Wednesday, July 31, 2002

The public attitude to the euro is hardening according to this story in The Times (courtesy of Iain Murray's blog site).

Two things puzzle me

1) Why are CSFB doing a poll on the euro?
2) Why do all right-wingers say with such certainty the euro (clearly the world's second largest and most successful) will collapse? They said with similar certainty it would never happen, but that doesn't seem to have stopped them.

US Gdp grew just 0.1% in Q2'02, sharply down from Q1'02's rate of 5%, in itself sharply down from original estimates of 6.1%. Perhaps more fundamentally the recession of 2001 was a real enought recession, growth fell in 3 quarters (all except the last). The original esimate had growth only falling in one quarter.

What does this mean? Well for share prices it's hard to say. The obvious answer is bad news -- the New Economy seems less and less impressive with each revision, and share prices still price in a bit of New Economy productivity growth. But perhaps perversely share prices might rally on the news -- the puzzle why companies were doing so badly in a growing economy has been resolved. The economy wasn't growing. Therefore if the economy recovers, one is perhaps more confident that company profits should recover too.

Well, at least that's what your fund manager will tell you....

Friday, July 26, 2002

The UK economy recorded 0.9% growth in Q2 2002, a healthy recovery from 0.1% growth in the last two quarters. Year-on-year growth is at 1.5%, up from 1.1% in Q1.

Of course this is backward looking data -- what matters is going forwards. The recent share price slump is expected to have an impact on consumer confidence and hence spending, but one wonders. This argument was put forward in 1987 and subsequently found wanting. In the UK people look to their house prices, not to share prices. Furthermore the run-up in share prices was so swift I doubt many people adjusted their expectations of how rich they were. Finally, outside of the pension sector share ownership in this country is heavily, heavily skewed towards the top 1% (at most 10%) of the population. Then again of course so is consumer spending...

Thursday, July 25, 2002

Are the British stopping shopping at last? Possibly, but the fall in June must have something to do with the extra bank holidays and the world cup final.

Looking more fundamentally, which is something the BBC never does in its news articles (question: why is the BBC's economics and business coverage so poor? Surely it can't still be Peter Jay's fault now they have Jeff Randall. I suggest it's more to do with a BBC culture of disliking business and economics), GDP in the UK hasn't grown since Q3 2001, so at some point consumer spending must grind to a halt, especially given the amount the government is planning to ramp up its spending.

Does the EU have any credibility in foreign policy matters? No, says Timothy Garton-Ash in funny article in today's Guardian.

Why not? Well take the dispute between Spain and Morocco over the island of Parsley. In the end Colin Powell had to broker a deal. Why couldn't the EU do it? The French blocked any governmental policy (trade links with Morocco), the EU's foreign policy head Javier Solana is Spanish (so Moroccans didn't trust him), and a Socialist (so the conservative Spanish government didn't trust him). The head of the EU commission, Romano Prodi, might have had a chance but he blurted out 'Parsley is EU territory', which rather ruled him out.

Probably another 2% to the 'No' campaign for the euro.

Monday, July 22, 2002

And another from the same site. Remember the book prediciting the Dow should be at 36,000 not 10,000? Aside from confusing earnings with dividends (whoops!) it got to that figure by assuming that equties were no more risky than bonds (whoops!) and so future expected earnings needed to be no higher. Anyway, it didn't quite work out like that.

Accounting for stock options is difficult. But as Brad De Long points out, the excuse used by many politicians and industrialists, that to expense them would lead to fewer being issued makes no sense. Expensing health care, or even salaries, means that the amount spent is less than it would be if they weren't expensed. No-one, however, argues they shouldn't be expensed.

Monday, July 08, 2002

One (Enron) you can put down to a few bad staff, two (WorldCom) you can call a coincidence, but three -- Merck -- suggests there was something badly wrong with Andersen, at least in the US office.

WALL Street was hit by a fresh accounting controversy today as drugs maker Merck revealed it had booked $14bn (9.1bn) of sales it never actually received. The admission by Merck, one of the 30 blue-chip companies in the Dow Jones Industrial Average, follows accounting irregularities at Enron, WorldCom and Xerox and is set to heighten investor suspicions about the reliability of company accounts.

Merck, which was audited by Andersen until March this year, made the admission in a filing to the Securities and Exchange Commission.

Panic at media companies has hit a new height with Jamie Kellner, chairman and CEO of Turner Broadcasting , who said: "[Ad skips are] theft. Your contract with the network when you get the show is you're going to watch the spots. Otherwise you couldn't get the show on an ad-supported basis. Any time you skip a commercial or watch the button you're actually stealing the programming."

It gets better. When the interviewer asked whether it's OK to go to the bathroom or get a soft drink out of the refrigerator, Kellner replied, `` I guess there's a certain amount of tolerance for going to the bathroom.''

Friday, July 05, 2002

Independence day in the US sees Brad De Long reprint the Declaration of Independence. Stirring words indeed, unfortunately the list of offences committed by the English King, such as 'For depriving us in many cases, of the benefits of Trial by Jury:For transporting us beyond Seas to be tried for pretended offences' reminds one these days more of George W Bush.

A new reason to join the euro? David Cobham in today's FT notes that the UK has only really had an independent currency for the last 20 to 30 years, and its benefits during that period are difficult to see. Of course he doesn't (except in passing) address the serious concern raised by the 'No' camp this week, that it's all a plot dreamed up by Adolf Hitler.