January 31, 2007 | posted by Michael Baxter in IABN | comments (0) |

Many feared that Germany was about to catch the inflation habit. A recent hike in VAT meant prices would necessarily go up, and many feared the worse.

The latest data, however, has calmed nerves. Sure, the German HCPI rate for January has been estimated at 1.7 percent, and that’s up on last month, but then many had expected to see the index jump to 2.2 percent. In other words, the VAT hike did not have the impact many had feared, so that’s good news.

Meanwhile, in Japan, the latest news suggests that the central bank of the rising sun may stay its hand. Many had expected another rate hike soon, but the latest data has recorded a 1.9 percent fall in household spending. It appears that sluggish wage growth and Japanese reluctance to reduce savings are keeping the reins on the economy.

While we are used to talking about sluggish Japan, and comparing its slow growth with the runaway growth in the UK and US, it must be remembered that actually we should be saving more. British and American consumers may have kept the global economy up, but, by failing to save they are sowing the seeds of a future pension crisis.

Meanwhile, across the pond, the Fed is meeting. And later today we will know. With oil climbing upwards, it is thought that the rate will stay on hold. If the Fed does change rates - and frankly they could go either way - it will be a bigger surprise than the Bank of England move earlier this month.

January 31, 2007 | posted by Michael Baxter in IABN | comments (0) |

Those amazing traders in oil, their spending: it goes downdity down, and then uppity up.

Oil climbed again yesterday to $56.59. It’s now $6 up on the price it fell to just over a week ago.

Oil had fallen to the lowest level in over 20 months, but now it’s close to the levels seen last Autumn before the post Christmas slide.

The recent climb in the price of oil was kicked off when George W talked about buying more oil to up the US strategic oil reserves - and then the temperatures fell.

Just like the Brits, the Americans had been enjoying a mild winter, and - just like the Brits - no doubt many said: “if this is global warming - bring it on.”

But then temperatures started to fall, the heating was turned up, and with it went the price of the black stuff.

All eyes now turn to OPEC. It had been planning to cut oil production, but maybe the rising price will change its mind.

With the price now in the mid 50 dollars a barrel, it’s a lot lower than the levels seen last summer when it went within a couple of bucks of $80.

On the other hand, not so long ago it was half the current price - even as recently as June 04, when the price of oil first started to hit the headlines, it was just $37 a barrel.

January 31, 2007 | posted by Michael Baxter in IABN | comments (0) |

It’s been a game of bid and counter bid, but at last it would seem Corus’s fate has been sealed.

When India’s Tata Steel first offered to buy Corus, the price on the table was £4.1 billion, and some worried the Indian company couldn’t really afford the price tag - that it would need to borrow too heavily.

And yet, the price just kept going up. Brazilian Steel company CSN entered the fray, and Corus seemed to be saying yes to both parties. Fluttering its eyelashes, the wanton company seemed to be happy to jump in the sack with either of its two suitors. Then rumours even suggested Mittal Steel may enter the bidding battle.

The Big problem that besets Corus is lack of locally sourced raw materials. CSN’s big USP was that it did have access to local iron ore mines.

Tata, on the other hand, provided access to the burgeoning Indian economy - set to be an increasingly important advantage in the years ahead.

And while some feared it was too much money for the Indian firm, others pointed out that the parent company was 138 years old, and the second largest firm in India - so it’s had plenty of time to practise the game of business.

Well now we know. Finally, Corus has said yes to Tata. The final offer is worth £5.7 billion, or 608p a share. So that’s even more gearing than originally envisaged, but then everyone seems to be gearing up to the hilt at the moment (Not sure if that is good though).

So, the newly enlarged Tata Steel will rise from being the world’s 56th largest steel maker to 5th largest. That’s quite a jump up the rankings.

Ratan Tata, chairman of the group, said: “Over the next few years, we will come to think this was a very visionary move that has had long-term repercussions that are very positive for India#133;When we made our first bid to acquire (Corus) many thought it was an audacious move.”

With the high level of gearing it’s certainly not a move without risk. But then the Indian market offers the potential of huge riches in the years to come, but no one will take advantage of this opportunity through being timid.

January 31, 2007 | posted by Michael Baxter in IABN | comments (0) |

Did you know that if you were to lay all the property market economists end to end, they would form a wall big enough to see from outer-space - at least it feels that way. As for surveys, not only do we seem to be brimming over with them at present, there seem to be about as many different sets of results and theories on the market’s prognosis as there are so called experts.

Take the last few days, as an example we have seen a report from the Centre of Economics and Business Research predicting that the average house will rise by £1,000 every month on the back of slow supply. Property web site Rightmove argued that there are 50,000 new households coming on the market every year, but the supply of new homes is significantly less than demand. Ergo, says Rightmove, prices will just continue to rise. And we could carry on citing this report and that report, all with slightly different takes, but unanimous in their bullish views on the market.

Such has been the glut of rosy predictions of late, that it was beginning to look as though property market bears had gone extinct altogether.

But yesterday and this morning, the other side of the argument was revealed. Among others, Nationwide and the Bank of England released data to suggest things are not as strong as we have been told.

First there was Hometrack. Its report was somewhere in the middle, neither falling into bear nor a bull category. It recorded a solid 0.4 percent rise in house prices in January, but said that most of this rise was down to London, where prices were up 0.8 percent, but for 72 percent of the country prices were unchanged.

Then, moving slightly further to the bear side, was Nationwide. It had prices rising by 0.3 percent in January, the lowest monthly jump it has recorded for eight months. Its economist, Fionnuala Earley, said: “Estate agents reported some easing of demand in December and January. The number of newly agreed sales is rising more slowly and the length of time properties are on the market seems to be getting longer. More importantly, new buyer enquiries recorded their first fall in 19 months#133;It is likely that we will now begin to see a weakening in demand as a result of stretched affordability and rising interest rates.”

Nationwide also pointed out that the January increase took place before the latest surprise move by the Bank of England could have an impact, and, therefore, suggests things will get even tighter. But Ms Earley took care not to sew her colours too closely to the bear camp, adding: “A number of other supporting factors remain in place. Labour market developments, such as strong employment growth, low unemployment and steady growth of earnings, have now supported the housing market for a number of years and will continue to do so this year. In addition, the level of house-building is still too low relative to even the Government’s conservative estimates of the expected growth in household numbers. This adds to the upward pressure on prices.”

Then we move way up north, to the frozen wastes and the land of the giant bears. The Bank of England’s latest report into mortgage lending recorded a sharp fall in December. In all, the month saw 290,000 mortgages approved, down four percent on this time last year. In value terms, mortgage approvals were up 4.4 percent year on year, but that rate of growth was well below the average of nearly 23 percent year on year seen in the previous 12 months.

But, perhaps even more significant was the sharp fall in mortgages approved. December saw the biggest fall in this number seen since April 1990.

The Council of Mortgage Lenders had this to say on the topic: “Affordability is at its most stretched for fifteen years and such is the magnitude of the upward movement in rates that it would be surprising if potential home buyers did not stop to reappraise the affordability of the market.”

Later today CML will be releasing its latest report on repossessions and mortgage payment arrears, and expectations are that the report will paint a bleak picture.

It seems that the shortage of supply is the factor driving up prices, and since home building is likely to remain low for the foreseeable future, it could be argued that prices will continue to rise. But, tragically, this could come to a sad end if supply is corrected by a glut of properties coming on the market after being possessed by the lenders. This was a major factor behind the crash of the early ’90s, and a repeat of this scenario would be a sad outcome.

But prices have hit absurd levels; the First Time Buyer can’t begin to jump onto the ladder. To the home owner, this may seem like a wonderful scenario, but, in truth, there is no benefit to rising prices unless you sell up and live in a tent. The continuing rising market serves investors, but in this case property investment is simply making homes unaffordable for many. And unlike investment into equities, it’s not so good for UK plc.

January 30, 2007 | posted by Michael Baxter in IABN | comments (0) |

It’s not a unique idea, the web site Revver, for example, is already doing it but YouTube’s latest plan could revolutionise the media industry. On the other hand, since the company has only managed modest revenues to date, it may all prove something of a damp squid. Traditional media companies may look at YouTube, and its parent company, the mighty Google, and, with Margaret Thatcher in mind say “You tube if you want, we are not for turning.”

You may recall, Google forked out $1.6 billion for the video sharing site YouTube last year, but at that time the web site’s revenue was tiny- it didn’t even seem to be sure how it was going to generate revenue, and the purchase left some analysts asking why, scratching their heads in bemused incredulity.

Now, YouTube has come up with its big idea; it’s going to share revenue with its customers.

This begs the question, of course, what revenue is that then? But actually, it does seem to be happening. Ad revenue for this year is expected to top $100m million on the site. And despite the comments above this is remarkable growth

The plan is this: you post your video on the site, if it’s a hit, then you get to share some of the resulting advertising revenue.

The web site ww.revver.com is already doing this and offers a 50/50 split on advertising share too. The company says: ” We pair your video with a targeted advertisement,” and it doesn’t matter if other web sites take the video, and run it themselves, because the ad is included, and thanks to tracking software, that monitors hits on the video, even when it’s on another site, the revenue will still follow.

And for all those budding Waynes out there with their desire to create their own video world, YouTube represents an opportunity for the enthusiastic video maker to earn some hard cash.

The idea also has implications for the music industry. The opportunity for new burgeoning acts to record their shows, and see them virally spread about the net, and rake in the bucks without recourse to a record company, is unprecedented.

Maybe, it costs too much to make a blockbuster film for the YouTunbe site to enable new budding Stephen Spielbergs to market their own films. But it does represent a new opportunity for new music acts.

It is no exaggeration to say that the explosion of sites such as YouTube and their willingness to share advertising revenue, could spark a new music revolution, - at last.

January 30, 2007 | posted by Michael Baxter in IABN | comments (0) |

The Global economy is set for another two years of brisk growth, while in the US, Japan, the Eurozone and the UK it will all be much of a muchness, with growth in each of the four areas expected to lie between 3 and 2 percent for 2007 and 2008.

According to the National Institute of Economic and Social Research, the world economy will continue to expand vigorously, growing by 5.0 per cent in 2007 and by 4.8 per cent in 2008.

As for the developed world, despite talk of an expected slow down, with some economists predicting recession not so long ago, Uncle Sam is still expected to GDP growth of 2.9 percent this year and 2.5 percent next.

To put this in context, this will be faster than the growth expected in the Eurozone, (2.2 and 2.1 percent,) Japan (2.4 and 2.4 percent) and the UK (2.8 and 2.4 percent).

And since the US president is fond of quoting Churchill, it may be worth putting the US economic performance in Churchillian speak. After all, given the gloomy predictions that did the rounds last year, if the US really does manage growth of 2.8 percent, outgrowing all other major developed economies this year, it really will be a heroic effort.

Mr Churchill may have put it this way: “Last year, economists were saying the US economy will have its neck rung like a chicken. Some economic chicken, some economic neck.”

January 30, 2007 | posted by Michael Baxter in IABN | comments (0) |

The number of people unemployed and claiming unemployment benefit is expected to top 1 million this year, says the National Institute of Economic and Social Research (NIESR). Despite this rise, the UK is expected to chug along nicely growing at 2.8 percent in 2007, but thanks to the rise in jobless figures, inflation will stay in check.

But, the prognosis for 2008 is not so good, with NIESR predicting growth will slow to 2.4 percent, as the rise in the jobless takes its toll.

NIESR, reckons inflation is as good as licked. That just one more rise in the rate of interest to 5.5 percent will be sufficient to see the CPI index fall back to the target level of 2 percent.

At the moment, British economists are worried about the Retail Price Index. This is currently at the highest level since the early ’90s, and the fear is that wage settlement will reflect the current high levels of this index, leading to a secondary inflationary effect. But, NIESR reckons the rising level of unemployment will sea an end to this fear.

And here’s some good news for the pensions industry. NIESR reckons that the savings could jump to one percent of GDP by 2012, as workers are made more aware of the increase in their life expectancy as retirees.

In the long run, of course, the UK desperately needs to see the savings rate jump. But, on the other hand, it’s been the steadfast refusal of US and British consumers to save, and go out and spend instead, that has propped up the global economy for much of the last few years.

January 30, 2007 | posted by Michael Baxter in IABN | comments (0) |

While all around there was hope, the CBI with its distributive trades index stayed glum. In April last year, when the British Retail Consortium said the month saw an impressive 6.8 percent growth on the year before, the CBI index only just managed to rise above zero, hitting a score of just 2 points.

Back in October, when the BRC had year on year retail sales growing at 2.6 percent, the CBI index went negative.

And throughout much of this decade, the CBI index has consistently shown a more negative slant on the economy of the High Street than other reports. It was as if the CBI had become the bears of retail, prophesizing doom, when others predicted a mild slowdown, and predicting tiny improvements when others were glowing with optimism.

But for January, the CBI index hit a score of Plus 30. This follows a reading in December, of plus 25, itself impressive. The index is defined by asking retailers whether sales are up or down on the same period last year, and subtracting the percentage number who said down away from the percentage number who said up.

The January score seems to indicate that the December jump in sales was no blip, rather a sign of new vigour. The CBI index for November languished with a score of minus nine.

Big hits were the grocers, with this sector seeing a score of plus 63, but owners of specialist food outlets like delicatessens were not so happy. Sales were up, with the sector seeing a reading of plus 27, but then a year ago, this was one of the few stars of the retail scene. In January 2006, the difference between the number of specialist food outlets reporting a rise in sales versus those reporting a fall, was a staggering 88.

Other successes were seen in footwear leather goods (plus 67), durable household goods ( plus 62) and furniture carpets (plus 49). Perhaps as a result of mild weather during the survey, clothes sales were about the same as a year ago (a balance of plus two).

But despite this success, the Chairman of the CBI’s DTS Panel, not to mention Executive Director of Asda, John Longworth, said: “December’s strong showing was driven by some very heavy discounting and it is likely January will be the same.” And: “While shoppers have an appetite for the high street at the moment, and the prospects for February are promising, we have yet to see the full impact of recent interest rate rises on their resilience.”
Back in December, many analysts were predicting a tough Christmas and January, and yet all the evidence seems to suggest that they got it wrong, quite spectacularly so, in some cases.

But, perhaps we should turn our attention for a moment to inflation. There has been plenty of evidence to suggest that many of the winners were stores who did not discount so heavily. John Lewis, Marks and Spencer, even Tesco found its premium ranges to be big hits. This means inflationary pressures are mounting.

The perceived wisdom seems to be that inflation will fall back later this year (see story below from the National Institute of Economic and Social Research), but are these reports really taking into account the full impact of a change in the popularity of price discounting?

Premium goods tend to be less price sensitive, or to put it into economic speak, demand is relatively price inelastic. So as demand rises, retailers will find it easier to up prices.

Back in the ’80s it seemed that the idea inflation was caused by cost pressures was dead. Inflation, it appeared, was down to demand. And right now, we are seeing the very factors that caused inflation in the past rear their ugly head.

Perceived wisdom might be right, and this time it may be different, and despite high demand, inflation will fall, but the history books are full of examples of experts making the wrong call, and right now we could be witnessing another example in the making.

January 29, 2007 | posted by Michael Baxter in IABN | comments (0) |

At first glance it seemed like a cause to celebrate. Debt management companies DFD and Accuma have both issued profit warnings.

One would assume that if debt management companies are struggling, less of us are in debt, ergo the biggest threat to continued economic growth has gone away.

Alas, on this occasion, the good news, having rested for a while before the mirror, has disappeared like smoke up the chimney behind.

Apparently, it’s not so much that less of us are in debt; it has more to do with banks being more stringent.

As you may know, these days IVAs are becoming popular, as a softer alternative to bankruptcy. These are arrangements in which the sum owed can be reduced, but at least the lender gets some money back.

But, according to DFD, banks have become more reluctant to agree Individual Voluntary Arrangements (IVAs), presumably meaning bankruptcy rates will rise.

For feedback and comment contact the editor

January 29, 2007 | posted by Michael Baxter in IABN | comments (0) |

Talking of cash, KPMG has published a report saying that FTSE 350 companies will generate close to a staggering £200 billion in cash over the next three years.

KPMG reckons oil, gas and mining companies will be the big cash generators.

But a question mark hangs over the business air. What will all this cash be spent on?

KPMG predicts a continuation of the merger and acquisition frenzy we have seen of late, ever higher dividend payments, and share buy backs.

In short, for shareholders, the good times should roll in.

But then again, how long can it last?