November 24, 2006 | posted by Michael Baxter in IABN | comments (0) |

According to a report in the Telegraph, there’s a growing fear that the UK faces a social cohesion crisis in the making. As today’s youngsters grow, and discover that they are paying for the older generations lack of planning, and they discover they don’t have the pension benefits that were once available, resentment will grow. The newspaper quoted the former chairman of the National Association of Pension Funds, Alan Pickering, as saying: “We are witnessing an inter-generational pension land-grab. Some of us are insisting on extracting more from the pension system than did our parents or will our children.”

The remarks were made as Pensions Secretary, John Hutton, warns that the UK has to make a stark choice between working until we are 68, or seeing income tax rise by four percent.

Mr Hutton said: “As unpopular as it may be to talk about working longer - the simple fact is that if we aren’t prepared to increase the state pension age, we will simply pass an ever greater and frankly unsustainable burden onto our children and grandchildren.”

November 24, 2006 | posted by Michael Baxter in IABN | comments (0) |

We noticed on Question Time last night that some of the panel thought it was ironic that Richard Branson is maintaining that Rupert Murdoch has too much influence. The inference being, that Sir Richard too is bent on dominating UK business with his Virgin empire. It’s a view that is quite wrong in our opinion and to compare Rupert Murdoch’s media empire which controls the UK’s top tabloid, top quality daily and top Sunday Broadsheet, not to mention overwhelming influence over BskyB, with Sir Richard’s hotchpotch and disparate empire of Virgin companies is quite absurd.

November 24, 2006 | posted by Michael Baxter in IABN | comments (0) |

If there’s one type of retailer who should really benefit from the new technology revolution, it’s the consumer electronics store. Whether it’s high definition televisions, new entertainment hubs - such as the Sony PlayStation 3, digital TV tuners, or any one of a host of new gadgets that are changing the world in front of our eyes, retailers that sell this gear should motor along nicely. And so it was for Comet, with its parent company Kesa, announcing a 9.5 percent rise in like for like sales in the three months to the end of October, with underlying sales at Comet up 10.9 percent.

Comet is not a lone star shooting across the viewing habits of BSkyB customers and their like. Earlier this week DSG, the company formerly known as Dixons said that sales in the 28 weeks to Nov 11 were up 14 percent.

November 24, 2006 | posted by Michael Baxter in IABN | comments (0) |

The Daily Mail General Trust, that’s the company behind the Mail and Evening Standard, reckons the press advertising slump is coming to an end.

Apparently, during the last few months as Autumn sets in, green shoots have been appearing in the company’s accounts. September saw a one percent increase in advertising revenue, October a two percent rise, and the company has even higher expectations for November.

But it wasn’t all good, far from it, in fact. For the year to October as a whole, print advertising income was down six percent, and the circulation for the Evening Standard fell five percent on the back of competition from the London freebies.

DMGT’s finance director, Peter Williams, said: “We are not holding our breath as there is no forward visibility in this market. We are not expecting a major recovery in the consumer advertising market but, with a little luck, a gentle recovery. There have been one or two false dawns over the last 12 months.”

We hope for their own sake, executives at DMGT don’t hold their breath. A gentle recovery lasting for a short period of time is perhaps possible, but the further erosion of print advertising at the hands of Internet advertising, with all the advantages it brings, is inevitable.

November 24, 2006 | posted by Michael Baxter in IABN | comments (0) |

The irony is probably not lost on the French movie company, Flach Film. Its movie, “The World according to Bush” takes a, how can we put it, a less than flattering take on the Bush family. Linking granddad Bush, Prescott, to the corporate sphere of Nazi Germany, and George senior to funding Saddam Hussein in the early days of his regime. And yet Google, the company that professes to “do no evil” is being sued by the French firm for breach of copyright.

The action has been picked by the US press, and in the process a film that barely raised a flicker to begin with, is gaining mass media exposure.

The trouble for the Californian company is this. It is possible to view a pirated version of the film from links provided by Google Video France, and apparently 43,000 hits have been notched up to date.

Reuters quoted Jean-Francois Lepetit, producer of the film, as saying: “We made estimates of the prejudice, and it goes well beyond 500,000 euros. The film has been downloaded about 50,000 times, and it has certainly been copied afterwards.” Flach claims that Google has not merely “acted as a simple host but as a fully responsible publisher.”

It seems that as the search engine company impacts upon media across the globe, the law courts are becoming the main method for fighting its otherwise irresistible momentum.

Google News is coming under pressure from the French Press Agency complaining about the use of headlines and photographs, and from the Belgium press, who have forced the removal of French and German language newspapers based in Belgium. In Denmark the press demanded a system that would enable them to opt into the planned Google News Denmark service, forcing the company to delay launch.

Yet we haven’t even begun on YouTube.

Google has its fingers in many pies. And some subsidiaries such as YouTube fly close to the copyright wind, but perhaps the fundamental problem for at least one venture is this. Google News strips out the branding and customer loyalty, and instead of a newspaper editor choosing the articles you read, and putting them in a certain order, the user can pick and mix, as if in a sweet shop.

The product is empowering for the consumer, but a blow for the publisher, since it reduces barriers to entry and provides a kind of level playing field in which articles compete on merit.

In the UK and US though, Google has not led to a deterioration in the quality of editorial, rather it has led to unprecedented richness. It does feel as if some publishers don’t like Google News, because they don’t like competition. The public’s interest does not lie with antiquated views and controls, but rather with an open market in which the consumer is the true king.

November 23, 2006 | posted by Michael Baxter in IABN | comments (0) |

When Google was floated, 27 months ago now, many talked about the return of dot com bubble two. With its treble digit pe ratio, they said the company was riding on the crest of irrational exuberance to make the late’ 90s look like a picnic. But since then, the doubters have been proven wrong, over an over again, as the share price soared.

Earlier this week the Google share price passed $500, against $85 when it was first listed.

The company is now valued at $154 billion, taking its market capitalisation above the value enjoyed by IBM and Intel. In the last quarter it made a pre tax profit of $733 million. Assuming that quarter is typical, then its annualised profit would be around $3 billion.

Google doesn’t do forward projections, so it’s not possible to say what its forward pe ratio is, but the consensus seems to be that the company is trading on a forward multiple of around 37.

And yet, look at the extraordinary growth. While its share price has increased six fold in two and a quarter years, its profitability has jumped from $27.3 million in the fourth quarter of 2003, to $79.1 million in the quarter before flotation to the three quarters of a billion quarterly profit it has enjoyed for the two previous three month periods.

Two more years like the last two, and let’s face it, with the convergence of TV and Internet, the opportunities for growth are still startling, and don’t forget Google’s plan to offer office type application tools; then the current valuation will not look so extreme.

The fact is, since IPO, the company has seen profit grow faster than its share price, if this continues for another two years, then the pe ratio will be no more than normal.

November 23, 2006 | posted by Michael Baxter in IABN | comments (0) |

Kirk Korian is a rich man. He is seen by many as one of the architects of Las Vegas; he was after all the man who once owned Caesars Palace. And when he acquired his ten percent stake in General Motors and appointed a man to the board, many thought he would become a major influence on how the troubled US car giant was run.

Earlier this year, it seemed to be panning out that way. He lunched with Carlos Ghosn, the boss at Renault and Nissan, and suggested the miracle worker bought his brand of magic to GM and that the US car company tied itself into the Nissan Renault stable.

But GM boss, Rick Wagoner, was not so keen, and finally in October, GM said ‘no’ to the idea and Kirkorian’s man on the GM board, Jerry York, resigned. At the time Mr York said: “I have grave reservations concerning the ability of the company’s current business model to successfully compete with those of Asian producers.” And: “I have not found an environment in the board room that is very receptive to probing beyond the materials provided by management.”

Mr Kirkorian is a secretive man. He never actually made a statement at the time, but one assumes he was none too happy. Then, earlier this week, he voted with his wallet, selling 14 million GM shares, reducing his stake to 7.4 percent, from 9.9 percent.

At the same time he bought himself a bigger slice of MGM Mirage.

Apparently the money he forked out for MGM was more than he received for the GM shares, so some speculate there will be more selling to follow.

Then again, Mr Kirkorian could have afforded his stock spending spree without selling his shares in the US motor company, so perhaps he is gently getting out, timing it the way he did so as not to panic the market.

November 23, 2006 | posted by Michael Baxter in IABN | comments (0) |

When the Bank of England met earlier this month and chose to increase the rate of interest no one was surprised. Just about every economist and their dog had expected the rise. At least that’s what the world thought, but it appears someone forgot to tell the Bank of England Monetary policy committee members about this, because yesterday it emerged the rate hike was not the runaway decision we thought it would be.

These days the bank seems to have a resident dove. Back in the 1960s football club Tottenham HotSpur was well known for its attacking flair, under the captaincy then management of Danny Blanchflower. For some reason the economics professor and MPC member is known as David “Danny” Blanchflower. Maybe the poor man is a Spurs fan, certainly when it comes to boosting the economy by keeping the rate of interest low, he has attacking instincts.

What surprised many, though, was the news Mr Blanchflower was joined in his dovecote by deputy governor, Rachel Lomax. Expectations that inflation would fall next year, lowish retail sales and the feeling that the UK currently has an output gap - meaning we are producing below full capacity, meant that the duo felt there was no need to raise interest.

The news that two out of the nine members were against a rise in November, will be seen as evidence that it is less likely the Bank will raise rates again. Up until recently there was a consensus that rates would be upped to 5.25 percent early in 2007, but in recent days we have noticed this view losing support.

November 23, 2006 | posted by Michael Baxter in IABN | comments (0) |

And so it comes down to one simple belief versus another. On the one hand you have the view put forward by David Miles, chief UK economist at Morgan Stanley and former advisor to the government, that the property market has been driven upwards by a kind of mass consumer based speculative frenzy. On the other side of the fence, the property bulls are arguing that the booming property market has nothing to do with speculation, rather it’s down to the forces of supply and demand, with too few properties, kept down by planning restrictions, meaning that this time the higher prices are sustainable. There seems little room in between. Either you are with Mr Miles, and a crash is round the corner, or prices will just keep on going up.

Mr Miles is not the only bear to have come out of the wilderness recently. Last month PWC said there was a one in three chance house prices will be lower in 2010 than they are today, and perhaps even more alarmingly, a 13 percent chance they will be lower in 2020. Last week the FSA warned banks to allow for the possibility that house prices could fall by 40 percent.

But the latest theory, if you could excuse the pun, is by miles the most bearish we have seen for some time. The pessimistic theory is based on the belief that home buyers are being driven forward by the fear house prices are going to continue their rapid rise, so they are jumping on the ladder as quickly as possible, which in turn distorts the market. Mr Miles reckons that at present, buyers believe house prices will increase by ten percent a year, and in the short run that belief becomes a kind of self fulfilling prophecy, with over half the recent rises in house prices driven by speculation.

In short, house prices are rising faster than can be explained simply by citing income growth, a rise in the population or by lower interest rates making mortgages more affordable.

If the property market was a ball at the end of elastic, then the Miles theory would suggest speculation has stretched that elastic to its limit, and that at some point it will come swinging back, too far in the other direction. But the timing, says the economist, is hard to predict, although he said this adjustment could come in the next “one or two years.”

Yet, while Mr Miles enunciates his bearish theory, there is no shortage of apparently equally qualified and esteemed economists, who disagree. Let’s face it, previous predictions of a crash have been proven wrong, and right now we appear to be at the top, or at least near the top of the interest rate cycle, yet the market is in rude health. It’s true that there’s normally a time lag of several months between a change in the rate of interest and an adjustment in the housing market, but in the past the index from RICS (Royal Institute of Charted Surveyors) has reflected a changing climate very promptly, and the latest score for this index was the highest recorded in over two years.

On the day the press were full of Miles’s theory, Paragon Group, which is the third largest lender in the Buy to Let market, had a very different tale to tell.

According to Nigel Terrington, chief executive at Paragon, the Buy to let market is looking good. “There is a bulge in the number of the 20- to 30-age group coming into the market and they can’t afford to buy or don’t want to buy and that will keep yields strong for at least the next 10 years,” he said yesterday.

In the end perhaps it all boils down to this. Where do First Time Buyers who can’t raise the deposit go? Do they stay with parents? Or do they rent? If they rent, then the yield to landlords will be strong, and Buy to Let investors will take up the slack left by First Time Buyers.

On the other hand, if the problem haunting these frustrated younger people, who have not yet made the plunge into the property market, is not the cost of raising the deposit, rather it’s simply the cost of making the mortgage payments, then, since landlords have to price the rent they charge at a level which covers the rate of interest, they won’t be able to afford the rent either.

Ultimately, though, the deciding factor could boil down to how debtors cope with an environment of low inflation. The rate of interest might still be low in historical terms, but the debt still has to be re-paid As inflation is historically low too, there’s no significant prospect of the value of debt being eroded by rising prices and wages, like it used to be. For as long as mortgage debt in proportion to income remains high, and, thanks to low inflation, this will remain the case for some time, we are always vulnerable to a shock. The shock may never happen, but whether it is next year, the year after, or in ten years time, if it does occur the ramifications could be serious.

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

While all around the cynics said Gordon wouldn’t do it, Mr Brown kept the faith, insisting that the UK would keep to his beloved golden rule. That’s the rule which says it’s okay to borrow on current account items, providing the books balance over the course of the economic cycle. A few changes in definition, defining for example expenditure of road maintenance as an investment, playing around with the timing of the economic cycle and he was pulling it off, but only just.

This time around, however, government fianances have been given a boost, not through some sleight of hand, not through smoke and mirrors but because of corporate profits.

October is the month for corporation tax receipts, and this year they were up, by a lot. In all, the current account enjoyed a £4 billion surplus in the month, compared to £2.3billion last year. It was the best October showing since 2001. So far this year, government borrowing for current account items is £8.7bliion, compared with £11.5 billion this time last year.

But while the government is doing well on current account, investment is up. Total borrowing for the year so far, including public investment is £23bn compared with £21bn this time last year.