Outlook: George Soros adds his weight to the case against the dollar

LSE charges; Drought orders

It was Thanksgiving in the United States yesterday, but that didn't stop the dollar taking a further beating in foreign exchange markets. The latest rumour to feed the frenzy is that George Soros, the man who broke the Bank of England, has taken some sizable short positions in the greenback. Unsurprisingly, Mr Soros won't say, but you don't have to be a currency speculator as accomplished as Mr Soros to realise the dollar is a one-way bet right now. Nor would Mr Soros's lack of faith in the medium-term outlook for the dollar come as any surprise to anyone who has read his thoughts on President George Bush.

Ensuring that Mr Bush is defeated in the next year's presidential election "is the central focus of my life", he was quoted as saying in The Washington Post. "It is a matter of life and death." The 74-year-old financier's opposition to Mr Bush is based on his belief that "Bush is a danger to the world" rather than that he may be mismanaging the US economy. In any case, what Mr Bush is trying to do with the economy is perfectly obvious; he's pump priming it for a second term, knowing that once home and dry, he can repent at leisure for the present profligacy.

Is Mr Bush, then, a long-term danger to the US economy too? The US is growing faster than almost anywhere else right now, but it doesn't fool the currency markets. About the only foreigners still buying dollar assets are the Chinese and the Japanese, who must keep their own currencies weak against the dollar to support the competitiveness of their US exports. Everyone else seems to be a seller. If there is no foreign funding for the ever-growing US trade deficit, then the US currency must fall until trade is brought back into balance.

This in turn helps growth and employment in the US. In combination with tax cuts, high federal spending and historically low interest rates, it is just what Mr Bush needs to win the next election. A sharp currency devaluation is worth any number of protectionist trade tariffs and, what's more, it is legal. Paradoxically then, Mr Soros may actually he helping Mr Bush if it is true he's a big dollar seller. Certainly he advanced just such a justification when he bounced the pound out of the ERM 11 years ago. His actions, he argued, were a boon to the UK.

The dollar will continue to fall, until eventually it overshoots and the next great shift in trading sentiment takes place. That may still be some distance off. Time to book that shopping trip to New York, I would suggest.

LSE charges

The London Stock Exchange has agreed to reductions averaging 25 per cent in the cost of listing on the exchange, and to cap those charges for three years, rather than risk being referred to the Competition Commission for abuse of its monopoly in domestic share trading. The LSE's retreat hardly falls into the same category as the Stock Exchange's great battles with the Office of Fair Trading in the early 1980s, which culminated ultimately in agreement to abandon dual capacity and minimum commissions, yet it is of more than passing interest in demonstrating the continuing power of exchanges to dictate what the customer has to pay.

Despite the growth in competition between national exchanges and the establishment of alternative domestic methods of trading shares, publicly quoted companies have little option but to pay whatever it is the exchange in their country of origin demands. With demutualisation across Europe, national bourses have been particularly aggressive in raising profits so as to maximise profits. The London Stock Exchange brought the OFT investigation on itself last year by jacking up charges by an inflation busting 30 per cent.

The London Stock Exchange points out that compared with many of its rivals, issuer charges are not excessive. The maximum a large publicly quoted company will pay is £43,240 a year, against the £308,000 charged by the New York Stock Exchange. Ofex also charges more for a listing than the Stock Exchange's Alternative Investment Market. Even so, it is amazing that stock exchanges can get away with charging anything at all. Such charges are hardly a major disincentive to listing with a particular exchange, but share listing is a natural monopoly, and it is not right that the LSE should be allowed to exploit it. Issuer services last year accounted for 15 per cent of the LSE's total revenues, and without OFT action, the LSE would almost certainly have made it larger still.

The LSE insists that the coming of a single company prospectus which will have validity across all European Union exchanges will further increase the competition among national bourses for listings. Perhaps, but much more likely, companies will feel obliged to list on all of them and pay whatever is demanded. The LSE says it doesn't agree with the OFT's conclusions, but I fear it is in a minority of one in so doing.

Drought orders

It never rains but it pours in the UK water industry and, despite the bucket loads of the stuff that have descended on most of Britain over the past week, it is not enough to head off the possibility of drought orders early in the new year. Unfortunately, it's been the wrong type of rain. What the water industry needs to refill the aquifers and make the springs flow afresh is a steady and prolonged drizzle, running preferably over several months. The downpours of the last week will mainly have been wasted in run-off and headed straight out to sea.

The water companies insist that the present shortage of water is down to the summer heat wave and the autumn dry patch, rather than in any systemic failure on their part in failing to ensure adequate supply. One of the lowest periods of rainfall on record has coincided with exceptionally high usage caused by the summer heat.

However, there are plainly structural water shortages building up in the system too, particularly in the over populated South-east of England. Thames Water has already applied for a drought permit, which would allow it to abstract more water from rivers and bore holes, and is the first stage on the road to an outright drought order, allowing the company to limit supply for non-essential use.

Looking further into the future, it is clear that the company has a major structural problem in satisfying demand. The population of London alone is expected to grow by 700,000 by 2016. The Government also plans for an extra 200,000 homes in the South-east on top of normal build by the same date. Never mind global warming, even with normal rain fall, Thames and others may soon have a problem with supply. Plans for new reservoirs to cater for the ever growing population have run into the usual protests over damage to the environment and property rights.

Yet there is plenty the industry could have done to help itself. Only belatedly have Thames and others started investing on the scale necessary to deal with the problem of excessive leakage from what in parts is a 15 -year-old water supply system. More could also have been done to encourage water conservation. For instance, most loos could operate perfectly adequately on two-thirds of their present water usage.

All the big water companies continue to insist they will be able to cope without need for construction of a national grid, to take water from the population scarce but rain heavy North to the parched South-east. Let's hope they are right, for any such scheme would be extraordinarily costly. Nor could it's environmental impact be easily predicted, other than it is bound to be bad.

The Environment Agency recently pronounced the industry "on target" for long-term supply in England and Wales. As in all things, however, the longer problems are left unaddressed, the more they cost to fix and greater the disruption caused. The water industry may be a case in point. So who's going to pay for the belated programme of extra investment on greater sources of supply? You've guessed it. You, the consumer, through higher water charges.

jeremy.warner@independent.co.uk

Comments