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Maybe, had Sir Fred Goodman retired two years ago when the price of Royal Bank of Scotland share was 705p and RBS was worth £65 billion, then a £650,00 year pension might have be understandable. At that point in time he had led the bank to a successful takeover of National Westminster Bank and pleased investors by increasing the share price by over 50% in his 8 years in charge. But that is not the case now.

Sir Fred Goodwin is responsible for the bad times at RBS as well as the good times

The share price stands at 24p and the bank is less than worthless. Sir Fred played a major role in the takeover of ABN Amro which resulted in a mountain of toxic debt and he should bear some financial responsibility for that failure. A trite apology will not suffice.

Instead his contract rewards him handsomely for his failure. It is an unreal universe where abject failure reaps such returns.

A Different Retirement Plan

I can imagine at alternative universe where instead of generous rewards a harsh punishment awaits…

Cast your mind back to the Mr Wolfgang, the 82 year old heckler who was detained under the Terrorism Act. If the Government can arrest one pensioner for shouting at a conference then surely then it can be applied to this new super-rich pensioner who brought a bank to its knees!

Quoting from the Terrorism Act

(1)In this Act “terrorism” means the use or threat of action where—
(a)the action falls within subsection (2),
(b)the use or threat is designed to influence the government or to intimidate the public or a section of the public, and
(c)the use or threat is made for the purpose of advancing a political, religious or ideological cause.

(2)Action falls within this subsection if it—
(a)involves serious violence against a person,
(b)involves serious damage to property,
(c)endangers a person’s life, other than that of the person committing the action,
(d)creates a serious risk to the health or safety of the public or a section of the public, or
(e)is designed seriously to interfere with or seriously to disrupt an electronic system.

In this harsher, punitive, alternative universe, then Sir Fred actions clearly fall into section 2b) of the Terrorism Act, where he has caused serious damage to the financial property of thousands of shareholders, employees and customers.

And as a terrorist under the Proceeds of Crime Act 2002, he can have his assets summarily seized without trial by the Assets Recovery Agency, now part of SOCA. That should bring in ten million or so, to help fund the toxic debt. He can also be stripped on his knighthood but what else? Is that enough punishment?

If only Dubya was still in power we could hand him over to the Americans for a spot of water-boarding. But that won’t wash with Obama. I have a British alternative that does not break the Geneva convention.

Instead of waterboarding in Iraq, we have surf-boarding in Scotland. Both are wet, cold and unpleasant. We can detain him at Coldingham Bay on the North Sea for 5 years without trial, with a daily regime of surf-boarding without a wetsuit. Fred and his missus can stay in a drafty B&B on a diet of fish suppers and deep fried Mars bars until the recession is over.

How will he pay for board and lodging? Well, I guess the taxpayers have to fork out for that. Unless of course, he gets a pension of £21,000 a year which is all that he would have recived if RBS had not been bailed out by the government.

Gordon Brown believes he may have saved the world last November with his global anti-recession package but it is time for him to step aside, and play Robin to Obama’s Batman to finish the job. [Sorry Gordon, it is back to being number two, which is where you perform best]

Let’s look at Obama’s plan which not only saves America first, and then the world, from economic depression, but from climate change, energy dependency on unreliable sources and air pollution. Not bad for the first week in the job!

On economic revival and energy dependency:

“We will commit ourselves to steady, focused, pragmatic pursuit of an America that is freed from our energy dependence, and empowered by a new energy economy that puts millions of our citizens to work.”

On climate change:

“My administration will not deny facts. We will be guided by them.”

On air pollution:

Obama signed a memorandum requiring the Environmental Protection Agency to reconsider an application (previously blocked by the Bush administration) by California to set more stringent auto emissions and fuel efficiency standards than required by federal law.

It looks like Obama is going to take on the delinquent USA motor industry and try and drag it into the 21st century.

GDP falls steeply by 1.5%

With today’s figures indicating that the Gross Domestic Product fell by 1.5% over the last three months coupled with the previous quarter’s drop of 0.6% meant that the UK is finally officially in recession after two quarters of negative growth.

Here is the breakdown

• Construction output – down by 1.1 per cent
• Total production output – down by 3.9 per cent
  • Manufacturing output – down 4.6 per cent compared with a 1.6 per cent decrease in the previous quarter. 
  • Mining and quarrying – down1.6 per cent 
  • Electricity, gas and water output – down 0.2 per cent
• Services output – down 1.0 per cent 
• Distribution, hotels and restaurants : down 2.4 per cent,
• Transport, storage and communication : down 2.0 per cent
• Business services and finance : down 0.5 per cent
• Government and other services output : down 0.5 per cent,
• Agriculture, forestry and fishing output : up 0.1 per cent 

It is difficult to see anything trending back up in the near term except perhaps government output as public spending is increased. Inevitably the private sector is going to suffer most contraction in trying to survive the credit crunch.

Economists do not expect recovery to start until 2010

Most economists expect the recession to last a further year at least, as it will take some time for the government’s measures to take effect.

Graeme Leach, chief economist at the Institute of Directors

We are well into the financial crisis but the economic crisis is only just beginning.

John Cridland, CBI Deputy Director-General

Looking ahead, we hope the impact of interest rate cuts, falling inflation, the fiscal stimulus and the Government’s recent measures to kick-start lending will have a stabilising effect later this year.

David Kern, chief economist at the British Chambers of Commerce

While the short-term outlook is dire, it is important not to drift into excessive despondency. The Government and MPC still have important weapons at their disposal, which they will undoubtedly deploy. The huge stimulus package that the new Obama administration plans to introduce could have beneficial global consequences.

 
So there is a view that the government is doing the right things to mitigate the length and depth of the recession.

Gordon Brown needs to apologise

The best that Gordon Brown can hope for, is to persuade us in 2010, that his good financial management meant we only had a recession whereas under a Conservative Government it would have been a depression. It is a hard sell and unlikely to work. Unless of course, he fesses up to having made some mistakes with public spending and apologises for that ridiculous ‘We will not return to the old boom and bust’ statement on 21st March 2007.

The other thing he could do is reach out to the Conservatives (Cameron and Clarke) and the Liberal Democrats (Clegg and Cable) to get cross party support for decisions that will impact the country for next three or four parliaments. Obama is doing likewise with the Republicans in the USA. Brown should follow his lead.

A day after the excellent quarterly results from Apple it was Microsoft turn. Although revenues were up 2% to $16.63 billion, net income was down 11% to $4.17 billion, which demonstrates a significant fall in profitability. This drives the need to reduce costs and has led to confirmation that 5000 jobs will be cut at Microsoft in the next 18 months

Why is Microsoft struggling in a market where Apple is thriving?

Product Lifecycles

I think a lot of this down to timing and their respective product lifecycles. Apple have the iPod, which is a mature product and cash cow, but also have the iPhone still at the growth stage.
Microsoft, on the other hand, have Windows 7 still at the introduction stage. The beta version is available for download right now but there is uncertainty as whether we will see a full release this year as Microsoft’s statement is that:

The specific release date will be determined once the company meets its quality bar for release

Don’t expect Steve Ballmer to be sipping champagne at the “quality bar” this year. Based on the product life cycle what you can expect is Apple to have a great 2009, with strong revenues from the iPhone, while Microsoft users like myself stick with Windows XP, eschew the poor performance of Vista and wait for Windows 7 with its promises of improved performance and an easier user interface with touch technology, speech recognition and the new “superbar”. {Maybe Microsoft execs are too focused on bars right now}

Technology is the way forward

In the 44th president’s inauguration speech, Barack Obama talked the key role of science and technology in rebuilding the USA.

“We will restore science to its rightful place and wield technology’s wonders to raise health care’s quality and lower its costs.”

The Big Apple

Bucking the trend of gloomy results, Apple posted results for the quarter ending December 2008 with a record profit of $1.61 billion on a record revenue of of $10.17 billion, a 5.6% rise on the same quarter last year.

Sales of the major product lines were all up in the quarter compared to last year

• MAC;s up 9% to 2.5 million
• iPods up 3% to over 22.7 million
• iPhones up 88% to 4.3 million

This is clearly where American companies can excel: great technology and great marketing   

GM (and Chrysler) need Genetic Modification – Blue Collars to turn Green

The challenge for the Obama government is enabling those technological and branding skills to be applied to its ailing, outdated car industry. A $50 billion handout of transition relief may be a necessary palliative measure but what is required is investment in greener cars combined with overriding the motor industry’s vested interest in combating air pollution. Basically Americans, like the rest of us, need to get used to driving cheaper, smaller, greener cars.

The deepening recession paves the way for a carrot and stick approach to greening the United States with the carrot being Obams’s plan to create five million ‘green-collar’ jobs in ten years.

Barclays and RBS share prices fell by 25% and 17% respectively today; Barclays from £1.30 to £0.98 and RBS from £0.418 to £0.347.

My wife indicated that the deeper plunge at Barclays was due to my departure from the group on Wednesday. She said that once the markets got hold of the news there was clearly panic, but I believe that might only be part of the reason. (Just kidding).

This evening, I found myself at Broadgate Circle, drinking champagne at the bridge of the boat-like, Corney and Barrow, overlooking the ice skating rink, safe from the icy winds in the warmth of the bar. It was a New Year’s drinks party with some colleagues and recent ex collegaues.

I was reminded of the scene of the band playing on the deck of the Titanic as the lifeboats were manned. The talk was not of jobs or markets (or icebergs) but of iPods, HDTVs, digitals cameras, holidays in warmer climes and new online businesses. The only recognition of the state of the current economic hardships was that we were drinking the cheapest champagne on offer, a Laurent Perrier Non Vintage at £46.96 a bottle (only £23.95 at anybooze.com. Well, at least we were doing our bit for the economy, spreading the wealth around

As I left, after a couple of hours of amiable chat, I drew my scarf more tightly around my neck. It is going to be a long cold winter.

In the UK, David Cameron set of an alternative to the consensus view of increased public investment and spending, in response to deepening downturn in the economy.

Is he a) enlightened? b) economically inept? c) partisan?

Let’s look at his proposals:
• Remove tax on savings up to the basic rate of 20%.
• Increase tax free allowances on savings for the retired.

Cameron the Enlightened

The problem that Cameron is trying to solve is that of the low returns to savers. It is generally recognized that giving people their own money back is a more effective way of growing the economy than large scale public investment so his proposal is encouraging in this respect.

Also Cameron’s proposal is cheap at this time because interests rate are so low. If you are getting a 2% return on your money, then the tax saving under Cameron’s plan is 0.4%. With the average saver having £10,000, that amounts to £40 a year or about £0.80 per week for the saver.

Cameron the Inept

This compares to the 2% reduction in Valued Added Tax ( a natonal sales tax). If the average person spends £75 a week on vatable items that this reduction will result in a £1.50 per week saving. So Brown’s proposal is on average about twice as effective as Cameron’s.

However, look at who is affected by the changes: the VAT savings proportionally help lower income families more while savings tax changes would benefit middle income more.

Cameron heavily criticised the VAT reductions but his proposals are even more ineffective.

Cameron the Partisan

The increase in tax allowances is really a give away to his supporters. It is targeted at the retired, middle income who are indeed suffering a fall in income as the returns.

The tax system already allows £7000 in tax free ISAs and through Post Office accounts, so the most substantial beneficiaries of his the proposed tax allowance increase would have savings of over £10,000.

However, now consider the scenario where interest rates resume normal levels of 6% as they must do in the next couple of years. The cost of the tax giveaway will be six fold what it is now and with the benefits going into the pockets of his supporters.

Conclusion

Savers will reap the just rewards of their savings but only once when we come out of recession.

Cameron does need to come up with alternative policies to the Labour Government but he needs to demonstrate he has some understanding of the economy and what is good for the country as a whole.

For example, he should agree with the current level of public investment but come up with a different set of priorities on that spending and propose putting in place a set of measures and controls to ensure the public is getting the best possible value for money for these initiatives. This would be a credible approach.

In the USA house prices fell around 6% this year, while the UK saw a much steeper decline of 16%.

House prices are expected to fall further as the recession deepens with higher unemployment and even tighter credit. Banks are building their capital reserves and hence levels of lending remain low.

We can expect the Bank of England to cut interest rates by 0.5% to 0.75% next Thursday. You will reap the benefits of this if you have a variable rate mortgage without an interest rate floor.