Blushing and Gushing

Red faces all round at US investment bank Goldman Sachs where leading oil analyst Arjun Murti predicted this year that oil would rocket to $200 a barrel. And what’s happened? Crude has plummeted to below $50 a barrel. So he’s now cut – slashed might be a better word – his forecast from $200 to $45.

Murti was correct in predicting in 2005 that oil would rise to $100 a barrel – and he got rising prices right for the next three years. So what’s his bet for the future? He and his New York based energy gurus are suggesting $70 a barrel by 2010 and $105 by 2012.

The thirteen oil producing nations – Opec – are meeting this week in Algeria to try and push prices higher by cutting production. But with global demand falling the chances look slim. In the UK consumers are increasingly frustrated at the way oil prices have fallen so swiftly but have not been reflected in the price of domestic oil to householders.

Halifax bank report – Future outlook looks gloomy

The average house price fell by 2.6 per cent in November from the previous month, snuffing out the increase on home equity earned since July 2005, according to the Halifax house price index published last week.
The month-on-month fall has been the largest for more than 16 years. Pushing a new 6½ year low against the dollar and an all time low against the once euro.
This latest report shows that house prices are on average 16.1 per cent lower than levels in November 2007. This exceeds the peak-to-trough drop seen in the early 1990s.
The Halifax index has shown we are in a much weaker state than the banking groups first anticipated.
Reports are showing that the buy-to-let market is still increasing on a weekly basis with more property being offered and maybe not enough tenants viewing.

Landlords urged to check up on tenants

As the economic crisis falters further and job losses are on the increase, landlords are being advised to carry out stringent credit checks on their prospective tenants. A large proportion of landlords still do not carry out the relevant checks, which could prove to be a problem in the next year.

The eviction of tenants from your property can take up to six months and can cost a small fortune in legal fees. TheLettingSite.co.uk says “one way to help reduce this scenario is to make sure landlords carry out stringent background checks and maybe consider insuring against this problem with rental income insurance”.

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New FSA Gamekeepers

Where do all the unemployed bankers go? To the FSA every one. It could soon be a serious case of poacher turned gamekeeper if the Financial Services Agency has its way.

The FSA which was supposed to police financial shenanigans and didn’t – or at the very least made something of a botch of it – and which has been subsequently heavily criticised – is planning to increase its workforce by a staggering 3000 extra people.

Recruiting started in the Spring when Northern Rock went belly up. Around the world financial outfits of one sort or another have ditched about 300,000 people so far. So the FSA should have a pool of experienced people to tap into. It’s reckoned that some of these will number about 130 supervisory staff.

There has been a welter of financial scandals and bankruptcies. The FSA has not been able to keep up with their scale and their complexity.

With its increased staff two questions spring to mind.

The first is: Will the FSA be more effective with more people? Size very rarely spells competence let alone excellence. And the second question – always relevant in these straitened times – is this: Who pays their wages?

The taxpayer bailed out the city – so presumably it will now have to foot the bill for its watchdogs. It’s to be hoped the newly-appointed Rottweiler’s have real teeth.

Cars, Guns and Hovis

Soon you won’t even be able to shoot yourself. Legendary US gunmaker Smith&Wesson – remember all those Doc Halliday and Wyatt Earp epics? – has turned in gross profit figures of $20 million. It sounds a lot but it’s down more than 13% year on year.

Unemployment is biting into every sector. The car and vehicle manufacturers’ travails have been well-documented in the US, Europe and the UK. The world’s largest car retailer, Inchcape, scrapped its final dividend.

It’s made gloomy noises about next year’s sales, its share price has plunged and it’s given out two profit warnings in two months. It’s cutting its 17,000 strong workforce – scattered around the world – by 1900 jobs.

A spokesman said the crisis is as much to do with consumer confidence as it is to do with liquidity and the credit crisis. Who wants a shiny new motor if you’re worried about your job – or haven’t got one – paying your mortgage – if you’re lucky enough to have secured one – or putting food on the table, assuming you’re not all starving?

Newly-rich Russia – its fledgeling economy is now writhing in anguish – was one of Inchape’s top markets. It had enjoyed phenomenal growth. But its suppliers are starting to price their vehicles in dollars rather than in roubles.

This is another worrying indication of the way confidence in the rouble is falling. The Russian currency has been devalued six times in five weeks.

Inchcape operates in 25 different countries and after Pendragon it has the second largest dealership network in the UK.

From guns to cars to Hovis bread it’s the same sad saga. All those Hovis ads with little lads playing hoopla in cobbled streets and comforting Northern brass bands oom-pa-pa-ing in the background still haven’t saved Britain’s biggest food maker, Premier Foods, from holding out the begging bowl.

It’s the baker that bakes Hovis – it’s Mr. Kipling as well ( every Granny’s favourite) – and it wants investors to raise £300 million – though that’s still an unconfirmed figure - so that it can start to slice into its £1.8bn of debt. A debt of that order eclipses the £220 million stock market value of the company.

Connells: Rightout

Property website Rightmove announced 60 job cuts last month – about a fifth of its workforce – and estate agents Connells has now sold its majority stake. On Friday it sold 21.2million shares in the company at 155 pence each, a 16 per cent discount on the closing price on Thursday. It equates to £32.9 million.

Connells trades under several names including Allen&Harris, Fox&Sons, Barnard Marcus and William H. Brown. It is Britain’s second biggest estate agent with 470 branches. Connells helped found Rightmove eight years ago with Royal&SunAlliance, HBOS and Countrywide, all of whom subsequently disposed of their holdings.

Shares in Rightmove have fallen by 66 per cent from a high of 540p last February. The chairman of Rightmove Stephen Shipperley was reported as saying sales in the spring were down 40 per cent on the previous year.

India growth slows

One of the major growth economies, India, has recorded a slump in factory output. It had been hoped that the economic success of China and India would be two of the drivers which would help other countries weather some of the worst effects of the recession.

As recently as February factory output was growing at a robust 9 per cent. But it’s now fallen by 0.4 per cent – the first decline in 13 years. Economists had been expecting a drop – but not a reversal – with several talking of a possible 2 per cent rise in output.

India has recently suffered a series of body blows which are especially marked because of the astonishing growth it was achieving until so recently. There had been an economic slowdown – but the reversal of fortunes has suddenly accelerated.

Indian exports have dropped by 12 per cent. The reserve Bank of India has cut interest rates three times in less than eight weeks. Oil consumption, cement production, steel output and a decline in transport manufacture – tell-tale indicators – have all fallen. Lorry sales – tied to industrial output – have halved and car production has fallen by a fifth.

India growth slows

One of the major growth economies, India, has recorded a slump in factory output. It had been hoped that the economic success of China and India would be two of the drivers which would help other countries weather some of the worst effects of the recession.

As recently as February factory output was growing at a robust 9 per cent. But it’s now fallen by 0.4 per cent – the first decline in 13 years. Economists had been expecting a drop – but not a reversal – with several talking of a possible 2 per cent rise in output.

India has recently suffered a series of body blows which are especially marked because of the astonishing growth it was achieving until so recently. There had been an economic slowdown – but the reversal of fortunes has suddenly accelerated.

Indian exports have dropped by 12 per cent. The reserve Bank of India has cut interest rates three times in less than eight weeks. Oil consumption, cement production, steel output and a decline in transport manufacture – tell-tale indicators – have all fallen. Lorry sales – tied to industrial output – have halved and car production has fallen by a fifth.

House hunting up but Beckett dampens interest

There’s good news and bad news on the property front. The good news is that record numbers of people are actively scouring the market for bargain buys and properties that have been repossessed. That’s bad news, of course, for the people who have lost their homes and are now seeing them being snapped up for a song.

But there’s also more bad news about the infamous Home Information Packs – Hips, for short. Just at the point that there are signs of life in what was fast becoming a bricks and mortar corpse the government has intervened – in the shape of housing boss Margaret Beckett – and stiffened up the rules.

The packs cost the seller around £300 to prepare and they are notoriously complicated. Now Beckett has added another mind-boggling six-pages to be filled in and has ruled that the packs have to be ready on the first day a property goes on sale and not, as had previously been the case, at the end of a 28-day period.

Property experts have condemned Beckett’s intervention and predicted that it will worsen the housing crisis and totally stifle the recent signs of movement – and that it flies in the face of everything Prime Minister Brown and Chancellor Darling have been doing to try and fire up the housing market.

On another front Darling and government business boss Lord Mandelson have been snubbed by banks who have refused point-blank to pass on the whole of last wek’s one-point Bank of England rate cut.

Even the fully nationalised Northern Rock, saved by a massive tranche of taxpayers money, said it will only pass on only half of the one-point cut.

The banks are heading for a showdown with the government. But pundits reckon the government is playing a two-faced game. It’s posturing and playing the tough guy for the benefit of the electorate. But privately it’s adopted a much softer line with the banks

Apprenticeships effect property market

Tenants who wish to rent property and first time buyers are often young people who are hit by the double whammy of unemployment and not being able to raise enough money for a deposit.

In among a torrent of bad news there’s a ray of sunshine in that 10,000 new apprenticeships are going to be started in the UK – which might help some youngsters to get a job and to raise funds to rent or to buy a property.

Backed by government there will be training opportunities created in a number of key industries with placements in some of Britain’s leading companies. Superdrug is creating 1,000 new jobs, Tesco 800, Sainsbury’s 300, Phones 4U 1,000

But the greatest number by far will be in Britain’s beleagured construction industry where an estimated 7000 new places will be offered.

As a government sponsored initiative it is well-intentioned but not without problems. Many apprenticeship schemes have been roundly criticised in the past. The criticism centres on two principal aspects. The first is that the quality of the training can vary enormously, with some employers offering little or no real training and using candidates as merely a useful source of cheap labour. The second is that often the pay is so lowly that apprentices cannot be lured off their state benefits and hand-outs.

Cars impact property market

There could be properties coming up for sale or to rent and severe unemployment difficulties in Brackley, near the legendary Silverstone race track in Northamptonshire, and at Vauxhall car plants at Ellesmere Port on Merseyside, and at Luton in Bedfordshire, if Britain’s car industry and its many commercial offshoots were allowed to collapse

The Japanese car giant Honda has its Grand Prix base at Brackley. But it’s quitting Formula One. The team had a budget of £500m. 750 people work for the team – and an unquantifiable number of people in the area who perform other tasks for it.

Two or three bidders have emerged. But at what price? Nobody can afford such massive budgets in these straitened times. Whatever happens to the Honda race team there will be job losses. Everybody on the team is working a three month redundancy period.

Whether this spells the beginning of meltdown for Formula One is anybody’s guess. But the sport’s big wigs have been saying that budgets have been spiralling out of control and that a number of other teams could be on the verge of quitting.

It is suggested the other Japanese giant Toyota might pull out of Formula One. It would have been too great a loss of face had Honda stayed. But now Honda have quit, Toyota – as spectacularly unsuccessful in Grand Prix as Honda – would find it easier for to depart.

The question marks over Formula One – it’s always been as much about business and money as it has about sport – is symptomatic of a wider malaise over the car industry.

Car sales have plummeted in Britain and across Europe. The three manufacturers who own the bulk of America’s car output have pleaded for US government money to bail them out. If they crashed the effect on unemployment would be catastrophic.

Vauxhall in Britain – owned by General Motors in the US which wants an immediate loan of $3bn from Washington – is reported to have had talks with British government business boss Lord Mandelson about being propped up with British government money. Ford and Honda in the UK want to have similar meetings to ensure they do not miss out on any competitive advantage which a move by Mandelson might give to Vauxhall.

Vauxhall is an iconic brand in Britain. It employs 5000 workers in Britain at plants on Merseyside and in Luton. It began in 1903 and was taken over by GM in 1925. In 2000 GM cut car production at Luton – it now only makes vans – when 2000 jobs were lost after profits hit rock-bottom. The collapse of Vauxhall would jeopardise, in all, an approximately 50,000 workers in dealerships, parts suppliers and other businesses.

Estate agents and landlords are among those trying to assess the impact of any closures in Britain’s car industry on the property sectors in the affected regions.

Mandelson the mortgage superman

Today Lord Mandelson of All Those Places Nobody can Remember – he of such things as spinning, getting himself a super mortgage, yachting in Corfu and confusing mushy peas for guacamole – once again dons his hat as the government’s big business boss.

Indeed, it’s now suggested Mandy is virtually the deputy prime minister. He who was once Brown’s arch enemy has emerged from the shadows as his closet confederate.

Mandy is going to summon the bank bosses and give them a finger-wagging for not passing on interest cuts to existing mortgagees, those trying to get a mortgage, and to Britain’s businesses in danger of disappearing down the plug hole known as recession.

Whether this is political posturing – or reality – we should soon know. It is suggested by some cynics that what is said publicly is different to that uttered privately to the banks.

The government is not stupid – although one sometimes wonders. It knows banks cannot lend to people or businesses that won’t repay the money. Banks are businesses. They worry about their bottom line. Let’s not forget that rash lending triggered this mess. .

How far would – or can - the government go in forcing the banks to toe the line. If it demanded that the banks must put the national interest first and their shareholders second, then that would be quite a ticking off.

Could such macho-threats be enforced? Yes. But it would need radical action. The government could seize control, Soviet style. Tanks outside every High Street bank. Canary Wharf and the Square Mill ringed by soldiers. Bosses run out of town. No pensions or payoffs for failure. Assets grabbed. No compensation for shareholders.

Question: Who would run state banks? Answer: Worker-councils. Q. What would happen to profits? A. Abolished. Q. How could the banks lend? A. By doling out taxpayers cash.
Q. So there’d be bigger tax bills? A. Of course. Money doesn’t grow on trees. There’d be bigger taxes to make loans and to pay for the extra armies of state bureaucrats. Q. Isn’t that a bit mad? A. No more so than bailing out the banks with public monies and then letting them go their own sweet money feathering their own and their shareholders nests. Q. Seems like we’re in a cleft-stick? A. Now you’re getting the picture.

Stalin had a phrase. No man no problem. Or if you like: No bankers no problem. But sadly it doesn’t work. Ask all those millions who tore down the Berlin Wall. And it’s difficult to see the ermine-clad Mandy of Somewhere or Other chewing on his guacamole and storming the Winter Palace. That would be an entirely different gameski.

Tesco, Morrisons and Aldi slug it out

Britain’s biggest supermarket – Tesco – which accounts for one pound for every seven which is spent on the high street – has just recorded its worst figures in 15 years which gives another indication of how deep the recession is becoming.

The inquiry into what’s going wrong at Tesco is beginning. A widely held view is that there are three main reasons Tesco is under increasing pressure.

The first reason is that the Tesco discounting and budget range strategy has failed to fire the shopper’s imagination.

The second is that the competition is hotter than ever and is now turning into a bloodbath which will result in retailing casualties on an unprecedented scale.

The third reason is that a wave of anti-Tesco is sentiment has swept the country. It is perceived that consumer resistance has been galvanised throughout the UK after town after town has fought – and several have won - Tesco plans to expand its empire, a process which can jeopardise existing high streets and imperil shopkeepers’ livelihoods.

New research shows Tesco customers have been deserting it in droves in favour of Morrisons and Asda. Its Xmas advertising campaign with warbling Des O’Connor in a bad taste golfing pullover – like Rupert Bear on the Links – seems to have misfired.

The advertisement was intended to be funny and ironic. O’Connor is blocked out as he croons some familiar Christmas ditty by giant baubles which suddenly come into shot offering bargains. Experts in advertising sector condemn it as boring and ‘old hat.’

The Times newspaper reports that previously unpublished data reveals that in the 12 weeks to November £22 million of spending was grabbed from Tesco by Asda. Another £10m went to the German discounter Aldi – and about as much again to Morrisons.

It had been previously thought Netto and Lidl and Aldi were Tesco’s big competitors. But Lidl took only a tiny amount of trade from Tesco. And Tesco won trade from the Danish chain Netto.

On the marketing front Sainsbury’s have stuck with Jamie Oliver with midget-size comics Ant and Dec. Asda has abandoned ‘celebrities’ and prefers to show people becoming excited in a Yorkshire village as they get ready for the festivities.

Lately several towns have scored notable victories in rejecting Tesco’s plans for expanding their chain. In the same way that millions of people voted for John Sargent
on TV’s Strictly Come Dancing Britain always likes to support under dogs.

Landlords want rate cuts

Property landlords and estate agents are among those demanding that the Bank of England must cut interest rates to two per cent. It would be especially welcome
news for persons with tracker mortgages.

The Monetary Policy Committee – which sets the rates - meets on Thursday. The Bank has already chopped rates twice since October to their present three per cent.

If rates were further slashed to two per cent it would be the lowest level since 1939, when the Second world war began. A spokesman for the British Chambers of Commerce urged the Bank to continue to cutting rates and suggested that they could fall to one per cent by February next year. Some economists are predicting zero rates next year.

The governor of the Bank of England, Mervyn King, has hinted to homeowners – who are still under enormous pressure despite the recent moves, with many banks and lenders still reluctant to lower the cost and increase their range of their mortgage offers – that another major cut in rates is a real possibility.

King, who has been heavily criticised for what many see as the bank’s dilatory response to the crisis – might be further encouraged into pushing for cuts given the way in which inflation has been in retreat. It’s fallen from 5.2 to 4.5 per cent. Further cuts might be good for mortgagees – and, hopefully, for small businesses – but each time one occurs it adds to the woes of Britain’s savers with saving rates dropping through the floor.

Peter Mandelson – the government’s business boss – has hinted, as has Alistair Darling, the Chancellor, that full-scale nationalisation of the banking system is an option if lenders continue to be laggardly in passing on the cuts.

The government is anxious that the current part-nationalisation of the sector – with some banks already wholly owned by the state – does not mean that Britain will end up having the worst of all worlds.

This scenario could become reality if the banking sector which has been bailed out and is propped up by vast amounts of public money is still determined to go its own way – putting its shareholders above the national interest – and refusing to obey the demands of its masters, the government.

The amount of public money being pumped into the overall economy – there is now widespread alarm about the vulnerable state of the manufacturing and engineering sector with major failures being imminent – is likely to be increased.

It’s possible that Darling is considering a big jump in VAT in the future – even though he’s just cut it by 2.5 per cent – with a wide body of opinion concluding that the £20bn giveaway budget last week will still not be enough to ‘kick-start’ the ailing economy.

South African Property

Fed up with trying to buy a house or a flat in Britain? Still too expensive? You can’t get a mortgage? Mummy and Daddy not rich enough to stump up a deposit?

You could always think about South Africa. It’s strictly for the brave – or the barking – but you could still buy a perfectly liveable two-bed house for £45,000. Or a 5,000 square foot building plot in a choice location for about £90,000.

The weather’s great, the countryside sublime, if you love nature and wild life it’s the place to be, the beaches and the sea – there’s something like 3000 miles of majestic coastline - can knock most places into a cocked hat.

And the catch? Well, just a few.

Seeing what’s happened in so many other parts of the continent hardly inspires confidence. In South Africa terrorism, economic blight, a shocking murder rate and fears about personal safety are four convincing reasons why people are upping sticks. Thabo Mbeki quit as President a couple of months ago and that didn’t do much to help stability.

Runaway Brits have been rushing back to Blighty. And there has been a marked increase in the number of South Africans with British passports wishing to emigrate. It’s reported by currency experts that funds have been draining out of the rand and back into the UK.

Poor old sterling might look a bit of a limp lettuce against most other currencies – but up against the rand of South Africa it’s positively Herculean. Holders have been ditching rands like hot cakes. Currency dealers say there’s been flood of selling. It’s dived from 13.21 against the pound in January to 19.19 a couple of months ago.

Traditionally the rand has always been a bit iffy – yo-yoing up and down. The Great Crash has increased its volatility. So selling up and getting out, coming to Britain for instance, could be costly. The buying power of the rand adds up to a great big fat zero.

And the UK – where falling property prices are now said to be levelling out a touch (there are even reports of a tiny rise in London) - remains seriously expensive.

If you’re a Brit buying in South Africa sterling looks a Lion. Though don’t let’s get too carried away. Against other currencies it’s still more of a mouse. But it does mean that in South Africa you could grab a bargain. Don’t get too carried away, though, by the cricket, the rugby and the beaches – ponder on those real, even frightening, drawbacks.