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

2007 has a been a record year for the Box Office. First it was Spider Man Three, then it was Pirates of the Caribbean Three. What they both have in common, aside from the number three, is that they set the all time record takings for the first six days of a new film’s release.

But now, Sony, the company behind the Marvel comic web slinging hero, and Disney, the company that in conjunction with Johnny Depp introduced Captain Jack Sparrow to the world, have clashed.

The good ship Sony reckons Disney has raised the skull and cross bones and used false data. The Japanese company reckons that the sales Disney says it achieved over the first six days of its film’s release, in fact, occurred over seven.

Confused? No doubt you will be a lot more confused if you see the latest Pirates of the Caribbean movie - which yours truly did last weekend. It made about as much sense as the rather sad reality that sequels - and worse still - third films in a series are the ones that rake in the bucks.

The next big blockbuster to be hitting film theatres soon is Shrek 3. No doubt the movie will represent the third instalment in this year’s record breaking run.

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

It’s slated for launch next month (June) but many just can’t wait. The Apple iPhone is now just weeks away, and yesterday, Apple supremo Steve Jobs was strutting his stuff.

He emphasised the three aspects of the product - phone, video player and internet browser - and waxed lyrical about the software generated keyboard.

But actually, on this occasion, it was Apple’s other big product that found Mr Jobs’s focus. Apple TV, which uses an Apple set top box is also coming soon, and yesterday Mr Jobs announced a tie up with YouTube.

Why is this significant? Well it represents the first move towards seeing YouTube’s user generated content available on TV.

Not everyone likes YouTube. One blogger recently lambasted YouTube, moaning about the pirated videos available. The blog writer, Shelley Taylor, said: “If advertisers ever do decide that it is good business to put ads on the back of the truck being used to sell stolen goods, and if someone convinces content creators that there is no value in copyrights and that they should just produce their music and film for free, then maybe Google got a good deal.”

But the other side of YouTube is the vast array of user generated content, some of it very good, and, as Steve Jobs said, addictive to view. Excuse the pun, the Apple cart might be moving to a new TV era, one that must have big broadcasters quaking in their boots.

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

And yet, while markets in China fell like a dragon that lost its wings in mid-flight, markets in the US hit new highs yesterday.

Okay, for the Dow that’s not new. It was the 29th time this year the index has finished the day with an all time high. It’s now 1170 points up on the start of year position, and 1911 points up on the record set on January 14 2000, before stocks crashed.

But, perhaps more to the point, the SP 500 closed at 1530, a new record. The previous high of 1527 was set on March 24 2000. The Russell 2000, which tracks smaller stocks, also set a new all time high, while the NASDAQ hit a six year high. Mind you, the NASDAQ record stands at 5132 set on March 10 2000, so yesterday’s closing price of 2592.6, might have been the best score since 2001, but it still means investors who have tracked this index since the beginning of this decade have lost half their money.

But why did the US do so well? It was the Fed that did it. But actually the Fed didn’t really say anything to justify such a good response.

The Minutes of the last meeting were released. The Fed feels that the housing market decline is worse than it expected. It is still worried about inflation, meaning hoped-for falls in the rate of interest might be further off than previously hoped, but it did say it thought economic growth would pick up in the quarters ahead. It was that piece of optimism amongst the down beat comments that had markets reaching for the buy button.

One analyst said it was if the markets were interpreting both good and bad news as if were good.

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

Sir Isaac Newton got it wrong, big time. He poured his money into the South Seas. But he feared that, just like apples, markets that go up must come down, and so he got out. Phew! But then the great man started to question his own maxim. The speculative bubble continued, gravity appeared to exert no effect, and he dived back in. The bubble burst and he lost a fortune, which he never recovered.

Of course timing your exit from a bull run is one of the hardest things to do. But to get the timing just right seems to have more to do with luck than judgement. Here is a letter we received yesterday from one of our readers, Mr Colin Blackman. Read his dilemma for yourself.

“I share my time between the UK and Hong Kong. I am a Hong Kong resident and this allows me to have a Reminbi savings account and trade in Hong Kong shares directly. I like to think that I can view the situation from both sides.

“If you can find time to listen to the Bank Holiday Monday version of Night Waves on Radio 3 (online!) which is a discussion of modern China by a Chinese living in San Francisco and westerners who live there or have done. Their common criticism is that we are looking at China from a western perspective, not a Chinese one, which is why we get a skewed view.

“You are right (you usually are!) that with savings rates low (I get a mere 0.45% on my RMB account, but capital appreciation hopefully) the stock market is the only alternative. The Chinese do like to gamble: your horse may come last, you may have a bad run of luck at mah jong, so what if the stock market drops?

“Some would argue that there is enough cash in the market to sustain the market. While there have been mega IPOs (like ICBC) that have locked up staggering amounts of money, there has still been enough for the smaller IPOs and the market generally. There are 3 IPOs currently in Hong Kong, all open to public subscription.

“You are also correct that it is the consumers who are driving the market. They rely on who is involved and rumour, especially rumour. The quality of the company is irrelevant.

“I’m told, for example, that the Hong Kong market will drop after 7 July. Why? Because a friend’s feng shui master told her! That’s the sort of rumour that could cause a significant number to sell on 6 July and suddenly the prophecy becomes self-fulfilling. We might dismiss that as a silly notion but that’s just taking a western perspective.

“However, even the head of Hong Kong’s monetary authority is now voicing concern. Adverse comments from Beijing did nothing, so I doubt his comments will have any effect.

“So what have I done? What I always do - I cashed in soon after the beginning of the new financial year ….and every day I curse the missed profit. Perhaps I should just buy a few …..”

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

Back in February, when the Chinese stock market experienced a sharp fall, markets across the world fell in its wake. For a while it seemed as if the good times were over, and that the stock market crash of 2000 had resumed. But yesterday saw another Chinese collapse, but this time the rest of the world just carried on regardless.

The Chinese fall was serious, but could have been even worse. The Chinese headline index - the CSI 300 - fell 6.8 per cent on Wednesday and another 1.3 per cent today. But, curiously, the impact of Wednesday’s fall was constrained by Chinese regulations. There’s a 10 per cent limit on the amount a Chinese share is allowed to fall in one day, and Wednesday saw no less than half of CSI 300 shares fall by that amount. All the more curious then when you consider that this morning the fall was only 1.3 per cent.

It just goes to show how speculation can exaggerate trends. It seems likely that if it wasn’t for the government’s 10 per cent limit, Wednesday’s fall could have been much worse, with panic setting in, perhaps triggering falls elsewhere. But as it is, China’s rather un-capitalist regulations softened the blow and perhaps saved a world-wide rout of the capitalist system.

But there is another difference between the fall this time and the February drop. This time around it was deliberate. The Chinese government wanted to see a market correction; it wanted to try to slow the stock market’s bull run, and, with this in mind, trebled stamp duty on shares. It was this hike in tax that led to the market falls. It appears that, this time, it was a government induced sell off, designed to limit further panic that caused the fall. If you like, it was a controlled explosion.

And perhaps that’s one reason why the rest of the world did not see falls in China’s wake.

Another reason is this.

In the last few days, there has been growing speculation that a collapse in the Chinese stock market, while serious, would have limited impact on the global economy. Sure, the Chinese stock market is growing, but it still only represents around 4 per cent of global shares by value. Compare this with the size of the Chinese economy, which is now the fourth largest in the world. You see the juxtaposition? Chinese economy - huge; Chinese stock market - still tiny.

Besides, between 2001 and 2005 the main Chinese index fell while the economy grew by over 46 per cent.

Perhaps a more pertinent point is this. Sure, Chinese stocks are expensive; the total market capitalisation of the CSI 300 is 46 times earnings. But then again, high profit to earnings ratios are justified if growth is rapid, and it seems likely Chinese profit will continue to rise rapidly. Maybe the markets just need time to let profits catch up with valuations.

A crash in the market is likely, but maybe a soft landing is possible; maybe a few years of stagnant growth can be engineered. It’s similar, in a way, to the arguments put forward over the UK property market. Houses are overvalued, but while some argue a crash is therefore inevitable, others say we will simply see a few years of modest growth, giving time for income and the eroding power of inflation to gradually correct the balance.

Then again, impatience could get in the way of that. The Chinese stock market is a bubble. It must be - both the former chairman of the Fed Alan Greenspan and the chairman of the Chinese central bank Zhou Xiaochuan, have said so. Bubbles are created by speculators seeing a route to easy money. If this route is blocked, they tend to run.

But perhaps the big factor that will determine the course is fear; fear of losing out on a bull run, of selling too soon; fear of selling too late.

Read on to see how this dilemma has been felt by one of our readers, and see how one of the finest minds Britain has ever produced got it wrong and eventually died a relatively poor man, even though his status as a genius was unquestioned.

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

The ship has been steadied. 12 months ago, the UK’s small and medium-sized businesses or SMEs, - (classed as having turnover of between £5 million and £500 million) were under the kosh. Fuel was up, energy costs were rising across the board and the UK’s SMEs looked at ways of improving efficiency. Forward wind the clock to today and the sector is brimming over with companies that have seen efficiency grow phoenix-like from their troubles.

At least that’s what Mel Egglenton, UK head of middle market for KPMG has theorised. He said “it appears that those who felt the pinch over the last year or two have now steadied the ship and are looking forward to the next 12 months with a renewed sense of optimism.”

He was speaking as KPMG revealed its latest survey on confidence among UK SMEs.

It’s finding: 64 per cent of SME bosses surveyed predicted a positive outlook; the highest level since 2004 and an increase of 14 per cent on the mood of the previous survey. The outlook for their own businesses was even more upbeat, with 76 per cent feeling confident about their prospects in the coming 12 months - the highest figure since the survey began back in 2003.

There are also encouraging signs that UK businesses are becoming more positive about their prospects overseas. Almost three quarters (74 per cent) of those questioned felt that small to medium-sized UK businesses were either ‘competitive’ or ‘extremely competitive’ within Europe.

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

Our cousins from North America are a confident lot. House prices are falling; the price of gas is staying far too high for comfort; the car industry is facing ever-deeper woes; and yet their optimism seems barely affected.

In fact, according to the latest poll from the Conference Board, US consumer confidence rose from 106.3 in April to 108 in May. It’s been higher in recent years. The index was slightly higher last December, January and February. It also scored better in March 2006. But that’s it. In the 40 months we have been monitoring this index, it has only managed a higher score four times. That’s not bad for an economy that is supposed to face a one in three chance of hitting recession later this year - at least that’s what Alan Greenspan has said.

There are two ways of looking at this. One that the index suggests our fears are misplaced; the other that US consumers are just plain irrational.

In the short-term, US confidence always seems irrational. The Americans back start-up ventures in a way that any sensible prudent London businessperson would blanch at. And yet, maybe it’s the nation’s willingness to back new ventures that has been the single biggest factor underpinning its success over the last century.

Actually, if you are an immigrant, you have to be pretty optimistic and the US is, after all, built on immigration. It would appear that US consumers have crystal balls that are always half full, and other types of balls that are made of steel.

It’s this US belief in the future that has propelled the global economy forward in recent years - with US spending and borrowing propping up the rest.

Then again, this same optimism has led the country to ignore fears over global warming.

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

Talking of house prices, but this time on the other side of the Atlantic, evidence emerged yesterday that house prices across the US fell slightly over the last 12 months.

According to the SP/Case-Shiller national home price index, house prices across the 20 metro areas it monitors fell by 1.4 per cent in the year to the end of March. It’s only the second time in the history of this index that negative house price inflation has been reported - the last time was 1991.

It’s no surprise to read that the area that suffered the biggest fall was Detroit where prices fell 8.4 per cent. With the auto industry in deep crisis, the home of GM, Ford and Chrysler was clearly going to struggle.

But, also seeing a big fall was San Diego, down 6 per cent.

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

“The rate of interest goes up, but are they bothered? “We just up the cost of rent to cover the interest rate rises, and in any case most of us are on fixed rate mortgages,” say organisations representing landlords. “Look at us,” they say, “are we bothered?”

Buy-to-let mortgage provider Paragon puts it this way: “The evidence continues to show that on the back of higher interest rates, landlords are able to simply increase rents paid by the growing number of people who live in rented accommodation. At the same time, landlords are responding to this strong demand for rented homes by purchasing new properties for their portfolios.”

And here is another stat to make you understand why the buy-to-let market is as safe as, well, houses, or at least house prices. According to the Council of Mortgage Lenders a mere 0.59 per cent of buy-to-let mortgages are three months or more in arrears, whereas for the market as a whole 0.89 per cent of mortgages are three or more months in a arrears. You see, buy-to-let investors are a responsible lot. They have seen it all before.

The Royal Institution of Chartered Surveyors added its penny’s worth to the debate yesterday, when it revealed some stats that supported the buy-to-let bull story. Or at least the stats support the story from one point of view.

To be frank there is something strange about the data and the explanation given.

Demand for buy-to-let properties is still rising. The percentage difference between surveyors reporting a rise in tenant demand and those reporting a fall in the 12 months to April is + 16, says RICS. Sounds impressive doesn’t it? Well, actually the index was at its lowest level for almost two years; it stood at + 30 in March, for example. But wait to hear the explanation for the fall in the index.

According to RICS: “Many recent homebuyers moved into their new properties during the first quarter and therefore no longer needed to rent.” So there you have it, sure there was a slight fall in the increase in demand from tenants, but this was simply because some former tenants had jumped onto the property ladder.

But then again, look a little deeper and the picture is not quite so rosy. RICS also asked surveyors whether gross yields - that’s rent to price of property - were up or down. In April the percentage difference between surveyors saying gross yield was rising and those saying it was falling was minus 19. Sure, rents might be rising, but house prices are increasing even faster.

But while the industry tries to reassure us, if we look elsewhere towards analysts who have less at stake in the market, we find a different opinion. Recently, the National Institute of Economics and Social Research (NIESR), said that buy-to-let is ‘probably the weakest link’ in the mortgage sector. Its director Martin Weale said: “Multiple buy-to-let holdings create potential for instability, so anyone with a large mortgage, especially for buy-to-let, is taking a big risk.”

According to the FSA, in February 2006, 8 per cent of properties sold at auction had been repossessed. But by last December, the repossession rate for auctioned properties had jumped to 25 per cent. But, even more alarmingly, of these repossessed properties, 80 per cent were from areas dominated by buy-to-let properties.

It seems to us that there is a fatal flaw in the argument that as the rate of interest moves up, rent goes up to cover this extra cost. Price is determined by supply and demand, so why should tenants suddenly be willing to pay out more in rent?

It doesn’t matter how short the supply of properties is. No one can sensibly pay more than they can afford. And if there is so much spare cash residing with tenants that they can simply cover the landlord’s extra costs and pay more rent every time the rate of interest goes up, it seems strange that these apparently flush individuals haven’t jumped onto the property ladder. They don’t buy properties because they can’t afford them, yet bizarrely we are asked to believe they can afford to pay their landlord more rent.

Furthermore, anecdotal evidence suggests more and more landlords are struggling to cover mortgage payments through rent. But the industry tells us they are still investing because they see property investment as a long-term game. And yet with house prices clearly overvalued - 15 to 20 per cent according to Lehman, much higher say others - it’s difficult to see their logic.

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

Paul Wolfowitz was never a popular choice. When a man who had been described as an architect of the war in Iraq gets the top job at the World Bank you just know heckles will rise.

And when it appeared Mr Wolfowitz had been giving unfair advantage to one of the banks’ employees, a young lady who just happened to be his girl friend, then, whatever the rights and wrongs, the wolves were out to get him,

And now, it’s time to try again. This time Bush has gone for Robert Zoellick. This is a man who played a key role in bringing China into the World Trade Organisation, and helped re-launch trade talks at Doha.

He is known as a tough negotiator, a demanding boss and a man who can apparently pull figures from the top of his head. He can bamboozle you with data to show he is right.

As the nominated next boss of the World Bank, Mr Zoellick may well succeed where his predecessor failed.

But the big problem he faces is this. The world is no longer divided between the US and Europe. Five or so centuries ago, Portugal and Spain, found their plans go awfully wrong, when despite a Pope saying otherwise, the world was not theirs, and their’s alone. Since the end of World War II, Europe has chosen the boss of the IMF, and the US the boss of the World Bank. But the rest of the word wants a say, and until that requirement is taken on board, any appointment will be controversial.

The US president seems bamboozled by this changing dynamic.