What is going on at Marks and Spencer? Profits were down 14 per cent to their lowest level since 2005, and its boss Marc Bolland has said his efforts to turn the business around will take time.

But does it all add up? Cast your mind back to 2004. The former queen of the High Street seemed to be going the way of Queen Victoria – that is to say to the graveyard. Philip Green made his bid for the company, and it seemed M&S was nearing its end and was set to be swallowed up by the Green empire.

Then Superman – or if you prefer Stuart Rose – came along and all seemed different. Back at the EGM when Green’s offer was discussed, one shareholder said he preferred to view the world through “Rose tinted spectacles,” and those remarks set the tone.

And with all those super models, Bryan Ferry and then that Christmas Party with Take That, Twiggy and co, all seemed better.

Well the Green furore was nine years ago now. Rose has gone. Bolland says he needs time to deal with the company’s underling challenges. We are told it needs investment in its infrastructure. Some are even talking about Rose as short term-ist, little more than a trader, barely better than one of those cursed bankers who put profits before stability.

Can this be true? Has Rose really gone from hero to zero, from Superman to Krypton-affected weakling?

If you watched the M&S story of the last ten years or more from Roger Holmes to Rose to Bolland, you can’t feel a little tired, a little bit “yes but we have heard it before.” Or maybe not, maybe the problem was party that Rose knew fashion and got the buying right. Since he left the buying has been awful. Unless that is fixed, no amount of investment into infrastructure will be enough, and even if Bolland says chooses to wear red M&S boxers outside of Blue M&S tights with a red M&S clock, unless the products for sale in the M& stores are better than products for Sale at Next, it will all be in vein.

© Investment & Business News 2013

Was it down to bad weather or was it more ominous than that? UK retail sales fell 1.3 per cent in April after dipping 0.6 per cent the month before. Of late the news on the UK economy has been okay. Not brilliant that is for sure, but much better than we have become used to. So dipping UK retail sales rather goes against the grain.

Chris Williamson at Markit said: “The picture may not be as bad as the headline data suggest. The ONS reported that poor weather contributed to a particularly steep drop in food store sales, mainly supermarkets, which slumped 3.8% below levels of a year ago, down to their lowest since December 2003.

Supermarkets reported especially poor sales for items such as garden furniture, blamed on bad weather.”

Maybe he is right, but just remember that average wages in the private sector fell 1.3 per cent in the year to March.

That is not good; it is awful. It is quite hard to see where sustainable recovery for the UK will come from when wage increases are lagging so far behind inflation; when our main export market – the Eurozone – is in depression, and when the government is trying to rein in spending.

It could always try to get house prices up. That may not solve any of the underlying threats to the UK economy, but it will at least create the impression that things are getting better.

Maybe that is the answer. When all else fails, why not strip the UK economy of its clothes, and say to the markets, dare you point out our nakedness?

© Investment & Business News 2013

Be under no doubt, record low interest rates and quantitative easing are the main reasons why equities are riding high at the moment. There is this view that central banks control interest rates; that they can determine flows of money. So why panic about rising rates spoiling the party? Central banks will only do this once the economy is back on its feet. It is just that there are reasons to think this analysis is wrong.

It is remarkable how, in this post financial crisis era, central banks still seem to operate under a kind of halo. The media and organisations such as the IMF still suggest that these central bankers are like mini gods, moving the pieces of the economy around. They are like Zeus in one of those old Hollywood movies, in which the gods of Olympus (played by the likes of Lawrence Olivier), controlled the movements of mortal man in much the same way a croupier moves chips across a roulette board.

Maybe the truth is that central banks have about as much power as Zeus does in the real world, which is to say that the sense of the central bank’s omnipotence is based on a myth.

So did central banks create the financial crisis of 2008 by letting interest rates fall too low, or were their actions largely irrelevant? Maybe the real reason why inflation fell during the 1990s and noughties was that the Internet helped to promote price competition and globalisation – in particular the rise of China – meant cheaper manufactured goods.

At the same times, ageing in Japan, China’s policy of protecting the yuan, and rising corporate profits led to a global savings glut, meaning there was lots of money sloshing around the system, pushing down interest rates. Alan Greenspan himself alluded to it when he was chairman of the Fed and he talked about long-term interest rates set by the markets being lower than short-term rates set by central banks.

But supposing things went into reverse. The Ernst and Young ITEM Club recently forecast that inflation will rise later this decade as wages increase in China, which will lead to rises in the price of manufactured goods. It also forecast that UK bank rates will be increased to 1 per cent in 2015 and to 2 per cent in 2016. On the back of rising interest rates, it forecast that mortgage interest payments will jump 15 per cent in 2015 and by a massive 23.4 per cent in 2016.

But is it possible that it is underestimating the changes that may occur?

Zeus is a myth. We now know that bankers’ hubris gets punished, and maybe central bankers have an Achilles heel. And that heel is that actually, there are forces at work – underlying forces – that are far more important than what members of monetary policy committees say and do.

Alan Greenspan once said it is the job of central bankers to take away the punch bowl as the party gets started. Maybe changes across the global economy will do this anyway, no matter how much gin and vodka central bankers pour into the QE punchbowl.

© Investment & Business News 2013

With the FTSE 100 now into the mid-6700s, it is in territory not seen since the last century. Indeed it is only 200 points off passing its all-time record set in December 1999.

But can it last?

There is clearly a disconnection between the FTSE 100 and the UK economy, but then again many of the companies listed on the UK’s headline stock exchange index barely trade in the UK at all. Many are global in their reach, and thus the correlation may be between the FTSE 100 and the global economy.

Look at valuations, the FTSE 100 does not look especially high. The FTSE 100 peaked at 6930 in December 1999. Its current cyclically adjusted pe is around 12, while the average since 1975 is just under 14.

In the US it is a different story. With the cyclically adjusted PE being around 24 compared to a historical average of 15 since 1900.

Of course, if things got nasty in the Eurozone again – and they might – then markets across the world will look dangerously exposed.

The big question mark relates to QE, however.

No one really knows the extent to which QE explains stock market rises.

If QE were to be reversed, if inflation was to pick-up – for example thanks to rises in wages in China – then things may look very different. A fuller analysis will be published later this week.

© Investment & Business News 2013

Poor old Rupert Murdoch – his purchase of Myspace was not exactly one of his best moments and maybe he is still puzzling why. At least that may explain his tweet last week.

He tweeted: "Look out Facebook. Hours spent participating per member seriously dropped. It was the first really bad sign seen by MySpace years ago."

Now Mr Murdoch has voiced doubts about Facebook, it may be worth asking: why and why not?

As for why, we have two reasons. Firstly, it kind of fits with the Myspace experience. After all, the social media site once seemed unbeatable. Is it not logical that Facebook, after flying too close to the sun will find the wax holding its feathers together will melt and it will crash, just like Myspace did? Secondly, data out last week revealed that Facebook is losing users.

As for why not, firstly, yes, it is true that Facebook is losing users from its website, but it is gaining them on its apps. Secondly, Facebook is not Myspace in a profound way. The Internet is all about cooperation, about different services dovetailing with others. Facebook is good at this dovetailing and Myspace wasn’t. Then again, Mr Murdoch’s media empire is not one for dovetailing either.

Mr Murdoch was late to embrace the Internet and when he did, he only half did. For example, the ‘Times’ isn’t really on Google. The ‘Financial Times’ charges for its content too, but at least it is fully immersed into search engines. It is perhaps a subtle point but one that seems at odds with the Murdoch ethos.

Facebook has locked its users in in a way that Myspace never did, meaning that it benefits from high barriers to exit. Oh, and one more thing, it is learning how to monetise its massive user base too.

© Investment & Business News 2013

According to data from the ONS, the number of people aged 65 or over in employment has risen from 890,000 in the first quarter of 2012 to just under a million in Q1 of this year.

According to a survey from NS&I, just under a third of Britain's adults (31 per cent) do not know how they will finance their needs in later life, including such eventualities as long-term illness, nursing home or care fees and care of others, including partners, parents and siblings.

On the subject of retiring over 65, Nigel Green – who is the chief executive of the large IFA the deVere Group – said: “Naturally, it’s hugely positive if the over 65s who are working past the traditional retirement age are doing so because they choose to, but it’s totally different if they’re being forced to carry on working as they can’t afford to retire.” He said: “I suspect the majority are working because they have to.” He continued: “The ONS findings show once again that as a nation we’re simply not saving enough. There needs to be a radical shift in the savings culture.”

The NS&I research shows that “over a quarter of Britons (27 per cent) who have yet to consider financial planning in later life admit they do not want to think about such events. 23 per cent say they simply have not had time to think about their later life financial needs, and just under a fifth (19 per cent) prefer to take a short-term view of their finances and use the money they have for the present. A further 12 per cent don't consider that this situation will affect them in the near future and believe they will have plenty of time to consider such planning going forward, while 7 per cent of Britons do not consider later life financial planning as important.”

So what does that tell us?

Clearly we have to save more and we will, as the baby boomers wake up to their pension crisis in the making.

But if a large chunk of the UK populace starts to save more won’t that lead to recession? This is what happened in Japan 20 years ago, and we all know what happened next.

© Investment & Business News 2013

It is tempting to say the real evil was the ‘double do’. Margaret Hodge, chair of the UK’s public accounts committee, said to Google's northern Europe boss, Matt Brittin: "You are a company that says you 'do no evil'. And I think that you do do evil." It’s odd that no one else picked up on her saying “do do.” But that is not the crime here. But then neither is the real crime Google’s tax policy.

The company has done nothing illegal, but it is its legal duty to conduct its finances in a tax efficient way.

What is clear is that the problem of companies with sales across the world avoiding tax cannot be solved easily. International cooperation is essential.

But there is a wider point. Right now, company profits to GDP are approaching an all-time high. Companies are making profits, in part by paying staff less money. You can’t blame them; they pay the market rate for staff.

But the rational behaviour of companies paying less for staff is perhaps the single biggest reason why the global economy – or at least the global developed economy – is in such a sorry state.

The solution lies in higher corporate tax everywhere.

Instead, we are being told that the UK needs to charge less corporation tax to be more competitive.

The rational behaviour of finance ministers wanting to reduce taxes on company profits is perhaps the single biggest reason why the global economy – or at least the global developed economy – is in such a sorry state.

© Investment & Business News 2013

“SEIS makes the tax breaks on ISAs look miserly,” or says Jeff Lynn, co-founder and CEO of Seedrs. “Yet,” he says, “few investors have even heard of it.”

Mr Lynn is not wrong. The Seed Enterprise Investment Scheme offers investors 50 per cent income tax rate, even if they are not paying income tax at that rate. There is also potential for a further 28 per cent tax relief via an exemption on capital gains tax. Click here for more . For encouraging entrepreneurism, it is a bold scheme.

Mr Lynn says: “No other major country offers such significant reliefs to investors in start-ups.”

He continues: “It is ironic that the UK has both the world's most generous tax incentives to invest in start-ups, and we lead the world in equity crowd funding which opens the door for the small investor to participate, yet so few investors have even heard about SEIS which will at the very least see HMRC giving them back half of what they invest."

Seedrs, by the way, claims to the UK’s leading online platform for investing in start-ups.

© Investment & Business News 2013

Profits at Dell are down 79 per cent. They have fallen for six quarters on the trot. The share price has fallen by around 75 per cent since the peak in 2000. Then again, there are no real shocks here. The wider PC market is under the cosh. According to Data Corp, PC sales fell 13.9 per cent in Q1.
But there is an interesting lesson here.

Solon (not to be confused with Solomon) was considered to the wisest man in Ancient Greece. He once visited King Croesus of the kingdom of Lydia, which was in what we now call Turkey. The King was fabulously wealthy, and was keen to impress his famous guest. So after he showed Solon his wealth, he asked his visitor, who was the happiest man “you have ever met”. Actually he is supposed to have said: “Stranger of Athens, we have heard much of thy wisdom and of thy travels through many lands, from love of knowledge and a wish to see the world. I am curious therefore to inquire of thee, whom, of all the men that thou hast seen, thou deemest the most happy?”

Solon paused, and responded by referring to an obscure Greek, who had died heroically in battle, earning much honour, and who had previously seen his family grow to adulthood. Alrighty, responded a slightly disappointed King of Lydia, who is the second happiest man? Again, Solon referred to someone obscure.

‘But what about me?’ asked Croesus. ‘Am I not happy?’ Solon replied: “Thou asked a question concerning the condition of man, of one who knows that the power above us is full of jealousy, and fond of troubling our lot. A long life gives one to witness much, and experience much oneself, that one would not choose. Seventy years I regard as the limit of the life of man. In these seventy years are contained, without reckoning intercalary months, twenty-five thousand and two hundred days. Add an intercalary month to every other year, that the seasons may come round at the right time, and there will be, besides the seventy years, thirty-five such months, making an addition of one thousand and fifty days. The whole number of the days contained in the seventy years will thus be twenty-six thousand two hundred and fifty, whereof not one but will produce events unlike the rest. Hence man is wholly accident. For thyself, oh! Croesus, I see that thou art wonderfully rich, and art the lord of many nations; but with respect to that whereon thou questionest me, I have no answer to give, until I hear that thou hast closed thy life happily.”

In other words, you can’t answer that question until life is over. King Croesus later lost his kingdom to King Cyrus of Persia, and finished his days a sorry shadow of his former self, as a reminder to the conquering king of the dangers of hubris.
Consider a shareholder in Dell who bought shares in the company on launch and had seen the value of his/her shares rise around 500-fold. They must surely have said they were happy.

Just supposing our shareholder did nothing with the shares, and just enjoyed the dividends. For every dollar invested on launch in 1988, the return in dividends would have been $2.40. So that’s profit, but nothing special.
This is something we forget about companies. When a business is valued, that value should be a function of future dividends discounted to give a net current value.

Now Michael Dell wants to take the company private. If he gets his way, he will pay $13.65 a share. That would actually give the shareholder, who invested on flotation a tiny profit, but it would be a big loss for anyone who bought in 2000, however.

Dell shareholder Carl Icahn is against the idea.

What we can say is this. Shareholders who held shares between 1988 and 2000 were too quick to celebrate, unless – that is – they sold out at peak share price.
The PC is not dying but it is fading, and who knows whether Dell has a future either as a PC company or something else.

It is by no means certain that if the company does soldier on, and resists Mr Dell’s attempt to take it private, but finally goes the way of Kodak for example, shareholders – other than those who bought stock in the very early days – will have seen cumulative dividends to justify the share price they paid. That’s the lesson of Solon: don’t make a judgement on success too soon.

© Investment & Business News 2013

The thing about technology is that for years we barely notice it. In fact it can get steadily more powerful, but for us, going about our daily lives, it might as well not exist. Then it passes a sort of tipping point, and from that moment onwards the technology can become incredibly useful. Courtesy of Samsung, we may be on the verge of passing one of the most important tipping points to date. It is called 5G.
Here are some numbers. We are all familiar with 3G. This typically runs at between 400Kbps bits to around 4 megabits. The top speeds for 3G are not bad at all – they’re certainly fast enough to watch a video clip. 4G is the next stage, and it is something we are just beginning to experience. To begin with, speeds are expected to be between 8 and 12 megabits, although in some areas speeds of 20 megabits are expected to be available soon. That really is fast.

Samsung reckons it has made a breakthrough. As a result it says it can offer speeds of 1.056Gbps over a distance of two kilometres. If you want the technical explanation visit their web site, see: Samsung Announces World’s First 5G mmWave Mobile Technology 

The company says that it will be able to commercialise the technology by 2020.
Now there is always a danger of over-hyping. But let’s be clear, if what Samsung is talking about becomes a reality in the time frame it suggests, we will be able to access the Internet while we are out and about at roughly 1000 times faster than most of us can at the moment.

Samsung says its technology will allow users to transmit massive data files, including high quality digital movies, practically without limitation. As a result, subscribers will be able to enjoy a wide range of services such as 3D movies and games, real-time streaming of ultra-high-definition (UHD) content, and remote medical services.

Let’s not overstate the role of Samsung. Other companies are looking at similar ideas. The Samsung fix may or may not prove to be the best one. What is clear is that we are less than a decade away from 5G.

There are some fairly specific business implications for this, and then we get into the blue sky stuff.

Let’s look at some hard commercial implications. If we can access the Internet at these speeds over the airwaves, providing we are within 2 kilometres of the transmission point, why will we need a router? The local loop connecting us to the Internet can be removed. Will there be any need for ISPs?

There are also some truly exciting implications of this technology for emerging markets. If it’s not necessary to link each household to the Internet directly via cables, consider how much cheaper it will be to provide Internet access to the people in remote areas of Africa. A number of economic forecasters are predicting that this may well be the century in which Africa finally pulls out of poverty, and becomes a major economic force. 5G may be the means by which this is made possible.

The blue sky stuff is even more exciting. Technology changes – it is the nature of the beast. Digital technology – whether it is the speed of processors, data transmission, or even attempts to digitise the genome – can be described by Moore’s Law, either literally in the case of processor speeds, or metaphorically in the other examples. See Moore’s Law – the law that economists forget 

The thing about technology is that for years we barely notice it. When it passes a tipping point, we don’t just notice it; within a very short timeframe it becomes essential to us. Internet at speeds of one gigabit will change us and affect us perhaps in a way that no technology has ever achieved before. The day when the whole of humanity is connected during the entirety of our waking hours is maybe just decades away. This is incredibly exciting, but if that does not make you a tad scared, then maybe it should.

© Investment & Business News 2013