CUTTING ROOM

CUTTING ROOM - Comforting words for the wilting greenback; why US drivers keep on trucking; how gullible can shareholders get?; my euro gesture ... Evan Davis at large.

by EVAN DAVIS, economics editor of the BBC
Last Updated: 31 Aug 2010

Comforting words for the wilting greenback; why US drivers keep on trucking; how gullible can shareholders get?; my euro gesture ... Evan Davis at large.

Are we witnessing the end of an era in the currency markets? For several years, the US has pursued something called the 'strong dollar policy'. But that policy may be changing.

As currency specialist Avinash Persaud of State Street points out, this policy has never consisted of anything except rather monotonous repetition of the mantra that a 'strong dollar is in the best interests of the United States'.

However, the dollar is not looking as strong as it once did, and it seems rather silly to continue chanting the mantra. So suggestions for a new policy slogan would be welcome, one that recognises the dollar decline without having to acknowledge any humiliating u-turn. Ever ingenious, Persaud suggests 'a strong dollar is in the best interests of the US, but an ever-strengthening dollar is not'. My suggestion is '... but a strong euro is even more in the interests of the US'. Or how about a leaf out of the great book of Thatcher quotations: 'You can't buck the market'.

You've got to hand it to those car industry people in Detroit - they know how to look after themselves. Some of the huge sport utility vehicles (SUVs), such as the Ford Explorer, are classified as trucks rather than cars for the purposes of various bits of legislation - the Clean Air Act, for example. Trucks, you see, get a rather better deal than cars. Similarly, the dollars 30,000 Lincoln Navigator is counted as a truck on account of its truck-like weight of over 6,000 lbs, thereby avoiding the 10% luxury car tax.

I wouldn't say this accounts for the popularity of SUVs on American roads.

That's better explained by the desire of individual drivers to elevate themselves above other road users, in a futile competition to drive ever-taller vehicles that will inevitably culminate in Wacky Races absurdities.

As SUVs have become one of the more annoying urban hazards in the US, obstructing as they do the view of anybody not driving one, let's hope the UK authorities are more resistant to the lobbying of car makers and impose a double tax on them.

You probably know about the festering debate on the accounting treatment of stock options paid to employees, and whether firms should be obliged to treat them as a normal expense in their accounts, or allowed to declare them in a footnote. As options ultimately dilute shareholders' assets, most sane people think it's a no-brainer that sensible accounting rules should compel firms to put them above the line and deduct them from profits.

But whether the options are expensed properly or put in the small print should not make much difference to shareholders. After all, they can surely calculate the correct accounting profits themselves by subtracting the value of options declared in the footnotes from profits. It's not exactly rocket science. We might prefer not to have to add the numbers up ourselves, but it's surely no big deal.

Yet I'm not so sure now. A new study throws light on the gullibility of shareholders over recent years: in 1999 and early 2000, its authors found there was a beneficial share price effect for companies announcing a change of name to one that embraced the words 'dot.com'. After August 2000, however, investors rewarded firms that expunged dot.com from their name. Indeed, the paper says: 'This dot.com deletion effect produces cumulative abnormal returns of the order of 70% on the 60 days surrounding the announcement day.'

If people can be persuaded to buy shares because the name sounds promising, I'm sure they can also be persuaded by a few arithmetical tricks in the accounts. But if they are influenced by such superficial factors, there seems little point in trying to protect them with advanced accounting regulation, as they'll surely find a way of throwing their money away eventually.

January was the month to pay the previous year's tax. You might remember that some time ago, in a little fit of pro-euro gesturism, the Government suggested it was more than ready to do business in euros, and would soon accept payment of tax in the single currency. It seemed to me a bit pointless, as anyone liable for UK tax probably has a sterling bank account. But as I've engaged in a bit of gesturism of my own by opening a euro bank account with Credit Agricole, I thought I'd put the Government's support for the currency to the test. So I have just dispatched a EUR500 cheque to the Inland Revenue. I'll report back when I find out whether it has been accepted.

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