The collapse in Paragon shares
The value of shares in Paragon Group, <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Paragon faced the challenge of renewing its loan facilities in February of next year – but the events of recent months mean that fresh loan finance is more costly to find. The boom in the buy to let market in the
Two of the top four buy-to-let mortgage providers have effectively crashed in the last three months. There will be no government bail out for Paragon which now faces a desperate battle for survival.
Suggestions for more reading
The slump in UK beer sales
The slump in UK beer sales
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‘The volume of beer sold through pubs is now at the lowest level since the Great Depression of the 1930s. Pub beer sales are down 49 per cent from their peak in 1979. That’s a loss of more than 5 billion pints – meaning today’s pubs are selling 14 million fewer pints per day.’ (source BBPA)
These are tough times for Britain’s 58,000 pubs. This BBC news online reportflags up a report from the British Beer and Pub Association which finds that beer sales in pubs have fallen sharply since the peak in 1979. Total beer sales for 2007 are down 22% - some seven million pints a day fewer than their peak in 1979. The Guardian has this really nice graphicbreaking down the cost of a pint!
What factors lie behind this decline in sales?
1. Deep price discounting by the major supermarkets which has made drinking beer at home more affordable – that said total beer sales (from pubs, clubs, off-licences and supermarkets has also fallen in the long term)
2. The impact of the ban on smoking in public places
3. Short term effects of the desperately poor weather in the summer
4. Changing consumer tastes and preferences, not least the growing market demand for wines
5. Rising incomes – perhaps the demand for beer has a low income elasticity of demand
6. Impact of a 27% rise in indirect taxes on beer over the last ten years – Britain is said to have the highest levels of excise duty in the European Union.
7. Longer working hours and the decline in the liquid lunch, and after-work hours drinking culture
Falling demand is putting huge pressure on pubs and clubs to find alternative sources of revenue. That is not necessarily a bad thing! The chances of finding decent food and a drinkable glass or two of wine have improved immeasurably over the years. People’s attitudes and tastes have changed, the regular night or three down the boozer is fast becoming a thing of the past, not least because of changing work habits.
Rising costs and falling demand are combining to hit the profits of the beer industry. According to the BBPA:
‘Between 2004 and 2006 the profits of the major brewers in the UK have fallen by 78 per cent. The result of the squeeze is that companies now earn only 0.7 pence per pint profit, compared with the average of 33 pence per pint they pay to the Chancellor in beer duty.’
For more on indirect taxes, the IFS “Fiscal Facts”is well worth looking at
British Beer and Pub Association
The Guardian: Do we think we've had enough? Beer sales plunge as Britons stay at home
Chinese investment boom reaches staggering levels
Capital spending boom in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Hamish McRae was on superb form speaking to the Economics Teachers conference at
Last week the Chinese authorities also released new figures on capital investment, the data is stunning. As the BBC reports here,
‘Chinese spending on factories, roads and other fixed assets has risen by 27% this year, suggesting official efforts to restrain the economy are failing.’
Such incredible growth in capital investment has both demand and supply side effects. Much of the new investment is linked to preparations for the Beijing Olympics in 2008 and also by 
Cheap prices increase affordability for teen drinkers
Cheap prices increase affordability for teen drinkers<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
It is a classic story of how deep price discounting leads to a sharp rise in affordability and pushes higher market demand for a product. The pressure group Alcohol Concern has released a survey which claims that cheaper alcohol fuelled by price promotions from the major supermarkets has given teenage drinkers a huge incentive to increase their weekly consumption.
Their report - entitled 'Cheap at twice the price: Young People, Purchasing Power and Alcohol' looks at how much alcohol the average 12-16 year old can buy with their weekly pocket money. Alcohol Concern estimate that it is now possible to purchase more than 3 times the recommended daily limit for adult men, and more than 4 times the recommended daily limit for women for as little as £7.30. Cheap alcopops, heavy discounts on bulk purchases of canned lagers and the continued willingness of retailers to sell alcohol to under-age drinkers have all combined to increase market demand.
‘For young people moving beyond curiosity to the stage of getting drunk with friends there has never been a better time to cheaply purchase large quantities of alcohol. The average pocket money in 2007 for 12-16 year olds is £9.53. A combination of rising disposable income and stable alcohol prices means it is now 65% more affordable to buy alcohol than it was twenty years ago.’ …more available here …
They are calling on the government to take steps to make alcohol less affordable and curb risky 'binge drinking'. Their preferred solution is a rise in indirect taxes on alcohol sales in order to halt its ever growing affordability. The Portman Group, which represents the drinks industry has counted against the need for higher alcohol duties. In a press release, they argued that ‘international comparisons prove that higher prices would not deter binge drinkers or people addicted to alcohol.’
The Alcohol Concern report coincides with new research from OFSTED which finds that '48% of teens' have tried alcohol’ In another report, the Health Alcohol Alliance says 13 children are admitted to hospital every day as a result of Britain's growing alcohol misuse.
See also:
Alcohol disease hits the young hard (BBC)
Campaigners want alcohol tax rise (BBC)
Consumer knowledge, price discrimination and the best deal
Airlines are amongst the kings of price discrimination, so it’s not surprising that this oligopolistic industry also leads in other forms of market manipulation.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Price discrimination is about charging different prices for the same product, such as a transatlantic flight. The airlines long ago mastered the art of ‘yield management’ – reducing consumer surplus by squeezing the highest fare from each passenger on the flight. This will depend on when and where they bought the ticket, who is paying the bill and the time and schedule of the flight. Each cabin will contain passengers who can have paid almost any amount for the ticket, with many, many variations.
The key to success is the lack of a secondary market – there are no unwanted or surplus tickets for sale on eBay. Airlines have successfully lobbied governments to force customers to accept ‘named’ tickets that they cannot resell. The result is a bonanza for the airlines.
What about other smokescreen tactics? A favourite is ‘bundling’, where consumers are forced to buy a group of items for an overall price, concealing how much each part of the package cost. This makes price comparisons tricky. It also forces consumers to buy items they don’t really want.
Now the European Commission has found that at least 200 European airline websites are misleading the consumer. According to the report, websites are failing to show taxes and charges, and refusing to advertise the lowest fare prominently. The Commission has refused to name any airlines involved in order to give them time to improve their service.
According to the BBC article Airline websites 'are misleading' :
The Commission, which is the executive arm of the European Union, could force offending websites to close next year if they fail to improve. Fifteen different national airline authorities across the EU took part in the exercise for one weekend at the end of September. They trawled through 400 websites, and found half were not complying in one way or other with EU law.
Common infringements included:
- prices on the home page that did not include taxes and charges
- "free" flights that were not free
- compulsory purchase of insurance attached to an offer
In response to the Commission's findings, Ryanair called on it to widen the investigation "to cover the real scandal of unfair fuel surcharge increases being levied by British Airways, Air France, KLM and Lufthansa," it said.
The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
The collapse of the Berlin Wall and the global credit crunch
The collapse of the Berlin Wall and the global credit crunch
Edmund Conway has an interesting article in the Sunday Telegraph today in which he links the current global credit crunch to the collapse of the Berlin Wall in 1989 and the fallout from the Asian financial markets crisis in 1997-98. Stung by the harsh economic discipline dolled out by the International Monetary Fund in the wake of the emerging markets crisis of 1998, many eastern asian countries vowed never again to have to rely on western banks and western-dominated organisations for borrowed money. They have turned their trade and budget deficits into huge surpluses, largely tied their currencies to the US dollar. And they are now sitting on the biggest mountain of savings the global economy has ever seen.
The emergence of sovereign wealth funds is just one sign of a desire to use this money to earn a better rate of return and it will have enormous implications in the years ahead. The Telegraph reports today that the Chinese Investment Bank has taken a 1% stake in Rio Tinto Zinc.
Edmund Conway writes:
'A massive and growing slice of world wealth, a major chunk of its resources and a growing dollop of influence are in the hands not of shareholder-controlled companies but of state-run businesses and institutions. And in recent months they have started to flex their muscles..... This year's credit boom and the subsequent bust, which is deepening by the week, have their direct origins in the rise of Asian savings.'
More available here: http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2007/11/11/ccliam111.xml
Top end graduates and their earnings
Top end graduates and their earnings<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
There is much debate about the private returns to accumulating human capital. What are the likely rewards from delaying one’s entry into the labour market to take a degree or complete full-time vocational qualifications beyond the age of 18? How wide is the gap in earnings between those with degrees from the top universities in tough subjects and graduates of lesser-known and perhaps less highly regarded institutions?
The Financial Times this morning has an article on the latest survey of graduate earnings from the Higher Education Statistics Agency which highlights the wide spread of graduate earnings for people less than three years on from completing their studies.
They report that
‘A small cadre of elite graduates – about one in 30 men but one in 100 women – are earning more than £50,000 barely three years after graduating. The numbers testify to the high rewards that can be earned at a young age by top graduates, particularly those who work in the City and related professions. In contrast, the figures show more than one in five male and more than a quarter of female graduates in full-time work are still on less than £17,500 a year 3½ years after graduating – well below full-time average earnings of about £22,000.’
The median salary of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
The model who won’t get out of bed for any dollars at all
The falling dollar
A great story about people's expectations of future movements in value of the world's most heavily traded currency. According to the BBC article Supermodel 'rejects dollar pay' <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The world's richest model has reportedly reacted in her own way to the sliding value of the US dollar - by refusing to be paid in the currency.
Gisele Bündchen is said to be keen to avoid the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
According to
"Contracts starting now are more attractive in euros because we don't know what will happen to the dollar," the supermodel’s sister told reporters.
There is also a very similar story on this theme at Rapper Jay-Z dissing the dollar
The chart below tracks the value of the US dollar against the Euro (which was introduced in 1999)
Tim Harford has a take on this story in his new blog
How strong is the feel good factor?
How strong is the feel good factor?
Rejected credit card applications are rising, credit card fees are increasing and business debts are growing - 25% of businesses in the UK now have interest repayments that exceed their profits. There are signs that the growth of consumer credit and spending is slowing and starting to have a significant impact on the economy.
The major high street retailers are already starting the annual process of downgrading expectations about just how much we are likely to spend on the high streets, shopping malls and online this Christmas! Perhaps they feel that dampening down forecasts of retail sales now will allow them to relax in the warm glow of "better then expected sales" when they come out the other end at the conclusion of the January sales. 
How much impact does the 'feel good factor' actually have on our spending decisions? We are told frequently that consumer confidence is a key driver of spending. The state of optimism or pessimism about jobs, incomes, prices and the our own financial circumstances are said to impact directly on our willingness to get out the credit card and borrow to the hilt!
But perhaps the feel good factor is overdone? Willem Buiter discusses this in his blog on the Financial Times website. A nice twist on the idea that inexorably rising house prices must inevitably create the elusive 'feel goof factor'
“Feel good factor”.
'This is the argument that when house prices go up, home owners get a buzz, feel happy and go out and spend. It’s hard to know what to make of this. If there is a feel good factor for homeowners when house prices rise, there must be a feel bad factor for all those missing out on the capital gains because they do not own real estate – people for whom it may now have become harder to get a foot on the housing ladder. Also, does the feel good factor actually cause you to spend more? The feel good factor is not the same as consumer confidence, which is positively correlated with consumer spending. My wife spends more (mainly on shoes) when she feels bad – and she is a professor of economics.'
More here:
http://blogs.ft.com/maverecon/2007/10/ok-then-housing.html
The Independent reports today that 'consumer confidence remains resilient'
Britain’s Brilliant Ideas - the Dragons’ Den Effect
The Intellectual Property Office (formerly the Patent Office) reports that the proportion of patent applications from individuals - as opposed to companies - is rising, and they're predicting it could be as high as 30% of the total for 2007. Ian Fletcher, chief executive of the Intellectual Property Office, describes the trend as a "Dragons' Den effect", inspired by the popular BBC series in which entrepreneurs compete for investment. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
It no longer seems so surprising that people with just an idea, and no experience in business, want to risk so much to turn their inspiration into reality. But the figures for patent applications show that the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Many home-based inventors are just using ordinary consumer experiences and frustrations to dream up new products and services which they hope will earn them a fortune. In Britain's Brilliant Ideas Boom - BBC Money Programme there’s the example of Bug Brush that has bristles all the way round - so there's no 'wrong end' to go into the mouth. And the brush is bendy, to make it safer if toddlers fall over with it in their mouths. There's a long and expensive haul for the young mum who came up with the idea: she's already spent £12,000 on getting a prototype brush made and lawyers' fees to file a patent application.
Big business leader Sir James Dyson has revolutionised the vacuum cleaner market, and owns a business valued at around £1bn. For him, according to the BBC, inventing is all about using engineering to find better ways of solving problems. He confirms that the route between idea and business is firmly through the patent system: "We file about a patent a day. It's accelerating because we've got more and more research engineers. It's the backbone of our business."
Sadly, there’s nothing new in the observation that
