December 14, 2006 | posted by Michael Baxter in IABN | comments (0) |

Enron’s former chief executive, Robert Skilling, was sentenced to spend 24 years in the slammer earlier this year. But, he appealed, and while the appeal went on, the man who, according to the findings of the US court, helped preside over the biggest corporate collapse ever, hoped to continue to breathe free air.

His boss at Enron, Kenneth Lay had a similar idea, but it didn’t quite work out the way he planned. While awaiting appeal, he was found not guilty - but alas no free air to breathe. Mr Lay had died, and under Texas law you can’t find someone guilty when they are appealing against a hearing, if they then die.

As for Mr Skilling, he has been told that it is unlikely his appeal will result in the quashing of all of his jail sentence, and as result - has been ordered to go directly to jail, without even passing Go

December 14, 2006 | posted by Michael Baxter in IABN | comments (0) |

While all around there is gloom, the supermarkets are living up to their prefix, and turning in a performance that could only really be described as - well - super. According to TNS Worldpanel for the 12 weeks ending 3rd December 2006, the overall market grew at a rate of 5 percent on last year.

As, its director of research, Edward Garner said: “Whilst there are media reports of potentially poor Christmas trading in other retail sectors, there appear to be no signs of a slow-down in Grocery.”

Mr Garner continued: “Tesco, Asda, Sainsbury and Morrisons all saw strong growth rates ahead of the overall market and, taken together, the top four now account for over three-quarters of British grocery trading. ”

“Of the mainstream grocery retailers, Waitrose is demonstrating the strongest growth at 11% year-on-year. This is likely to lead into a record Christmas for the supermarket as shoppers traditionally adopt more upmarket buying patterns in the run-up to the big day.”

“At the same time however, the discount retailers (Aldi, Lidl, Netto) have achieved a record total share of 5.5%, helped by recent new openings and acquisitions.”

“This environment, where every point of market share is being fought over, is proving tough for the independent sector and Kwik Save in particular.”

December 14, 2006 | posted by Michael Baxter in IABN | comments (0) |

Talking of inflation, oil is in the news again. According to a report on the Bloomberg site, Katherine Spector, a vice president at JPMorgan Chase Co, reckons oil is about to creep back up to $67 dollar a barrel again - around $5 up on the current level.

Ms Spector put the recent falls in oil down to speculators realising 2006 profits and says that for 2007, investors will be ploughing their money back into commodities.

At the moment the jury is out on which way the US economy is heading - some say 2007 will be tough, others that she will soon start to pick up. But the optimists have been pinning their estimates - or at least in part - on the belief oil will continue to fall.

If black gold does start to rise, then all the hope that inflation will revert back to the modest levels seen in recent years could be quashed. With that, hopes that the rate of interest is set to head down both stateside and in the UK, could go, along with oil out of the optimistic camp, polluting the economic atmosphere, and giving rise to global warming of inflation expectations.

December 14, 2006 | posted by Michael Baxter in IABN | comments (0) |

The Office of National Statistics was busy yesterday, revealing good news on the job front, but disturbing signs with wage rates.

At last unemployment has started to improve. It’s been a funny year; employment has risen by 216,000, while unemployment has also risen, by almost as much - 197,000 to be precise. In percentage terms, that’s actually quite a big rise, with UK unemployment now at the 1.7 million mark.

We all know why unemployment and employment are rising in tandem. Immigration, and greater participation amongst older workers - has led to a rise in the size of the labour force. But this year, while demand for labour has been increasing, it’s not risen as fast as the supply. Things changed, however, in the month just gone, with the rise in employment actually exceeding the rise in the workforce. The result: unemployment improved to the tune of 7,000.

But there is of course another side to the coin. Supply of labour has been outstripping demand, so its no wonder wage increases have been muted, maybe that’s the main reason why inflation hasn’t taken hold this year.

But, while November brought good news on unemployment, the latest data on earnings was not so good. Average earnings including bonuses rose by 4.1 per cent in the year to October, up from 3.9 per cent in September, while average earnings excluding bonuses, or regular pay, rose by 3.8 per cent in the year to October 2006, up from 3.5 per cent in the previous month.

That august economics consultancy, Capital Economics, reckons there’s nothing to be alarmed about. “But at these rates, pay growth is still pretty subdued and simply appears to be recovering from the unusually low rates seen recently. And recent pay deals have continued to average just 3%,” said its Victoria Redwood.

Ms Redwood may be right, but on the other hand, wage settlements are often linked to the Retail Price index - which soared to 3.9 percent in November, up from October’s eight-year high of 3.7 percent. January is the time when many wages are set, and if wages have seen a jump in November, when it’s normally quiet, it’s not looking so good for the New Year.

The snag is, we will have to wait until the middle of February before the Statistics Office tells us.

December 14, 2006 | posted by Michael Baxter in IABN | comments (0) |

Education, education, education: that’s what Tony Blair once said, and of late, with the Leitch report and the pre budget statement, learning has been forcing its way back to the front of the political class. But, wait a moment. If education is so important to the UK’s future business success, and the future of business in the UK will to a large extent be determined by how well we exploit the opportunity that is China, aren’t we missing a trick?

Employment consultancy, Hay Group, has been banging the ‘teach Mandarin’ drum throughout the year.

Apparently, the UK sees just 500 Mandarin graduates a year, and according to Hay, nearly half of UK business leaders plan to recruit Chinese MBA graduates in order to boost their prospects, and companies want to see a China module to be included in all European MBA courses.

Now Hay has produced some more research, and this time it says war is about to break out - war, that is, for talent. According to Hay’s Deborah Allday: “We are about to face a war for talent both in China and in domestic markets as companies scramble to recruit talented leaders and managers with an understanding of the Chinese market and business culture.”

“The UK government needs to take a fresh look at the higher and further education curriculum in this country to determine the best way to make UK graduates and UK plc competitive in the global marketplace. ”

“This means not only introducing Chinese language teaching, but fostering an understanding of Asian culture and business practices.”

If you are considering studying Mandarin, or think your kids should take up the language, here’s a tip. Apparently a Chinese scientist working from the University of California, Fan-Gang Zeng, has found that enunciating the Mandarin language calls upon musical as well as normal language skills. Scientists reckon the left hand side of the brain is normally used to process language, while the right hand side is good for music. Mandarin, however, is something of a musical language - with pitch often determining a word’s meaning. And sure enough, Mr Zeng has found that when speaking this language, both sides of the brain are a lot more active than with most other languages.

So maybe, if business want to meet the challenges of the future and can’t find any Chinese speakers, they should take on music students; at least that way they can sing to their Chinese customers.

December 13, 2006 | posted by Michael Baxter in IABN | comments (0) |

Still with the rate of interest. Yesterday, it was the Fed’s turn. Just like the Bank of England earlier this month, its rate setting committee sat and deliberated, and then did nothing. Rates stayed on hold for another month, remaining at 5.25 percent.

For two years exactly, the Fed upped rates every time it met, but since June they have been unchanged.

This time the Fed teased us a little, giving ammunition to both hawks and doves. For the economic birds of prey it said: “Some inflation risks remain.” But for birds of peace it said: ” Inflation pressures seem likely to moderate over time.”

As for the economy, the Fed said “Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market” but ” the economy seems likely to expand at a moderate pace on balance over coming quarters.”

December 13, 2006 | posted by Michael Baxter in IABN | comments (0) |

Business in London has got a problem, concludes a report from PWC and the CBI. There’s a shortage of skilled labour. The solution: immigration, or so some employers reckon.

The report found that half of respondents (48 percent) are reliant on staff from other EU countries and 37 percent on non-EU workers. As well as the job skills they bring, immigrants’ language abilities are cited as valuable by 77 percent of employers.

Last week, with the unveiling of the Lord Leitch report and the pre budget statement, education was placed centre stage again, but the headline catching words of Leitch now ring disturbing echoes. He said that unless we do more to improve education and training we will be “condeming ourselves to a lingering decline in competitiveness, diminishing economic growth and a bleaker future for all ”
Immigration, is perhaps a short term answer only, as PWC said “Migrants are not a long-term solution to the skills gap, but, worryingly, three out of five employers (59%) are not confident that a new joint skills project by the Government and the Mayor of London will deliver a workforce fit for business’ purpose. Only 23 per cent believe it will.”
And CBI Director-General Richard Lambert said: “London is a vibrant and dynamic international city which attracts talented people from across the world to live and to work, yet this survey lays bare the skills shortages which employers are facing.
“In the short term, firms will hire economic migrants to fill the gaps but this is not a sustainable long-term solution. If we are to maintain our pre-eminence we need to instil in our home-grown school-leavers and graduates the skills they need to compete in today’s globalising world.”

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December 13, 2006 | posted by Michael Baxter in IABN | comments (0) |

There was some refreshingly good news on the US balance of payments yesterday, as economists wondered whether they had spotted a floor to the bottomless pit that is the US trade deficit.

October’s trade deficit fell to the lowest level for 14 months, down to $58.9 billion, from $63 billion the month before. Falls in the price of oil were behind the drop, with a decline in the cost of petroleum-related imports being the area of main improvement.

Alas, it was not all good. The deficit with China, just keeps on growing. As Capital Economics put it: “Even after seasonal adjustment, the deficit still hit a record high of $20.5bn, up from $20.1bn.

December 13, 2006 | posted by Michael Baxter in IABN | comments (0) |

The LSE just doesn’t want to know. The NASDAQ keeps making overtures, but the London Stock exchange, under the leadership of chief executive, Clara Furse, seems hell bent on staying independent.

Now, the US company has given up being nice. It’s going for the jugular, or to put it another way - is going hostile. It has also lowered the number of shares it requires to take the LSE over, from 90 percent to just 50 percent. Bearing in mind, it already owns 28.75 percent, you could be forgiven for assuming that will be a relatively easy task- game set and match to NASDAQ, you might say. However, you might well be wrong, sticking with the tennis analogy for a moment; Victory to NASDAQ? “You cannot be serious.”

There are two snags with the offer. Firstly, under British regulatory requirements, it can’t go above the offer price. That’s a problem because NASDAQ offered £12.43 a share, and at the moment LSE shares are trading at a six percent premium over that level. Ironically, the would-be purchaser’s best hope seems to lie with another bidder entering the fray, because under regulatory rules, if the LSE receives an offer from another source, all of a sudden NASDAQ will be allowed to pay out more money.

The second snag is potentially more serious. To buy the LSE, NASDAQ is being forced to borrow heavily, in part using LSE’s future earnings to secure the loans. For as long as the LSE has large minority shareholders, there is a very real danger that any attempt NASDAQ makes to use LSE earnings to secure debt, could be vetoed.

December 13, 2006 | posted by Michael Baxter in IABN | comments (0) |

It was a catalogue of woes that lay behind the disappointing data announcement from the Office of National Statistics yesterday.

Inflation wears several hats. There’s CPI, or the consumer price index - this is the main index today, and for the Bank of England comes with a target of two percent. If it rises or falls by more than a full percentage point from this level, then the Bank of England governor, Mervyn King, has to write a ‘Dear Gordon..’ letter, explaining why it has gone wrong. This index has now been monitored by the UK’s official compiler of statistics since January 1997, and in November just gone it hit a troubling 2.7 percent, the highest score ever achieved; 0.3 percentage points above the October level, and perilously close to a letter writing level.

Then there’s the Retail Price Index, this is the measure which used to set headlines, and includes mortgage payments. The Bank of England doesn’t have to target this index, and therefore, you would have thought, it’s less important. But in fact, you would be wrong, its movements are crucial, because typically wage rates are determined by the RPI index. If it rises, so too does pay, and perhaps the single biggest factor in determining inflation is the rate at which wages are rising. The RPI index hit 3.9 percent in November, up from October’s eight-year high of 3.7 percent.

January is the time when wage rates are often set, so with the RPI index high, the runes are not looking good. To rub salt into the festering sore that is inflation data, a report out this morning from KPMG and the Recruitment and Employment Confederation has found that UK companies upped wages at the fastest rate in six years in November.

But the problem with the two public hats of inflation, CPI and RPI is that they partially reflect one-offs. For as long as the core level, which excludes energy, food, alcohol and tobacco, is in check, and this level has been way down of late - many feel there is no need to worry.

There are snags with this argument. Firstly, just as it could be said the high price of oil is a one-off, maybe it could be argued the low cost of clothes is a one-off too. Secondly, many economists believe the low level of core inflation was in part caused by firms squeezing costs to make up for higher raw material costs.

Core inflation in November rose to 1.6 percent, from 1.4 percent in October, and just 1.1 percent in August. Why is core inflation rising? Ironically factors behind this include falling deflation for certain goods. Clothing and footwear inflation rose from minus 3.3 percent to minus 3.2, restaurant inflation rose to minus 3 percent from minus 3.1 percent, and airfares saw minus 10 percent annual inflation replaced by minus 5.2 percent.

It is thought that the troubled High Street will see the introduction of a new wave of price reduction over the next few weeks, and that as a result December’s data should be slightly better.

But, you can’t ignore the fact that all the inflation indexes are pointing upwards. The rate of interest debate is split down the middle. Some say rates have peaked, others that the New Year will bring another rise. There is no doubt this news on inflation gives more credence to the hawks.
As Paul Dales from Capital Economics said: “Overall, today’s stronger news on core price pressures support our view that there is one more rate rise yet to come in this cycle, most likely in February”.

Finally, if you worry about the value of the dollar versus the pound, then the fact UK rates are now more likely to rise, while most believe the US rates are set to fall, is likely to make the green back relative to sterling even weaker.