UK

James Mackintosh

Appliances Online is now AO, and it’s a hit with the market. Shares leapt 40 per cent as it floated in London today. The facts:

AO had revenue in the year to March 2013 of £275.5m, on which it made net income of £6.8m: a 2.5 per cent net profit margin.

With a shiny new market cap of £1.68bn it is worth almost as much as Carphone Warehouse or Dixons, two major high street retailers. It is big enough to make the FTSE 250 (subject to other criteria).

Basic valuations look fanciful: It is priced at 247 times trailing earnings, or six times sales.

But no one cares about traditional valuation tools any more. AO is an online retailer, and they’re where it’s at. Its shares are not about earnings or dividends this year, next year or the year after; they are about first-mover advantage, an option on AO becoming the Amazon of the fridges-to-cookers world. Read more

John Authers

The Bank of England has hit the target at last. UK inflation is at 2 per cent, bang in line with the Bank’s target, for the first time since the end of 2009. This is good news for the UK, which had been buffeted by an incipient inflation problem. But it is part of a global trend that could be far more problematic: deflationary pressure.

As the chart shows, the BoE now completes a set of all the four major developed market banks – along with the Federal Reserve, the Bank of Japan and the European Central Bank – to have inflation at or below the target of 2 per cent. Read more

James Mackintosh

Old stock market wisdom has it that as goes January, so goes the year. As with “sell in May”, “run your winners” and so many others, there is some truth in the saying: in 62 of the last 85 years the US market has moved the same direction in January as in the full year ahead.

On the other hand, the first day of trade is irrelevant, as Howard Silverblatt at S&P Dow Jones Indices points out. Read more

James Mackintosh

How much is a £20 coin worth? The Royal Mint seems to have created a risk-free arbitrage, thanks to its decision to sell the first silver £20 coin for £20, with free postage (hat tip to Elroy Dimson). It is legal tender, so there’s no risk of it being worth less than £20 (and it could always be paid into a bank account or swapped at the Bank of England if you feared it might be).

Yet, on ebay demand is such that the coins are selling for £30 or more – and some chancers are listing the coins for as much as £65, plus postage. Presumably these prices are being paid by collectors attracted by scarcity value. It certainly has nothing to do with the intrinsic value, as the silver content of the coins is worth only about £6.33. Read more

James Mackintosh

The Bank of England has finally snapped. It is fed up with being constantly criticised for messing up its forward guidance on interest rates, and this week began what looks like a co-ordinated campaign to hit back.

Three of its policymakers have made speeches so far defending the policy, and their key points are simple. Here’s what they said, then some charts. Read more

James Mackintosh

Among phrases you don’t hear any much any more are:

  • Safe as houses
  • As sound as a pound
  • As safe as the Bank of England.

It shouldn’t be a surprise that all three are out of fashion, after the US housing bubble that brought down the world economy, the collapse of sterling and the Bank of England’s failure to control inflation over either the past 50 years or the more recent past, when it was aiming for 2 per cent (the blue line on the chart).

UK CPI inflation and the target

Yesterday’s UK Budget avoided the extra inflationary pressure that would have come from fiddling with the target, which should give some support for the pound. But don’t get too positive: outgoing governor Sir Mervyn King voted for a second time for more monetary easing, and while he was outvoted again, Mark Carney is widely expected to be both more dovish and more convincing. I discuss this in today’s Short View column and video, and in greater detail below:

 Read more

The pound fell after it emerged that governor Sir Mervyn King voted for more quantitative easing a fortnight ago. James Mackintosh, investment editor, explains how investors are viewing the prospect of further easing and a weaker pound, after the FTSE 100 rose above 5,400 for the first time in five years.

James Mackintosh

Brits wanting a holiday in the sun have to stump up a lot more since the pound’s crash during the financial crisis. Even after a partial recovery, the pound remains down almost a fifth in real terms against its trading partners.

On the plus side, exports should be booming. Sadly, they aren’t. There are plenty of excuses explanations, but one stands out: British exporters have too much focus on slow-growing European economies and not enough on the whizzy emerging markets. The killer statistic is that the UK exports more to tiny troubled Ireland than to all the Brics put together. Read more