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December 12, 2006

UK inflation runs rampant

Link: UK inflation runs rampant

by Brian Turner

UK inflation ballooned to 2.7% in November, from 2.4% the previous month.

The figures - reported by the ONS - show inflation at its highest rate for almost a decade.

The rise continues against a backdrop of repeated inflationary warnings through the year, coupled with an every weakening global economy.

The latest news increases speculation that the Bank of England will raise interest rates early in November 2007.

Overall, the news isn’t entirely surprising - we’re still coming down from a peak in oil prices that helped drive inflationary pressures.

However, even when warning signs became apparent over the previous 12 months, the Bank of England has been repeatedly slow to respond.

Instead it has been seen to opt for a “boom and bust” cycle to squeeze as much as it can from the UK economy, rather than apply a more sensible and balanced cap on growth.

This is especially in the case of property prices, which have been allowed to unecessarily spiral out of control.

While many warnings have been sounded over the past couple of years about a potential recession, it’s worth reminding ourselves that this still remains a very real possibility in the near future.

Nasdaq makes hostile bid for LSE

Link: Nasdaq makes hostile bid for LSE

by Brian Turner

The US Nasdaq exchange has launched a hostile takeover bid for the London Stock Exchange (LSE).

It comes after more than a year of takeover offers and merger propositions from a range of companies, along with two previously rejected offers from the Nasdaq.

At present, the LSE is advising shareholders against Nasdaq’s hostile offer of £12.43/share, stating that this undervalues the company.

Whatever the outcome of this, one thing remains certain - the London Stock Exchange is considered a prize acquisition that few corporations can afford to buy.

The Nasdaq bid required a $5 billion loan to make, but even that may not be enough for one of the hottest properties in the equities market.

Bank penalty charges may be illegal

Link: Bank penalty charges may be illegal

by Brian Turner

Penalty charges applied by banks may be illegal.

Currently, the six major UK banks generate around £4.5 billion through penalty charges.

However, under the 1999 Unfair Terms in Consumer Contracts Regulations Act, penalty charges may only cover administrative costs, and not be for profit.

At present, no major bank will provide an actual administrative cost figure for penalty charges, and none have contested claims of charging for profit in the courts.

The issue has recently seen exposure by the BBC’s Money Programme, which covered the story of law student Stephen Hone, who was successfully able to claim back £840 in penalties charged by the Abbey through the small claims court.

The Office of Fair Trading is currently investigating the issue of bank penalty charges.

Overall, I think few people will be surprised by the suggestion that UK banks have been profiting from penalty charges, so the outcome of the OFT investigation should certainly be interesting.

November 30, 2006

GBP hits high against USD

Link: GBP hits high against USD

by Brian Turner

The Great British Pound (GBP) has reached a 14-year high against the US dollar.

Early today £1 was worth $1.956, its highest level since Black Monday in 1992, when Britain leave the ERM (Eurpean Exchange Rate).

The rise in currency value comes at a time when the Bank of England may be considering further rate rises in an increasingly unstable global economy.

Additionally, weak economic data in the USA is devaluing the USD.

Overall, the news will not be good for exporters due to the relatively higher prices of their goods on the US consumer markets.

However, for those of us who buy services internationally, where the USD is the major currency - such as for webmaster services and webhosting - this is a nice peice of news indeed. :)

November 21, 2006

GOOG shares over $500

Link: GOOG shares over $500

by Brian Turner

Shares in Google have topped over $500 each today, creating a market cap of over $154 billion.

This makes Google the world’s 22nd biggest company by market valuation.

However, Google has only a quarter of the revenues of the lowest earning company in the top 30 by comparison, and isn’t even in the top 60 companies for earnings.

At present, the biggest companies by market cap, are as follows:

Market caps table

As the table illustrates, Google’s excessive ratio of market cap to earnings can only mean the Google stock bubble is getting bigger.

The likelihood is that this can only burst in future - and take a number of related tech stocks down with it.

November 18, 2006

Oil prices settle on recent lows

Link: Oil prices settle on recent lows

by Brian Turner

Oil prices appear to have settled to new lows after huge increases over the past 18 months.

WTI December contracts were 44 cents lower to $55.82 per barrel on Friday on the New York Mercantile Exchange

A $2.50 fall on Thursday was attributed to false rumours of increased inventories, but even though unfounded, traders seem unconcerned about the state of the oil economy at present.

This could lead to a continued lower oil price compared to the recent highs in July.

The good news is that this should ease inflationary prices if sustained.

However, just as it took nearly a year to increase inflation and force interest rates up, it could take nearly as long to allow them to fall.

November 14, 2006

EU investigates Mastercard & Visa

Link: EU investigates Mastercard & Visa

by Brian Turner

The European Union is investigating the credit card industry, to determine whether fair practices are being applied in Europe.

Currently US firms Mastercard and Visa dominate the industry, and the EU is trying to determine if these are undermining potential rival companies with their fee structures.

While any potential action from an investigation are a long way off, this could be a significant first step to a sea change in credit card processing in Europe.

At present most ecommerce sites try to ensure they can transact payments by the big card companies - so if the EU determines that other card companies require due leverage then this could cause confusion.

Additionally, in the event that there are significant new players in the credit card industry, merchants will need to ensure that third-party payment processors are able to handle them.

We await the results of this investigation with interest.

October 12, 2006

Oil prices sink to new low

Link: Oil prices sink to new low

by Brian Turner

Oil prices have continued to fall, with prices today reaching their lowest for 2006.

The drop in oil prices has been gradual over the past few months, and uncertainty about production cuts by OPEC - coupled with a lowered projection of oil demand for 2007 - has led to trader ease about oil prices.

This is after record highs in July.

The price of oil has been a key factor in pushing up inflation over the year, and rising energy prices have put pressure on consumer spending.

However, despite the current falls, the impact of previous high oil prices are still ongoing.

Bank of England governor, Mervyn King, has indicated that manufacturers are already passing on increased production costs to consumers.

Expectations of any let-up on inflation in the medium-term remain uncertain.

The Bank of England is still widely expected to raise interest rates to 5% in November - something Platinax reported as likely as far back as June.

July 13, 2006

Oil hits record highs

Link: Oil hits record highs

by Brian Turner

Oil prices have hit record highs, after a series of events brought fresh fears to already jittery worldwide commodity markets.

US light crude reached a record $75.89 a barrel, while London Brent crude hit a new high of $75.60.

A combination of Israeli aggression in the Middle East, supply fears in Nigeria, and continued confrontation of Iran served to stoke fears over global supplies.

And a reduction in US oil inventories despite the imminent summer driving season added to trader concerns.

The news continues to show continued volatility in the trading markets, which are already concerned with the geopolitical risks to the world oil supplies.

Continued oil price rises are also likely to continue to put pressure on upward inflation, making it all the more likely that more than one increase in interest rates may be required over the following months.

May 18, 2006

World economy faces inflation fears

Link: World economy faces inflation fears

by Brian Turner

The world economy is finally showing cracks in confidence, as inflation continues to threaten while consumer spending continues to be lacklustre.

Over this week, stock markets around the world have seen big falls as investors turn bearish.

These fears are being raised as US consumer prices see a continued rise, highlighting fears that inflation will force the US Federal Reserve will bring in further interest rate hikes.

Concerns about the state of the UK economy have already been raised, and this week’s job totals showed a continued increase in unemployment - the highest since 2002.

The overall picture isn’t good - while the world economy has so far looked healthy, it has been very much powered by debt. Now the US government has been forced to increase it’s own debt limit to almost $9 trillion, and UK consumers have themselves amassed debts of over £1 trillion.

While energy prices continue to remain high, inflation is beginning to really bite. If economic conditions continue downwards, the real costs of government and consumer debt are in danger of being uncovered.

April 28, 2006

Pension funds see huge deficits

Link: Pension funds see huge deficits

by Brian Turner

The government’s Pensions Regulator has warned that Occupational Pension Schemes are failing - with deficits of up to £400 billion.

The regulatory highlights poor controls and planning, especially in smaller pension schemes, and is seeking active intervention in as many as 300 of them.

The news comes as yet another blow in the pensions crisis, which has at least in part been caused by government regulations intended to liberalise pension saving into the open market.

And while many people under 30 would ordinarily not consider it a matter of urgency to take out a pension, with the continued pension crisis in action, what most may be asking is why bother at all.

February 3, 2006

Shell reports massive profits

Link: Shell reports massive profits

by Brian Turner

Royal Dutch Shell set a FTSE record last year, by reporting profits of around £10 billion, the largest ever reported by a UK-listed company.

This year it broke it’s own record by 30%, reporting profits of over £13 billion.

The profits come after a year when oil traders panicked at political instability and consumption rates, causing the price of oil sales to jump.

Exxonmobil also recently reported the largest profits in corporate history, at just under £20 billion.

While it’s easy to be cynical about the profits the oil companies are generating, it’s important to remember that it’s the oil buyers who are pushing up proces, not the oil sellers.

And, whether intended as spin against cynicism, or a genuine ideal, Shell announced that they expect to use profits to invest more heavily in greener fuels.

Amazon sees profits fall

Link: Amazon sees profits fall

by Brian Turner

Amazon caused investor scorn when it reported it’s Q4 earnings - and revealed that operating profits had only increased 1% over Christmas.

Q4 Net profits actually fell on last year, from £190 million to £110 million.

Wall Street responded by dropping value of Amazon stock by 10%.

However, don’t be fooled into thinking that the ecommerce giant was struggling to sell in the biggest retail period of the year.

CEO Jeff Bezos had already informed Wall Street that he was more interested in cutting profits to gain customer loyalty. A free delivery scheme for US customers was especially blamed for loss of profits.

So while Amazon expect to make losses in the short-term, they have their eye on a much bigger picture.

February 1, 2006

Google profits disappoint, shares fall

Link: Google profits disappoint, shares fall

by Brian Turner

Google shares lost 10% value overnight after reporting lower than expected fourth-quarter profits to Wall Street.

While revenues were up 82% to just over £200 million, operating costs and taxes were also up sharply.

It is the first time the company has disappointed Wall Street since floating on the stock markets.

However, it remains certain that extensive expectation has hyped the value of Google stock.

Although warned over a year ago that Google would not always make targets, the stock price has rocketed from $80/share when first sold, to over $430/share before last night’s Q4 earnings were reported.

It remains to be seen how investors will deal with the fact that they have almost certainly bought into a stock bubble.

December 6, 2005

Brown tackles SIPPS and REITs

Link: Brown tackles SIPPS and REITs

by Brian Turner

Gordon Brown sent mixed signals to the financial sector today, with announcements that residential property will not be eligible for SIPPs (Self Investment Pension Plans) - however, he still plans to open the UK property market to general investment via REITS with legislation in 2006.

The problem for the treasury on SIPPs is two-fold - firstly, in a runaway housing market that is killing first-time buyers, SIPPs with property threatens a future where people compound the issue by investing in second homes for pension provision.

Secondly, allowing tax relief on property investment could cost the Treasury as much as £4 billion, it is claimed.

However, investment in property will still be allowed via REITs, but only as part of general find-management. Tax rules and costs involved in converting to a REIT company are still uncertain.

August 26, 2005

Investors warned that avia flu pendemic is a risk factor

Link: Investors warned that avia flu pendemic is a risk factor

by brian_turner

A report from BMO Nesbitt Burns, a Canadian bank, claims that a global outbreak of avian flu could cause severely affect the economy. It suggests that the financial effect could exceed that of the 2003 Sars epidemic, estimated to have cost $30bn.

Discovery of the virus in Siberia has increased concerns about its further spread. It is thought that the virus, which can pass from animals to humans, could be spread from Russia by wild migratory birds.

The World Health Organization estimates that a pandemic could kill up to 50 million people.

Donald Coxe, global portfolio strategist at BMO Nesbitt Burns and author of ‘An Investor’s Guide To Avian Flu’, said an outbreak in East or South East Asia would seriously affect the global economy because so many goods are sourced there.

He said its further spread could cause airplane traffic around the world to shut down, leading to the closure of production lines due to a failure of distribution of parts and materials.

Mr Coxe suggested that the economic effect would be exacerbated by the fact that a pandemic would affect the most economically productive 20-40 age group.

Mr Coxe advised investors and businesses not to panic, but suggested that a pandemic should be considered a risk factor.

Risk management experts said they did not believe the threat of avian flu to the world economy was an immediate one.

August 25, 2005

Oil over $68 a barrel

Link: Oil over $68 a barrel

by brian_turner

The price of US light crude reached $68 a barrel in Asian trade on Thursday, after the country reported a fall in gasoline stocks. Concern that tropical storm Katrina could jeopardise production in the Gulf of Mexico also pushed up the price. The storm is expected to reach the gulf in the next few days.

In London, Brent crude reached $66.56 before falling to $65.69.

Increased demand from the US, China and India is expected to maintain prices at a high level. The US and China are the world’s largest oil consumers.

The US Department of Energy said that US stocks of gasoline fell by 3.2 million barrels last week to 194.9 million barrels. This is 7% below 2004 levels. However, US supplies of crude oil increased by 1.8 million barrels to 322.9 million barrels, according to the government.

China also said that its imports of crude oil had increased sharply. Imports of crude oil in July totalled 11.1 million tonnes, an average of 2.62 million barrels a day. In the first seven months of this year, oil imports increased 5.4%.

Rodrigo Rato, managing director of the International Monetary Fund, said that the main reasons for the increase are demand forces, particularly from the US, China and India, rather than supply problems, which have usually contributed to price rises in the past. Mr Rato said restricted refinery capacity would keep prices high in the short term.

August 15, 2005

Macquarie Bank considers LSE bid

Link: Macquarie Bank considers LSE bid

by brian_turner

Macquarie Bank of Australia is considering a joint bid for the London Stock Exchange (LSE). In a statement to the Australian Stock Exchange, Macquarie emphasised that plans are at an early stage.

The London Stock Exchange has been considered a potential acquisition target for a number of years. Other possible bidders include European exchange Euronext, Germany’s Deutsche Boerse and OMX, the Scandinavian stock market operator.

The LSE issued a statement saying that it had “received no formal approach from Macquarie Group”. It said that its strong first-quarter results “reinforce the Board’s confidence in the Exchange’s growth prospects as an independent group”.

Macquarie Bank is known as the “millionaires factory” because of the huge bonuses it pays. It was originally called Hill Samuel Australia, after UK-based Hill Samuel established the firm, but changed its name to Macquarie Bank in 1985. In the first quarter of 2005 it was Australia’s top mergers and acquisitions adviser.

The Bank already holds interests in UK assets including a toll section of the M6 motorway and airports in Bristol and Birmingham. It manages 91bn Australian dollars of assets worldwide.

Competing bids for the LSE could increase the price of a takeover, but the Competition Commission has expressed concern that a takeover by Euronext or Deutsche Boerse, the only other major exchanges in Europe, would lessen competition by leaving the buyer in control of the LSE’s clearing services.

August 10, 2005

China reveals basket of currencies

Link: China reveals basket of currencies

by brian_turner

China has revealed for the first time which international currencies comprise the basket of currencies against which it measures its own currency, the yuan.

The US dollar, the euro, the Japanese yen and the South Korean won dominate the basket of currencies, which was introduced on 21 July after China revalued the yuan. The basket also contains the UK pound, the Thai bath and the Russian rouble.

China’s currency had been pegged at 8.28 against the dollar for a decade, but the revaluation allowed the yuan to float against a number of currencies and effectively strengthened it by 2.1% to 8.11 to the dollar.

The yuan has since appreciated slightly on China’s restricted foreign exchange market, closing at 8.1062 to the dollar Wednesday.

People’s Bank of China governor Zhou Xiaochuan said: “The currencies in the basket depend on the amount of foreign trade we conduct. The US, eurozone, Japan and South Korea are our biggest trading partners now”.

Some analysts were surprised that the Taiwan dollar wasn’t included in the basket.

China is also planning further currency market reforms, including allowing non-banking firms to trade in its onshore foreign exchange market. It is also launching forex (foreign exchange) forwards on the domestic interbank market.

Pension deficit lowered within FTSE 100 companies

Link: Pension deficit lowered within FTSE 100 companies

by brian_turner

A report from actuary firm Lane, Clark and Peacock says that the combined pension fund deficit of FTSE 100 companies fell from £42bn to £37bn in the year to July. This was mainly due to increased employer contributions and improved stock market performances.

Martin Slack, senior partner at Lane, Clark and Peacock told BBC News that although firms are making larger contributions and investment performance is improved, scheme members are living longer and interest rates are low.

The group said that if this trend continues, the deficit will not be closed until at least 2013.

Mr Slack warned that the deficit at some firms had actually increased over the past year and that unless they significantly increased contributions their schemes could be in deficit for “tens of years.”

Over the past 12 months companies collectively paid £10.5bn into their employee pension schemes - a record amount. Many firms are replacing final salary schemes, which guarantee a retirement income based on length of service, with money purchase schemes. Under money purchase schemes, firms only guarantee how much they will pay into a worker’s pension and do not specify how much the pension will be worth on retirement.

The report identified the following firms as having some of the largest pension deficits: BAE Systems, British Airways, BT, ICI, Royal & SunAlliance and Rolls Royce. However, three firms in the FTSE 100 do not have a pension scheme deficit: Associated British Foods, Johnson Matthey and Old Mutual.

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