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

Some time ago we said that for the next few years the best hope for the UK lies with Europe. Our consumers have broadly run out off puff, the government can’t keep borrowing, Uncle Sam is struggling under the weight of a burgeoning housing market crisis, the UK needs more exports, and our main trading partners in the EU provide the hope.

It seemed like a forlorn hope, but ever since then the eurozone has surprised us all enjoying solid, if not spectacular, growth. In the third quarter the region grew by 2.6 percent, - not bad..

So with will this mean that our manufacturers can at last start to see business improve? Yesterday, the CBI released its latest industrial trends survey, and the export orders index has enjoyed something of a surge, hitting #43;3, meaning the difference between manufacturers saying export orders are up and those saying they are down is 3. That may not sound like much, but apparently it’s the best score in a decade.

Ian McCafferty, the CBI’s chief economic adviser said:”This month has left many businesses pleasantly surprised. Overseas demand for British-made goods has bounced back and total order books have returned to the levels of the summer.”

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

There’ no business like the stock exchange business. At least there isn’t at the moment. The comings and goings are reaching bewildering proportions, with the money men saying the London Stock Exchange looks set to receive an even bigger offer, while the threat to the entire stock exchange business model grows inexorably.
Last week, seven banks announced their plan to launch a new trading platform and the markets reeled. The implications of the plan were dramatic. New technology, and the power of the Internet were to be harnessed to offer an alternative to trading shares over the European stock exchanges. Not surprisingly, the London Stock Exchange’s share price did falter. For so long it has followed an upward trajectory, but last week it went the other way, and the NASDAQ pounced.
Earlier this year, when it bought shares in the LSE, NASDAQ forked out 1243p a share, and that meant that any offer it makes for the company has to be for at least that price. This condition expires in May next year, when the NADASQ would have been free to offer any price it chose. But with the LSE stock receiving something of a beating, the US company was back on Monday night with a £2.7 billion bid, worth exactly 1243p a share. And while it was at it, it bought more stock, upping its stakeholding in the LSE to 28.75 percent.
Not surprisingly, the LSE, and its boss Clara Furse turned the NASDAQ offer down. Lets’ face it, the company is rather inclined to turn its nose up at offers of marriage, and this time Ms Furse said: “We believe that Nasdaq’s final offer fails to recognise the outstanding growth record and prospects of our group on a standalone basis, let alone the exchange’s unique global position.”
Clearly, however, Ms Furse and her colleagues are not the only ones who think the UK premier stock exchange is worth more. Yesterday, Samuel Heyman, a man the Times described as an American corporate raider, bought himself an 8.8 percent stake in the LSE, at a price of 1290p a share. Clearly he thinks the old girl has got lots more value in her yet.
But, if there’s more growth in the LSE, she is running out of suitors. Yesterday ICAP ruled itself out of making a bid. ICAP is the world’s number one interdealer broker, and earlier this year rumours suggested the LSE and ICAP could be planning a merger. Yesterday, however, ICAP boss Michael Spencer said: “The LSE situation is straightforward. We have concluded that there is no clear shareholder value for our shareholders from a deal.”
Mr, Spencer did say something else, however, that must leave LSE and all European exchanges shaking just a little. He said the company was well placed to benefit from MiFid, which is the EU commission’s idea for improving financial markets, and which will enable shares to be traded independently of a stock exchange. This is the same directive that was behind the announcement last week from seven banks to set up in competition with the stock exchanges, and many are taking the ICAP announcement yesterday as a sign it may well ally itself with these banks. If it does that, ICAP would have gone from potential partner with the LSE to arch rival.

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

Poor Sir Richard Branson. As the largest shareholder in NTL, he is a sort of media mogul, but nothing like Rupert Murdoch. When Mr Murdoch comes to the UK he has breakfast with the Prime Minister and other leading politicians, or so whinged the Virgin boss recently, whereas Sir Richard and Tony don’t tend to get together over toast and cereal at all.
It’s not that Sir Richard doesn’t respect Mr Murdoch. “He is a very good business man” understated the famous balloonist, and “I admire him as a businessman. He knows how to play poker. He’s playing it on the basis that he thinks he can get away with it.”
And all of a sudden NTL looks like a forlorn suitor, a bystander, as ITV rejects its bid, and once again Sir Richard is left to eat his cornflakes on his tod, as ITV chairman, Sir Peter Burt, and Mr Murdoch junior, or James, hold court over the day’s first meal. At least that’s what happened yesterday.
Perhaps it’s no surprise the NTL bid was turned down. The Cable TV company offered 122p a share, compared to the 135p a share BSkyB forked out for its minority stake last week. Besides, it had been largely predicted that NTL would have to make a cash only bid, but the offer on the table was for 105p in cash and 17p in NTL shares. Since then the NTL share price has fallen by a couple of pence, so that the value of the deal to ITV has already shrunk to an effective price of 120.4p.
In an official statement, ITV said the offer “materially undervalues ITV.” And “the board believes that whereas there is obvious appeal to NTL in gaining control of ITV’s substantial and successful business, from ITV’s perspective there is little, if any, strategic logic for ITV to combine with NTL.”
But Sir Richard doesn’t see it that way and blames the Murdochs. He said that at the time of the offer, ITV received NTL with warmth, and that analysts felt it was a fair price. But then when the BSkyB spanner was thrown in the works, it all went cold.
So, it’s off to the regulator, and what ever authorities there are whose help Sir Richard can illicit. He is no stranger to taking on bigger companies by appealing to the public, ensuring their support. He likes to be seen, of course, as the people’s man, thwarting the anti competitive practices of big business. And yesterday, true to his mould, Sir Richard spoke out: “All of us know governments are scared stiff of Murdoch. If The Sun, The Sunday Times, The Times, Sky, The News of the World, just to name a few of the things that Murdoch owns, all come out in favour of a particular political party, the election is likely to be won by that particular party.”
“If you tag on ITV to that as well, basically we’ve got rid of democracy in this country and we might as well just let Murdoch decide who is going to be our prime minister.”
We have a feeling the story has a long way to go yet. An ITV/NTL merger would, in our view, be good for the UK, because it would provide genuine competition to BskyB. It’s hard to believe the public’s interest is best served when the live TV Test Match cricket rights are signed over to a broadcaster that is only received in a relatively small percentage of British homes. The UK can only benefit from competition, and an NTL/ITV company poses competition to BSkyB. On its own NTL, even with Virgin Mobile, is surely too small, and how can ITV be realistically seen as a competitor to BSkyB, when its supposed rival has a 20 percent stake?

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

So the price of oil has fallen and the Bank of England reckons inflation will fall back towards the end of next year. Alas, that could all go wrong if wages start to rise.

To date, all those extra pennies we have been spending on our litre of petrol, have not filtered through into wage rises. Just because the price of oil is lower than it was a few months ago, doesn’t mean it’s cheap, and wages have not reflected any of the rises we have seen over the last few years. Gas bills are still up too, and while the CPI index for inflation is low, the Retail Price Index, which is often used as the measuring stick for wage bargaining, recently hit 3.7 percent, the highest level since 1988.

Yesterday, the Industrial Relations Service released data to make inflation hawks take to the sky again. In the 12 months to October, pay deals saw wage increases jump to 3.4 percent, close to the decade high.

It’s not high enough to have the panic button pressed, but it is high enough to cause alarm. We must nervously await future data.

As a general rule if costs rise and certain prices go up, this is not necessarily inflationary. So a rise in petrol does not cause inflation. Inflation only sets in if wages rise to cover the cost. When raw materials become more expensive, they have to be paid for. In practice this means the price comes in one of two forms. Either, we are worse off because we are having to spend more money for the same quantity as before, or if this effect is nullified by wage rises, we are worse off, because the rate of interest goes up.

November 20, 2006 | posted by Michael Baxter in IABN | comments (0) |

Last week we stirred up something of a hornets nest with our article on immigration - see 16 November. Below is one of the letters we received.

Sirs

A brief point on your well written note on immigration being positive to economic growth, the effect as far as the individual is concerned is much less clear cut and reflects in much of the tabloid commentary you discuss.

Cheap labour, either through immigration or through globalisation (see Stephen Roach’s piece on Global Growth Arbitrage, Oct 2006) has undoubtedly helped support growth while keeping inflation low, however this has been primarily to the benefit of soaring corporate profits and all those linked to this process (the stock market as an obvious example).

The losers however have been the average wage earners, who have seen real post tax income falling in many developed economies, especially in relation to the distorted inflation figures that no one really believes in any more.

Despite this pressure, the consumer has kept the Anglo Saxon economies growing largely on the back of the largest credit bubble (and ponzi scheme, if you are being cynical about housing) in recorded history. However as you have pointed out in the past, debt hangs around in a low inflation environment and this boost must (if it already hasn’t in the US) come to an end.

The real worry is then that as reality reasserts itself, growth slows and unemployment increases as corporate profits come under pressure and we confront a whole new set of social problems running concurrently with slow growth.

The problem with an extended period of price stability is that distortions tend to grow only slowly and can be sustained for extended periods of time; however they will almost always unwind (see Bank of International Settlements Working Paper “Is price stability enough?” from April of this year) with considerable impact. More to the point after extended periods of stable life, people are rarely psychologically well prepared for these events and will tend to ignore the warning signs until it is too late.

In a nutshell immigration has been a boon for stable economic growth, but without understanding why the doom-mongers of the tabloid press may be right to be concerned.

John Paul Thornber
Investment Manager

For further information
Immigration: US and Spain boom on strength of immigrants Investment and Business News 16 November

November 20, 2006 | posted by Michael Baxter in IABN | comments (0) |

In the US right now, unemployment is the big problem. Next year, as the US housing slump gathers momentum, it’s likely to get even worse, but forward wind the clock five years and the situation will improve dramatically, not because of any strong underlying economic factors, but rather because of the numbers of the baby boomer generation retiring.

Paul Ashworth, from Capital Economics said it rather neatly : “According to the CBO’s figures, the economy currently needs to create 140,000 net new jobs a month to prevent the unemployment rate from rising. But within five years, the economy will only need to add 60,000 new jobs to match the growing labour force.”

But, or course, beyond every silver lining there is a grey cloud. A falling working population might help jobs stats, but it will be a disaster for the pension industry.

November 20, 2006 | posted by Michael Baxter in IABN | comments (0) |

We all know the movie business is risky, but maybe there’s one franchise that offers guaranteed riches and profit. James Bond, it would appear is safe as a recipe for making money. Then again, maybe not, for in the US last weekend, early data suggests the film didn’t even make the top slot.

According to data from Columbia, Casino Royale only managed to net $40.6 million in its first weekend, compared to $44.7 million from the previous Bond Film.

Meanwhile, Warner Brothers reckons its big film of the weekend, “Dancing Feet” a film about dancing penguins, brought in $42.3 million.

The Bond film has done all right in the UK, however, bringing in $25.6 million. It even made $3.7 million in Russia.

November 20, 2006 | posted by Michael Baxter in IABN | comments (0) |

When the news broke that NTL was planning to splash out more than £5 billion pounds on acquiring ITV, the cynics came out of their cupboard. Few seemed to be able so see how this was a good idea. The Independent likened a merger of the two companies to two drunks propping each other up. As for Rupert Murdoch and his son James who runs the show at BSkyB, it was assumed the company was just pleased to be out of it. But Friday night, it all changed. Commentators and analysts might not have taken to the idea of an NTL and ITV merger, but the Murdochs clearly had a different perspective

BSkyB bought it self a 19.9 percent stake in ITV on Friday, setting the company back around £940 million. It is forbidden, under competition regulations, from acquiring more than 20 percent but frankly the stake it has acquired is enough.

NTL has losses, which it could use to offset profits in ITV if it was to buy the company outright. But if it only owns 80 percent, this option is no longer available. Besides, NTL planned to acquire ITV by debt. This was seen by analysts as dangerous; NTL has enough borrowings as it is, and its track record for managing debt is not good. But if it can only buy 80 percent of the company, with the resulting restrictions to how it manages the business, it is thought that it may actually prove impractical to raise the money.

It seems inevitable, then, that with BSkyB as a large minority shareholder in ITV, an NTL bid is off the agenda.

There’s only one thing for it. And Sir Richard Branson, would be media mogul and largest shareholders in NTL, has told on the Murdochs.

With his hand aloft, he shouted out: “Sir, this is not fair.” And “What about the Enterprise Act of 2002, which is supposed to stop minority shareholders with a a 15 percnet stake or more having a material influence on the company they have shares in? ”

So what will teacher, who in this case is the Office of Fair Trading, decide?

For its part BSkyB said it bought the stake because it sees ITV as a valuable asset- in short, it’s just an investment.

So it’s Branson versus Murdoch.

“This move is seriously damaging to the interests of viewers, programme makers, artists and shareholders and the time has come for regulators, politicians and consumers to finally show that they’re willing to stand up to reckless and cynical attempts to stifle competition and secure creeping control of the British media,” Sir Richard said.

But, in response, a BSkyB s statement said: ” Sir Richard seems to believe that he and his partners in NTL-Telewest have a unique right to acquire ITV.”

And while the two slog it out, all those analysts who questioned the merits of the merger must be wondering what all the fuss is about. Why is BSkyB so keen to scupper the NTL bid? If this is such a bad idea, why are two of the titans of the business world so interested in it?

For an answer, refer to our 10 November issue

For further information

Content is king: but Branson set to become the Emperor Investment and Business News 10 November

November 20, 2006 | posted by Michael Baxter in IABN | comments (0) |

The electronic graveyard is full. Hardware and software companies with bigger ideas have populated the video and computer games industry from the onset. In the early days of the computer games industry (when the PC cost several thousand pounds), companies got it into their head that the home computer needed educational software or software for home accounts, and yet, all that ever sold in big quantities (in the UK at least) were computer games. At the time computer games were seen as a craze, a here today gone tomorrow fashion, and the national media’s eyes would visibly glaze over at the mention of computer games. But they were wrong.

When Nintendo re-launched its 8 bit games console into the UK in the late ’80s, many wrote it off because it lacked a keyboard. Even large retailers who should have known better said that Nintendo was doomed to fail in the UK, because all if offered was video games. But they were wrong.

In the years that followed, the list of big ideas for alternatives to a dedicated video game machine grew. There was Philips with its CDi player, which offered encyclopaedias and a host of interactive CDs which were supposed to be useful and informative, rather than just fun. But the company got it wrong and the product failed.

Out of the US, a company called 3DO tried to change the world of electronic entertainment with an all singing all purpose CD based console. Yet, despite having the backing of the man who formed Electronic Arts the machine failed.

Even Apple had an idea for a childrens’ entertainment machine. It was more edutainment than games, but the product - Pippin it was called, failed.

But Nintendo and Sega, whose hardware was used almost entirely for games, went from strength to strength, and their dominance only came to an end when Sony launched the best machine the world had yet seen for video games.

And now the battle is about to begin all over again. Maybe this time, however it will be different.

The PlayStation3 and Microsoft Xbox 360 are so much more than just video games machines, They are home entertainment hubs. The new PlayStation, which was launched into the US to the sight of queues around the block last week, supports new generation DVDs with its Blu-ray DVD player, while one version of the new machine has WiFi Internet access.

But, the dedicated games console is still alive and well, for last week also saw the launch of the new Nintendo Wii video games machine.

There are no pretensions about this machine; it’s there for playing games, and the feature that has the specialist press going gaga is its one-handed, motion-sensitive controller, that is supposed to be able to simulate activities such as fishing or tennis.
Because, it’s a simpler product, Nintendo is not beset by the production problems that are holding back the new Sony product. It expects to sell 4 million units by the year end.

This time though, there a feeling the market is big enough for both, that many users will buy the new Nintendo and one or other of the entertainment hubs from Sony or Microsoft.

Maybe Nintendo has still got its niche, and maybe it’s been very smart, stepping back from the fireworks, letting the two bigger boys slog it out, and settle for being a big fish in a smaller pond. Or maybe, the company is merely doing what it always has done and is focusing on video games, video games, and video games. After all, the jury is still out as to whether this bigger pond actually exists.

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

John Maynard Keynes once said economists made too much of the long term. “In the long term,” he said, “we are all dead.” Presumably, not even the economist, whose theories gave rise to the great debate between Monetarists and Keynesians, would have disagreed with the latter part of Keynes’s famous saying. And yesterday, additional empirical evidence was available to support Keynes’ assertion that in the long run we are all dead, because Milton Friedman, the father of monetarism, died.

Friedman was the man who believed inflation was ‘always a monetary phenomenon’. Margaret Thatcher was a fan of his, and armed with nothing but her handbag and Friedman’s theory, she took on inflation.

Friedman was also a great advocate of open markets, but when the austere implication of his theory leapt from the page to reality, it would appear the great man started to have a change of heart.

He disagreed with Mrs Thatcher when she cut government borrowing when the UK was in the midst of recession, and in his later years once said: “The use of quantity of money as a target has not been a success. I’m not sure I would, as of today, push it as hard as I once did.”

Milton Friedman, Nobel prize winner in 1976, was 94.