Outlook: Shares at bargain basement prices as blind panic takes hold

BBC/BSkyB; Six Continents; Canary Wharf

I'm not going to tell you it's always darkest just before the dawn. It can always get darker still. But unless you think Britain and the rest of the world is heading into a Japanese style deflation, the stock market has become a raging long-term buy. Blind panic seems to rule the day and you'd be a fool to think the stock market might not yet go lower still.

But the price of both British and US shares is now so far out of kilter with Government bonds that something truly calamitous has to happen to justify the anomaly. Certainly it is possible there will be a Japanese deflation, with short and long term interest rates falling close to zero, and asset prices in seemingly permanent decline. But it still doesn't seem likely.

If you believe the deflationary story, you should lock up your cash in an HSBC deposit account, where you would be lucky to get 3.5 per cent gross. Alternatively, you could buy the shares, which yield a pretty much bullet proof 5.2 per cent net and represent one of the most balanced bets possible on the world eventually returning to growth.

BBC/BSkyB

Greg Dyke, director general of the BBC, leant over backwards yesterday to insist that his decision to ditch BSkyB as the BBC's satellite distribution channel did not mark any great schism, row or confrontation with the pay-TV broadcaster. Likewise, Sky's Tony Ball was putting as brave a face on it as he could, and certainly Auntie's decision was hardly a bolt out of the blue to him, as the contract was coming up for renewal. Even so, there's no doubt that this is pretty bad news for Sky, and in the fullness of time it might come to be seen as the end of the cosy relationship that Mr Dyke has enjoyed with BSkyB since he became director general.

The monetary cost alone of losing the BBC contract is £85m over five years, and if other free to air broadcasters follow suit, as seems quite likely, then the eventual cost to profits might be upwards of £30m a year. These are not trivial sums, but they won't in themselves break the bank. The more serious threat to Sky is that having had the digital satellite platform exclusively to itself, there's now someone else trying to muscle in on the action.

This isn't going to be a problem in the pay TV arena, which will remain largely a Sky monopoly, but the more the BBC and others make multi-channel TV free to air, the more it eats into Sky's potential market for pay-TV and therefore its prospects for growth. Freeview has surprised everyone with its success, and although Sky is a partner in the venture, it cannot be entirely happy with the way things are going. An enfeebled ITV Digital was undoubtedly preferable to the fast growing Freeview, which for growing numbers of people satisfies their appetite for multi-channel TV but without having to pay for it. That's a market Sky once had to itself. Sky also finds its monopoly of premiership rights under attack from the BBC in Brussels.

Mr Dyke did not opt for unencrypted satellite to spite Rupert Murdoch. In itself, this is no declaration of war. But it does seem to me that the interests of our two dominant broadcasters are starting to diverge sharply, not withstanding the fact that one is public service and the other is pay. Mr Dyke is a street fighter, and although he runs a public sector Leviathan, he's competitive and commercial in his his approach to the media. Mr Murdoch needs to start watching his back.

Six Continents

Hugh Osmond has been seen off by Six Continents, but he did extraordinarily well to get as far as he did. His biggest mistake was in leaving his intervention too late. The institutions could hardly have voted against a demerger which they had for so long been demanding, and Mr Osmond's arrival after last orders had been called was deemed just too impertinent to be given the time of day.

Mistake number two was that there was simply not enough cash in the mix of his bid. When a tiny company bids in shares for a much larger one, shareholders would normally require a fully underwritten cash alternative, so as to give some kind of certainty on valuation.

Mr Osmond's insistence that it was simply not possible in these markets with the threat of war overshadowing everything to have a full cash alternative is fair enough as far as it goes. To raise even the £1.4bn he did might seem achievement enough. But there's a price for everything, and Mr Osmond was not prepared to pay it. Other risk taking entrepreneurs have. One thinks of Sir Martin Sorrell's takeover of J Walter Thompson, when he risked a complete wipe-out of WPP by having the bid underwritten in the markets, and Argyll's bid for Distillers, where the price of failure was half a year's profits.

The realisation that there was no downside in it for Hugh, only upside, was the clincher for many shareholders. None the less, they owe him quite a debt of gratitude. Like Sir James Goldsmith with his Hoylake bid for BAT Industries, which also failed, Mr Osmond has demonstrated that there is huge value there if only management can be persuaded to unlock it.

Few would quarrel with his analysis of the value destruction that has gone on in this company or the need for root and branch change. The demerger might help to bring it about, but, as Mr Osmond pointed out at yesterday's meeting, leopards don't change their spots, and without his galvanising bid it is probable management would have just carried on as before, largely asleep at the wheel but as two separate ships rather than one.

As it is, life for the two offspring once separated into bite sized bits is all too likely, in the words of Thomas Hobbes, to prove nasty, brutish and short, culminating in violent death. And that's if KKR and Blackstone don't deliver the coup de grace before then.

Canary Wharf

Just outside my office window, another tower block is rising ever skywards from the Canary Wharf property complex in London's docklands. The world economy might be going down the drain, but from here it looks as if we still live in the midst of a raging boom, with construction work going on all around. In the main, this is just a left over from headier times. There is a time lag between the commissioning of a building and its completion.

Canary Wharf has never pretended that it could remain entirely immune to the falling rents and increased vacancies that stem from difficult economic circumstances, but its pitch since rising phoenix-like from the ashes of insolvency 10 years ago has very much been that it has protected itself from the worst the economy can throw at it by pre-letting all its new developments on very long leases. Don't worry, Canary Wharf has always said as work begins on yet another office building, we won't make the same mistake again.

It now appears, as it usually does when the economic pips begin to squeak, that this was a long way short of the whole truth. Yesterday's news that vacancy stands at 6.7 per cent of space, up from 4.5 per cent six months ago was bad enough. According to George Iacobescu, the chief executive, it might rise to 10 per cent by the end of the year in the event of no new lettings. With many tenants attempting to sublet their redundant space, others put it much higher. But the real shocker was the news that large parts of the buildings currently nearing completion aren't pre-let at all. A third of the space in the new Barclays building can be "put back" on Canary Wharf. With the Lehmans building it is 20 per cent and with Clifford Chance, it is 10 per cent.

No wonder the shares collapsed. It's hard to believe Canary Wharf will go bust for a second time, but it has just proved all over again that it always pays to probe deeper than the flamboyant claims companies often make about themselves. Never, never believe a company which says it is recession proof.

jeremy.warner@independent.co.uk