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

It’s all about regrets. It would appear that the three main players in the battle over the fate of the London Stock Exchange have each made a mistake, and had they not done so, things would be very different.

Clara Furse, the highly respected, sometimes referred to as formidable, chief executive of the London Stock Exchange, let Liffe slip through her fingers. At least, she ceded victory to Euronext, and the Paris based company which owns stock exchanges across Europe added the London derivate trading and futures market to its portfolio. But many felt this left the LSE weak, and perhaps if Ms Furse had pushed the boat out, and outbid its Paris rival for Liffe, the string of suitors who have made their offers for the LSE over the last year or so would never have been so bold.

Then, this weekend, the Sunday Times revealed that ICAP, which operates in similar areas as Liffe, and the LSE have held talks over a possible merger. ICAP is into the wholesale market for OTC derivatives, fixed income securities, money market products, foreign exchange, energy, credit and equity derivatives. It is the world’s largest voice and electronic interdealer broker with a daily average transaction volume in excess of $1 trillion.

An LSE ICAP merger would help plug the gap that might have been filed if the London Stock Exchange had won control of Liffe.

But there’s a fly in the ointment. ICAP believes the LSE share price is too high, much too high, and according to press reports this morning, the discussions between ICAP and LSE have “been discontinued.”

For ICAP’s boss, Michael Spencer, the current share price of the LSE must represent a massive psychological hurdle. Until the beginning of this year he held a stake in London’s main stock market, but he sold out, at 620p a share, netting himself a nice profit. But, even while Mr Spencer was patting himself on the back, regrets must have started. Because soon after he sold his stake, the LSE share price rocketed so that today shares are changing hands at twice that price.

Then there’s NASDAQ. Six months ago it made a formal offer for the LSE and its bid was turned down. But since then it has been acquiring shares in its would be partner. It now holds a 25 percent slug of the LSE, but has had to wait six months from when its offer was turned down, before it could bid again. That time is now almost up, and many expect NASDAQ to be bidding again very soon.

But, once again, the share price could prove to be the hurdle. If the NASDAQ does bid again, it has to match the £12.43 it paid for its last chunk of shares it bought. Either that or it has to wait another six months, after which time it is free to bid whatever it likes.

And maybe NASDQ paid over the odds. This morning, LSE shares were trading at exactly £12.43, suggesting the city feels that the current price is the absolute maximum anyone would pay. Maybe then NASDAQ too regrets paying quite so much.

But the fate of the LSE impacts on more than just its shareholders. London’s main stock exchange is a key pillar to the city’s position on the world stage. For our money, a merger between NASDAQ, for so long the home of the world’s most dynamic companies, and the LSE which had been slowly winning the NASDAQ’s crown as the world’s capital for IPOS, will make a formidable company. British authorities have said that steps will be taken to ensure Sarbanes Oxley regulations can not be imported to the UK via a US based buy out of the LSE, and with the removal of that hurdle, it seems to us that a NASDAQ/ LSE combo will help cement London’s place in the global economy.

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

Is Morrison at last over the worst? Pre tax profits in the 25 weeks to July 23 were £142.2 million, compared to a loss of £82.1 million last year. And eponymous chairman and founder Sir Ken said: ” We have had a period of stress. But we can see the daylight. Our business is growing again and we are well on track with our targeted profit improvements…more customers visited our stores and, more importantly, liked what they saw.”

After a long and fraught search, the company has a new chief executive, Marc Bolland, ex Heineken. He announced a five-month review of the business, but don’t expect him to reach parts other CEO’s have failed to reach over night. Emphasising things will take time, the Dutchman said: “As we say in Yorkshire, if there is nowt to say, say nowt.”

In yesterday’s press conference Sir Ken, looked at his Dutch CEO with fond eyes, or so press reports suggest, and said: “We have made a very good solid start. He is a good people man.”

All in all, markets liked what they heard and shares in the retailer hit 251p, a two year high.

But while Morrison has been struggling to absorb Safeway, Tesco, Sainsbury’s et al have been expanding. Clothes are the new food for the grocers, diversification the watchword, and convenience stores the fillip to their business plans. At yesterday’s press conference Sir Ken said: “For the first time in two years colleagues … have been able to concentrate, exclusively, on the day job, and this is bearing fruit.” The trouble is, for the company to keep up with the pace set by its three main rivals, it will need a lot, lot more than fruit.

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

When Mark Hurd had not been in the job as CEO for Hewlett Packard for more than a few weeks he spoke out. He was worried about press leaks from the workforce and said he would root out where these leaks are coming from, and personally fire anyone responsible. And that’s what happened, with at least two members of staff losing their jobs.

One or two raised their eyebrows; after all there was a time when the company encouraged staff to have a good relationship with the press, but on the whole this was seen as Hurd making an impact, as it were Mark was making his mark.

But then there was trouble. It had, or so it seems, nothing to do with Hurd’s sackings. Rather this related to company chair Patricia Dunn who had rooted out leaks from the boardroom. She hired a firm of private detectives, and the guilty ‘leaker’ was found. But then it emerged that detectives appeared to use a practice known as “pre-texting”, which entails assuming the identity of the person being investigated. This is illegal in California and it’s thought some could face criminal charges.

But Hurd was safe, no one suggested he was involved, and the share price was largely unaffected.

But next week Mr Hurd is to appear before the U.S. House of Representatives Energy and Commerce Committee’s subcommittee on Oversight. There’s nothing untoward in that. In fact it was always known he would have to give evidence.

But then a newspaper report linked HP’s CEO and the way staff were fired with the scandal. Most are saying there is no connection. There is no evidence Hurd or his team used “pre-texting”. But with markets, a whiff of controversy can be enough, and yesterday shares in the world’s second largest PC company tumbled 5 percent.

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

The CBI industrial trends survey have been the pessimists. When the Chartered Institute of Purchasing and Supply had manufacturing lifting, the CBI moaned about how tough conditions were. And while all around reports suggested manufacturing was lifting from its malaise, the CBI Industrial Trends survey, which takes the balance from manufacturers who say whether conditions are above or below normal, has been negative for over two years.
And, it’s still negative, but only just. The latest instalment in the index for measuring whether orders were above or below normal was just minus 5, the highest level since August 2004.

The CBI also said: “The level of export orders was an improvement on the last two months, with September’s balance of minus three per cent representing a return to the level seen in June. This was driven by a considerable increase in demand for capital goods - including ships, aeroplanes, equipment and machinery.” June saw the best reading for the export index since February 2005.
Ironically, while the CBI has its index improving, the CIPS has it falling. Who is right? Unfortunately, Capital Economics reckons the CBI index lags about three months behind CIPS, and that the more negative CIPS index is a better indicator.

The Economic think tank also believes things are going to get worse, with its economist, Pal Dales saying: ” The strength of this morning’s CBI monthly trends survey might suggest that fears that a US-led global slowdown will have a negative impact on the UK economy are overdone. However, history shows that the manufacturing surveys are very sensitive to changes in global demand. So if US activity continues to soften, it is only a matter of time before the CBI survey starts to weaken.”

For further information
CBI gives a hurrah over manufacturing Investment and Business News 23 June 06

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

This is the scene. You are sitting in your living room, perhaps watching the Simpsons, and there’s a knock on the door. Who can this be, you ask? Imagine your surprise#33; Why, it’s the former Vice president of the United States, Al Gore. “Richard” he says “You’re in a position to make a difference, and if you can make a giant step forward, other people will follow.” And with that house call, Sir Richard’s epiphany began.

It’s easy to be cynical about Sir Richard Branson’s gesture announced yesterday to donate $3billion to fighting climate change. But for once cynicism is good.

Not many of the leading national newspapers dared spoil the party, but a few hinted at another side. The FT drew a comparison with Sir Richard’s plan, and the charitable donation of Bill Gates and Warren Buffett. The world’s number one and two richest men are giving their money away - Sir Richard hopes to make a profit, so this is not all about altruism, goes the inference.

The MSBN web site said: “Left unsaid was the possibility that some renewable energy investments could pay off handsomely for Branson and his company should they become accepted by industry and consumers. ”

But in this respect the cynics are wrong. Making a profit is the point. If Sir Richard can make money from his investments, he will give the business world the most important message imaginable; that funding renewable alternatives to coal, gas and oil can be profitable.”

Bill Clinton put it nicely. He said of the Branson offer that the commitment was “groundbreaking not only because of the price tag - which is phenomenal - but also because of the statement that he is making: clean energy is good for the world and it’s good for business”.

Other cynics questioned whether the donation really would amount to $3 billion. Sir Richard has said he will donate the profits from his rail and airline businesses, and yet last year, as the Independent pointed out, these companies made just £90 million in profits, ergo, this does not compute. £90 million times ten does not equal £3 billion.

But there’s an answer to that too. Sir Richard said the money from future dividends and proceeds from the sale of assets, including shares from Virgin’s airline and train operations, would be invested in renewable energy initiatives. In fact it was rather implied he would find the money. It’s just that the profits from rail and the airline were the starting point.

Sir Richard said of his plan: “We must not be the generation responsible for irreversibly damaging the environment. We must hand it over to our children in as near pristine condition as we were lent it from our parents….hopefully this contribution will help our children experience our beautiful world and encourage others to also do what they can.”

Other cynics pointed out that it’s the airlines which are the greatest polluters, and that if Sir Richard really wants to make a gesture, he should stop flying people across the Atlantic. But actually, the Virgin boss had already answered that question. In an interview on US TV station CBS he said: “The only way people can get to London, for instance, is to go on Virgin Atlantic or another airline. You’re not going to stop that happening. So what we’ve got to do is come up with fuels that Virgin Atlantic can burn that are clean fuels, and that’s where our money is going to go, in trying to develop new fuels that can fuel cars and planes and make sure that the world is a safer place.”

Greenpeace sort of welcomed the announcement, and in doing so emphasised the other side of the message, the message that some business leaders only look at. That to fight climate change profits must fall.

John Sauven, campaign director of Greenpeace, said: “Three billion dollars is a lot of money in anyone’s books, and this gesture has to be welcomed as a valuable addition in the fight against climate change.”

“To combat the massive threats of global warming, the world must ditch dependence on fossil fuels. So investing money in biofuels as Richard Branson has pledged is a step in the right direction, but it is really only a very small part of what must be done.”

“Other steps must be taken too - such as increasing transport fuel efficiency and providing more efficient forms of transport. We’d certainly hope that Richard Branson’s commitment to a more environmentally friendly future will also see him supporting moves to drastically reduce the amount of air travel.”

If Sir Richard is right, and air travel in an environmentally responsible world is possible, business will find the carrot of greater profits ample reason to embrace the challenge of global warming. If Greenpeace is right, then business will need a heavy stick, and governments will have to take action via taxation.

In all the fanfare over Sir Richard’s offer, we only came across one story which took the alternative view. On the Web site NewBusters, which has the slogan “exposing and combating liberal media bias” it was said: “Doubts about global warming being driven by fossil fuels, naturally, were ignored.”

Maybe, web sites like this should be met with news groups with the slogan “combating putting your head in the sand.”

For further information
Branson to pledge billions at Clinton Global Initiative Clinton Global Initiate
Networks, Especially CBS, Champion Branson’s Donation to Fight Global Warming NewsBusters

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

Is this a good sign, or just sensible, pragmatic thinking? John Hofmeister, who is the boss of the US division of Royal Dutch Shell told Retuers the company is working on the assumption oil will be trading between $30 and $40 a barrel in the medium term.

It bases this assumption on the belief the oil market is cyclical, and the highs of the last couple of years have just represented the up part of the cycle.

Some believe the day of peak oil is approaching. Peak oil is the idea that the Earth supplies of oil start to become exhausted, and global output starts to reduce. It’s a theory that markets have recently started to factor into the pricing of oil.

But, if Shell is right to make this assumption, then it would appear we are in for many more falls in the price of oil over the next few years - it fell again yesterday to a six month low.

On the other hand, of course, it’s good business practice to assume the price you get for your product will be lower than you really believe is likely. So maybe Shell is just being pragmatic.

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

During the summer just gone California was hot. As temperatures soared, hitting all time highs, over 100 deaths resulted, and Californians wondered who was to blame. While many US politicians bury their head in the sand over the dangers of global warming, the Californians fret. At dinner parties they talk about the melting snowpack in the Sierra Nevada mountains and ask whether it will eventually cause flooding so bad that Los Angeles will be no more. Whilst worshiping the sun, they bemoan beach erosion, and while out enjoying the country they chatter about the threat that pollution poses to endangered animals.

And now the State reckons its found whose to blame. It’s suing GM, Ford, Toyota, DaimlerChrysler, Nissan and Honda. Bill Lockyer, attorney general for California said: “Vehicle emissions are the single most rapidly growing source of the carbon emissions contributing to global warming, yet the federal government and the automakers have refused to act.” Mr Lockyer is reported to have said the state was seeking “tens or hundreds of millions of dollars”.

As for the suit itself, it stated: “The injuries have caused the people to suffer billions of dollars in damages, including millions of dollars of funds expended to determine the extent, location and nature of future harm and to prepare for and mitigate those harms, and billions of dollars of current harm to the value of flood control infrastructure and natural resources”.

Once the car industry and California were in love. Hollywood promoted the motor vehicle as the 20th Century’s answer to the spear in symbolising manhood, and the rest of the world bought the message. But today, the relationship has flipped. Last month, California brought in legislation to reduce carbon emissions by 25 percent, and, for its part, the car industry brought its own suit against the state, effectively arguing the legislation will cost the carmakers dear.

The industry is not taking the suit against its six biggest firms lying down either. The Alliance of Automobile Manufacturers described the Californian action as a nuisance case. It said: “Automakers will need time to review this legal complaint, however, a similar nuisance suit that was brought by attorneys-general against utilities was dismissed by a federal court in New York.”

Of course, similar action has been successful in the past - smoking suits, for example, but then equally, other cases have failed. For example, the family that tried to sue McDonalds for causing their obesity was unsuccessful.

In California they have a pressure group which refers to itself as the California Citizens Against Lawsuit Abuse. And its chairman, John Merchant, presumably with his tongue inserted firmly in his cheek said: “The AG’s complaint overlooks 36 million other sources of greenhouse gas emissions — the human beings occupying California who ought to be sued for ‘negligent breathing.”

“Californians each emit about 2.5 pounds of carbon dioxide (CO2 - a greenhouse gas) every day just by breathing. If you multiply 2.5 pounds of CO2 per day by 36 million Californians by 365 days, that’s more than 16 million tons of CO2 just from breathing. Talk about a public nuisance … and don’t even get me started on the methane people produce.”

Mr Merchant added: “This lawsuit is a public nuisance. Activist Attorney Generals who abuse our legal system and impose a system of ‘government by lawsuit’ to gain publicity and further their own political agenda do so at the expense of the people they are paid to represent. Inevitably the costs of litigation in cases like this will be passed on to consumers in the form of higher prices. Just what we all need.”

And while Mr Merchant’s irony (or is it sarcasm?) makes a good point, after all, there is no doubt some legal writs are just plain silly and stifle business; it’s hard to think of a more urgent and important matter than global warming. California should be applauded for taking the environment so seriously. But, from an economist’s point of view, the problem with pollution is that the supplier does not bear the true costs of the products it produces. As a result, the market mechanism does not work in accurately balancing the forces of demand and the true cost of supply. The answer lies in tax. Even the purest form of pro capitalist economic theory acknowledges tax should be in place to cover the cost of pollution. In that way, consumers will be asked to pay the true cost of the products they consume, and no doubt will then look more enthusiastically at green alternatives.

P.S. While we are on the subject of the environment, The UK’s scientific body, The Royal Institute has been having a go at ExxonMobil. It recently accused the giant oil company of funding groups that deny global warming is a reality. In the US, the Competitive Enterprise Institute has run a TV advertising campaign with the slogan: “Carbon dioxide: They call it pollution. We call it life.” Apparently, the oil company donated $270,000 to this company in 2005, for example.

It would appear the complaints are beginning to hurt, however, and yesterday it emerged that the Competitive Enterprise Institute, with its perfectly reasonable and not at all irresponsible ads, will be getting no money in 2006.

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

The rate of interest is in the news again today, both here and across the pond.

Yesterday, the MPC released its latest minutes. The minutes revealed that in the meeting held earlier this month, when it elected to keep rates on hold, the MPC was concerned about
the…possibility that higher short-term inflation expectations might affect wage
settlements during the next pay round.” Perhaps, more to the point, David Blanchflower, who was the solitary member to vote against August’s hike, chose on this occasion to vote for keeping rates at the higher level. The consensus at the moment is that the Bank of England will up rates in November, but opinion is mixed on whether there will be any further hikes. Capital Economics holds the view that rates will come down next year.

Meanwhile the Fed sat and deliberated yesterday, and in the end chose to do nothing. Rates stayed on hold. Paul Ashworth, senior US economist at Capital Economics said: “We agree with the markets that the Fed will leave rates on hold until the end of this year. Stubbornly high core inflation is likely to make cutting rates early difficult even as growth slows (see chart). However, to our minds, the markets are still not discounting enough the likelihood that rates will fall next year. We anticipate that a much more substantial slowdown in GDP growth next year will force the Fed to cut rates aggressively to 4.0% by the end of 2007 and probably further in 2008″.

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

The grocery sector is still enjoying buoyant sales, says the latest report from TNS Worldpanel. In the 12 weeks to 10 September, grocery sales were up 6 percent on a year ago. It was boosted by increased prices for fresh produce and bread.

TNS says: “Sainsbury continues its strong run with a growth rate of 8% for the second period running - if this continues then Sainsbury should see even higher market share at Christmas - traditionally a strong trading period for this retailer.

Morrisons are now firmly out of the doldrums with another period of real sales growth of 4% although this will have to increase above the current market growth of 6% if we are to see its share increase from the current level of 11%.

The recovery of the two historically weaker retailers hasn’t prevented Tesco adding another 1.3 share points year-on-year - the brunt of the suffering is being borne by Kwik Save which has all but disappeared.

Waitrose has achieved a record share of 3.9% for this period as recent acquisitions are consolidated into the portfolio.

Of the discounters, the strongest performance is currently coming from Aldi, thanks to store extensions and acquisitions.

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

If inflation is still relatively low, then why is it, for the First Time Buyer, their single biggest item of expense just keeps going up.? It’s all down to definition of course, but for the poor old property owner, it must feel as if inflation is out of control. According to a new report from the New Policy Institute (NPI) for the Joseph Rowntree Foundation (JRF), mortgage costs for first-time buyers are back to the peak levels recorded in 1990. And over a third of working households under 40 cannot now afford to buy.

Household possessions are soaring too. Recently we saw a reversing of a 15-year downward trend, with court orders for repossessions doubling since 2003. At the same time, only 20% of all mortgage holders have a mortgage protection policy, compared with a Government target of 55%. Government help with mortgage costs has also diminished substantially over the past decade, says the report.

Does this mean the bottom is about to fall out of the property market? Maybe, but on the other hand, other factors are pushing house prices up further.

The report said: “For many decades, the number of households has been growing much more quickly than the number of people, up by 35% since 1971, compared with a population rise of just 8%. This in large part reflects a significant increase in the number of adults living alone. Overall, the total number of homes has been keeping up with this household growth. However, the rate of household growth in England is projected to increase from 150,000 per year from 1991-2006 to 220,000 per year from 2006-2021 and this will require a substantial increase in the rate of house-building. “The number of new affordable homes being built for those who need subsidised housing is not keeping up with current demand, let alone addressing the substantial backlog. At 35,000 in 2005-2006, it is half the levels achieved in the mid-1990s, and well below the 48,000 that Kate Barker, in her report commissioned by the Government, estimated as the minimum necessary.”

For further information

Major new UK report reveals alarming trends in housing supply, availability and affordability Joseph Rowntree Foundation

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