The City Herald

If you are one of the many dental patients in the UK that have had braces furnished with gold, you have two reasons to smile when your treatment ends. The first is a perfect smile. The second is that your braces – which would normally be left in the clinic for recycling – may now be worth £100 on the scrap market.

Since the beginning of the credit crisis, the price per troy ounce gold skyrocketed from $800 one year back to a record high of $1,227 (£757) earlier this month. This upsurge, pushed mainly by a weaker dollar and the increasing appetite of investors for safer assets, encouraged many to sell their castoffs of the precious metal. “I think about 65 per cent of my customers are selling me things rather than the other way around,” one Leicester-based jeweller told The Economic Times.

However hurrying may have not been the best option. Investment bank Morgan Stanley forecasts a peak above $1,300 for the price of gold in 2010, topping the performance of commercial and residential property and bonds. The enthusiasm of some fund managers in the UK goes even further. According to a survey by the Association of Investment Companies (AIC), 28 percent predict gold to be the best performer next year.

Gold price performance in the past five years

With these glowing prospects, you might also be thinking about allocating part of your portfolio to gold. Unlike the last sustained bull market of this commodity in the 1970s, it is nowadays very simple to get exposure to gold. Among other options you can buy stocks of mining companies or simple invest in Exchange Traded Funds (ETFs) that aims to tracks the price of the precious metal. Digital gold or ‘e-gold’ is also an increasingly popular option, however the providers are not regulated and therefore the risks are higher.

But before reaching for the yellow metal, you should be aware of the key factors that influence its price.

In times of uncertainty (like the current financial crisis) gold is often chosen as the ultimate safe refuge by investors. To hedge themselves against market uncertainties, central banks and other financial institutions almost always resort to gold. Unlike other currencies, its supply is limited and cannot be increased by governments ‘out of thin air’. Moreover, its value does not depend on the credit rating of any particular institution.

Since the beginning of the global meltdown, many countries have exchanged dollars for gold as a strategy to keep their reserves protected from volatility. The central bank of India, for example, bought 200t last month in an effort to move away from the waning American currency. Because the value of gold is determined by the fundamental rule of supply and demand (as any other commodity), when central banks or investors rush to purchase it, the price goes up.

Put simply, as the value of the dollar falls, the price of gold increases and vice-versa. If interest rates in the United States stay low for an ‘extended period’, as announced by the Federal Reserve, so will the eagerness of investors to buy dollars. But as soon as interest rates rise and the dollar regains its strength, the price of gold is deemed to decline.

Hence betting on the price of gold is also betting on the prospects of the US and its monetary system. “Until the dollar puts in a convincing rebound, then the onus is to the upside in gold,” HSBC metals analyst Jim Steel told goldinvestingnews.com.

So is that it? Not quite. Another (and surely the trickiest) aspect that influences the price of gold is speculation. As its price keeps rising, more investors will expect it to keep going up. From 1995 to 2005, gold has been trading between $250 and $420 with the sharp rise beginning only thereafter. Many analysts say that hedge funds are on the back of this boost.

Along with trying to predict the price of gold it is also crucial to be clear on the purposes of having it in your portfolio. If you want to hedge yourself against volatility and inflation in the long term, gold is almost always a good option. Its natural scarcity and constant demand (for industrial use and jewellery) will guarantee that prices go up.

But if your decision to invest in gold is motivated by short-term gains, you may be setting yourself up against market conditions very hard to foresee. If the US raises interest rates and the dollar reclaims its vigor prior to your predictions – or if the price of gold suddenly tanks after an unwarranted market rally – your prospects for lustrous profits can quickly vanish.

A report released this week argues that City bankers destroy £7 of value for every £1 they are paid by their employers. The authors of the A Bit Rich report estimate the cost of the recession at £2.7 trillion, or £668 per banker. Reasoning from that premise, they conclude that bankers have a negative effect on society. Chris Giles writes in the FT:

[The] report stems from standard public economics theory that the government should step in if people’s value to society is remarkably different from their private value to an employer. The government already steps in, taxing everyone to ensure many jobs with high social value happen where those services would not be provided otherwise….

The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions…. If the figures are accurate, a rational government should shut the City. Naturally, the City disagrees and so does the Treasury, which sees benefits in properly regulated activity in the Square Mile.

The NEF has never made an effort to appear conventional. It grew out of an international conference called The Other Economic Summit, held in opposition to the 1986 meeting of the G7 in Tokyo. Founder Jonathon Porrit is an Old Etonian, trained as a barrister at Oxford University, whose father once declared the welfare state ‘uneconomic’ in his post as Governor-General of New Zealand. With over fifty employees, most of whom are trained academics, the NEF has grown since its days as a gathering of friends in Mr Porrit’s Lambeth flat. Some would say that it is now reputable.

Yet at the same time, it is a pity that this report had to come from an organisation like the NEF. It raises important issues that deserve to be debated intelligently but which risk being drowned out by squabbles over agenda and the incessant mentioning of ‘the environment’ that is a legacy of Mr Porrit.

The authors calculate that the providers of essential services, like nurses and hospital cleaners, can receive as little as 10 per cent of the benefits they provide. From the FT again:

Eilis Lawlor, head of the valuing-what-matters team at the New Economics Foundation, said: “Pay levels often don’t reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit, rather than those that generate profits at the expense of society and the environment”.

Yes, it is true that while the conclusion might come through reason, the premise that the value of nursing or banking can be accurately calculated might be false. The point is academic. The effects of the way we choose to value services, on the other hand, are real. Bankers are not the first to threaten to leave the UK. In 2007, 5,000 nurses tried to leave for Australia after finding their services undervalued here.

Should we reconsider the value of services like nursing? That is an important question, and it should not die along with the intellectual defeat of this report. The sad truth is that as long as the focus remains on banking, it probably will.

Newspaper publishers face a dilemma. If one newspaper unilaterally charges for content, readers might migrate to those that remain free. The Huffington Post really kicked-off when The New York Times began charging for content, eventually forcing the Times to retreat. If, on the other hand, publishers form a cartel and agree to put up pay-walls simultaneously, the proportion of readers prepared to pay for a single publisher’s content will fall. A study by media consultancy Oliver and Ohlbaum found that 26 per cent of Guardian readers are prepared to pay £2 a month for access to online content. The figure falls to 16 per cent if all newspapers charged. The Economist thinks it comes down to the promiscuity problem: the culture of getting news from many different outlets has become so strong that it is difficult to just change overnight.

The study busts the myth that aggregators like Google News are fuelling the culture of “content kleptomania”. It turns out that only 10 per cent of readers rely on aggregators to point them to news sources.

I think that the BBC is a bigger part of the problem than The Economist cares to admit. The Daily Telegraph has the highest circulation of all the British dailies. Yet its readers spend twice as much time on news.bbc.co.uk as they do on telegraph.co.uk. The Telegraph and BBC News never competed across the print medium. Now they compete directly with each other for online readers. The BBC does have several unfair advantages. It is not an enterprise. Funding is guaranteed by the British public. It has only one bottom line – public interest, whereas newspaper publishers have to juggle two – public interest and shareholder value.

Any agreement between publishers on future business models must involve the BBC. It is fanciful to imagine that the print and online markets are identical. They are not. Print news in Britain is dominated by ex-Fleet Street publishers. Their online position is weak. From here on there are two ways to proceed.

Newspaper publishers can lobby the government and the British public until they succeed in getting the former to slash the BBC News budget. A weaker BBC will make the marketplace fairer for all online publishers, but at the cost of a public outcry and diminished democracy.

The second, more desirable, option is to have the BBC come to an agreement with its online competitors: The BBC would concentrate on reporting, and newspaper publishers on journalism. The market for reporting is dominated by wire services so if the BBC chooses to compete solely in this market, it would hardly be a threat to the news agencies. Reuters, for instance, derives only five per cent of its from services provided to non-corporate clients. At the same time, the arrangement would provide an invaluable service to the British public. Newspaper publishers would be free to resume their historical focus on investigate journalism, ensuring survival for themselves and, ultimately, for democracy.

So much for the information revolution

Sarkozy is to take on Google’s project to digitise French language and European books and art, by funding a French digitisation project. From The Times:

“We are not going to be stripped of our heritage for the benefit of a big company, no matter how friendly, big or American it is,” Mr Sarkozy said. “We are not going to be deprived of what generations and generations have produced in the French language just because we weren’t capable of funding our own digitisation project.”

Jean-Noël Jeanneney, a former chief of the national library (BNF), said that Europe’s very history was under threat. The French could be fed only an Anglo-Saxon version of its revolution in which “valiant British aristocrats triumphed over bloodthirsty Jacobins and the guillotine blotted out the rights of man”, he wrote recently.

Google has been scanning out-of-copyright books sitting in US libraries for years. Victor Hugo’s Les Misérables is freely available on Google Books. Search it. Download the entire copy. Everyone seems to be happy. Except Nicolas Sarkozy. He blew a fuse upon finding out that the French National Library was “collaborating” – which in France means colluding – with Google to scan part of its collection.

The BNF clarified its position last August. It is extraordinary enough that the press release was published in English. But try to imagine this last statement coming out of anywhere except France:

The Bibliothèque nationale de France does not intend to enter into any argument especially when controversies tend to become personal.

Sadly, Mr Sarkozy has made the issue personal. If not out of sheer vainglory, then for political ends. It is not the first time that we have seen this kind of posturing from the president. The plan proposed by his culture minister Frederic Mitterrand to lock the library’s collection into an EU-funded archive costing £700mn must be understood in this context. Gallica, as the archive is unsurprisingly called, will “achieve a European consensus against Google”.

“We have to regulate the market. The state has to do it and not some private concern,” said Frederic Mitterrand.

The people working at Google Books must find this weird back-of-beyond mentality either really amusing or extremely frustrating. The very idea of a country fighting a corporation that will, in the end, promote its culture is absurd. And since when does the market for freely available information have to be regulated?

Last May, a Google VP was called to testify before a US Senate communications committee on the future of journalism. Marissa Mayer explained that Google’s role is to drive traffic from searches to online news publishers. She called Google “a conduit for online publishing”, said that the future of news consumption lay in the “atomic unit”, and then proposed something called “the living story”.

The first idea is terrible. Ms Mayer compares online news to digital music. The iTunes Music store has made buying whole albums a thing of the past. News, Ms Mayer said, is going through that same process. People are more used to arriving at single articles through a Google search rather than reading full newspapers. There is flaw in this argument. The value of an article decreases with time at a rate faster than that of music. You might pay £2 for a song that you will listen to many times. Who reads the same news article more than once? Now tell me what you think about Axel Springer – the German publishers of Bild – arguing that their online readers would pay €5 to see pictures of Berlusconi hanging out with a bunch of prostitutes.

Articles published online are almost never updated. There could be several reasons for this. Journalists write the first draft of history. It is important to have a historical record of events and to be able to trace their progression over time. A more likely explanation is that it is a hangup from the days of print-only publishing. Enter living stories (sometimes incorrectly called living URLs).

The idea is that a story can evolve on a single Web page. News stories will look more like Wikipedia articles and The New York Time’s topic pages. “The result,” says Ms Mayer, “is a single authoritative page with a consistent reference point that gains clout and a following of users over time.” Wait, I know what that is. It’s a newspaper.

Well, it’s more than a newspaper. Rather, it’s what online news publishers can be. Have a look at Google’s Principles of Living Stories. A clean separation between the story summary and story developments eliminates the needless repetition of content in current publishing as a story develops over days or weeks.

Yesterday, Google launched their Living Stories Prototype. The first thing you’ll notice is that it looks terrible. The second is that this is not like Google’s ordinary news aggregation that sorts very similar articles from different publishers into “stories”. Instead, each living story only collects articles from one publication. For now, those are The Washington Post and The New York Times, which have collaborated with Google on this technology. From the Google Blog:

This project sprang from conversations among senior executives at the three companies. We shared thoughts about how the web can work for storytelling, and the Times and Post shared their core journalistic principles. The Living Stories started taking shape over the summer after our engineering and user interface teams spent time in the newsrooms of both papers. We’re providing the technology platform, the Times and Post’s journalists are writing and editing the stories, and we’re continuously collaborating to make the user interface fit with their editorial vision.

This kind of collaboration is what publishing really needs. It turns out that Google sees itself as more than just a conduit.

This Wednesday, AOL will be going solo. The company merged with Time Warner in 2001, losing $100bn in value along the way. Yahoo, Hotmail and Google eroded its once dominant position in the email market to the point where AOL mail is a dead service. Now, AOL is repositioning itself as a content provider. Tim Armstrong, chief executive was interviewed in BusinessWeek:

AOL is not some dot-com has-been selling Web access and e-mail. It’s a digital media colossus with 80 Web sites churning out everything from personal finance advice to bedroom tips for women. With 100 million unique monthly viewers, Armstrong asserts, AOL has what it takes to lure blue-chip companies eager to reach multiple audiences with one ad buy.

It’s a little bit late to hop on the bandwagon, though. It is true that AOL is bringing in some talented journalists from Time to work on its online publications, which might give credence to an area of publishing that has so far been dominated by gossip columns and the copying and pasting of press releases. Yahoo! and Microsoft are ahead in the quantity game:

AOL can beat them on quality. Sadly, there’s no talking about journalism nowadays without the phrase “business model” attached. BusinessWeek reports that AOL’s ad-supported content is only generating 30 per cent of the company’s profits. A meagre amount, when that’s the core of your business.

Worse still, anyone expecting AOL to produce serious investigative journalism will be let down. AOL is developing an algorithm that will assign stories to freelance writers based on what people search for and the sites they visit. Some of its editorial guidelines for new writers are revealing:

This isn’t print. So do it fast. We’re looking for colorful, concise, opinionated analysis that always expands the consumer viewpoint. We’re not Gawker, so be friendly and authoritative, but on the other hand, don’t be afraid to take sides.

Why choose to compete in the news market, when you can only make a half-baked effort? AOL should be looking at some other options. More particularly, resuscitating its instant messaging network. Facebook and Twitter have dominated the “micro news” market for too long, and have grown too powerful. In Twitter’s case, its position is almost monopolistic. AOL should challenge Twitter. It is certainly capable of designing and supplying a much better product. Its brand, though not as strong as it once was, is still powerful.

What’s more, AOL should open up the technology, turning it into a full-scale, decentralised communication network that will be immensely useful, especially to journalists. I would like to see the Iranian government trying to shut off access to a decentralised version of Twitter. It would be like playing Whac-A-Mole against the Internet. I think we’re beyond the stage where we could dismiss Twitter as a fad. It’s proved itself to be an important technology and effective communication tool in the same way that the telegraph once was. AOL is capable of filling the gap in vision left by Twitter, a company with no direction and little sign of a viable future.

"Times Skimmer": a new way to read news on the web

The New York Times released the “Times Skimmer”, an online application that aims to reproduce on the web the experience of reading a printed newspaper. The new product is similar to the already existing “Times Reader 2.0″ (which is available to subscribers for US$3.45 a week).

The “Times Skimmer” sorts the articles into sections (“Top Stories”, “World”, etc) and displays them all in a dashboard. The clean design helps users to focus attention almost exclusively on the articles, eliminating the overload of links and information of a regular web page. The fonts used are the same of the printed version of the newspaper.

The readers can select from a variety of customized grids that present the same content in seven different ways (you can test them here). In almost all the formats, advertisers get a prominent space. But for now, Blackberry is the only sponsor.

City University London have made the video recording of last Wednesday’s debate available online.

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Comcast-NBC deal can reshape the American media industry

The New York Times, the Financial Times and The Wall Street Journal all reported today on the billion-dollar agreement. After nearly nine months of talks, Comcast – the biggest cable operator in the US – announced a deal to buy 51 percent of NBC Universal from GE.

The merger is expected to reshape the American entertainment industry, giving a cable provider with 25 million television subscribers and 15 million Internet customers a vast portfolio of profitable content.

The New York Times states that the agreement – which could take up to 18 months to be finalized – raises certain anxieties about the future of the industry.

NBC has been mired in fourth place among the major broadcast networks, and the economics of the broadcast television business has deteriorated in recent years amid declining overall ratings and a decline in advertising. By contrast, cable channels have continued to thrive because they rely on a steady stream of subscriber fees from cable companies like Comcast.

The Financial Times makes an interesting point, asserting that the deal goes against current trends in the media industry.

The deal runs against recent media industry trends in splitting apart content creation and distribution that has inspired decades of deal-making, but failed to generate more value combined than apart.

Free Press, the advocacy group in Washington, reaffirmed today that will ask regulators to block the deal because it would give Comcast too much power over what viewers see.

“The pundits who are predicting this merger will be a cakewalk haven’t done a careful analysis of the damage it will do to the competitive fabric of the video marketplace,” said Mark Cooper, research director for the Consumer Federation of America. “This merger’s potential to foreclose competition and stifle innovation is significant and real.”

According to the group, the merger could hurt competition in traditional video markets as well as in emerging markets. Moreover, the Comcast-NBC agreement would trigger more media consolidation, as remaining companies – both in distribution and content – will seek to fortify to match competition.

The deal also sparked fears of job losses. Both companies employ together roughly 130,000. But according to Mr Burke, the Comcast executive who will oversee the joint venture, almost all employees should feel safe as the businesses do not overlap.

Yesterday, Google gave publishers access to a system that will allow them to remove their content from its news search service. Publishers will not be able to remove content from Google’s standard Web search, however.

From the Wall Street Journal:

For several years, Google has allowed publishers to make individual articles that are behind a pay wall free through Google, through a service called “First Click Free.” Previously, users could access an unlimited number of stories this way. Now, it will allow publishers to impose a cap of five free stories a day while continuing to allow them to grant access to more.

In case you missed it, Eric Schmidt wrote about how Google can help newspapers last Tuesday. Here’s the clincher:

It’s understandable to look to find someone else to blame. But as Rupert Murdoch has said, it is complacency caused by past monopolies, not technology, that has been the real threat to the news industry.

Meanwhile, Microsoft said it has “no real intent” to pay newspaper publishers to remove remove content from Google’s News Search service. So much for all that speculation.