Intel decided to get all the bad news over at once this quarter with a $0.95 billion write off on their WiMax Clearwire investment

The reduction in revenues was due to lower demand and the fact that PC manufacturers were running down their existing inventories of chips.

The exception to this was the new Atom chip, which is used in the new ultra light weight laptops, known as netbooks. These chips are simply too new for the PC manufacturers to have significant inventories.

See the full report.

However, there were a few notes of encouragement in some sectors: internet sales were 30% up on last year and low costs retailer such as Aldi and Poundland saw 25% growth.

The false accounting was an overstatement of cash reserves by $1 billion dollars which was done pretty much by moving the decimal point by one place. $0.11 billion become $1.1 billion

Deepak Parekh, one of the new directors, is currently appointing a new set of accountants and hopes to have restated accounts made public in the near future. A fast response is required to restore confidence.

Obama’s response is a Keynesian one: operating contrary to the downward market; the new US government will borrow and invest in the infrastructure to limit unemployment, welfare payments and try and create real growth in the economy. The other side of this approach is the need to reduce public spending, repay government debt through a higher tax income through the good years.

In the in the 1990s in the UK Gordon Brown as Chancellor started off on this route by reducing debt as a percentage of national income from 45% down to 40% with the intention of reducing the level to 36.5% based on Gordon’s sustainable investment rule. As the table below shows below he allowed debt to grow in now what looks like the good years of 2003 through 2006 when he should have been retaining the level of UK debt well under 40%

1997 : 413,2 £ billion, i. e. 49,8 % of GDP (ONS)
1998 : 410,2 £ billion, i. e. 46,7 % of GDP (ONS)
1999 : 405,7 £ billion, i. e. 43,7 % of GDP (ONS)
2000 : 400,6 £ billion, i. e. 41,0 % of GDP (ONS)
2001 : 385,5 £ billion, i. e. 37,7 % of GDP (ONS)
2002 : 402,9 £ billion, i. e. 37,5 % of GDP (ONS)
2003 : 441,1 £ billion, i. e. 38,7 % of GDP (ONS)
2004 : 487,9 £ billion, i. e. 40,4 % of GDP (ONS)
2005 : 529,4 £ billion, i. e. 42,1 % of GDP (ONS)
2006 : 573,3 £ billion, i. e. 43,1 % of GDP (ONS)
2007 : 618,8 £ billion, i. e. 43,8 % of GDP (ONS)

Source: http://cluaran.free.fr/debt.html

Now in the depth of recession the UK has depleted coffers when we need to spend our way out of the recession. The additional borrowing or printing of sterling that may ensue will result in GBP staying at a lower level, below or around the level of the Euro. Transition to the Euro in the UK would be so much easier at parity however the UK does not look anywhere near meeting the 5 economic tests

This is unlikely to have much effect on the level of bank lending as banks will take the opportunity to wider the spread between the rate thay borrow at and the rate they lend at.

The 363 rule of banking, just got better: borrow at 3% , lend at 6%, golf course at 3 o’clock.

The pumping of government money into the banks has helped over the last 3 months as the spread between LIBOR and Bank of England rates has narrowed to 0.85% prior to yesterday moved.

I would expect LIBOR to creep down to about 2.5% and hence allow the bankers to be on the golf course by 14:30, which is very amiable given the dark winter evenings.

 

On my wedding I was given some beautiful Waterford Crystal glasses. I expect that these famous Irish and UK brands will be acquired, and the bulk of remaining 2700 jobs in Eire and the UK will be relocated further east leaving only some management and marketing functions on home turf.

Even though the company has transferred 75% of it operations overseas to Indonesia and Eastern Europe this was still not enough to escape the downturn in sales of its luxury product.

• UK FTSE 100 – down 31%
• USA Dow Jones - down 34%
• France CAC 40 – down 43%
• Germany DAX – down 40%
• Japan Nikkei – down 42% 
• China Shanghai  SSE 180 – down 65% 

Have we hit the bottom? Probably not.  But I think the markets will be higher by Jan 1, 2010.  The billions pumped in by national governments should be having some considerable effect by then.  

References

http://news.bbc.co.uk/2/hi/business/7805644.stm

http://uk.reuters.com/article/eurMktRpt/idUKLV62946620081231

http://finance.google.com/finance?q=SHA:000010

http://finance.google.com/finance?q=DAX