Bull and bear: Triple dip fears return - The Share Centre Blog

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Michael Baxter

Bull and bear: Triple dip fears return

Written by: Michael Baxter on March 13th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: Triple dip fears return. US jobs recovery not as good as it looks. Inflammable ice and shale gas: can technology save us or destroy us? Tesco opts for Giraffe; Asda for HMV. Companies in the news: Imagination Technology, Fresnillo, Close Brothers

Triple dip fears return

The Purchasing Managers’ Indices out last week suggested the UK was on the slow road to growth. Not much growth to be sure, but some at least.

It may be a technical point; after all, it doesn’t really matter if the UK is in recession or downturn. What matters is that it is not doing very well. But then the word recession is a kind of short-hand, it means something in the psyche of people, markets and the electorate. Maybe our use of that word makes things worse. If it wasn’t for the media and statisticians telling us we may be in recession perhaps we would go out and spend more, and the country would do a lot better. Maybe it is better to be prosperous but ignorant of our prosperity than poor and know it – not that those suffering from poverty don’t know it.

But let’s set that argument aside and just focus on the conventional thinking and whether or not the UK is in recession.

According to the ONS, industrial output fell 1.2 per cent in January. To say that was disappointing is to make a gross understatement. And with that news, many suggest the evidence is becoming clear that the UK is back in recession.

Meanwhile, the National Institute of Economic and Social Research (NIESR) published a report yesterday suggesting that UK output contracted by 0.1 per cent in the three months to the end of February. Since NIESR has such a good track record for accurately forecasting growth, its latest estimate has to be taken seriously.

So that’s it then, something for the bears to moan about – the UK is suffering a triple dip recession.

Some bull:           But it is not all bad. For one thing the data was distorted by the closure of Schiehallion oil platform, which knocked 4.3 per cent off oil and gas output.

In any case, as far as the UK is concerned services have a far more important impact upon GDP. Chris Williamson from Markit put it this way: “Whether another recession can be avoided is largely dependent on the far-larger service sector, which is seeing reasonable growth compared to late last year. Although not a strong expansion, the uplift in services should be just large enough to offset the weakness in manufacturing as things stand at the moment.”

A bit of bull and bear:     Bears may retort that the Schiehallion oil platform will be closed for several years, and in any case manufacturing, which was unaffected by oil output, saw a 1.5 per cent contraction. Bulls might respond, but manufacturing expanded by 1.6 per cent in December, so January’s fall was just a correction.

What we can say for certainly is this. Whether the UK is in recession or not, it is a close call. And there is little comfort in that.

US jobs recovery not as good as it looks

Recent news on US jobs has been enough to make the bulls move to the ascendance. If you want to look for the single biggest explanation for recent rises in stocks, it is surely that the US continues to create jobs.

Not only has the Dow hit a new all-time high, in doing so it passed the October 2007 previous peak. US unemployment meanwhile has returned to its 2008 level. There is still a long way to go before it is as low as it was when the Dow last peaked, but it does appear to be heading that way – admittedly far more slowly than one would like.

But data out yesterday sheds a new, far less pleasant light on the jobs stats.

It turns out that the ratio of US employment to population is the same now as it was in October 2009. In short, unemployment may be falling but joblessness isn’t.

The explanation is not entirely sinister. There has been a rise in the size of retired population in the US, so that will have affected the data.  But the increasing size of the US retired depopulation on its own does not fully explain the failure of the ratio of employed to population to move in synchronisation with falling unemployment. In other words, some US would-be workers have given up, dropped out of the stats.

Other data shows that the number of US workers working part-time but who want full time jobs has not fallen in line with unemployment. The so-called U6 measure of US unemployment is 14.3 per cent. If it had fallen in line with headline unemployment it would be 13.5 per cent.

Inflammable ice and shale gas: can technology save us or destroy us?

Japan reckons it has come up with the answer. There is methane lurking inside ice at the bottom of the seas off its coast. And now Japan’s government says it has managed to get at this so-called methane hydrates, or fire–ice as it is more snappily called.

How significant is that? Let’s put it this way: Japanese researchers calculate there is 1.1 trillion cubic metres of the stuff off its coast. That’s enough to meet Japan’s gas consumption needs for ten years or more.

Apparently, there are deposits of methane hydrates lurking at the bottom of the sea/ocean across much of the world. So there you have it, technology has solved the fuel crisis.

The trouble with gas is that today’s cars don’t run on it. They run on oil, although it gets confusing when Americans talk about their cars needing gas. Some say that shale gas is being overhyped, for that very reason.

Never mind, how about shale oil? PwC reckons shale oil may be worth as much as £50 billion to UK plc by 2035. See: Shale oil: the next energy revolution 

There is another problem with gas: sometimes people use that word to describe what’s coming out of a politician’s mouth. Maybe shale gas and methane hydrates are just hot air.

But one thing gets forgotten. Methane is not very good for global warming – or rather it is good for global warming, but bad for us. Assuming you accept that manmade climate change is real, the methane associated with fracking and the methane lurking in ice, may not be totally good news for global temperatures if it is released into the atmosphere.

Tesco opts for Giraffe; Asda for HMV

There is one thing you can’t do over the Internet and that is eat – or drink coffee for that matter. You can watch films, however.

The rumour mill has churned out talk that Wal Mart’s UK company Asda has been talking to HMV liquidators about bidding for the DVD and music retailer. It appears Asda has no desire to turn the 1000 or so outlets into Asda convenience stores – rather it wants to continue with the HMV brand.

One assumes it reckons that its buying muscle can be used to negotiate better deals from suppliers

It is quite hard to see how Asda can do a better job than HMV management in running a music/DVD store.

It is perhaps easier to understand the logic in Tesco buying the Giraffe restaurant chain with its 50 outlets. Presumably Tesco’s plan is to try to use Giraffe to complement its holding in the coffee shop chain Harris+Hoole, and eventually offer customers a choice of coffee or restaurant in some of its larger stores.

This is a bold move by Tesco, but the strategy does appear to add up.

Not so sure about Asda and HMV, though.

Companies in the news

Imagination Technology came under the stare of Tempus at the ‘Times’. The company said one of its new revenue streams was on track for doubling and yet shares took a pounding on this news. As Tempus pointed out, that is the price of p/e ratio of around 34. Some speculated the company may become a takeover target, but Tempus warned that there “will be more shocks before that.”

Questor at the ‘Telegraph’ took a look at Fresnillo. Questor said this is still a quality company but was hit by gyrations in the price of gold and silver last year. Questor said “hold” but look out for buying opportunities in the event that silver suffers another fall.

Finally, Tempus also took a look at Close Brothers , which is doing “quite well” it said, but warned that the key small caps sector, which is so important to the company, is yet to see an uplift, and Tempus said the shares are fully valued.


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: Asda HMV, Close Brothers, fire ice, Fresnillo, Imagination Technology, methane hydrates, Tesco Giraffe, triple dip, UK economy Q1 2013, US jobs part time workers

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