Bull and Bear: Italy’s spaghetti junction - The Share Centre Blog

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Michael Baxter

Bull and Bear: Italy’s spaghetti junction

Written by: Michael Baxter on February 26th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: Italy’s spaghetti junction. Primark shows the High Street is not dead, but may be changing. Yahoo to an end to working from home. BP: the well from hell and the trial continues. Singapore goes for fewer immigrants and higher wages. Companies in the news: Persimmon, Hiscox, Bunzl

Italy’s spaghetti junction

So Italian voters did the wrong thing, and now ‘crisis’ is the word of the week.

It is too early yet to make any definitive judgement on how Italy’s next government will be made-up. But it is clear that voters have said they don’t like austerity.

This is why the recent euphoria over the Eurozone recovery was based on some pretty absurd assumptions. The markets may celebrate over falling unit labour costs, and say rebalancing is occurring. Economic agents are adjusting behaviour, so recovery is underway.

Setting aside that Italy is the only country of the five PIIGS that is still seeing unit labour costs rising, what markets seem to overlook is that these economic agents are people. You can squeeze until the pips squeak, but when that means rocketing unemployment, and the end of hope for millions of younger people across much of Europe, something has to give.

Europe is essentially a country of democracies, as is the US. That means we get Senates that can become paralysed, and made up of parties at loggerheads.

That is the price we pay for democracy. Churchill was probably right when he said: “Democracy is the worst form of government except all those other forms that have been tried from time to time.” But the fact is that sometimes in a democracy the electorate does not accept the ideas that economists want them to.

Will the Italian election lead to a new period of crisis, or will we see some kind of fudge; of half compromises, and a new sticking plaster applied? Given the story of the last couple of years, we will probably see the latter, but the underlying problem won’t have gone away.

Primark shows the High Street is not dead, but may be changing

Associated Foods half year ends in a few days’ time. And things are looking very good, mainly thanks to its subsidiary Primark. Sales at the budget retailer are up 25 per cent, like-for-likes up 7 per cent.

So does all this mean that the High Street is not dying; that it is not even resting like that parrot, but rather that it is in very good shape – just a different shape?

The cost of delivery alone means it is hard to see buying the kind of products sold in Primark becoming that popular over the Internet. Primark has very effectively brought the cost, not only of the goods it sells but also of distribution, as low as possible. So you can see why there might be growing demand for Primark type products for some time.

ABF’s finance director John Bason put it this way: “People go to the high street for clothing. Clearly value clothing, particularly Primark, has become a much stronger feature of the high street than before. In Western Europe, people are careful with the way they spend but Primark is offering such great value it is continuing to benefit.”

As for the High Street in general, he said: “I would be amazed if anybody is calling the end of the high street.”

In fact what Mr Bason anticipates for the High Street is regeneration.

It seems unlikely that the Internet will kill off the High Street altogether. But what is clear is that to a very large extent it needs reinvention. Stores that survive – and even flourish – will be the ones that offer services that are not easily duplicated over the Internet.

Yahoo to an end to working from home

Talking of the Internet but moving away from the High Street, why, in this modern era, do we need to travel to work? Why not work from home, and thanks to e-mail, video conferencing, instant messaging, it would be just as if we are in an office. As a result we can spend less time and money on travel. And unless we are about to participate in a video conference, we can stay in our pyjamas all day.

Of course, older companies – traditional ones that have been around for years – may not see it that way. You can imagine they want to see traditional values, traditional working practises, but modern companies… well you would expect them to see it differently.

You would especially expect to see a dotcom do things the modern way; after all, they should surely practice what they preach.

It is just that the CEO of Yahoo, which is perhaps more dotcom than just about any other company, has banned employees from working from home.

Marissa Mayer has decreed that staff at the company must either work in the Yahoo offices or quit.

Frankly, you can see her point. It is not that staff working from home necessarily shirk – they may do – and some may be more productive, but Ms Mayer sees other benefits from staff coming into work. For example, they will talk to each other, chance meetings in the corridor or lift may spark off new conversations, leading to new ideas.

Ms Mayer justified her decision to staff by saying: “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings…Speed and quality are often sacrificed when we work from home.”

She is probably right. But to say the idea has not gone down well with some at the company is – to put it mildly – an understatement.

Her observations are interesting though, and the next time you hear someone say that ‘thanks to the Internet we will see a sharp decrease in commuting to work,’ remember Yahoo.

BP: the well from hell and the trial continues

Since the trial is set to last for several months, it won’t be subjected to much daily analysis here. Just the odd snippet.

BP has said “enough.” It wants to fight to clear its name in the US courts. You can see why. Suing BP has become a popular sport in the US. But is the sport justified?

Round one went to BP when a court agreed that the 810,000 barrels of oil spilled into the sea but captured by BP could not be counted in the civil case.

Actually, there is more than one trial. One is to determine how the oil spill occurred; how much of it was down to BP, and how much of it was down to negligence. Another trial will determine how much oil was spilled, and what the cost of that spillage was.

There are further actions being taken by various states, but the outcome of the two above trials will partly determine the nature of these other actions.

Yesterday saw the various sides make their initial arguments. Michael Underhill, representing the US Department of Justice, said: “BP put profits before people; profits before safety; profits before the environment.”

Then there were the other plaintiffs: the likes of Transocean and Halliburton. They are suing BP. Jim Roy, an attorney representing them, said the culture at BP was: “Production over protection. Profits over safety.”

Also yesterday much was made of comments made by BP workers that BP was drilling a “well from hell”, and knew it.

The case, as it were, continues.

Singapore goes for fewer immigrants and higher wages

Why can’t we be more like Singapore? That’s the gripe you hear time and time again. We are killing the City, our top talent will flee to Switzerland (zzzz, where they may die of boredom), or got to overcrowded Singapore.

But Singapore is not immune from problems. For one thing its demographic crisis in the making is perhaps more serious than anywhere else in the world. Singapore is ageing very fast indeed.

But the government has introduced new measures to try to curb its ills.

Companies operating in some industries have been told to cut the number of foreign workers they employ, while simultaneously paying them more money.

World renowned investor Jim Rogers lives in Singapore. Back in the mid-noughties he sold his home in New York and set up in Singapore, thus ensuring his kids could speak Mandarin.

Singapore, they say, is the model economy. This is where the threat to the UK’s City lies.

Bloomberg, however, quoted Max Lee, managing director of a manufacturing company in Singapore. He said government rules on immigration and wages are “killing a lot of businesses, many companies are dying.” He said: “We are losing competitiveness and productivity.”

Not even models are perfect.

Companies in the news

Bull:       House builder Persimmon is returning cash to shareholders, but shares are at a five year high. Questor at the ‘Telegraph’ says that despite this they are a “buy” for income investors.

Bull and bear: Hiscox Insurance’s Chairman – Robert Hiscox – has retired. Profits at the company are better than expected, with shares trading at 47 per cent premium to net asset value. Tempus at the ‘Times’ said that it’s a good company with bags of potential, but the shares are dear.

Bear:     Bunzl, the specialist distribution group supplying a broad range of non-food consumable products (bog rill is among the products it distributes), has been on a buying spree, but Tempus at the ‘Times’ worries about the share price, and thinks the acquisition spree is bound to produce the odd turkey, meaning shares are vulnerable.

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

Tags: BP well from hell trial, Bunzl, Hiscox, Italy bonds election euro crisis, Persimmon, Primark and the future of the High Street, Singapore immigration foreign workers, Yahoo working from home

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