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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: Gas: too much, too little, serious problem, or just a gas? UK retail sales see biggest jump in a year. Does Cyprus need to put its hand in its pocket? China’s good and bad news.  New ARM boss vows to maintain independence.


Gas: too much, too little, serious problem, or just a gas? 

In his budget George Osborne called for more of it and tried to use his fiscal lever to get some. Cyprus reckons that one day it will be rich, and will have lots of it. Confusingly though, the Eurozone authorities don’t think the country can afford to ever pay back 15.8 billion euros, which is why they are saying its citizens must cough up around a third of that total from their bank accounts. But Russia has lots, and it is not very happy with the Eurozone. Finally there’s Blighty, and boy is it brrrr at the moment.  It’s been a cold, cold winter and that means we don’t have enough of it.

It is, of course, gas.

What can Russia do? To say it is not very happy about the idea of a bank levy on Cyprus is an understatement. There is a something odd about all this. Presumably Russia doesn’t like money laundering, and that is why its oligarchs chose Cyprus as a way to launder money. So why is it so upset with the way the Eurozone wants to treat money sitting in Cypriot banks?

Tick the box you think is appropriate: Money laundering is less of a problem than they say it is, or Russia’s government does really care about it.

Whatever the rights and wrongs, there is talk that Russia may respond to the idea of a bank levy by turning off the gas tap to Europe. I’m not sure that is in Russia’s interest, however. It does rather need the money that selling gas brings in.

As for Cyprus, they reckon there is gas off its shore. On the BBC this morning, someone said Cyprus is like an 18 year old teenager, set to inherit a fortune at the age of 21. But what do they do in the meantime? And does that analogy really make sense? If Cyprus is set to inherit a gas fortune, why not give it a helping hand? Maybe the little island would be better off doing an Iceland. First, of course, it will need to exit the euro. Then, armed with a cheap currency, it can attract more tourists, and when the gas comes rolling in (or flowing in may be more appropriate), it can as it were stick its two rocks of Aphrodite up at the euro.

Meanwhile, in the UK it turns out that we only have enough energy supply to last for 15 days. In France and Germany there is enough for 100 days. Let’s face it, it has been a rotten winter. It snowed in November, it is snowing again. And those selfish UK households have responded by turning the heating up.

Ian Marchant, chief executive of Scottish and Southern Energy, said this week there is: “[a] very real risk of the lights going out,” within the next three years. He continued: ”It appears the government is significantly underestimating the scale of the capacity crunch facing the UK in the next three years and there is a very real risk of the lights going out as a result.”

So what happens if we run out of gas? Well there is Norway and there is Russia.

What we need, of course, is for Cyprus to find gas; for George’s budget to create lots of shale gas, and for Iceland – the island that may have defined the economic model Cyprus needs to follow –  to start sending us some of its thermal energy.

In the meantime, let just hope the sun comes out.

UK retail sales see biggest jump in a year

The news on the UK economy is all over the place at the moment. The most recent PMIs point to moderate growth – very moderate, it has to be said. The National Institute of Economic and Social Research has said the UK is back in recession. The ONS recently published data showing that UK industrial production contracted by 1.2 per cent in January.

Some have been celebrating and say that if we ignore the impact of oil production – that is to say we look at the onshore UK economy – the economy is growing.

And now the ONS has come along and confused the picture some more.

Retail sales rose 2.6 per cent in February, compared to the same month in 2012 – that’s both by volume and amount spent.

It was the highest growth rate since March last year.

Chris Williamson at Markit said: “The risk of the UK sliding into a triple-dip recession has fallen sharply.”

Alas there is a catch. January saw a sharp fall. It was all that white stuff, falling from the sky like fluffy flakes of joviality. So maybe shoppers went out and bought stuff in February they were unable to get out to buy in January.

We will have to wait until March to see data that wasn’t distorted by bad weather. Hold on a second, just spotted something out of the window. What is that white stuff falling from the sky like little white flakes of gas demand creation, and retail misery?

Does Cyprus need to put its hand in its pocket?

Just before the budget on Wednesday did you watch Prime Minister’s question time? Ed Milliband asked our PM if he had known about the bank levy the Eurozone’s financiers wanted to impose on Cyprus. Mr Cameron responded by putting on his best innocent face and saying: “No not me mate. We are in the dark,” – or words to that effect.

It was just interesting to note how, implicit to the exchange, was this assumption that Cyprus had been – as it were – left hanging out to dry, and that the deal put to Cyprus was about as fair as a stab in the back.

An article in ‘Spiegel’ put forward a different point of view.

“The Eurozone,” argued the article’s writer, “led by Germany, came up with a not unreasonable demand in exchange for assistance: Namely that the bank customers, whose accounts are to be saved, contribute to the bail-out.”  And there is more: “By Tuesday morning, the original deal had been changed to exempt from the bank levy those holding less than €20,000 in their savings accounts. That the parliamentary veto was nonetheless unanimous shows that lawmakers are primarily interested in maintaining Cyprus’ role as a low-tax paradise and offshore business haven.”

The gist of the article is that small countries cannot hold the rest of the Eurozone to ransom.

Anyway read the article for more: Bail-out Clash: Why Europe Must Play Hardball with Cyprus 

China’s good and bad news

Bull:       The strongest quarter in two years. Not bad huh, and that is apparently what China has just experienced. The latest flash composite Purchasing Managers’ Index for China covering March was out yesterday. And it was good. This is how Markit put it: “The HSBC Manufacturing PMI rose to 51.7 in March, according to the flash estimate produced by Markit, rebounding from February’s four-month low of 50.4. The upturn signalled the strongest pace of expansion for 23 months with the exception of January’s two-year high. The above-50 reading means manufacturing conditions have now improved for five successive months following a 12-month period of decline.”

Bear:     Qinwei Wang, China Economist at Capital Economics, said: “These figures are encouraging. But there are good reasons for caution. The increase from February probably reflects at least in part a seasonal rebound after the Chinese New Year holiday. The Markit PMI has risen in the month after Chinese New Year in eight of the nine years the PMI has been compiled. The average post-New Year rise of one point would account for nearly all of this month’s gain.”

More bear:         Perhaps more worrying is this story on Bloomberg: Hong Kong Homes Face 20% Price Drop as Banks Raise Rates  
Mortgage rates  in Hong Kong are on the rise. And as you may know, house prices in Hong Kong have been rising in a way that looks distinctly bubble-ish for several years. Authorities tried to stop the bubble, but with China’s currency creating low interest rates, and with mainland China seeing house prices rise faster than new skyscrapers, they didn’t have much success.

Bloomberg cited comments from Deutsche Bank warning that house prices could fall by 20 per cent over the next two years. This all begs the question: if the predictions are right, will the Chinese housing market follow suit?

 

New ARM boss vows to maintain independence

What are you good at?

The UK is good at lots of things, but us Brits don’t always like to blow our own trumpets.

Take ARM. This is the company which grew out of the old Acorn, the company behind the BBC micro computer, and which now designs chips that sit in millions of smart phones and tablets.

In fact ARM is doing business that even the mighty Intel can only envy. Its product sits in iPhones and iPads, Samsungs and Kindles. And even Windows Surface tablets.

ARM also has a clever business model. It works with companies. It is not like Intel, which ships the chips and lets suppliers get on with it – that’s a little harsh, but you get the picture. ARM doesn’t make chips; it merely licences its technology.

As per usual – and as is the British way – hopes are high that the company will be sold. That will give the share price a boost, and in the process add more evidence to the argument the UK does not produce tech giants – we sell out first.

But Simon Segars, the soon to be boss of the company, has good news for those who want to see ARM trundle along – perhaps becoming one the most impressive British success stories of many a year – but bad news for those hoping to see the share price surge on M&A rumours.

Earlier this week he said: “We have 300 licensees of our technology, we share confidential information with each other and they rely on the neutrality of our position. Being an independent company is the right model.”

It is hard to argue with that logic.

 

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


Showing 2 comments

  1. Garry Hawkins

    Putting alleged corruption to one side, I’m not surprised that Vlad the honest broker is showing concern.

    Given that Russia has already loaned Cyprus a big slug of money plus its sovereign wealth fund probably carrying euro denominated bonds in any number of the countries involved. I think you’d expect the Russians to have smidgeon of interest?

    On gas, the UK’s lack of storage is not news – it’s been known about for years. Having North Sea gas on tap has mitigated the need for having gas storage – though of course, this is now running out.

    There’s a lot of gas in the Falkland Isles: the Loligo field alone is estimated to hold 10 Trillion Cubic Feet – somebody just needs to work out how to get it out and delivered to the UK.

  2. Tony Brooke

    Commenting from the bottom upwards:

    G) What a shame Britain sold out on its Merchant Shipping interests to make way for the cheaper Greeks and Russian in the 70′s. (Who owns all the LNG carriers now I wonder? )
    F) I remember the BBC/Acorn Computer well, and more vaguely a time when ARM shares trading at around 30p. Wish I’d held on a lot tighter to both of the above.
    E) Skipping lightly over Chinese cautions wrt their natural over enthusiasm.
    And D) Russian retro-interpretations of Capitalism using cold war rhetoric.
    To C) What does its neighbors call a politically isolated and seriously cash strapped little island whose inhabitants think they are worth a fortune ?
    is it B) A Pain in the Backside.
    or A) A Golden Opportunity that’s crying out to be exploited.

    (Hmmmm? tricky!)

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