Another month, another meeting of the US federal bank, another rehash of the same old words.
The Fed has chosen to keep the rate of interest on hold - yet again, and in its statement the Fed said “The economy seems likely to continue to expand at a moderate pace over coming quarters.
“Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
“In these circumstances, the committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”
The Fed’s chairman Ben Bernanke is something of a wizard at spelling. At least when he was a child he was the spelling champ of South Carolina, and reached the latter stages of the national competition, but was only knocked out by his failure to spell the word “edelweiss”, the Austrian flower that Julie Andrews once sung about.
But Ben’s failure to progress to the further rounds of the spelling competition exposed a gap in his knowledge, at that time he had not seen the film “Sound of Music”, hence his spelling error.
We would like to expose another gap. Ben might be good at using a dictionary, but perhaps he should study the art of using a Thesaurus too, and punctuate those Fed statements with some more interesting words - precious little else can make them more interesting.
Fed does nothing - again
Buy-to-let: no slow down here says mortgage company
Paragon Mortgages released its latest bullish bulletin yesterday. Every four weeks, it releases its latest update on how well the buy-to-let market is doing.
Apparently, last month, the average annual rent in England and Wales stood at £10,702 - an increase of £1,037 or 10 per cent on November’s figure of £9,665.
In a recent survey by Paragon, 63 per cent of residential property investors reported that tenant demand was either stable or growing and that they were responding by growing their buy-to-let portfolios.
Nigel Terrington, chief executive of Paragon, says “Commentators forecasting a downturn in the buy-to-let market have overlooked the fundamental dynamic of the UK housing market - people need somewhere to live and, for many, house purchase is simply not an option.”
And yet reports from elsewhere have suggest that buy-to-let-investors could get a better yield by putting his or her un-leveraged money into a cash ISA, while elsewhere, reports have suggested yield on most rental properties is now only great enough to cover mortgage interest payments - and not re-payments.
For as long as house prices continue their defiance of gravity, the buy-to-let-investor will enjoy profits. But nothing lasts for ever, and if history of market crashes teaches us anything it is this; when they say this time it’s different, and that the market can justify higher valuations, then beware.
China’s growth miracle - set to get more miraculous
It’s like watching one of those African runners, someone like Haile Gabriel Selassie. Just when you think the breathless pace can’t continue, he starts going even faster.
Yesterday, the Central Bank of China said it expected the Chinese economy to expand by 10.8 per cent this year, that’s the fastest rate of expansion seen in China in 12 years.
The nation behind the great wall is now close to overtaking the nation that used to be divided by a wall, to become the world’s third biggest economy.
But, inflation is also expected to pick up, with the Chinese central bank predicting a 3.2 per cent hike in Chinese consumer prices in 2007.
Until the Industrial Revolution, the two wealthiest countries in the world were India and China. It seems that this century will see a return to this millennium old status quo, with the Anglo Saxon, European and Japanese dominance of the last two hundred years reduced to no more than a blip.
The rich man, poor man, and the billionaire beggar
Yesterday, we told how disposable income in the UK is falling. The UK may be getting richer, but, after deducting fixed income payments and other payments we have little or no control over such things as mortgage payments, council tax, petrol, and utility bills; we have less money left over than at any time in the last five years.
So what do we do when we have paid all those bills? One assumes that, these days, most of us like to buy the odd luxury item, every now and then. But, alas, it appears we are getting squeezed in that direction too. The snag is this, the super rich are pushing up prices of luxury goods. Take the property market; it seems the popularity of more expensive homes is probably pushing up the price of cheaper homes too.
But, it appears, if you are super rich, the problem is worse. According to Forbes’ Cost of Living Extremely Well Index, luxury goods are seeing double the inflation rate of normal goods.
By luxury, we are now talking seriously luxury; yachts, art, expensive jewellery, products that are well out of the reach of individuals worrying about their council tax.
But, we suspect, just as in the property market, this will move down, and affect other ‘cheaper luxury’ products.
It seems that the reason is this. The rich are getting richer faster than ever before. According to research from Merrill Lynch and consultancy firm Capgemini, there are now 9.5 million people across the globe with financial assets worth more than $1million (excluding first home). This represents an 8.3 percentage jump over 2005. It is thought that between now and 2011, the rich club will grow by an average of 6.8 per cent. On a world-wide basis Latin America, Eastern Europe and Asia-Pacific will see the biggest rise in the number of rich citizens.
In all, high net worth have financial assets - excluding their first home, worth $37.2 trillion.
That’s all very well, but maybe these days $1 million isn’t that much. What about the super rich?
And for this sector the Merrill Lynch/Capgemini research had some more startling news. The number of ultra high net worth individuals, that’s those with financial assets worth more than $30 million, now tallies in at 94,970. That’s 11.3 per cent up on 2005. This group possess combined wealth of $13.1 trillion.
What’s quite interesting about these statistics is the way they show wealth concentrated towards the upper end of the scale. There are roughly 100 times more people worth $1million or more, than people worth $30 million or more, yet this top 1 per cent of the rich club possess more than a third of the wealth.
But it’s this distribution of income and wealth that is proving such a controversial topic at the moment. Does it just boil down to envy? Or have we gone too far in favouring the rich?
Earlier this month, Nicholas Ferguson, head of private equity group SVG Capital, said how he thought it was unfair that private equity heads paid less tax than their cleaners.
But yesterday, the rich who are worried about the poor saw a most luminous gentleman join their ranks.
Warren Buffett, second richest man in the world - thought to be worth £26 billion, and planning to give most of his wealth to charity, doesn’t think it’s fair.
“If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent,” he said. He was talking to 400 or so supporters of Hilary Clinton and cried foul. “The 400 of us pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies for that matter.” He said this is wrong.
It is worth remembering, though, that we all have a stake in business being successful. If private equity can create greater profitability, and the price we have to pay is higher remuneration of his managers, then that is still okay, if, and only if, our pension funds benefit from this success.
But it does seem that the current trend towards ever more uneven distribution of income and wealth, will inevitably lead to ever more heated debate. Expect this debate to tumble on, and to become one of the hottest issues of Gordon Brown’s premiership.
Tesco sees rest of the pack close the gap- but it’s still a massive lead.
Tesco’s iron grip on the supermarket sector loosed ever so slightly over the last three months.
According to the TNS Worldpanel grocery market share figures, for the 12 weeks ending 17th June 2007, Sainsbury’s and Asda both enjoyed higher percentage growth rates than Tesco.
But, some of the much smaller guys did even better, with Iceland, Lidl, Aldi and other freezer centres all enjoying double digit growth.
Tesco now controls 31.6 per cent of the supermarket sector, with Asda at number two with 16.6 per cent and Sainsbury’s with 16.2 per cent.
But while the big three could only manage growth of 4 per cent, in the case of Tesco and 6 per cent with its two main rivals, Iceland, which is currently the UK’s 8th most popular supermarket, saw ten per cent growth, Lidl (11th spot) enjoyed 14 per cent growth, Aldi (12th spot) managed ten per cent and other freezer centres (14th) grew by an impressive 22 per cent.
The UK’s number four, Morrison, seems to have seen stability return. It grew by 5 five per cent, in fifth spot, Kwik Save continued to implode - down 67 per cent, and at number six, Waitrose, with 3.9 per cent market share, grew by 8 per cent.
Gordon set to hob nob with the great and wise of UK business.
Gordon has gone straight to the top. He is setting up a council of advisors which is set to be made up of the heavyweights of the UK business scene.
The council will be chaired by Mervyn Davies of Standard Chartered, and include Stuart Rose of MS, Sir Terry Leahy of Tesco, Stephen Green of HSBC, Sir John Rose of Rolls-Royce, Arun Sarin of Vodafone and JP Garnier of GlaxoSmithKline.
Controversially, the council will also be joined by private equity star, Damon Buffini, the founder of Permira. Private equity’s distracters fear that in including Mr Buffini in the line up, our Gordon is saying “private equity is here to stay and I am backing it.”
Also in the line up is Sir Alan Sugar. You can almost feel the press longing for the day Sir Alan leaves the council and they can headline, “You’re fired.”
But while GB’s GB (that’s Great Britain’s Gordon Brown), surrounds himself with the leaders of big business, small businesses are not so impressed. David Frost, director-general of the British Chambers of Commerce, said, “Involving business is good … but I hope Mr Brown gets not just the views of big business but medium sized and small ones as well.”
In a similar vein, a spokesman for the Forum of Private Business said “It is time that we started putting the voice of small business to the front but at the moment it does not seem like the situation is going to change.”
UK tops European investment league- again
The UK is still Europe’s top spot for overseas investment, London is still the primary driver of the UK’s success in attracting investment from overseas, but India is catching up with the US as the top investor into Europe, says a new report from Ernst and Young.
In all, the UK attracted 686 overseas investment projects in 2006; that compares with 599 in 2005.
The US remains the main investor into both the UK and rest of Europe, but Uncle Sam’s share of total overseas investment has fallen. Back in 2005 investment from across the pond accounted for 50 per cent of overseas investment; in 2006 it was nearer to 30 per cent. It’s not that the US is finding Europe less attractive, so much as other regions are investing more than before. And top of the pile is India.
India is now the second most important source for inward investment into the UK with over half of all projects announced by Indian companies into Europe in the period. Indian investment overall into Europe increased by 66 per cent in 2006 and by 53 per cent into the UK.
Nigel Wilcock, Regional Development Director at Ernst Young said “Indian companies are winning clients from domestic western European competitors by investing in sales and customer support offices, and also software development centres close to their European customers, as a means to drive growth.
“This is actually good news for the UK because not only from an Indian perspective is there a cultural affinity with London and the south east, but the City is at the heart of the European service sector economy.”
But while India proves to be an ever popular source for UK investment, London is becoming the ever more popular destination for investment.
Since 1997 London and the south east’s share of overseas investment has increased from 30 per cent to 50 per cent.
This concentration of investment in the capital city is more marked in the UK than in any other western European location, reflecting the dominance of the services sector. By contrast Paris only secured 19 per cent investment of the projects into France, Madrid 29 per cent of Spanish bound investment, whilst Stockholm received 42 per cent of projects into Sweden and Dublin half of the investment into Ireland.
Other regions of the UK that did well in 2006 in terms of attracting investment included the north west - up 25 per cent from 32 projects in 2005 to 40 in 2006. Scotland was up 90 per cent from 33 projects in 2005 to 63 in 2006. Scotland regained the top spot as the most attractive region in the UK outside London and the south east.
But in eastern Europe some countries lost out. Across Poland, Hungary, Russia and the Czech Republic, project numbers all declined in 2006, but the anticipated admission of Romania and Bulgaria to the EU in 2007 was a major driver for new investment to those countries. Romania, which attracted only 18 projects in 1997, announced 140 in 2006 and achieved 7th ranking in the overall European list.
Other big winners in 2006 were Germany, Spain, Switzerland and Italy, but France, which had been threatening to overtake the UK as the most popular destination in Europe only saw modest growth.
As for the sectors that are proving a hit, Mr Wilcock said, “Europe as a whole is becoming increasingly reliant on service-related sectors, such as software and business services.”
You have never had it so good - well actually you have.
As our Gordon settles into his new job, some newspapers have attempted to compare the Blair legacy with that of previous Prime Ministers. There is no doubt, the UK has enjoyed a remarkable period of growth, and from an economics point of view the last decade has perhaps been less dominated by crisis than any other ten year period. Some have drawn analogies with Harold Macmillan’s “you have never had it so good” era, but then Super Mac was speaking just as the economy was set to enter a protracted period of crisis.
But, hold on. Maybe we are not quite as well off as we thought we were. According to Ernst and Young, our discretionary income is at its lowest level in five years.
Ernst and Young says that after tax contributions, mortgage payments and monthly household bills, the average family now has just over 22 per cent of its gross income left over, as opposed to over 28 per cent in 2003. And Tim Sleep, director of Retail at Ernst Young says “We’re seeing above inflation rises on a host of fixed costs such as council tax bills, water rates, pension contributions and petrol - the consumer is being squeezed from many directions.”
The typical household now faces monthly mortgage payments of £698.85, that’s 65 per cent higher than in 2003. The same household now spends £156.23 per month on petrol, that’s 11.7 per cent upon 2005/06. Other debt repayments (loans, credit cards, overdrafts) are up more than 30 per cent since 2003/04 to £103.83 per month, and Ernst and Young says average household unsecured debt now stands at £8,028.43, compared with £6,568.32 in 2003/04.
Furthermore, council tax is up 20 per cent since 2003/04 to £110.10 per month for a band D property, and monthly pension contributions to defined benefit schemes are typically some 65 per cent higher than in 2003/04, up from £144.26 to £238.78.
Ernst and Young says the average household now has £837.53 to spend each month after total fixed monthly outgoings, compared with £898.54 in 2003/04. But there is some good news; gas and electricity bills are down on last year - although still up on the year before, and fixed line telephone charges are in long term decline. Apparently, car running costs have also declined since 2006, driven by lower servicing charges and tyre costs.
Ernst and Young says “after five years of household costs rising faster than wage inflation, the consumer is feeling highly fragile, and the average family will find it very difficult to cope with a further rise in interest rates.”
And so with consumers so stretched, the rate of interest likely to rise even higher, what should retailers do? Tim Sleep puts it simply, “Opportunities overseas offer the prospect of strong growth… There’s no denying that for many emerging markets, the time is now. Early movers have already proved the attractiveness of markets such as Russia, India and China, but competition has yet to peak. Of course there are huge challenges taking your brand overseas but these markets offer the prospect of strong sustainable top-line growth - something that certainly isn’t true of the UK.”
iPhone reviews hit the press
We know what you are thinking. Never mind analogies with 1929, the rate of interest, and the FTSE 100. What about the iPhone?
Apple is about to launch the most hyped product of the year, perhaps the most hyped product of many a year. But is it worth the hype?
So far reviews have appeared in all Street Journal, The New York Times, USA Today and Newsweek and it’s a thumbs up.
Comments ranged from a “on balance, a beautiful and breakthrough handheld computer” to a “glitzy wunderkind…worth lusting after.”
For the product to live up to its hype Apple boss Steve Jobs would have to do little less than walk on water, a feat eagerly anticipated by Apple aficionados.
But, assuming Mr Jobs fails the walking on water trick, others may settle for the following three things. That the virtual keyboard works like a dream, that the battery life of the product is satisfactory, and the internet access proves to be a hit for the non-geeks.
The iPhone is really three in one, that’s the father product, the mobile phone, the son - which is the iPod, and the holy bit comes in the form of full internet access.
We are now only days away from discovering whether the miracle is a reality.
Is FTSE 100 going to break record this year?
While some raise memores of 1929, others talk about rising interest rates, the UK’s equity strategists seem anchored to the optimistic camp.
Reuters has been busy surveying their views, or at least the views of 15 of the UK’s top analysts.
The conclusion: The FTSE 100 is likely to grow by around 4.7 per cent from today’s level, or 10.9 percent up on the start of year postion. The poll found that the consensus is for the index to pass 6.900. The all time high of 6930 was set on the last day of the last millenium.
Reuters says that many equity strategists reckon the recent turmoil in the credit markets is not a major threat. It quoted Stephen Pope of Cantor Fitzgerald as saying “I wish people would listen to the words that (Ben) Bernanke is uttering at the Fed… “Stop listening to Greenspan. He is yesterday’s man”