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Michael Baxter

Bull and bear: EU moves step closer to a tax on share dealing

Written by: Michael Baxter on January 30th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: EU moves step closer to a tax on share dealing. Amazon sees revenue rise and profits fall, as Apple and Microsoft prepare their next shots. Apple adds memory. Microsoft announces $100 a year product. US consumer confidence dives. Now Iran threatens to fine BP. Companies in the news: Petra Diamonds, National Grid, PZ Cussons, Unilever

EU moves step closer to a tax on share dealing

The UK has said no, eleven Euro countries have said yes. The final result could be a profound change in the market for trading shares, bonds and derivatives.

In fairness, it must be pointed out that the eleven euro countries have merely agreed to move forward; to investigate further; to consider. Nothing is yet decided.

So what then is the idea?

Well, it is our old friend the Tobin tax, but applied to shares, bonds and derivatives. You may recall that Nobel Laureate James Tobin proposed the idea of a tax on all currency trading. Tobin made his suggestion back in 1972, and ever since it has been one of the most controversial ideas in economics.

The eleven euro countries are not actually looking at a Tobin tax exactly, rather they are looking at imposing a financial transaction tax on shares, bond and derivatives. For shares and bonds the tax will be 0.1 per cent of the value, for derivatives 0.01 per cent.

London has said no thank you.

Looking at it from one point of view it is hard to see what the fuss is about. After all there is already a 0.5 per cent stamp duty charge on shares traded in the UK.

But the CBI is not impressed. Matthew Fell, CBI Director for Competitive Markets, said: “The UK government is right to reject a Financial Transaction Tax as damaging for jobs and growth. It is disappointing that Eurozone economies are pursuing the FTT, whose costs ultimately fall on consumers and businesses, and will be a drag on the Eurozone recovery.”

So let’s say that this financial transaction tax is finally adopted in Frankfurt, Paris, and Madrid but not in London. One assumes traders will rush to the tax haven that is the UK. One also assumes that governments in Germany, France and Spain will not be too happy about this.

The risk then is that the euro countries will try to level the playing field by imposing costs on certain money flows into and out of the UK.

Mr Fell warned: “This tax must not impinge on non-participating member states by including extra-territorial reach into financial services activity conducted in the UK.” He is right to make his warning.

The thing about a financial transaction tax is that it can have a very negative impact on an economy if it is imposed it in isolation. But does that mean this is a bad idea, or merely that for it to work, it has to be imposed globally? There is more chance of finding a man in the moon, than getting global leaders to all agree to a financial transaction tax, but it is good to dream.

Amazon sees revenue rise and profits fall, as Apple and Microsoft prepare their next shots

Well, its p/e ratio is still up in the stratosphere. And its profits are going in the wrong direction. But don’t give up on the company yet.

Amazon saw revenues rise 22 per cent in its latest quarter from a year ago, hitting $22.27 billion.

Operating income was up 56 per cent, hitting $405 million, but net income fell from $177 million in the equivalent quarter at the end of 2011 to just $97 million.

So that was quite a drop, yet the shares rose, hitting a new all-time high for the company. At the time of writing, its market cap is $118 billion.

Stop! So that’s a net income of $97 million, and a market cap of $118 billion. That’s quite a multiple!

On the other hand, market cap to revenue does not look so out of the way.

Amazon’s problem is low margins. Over the last year or so, it has also been investing in its distribution network and its Kindle Fire.

It is not hard to find the bearish view. The p/e ratio appears to be outrageous. But profits will rise very sharply once the investment phase is over.

But for the bullish point of view recall this comment made by Andy Bond, the former boss of Asda, last summer.  He said that by 2020 Amazon will either be bigger than Walmart or vying with it for the position of the world’s largest retailer. See Bull and bear: Amazon set to overtake Walmart by 2020 

Apple adds memory

Meanwhile, it is hard not to conclude that Apple is playing catch-up.

Microsoft revealed its Surface-Pro product with 128 gigabytes of storage earlier this month. Yesterday Apple announced a new iPad with 128 gigabytes.

So is Apple chasing Microsoft? The old Apple, under the leadership of Steve Jobs, used to set the pace, Is Apple now following the leader?

Some say it is. On the other hand, await its Internet TV products before writing the company off.

Microsoft announces $100 a year product

Meanwhile, Microsoft is to market an Office package called Office 365 home premium.  For $100 a year users can put Office on five computers, have access to 27 gigabytes of storage data on the Microsoft cloud storage service and be able to access Office on demand online.

$100 a year, eh.  At a time when you can get a free word processor and spreadsheet package from Google, will Microsoft customers cough up? It will be a nice little money earner for Microsoft if they do.

US consumer confidence dives

It was tempting to make this the lead story for today’s bull and bear, but maybe that would be a touch scaremonger –ish.

You may recall that last autumn the US consumer confidence indices started moving close to five year highs. Indeed the University of Michigan measure did indeed pass a five year high, while the Conference Board measures went within a whisker. The rises in these indices seem to have been the first concrete data to point to recovery. Certainly if you were to tell the story of recent good news, you might start with rising US consumer confidence.

Alas the Conference Board measure fell back to 58.6 in January, from 66.7 in December, from 71.5 in November. January’s reading was in fact the lowest score since November 2011.

Let’s not panic yet, but equally let’s be consistent.

If the US consumer confidence hitting a 55 month high provided a glimpse of news to make the bulls celebrate, then January’s data should be enough to make the bears come out of their caves.

Now Iran threatens to fine BP

The US and Iran have found a common enemy.

The enemy of my enemy is my friend, or so they say. If that is so, then the US and Iran must be the best of buddies, and little old BP may be the company that unites them.

Media reports suggest Iran’s deputy environment minister has accused BP of dumping oil waste into the Caspian Sea.

BP denies it of course.

Meanwhile, in the US a judge has given approval to an agreement that BP will plead guilty to manslaughter and pay $4 billion criminal penalties. The decision is not bad news for BP, rather it confirms what has already been agreed, and as such removed uncertainty.

But what about Iran’s threat? Is this genuine? Or is BP just an easy target?

Companies in the news

Today, Tempus in the ‘Times’ took a look at Petra Diamonds – and the conclusion was sort of bullish. The company has missed production targets, but has been investing heavily in production. Tempus said with capital spending mostly finished, the company should be cash positive by 2016.

Tempus also took a look at National Grid. Tempus believes that despite a few difficulties, including negotiations with Ofgem, the dividend will be maintained, and that is reason enough to “hold”.

Over at the ‘Telegraph’, Questor was distinctly bearish on consumer products group PZ Cussons  (producers of Imperial Leather soap). Questor said “avoid”, and suggested Unilever was a better bet for the sector.

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: Amazon results market cap p/e ratio, Apple ipad upgrade, BP Iran fine oil leak, EU financial transaction tax, National Grid, Office 365 home premium, Petra Diamonds, PZ Cussons, Tobin Tax, Unilever, US consumer confidence

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