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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: Are the economic dykes breaking over Holland? Germany’s demographic threat. Women and the economy. BP: an example of British imperialism? Look towards Mexico. Blake’s Seven’ on hyper drive to XBox live TV

 

Are the economic dykes breaking over Holland?

A country that sits below sea level is precariously situated, but thanks to technology and civil engineers Holland seems safe. The Dutch economy, however, appears to be similarly constrained. In its case, the problem relates to household debt, which is very high indeed. The economy is perhaps under debt water too.

It was covered here yesterday – see: A double Dutch recession   There is no point repeating the arguments from yesterday, but here are some more titbits.

Firstly there is a bull argument in favour of Holland. Yes it is true that the country has massive levels of household debt – 285 per cent of GDP at the end of 2012, according to the OECD – which is almost double the UK ratio, which we all know is too high, and almost three times the US ratio. But household gross financial assets to gross disposable income is 685 per cent, which is the highest in the OECD, and a roughly a third greater than that of the UK, which itself boasts a high household asset to household debt ratio.

Bear:     Bankruptcies in the Netherlands reached an all-time high in May of this year, See: Netherlands Bankruptcies  

They may have lots of assets, but Dutch households may lead the Dutch economy into very difficult times.

Germany’s demographic threat

And from Holland to its neighbour. The penny is finally dropping. There has been a great deal of coverage in the media of late relating to Germany’s demographics. We all too easily blame Germany for the Eurozone’s ills, but the view that Germany is this behemoth that controls the fate of Europe just by changing its attitude is almost certainly wrong.

The most recent census shows that Germany’s population has shrunk by 1.5 million, and it is predicted that by 2060 its population may shrink by 19 per cent, meaning that both the UK and France will boast more souls.

The reason is not hard to fathom. It is called emancipation of women. It is clear that as women become more career minded the birth rate falls.

The question mark relates to whether this is a good thing. Not emancipation of women – that is clearly a good thing, but whether a shrinking population is good or bad.

What is quite ironic about changing demographics is that it flies in the face of Thomas Malthus’s theory, who, you may recall, predicted that the population grows exponentially and the ability to cater for it grows arithmetically. Malthus’s theories led to economics being known as the dismal science. The industrial revolution questioned the assumption that production can only grow arithmetically. Economic theory showed a rising population leads to more demand, which leads to more wealth. Now empirical evidence shows population can decrease exponentially.

From an investors’ point of view, just bear in mind that demographics are more important than they are credited as being. They probably explain why Japan has lost two decades, and may point to Germany going the same way.

Women and the economy

And now, in the oddest example of a politician shooting himself in the foot, UKIP treasurer Stuart Wheeler has said: “I would just like to challenge the idea that it is necessary to have a lot of women or a particular number on a board….Business is very, very competitive and you should take the performance of women in another competitive area, which is sport where [men] have no strength advantage.” He continued: “Chess, bridge, poker – women come absolutely nowhere. I think that just has to be borne in mind.”

Just to keep this to economics, it may be worth pointing out that there is evidence that  had more women worked for investment banks, the finance crisis of 2008 may never have occurred.

BP: an example of British imperialism?

“They’re attacking our entire judicial system. They’re attacking the judge. They’re attacking the claims administrator they helped appoint. They’re attacking the lawyers for representing people. Now they’ve filed an attack on the US government demanding that they do business with them.” Those words were uttered by Joe Rice, a lawyer who represented more than 100,000 people making compensation claims.

BP reacted by calling Mr Rice’s comments “xenophobic”. The UK’s ‘Telegraph’ newspaper headlined: “Gulf spill lawyer: ‘BP treats US as a colony’”, while the ‘Times’ headlined: “BP treating America ‘as a colony’”. The US publication ‘The Wall Street Cheat Sheet’ headlined: “Settlement Lawyer Thinks BP’s Arguing Will Backfire.” The ‘Huffington Post’ headlined: “BP Settlement Negotiator, Says Company’s Legal Tactics Will Backfire.” Did you spot the difference in emphasis depending on which side of the pond you come from?

Look towards Mexico

“Despite a challenging global macroeconomic backdrop, we would highlight that Mexico has proved to be resilient throughout the volatility in global markets in the second quarter of the year. Mexican equities have also started the third quarter on a strong footing – the MSCI Mexico Index has returned 6.1% in US dollar terms since the beginning of July* – and it remains one of our preferred markets in the Baring Latin America Fund,” or so said Mike Simpson, Investment Manager, Baring Latin America Fund, Baring Asset Management.

You may have noticed there has been news on the US economy of late. Well, it appears Mr Simpson has noticed it too. He added: “A major factor underpinning our positive view on Mexico is its close ties to the US economy. As the US economy gathers momentum, we currently favour selected Industrials companies such as Alfa and IEnova which we believe are well placed to benefit from this recovery trend.”

He continued: “We are also encouraged by the improving political environment in Mexico, where, for the first time in more than a decade, the government appears committed to implementing much-needed supply-side reforms around the tax system and energy sector. If successful, we believe this will be very positive for economic growth, corporate profitability and, in turn, equity market performance over the coming years.”

‘Blake’s Seven’ on hyper drive to XBox live TV

Do you remember ‘Blake’s Seven’, the BBC TV series in which the eponymous hero was killed off half way through, only to reappear in the final episode as a baddie? It appears Microsoft remembers it even if you don’t and is remaking the series to appear on its XBox live service.

Meanwhile, Netflix has remade that TV series from the 1980s, ‘The House of Cards’; the one that starred Ian Richardson as Francis Urquhart, who was famous for saying: “you can say that, I can’t possibly confirm it”. Amazon is making a new series called ‘Alpha House”.

It is all part of the new era. The king called content seems secure in his rule.

If you work in media or marketing, and even if you don’t, you have probably heard the maxim ‘content is king’.

But now Microsoft, Netflix and Amazon are at it, so what does it means for the likes of BSkyB?

BT is in the content game, and indeed in the games of football and rugby. Virgin is licensing its content. Vodafone is licensing BSKyB content for distribution across its 4G network.

Time was when king makers had the power. So BSKyB, BBC, or ITV held all the cards as they controlled distribution. Of course some produce content too.

As we move from 3G to 4G to the real game changer 5G, content will be coming at us at several gigabits, and might we go straight to the content producer, rather than its distributor?

How best to benefit? Investors may be better off buying into the king, that is to say the content maker, rather than the king maker.

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


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