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Sunday, 29 June 2008

Ongoing impact of the economic "stutter".....

A few interesting stories in the business pages today, giving a good range of examples of the real impact of the current economic slowdown.

Taylor Wimpey reportedly needing an emergency £400m in funds this week illustrates the current impact of falling share prices and a slow down in the housing market, particularly in selling the new houses recently built. Lack of demand will only get worse over the next couple of years if the doomsayers are proven right, so Norman Askew and Peter Redfern (Chairman and CEO respectively) have their work cut out to reposition the business with a share price down from over 350p a year ago to 62p last Friday. A portfolio of empty new houses in a market with dramatically reduced numbers of buyers doesn't bode well though.

On the other hand, Aldi, everyone's favourite discount supermarket chain, is taking a very bullish view of the situation, based partly on their 21% sales growth in the last 3 months, as measured by TNS. In their view, the current economic situation is only going to work in their favour, and to that extent, they are spending £1.5bn on a 5 year expansion plan in the UK. This would increase the estate from 400 to 1500 stores, giving it a much greater presence across the country. My view on Aldi as a brand isn't shaped by marketing communications, of which I've seen little, but by some limited first hand experience of the stores. Have to admit I was surprised by the product range and the pricing, and I'd like to see the expansion backed by some marketing to drive trial, I think it would pay back handsomely.

Final mention today for The Sunday Times Business section, and the Focus article on page 5 - "Back to the Great Depresssion?" Wall Street has had its worst June since 1930, and looks likely to have lost 10% of its value in June this year. Well written article, though I have a nagging doubt at the back of my mind that we are all talking ourselves into a state of panic, but a great statistic is included.

Fortis, the Belgian-Dutch financial group, sees the price of crude oil averaging $171 a barrel next year. In contrast, Royal Bank of Scotland sees an average price of $86 next year. When instiutional predictions can have a range this great, then we're in the Kingdom of the Crystal Ball. One thing is for certain, it does look like it's going to get worse before it starts getting any better.

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