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The Nationwide bank stated that house prices cooled slightly in October, but still rose by an average of 0.7%. However, the latest three monthly forecast should an increase of 2.6% over the period – the fastest growth since September 2004.

With the average price of a UK house now sitting around £169,623 it seems that there are 3.4 million potential buyers sitting on their hands waiting for a slump in prices before they will buy. Commenting on the report by Abbey, BN drills down on the numbers further.

According to Hometrack’s Richard Donnell there are also signs that the mini-boom in the London market may be coming to an end.

With the dearth of first time buyers –many put off by the need to raise ever larger deposits - most of the slack seems to have been taken up by buy-to-let owners, mainly using the property increase of previous properties to secure deposits for loans on further property. As we’ve noted before, UK banks are actively encouraging this kind of highly speculative borrowing at the moment, as they desperately compete to lend more money.

Of course the problem looming is that the central bank in the UK has started to push up interest rates and is again likely to do this in November – raising the rate to 5%.

With such ‘gearing’ it will only require a small drop in the market to push recent buyers into so called ‘negative equity’. If buy-to-let buyers are unable to repay the loans or prices fall then many landlords will find themselves losing money on the properties and its likely they will want to offload the property as soon as possible, thus precipitating a bigger decline in property values.

Even if properties decline it is unlikely that the pent up demand of the 3.4 million potential buyers will come into the market until the bottom has been found. So for a period of time there will be misery and concern for recent buyers of property and financial ruin for people who have over ‘geared’ in the speculative housing market.

Of course its not all bad news, for those first time buyers prices will eventually become affordable again, and even for those who bought and lost value on a property, the next property up the ‘property ladder’ will now cost less as well (in most cases it will be very much less).

So ironically most of us should still be hoping for an increase in rates and a subsequent drop in property values. Short-term pain for long-term stability and gain.
 

Adobe may rue the day it encouraged its product managers to run online blogs from its own site. It seems that the latest musing of product manager John Nack have unleashed a torrent of articles across the net from angry Mac users, annoyed that the company strategy seems inconsistent and worse still John Nack takes direct aim at abusing the very people who pay his salary, Adobe customers.

The debate centres around a series of new software releases from Adobe and confusion for support for old and new Mac platforms. According to MacCentral -

“Soundbooth’s lack of support for PowerPC processors has raised the ire of some Mac users and pundits alike: Although Apple’s transition to Intel processor-based Macs is complete, the vast majority of Mac users still have PowerPC-based systems. Critics suggest that Adobe’s decision to make Soundbooth an Intel-only app is premature.”

Adobe have delayed a series of new releases citing different reasons, in his blog Nack goes on to say -

“Now, if you were Adobe and had started developing a new application at exactly the time when Apple told you, "This other chip architecture is dead to us," would you rather put your efforts into developing for that platform, or would you focus elsewhere?”

This is indeed ironic, Adobe have done just this with Adobe Photoshop Lightroom, a new public beta app that is available in so called Universal Binary - ie it works on Both PowerPC [PPC] and MacIntel.

At the same time Adobe have also said they will support both PC, MacIntel and PPC with the release some time next year of the popular Photoshop and other CS applications.

The issue seems to be that managers like Nack forget that the computer world is not full of customers who simply bend to the company’s will. And that turning on customers when they  voice dissent is a bad tactic. At the same time Adobe needs to provide a simple, consistent and clear strategy or message for the roll-out of its products and stick to it. This may just be the case of a ‘loose cannon’ so Adobe probably needs to rein him in.

In a final rallying call on his blog Nack makes the following vitriolic comments about the faithful customers (so called zealots) “Maybe I should, but as a die-hard Mac user I feel like someone has to speak a little truth to the Mac community–or rather, to that vocal little group of zealots and forum trolls. So here’s my message for those folks: You’re hurting the Mac platform. You’re hurting the Mac community. You need to crush a little aluminum foil against those antennae of yours, because you’re hurting everyone concerned. You’re making it harder (and less appealing) for people of goodwill to make the effort to support the Mac.”

If attack were the best form of defense then certainly Nack has mastered this in one fell swoop. For any manager at such a highly visible and branded company as Adobe to be writing such stuff in a public forum is extraordinary to say the least.

Our advice to senior management at Adobe is to ‘pull’ the blog and make sure that managers are made to tow the company line, leave PR to the PR specialists, such public ramblings from inexperienced managers surely can only do damage to the company image in the long run.

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As indices in western markets regain past loses and march upwards it might be time to ponder and view the results in the light of current news on housing and the growth of interest rates across many of these markets - this article in BN provides a good succinct overview.

Markets hit new highs, but why - BN

Yesterday it was the FTSE’s turn. The Dow Jones has been hitting new highs with such regularity, that it’s no longer news. The FTSE 100, on the other hand, is still 715 points short of the all time high of 6930.2, set on the last day of the last millennium, but it’s getting closer. Ten days ago it passed the five year market high, that had previously been set in May, which meant it had recovered from the spring crash in just a few months. Since then, it has risen a further 51 points. It’s not the heady stuff seen in the US, where the Dow is now more than 400 points above the former all time high of 11722 set on January 14 2000 (and which had remained as an elusive record for over six years until early October). Even so, it’s still a good run, and who knows, the FTSE could hit a record by the year’s end. But the question is this: when the US economy is expected to slow, and when the UK economy is doing okay, but by no means booming above trend, why are the markets so strong?

In part, of course it’s down to corporate results, which are doing very nicely. But maybe there’s more.

In the long term, shouldn’t there be a relationship between a company’s profitability and earnings and the rate of interest? Remember, the rate of interest just offers a yield, say 5 percent. If a company is generating a profit in excess of five percent of its market valuation (so that’s a pe ratio of 20), that company should represent an attractive alternative to a cash investment. But take into account that you would expect the profitability to grow each year - then the equity investment should win hands down.

And yet, in recent years, while the rate of interest has been low (it’s still relatively low in historical terms), pe ratios have been relatively low too. You would perhaps have expected the opposite.

BDO Stoy Hayward produce some definitive data on historical pe ratios. And they show that, in the second quarter of this year, the average pe ratio for a non financial company, at 14.4, was the lowest level for at least nine years. (The data available doesn’t go back any further).

The charting web site Trade 10 indicates that typical pe ratios for the Standard and Poor 500 are at their lowest this decade.

Combine this with data showing that the money supply is growing, and perhaps you can begin to understand why private equity acquisitions are all the rage.

And, as often as not, company acquisitions, whether they are private equity, or corporate, such as the impending takeover of Corus by Indian company Tata, often involve borrowing to fund the deal against the assets of the company they are buying. How can they do this? Because the rate of interest, relative to the pe ratio, is low.

Maybe this, in part, builds upon the carry trade, which is based on the idea that the excess liquidity sloshing around the economy at the moment has its routes in Japan, where the rate of interest is much lower. So people borrow in Japan and lend elsewhere.

So, while company valuations are soaring, the pe ratios are not.

But take a different perspective and, instead of examining quoted companies, have a look at unquoted businesses.

If you are looking to sell your company, you may be interested to know that typical pe ratios for unquoted companies sold, is now approaching a record. According to BDO Stoy Hayward, this ratio is now 14.4 – it has been higher, hitting 14.7 in 2000 - but, that aside, it’s the highest level seen since 1997.  

As ever the markets seem to contrive to confuse all that seek to understand them. We take a  more pessimistic view on the world, some may say bearish, but sometimes the dials on the rev counter point to red, some of us get a thrill out of pushing the red line, some of us want to be here in 10 or 20 years time.

Adobe announced details of a ‘public beta’ of its audio application Soundbooth in a further direct attack on the Apple digital media market. Adobe and Apple previously went head-to-head after Apple launched its photographic workflow product, Aperture. Adobe responded later with the release a similar product, Adobe Photoshop Lightroom, as a ‘public beta’.

The release of Soundbooth confirms that the two companies are on collision course in the media space, with further confirmation from Adobe’s Hart Shafer, Senior product manager for Adobe Audio products.

According to MacWorld, Shafer is quoted as saying that “I think they [Apple] are probably going after the same market, however, I think one of the key differences is that SoundTrack Pro is built for audio people — we think that we have a more focused product for the creative professional market.”

Soundbooth is being developed for Windows and Intel-based Macs only — it will not work with PowerPC-based systems, according to Adobe.

It is clear that both Adobe and Apple are on collision course in the creative media market whether they’re prepared to publicly acknowledge it or not.

Whilst both companies previously complimented and relied on each other, it is now clear that they are moving aggressively into the same territory. The overlap of product areas is increasing rapidly with Apple spending its cash piles to acquire companies in the creative media space. Adobe is currently on the back foot, being forced to release public betas of products to stay in the game.

Where the two companies have competed directly before it has been Adobe that has suffered. The desktop video market is an example, where Adobe’s sales of its previously successful Premier video editing software collapsed after the release of Final Cut Pro by Apple. Adobe later abandoned the Mac version of Premier.

The crown jewel for Adobe is Photoshop, with Apple moving firmly into the photo manipulation market we expect that at some point shortly Apple will release a product to compete head on with Photoshop.

Download the public beta of soundbooth from here.
 

From Investment and Business News

OPEC has agreed to cut oil production by 1.2 million barrels a day, and yet the price of oil still fell. Some say it’s because traders don’t expect OPEC members to adhere to the cut. Equally, however, it could be argued that OPEC reduced oil quotas because it knew the price of oil was going to fall anyway. In the long term, OPEC is not served well by a high oil price: it will encourage the world to look for alternative sources of supply, and alternative forms of energy.

Back in the early ’80s they used to say the demand for oil was actually quite elastic in the long run. What they meant was in the short run it was inelastic, meaning oil producers could charge what they wanted and demand would stay the same, but in the long term, higher price led to lower demand. And it would seem that principle is still true today, and OPEC knows it.