability. Sir John warned that “energy prices were a paradox”,since they reduced headline inflation but boosted demand. He also warned that: “It may well be that we’re coming to the end of quite a long period where goods prices were being driven down by globalisation and the absorption of China and India.”

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

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

Diesel represents a dilemma. It’s more economical than conventional petrol, but it’s dirty, and not so kind on the environment. Now Honda, which for so long has led the world in the production of environmentally friendly cars, reckons it’s found the answer.

The third largest Japanese car manufacturer said this morning that it has developed a new diesel drivetrain feature, boasting a unique method for making diesel cleaner. Apparently, the clean diesel engine, which is due to be rolled out in three years time, has a two-layer catalytic converter for turning nitrogen oxide into harmless nitrogen.

Honda chief executive, Takeo Fukui, said: “Just as we paved the way for cleaner gasoline engines, we will take the leadership in the progress of diesel engines.” Mr Fukui also said the company was considering licensing the technology to other car manufacturers.

Meanwhile, as Honda plans clean diesel, Nissan jumps onto the hybrid bandwagon. Up to now, Nissan has licensed the Toyota technology for hybrid cars, but has now developed its own system in house - ready for launch in 2010.

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

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

Convergence. It’s a word that is getting used more and more these days - mobile phone companies offering broadband, fixed line companies offering mobile telephony. The stakes have been raised, and the market for TV, mobile phones, fixed line phones and broadband is fast becoming one.

In the UK, BT led the way with its Fusion phone - offering fixed line calls from home, and mobile telephony, courtesy of a tie up with Vodafone, when you are on the move.

Now Orange has peeled off its mobile calls only veneer and has thrown its pips into the dual phone arena. Today, the company is due to announce its dual service, to be called ‘Unique.’ The service enables calls from home over the net, via Orange’s broadband service, and conventional mobile calls when you are on the move.

If you go out while on the phone however, you will have to hang up, and start again. The call won’t automatically switch service as you go from home to away.

Meanwhile, according to yesterday’s Business, BT has linked up with T-Mobile to extend its Fusion product into the US.

The Business reckons BT will use this service to grow its US revenues by 50 percent a year, from the current starting position of $1.1 billion.

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

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

Consider, for a moment, “deep linking.” It’s a term used to describe a hyperlink to a specific page within a website, that takes the reader directly to an item of content, circumventing the home page. It is not popular with all publishers.

They want visitors to their website to come via their home page, and view lots of their ads before finally reading the article they are really interested in. Google, on the other hand, with its Google News service, deep links like there’s no such thing as a home page. For the end user, it’s great. If there’s something they are specifically interested in they can view a host of articles from a variety of sources, all lined up on top of each other. But for the publishers it’s not so good. At its most extreme, such a service could lead to a loss of brand identity for some publishers, with editorial becoming a commodity. On the other hand, it allows the reader complete choice, and enables them to cherry pick the articles they read, from anywhere in the world.

Yet, maybe in the long term it’s not so good for the public. If publishers lose their identity in a sea of readily accessible editorial, ordered, not by the newspaper’s editor, but rather by a computer, profit could be transferred from the owners of the copyright to the search engine companies, with a resulting loss in the quality of editorial available.

And as traditional publishers struggle to eek out their living from advertising, search booms.

Now, publishers have clubbed together to develop a tagging system for encoding editorial with instructions for use by search engines. The tag will form the lynch pin of a new licence publishers want to implement called Automated Content Access Protocol.

For its part, Google insists what it’s doing is entirely consistent with copyright law, and that in any case it’s increasing the amount of visitors to a web site by providing links.

But last week, the company was dealt a potential blow to this position,. It lost a legal case in Belgium, and is now forbidden from running snippets of news on its website taken from Belgian papers.

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