The Great Currency

By Heather D'Alton Dec 07, 2005

*** Bid speculation buoys the blue chips

*** House price show most marked fall since 2001  

*** Japan's budding economy...why we're struggling with deflation...what Jim Rogers thinks of China's revaluation...and more..        

--------------------- – Things are hotting up in the rather unsexy world of plasterboarding. BPB has rejected an offer of 675p per share – which would value it at some £3.4bn – from French outfit Saint-Gobain. But that didn’t stop exited investors from pushing up BPB’s share price by some 7% on Friday, to 693p – to close as the top blue chip gainer.

– The question is, if BPB is unhappy with Saint- Gobain’s offer, which was already at a 32% premium to Wednesday’s closing price, before the bid was announced, what price would BPB be satisfied with? And more importantly, will Saint-Gobain be willing to go as high?

– The blue chip index closed 0.2% up for the week last week, buoyed by bid speculation. The index closed at 5,241, 20-points up on Friday. The FTSE 250 added 0.3% last week, to trade at 7,495.

– Compass Group also added some 5% just before the weekend, on rumours that Raphoe Management was eyeing up the company. The investment vehicle – owned by Sir Gerry Robinson – aims to pick up poorly-performing groups and convert their fortunes. Compass closed at 252p.

– However, electricity generators International Power and British Energy fell 2% and nearly 4% respectively, as analysts warned that the power price could fall dramatically this winter.

– “A 30% fall in UK forward electricity prices is possible if weather during the fourth quarter of 2005 is relatively normal, this could knock up to 120p a share off British Energy’s share price,” Smith Barney analysts noted before the weekend.

– Struggling Pearson has reported a 10% underlying sales gain for its first half today. The group, which publishes text books and the Financial Times, reported pre-tax profit of £48m – in comparison to a £33m loss this time last year. As a result, Pearson is more likely to meet its annual financial goals, even though the FT is planning to decrease in size for the month of August. It aims to incorporate its Companies & Markets pages into the main newspaper, in order to cut down on costs. Pearson’s share price traded 1% up on Friday.

– And research company Hometrack today said house prices fell again in July, making it the thirteenth consecutive month that prices have fallen. Prices have now fallen 3.74% in the past 12 months – the most marked fall since its records began in 2001.   

--------------------    Heating Up This Summer– While the global economy is struggling with a range of uncertainties, not least the high oil price and a slowing US economy, Japan’s economy should heat up nicely.  Why? Because domestic demand in the country should offset any weaker external demand, while the downside risks, such as a destabilised government and the country’s monetary policy, seem limited and only temporary.

The Kondratieff Cycle:– According to Nikolai Kondratieff, capitalist economies move through booms and busts, lasting up to 60 years. There’s the beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn) and then there’s deflation (winter). So where are we now in the cycle? asks Mike Shedlock in Whiskey & Gunpowder. Many suspect that it’s spring – but you just need to look at falling long-term Treasury rates to know that that’s not the case.

The yuan will be a “great currency”– The Chinese have partially revalued their yuan...but just what does this mean, and how can investors benefit from the news? The Investment U E-Letter asks investment legend Jim Rogers what he thinks of the revaluation, and on the strength of the Chinese economy. His thoughts? For one, the renminbi’s going to be a “great currency”. But China’s economy could be facing a hard landing, bad news for commodities.

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