A Brief Look At The Week Ahead

The figures for UK fourth quarter GDP data are released on Wednesday, with an economists' consensus of 0.5% growth. However, if the figure comes in at 0.4%, this, says one economist, "would be very disappointing and a definite market mover". WH Smith rounds off the retail sector's updates on Tuesday. Like its peers, its sales result is expected to be mediocre, with Christmas like-for-like sales forecast to fall by up to 5%. The share price has fallen by almost 9% cent since late December, after the profit warning from rival HMV and a downbeat commentary from journal and books distributor Dawson Holdings. But the picture may not be as black as it looks. Good news is expected from Tate & Lyle's trading update this week, with Barclays Capital believing that the sugar group will announce a positive result following negotiations on sweetener prices, and a strengthening price for ethanol. Europe remains an issue, with a competitive market and high energy costs. A positive result is expected from Northern Rock on Wednesday, the first of the banks to report in this period. Investors should be wary of extrapolating the result to the rest of the sector, as Northern Rock is a mortgage specialist. Analysts predict a pre-tax profit of around 495m, an 11% increase over 2004. This is likely to be the sector's strongest profit this reporting season, driven by an impressive mortgage pipeline. Staying in the financial world, insurers Prudential and Legal & General publish new-business figures for Q4 this week. While the data should be positive, analysts are more interested in Prudential's strategy for Egg and US division Jackson Life, and any announcements from L&G's new CEO, Tim Breedon. Among others in the limelight in London this week will be Peter Hambro on Monday; Arla Foods on Tuesday; Stanley Leisure on Wednesday and PartyGaming on Friday. It could prove to be a roller-coaster week. Good hunting! Greystone (Greystone is Alan English, City Editor at MoneyAM.)

Weekend press

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Business Focus

The dotcom boom is back. Will it last this time?
Less bubble less squeak. The web is now in the hands of big players less likely to get caught in the mouse trap

By : Tony Glover - Technology Editor January 22, 2006

THE GROWING NUMBERS OF investors convinced the dotcom boom had returned got the fright of their lives last week. Their nightmare started when a little- known Japanese internet company, Livedoor, was raided by Japanese investigators last Monday. So overwhelming was the panic caused by the news, which added to worries about oil prices, that the selling of Japanese technology stocks forced the Tokyo Stock Exchange to close its doors for trading for the first time in a generation.

The Nikei 225 Index fell nearly 6% on Tuesday and Wednesday. Fears that the good run in technology stocks over the past year might be about to come to a painful end quickly spread to Wall Street and other markets. The Dow fell 213.32 points or 1.96% to 10667.39 on Friday erasing all gains for 2006. It was the worst session since March 2003. The S&Ps 500 shed 1.83% to 1261.49. The Nasdaq slumped 2.35% to 2247.70, its biggest decline since August 2004 as the markets succumbed to mounting fears about earnings.

By Monday, it is likely that traders will have relaxed and reverted to their previous belief that a new tech boom has just started. But for all investors, the events of last week raise a fundamental question which demands an answer: will the new dot.com era last or will it turn into a bust like the previous one, wiping out hard-earned savings and dashing the hopes of millions?

This is an especially important question in Japan where share prices in Tokyo surged by 40% last year. Livedoor had been a favourite stock among small investors in Japan. Investors panicked on hearing that the company was being investigated by Japans Securities and Exchange Surveillance Commission. Its offices in Tokyos Roppongi Hills were raided after allegations that it had mis-stated losses from its 2004 results and spread false information to boost its share price. Television pictures of the raid were flashed around the world, spooking investors.

Frightened Tokyo brokers stopped accepting Livedoor shares as collateral and demanded that investors cover their trading positions with cash. As clients were forced to sell in a falling market, other technology stocks were dragged down.

Japans dotcom flu soon started to mutate into a global pandemic. Lower-than-expected profits from Yahoo and Intel last week were seized upon as evidence that tech stocks were in deep trouble.

News of good earnings from two other technology darlings, Apple and eBay, were also viewed with suspicion by investors; even Google, the worlds favourite dotcom stock, suffered. The Wall Street Journal, although noting that Googles profits are still climbing and that analysts are generally upbeat about its prospects, added this warning to its report last week: But few investors are focusing on the growing number of restricted shares and options that Google is handing out to employees which will emerge as a sizeable expense in the next few years.

By the end of the week calm had partly returned in Japan. The panic was over and the consensus among analysts was that investors had over-reacted to the Tokyo crisis. By Thursday, the market was even able to keep its poise even after absorbing disturbing news that 38-year-old Hideaki Noguchi, a senior adviser to Livedoor, had been found dead in a Tokyo hotel. The Nikkei Index recovered around 2% with internet and technology stocks leading the way.

But there were plenty of scars left -- and in the US at least the worst was yet to come. The first signs of trouble ahead was when Yahoos share price fell by a hefty 12% on news that fourth-quarter earnings had missed analysts average estimate by 1 cent a share. Earnings had come in at 16 cents a share against the 17 cents expected, hardly a disaster.

Far from being a dotcom promise that was not delivered, Yahoo had managed to grow annual revenues by an impressive 47% from $3.6bn (2.1bn, E3bn) to $5.26bn over the year and its profits had risen by 126% from $840m to $1.9bn. Figures like these would normally be a cue for celebration and for sending the stock flying to new highs, rather than provoking a sell-off.

To some sellers Yahoos latest figures were interpreted as an indication that the stock may have reached, or be nearing, maturity, another way of saying that growth rates on this scale cannot last. Growth is certainly slowing: Yahoo doubled sales between 2002 and 2003 before tripling them in 2004. But Yahoos decline was only a taste of things to come. On Friday, Googles share fell 8%, leading a severe decline in the US markets on fears about earnings, energy prices and just about everything else. With a bit of luck, the markets will recover this week but questions will continue to be asked about the durability of the current boom.

The most bullish analysts argue that the recent resurgence of the technology sector has several features that distinguish it from the late 1990s boom and subsequent bust. At that time the internet, e-commerce and web publishing sectors were untested concepts. Young dotcom entrepreneurs convinced venture capitalists to back their business plans. Because few investors understood what they were up to, a brash culture arose that declared it was creating new economy stocks.

The Nasdaq, which lits shares of technology stocks, has doubled since October 2003, but is still only half way to the heights (5132.52) of October 2000.

US interest rates have been rising steadily but there is lots of cash in the US parked in real estate that has not yet migrated into shares. Higher employment has returned to Silicon Valley (mostly in software), though there are still a quarter million fewer tech jobs from the 2000 peak. Attitudes have changed. A survey by the Kaiser Family Foundation showed Silicon Valley residents now prefer salaried jobs with established companies, rather than huge stock options with risky start-ups.

Another indication Silicon Valley is more mature is the increase in spending by American venture capitalists, 25% of which ends up in Valley firms. A total of $4.21bn in venture capital was invested in the Valley in the third quarter of 2005, compared with $6.09bn for all of 2004.

In 2000, in a blind frenzy, investors poured $30bn into thousands of dotcom start-ups. Virtually none of them made a profit. By the end of 2001, an estimated 80% were out of business. Tens of thousand jobs were lost and $2trillion in share value wiped out. The tech sector has revived since those dark days and the current boom has a different look, the most notable being that mergers and acquisitions have become the way for start-ups to cash out, rather than initial public offerings (IPOs). VCs are looking for fundamentals not visionaries, cashflow more so than hype.

Harry Dent, an economist who predicted the last tech boom and bust in his 1992 book The Great Boom Ahead predicts a bigger boom growing over the next five years. But there is a sting in his tail. Dent sees the Nasdaq rising to 13,000 (it is now at 2,258) by 2010. We see a broader tech boom, including biotech, resuming now that were over this crash, he told an interviewer at Wired.com, another survivor from the last crash.

Businesses have cut costs and expanded their ability to grow with past investments. Now, businesses are going to have to catch up and reinvest to keep up with consumers, who never stop spending. Businesses will come back big-time, and that money largely flows into information technology.

Dent, however, predicts a crash at the end of 2010 worse even than the previous one in 2001. He says this is largely because there is no large Baby Boom generation coming up to pick up consumer demand, which he attributes to the tech revival. Youve got a smaller generation following the largest generation in history, Dent said. Rather than thousands of start-ups, the current rebound is confined to established online advertisers such as Google, Yahoo and AOL, electronics firms such as Apple, as well as biotech, telecoms and software developers.

It is more isolated than last time, says a leading analyst. [The rebound] is not insignificant, but it is in smaller pockets.

The market still sees Yahoos big rival, market leader Google, as the leading internet growth stock. Most analysts believe Google is firmly in a growth phase, while conceding that its shares are highly valued. Google trades at roughly 90 times current earnings. By contrast, Yahoos shares trade at around 60 times earnings. But analysts believe internet stocks like Google have room for faster growth than non-tech companies. According to Cyrus Mewawalla, analyst at Westhall Capital, internet companies have substantial growth potential while traditional telecoms stocks are overvalued. There will not be overall growth across the sector. Already, clear winners and losers are emerging. Telefica, for example, probably bought O2 at the top of the market.

The bottom line is that telecoms operators like Vodafone derive about 80% of their voice while internet players such as Google [and now Tesco] are starting to offer voice [telecom] services on the web that are virtually free, said Mewawalla. Internet stocks are set to benefit from customer losses that will severely impact traditional telecoms operators.

France Telecoms profit warning earlier this month was attributable to loss of business to internet-based services and evidence of a shifting power base from old communications suppliers such as the former national telecoms operators to the internet-based economy.

According to a survey, 592,000 France Telecom customers ended their fixed-line contracts with the phone operator during 2005 six times as many as the year before.

The survey also revealed that 2005 saw a spread of alternative phone operators, with a further 2.23m customers switching to other operators for the internet and other services, but retained a fixed-line contract with France Telecom.

Ian Lobley, a senior partner in 3is venture capital business, said he believes the balance between old and new communications players will shift dramatically during 2006. Investors will start to find companies roles increasingly confusing during the course of the year, predicts Lobley. We are already seeing TV companies selling phone services and phone companies becoming TV companies.

Overall, the view is that todays technology sector is different from the dotcom bubble seven years ago and that the boom has barely begun. JP Rangaswami, global chief information officer of Dresdner Kleinwort Benson, says the internet is entering the second stage of its evolution and that the medium, like the early days in Hollywood, is only just

at the Keystone Cops stage of its development.

Speaking to entrepreneurs in London recently, Julie Meyer, founder and chief executive of Ariadne Capital, an early business development adviser of internet voice specialist Skype, was bullish about prospects for 2006. She likened the recent evolution of the internet as comparable to other periods in history that brought about sweeping social change.

One venture fund manager attending the event said: The buzz is just like it was at the start of the last dotcom boom. We are only at the start of the next cycle 2006 is going to be an incredible year.

Good morning traders!

The Dow dive Friday has, predictably, had its effect on Asian trade today.

THe Hang Seng ended the morning down 198.36 points at 15,463.72, while the Nikkei just closed off 336.04 points at 15,360.65

Oil prices were higher in Asia on continued worries over security and political tensions in key producers Nigeria and Iran. New York's main contract, light sweet crude for March delivery, was up 70 cents at $69.18 a barrel from its close of $68.48 in the US Friday.

Happy trading!

G.

Morning All....lots of recovery plays around today I suspect.

ABERDEEN ASSET MANAGEMENT STARTED 'OVERWEIGHT' AT MORGAN STANLEY; TARGET 185P

SIGNET DOWNGRADED TO 'UNDERPERFORM' FROM 'IN-LINE' BY GOLDMAN SACHS

COBHAM UPGRADED TO 'BUY' VS 'NEUTRAL' AT UBS

Stan - Would be a brave man who calls the bottom today. Lots of red about I think....

Very true G, a good nose required today alright.

7:00 am 23/01/2006
AFX UK at a glance share guide


LONDON (AFX) - Leading shares are tipped to come under further pressure in
opening deals following Wall Street's biggest fall for nearly three years on
Friday and as oil prices edge ever closer to 70 usd a barrel, dealers said.
According to spread-betting firm CMC Markets, the FTSE 100 is expected to
open 35 points lower at around 5,637 having closed Friday 20.8 points down at
5,672.4.

MARKETS
Tokyo: Nikkei 15,360.65, down 336.04
Hang Seng midday 15,463.72, down 198.36

TODAY'S PRESS
* Stability before tax cuts, says Cameron; Tory leader puts stress on economic
responsibility; stance may not please right wing of the party - FT
* Toshiba wins Westinghouse with 5 bln usd bid - FT
* Mirror sale on cards as TRINITY MIRROR chairman Sir Victor Blank quits for
LLOYDS TSB - Times
* 'Grannies' adviser at heart of QINETIQ sale controversy; Shriti Vadera widely
believed to be behind decision to exclude taxpayers from flotation - Telegraph
*COLT TELECOM to launch itself into the consumer mobile market - Times
* Drugs for Alzheimer's disease should remain available on the NHS to those
with moderate forms of the condition, the National Institute of Clinical
Excellence says - FT
* NHS told: put money before medicine; Hewitt vows to end 'handout culture' -
Guardian
* BHP BILLITON embroiled in Iraq oil-for-food scandal - Guardian
* Barrick Gold chairman Peter Munk says gold's price will keep rising as new
deposits of the precious metal become harder to find - FT
* REUTERS close to settling a lawsuit against Bloomberg that accused its rival
of infringing technology patents - FT
* Fast Retailing, the operator of Uniqlo, Japan's leading casual clothing
chain, hunting for an acquisition in England, its chief executive says - FT

PRESS COMMENT
FT
THE LEX COLUMN comments on General Motors (given the pension size, investors
may want more information on how GM is achieving its returns), Japanese equities
(the market remain a buy; always assuming, of course, the TSE is open), European
banks (look set for another year or two of above-average earnings growth: some
10-12 pct compared to about 8 pct for the market; throw in the prospect of
further consolidation and bank stocks deserve investors' interest)
Express
THE INVESTMENT STRATEGIST: Broadband puts high-techs back in favour
Independent
Small Talk: Stephen Foley comments on IP2IPO (may find few people to back
further spin-outs), FELIX (agrees bank deal), TITANIUM RESOURCES (ready to scoop
peace dividend in Sierra Leone)
Telegraph
AIM MARKET: Healthcare companies will draw an old age benefit (SYNERGY
HEALTHCARE, ALLTRACEL PHARMACEUTICALS, AKERS BIOSCIENCES

SKYEPHARMA CHAIRMAN IAN GOWRIE-SMITH RESIGNS

Morning all.

morning all and lw :-))

MAster RSI,

Sorry to ask this, but would you mind removing the chart from your post, as it is prompting an ADVFN login when people enter this thread.

Thanks

Ian

Master RSI,

Sorry, I have had to remove the charts as they were prompting an ADVFN login for our users. If you would like me to redo them with MoneyAM charts just let me know,

Ian

Morning all

MB - I'm a bit late this morning - hows it going?

lw,slowly but surely,glad i closed most of my positions over the weekend after the carnage over the pond !!! How you keep your self,pretty busy this time of year me thinks work wise ???

Mega...

long UKX tight s/l on

yes MB very busy

I see you are feeling brave ;-)

FTSE long from 45 starting to look good s/l move to lock in a profit.