Don’t cry for the old guard
THIS week has been one of disruption. or, rather, a week when there has been a string of stories on ways in which the disruptive forces in the economy are transforming different aspects of our daily lives.
In no particular order, we have had the extension of Uber’s licence in London. Uber has gone a long way to tackle the concerns that Transport for London had, but it is also true that the powersthat-be are very aware of the furore that would result were they to ban a service that millions now rely on.
In the US we have had Amazon buying the online pharmacy Pillpack, a deal that has devastated the share price of the regular pharmacy groups and brings Amazon further into the healthcare business. It would be surprising were that disruption not to spread to the UK. Bank of America swiftly cut its rating on Walgreens Boots Alliance.
Here in the UK, Carolyn mcCall, chief executive of ITV, was complaining about the paltry tax paid by Netflix in the UK, because it has a corporate structure where the intellectual property of the shows it sells to UK subscribers are legally located in the Netherlands. But the figure that also leapt out to me was that Netflix will spend £6bn on programming this year, eight times that of ITV.
And of course there has been the continuing uncertainty in retailing, with the John Lewis Partnership suffering along with other physical grocery and clothing groups. I have just looked at the market capitalisation of ocado, the online delivery operation that got off the ground with its contract for John Lewis and Waitrose. It is £7.4bn. We don’t how much John Lewis would be worth because, as a partnership, it is not quoted but marks & Spencer’s market cap is only £4.9bn. Valuations are, in theory at least, the instant snapshot of what the market thinks of two things: a company’s flow of earnings in the future, and its assets (or break-up value) now. So the disparity between, for example, ocado and m&S tells us that the market is saying that people will increasingly buy their groceries online.
The Amazon venture tells us that soon we will be buying our mainstream medicines online rather than going to the corner chemist. And the fact that Netflix can outgun ITV and even the BBC in programming tells us that a fair chunk of the best talent will in the future choose to work for Netflix. It is not just that money talks, though it certainly does. It is that the information that Netflix, or Amazon, or ocado has about us enables them to craft services designed for our wishes, desires and needs.
Should we lament this? Surely not. It is our choice. If we really value London’s black cabs rather than the Uber Toyota Prius, then we should use the cab.
At some stage, perhaps in ten years’ time, the online gale will blow itself out. There will eventually be a new steady- state between online and offline. But it sure hasn’t blown itself out yet, as the stories of the past few days have shown.
Cryptic currency
IT IS the end of the second quarter of the year and it has been an odd time for finance. There has been wall-to-wall gloom about the economy, about Brexit, about trade war fears and so on. Yet the FTSE 100 has had its best three months since 2010.
True, that has been partly a function of the weakening pound, or rather a strengthening dollar, because the Footsie is heavily weighted towards large companies with a high proportion of their earnings overseas.
It is also partly a reflection of the weakness in February and march. It’s easy to have a great leap forward if you start from far enough back. Even with those two caveats, though, it is remarkable how much of the commentary has been so misleading, not just about markets but about the real economy in the UK as well.
There is however one area where the commentators should indeed have focused on the negative. That is the price of cryptocurrencies, notably bitcoin. It slipped below $5,900 on Friday, the lowest since November last year.
Economists define currencies as having three functions: a unit of account, a medium of exchange, and a store of value. Bitcoin does not pass muster on any of them. Whatever it is, it is not a very good currency. People seem to have rumbled that.