Wednesday, May 27, 2009
Tuesday, May 26, 2009
Barron's article
Elliott Wave Guru Sees Dark Days Ahead
By TIERNAN RAY | MORE ARTICLES BY AUTHOR
One of America's most famous market forecasters thinks that investors should play it safe with their investments.
ROBERT PRECHTER, THE market forecaster who told investors to sell their stocks weeks before the October 1987 crash, is back in the news.
Prechter, head of market-forecasting firm Elliot Wave International and author of several books, including Conquer the Crash (available from Amazon.com), has been quoted recently as saying that the current recession could last for a long time and even force stock markets back down to levels seen at the market bottom reached in March of this year.
Barron's caught up with Prechter by phone this week to understand the technical trading signs he looks at to draw conclusions about investor sentiment.
Barrons.com: You've said that today's recession represents a very deep and prolonged decline, akin to the 1929-1932 depression. What's your reason for viewing things as so dire?
Robert Prechter: My model is that naturally occurring waves of optimism and pessimism, which result from unconscious herding, are the driver of financial and macroeconomic trends. Upon rare occasion, waves of very large degree come to an end. In the financial realm, when people get more pessimistic, they sell stocks and curtail credit. They also take fewer risks in the realm of production, which causes the economy to contract. Taken together, these changes -- at very large degree -- portended a downward revaluation of the stock market, a deflation in credit and a depression.
Manager's Bio
[RobertPretcher]
Name: Robert Prechter
Age: 60
Title: President, Elliott Wave International
Education: BA, psychology, Yale
Hobbies: No hobbies anymore, just work all the time
Q: By what measure are you judging this pessimism?
A: Aside from price patterns per se, we track waves of social mood by way of psychological indicators. At large degree, we use things such as price/dividend, price/book and bond yield/stock yield ratios, mutual fund cash percentages, the number of investors bullish vs. bearish, credit spreads, savings rates, consumer sentiment, duration of optimism, and so on. From 1998 to 2007, these measures set records. P/E is still setting records. Optimism occurs at tops, and the more extreme the optimism, the bigger the degree of the top.
Q: Some observers allege that steps taken by President Roosevelt during the early part of the Great Depression ended up prolonging the depression. Will policy decisions being enacted now ameliorate or exacerbate the current decline?
A: Governments' policy decisions hamper and ruin economies all the time, but their meddling does not affect waves of social mood. On the contrary, waves of social mood generally spur governments to act. The 1929-1932 collapse caused the government to get restrictive and separate commercial and investment banks in 1933; this was after the bust it was designed to prevent was over. The 1990s boom caused government to get frisky and repeal the act in 1999; this was just as the boom it was designed to foster was ending. These policy decisions did not cause any changes in social mood, but the social mood trends predicted the character of the policy changes. Government herds, just like everyone else, but it is at the tail end of the herd, because it takes time for a consensus to develop so extensively that government has the public support to act.
Q: While the Federal Reserve's FOMC Wednesday said the slump will be worse than originally expected in the next three years, others are convinced that the "less bad" data points could lead to a recovery in the second half of this year.
A: Social actions result from social mood change. When we recognized a temporary low in pessimism in late February/early March, we were able to predict changes that would result: stocks would rally, credit spreads would narrow, housing sales would pick up, and authorities would take bows for effective "liquidity" and "stimulus" programs. If it goes high enough, a consensus will probably develop that the bear market and recession are behind us. Then it will be time for the next wave down.
Q: You've been quoted as suggesting people invest in Treasuries, considering them "safe cash proxies," but you've also said skeptical things about Treasuries given massive borrowing and the threat of deflation. Which is it?
A: It's a matter of short rates versus long. The best investment stance for conservative investors has been simple: safety. My primary recommendation is safe-cash equivalents. This means Treasury bills, Swiss money-market claims, some New Zealand bonds, some gold and some cash. There has been no change there. Cash has been good. Today you can buy twice the house, twice the stock shares and twice the gasoline that you could a short while ago.
But long term, Treasuries are different. After 28 years of rising prices for T-bonds, the Fed announced in December that it would buy them. Part of the downturn in prices relates to an anticipated pick-up in the economy, which should in fact occur for part of this year; part is due to hyperinflation fears, which I think are misplaced; and part is due to early fears of eventual government default, which I think are not misplaced. If government rates go up, bond investors will lose money, while we bill investors will make money, at least until it's time to bail out of government debt entirely.
Q: Do you prefer dollars to other currencies?
A: My position is that the dollar is the most inflated currency in the world, so it has the furthest to deflate. In other words, because it is so sick, it is the currency most likely to rise during the deflationary period as dollar-denominated IOUs collapse. Regardless, my currency mix includes what I consider to be very safe foreign debt and some gold. You have to realize that almost everyone loses in a deflation. The key is to lose a lot less than everyone else. Market opinions are one thing; safety is another.
Q: Your remarks as quoted in the press seem to refer essentially to the U.S. economy. What is your view of the rest of the world's economic prospects?
A: It's a developing global depression. Economies and societies are so closely entwined in the modern world that social mood is much more pervasively shared than it was centuries ago. So the world had a boom together, and it's having a bust together. The canary in the coal mine was Japan, which reached impossible-to-maintain extremes of debt and investment values a decade earlier than other countries did.
Q: So in spite of this market run-up, there's more misery ahead?
A: If you stay safe, it's the opposite.
By TIERNAN RAY | MORE ARTICLES BY AUTHOR
One of America's most famous market forecasters thinks that investors should play it safe with their investments.
ROBERT PRECHTER, THE market forecaster who told investors to sell their stocks weeks before the October 1987 crash, is back in the news.
Prechter, head of market-forecasting firm Elliot Wave International and author of several books, including Conquer the Crash (available from Amazon.com), has been quoted recently as saying that the current recession could last for a long time and even force stock markets back down to levels seen at the market bottom reached in March of this year.
Barron's caught up with Prechter by phone this week to understand the technical trading signs he looks at to draw conclusions about investor sentiment.
Barrons.com: You've said that today's recession represents a very deep and prolonged decline, akin to the 1929-1932 depression. What's your reason for viewing things as so dire?
Robert Prechter: My model is that naturally occurring waves of optimism and pessimism, which result from unconscious herding, are the driver of financial and macroeconomic trends. Upon rare occasion, waves of very large degree come to an end. In the financial realm, when people get more pessimistic, they sell stocks and curtail credit. They also take fewer risks in the realm of production, which causes the economy to contract. Taken together, these changes -- at very large degree -- portended a downward revaluation of the stock market, a deflation in credit and a depression.
Manager's Bio
[RobertPretcher]
Name: Robert Prechter
Age: 60
Title: President, Elliott Wave International
Education: BA, psychology, Yale
Hobbies: No hobbies anymore, just work all the time
Q: By what measure are you judging this pessimism?
A: Aside from price patterns per se, we track waves of social mood by way of psychological indicators. At large degree, we use things such as price/dividend, price/book and bond yield/stock yield ratios, mutual fund cash percentages, the number of investors bullish vs. bearish, credit spreads, savings rates, consumer sentiment, duration of optimism, and so on. From 1998 to 2007, these measures set records. P/E is still setting records. Optimism occurs at tops, and the more extreme the optimism, the bigger the degree of the top.
Q: Some observers allege that steps taken by President Roosevelt during the early part of the Great Depression ended up prolonging the depression. Will policy decisions being enacted now ameliorate or exacerbate the current decline?
A: Governments' policy decisions hamper and ruin economies all the time, but their meddling does not affect waves of social mood. On the contrary, waves of social mood generally spur governments to act. The 1929-1932 collapse caused the government to get restrictive and separate commercial and investment banks in 1933; this was after the bust it was designed to prevent was over. The 1990s boom caused government to get frisky and repeal the act in 1999; this was just as the boom it was designed to foster was ending. These policy decisions did not cause any changes in social mood, but the social mood trends predicted the character of the policy changes. Government herds, just like everyone else, but it is at the tail end of the herd, because it takes time for a consensus to develop so extensively that government has the public support to act.
Q: While the Federal Reserve's FOMC Wednesday said the slump will be worse than originally expected in the next three years, others are convinced that the "less bad" data points could lead to a recovery in the second half of this year.
A: Social actions result from social mood change. When we recognized a temporary low in pessimism in late February/early March, we were able to predict changes that would result: stocks would rally, credit spreads would narrow, housing sales would pick up, and authorities would take bows for effective "liquidity" and "stimulus" programs. If it goes high enough, a consensus will probably develop that the bear market and recession are behind us. Then it will be time for the next wave down.
Q: You've been quoted as suggesting people invest in Treasuries, considering them "safe cash proxies," but you've also said skeptical things about Treasuries given massive borrowing and the threat of deflation. Which is it?
A: It's a matter of short rates versus long. The best investment stance for conservative investors has been simple: safety. My primary recommendation is safe-cash equivalents. This means Treasury bills, Swiss money-market claims, some New Zealand bonds, some gold and some cash. There has been no change there. Cash has been good. Today you can buy twice the house, twice the stock shares and twice the gasoline that you could a short while ago.
But long term, Treasuries are different. After 28 years of rising prices for T-bonds, the Fed announced in December that it would buy them. Part of the downturn in prices relates to an anticipated pick-up in the economy, which should in fact occur for part of this year; part is due to hyperinflation fears, which I think are misplaced; and part is due to early fears of eventual government default, which I think are not misplaced. If government rates go up, bond investors will lose money, while we bill investors will make money, at least until it's time to bail out of government debt entirely.
Q: Do you prefer dollars to other currencies?
A: My position is that the dollar is the most inflated currency in the world, so it has the furthest to deflate. In other words, because it is so sick, it is the currency most likely to rise during the deflationary period as dollar-denominated IOUs collapse. Regardless, my currency mix includes what I consider to be very safe foreign debt and some gold. You have to realize that almost everyone loses in a deflation. The key is to lose a lot less than everyone else. Market opinions are one thing; safety is another.
Q: Your remarks as quoted in the press seem to refer essentially to the U.S. economy. What is your view of the rest of the world's economic prospects?
A: It's a developing global depression. Economies and societies are so closely entwined in the modern world that social mood is much more pervasively shared than it was centuries ago. So the world had a boom together, and it's having a bust together. The canary in the coal mine was Japan, which reached impossible-to-maintain extremes of debt and investment values a decade earlier than other countries did.
Q: So in spite of this market run-up, there's more misery ahead?
A: If you stay safe, it's the opposite.
Monday, May 18, 2009
List of blogs
I FOUND THIS LIST OF BLOGS ON SEEKING ALPHA.COM. I HAVE WRITTEN FOR SEEKING ALPHA IN THE PAST. THE LINKS DIDN'T COME THROUGH SO YOU CAN GO STRAIGHT TO THE WEB SITE.
http://seekingalpha.com/article/138174-my-favorite-financial-blogs
* 1440 Wall Street makes me feel as if I am in the middle of the world's financial capital (for the time being.) It has matured from a blog with insider chat into something much bigger since. Check out all tabs there.
* A Fistful of Euros compiles the best of European econ blogging with many contributors from all over the old continent.
* Across The Curve delivers all the highlights from fixed income information I need for my macro view.
* Aktien Trading Austria focuses on Austria's capital market. German language
* Austrian Economists came to my attention only today. As most believers in the Austrian school of economics they deliver a steady flow of out-of-the-box thinking that makes sense.
* Beat the Press is the checkpoint to see what MSM (main stream media) got wrong.
* Bonobo at Home is written by Spain-based Brit Edward Hugh who says the best starting point for his and his syndicated writers is Global Economy Does Matter which links to all his other regionalized econ blogs. Edward excels in delivering complete current write-ups of national economies without producing information overkill. Only thing I miss is a RSS feed that aggregates his multitude of said regional blogs. One of my top 5 blogs.
* Ueber-blogger Barry Ritholtz has been producing unchanged quality for years at The Big Picture but his style changed from truly big pictures to a more snippet-like form that is nevertheless a must read.
* Burning Our Money is an entertaining, sometimes quite frothy chronicle targeting how the UK government wastes its money.
* Calculated Risk (we'll all keep a memory of the late Tanta) has evolved from the best blog about the US housing bubble to discuss a wider field of issues. One thing stays the same: When in doubt about real estate, surf there.
* Capital Chronicle entertains with sarcastic general commentary.
* Capital Markets & Economic Analysis looks at markets from a technical and fundamental perspective.
* The Capital Spectator dives deeper into the issues day after day, focusing on markets and macro economics.
* Cassandra Does Tokyo makes me chuckle with every new post. One can feel that she has to tame her rightful cynicism.
* CommodityBullMarket focuses on the coming bull market in commodities and precious metals, a stance I fully agree with.
* Controlled Greed is devoted to investing in undervalued stocks on a fundamental basis.
* Culture of Life is the best female econ blogger, compiling all important news of the day in one brilliantly written post. Among my top 5.
* The Cunning Realist is written by a Republican fed up with the folly of all politicians.
* COTS Timer scrutinizes the commitment of traders statistics in futures markets.
* Democracy Now focuses on human rights violations and the uncountable wars around the world.
* Daily Kos is my daily dose of US Democrat's issues.
* DollarDaze shares my perspective that all paper currencies will devalue to zero and expects a major commodities bull.
* EclectEcon: Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities.
* Econbrowser by economists James D. Hamilton and Menzie Chinn, two of the better writers in their guild.
* Economist's View comments the issues of the day, including more links to the respective subject.
* Economic Dreams - Economic Nightmares is most skeptical about America's economic future.
* Econom Pic Data offers "darn nice economic eye-candy." Want a graph but are too lazy to do it yourself? It's highly likely Jake has done it there already.
* The European Citizen comments daily events in the European Union.
* European Tribune is a political blog dealing with issues in the European Union.
* Finance Trends Matter offers links of the day and critical opinion on the macro level.
* Finance Round Table aggregates the A-list of econ and finance blogs.
* Finance Professor reminds us that economics is fun and has a good link collection.
* Footnoted is an expert in reading the fine print in SEC filings.
* FSK's Guide to Reality gives contrarian in-depth information on issues we all consider indisputable axioms of capital markets. His posts will make you thinking.
* Gold Chat focuses on all precious metals issues and is not endorsed by the Australian mint where the author works.
* Mish's Global Economic Trends Analysis is very often the fastest instant and thorough analysis on the web concerning macro and corporate issues. One of my top 5 blogs.
* Gadling should be visited before you have any travel plans.
* Global Voices Online watches the global blogosphere. A nice distraction between all that macro and micro that is my usually daily diet.
* Indian Economy Blog is the best I found so far about India's stock market and other issues on the subcontinent.
* Jesse's Cafe Americain not only offers insightful commentary but also mouth-watering pics from the food there.
* Jim Rogers Blog is not written by the master himself but is a reliable source picking up all of Jim Rogers' media appearances and writings.
* Jr Deputy Accountant sees it all from the common sense perspective.
* Julien Frisch is a German blogger shooting up the ranks in the German blogger scene. He writes in English.
* Learn to Trade Futures is edited by my friend Duncan Robertson on the Isle of Skye. If you have no time to surf hundreds of web pages everyday, Duncan reliably produces a complete digest of today's news all year round.
* Luxist blogs on the finer things in a material life. In step with the economic reality there are far less million dollar mansions than in 2007, replaced now by more affordable luxuries in the 3, 4 and 5 figure range.
* macroblog, once the unofficial casual style Fed voice among bloggers is still excellent in explaining macroeconomic and Federal Reserve issues.
* Mahalanobis is the only other Austrian blogger handling serious economic issues.
* Marc Faber Blog is written by the critical and often contrarian investor himself. It came to my attention because he now also twitters (@marcfaber).
* Market Skeptics, discovered yesterday, is exactly that. Their post about Dubai's gold shows they browse for the right information destined to be major fundamental events.
* Market Ticker never fails to write about current market events in an informative, sometimes rude but always entertaining style. One of my top 5 blogs.
* Maverecon is my favorite of all blogs on the Financial Times website.
* Miscellaneous Economic Ramblings - the title says it all.
* The Mess that Greenspan Made often has the same ideas and the same cycles of creativity and productivity as I do. Cheers Tim.
* Mises Economics Blog is another must for Austrian economists.
* My 1st Million at 33 are the hands-on experiences of a guy's way to wealth.
* naked capitalism is certainly among my top 5 blogs, written by various authors with expert knowledge.
* Oil Drum brings you the global outlook and discussion about energy in the future.
* Oil Drum Europe offers valuable information on - you guess what - oil and energy of course.
* Paper Economy is skeptical about the duration of the current crisis. Will it be longer than we all think?
* Past Peak takes a close look on oil (reserves) and has a daily joke as well.
* Peter Pilz is a green Austrian politician uncovering corruption affairs and other crimes done by politicians and officials. German language only.
* Price of Everything has smart economic commentary written by Tim Price who could also make his money as a comedian once the economic apocalypse engulfs us all.
* ProBlogger offers advice how to grow the readership of your blog and make money from it.
* Purple Slinky is another welcome distraction from markets.
* Robert Reich's Blog is the former 22nd Secretary of Labor and is a professor at the University of California at Berkeley. This is his personal diary on economics.
* Russian Stock Market Blog is the source for news about said subject.
* Seeking Alpha is the leading source for serious econ bloggers. I am proud to be one of their contributors.
* Simoleon Sense covers psychological aspects and other little known valuable knowledge for investors. He also has daily linkfests one should not miss out on, leading to more interesting articles concerning investing.
* Skeptical Speculator never tires. Reliable source for the global economic indicators of the day.
* Today in Silver focuses on events in the silver sector which is still neglected by most investors but may have a golden future.
* Troy Ounce: I have never seen somebody becoming a good writer in a matter of days until I found this blog.
* Truck and Barter has more thinking out-of-the-box.
* Unbiased Trading is an excellent source for technical analysis.
* Vox is full research-based policy analysis and commentary from leading economists.
* Washington's Blog is a good alternative to MSM.
* When Giants Fall written by best-selling author Michael Panzner is about the most pessimistic blog I have come across. This does not mean that he is wrong with his pessimism.
* World2Come provides an outlook into the future on very many issues.
* Your New Reality publishes those interesting stories and picture that cannot be found in MSM.
* Zerohedge: I marvel how one person can do so many detailed posts in one day. One of my top 5 blogs.
http://seekingalpha.com/article/138174-my-favorite-financial-blogs
* 1440 Wall Street makes me feel as if I am in the middle of the world's financial capital (for the time being.) It has matured from a blog with insider chat into something much bigger since. Check out all tabs there.
* A Fistful of Euros compiles the best of European econ blogging with many contributors from all over the old continent.
* Across The Curve delivers all the highlights from fixed income information I need for my macro view.
* Aktien Trading Austria focuses on Austria's capital market. German language
* Austrian Economists came to my attention only today. As most believers in the Austrian school of economics they deliver a steady flow of out-of-the-box thinking that makes sense.
* Beat the Press is the checkpoint to see what MSM (main stream media) got wrong.
* Bonobo at Home is written by Spain-based Brit Edward Hugh who says the best starting point for his and his syndicated writers is Global Economy Does Matter which links to all his other regionalized econ blogs. Edward excels in delivering complete current write-ups of national economies without producing information overkill. Only thing I miss is a RSS feed that aggregates his multitude of said regional blogs. One of my top 5 blogs.
* Ueber-blogger Barry Ritholtz has been producing unchanged quality for years at The Big Picture but his style changed from truly big pictures to a more snippet-like form that is nevertheless a must read.
* Burning Our Money is an entertaining, sometimes quite frothy chronicle targeting how the UK government wastes its money.
* Calculated Risk (we'll all keep a memory of the late Tanta) has evolved from the best blog about the US housing bubble to discuss a wider field of issues. One thing stays the same: When in doubt about real estate, surf there.
* Capital Chronicle entertains with sarcastic general commentary.
* Capital Markets & Economic Analysis looks at markets from a technical and fundamental perspective.
* The Capital Spectator dives deeper into the issues day after day, focusing on markets and macro economics.
* Cassandra Does Tokyo makes me chuckle with every new post. One can feel that she has to tame her rightful cynicism.
* CommodityBullMarket focuses on the coming bull market in commodities and precious metals, a stance I fully agree with.
* Controlled Greed is devoted to investing in undervalued stocks on a fundamental basis.
* Culture of Life is the best female econ blogger, compiling all important news of the day in one brilliantly written post. Among my top 5.
* The Cunning Realist is written by a Republican fed up with the folly of all politicians.
* COTS Timer scrutinizes the commitment of traders statistics in futures markets.
* Democracy Now focuses on human rights violations and the uncountable wars around the world.
* Daily Kos is my daily dose of US Democrat's issues.
* DollarDaze shares my perspective that all paper currencies will devalue to zero and expects a major commodities bull.
* EclectEcon: Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities.
* Econbrowser by economists James D. Hamilton and Menzie Chinn, two of the better writers in their guild.
* Economist's View comments the issues of the day, including more links to the respective subject.
* Economic Dreams - Economic Nightmares is most skeptical about America's economic future.
* Econom Pic Data offers "darn nice economic eye-candy." Want a graph but are too lazy to do it yourself? It's highly likely Jake has done it there already.
* The European Citizen comments daily events in the European Union.
* European Tribune is a political blog dealing with issues in the European Union.
* Finance Trends Matter offers links of the day and critical opinion on the macro level.
* Finance Round Table aggregates the A-list of econ and finance blogs.
* Finance Professor reminds us that economics is fun and has a good link collection.
* Footnoted is an expert in reading the fine print in SEC filings.
* FSK's Guide to Reality gives contrarian in-depth information on issues we all consider indisputable axioms of capital markets. His posts will make you thinking.
* Gold Chat focuses on all precious metals issues and is not endorsed by the Australian mint where the author works.
* Mish's Global Economic Trends Analysis is very often the fastest instant and thorough analysis on the web concerning macro and corporate issues. One of my top 5 blogs.
* Gadling should be visited before you have any travel plans.
* Global Voices Online watches the global blogosphere. A nice distraction between all that macro and micro that is my usually daily diet.
* Indian Economy Blog is the best I found so far about India's stock market and other issues on the subcontinent.
* Jesse's Cafe Americain not only offers insightful commentary but also mouth-watering pics from the food there.
* Jim Rogers Blog is not written by the master himself but is a reliable source picking up all of Jim Rogers' media appearances and writings.
* Jr Deputy Accountant sees it all from the common sense perspective.
* Julien Frisch is a German blogger shooting up the ranks in the German blogger scene. He writes in English.
* Learn to Trade Futures is edited by my friend Duncan Robertson on the Isle of Skye. If you have no time to surf hundreds of web pages everyday, Duncan reliably produces a complete digest of today's news all year round.
* Luxist blogs on the finer things in a material life. In step with the economic reality there are far less million dollar mansions than in 2007, replaced now by more affordable luxuries in the 3, 4 and 5 figure range.
* macroblog, once the unofficial casual style Fed voice among bloggers is still excellent in explaining macroeconomic and Federal Reserve issues.
* Mahalanobis is the only other Austrian blogger handling serious economic issues.
* Marc Faber Blog is written by the critical and often contrarian investor himself. It came to my attention because he now also twitters (@marcfaber).
* Market Skeptics, discovered yesterday, is exactly that. Their post about Dubai's gold shows they browse for the right information destined to be major fundamental events.
* Market Ticker never fails to write about current market events in an informative, sometimes rude but always entertaining style. One of my top 5 blogs.
* Maverecon is my favorite of all blogs on the Financial Times website.
* Miscellaneous Economic Ramblings - the title says it all.
* The Mess that Greenspan Made often has the same ideas and the same cycles of creativity and productivity as I do. Cheers Tim.
* Mises Economics Blog is another must for Austrian economists.
* My 1st Million at 33 are the hands-on experiences of a guy's way to wealth.
* naked capitalism is certainly among my top 5 blogs, written by various authors with expert knowledge.
* Oil Drum brings you the global outlook and discussion about energy in the future.
* Oil Drum Europe offers valuable information on - you guess what - oil and energy of course.
* Paper Economy is skeptical about the duration of the current crisis. Will it be longer than we all think?
* Past Peak takes a close look on oil (reserves) and has a daily joke as well.
* Peter Pilz is a green Austrian politician uncovering corruption affairs and other crimes done by politicians and officials. German language only.
* Price of Everything has smart economic commentary written by Tim Price who could also make his money as a comedian once the economic apocalypse engulfs us all.
* ProBlogger offers advice how to grow the readership of your blog and make money from it.
* Purple Slinky is another welcome distraction from markets.
* Robert Reich's Blog is the former 22nd Secretary of Labor and is a professor at the University of California at Berkeley. This is his personal diary on economics.
* Russian Stock Market Blog is the source for news about said subject.
* Seeking Alpha is the leading source for serious econ bloggers. I am proud to be one of their contributors.
* Simoleon Sense covers psychological aspects and other little known valuable knowledge for investors. He also has daily linkfests one should not miss out on, leading to more interesting articles concerning investing.
* Skeptical Speculator never tires. Reliable source for the global economic indicators of the day.
* Today in Silver focuses on events in the silver sector which is still neglected by most investors but may have a golden future.
* Troy Ounce: I have never seen somebody becoming a good writer in a matter of days until I found this blog.
* Truck and Barter has more thinking out-of-the-box.
* Unbiased Trading is an excellent source for technical analysis.
* Vox is full research-based policy analysis and commentary from leading economists.
* Washington's Blog is a good alternative to MSM.
* When Giants Fall written by best-selling author Michael Panzner is about the most pessimistic blog I have come across. This does not mean that he is wrong with his pessimism.
* World2Come provides an outlook into the future on very many issues.
* Your New Reality publishes those interesting stories and picture that cannot be found in MSM.
* Zerohedge: I marvel how one person can do so many detailed posts in one day. One of my top 5 blogs.
Friday, May 15, 2009
Comments from Guild Investments
Guild Investment Global Market Commentary
Written: May 15, 2009
Forward to a Friend Join our mailing list
I just returned from traveling, and upon returning was thrilled to hear of the following announcements on Wednesday May, 13th.
REGULATION OF OTC DERIVATIVES IS NEARER---A GLIMMER OF GOOD NEWS
The U.S. Treasury Secretary announced that all over-the-counter (OTC) derivative settlements need to take place in a clearing house, and dealers must meet minimum capital requirements. Regulating derivatives is a good start toward avoiding another financial system meltdown such as the one we have been experiencing; however there are lasting effects of the current melt down that must still be addressed.
The reason that so many derivatives were written, is because they were structured in a way that was extremely profitable for the seller. We will wait to see if Congress (which receives way too much funding from major financial institutions) will go for the controls on the financial institutions' most profitable products. If congress has the fortitude to regulate derivatives, it could be the start of a new era of more responsible banking. Let us hope for the best, but prepare for a politically expedient solution.
From: Telegraph.co.uk
Geithner seeking to bring derivatives market under regulation
U.S. Treasury Secretary Tim Geithner is attempting to bring the $450 trillion (£299 trillion) over-the-counter derivatives market - in part blamed for last Autumn's financial meltdown - in to the regulatory fold for the first time.
May 13, 2009
By James Quinn
In his first major revision of the US financial regulatory handbook, Mr Geithner has proposed a series of new guidelines aimed at preventing derivatives from again posing a risk that might threaten the entire financial system.
Derivatives including credit default swaps - sophisticated financial insurance products - have been blamed for exacerbating the fall-out at companies like American International Group and Lehman Brothers at the height of the credit crisis.
Such financial products have previously fallen through regulatory gaps because 90pc of them tend to be traded "over-the-counter", directly between institutions rather than through a recognised exchange.
Financial regulators including the Securities and Exchange Commission and the Commodities and Futures Trading Commission are backing Mr Geithner's proposal. He says that all over-the-counter derivatives should be cleared through regulated central counter-parties.
In addition, dealers in derivatives should be subjected to prudential supervision and regulation, and should be transparent and meet certain capital requirements.
Prices of derivatives trades will be made available on centralised computer platforms, Mr Geithner said.
His push is part of an effort to strengthen regulation in the financial markets in the wake of the credit crisis, and to increase transparency at the same time.
Unfortunately, one cannot go back and retroactively make everything correct, reversing all of the idiocy which created the current problems. So, we expect the policies of using big government spending and bailouts to continue, as this is the only alternative to deal with the derivatives which have already irreversibly melted down.
The government will have to finance these bailouts. Part of the solution may be to make the banks, which are owned partly by the government, buy the government's bonds. They may also require the pension funds of these bailed out companies to buy government bonds. Both of these will happen, but the big buyer of debt to cover the $2 trillion deficit this year and all of the huge deficits in coming years will be the U.S. government.
The Federal Reserve is committed to buying bonds. Initially interest rates fall, but the eventual long term effects will be a lower U.S. dollar, and a bond market with higher interest rates.
THE U.S. DOLLAR HAS BEGUN TO DECLINE
The U.S. dollar has fallen by about 8% from its highs, after rising by over 25% from its lows in 2008. All of this has taken place, as the balance sheet and fiscal future of the United States has deteriorated greatly over the same time frame. We remain amazed that the dollar was able to rally so much. We believe that the dollar's rise has been a function of the relatively unattractive nature of the major alternatives, the Euro and the Yen, and generalized fear which caused the uninformed to fly to the incorrectly perceived safety of the U.S. dollar.
U.S. Dollar Index -last 2 years
U.S. Dollar Index 041509
We continue to expect that the dollar has much farther to fall and recommend that all of those readers who think in terms of currencies other than the U.S. dollar exercise caution and avoid the U.S. currency.
We plan to hold foreign currencies for the cash balances of our clients, due to our pessimism about the long term future of the dollar. Our favorite currencies continue to be Canadian, Australian, Norwegian, and the Euro.
Australian Dollar versus U.S. dollar - last 2 years
AUD vs. USD 051509
Canadian Dollar - last 2 years
CAD vs USD 051509
PAKISTAN
As the news is constantly telling us, Pakistan is undergoing a fight for its survival as a secular state. We are skeptical about these reports, for according to our sources much of Pakistan is already under the control of the Taliban, and in most of the rest of Pakistan, the Taliban has an important presence. Pakistan has long been operating in a feudal manner where the rich and well connected have controlled most of the land and have rented it to landless farmers.
Education for all but the top classes has been neglected. As a result huge resentments have been formed, and the country is paying the price for this. In our opinion, Pakistan has already fallen under the influence of non-productive influences, and the U.S. is once again paying the price for supporting regimes who have no interest in bettering the quality of live of the local people. In our opinion, the U.S. and its allies should focus much more attention on India to stabilize the South Asian and eastern Mid East regions. India has shown itself to be an economically viable and responsible country and one that is moving toward a larger role in international affairs.
SUMMARY
Many technical analysts are calling for the demise of the current stock market rally. All of the capital raising by banks and other companies ($21 billion in newly issued shares were raised in the week between May 7 and May 14 2009) has caused a decline in the U.S. market this past week. We will wait to see what happens, but if new share issuance slows down, the U.S. market rally could resume its two month rally.
Many investors are bearish on the market due to this being the historically weak season for stocks; "sell in May and go away" is an old stock market axiom. The conventional wisdom is calling for a correction. The fact is that the market is about even on the year, after falling heavily in the first two months of 2009.
On the other hand, the economic backdrop is gradually improving, and the stock and currency markets are responding more to rationality, and less to fear, hence the falling value of the U.S. dollar. If we can assume that fear is receding, and that rationality is returning, we can assume that markets will be more rational about stock and currency valuations.
In our mind the Japanese, European and U.S. markets have a mediocre long term future, while many other markets are more attractive. This does not mean we will not own stocks in the U.S., Europe, or Japan. It just means that we will have to be very selective to buy only those with truly visible earnings growth.
In other parts of the world, India and China especially, the economies are growing fast, yet stock prices do not reflect the rapid economic growth, which has continued during the economic upheaval of the last year and a half...and is expected to continue uninterrupted for some time.
While it is true that some companies and industries are doing poorly in Europe, Japan and North America, other companies and industries continue to grow nicely. We see opportunity in many areas, especially in energy, precious metals, agriculture related, India, China, and currencies other than the U.S. dollar.
Thanks for listening.
Written: May 15, 2009
Forward to a Friend Join our mailing list
I just returned from traveling, and upon returning was thrilled to hear of the following announcements on Wednesday May, 13th.
REGULATION OF OTC DERIVATIVES IS NEARER---A GLIMMER OF GOOD NEWS
The U.S. Treasury Secretary announced that all over-the-counter (OTC) derivative settlements need to take place in a clearing house, and dealers must meet minimum capital requirements. Regulating derivatives is a good start toward avoiding another financial system meltdown such as the one we have been experiencing; however there are lasting effects of the current melt down that must still be addressed.
The reason that so many derivatives were written, is because they were structured in a way that was extremely profitable for the seller. We will wait to see if Congress (which receives way too much funding from major financial institutions) will go for the controls on the financial institutions' most profitable products. If congress has the fortitude to regulate derivatives, it could be the start of a new era of more responsible banking. Let us hope for the best, but prepare for a politically expedient solution.
From: Telegraph.co.uk
Geithner seeking to bring derivatives market under regulation
U.S. Treasury Secretary Tim Geithner is attempting to bring the $450 trillion (£299 trillion) over-the-counter derivatives market - in part blamed for last Autumn's financial meltdown - in to the regulatory fold for the first time.
May 13, 2009
By James Quinn
In his first major revision of the US financial regulatory handbook, Mr Geithner has proposed a series of new guidelines aimed at preventing derivatives from again posing a risk that might threaten the entire financial system.
Derivatives including credit default swaps - sophisticated financial insurance products - have been blamed for exacerbating the fall-out at companies like American International Group and Lehman Brothers at the height of the credit crisis.
Such financial products have previously fallen through regulatory gaps because 90pc of them tend to be traded "over-the-counter", directly between institutions rather than through a recognised exchange.
Financial regulators including the Securities and Exchange Commission and the Commodities and Futures Trading Commission are backing Mr Geithner's proposal. He says that all over-the-counter derivatives should be cleared through regulated central counter-parties.
In addition, dealers in derivatives should be subjected to prudential supervision and regulation, and should be transparent and meet certain capital requirements.
Prices of derivatives trades will be made available on centralised computer platforms, Mr Geithner said.
His push is part of an effort to strengthen regulation in the financial markets in the wake of the credit crisis, and to increase transparency at the same time.
Unfortunately, one cannot go back and retroactively make everything correct, reversing all of the idiocy which created the current problems. So, we expect the policies of using big government spending and bailouts to continue, as this is the only alternative to deal with the derivatives which have already irreversibly melted down.
The government will have to finance these bailouts. Part of the solution may be to make the banks, which are owned partly by the government, buy the government's bonds. They may also require the pension funds of these bailed out companies to buy government bonds. Both of these will happen, but the big buyer of debt to cover the $2 trillion deficit this year and all of the huge deficits in coming years will be the U.S. government.
The Federal Reserve is committed to buying bonds. Initially interest rates fall, but the eventual long term effects will be a lower U.S. dollar, and a bond market with higher interest rates.
THE U.S. DOLLAR HAS BEGUN TO DECLINE
The U.S. dollar has fallen by about 8% from its highs, after rising by over 25% from its lows in 2008. All of this has taken place, as the balance sheet and fiscal future of the United States has deteriorated greatly over the same time frame. We remain amazed that the dollar was able to rally so much. We believe that the dollar's rise has been a function of the relatively unattractive nature of the major alternatives, the Euro and the Yen, and generalized fear which caused the uninformed to fly to the incorrectly perceived safety of the U.S. dollar.
U.S. Dollar Index -last 2 years
U.S. Dollar Index 041509
We continue to expect that the dollar has much farther to fall and recommend that all of those readers who think in terms of currencies other than the U.S. dollar exercise caution and avoid the U.S. currency.
We plan to hold foreign currencies for the cash balances of our clients, due to our pessimism about the long term future of the dollar. Our favorite currencies continue to be Canadian, Australian, Norwegian, and the Euro.
Australian Dollar versus U.S. dollar - last 2 years
AUD vs. USD 051509
Canadian Dollar - last 2 years
CAD vs USD 051509
PAKISTAN
As the news is constantly telling us, Pakistan is undergoing a fight for its survival as a secular state. We are skeptical about these reports, for according to our sources much of Pakistan is already under the control of the Taliban, and in most of the rest of Pakistan, the Taliban has an important presence. Pakistan has long been operating in a feudal manner where the rich and well connected have controlled most of the land and have rented it to landless farmers.
Education for all but the top classes has been neglected. As a result huge resentments have been formed, and the country is paying the price for this. In our opinion, Pakistan has already fallen under the influence of non-productive influences, and the U.S. is once again paying the price for supporting regimes who have no interest in bettering the quality of live of the local people. In our opinion, the U.S. and its allies should focus much more attention on India to stabilize the South Asian and eastern Mid East regions. India has shown itself to be an economically viable and responsible country and one that is moving toward a larger role in international affairs.
SUMMARY
Many technical analysts are calling for the demise of the current stock market rally. All of the capital raising by banks and other companies ($21 billion in newly issued shares were raised in the week between May 7 and May 14 2009) has caused a decline in the U.S. market this past week. We will wait to see what happens, but if new share issuance slows down, the U.S. market rally could resume its two month rally.
Many investors are bearish on the market due to this being the historically weak season for stocks; "sell in May and go away" is an old stock market axiom. The conventional wisdom is calling for a correction. The fact is that the market is about even on the year, after falling heavily in the first two months of 2009.
On the other hand, the economic backdrop is gradually improving, and the stock and currency markets are responding more to rationality, and less to fear, hence the falling value of the U.S. dollar. If we can assume that fear is receding, and that rationality is returning, we can assume that markets will be more rational about stock and currency valuations.
In our mind the Japanese, European and U.S. markets have a mediocre long term future, while many other markets are more attractive. This does not mean we will not own stocks in the U.S., Europe, or Japan. It just means that we will have to be very selective to buy only those with truly visible earnings growth.
In other parts of the world, India and China especially, the economies are growing fast, yet stock prices do not reflect the rapid economic growth, which has continued during the economic upheaval of the last year and a half...and is expected to continue uninterrupted for some time.
While it is true that some companies and industries are doing poorly in Europe, Japan and North America, other companies and industries continue to grow nicely. We see opportunity in many areas, especially in energy, precious metals, agriculture related, India, China, and currencies other than the U.S. dollar.
Thanks for listening.
Tuesday, May 12, 2009
Wall Street Journal Editorial
THE BELOW EDITORIAL IS FROM A WELL KNOWN ATTORNEY WHO REPRESENTS CORPORATIONS IN HOSTILE TAKE OVERS. HE IS ANTI ANYTHING THAT IS SHAREHOLDER FRIENDLY AND EARNS HIS FEES FROM THE MANAGERS WHOM HE PROTECTS. LET ME BRIEFLY REFUTE HIS REMARKS.
1. IT WOULD BE WONDERFUL IF SHAREHOLDERS COULD VOTE ON EXECUTIVE PAY. AS IT STANDS,
MOST CORPORATIONS LET CEOS PUT THEIR BUDDIES ON THE COMPENSATION BOARD.
2. STAGGERED BOARDS MAKE IT IMPOSSIBLE TO THROW OUT THE BOARD ALL AT ONCE. IF ALL
BOARD MEMBERS ARE VOTED ON ANNUALLY, IT IS POSSIBLE TO REMOVE THEM.
3. THE LAWYER WHO WROTE THIS IS BLAMING THE CURRENT PROBLEMS ON EXCESSIVE SHAREHOLDER POWER. IT IS MANAGEMENT THAT BORROWED EXCESSIVE AMOUNTS OF MONEY, PAID THEMSELVES FAR TOO MUCH, AND PARTOOK IN "CREATIVE ACCOUNTING".
HALF OF THE PEOPLE READING THIS BLOG WON'T LIKE CHUCK SCHUMER. THAT'S OK. AS A PERSON WHO READS ANNUAL REPORTS, TALKS TO MANAGEMENT, AND GOES TO SHAREHOLDERS' MEETINGS, I CAN TELL YOU THAT MANAGEMENT HAS LITTLE INCENTIVE TO WORK WITH SHAREHOLDERS AND IS RETICENT IN TAKING ADVICE. THIS BILL IS A GOOD THING AND WILL PUT THE POWER BACK IN THE HANDS OF INDIVIDUAL INVESTORS, PENSIONS, AND MUTUAL FUNDS.
HOLMES OSBORNE
This week New York Sen. Chuck Schumer is expected to introduce the Shareholder Bill of Rights Act of 2009. The stated goal of the legislation -- "to prioritize the long-term health of firms and their shareholders" -- is commendable.
The trouble is that its provisions actually encourage the opposite. In its current form, the bill would require annual votes by stockholders on executive compensation. It would grant stockholders a new right to include their own director nominees in the corporation's proxy statement. The bill would put an end to staggered boards at all companies (the traditional option of electing one-third of the board each year). And it would require that all directors receive a majority of votes cast to be elected. Public companies would be forced to split the CEO and board chair positions.
Excessive stockholder power is precisely what caused the short-term fixation that led to the current financial crisis. As stockholder power increased over the last 20 years, our stock markets also became increasingly institutionalized. The real investors are mostly professional money managers who are focused on the short term.
It is these shareholders who pushed companies to generate returns at levels that were not sustainable. They also made sure high returns were tied to management compensation. The pressure to produce unrealistic profit fueled increased risk-taking. And as the government relaxed checks on excessive risk-taking (or, at a minimum, didn't respond with increased prudential regulation), stockholder demands for ever higher returns grew still further. It was a vicious cycle.
Thoughtful observers of corporate governance have recognized the direct causal relationship between the financial meltdown and the short-term focus that drove reckless risk-taking.
One key observer, the International Corporate Governance Network, issued a statement about the global financial crisis on Nov. 10, 2008. It spelled out the problem of shareholder power: "[i]t is true that shareholders sometimes encouraged companies, including investment banks, to ramp up short-term returns through leverage." It further declared that "[i]nstitutional shareholders must recognize their responsibility to generate long term value on behalf of their beneficiaries, the savers and pensioners for whom they are ultimately working." It recommended that pension funds and others seeking to hire fund managers "should insist that fund managers put sufficient resources into governance that delivers long term value."
If government really wants to encourage stability and profitability, the Schumer bill must call for measures that would promote the long-term value perspective. Providing long-term shareholders a greater number of votes per share should become a permissible option. Quinquennial rather than annual or triennial elections of corporate board members should be considered. Institutions should discontinue the practice of compensating fund managers based on quarterly performance. And corporations should follow the lead of General Electric by discontinuing the practice of issuing quarterly earnings guidance.
The stockholder-centric view of the current Schumer bill simply cannot be the cure for the disease it spawned. Though the short-term focus benefited shareholders for a time, when the meltdown happened shareholders weren't the only people hit. Employees who devoted their lives to building stockholder value felt the pain acutely. Communities, suppliers and creditors -- indeed, the whole range of constituencies who support the creation and maintenance of stock value -- were impacted. They have a legitimate stake in this debate.
Let's use the opportunity for fresh thinking that this crisis presents and restore the ability of boards and managers to run America's companies for our long-term best interest. Hopefully, the astounding losses we have witnessed over the past months will steer us back to responsibility.
Messrs. Lipton and Mirvis are partners of the New York law firm Wachtell, Lipton, Rosen and Katz. Mr. Lorsch is a professor at Harvard Business School.
1. IT WOULD BE WONDERFUL IF SHAREHOLDERS COULD VOTE ON EXECUTIVE PAY. AS IT STANDS,
MOST CORPORATIONS LET CEOS PUT THEIR BUDDIES ON THE COMPENSATION BOARD.
2. STAGGERED BOARDS MAKE IT IMPOSSIBLE TO THROW OUT THE BOARD ALL AT ONCE. IF ALL
BOARD MEMBERS ARE VOTED ON ANNUALLY, IT IS POSSIBLE TO REMOVE THEM.
3. THE LAWYER WHO WROTE THIS IS BLAMING THE CURRENT PROBLEMS ON EXCESSIVE SHAREHOLDER POWER. IT IS MANAGEMENT THAT BORROWED EXCESSIVE AMOUNTS OF MONEY, PAID THEMSELVES FAR TOO MUCH, AND PARTOOK IN "CREATIVE ACCOUNTING".
HALF OF THE PEOPLE READING THIS BLOG WON'T LIKE CHUCK SCHUMER. THAT'S OK. AS A PERSON WHO READS ANNUAL REPORTS, TALKS TO MANAGEMENT, AND GOES TO SHAREHOLDERS' MEETINGS, I CAN TELL YOU THAT MANAGEMENT HAS LITTLE INCENTIVE TO WORK WITH SHAREHOLDERS AND IS RETICENT IN TAKING ADVICE. THIS BILL IS A GOOD THING AND WILL PUT THE POWER BACK IN THE HANDS OF INDIVIDUAL INVESTORS, PENSIONS, AND MUTUAL FUNDS.
HOLMES OSBORNE
This week New York Sen. Chuck Schumer is expected to introduce the Shareholder Bill of Rights Act of 2009. The stated goal of the legislation -- "to prioritize the long-term health of firms and their shareholders" -- is commendable.
The trouble is that its provisions actually encourage the opposite. In its current form, the bill would require annual votes by stockholders on executive compensation. It would grant stockholders a new right to include their own director nominees in the corporation's proxy statement. The bill would put an end to staggered boards at all companies (the traditional option of electing one-third of the board each year). And it would require that all directors receive a majority of votes cast to be elected. Public companies would be forced to split the CEO and board chair positions.
Excessive stockholder power is precisely what caused the short-term fixation that led to the current financial crisis. As stockholder power increased over the last 20 years, our stock markets also became increasingly institutionalized. The real investors are mostly professional money managers who are focused on the short term.
It is these shareholders who pushed companies to generate returns at levels that were not sustainable. They also made sure high returns were tied to management compensation. The pressure to produce unrealistic profit fueled increased risk-taking. And as the government relaxed checks on excessive risk-taking (or, at a minimum, didn't respond with increased prudential regulation), stockholder demands for ever higher returns grew still further. It was a vicious cycle.
Thoughtful observers of corporate governance have recognized the direct causal relationship between the financial meltdown and the short-term focus that drove reckless risk-taking.
One key observer, the International Corporate Governance Network, issued a statement about the global financial crisis on Nov. 10, 2008. It spelled out the problem of shareholder power: "[i]t is true that shareholders sometimes encouraged companies, including investment banks, to ramp up short-term returns through leverage." It further declared that "[i]nstitutional shareholders must recognize their responsibility to generate long term value on behalf of their beneficiaries, the savers and pensioners for whom they are ultimately working." It recommended that pension funds and others seeking to hire fund managers "should insist that fund managers put sufficient resources into governance that delivers long term value."
If government really wants to encourage stability and profitability, the Schumer bill must call for measures that would promote the long-term value perspective. Providing long-term shareholders a greater number of votes per share should become a permissible option. Quinquennial rather than annual or triennial elections of corporate board members should be considered. Institutions should discontinue the practice of compensating fund managers based on quarterly performance. And corporations should follow the lead of General Electric by discontinuing the practice of issuing quarterly earnings guidance.
The stockholder-centric view of the current Schumer bill simply cannot be the cure for the disease it spawned. Though the short-term focus benefited shareholders for a time, when the meltdown happened shareholders weren't the only people hit. Employees who devoted their lives to building stockholder value felt the pain acutely. Communities, suppliers and creditors -- indeed, the whole range of constituencies who support the creation and maintenance of stock value -- were impacted. They have a legitimate stake in this debate.
Let's use the opportunity for fresh thinking that this crisis presents and restore the ability of boards and managers to run America's companies for our long-term best interest. Hopefully, the astounding losses we have witnessed over the past months will steer us back to responsibility.
Messrs. Lipton and Mirvis are partners of the New York law firm Wachtell, Lipton, Rosen and Katz. Mr. Lorsch is a professor at Harvard Business School.
Friday, May 8, 2009
Wesco's Annual Shareholder Meeting (WSC)
May 08, 2009 | By Holmes Osborne
Warren Buffett's partner, Charlie Munger, spoke at the annual Wesco Financial (NYSE:WSC) shareholders' meeting. Wesco is 80.1% owned by Berkshire Hathaway (NYSE:BRK.A) and management doesn't believe in stock splits. Currently selling at close to $300 per share, Berkshire Hathaway would buy the rest of the company, but it never drops low enough due to investor interest. Munger said that the "cultists" have bid up the stock.
Wesco is the last stop for investors who go to Omaha to hear Buffett and Munger. Approximately 700 people were in attendance in Pasadena, CA. After the perfunctory business of the meeting, Munger spoke for about an hour on various subjects.
The first topic he addressed was the seriousness of the current global financial "mess". Out of step with mainstream media reports of recession, Munger said the current financial challenges are probably as severe as the Great Depression. He expressed support for the job the government is doing to get the economy back on track and he endorsed the nationalization of Fannie Mae and Freddie Mac. (For related reading, see Warren Buffett: The Road To Riches.)
Part of the problem that led to the financial catastrophe was the abuse of consumer credit. People who should have never been given credit cards or home loans were allowed to buy things they could not afford. Mortgage brokers rejoiced in "rooking borrowers with flim-flam tricks." Wall Street went crazy. And any way to earn money was rationalized.
Economic Situation
The regulatory apparatus was foolish. Some legislatures thought it was a good idea to lend to the poor. The Democrats wanted Fannie Mae and Freddie Mac to lend to everyone and to Republicans who "overdosed on Ayn Rand."
Munger advised his children never to buy an investment if the broker was paid a huge commission. Brokers would be enticed to sell "toxic sludge" if they earned a 9% commission.
In past speeches, he has railed against modern-day accounting. He said that both sides of a credit default swap would claim that they profited from a transaction. In accounting, that's impossible. But Alan Greenspan said that it was best for everyone.
The bank situation is complicated. Munger said that he is dubious of solvency tests. He doesn't like what is going to happen to Wells Fargo (NYSE:WFC). Berkshire and Wesco are long-time shareholders. He would give Wells Fargo a "flaming pass" on stress tests.
In regards to the long-term consequences of the economy on Wesco, there probably were none. Its businesses were gaining market share.
The Energy Opportunity
Munger spoke at length about global energy. In past meetings, he has said that he is not concerned about global warning and that society would learn to deal. A few years ago, he said that if water levels rose in Florida, people would merely move inland.
According to Munger, ethanol is one of the "stupidest" ideas ever. It causes a rise in food costs, which hurts the poor. Cap & trade is "insane". The Chinese "spew" out more hydrocarbons and won't stop. He is afraid we will use hydrocarbons too quickly. They are also important in the use of fertilizers.
What he is bullish on is solar and wind energy. According to Munger, Iowa gets 20% of its energy from wind. He said that people should listen to Freeman Dyson and not Al Gore. Freeman Dyson is a famous physicist who is skeptical of man's affect on global warming. (For more, see Go Green With Socially Responsible Investing.)
Long, Slow Road To Recovery
So how fast will the economic solution come? He harkened back to what Japan attempted. Deficit spending and 0% interest rates left the Japanese economy in stasis. Japan's stimulus was useless, requiring its government to fill the same pothole three times. Munger is a proponent of using the stimulus to fix the power grid, however.
As for stock prices, he thinks they will go up from this point. He said that Buffett's best year ever was during a recession. Stocks went up before the economy recovered. He is willing to buy stocks like Coca-Cola (NYSE:KO) and Wells Fargo for the longer term. (For more, see Warren Buffett's Bear Market Maneuvers.)
Banks that are too big to fail are boring and only should only do market making, stock brokering and stock issuance. Massive leverage is bad. We don't need credit default swaps. If you want to use leverage, use two-times leverage and do it in a hedge fund.
Our economy is like a huge poker game. It's not pretty to lure money away from others. We need to protect the body politic. Munger said that if you were at a country club and introduced your daughter's new fiancé and said that he is a hedge fund manager, you'd probably be embarrassed.
He ended his speech and opened up the floor to questions from reporters. In the past, the questions from the audience became stranger and stranger by the year. Munger said that journalists were smarter than the average hero, but poorer.
Bottom Line
Munger sticks to ethics and sound business practices. That's what he has spoken about at every shareholders' meeting. The stock hasn't done anything in ten years, but maybe 0% is good for a financial. He has been talking about the global economy's problems for years and, in 2008, his predictions came to fruition.
By Holmes Osborne
At the time of writing, Holmes Osborne did not own shares in any of the companies mentioned in this article.
Warren Buffett's partner, Charlie Munger, spoke at the annual Wesco Financial (NYSE:WSC) shareholders' meeting. Wesco is 80.1% owned by Berkshire Hathaway (NYSE:BRK.A) and management doesn't believe in stock splits. Currently selling at close to $300 per share, Berkshire Hathaway would buy the rest of the company, but it never drops low enough due to investor interest. Munger said that the "cultists" have bid up the stock.
Wesco is the last stop for investors who go to Omaha to hear Buffett and Munger. Approximately 700 people were in attendance in Pasadena, CA. After the perfunctory business of the meeting, Munger spoke for about an hour on various subjects.
The first topic he addressed was the seriousness of the current global financial "mess". Out of step with mainstream media reports of recession, Munger said the current financial challenges are probably as severe as the Great Depression. He expressed support for the job the government is doing to get the economy back on track and he endorsed the nationalization of Fannie Mae and Freddie Mac. (For related reading, see Warren Buffett: The Road To Riches.)
Part of the problem that led to the financial catastrophe was the abuse of consumer credit. People who should have never been given credit cards or home loans were allowed to buy things they could not afford. Mortgage brokers rejoiced in "rooking borrowers with flim-flam tricks." Wall Street went crazy. And any way to earn money was rationalized.
Economic Situation
The regulatory apparatus was foolish. Some legislatures thought it was a good idea to lend to the poor. The Democrats wanted Fannie Mae and Freddie Mac to lend to everyone and to Republicans who "overdosed on Ayn Rand."
Munger advised his children never to buy an investment if the broker was paid a huge commission. Brokers would be enticed to sell "toxic sludge" if they earned a 9% commission.
In past speeches, he has railed against modern-day accounting. He said that both sides of a credit default swap would claim that they profited from a transaction. In accounting, that's impossible. But Alan Greenspan said that it was best for everyone.
The bank situation is complicated. Munger said that he is dubious of solvency tests. He doesn't like what is going to happen to Wells Fargo (NYSE:WFC). Berkshire and Wesco are long-time shareholders. He would give Wells Fargo a "flaming pass" on stress tests.
In regards to the long-term consequences of the economy on Wesco, there probably were none. Its businesses were gaining market share.
The Energy Opportunity
Munger spoke at length about global energy. In past meetings, he has said that he is not concerned about global warning and that society would learn to deal. A few years ago, he said that if water levels rose in Florida, people would merely move inland.
According to Munger, ethanol is one of the "stupidest" ideas ever. It causes a rise in food costs, which hurts the poor. Cap & trade is "insane". The Chinese "spew" out more hydrocarbons and won't stop. He is afraid we will use hydrocarbons too quickly. They are also important in the use of fertilizers.
What he is bullish on is solar and wind energy. According to Munger, Iowa gets 20% of its energy from wind. He said that people should listen to Freeman Dyson and not Al Gore. Freeman Dyson is a famous physicist who is skeptical of man's affect on global warming. (For more, see Go Green With Socially Responsible Investing.)
Long, Slow Road To Recovery
So how fast will the economic solution come? He harkened back to what Japan attempted. Deficit spending and 0% interest rates left the Japanese economy in stasis. Japan's stimulus was useless, requiring its government to fill the same pothole three times. Munger is a proponent of using the stimulus to fix the power grid, however.
As for stock prices, he thinks they will go up from this point. He said that Buffett's best year ever was during a recession. Stocks went up before the economy recovered. He is willing to buy stocks like Coca-Cola (NYSE:KO) and Wells Fargo for the longer term. (For more, see Warren Buffett's Bear Market Maneuvers.)
Banks that are too big to fail are boring and only should only do market making, stock brokering and stock issuance. Massive leverage is bad. We don't need credit default swaps. If you want to use leverage, use two-times leverage and do it in a hedge fund.
Our economy is like a huge poker game. It's not pretty to lure money away from others. We need to protect the body politic. Munger said that if you were at a country club and introduced your daughter's new fiancé and said that he is a hedge fund manager, you'd probably be embarrassed.
He ended his speech and opened up the floor to questions from reporters. In the past, the questions from the audience became stranger and stranger by the year. Munger said that journalists were smarter than the average hero, but poorer.
Bottom Line
Munger sticks to ethics and sound business practices. That's what he has spoken about at every shareholders' meeting. The stock hasn't done anything in ten years, but maybe 0% is good for a financial. He has been talking about the global economy's problems for years and, in 2008, his predictions came to fruition.
By Holmes Osborne
At the time of writing, Holmes Osborne did not own shares in any of the companies mentioned in this article.
Gold sales cost Europe’s central banks $40bn
By Javier Blas in London
Published: May 6 2009 23:31 | Last updated: May 7 2009 08:55
Europe’s central banks are $40bn poorer than they might have been after they followed a British move taken 10 years ago on Thursday to shrink the Bank of England’s gold reserves, analysis by the Financial Times has shown.
London’s announcement on May 7 1999 that it would sell a large share of the Bank’s gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called “anti-gold” sentiment among European central banks.
GoldMany of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth around $280 an ounce, less than a third of its current level of more than $900.
European banks sold about 3,800 tonnes of gold, reaping about $56bn, according to calculations from official sales data and bullion prices.
Taking into account the likely returns from the investments in bonds, the banks have gained another $12bn. But because today’s gold prices are far higher, they are about $40bn poorer than if they had kept their reserves.
The biggest loser is the Swiss National Bank which sold 1,550 tonnes over the decade and at today’s gold prices is $19bn poorer, followed by the Bank of England, which is $5bn poorer.
The UK Treasury on Wednesday defended its decision to sell gold as a way to diversify reserves and cut risk. “As a result of the programme, a one-off reduction in risk of approximately 30 per cent was achieved,” it said. The Swiss National Bank declined to comment other than to say that it did not plan to sell more gold.
However, central bankers are confident that over the long run their move out of gold and into bonds will pay off and reduce the volatility of their portfolios, people familiar with their thinking said. Analysts also argue that because some banks had more than 90 per cent of their assets in gold, some disposals were warranted.
The proportion of European reserves held as gold remains extremely large even after years of sales, at an average of about 60 per cent, compared with the world average of 10.5 per cent.
After 10 years of steady sales, Europe’s gold sales are set to slow to their lowest levels since 1999, while central banks outside Europe have already become net buyers of gold. The US, the world’s biggest holder of gold, decided not to follow Europe’s move. Germany and Italy are the only two big European central banks which did not follow the UK, mostly because of domestic disputes about what to do with the proceeds.
Copyright The Financial Times Limited 2009
Published: May 6 2009 23:31 | Last updated: May 7 2009 08:55
Europe’s central banks are $40bn poorer than they might have been after they followed a British move taken 10 years ago on Thursday to shrink the Bank of England’s gold reserves, analysis by the Financial Times has shown.
London’s announcement on May 7 1999 that it would sell a large share of the Bank’s gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called “anti-gold” sentiment among European central banks.
GoldMany of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth around $280 an ounce, less than a third of its current level of more than $900.
European banks sold about 3,800 tonnes of gold, reaping about $56bn, according to calculations from official sales data and bullion prices.
Taking into account the likely returns from the investments in bonds, the banks have gained another $12bn. But because today’s gold prices are far higher, they are about $40bn poorer than if they had kept their reserves.
The biggest loser is the Swiss National Bank which sold 1,550 tonnes over the decade and at today’s gold prices is $19bn poorer, followed by the Bank of England, which is $5bn poorer.
The UK Treasury on Wednesday defended its decision to sell gold as a way to diversify reserves and cut risk. “As a result of the programme, a one-off reduction in risk of approximately 30 per cent was achieved,” it said. The Swiss National Bank declined to comment other than to say that it did not plan to sell more gold.
However, central bankers are confident that over the long run their move out of gold and into bonds will pay off and reduce the volatility of their portfolios, people familiar with their thinking said. Analysts also argue that because some banks had more than 90 per cent of their assets in gold, some disposals were warranted.
The proportion of European reserves held as gold remains extremely large even after years of sales, at an average of about 60 per cent, compared with the world average of 10.5 per cent.
After 10 years of steady sales, Europe’s gold sales are set to slow to their lowest levels since 1999, while central banks outside Europe have already become net buyers of gold. The US, the world’s biggest holder of gold, decided not to follow Europe’s move. Germany and Italy are the only two big European central banks which did not follow the UK, mostly because of domestic disputes about what to do with the proceeds.
Copyright The Financial Times Limited 2009
Subscribe to:
Posts (Atom)
