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

Jeffrey Skilling couldn’t quite manage the record. Yesterday US District Court Judge, Sim Lake, announced the prison sentence for half of the surviving duo that led Enron while it collapsed.

The 52 year old former CEO of Enron is being sent to the slammer for 24 years, the second highest prison sentence for corporate wrongdoing ever seen in the US. WorldCom’s Bernnie Ebbers still holds the record; he was sentenced to 25 years.

If Skilling’s sentence had been ten months shorter, he could have served his time in a low security unit.

As Fed laws mean that at least 85 percent of a sentence must be served, unless Skilling can have a successful appeal, he must know that he will still be in prison in his ’70s.

Skilling actually bailed out of Enron before its collapse, but by then it was too late. And although he blamed CFO, Andrew Fastow, with his infamous LJMs in which he used Enron’s money to buy the company’s assets at inflated prices, the court had previously found Skillling and the company’s chairman, Kenneth Lay, who subsequently died while in the midst of an appeal, guilty.

Skilling insisted that he was “innocent of every one of these charges,” but the judge was not impressed and while Skilling awaits his prison life, he is being forced to wear an electronic ankle bracelet so that officials can track his movements.

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

London is scoring again, says International Financial Services London (IFSL) in a report published yesterday on foreign exchange. In the year just gone, London accounted for no less than 32.4 percent of the global foreign exchange market. It trounced the US, with its mere 18.2 percent share, while Japan was left even further behind with a market share of just 7.6 percent. More to the point, the balance has been shifting steadily in the UK’s favour. Since 2001, London’s market share has improved from 31.1 percent, while the US and Japan saw their respective shares shrink from 17.7 percent and 9.1 percent.

Foreign exchange as a means of investment is becoming more popular too. Average transactions totaled $2.7 trillion in April, making it “ten times the size of the combined daily turnover on all the world’s equity markets” says IFSL, citing research from Towergroup

Why? Apparently foreign exchange is becoming more important as an asset class, particularly within hedge funds and pension funds, while the Internet has opened up foreign exchange as a means of investment for Joe Public, with retail trades becoming more popular.

But why is London so popular. Apparently, a part of its attraction lies in its geographical position, between Europe and the US. And then there’s its language. English is the language of foreign exchange. But there’s more. Not only can the local population provide an abundant supply of English speakers, it also provides an indigenous population fluent in the language of finance.

IFSL said London also offered a large fund management industry, while investment banks often have prime brokers based locally. In addition, there’s easy access to markets. After all, London has more foreign banks than any other centre.

And despite the hysteria you sometimes read in the tabloids, IFSL says London has a tradition of welcoming foreign firms.

London has its bricks and mortar too, with substantial physical assets, particularly office accommodation. And finally, there is the perception that the UK has a proportionate approach in its regulatory climate.

For further information

Foreign ExchangeIFSL

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

With all the talk about renewable energy, about growing our fuel in the ground, about using crops, it’s easy to forget that the true bogey man of climate change is de-forestation. The big drawback with growing corn or sugar as an alternative to oil is that the land used is often former rain forest, and scientists believe the carbon dioxide stored in any given area of rain forest will always be much much greater than the carbon that can be saved by using that area to grow biofuels.

Brazil is ahead of the game in using sugar as a means to power its vehicles, and from one point of view it’s a hero of the global war against climate change. And yet, take into account that this sugar is often grown on former rain forest, all of a sudden its halo starts to slip.

Now the World Bank thinks it has come up with the answer: Carbon trading.

“Imagine a poor farmer cutting down a hectare of rainforest, rich in biodiversity, to create a pasture worth US$300 ” said the World Bank.
“The trees, cleared and burned, release 500 tons of heat-trapping carbon dioxide into the atmosphere, contributing to global warming. Meanwhile, firms in industrialized countries are paying many times the value of the cleared land-about US$7,500-to meet their commitments to limit the same amount of carbon dioxide emissions. ”
“The trees are worth more alive storing carbon, than they would be worth if burned and transformed to unproductive fields,” says Kenneth Chomitz, lead author of a new World Bank report on tropical forests. “Right now, people living at the forest’s edge can’t tap that value.”
“Global carbon finance can be a powerful incentive to stop deforestation,” said Fran#231;ois Bourguignon, Chief Economist and Senior Vice President, Development Economics of the World Bank. “Compensation for avoiding deforestation could help developing countries to improve forest governance and boost rural incomes, while helping the world at large to mitigate climate change more vigorously.”
But that doesnt mean bio fuel is dead, in fact it could be used to reduce air pollution, while at the same time help reduce poverty. This is how.
Many developing countries cite agricultural subsidies as the main factor behind their poverty. They can’t trade their way to growth, because industrial countries use subsidies to produce agriculture products, when the comparative advantage for producing these products lies with agricultural based economies. But, if the EU, Japan and US were to restrict these subsidies to crops grown for use solely as bio fuel or biodiesel, the market for food crops would be freed up, while at the same time industrial countries could continue to protect their farmers’ jobs.
For further information
World Bank Advises Better Forest Governance And Use of Carbon Markets to Save Tropical ForestsUN

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

OPEC has agreed to cut oil production by 1.2
million barrels a day, and yet the price of oil still fell. Some say it’s because traders
don’t expect OPEC members to adhere to the cut. Equally, however, it could be
argued that OPEC reduced oil quotas because it knew the price of oil was going to fall
anyway. In the long term, OPEC is not served well by a high oil price: it will
encourage the world to look for alternative sources of supply, and alternative forms of
energy.

Back in the early ’80s they used to say the demand for oil was actually quite
elastic in the long run. What they meant was in the short run it was inelastic,
meaning oil producers could charge what they wanted and demand would stay the
same, but in the long term, higher price led to lower demand. And it would seem
that principle is still true today, and OPEC knows it.

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

When YouTube was a little company with a big
website, publishers of video content knew there was little point in suing the company
for breach of copyright, because it would not be able to pay. But now it’s owned by
Google things are different.

Then take into account that Google has enough problems as it is, what with
Google News upsetting some media publishers, and irked book publishers, it doesn’t
want to rile the movie industry too.

But, no doubt in an attempt to fight off legal action before it begins, YouTube
has purged 30,000 illegal video clips from its website.

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

Are shareholders in Corus being foolishly
irrational, or is the £5.1 billion offer from Indian steel company Tata for Corus
doomed to fail? It is beginning to look as if it really will be one or the other. After all
Tata’s bid was for 455p a share, and yet, at close of play on Friday, shares in the
Dutch/British steel company were trading at 473p. Clearly the city reckons another
suitor will come out of the cupboard, and, according to the Sunday Times, one
contender has already stepped forward - Brazilian steel company CSN.

The doubts started with Standard Life Investments, the biggest shareholder in
Corus, with a 7.9 percent stake. Last week, when Corus said it had agreed the Tata
offer, a statement was issued by Standard Life saying the price agreed did not fully
allow for “what we understand to be the substantial savings available from the
joining of the two businesses.”

The Tata bid is heavily geared. Around 60 percent of the price is coming from
borrowings, with the Indian company partially using future earnings of Corus to
secure the debt, and if that option is available to Tata, then presumably it could be
used by another suitor.

And yet, on this occasion it may come down to more than price. Corus has
massive pension commitments. Future liabilities are thought to be around £13
billion, and pension trustees are nervous.

The Tata deal led to raised eyebrows. Such high borrowing for a company with
such a massive future pension liability, led to some questioning the deal. Then
again, Tata has agreed to wipe out the Tata £125 million pension deficit, and it was
described by a Corus spokesman as a “socially responsible company.”

CRC might not have been around as for as long as the Indian Tata, which
recently celebrated its 138th birthday, but it’s a bigger steel producer and a merger
between CRC and Corus would create the fifth largest steel company in the world.

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

And yet while the UK does better than expected,
it still manages to fall down the EU growth league, with our cousins across the
channel doing better.

We got trounced by France, whose month on month growth was 1.2 percent
compared to the UK’s mere 0.7 percent growth. Even sluggish Germany
outperformed the UK, seeing month on month growth of 0.9 percent.

In fact, when comparing the UK with the rest of the EU, it would be easer to list
the economies that did worse. Italy grew at just 0.5 percent and Greece - which is in
a right mess at the moment - with government borrowing growing at an alarming rate,
contracted, with quarter on quarter growth of minus 0.4 percent. But that was it. The
rest did better, meaning the UK came 23rd out of 25.

The EU’s star performer was Estonia, which grew at 2.8 percent quarter on
quarter, while annual growth was a startling 11.8 percent - a rate that even China
would be envious of.

Perhaps not surprisingly, considering the way it always knocks the UK and
Gordon Brown in particular, the Business Paper sees the latest data as an example
of Britain’s inevitable decline as it talks about how the “size of the state has soared in
Britain since 2000,” while the likes of Germany reduce government spending.

But while it may be the case that the UK is losing its way, a few months of lower than
EU average growth does not make an economic disaster. The UK’s annual growth,
according to Eurostat, from Q3 2005 to Q2 2006 was 2.6 percent, the same as France, and
slightly better than Germany.

After more than 10 years of uninterrupted economic growth, a period in which the UK
has consistently done better than most other EU countries, it is perhaps a little harsh to
write the UK off just because it has fallen behind the rest for one quarter.

Actually, the UK needs the other EU economies to perform better, so that we can
trade our way forward, and reduce reliance on the consumer.

For further information

Euro area and EU25 GDP up by 0.9%Eurostat

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

Over the last year or so economic news has not been good.
With fears about the potential scale of the impending slow down in the US, with fears that the Chinese
economy may have overheated, with doubts about the stability of inflation, and the rate of interest
expected to rise, economists have practiced their dismal science by gazing into crystal balls that were
half empty.

Yet if this is a slowdown, it would be interesting to see what a boom is like.

Last week the Office of National Statistics revealed its latest data on the UK’s economic growth.
In the third quarter of this year, the UK expanded by 0.7 percent, compared to market expectations of
0.6 percent.

Over the last 12 months, the UK has grown by 2.8 percent, much better than Gordon Brown’s
predictions of a few months ago, and in blazing contrast to the predictions seen at the beginning of this
year.

The good news gets a little bit better too, with the latest report from the Ernst and Young Item Club
predicting that the UK will grow 2.9 percent over the whole year - that’s 0.3 percentage points up on its
last prediction for the year.

Item Club figures are thought to be especially significant because it uses the same data as the
Treasury. Its chief economic advisor, Peter Spencer, said: “The UK economy is expanding quicker
than many of us anticipated - but it can go faster.”

Apparently in the quarter just gone, services grew at a slightly slower pace than in the previous
quarter (although at a quarter on quarter growth of 0.8 percent, the sectors still grows faster than the
economy at large), while industrial production grew by 0.3 percent, compared to zero growth in quarter
2. Business services and finance rose by 1.4 per cent, the same as the growth in the previous quarter.

Whenever we get good news, economists like to try to spoil it all. And, once again, while markets
celebrate with the recent five year highs set by the FTSE 100, the party poopers have started to warn
that in addition to next month’s all but certain hike in the rate of interest, rates could go up again next
year, and maybe eventually rise to 6 percent.

After all, when the UK was expected to slow, we were being warned that inflation was rising and
rates would need to go up. Now the UK is doing better than expected, one would assume rates would
need to go up even higher.

But, there is some good news, which even the representatives from the gloomy science can’t quite
quash. This time, the improvements seem to be led by areas that have been traditionally weak. That
industrial production is up must be down to the fact our trading partners across the channel are all
doing a lot better too.

But what is perhaps most surprising about the UK performance, is that, while our GDP expanded
faster than expected, the retail sector appeared to slow. At least the Office of National Statistics has the
High Street slowing. In fact, from August to September, our official compiler of statistics had the
sector falling by 0.4 percent, and for the three months to September, the quarter on quarter growth was
0.8 percent, compared to 1.5 percent three months ago.

And if the UK can continue to enjoy such growth while the High Street slows, then there really
should be room for celebrations, since the High Street is the point of maximum pressure on prices. If
retail sales are falling, maybe inflationary pressures will ease, and the UK can, perhaps, continue to
grow at a faster rate than expected without the central bank slamming on the rate of interest pedal next
year.

October 20, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

OPEC has voted to reduce oil output by 1.2 million
barrels a day. Markets have seen the OPEC move as an attempt to keep the price of oil
at the current sixty-odd dollars a barrel, and stop the recent slide in price.
A couple of years ago, OEPC used to talk about trying to maintain the price of oil
at nearer $40 a barrel. It feared a hike would lead to global recession leading to a
reduction in oil demand. But, now that evidence has suggested the economy can
withstand a much higher price, it would appear the oil cartel believes a higher price is
sustainable.
At least, that is the primie facia evidence. But this interpretation could be
wrong.
When the price of oil is high, producers start looking with renewed vigour for the
black gold elsewhere. They start looking more closely at the oil sands of Alberta
Canada, for example. It’s expensive stuff, but the current price makes it economically
viable to develop. And, once developed, the price of tapping it should reduce.
Then there are renewables - the high price of oil encourages the world to look for
alternatives.
But OPEC understands this. It seems to us more likely that OEPC is reducing
output because it expects the price to fall much further. History tell us that spikes in
the price of oil tend to be a short-term phenomenon, and that the price always falls
back eventually.
From a short-term economic point of view, OEPC’s decision is, in our view, a
sign that oil will continue to fall, helping to lift GDP. If you care about the
environment and global warming, however, a fall in the price of oil must be seen as
bad news, because it forces renewables down the agenda.

October 20, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

A ring of steel seemed to separate Corus from
potential bidders. While the price of steel and other commodities soared, the company
seemed unable to attract a bidder.

Formed by the merger of British Steel and Dutch
company Hoogovens in 1999, the company had tottered on the brink of collapse in 2003,
when the share price was down to 16 pence.

It’s a different story today. Following job losses and plant closures, the company returned
to profit. But, until recently, still couldn’t attract a suitor. But now Tata Steel, the Indian steel company that currently languishes in 59th spot
in the steel league (Corus is in 8th place), has had its £4.3 billion offer for the company accepted.
The offer values Corus shares at 455 pence. And, since it’s the only serious bidder to have come out
of the furnace of merger and acquisitions rumours for some time, there seems a good chance
the bid will go through.
Some eyebrows have been raised, however. Around 60 percent of the price is coming
from borrowings, with the Indian company partially using future earnings of Corus to secure
the debt. And with that, some analysts fear that a slowdown in the steel market could leave
Tata Steel struggling to meet Coru’s pension liabilities.
Then again, Tata Steel’s parent company, Tata, is the second largest company in India with a
controlling stake in 93 businesses ranging from software to engineering, and has been around for 138
years, so you’d assume it has plenty of practice at managing its finances