City Republic: what lies in store if recession comes

It certainly feels like a recession, so what's next?
Well here we are, bang on cue, we're almost certainly going to have a recession in the US and, probably, in the UK -- commencing now. Technically, a recession is two quarters of no growth in the economy. Whether or not this happens it will certainly feel like it, on both sides of the Atlantic.

But should we be worried? The Americans probably should be because that country's status as the benchmark of the global economy is seriously under threat as people from Saudi oil producers to Far Eastern sovereign funds to Brazilian supermodels decide they'd rather be paid in other currencies than rapidly declining dollars.

The American economy will recover, of course, but loads of individuals in the US won't as they lose their homes through irresponsible bank lending.

As for us Brits, people have been saying for ages now that we're carrying too much debt and house prices have risen beyond all reason.

So a short, sharp recession might be just what the doctor ordered.

It'll cause pain, of course, and the government will feel inclined to act because pain for over-borrowed consumers isn't exactly a vote winner.

It certainly shouldn't be good news for media stocks, which took a ferocious powder in 2007, second only to bank stocks in their fall from grace.

In fact, the only thing that kept the FTSE 100 up was mining shares, not much use to most investors whose portfolios would have included a healthy number of bank and media shares.

Maybe, media shares have fallen too far, too fast.

Will it be a better year in 2008?

For media shares almost certainly, although not until the second half. The legendary fund manager Anthony Bolton of Fidelity said in the Daily Mail over Christmas that he'd be buying media shares because they were so cheap. Let's hope he's right.

Markets wait on interest rates
The (relatively) fearless FTSE100 inched forwards in early trading Monday (as did Paris and Frankfurt) as they await imminent interest rate decisions on either side of the Atlantic.

This despite further chunky falls in the Far East this morning (the Hong Kong Hang Seng index fell about 2.5%) and a bad day on Wall Street on Friday (the Dow Jones fell 257 points to 12,800. It hit a peak of 14,000 in mid-2007.

The American markets seem to be playing a game of chicken with Fed Reserve chairman Ben Bernanke, essentially saying they'll take their ball home if he doesn't cut interest rates by another half point.

Everyone knows that there'll be a cut in either January or February, so why not get it over with?

But it's an ill wind...
It's a pity you can't buy shares in accountants and lawyers because they seem to do well, whatever the economic weather. It's emerged in The Daily Telegraph that KPMG, the administrator of failed furniture store Courts, has so far charged a mind-boggling £23.7m to terminate the company, which went bust in 2004

This includes partners' time at £600 an hour and $662,864 for KPMG's Grand Cayman office (all those mojitos one assumes). Work experience staff were charged at a modest £32 an hour (good to know they had experts on the case).

Expensive? Never, says KPMG partner Chris Laverty. "This was an incredibly complex administration involving global financial transactions. There were numerous complications."

Allen and Eyre on a radio collision course
On December 17 last year, Charles Allen's new outfit Global Radio bid nearly £300m for GCap Radio, the benighted merger of Capital and GWR.

GCap's chairman (and one-time Capital CEO) Richard Eyre rejected the bid, even though it's worth around £100m more than the company was worth last week.

Eyre didn't tell his shareholders about the bid, though, which is going to ruffle a few feathers.

The combination of Capital and GWR has been a disaster, being worth less together than Capital was on its own before the merger.

Eyre was doubtless unimpressed by Allen's plan to place his backer bookie Michael Tabor's son Ashley in charge of the business in place of newly appointed CEO Fru Hazlitt.

There will be some shareholders who would have been happy to see one of Tabor's horses running the business in return for a £100m premium.

GCap shares soared nearly 50% in early trading Monday.