Investments

Readers of this blog will have noted my fascination with Warren Buffett and not least so lately in such dire times of market collapses and faltering economies.

I came across this brilliant article  on Fool.com (The Motley Fool  as they are known remains one of my favourite financial sites and blogs), written by Anand Chokkavelu who intelligently questions Mr Buffett’s decisions and investment sanity of late.

Here follows some of the highlights from the same article  which puts Buffett’s investment strategies and future in perspective :

Anand starts by asking provocative questions about Buffett’s acumen of late :

Has Warren Buffett just been lucky all these years? 

It feels like sacrilege, but in light of recent events, I have to ask the question. After all …

• His company, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), has reported $10 billion in writedowns on its equity put options — i.e., derivatives.
• His hefty positions in financial stocks, including Wells Fargo (NYSE: WFC), US Bancorp, and American Express (NYSE: AXP), have been absolutely throttled in this banking crisis.
• He loaded up on shares of oil titan ConocoPhillips at the height of the oil bubble last summer — a mistake for which he expresses regret in his letter to shareholders.

I’m not the only one questioning the Oracle of Omaha’s investing prowess. One of the ratings agencies took away Berkshire’s pristine AAA debt rating. The price of Berkshire credit-default swaps (which are basically insurance against Berkshire defaulting) is at levels more usually found with companies rated as junk. And finally, shares of Buffett’s holding company are trading at half of last fall’s prices.

Anand then goes on to ask the vital question of whether Buffett has just been extremely lucky through major risk-taking over the decades, or whether in fact he is sticking by his famous strategy that has made him one of the world’s most renowned investors and accumulators of capital :

Buffett’s entrance into derivatives, which he famously described as “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal,” might lead you to believe he’s both hypocritical and risk-happy.

After all, since he made that claim in 2002, Berkshire has participated in four types of derivatives contracts, including taking $4.9 billion to write $37.1 billion worth of equity put options.

Still, believe it or not, Buffett’s not being hypocritical, he’s not being overly risky, and he hasn’t made terrible deals.

Unlike many investors (and investment banks), he uses derivatives very carefully. In the equity puts, for example, Buffett has bet that stock markets in the U.S., Europe, and Japan won’t utterly collapse over the long term. He gets the $4.9 billion up front, and he has to pay up only if the markets are lower when the various contracts expire between 2019 and 2028. But under mark-to-market accounting, he has to record those bets as losses because of the short-term plunge of the worldwide stock markets.

Buffett prices and monitors each contract himself. There are certainly risks involved, but those risks aren’t as dramatic as they seem. In the case of the $37.1 billion in equity put exposure, world markets would have to fall to zero for Berkshire to pay out the full amount — and the markets have between a decade and two decades to make up the $10 billion in paper losses. In the meantime, Buffett gets to invest and grow the $4.9 billion in premiums.

OK so Anand concludes he is not lucky or especially risk prone considering market facts and history etc - but he then moves on to question his recorded bad investment decisions of 2008 which cost Berkshire Hathaway  billions :

The carnage so far this year has likely continued that drop in book value, but remember that investing in the stock of public companies is only one facet of Berkshire’s operations. It also includes the core insurance business (including GEICO and its reinsurance businesses), its other subsidiaries like its utilities and Dairy Queen, and Buffett’s aforementioned derivatives contracts.

Many of Buffett’s stock positions are much worse off than they were just months ago, but it’s worth noting that Berkshire’s own stock-price drop has more than priced in these missteps. Furthermore, Buffett has been doubted often in his nearly half-century at the helm of Berkshire Hathaway — you’ll recall the assertions during the tech bubble that Buffett’s investing style was obsolete — only to be proven right time and time again.

Even here Anand is Ok with what has happened and remains unconcerned about Buffett’s empire’s future on those grounds, however, he is concerned about two factors in Buffett’s portfolio - the first of these being his diversion into the reinsurance business :

The first is Berkshire’s reinsurance business. Quite simply, Buffett and his trusted associates are in the business of pricing catastrophic events, which feature “very large transactions, incredible speed of execution, and a willingness to quote on policies that leave others scratching their heads.”

Yes, Berkshire pools this risk and generates very attractive rates for it, but a few mistakes could blow the whole operation. Just like GE Capital has crippled General Electric (NYSE: GE), adverse events in Berkshire’s insurance operations could take down the whole conglomerate.

And the second hitting home even closer to many of us, namely Warren Buffett’s own mortality and undisputed role as head and brains of Berkshire Hathaway :

The second problem is that, contrary to the hype, Buffett is mortal. Even more so than Steve Jobs at Apple (Nasdaq: AAPL), Buffett is Berkshire Hathaway. It may not seem like it at these prices, but there is a considerable premium baked into Berkshire stock because he’s the one running it.

One of Anand’s conclusions to his article is not only that Buffett most likely remains the guru and oracle he has earned himself a name as, give and take, but that we as investors, private orinstitutional, must at all times question everything and everyone around us before we make major decisions investment wise, regardless of the status of the entity we are investing with (The Madoff scandal is another good example of that !) :

Buffett remains the greatest allocator of capital on this planet, and he’s getting some great opportunities thrown his way. Down-on-their-luck companies from Goldman Sachs (NYSE: GS) to GE to Harley-Davidson have sought his financial help and reputation, at very, very favorable terms.

There is plenty of risk in Berkshire stock, but at current prices, I believe that Berkshire Hathaway is worth the risk. In fact, the recent price drops convinced me to put my money where my mouth is — I recently bought Berkshire Hathaway stock.

Read the full article here - it is worth it.

Equity Investment, Investment Company, Investment Fund, Investment Management Financial crisis, investment crisis, risk-taking, Warren Buffet

The long-awted letter to his Berkshire Hathaway Shareholders was released yesterday by billionaire Warren Buffet and he admits to having had a very bad 2008 with record losses and share value drops.

He is also convinced that 2009 is out the window given the disastrous state of the US and global economies but beyond that he is hesitant to predict the future - at least the immediate future.

Let us take a look at what his investor letter contained and where Mr Buffet sees it all heading.

MarketWatch quotes  Buffet from his letter with regards to future predictions :

We’re certain, for example, that the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall,” Buffett wrote.

The article goes on to quote a brutally honest Buffett on his 2008 mistakes and bad investment choices and timings :

Buffett, known as the “Oracle of Omaha,” admitted to mistakes last year. “During 2008 I did some dumb things in investments,” he said. One such error, he said, was the purchase of a large amount of Conoco Phillips Inc. stock when oil and gas prices were nearing peak levels.

“I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year,” he said. “I still believe the odds are good that oil sells far higher in the future than the current $40-to-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.”

Buffett also said his acquisition of shares in two Irish banks have turned out badly — with losses of more than 89%.

On the positive side, the investor is pleased with buys totaling $14.5 million in fixed-income securities issued by General Electric Co.  and William Wrigley Co. “We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus.”

Equity Investment, Investment Company, Investment Fund, Investment Management, US Investments Berkshire Hathaway, ConocoPhillips, Hyper inflation, Investor news, US Economy, Warren Buffet

Mr. R. Allen Stanford

Just when the financial world is trying to come to grips with the unravelling Madoff financial scandal and Ponzi scheme, another major financial scandal is breaking ! This time also from The US in the form of Texas billionaire R. Allen Stanford whose Stanford Financial Group is now under close scrutiny by the SEC and they have now Mr Stanford and two other persons with major financial fraud to the amount of 8 billion US$.

Forbes.com reports :

Hoping to halt what it called “a fraud of shocking magnitude that has spread its tentacles throughout the world,” the Securities and Exchange Commissioncharged billionaire R. Allen Stanford and other executives at his massive financial services company, Stanford Financial Group, with operating a multibillion-dollar fraudulent investment scheme.

In a complaint filed early Tuesday in U.S. District Court in Dallas, the SEC alleged Antigua-based Stanford International Bank (SIB) fabricated investment returns in order to market and sell high-yielding certificates of deposits.

Certainly the method Mr Stanford and his partners went about their scheme has strong resemblances with Mr Madoff’s as the Forbes article highlights :

The complaint charged SIB with selling approximately $8 billion of CDs to investors by promising improbable and unsubstantiated interest rates.

The bank falsely claimed it was able to pay high interest rates because of its unique investment strategy, which allowed it to achieve double-digit returns on its investments for the past 15 years, according to the complaint.

Earlier Tuesday federal agents raided Stanford Financial Group’s offices in Houston. A sign hanging outside the office reads: “Now under management of a receiver.”

The SEC says it has frozen Stanford’s assets. He had no comment.

LA Times also looks  into Mr. Stanford’s “”unique investment strategy”" :

“Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, director of the SEC’s enforcement division. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

The SEC called Stanford’s promises of high-interest returns on his bank’s certificates “improbable and unsubstantiated.” The 25-page complaint filed in federal court in Dallas cast doubt on Stanford’s claims of a “unique investment strategy” that allowed the bank to achieve double-digit returns on its investments over the last 15 years.

The US investigation will most likely be complicated by the fact that Mr Stanford’s entity is domiciled in Antigua but that will not deter the SEC from pursuing the case according to LA Times :

It wasn’t immediately clear how much of the Stanford empire would be subject to the SEC action. Federal investigators raided his Houston offices and shut them down, but much of the financial services group is based abroad, primarily on the tiny Caribbean island of Antigua, part of the two-island country of Antigua & Barbuda.

Stanford Group is regulated and audited by the Financial Services Regulatory Commission of Antigua & Barbuda. Commission Chairman Leroy King told Reuters news service Tuesday that he hadn’t initiated any special probe of Stanford’s operations because the commission hadn’t received any complaints from island citizens.

“We have no credible information coming to us to say that they are not sound,” King said.

However, news agencies later reported a run on the Bank of Antigua, a Stanford entity that was not named in the SEC complaint.

Stanford’s whereabouts were unknown. He has homes in Texas, Antigua & Barbuda and the U.S. Virgin Islands. A duty officer for the U.S. Marshals Service declined to say whether a warrant had been issued for Stanford’s arrest or whether the billionaire had been taken into custody.

Stanford Financial Group has offices in 14 U.S. cities in addition to its operations in the Caribbean.

Neither Brian Bertsch, a spokesman for Stanford Group, nor Rose Romero, the SEC’s Fort Worth regional director, responded to The Times’ inquiries about what authority the U.S. financial watchdog might wield over Stanford’s foreign-based assets.

Ironically, Stanford Group issued a calming letter to its investors in December 2008 amidst the height of the Madoff scandal according to LA Times :

In December, Stanford Group initiated a monthly newsletter to investors to calm their concerns over world markets and the failure of Madoff’s alleged $50-billion Ponzi scheme.

“We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff’s investments,” Stanford’s 30,000 clients were told. “Just as the bank had no direct or indirect exposure to the securitized debt or subprime meltdown.”

Where this breaking scandal ends no one knows but the timing could not have been worse for the US and its struggling financial markets and scene with investor confidence already at an all-time low. This blog will monitor this case even though this one is a mere US$ 8 billion !

Equity Investment, Investment Company, Investment Fund, Investment Management, US Investments Madoff Scandal, Ponzi scheme, R. Allen Stanford, The Securities and Exchange Commission (SEC)

Dr Marc Faber

The renowned expert on economies’ & markets’ downfall, Dr Marc Faber, has recently made his views on the state of the world economies known in an interview with CNBC and he is not all that optimistic either :

The new bank bailouts are not likely to work because they are run by the same people who prolonged the economic agony by throwing money at weak companies rather than allowing them to fail and encouraging the strong ones, Marc Faber, the publisher of the Gloom, Doom and Boom Report, told CNBC Monday.

Britain threw its troubled banks another multi-billion pound lifeline Monday by allowing them to insure against steep losses and guaranteeing their debt, while an adviser for U.S. President Elect Barack Obama said the rest of the TART money will be used to clean out bad assets from the financial system.

“The financial crisis has occurred because of government interventions,” Faber told “Squawk Box Europe.”

It is not all bad news, however, says the man who dislikes bail-out packages :

“The contractions actually serve to build for the future growth, because the weak competitors are eliminated. If you support the weak competitors you essentially penalize the strong competitors and therefore I am very much against these bailout packages.”

Not surprisingly Faber predicts a tough 2009 with a possibility that the second half could prove even worse than the first half and he seems not to share some of the optimism expressed by many experts that the world economies and markets are set for a recovery in the 2nd half of 2009 :

Investors counting on the fact that stock prices are very low for long-term growth should bear in mind the Japan lesson, where prices are virtually at the same level they were in 1981, Faber noted.

Commodities may be a better play as some time, when the global economy picks up, prices will rise because investment in new exploration or mining has all but stopped, he said.

“I have shares in Asia, mining stock, exploration companies, physical gold,” Faber said.

“As far as currencies are concerned, I think the dollar is a disastrous currency but the others are even worse. I am leaning more towards the view that the dollar could strengthen even more.”

Watch and listen to the entire interview here

Asian Investments, Equity Investment, Gold Investment, How it all works, Investment opportunities Gold vs Equity, Marc Faber, US Dollar

Warren Buffett

Times are hard and the markets are down again. Investors are gripped by fear of what 2009 will bring after a disastrous 2008 and most have bearish outlooks for major economies and markets alike. US job figures as of yesterday, which revealed that 693,000 people lost their jobs in the run up to Christmas, are making economists now expect Friday’s payroll figures to show that more than 700,000 people lost their jobs last month.

Obama has recently described the US economy as “very sick” and predicts the situation to worsen in 2009 and most agree with him.

One person, however, seems to be having the time of his life (at least since the 1970s when he was very gung-ho as well in the midst of a major economic global crisis) : He is not surprisingly Warren Buffett, Billionaire investor and chairman & CEO of  Berkshire Hathaway.

The shares of Berkshire Hathaway may have dropped 32 percent in 2008, making it the worst performance in more than three decades, but Mr Buffett has remained positive and very aggressive which one of his famous quotes also underlines :

“I will tell you how to become rich. … Be fearful when others are greedy. Be greedy when others are fearful.”

Yes stocks are cheap right now after their dismal performance in 2008 year and hence Buffett would argue that they offer a great buying opportunity, but others remain sceptical and see further losses and drops in stock prices.

So is Warren Buffett right to be in a buoyant buying mood ?

This posts looks into what others have to say about this.

Jim Mueller of Fool.comis impressed with Buffett’s track record and his ability to spot a good buying opportunity on the back of dismal market conditions:

Of course, past performance is no guarantee of future returns, but take another look at that quote above. Then read this one, also from Buffett, from his 1990 letter to shareholders:

“The most common cause of low prices is pessimism — some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”

Were you one of those who checked the table above when I told you the date of that quote? The man knows what he’s talking about.

You demand proof? In October 1990, just as bearish sentiment was peaking at 48%, Buffett revealed that he had upped his position in Wells Fargo to just shy of 10% of the company. In the following 12 months, while the market returned a “mere” 29%, that one investment returned 123%. In the five years following that bearish peak, it returned 290% or 31.3% average per year! And that doesn’t even include the dividends. He still owns about 7% of the company.

Mueller  continues to emphasize that with today’s major bearish market and outlook, Buffett has yet again proven to be good to his word and started the year by buying major positions in integrated oil giant ConocoPhillips  and also upped his position in health-benefits manager WellPoint and he concludes on the same note:

Will those work out for him? Given his record, probably. However, the question you’ve got to ask yourself today isn’t “What is Warren doing?”

Rather, it’s “Am I going to be greedy?”

I hope you’ll answer “yes” to that question.

CNBC’s Alex Crippen has a story  on Morningstar StockInvestor and its editor Paul Larson who recently named Mr Buffett as their CEO of the year despite some rather controversial and bad timing decisions by Mr Buffett during the latter half of 2008 :

Morningstar StockInvestor editor Paul Larson recounts Buffett’s “perceived mistakes” of recent months, including Berkshire’s big put option contracts on stocks, investments in General Electric [GE  16.11    -0.75  (-4.45%)   ] and Goldman Sachs [GS  84.50    -4.21  (-4.75%)   ], and Buffett’s October call to buy U.S. stocks.  “With the market taking a sharp turn for the worse in late October and again in November, clearly the timing was not the best on these particular bullish actions.”

But, writes Larson, “We do not view these as any reason to lose confidence in Buffett’s abilities, either as an investor or corporate manager.”

He argues that worries about the option contracts are overblown and points out that even though the GE and Goldman warrants are underwater right now, Berkshire gets a 10 percent annual return on its $8 billion worth of preferred shares in the two companies, no matter what their common stocks do.

The article goes on to stress how impressed Larson is by Buffett’s gung-ho attitude and not least ability to steer Berkshire away from risky derivatives and excessive leverage :

“By practicing prudence and patience earlier in the decade, Berkshire was in a position to put large amounts of capital to work in 2008. In other words, rather than blowing its ammunition hunting squirrels a few years ago, Berkshire has been able to shoot the proverbial elephants now walking by.”

Morningstar’s bottom line:

“Beyond creating a company that treats common shareholders with the utmost fairness and respect, one needs only to look at the long-term value created at Berkshire Hathaway to see why Buffett deserves the award. Since taking the helm of the sleepy textile business 44 years ago and turning it into arguably the strongest conglomerate on the planet, Buffett and his managers have grown the book value per A share from $19 to just over $77,500, as of Sept. 30. This translates to a 20.7% annualized increase in book value since 1965, versus a mere 9.6% annualized return in the S&P 500 (including dividends) over the same time period.”

Seattle Times’ Hugh Son quotes  a senior investor for saying he does not believe that despite some recentquestionable investment decisions by Berkshire Hathaway that Mr Buffett has far from lost his magic touch:

“Buffett has the opportunity to do what he does best, which is acquire new companies at prices that have him licking his lips,” said Frank Betz, a partner at Carret Zane Capital Management, which holds Berkshire shares. “I don’t think Mr. Buffett is bummed out at all.”

This seems indeed to be the general sentiment of analysts and observers and despite his 78 years of age and a negative performance during 2008, one really should not write Buffett of as one of the most important and skilled investors of our time,  in fact it may be a very good idea to by into his Berkshire Hathaway now, that is if you can afford such a thing.

Finally, if you are interested to follow investment guru Warren Buffett here is a great site to bookmark - it also features all Buffett’s famous quotes in its headline so check it out - Warren Buffett Post

Equity Investment, Investment Company, Investment Management, Investment opportunities, US Investments Berkshire Hathaway, ConocoPhillips, Financial crisis, Stock markets, Warren Buffet

There is no denying that the otherwise supreme and untouchable Swiss Banking sector has suffered the worst blow to its name and status in 2008 where the Credit Crunch exposed clear cracks in the foundation of what the world perceived to the best and strongest, and most well-protected banking sector in the world.

This post looks into some of these cracks and tries to look ahead for Switzerland’s traditional flagship and main revenue earner.

Business Standard quotes Philipp Hildebrand, the vice-chairman of the Swiss National Bank’s governing board for saying that the recent liquidity injections into the Swiss banking sector, and notably the USD 60 billion aid package and deal with UBS, has had positive effects but warns that the crisis is far from over :

The liquidity situation at UBS, in particular, has stabilised, he said.

“Nevertheless, further losses cannot be ruled out in view of the difficult market conditions,” Hildebrand said.

“The situation remains serious, and the SNB will continue monitoring it closely together with the Swiss Federal Banking Commission and the Federal Department of Finance.”

The article continues to summarize the year for the two Swiss banking giants, UBS & Credit Suisse, and points out that even though Credit Suisse has fared better with smaller losses and write-offs than its big brother UBS, there are now signs that Credit Suisse too will be posting huge negative results in the comings quarters :

UBS, which posted billions of dollars in asset writedowns, was forced to accept a state rescue package in a bid to restore client confidence and stem asset withdrawals which reached a colossal 83.7 billion Swiss francs ($70.2 billion) in the third quarter.

Credit Suisse, Switzerland’s second biggest bank, has until now fared better than its peer UBS, with asset writedowns of about 12 billion Swiss francs.

But losses are beginning to pile up at the bank, with a warning of a 3.0 billion Swiss franc loss for the two months ending November following a 1.26 billion Swiss franc loss for the third quarter.

New York Timesthrows light on another low-profile yet renowned Swiss Private Bank, Geneva-based Union Bancaire Privée, who like UBS and other more publicly known Swiss banks,  have also been badly hit by the recent Madoff scandal and Ponzi Scheme :

Now, as the links between Bernard L. Madoffand elite private banks like Geneva-based Union Bancaire Privée emerge, this well-polished reputation has been tarnished by the $50 billion Ponzi schemethat Mr. Madoff has been arrested for and accused of running.

L’Affaire Madoff, as it has become known here and in Geneva, has cast an unwanted spotlight onto the normally shadowy world of private bankers in Switzerland and other cozy hiding places of offshore wealth, like the Cayman Islands and Luxembourg.

And while there are many Swiss victims in terms of total exposure, UBP is the best-known private bank to get hit, with $700 million of its clients’ money invested with Mr. Madoff.

The article continues to dig deep into this private bank giant’s relationship with Mr. Madoff and asks why they did not react as other institutions did when they supposedly got access to documents that should have raised red flags:

With assets of $125 billion and a client base of wealthy individuals, families and institutions that reach from Qatar to Uruguay to Russia and throughout Europe, it is one of Switzerland’s biggest pipelines for channeling client money into hedge funds worldwide.

About six years ago, that business, known as a fund of funds, began to rake in larger fees when it decided to set up a vehicle called M-Invest Ltd to funnel cash to Mr. Madoff’s firm.

Through this relationship, UBP claimed it was able to gain close insight into Mr. Madoff’s investment operations, through copies of trade tickets and an unusual degree of access granted by Mr. Madoff himself to UBP’s representatives, according to a confidential internal letter sent to investors on Dec. 17, obtained by The New York Times.

The memorandum, while seeking to reassure investors, could raise questions about why UBP, unlike others who claimed to have seen red flags, did not use its access to delve more deeply into the unusually consistent annual returns that Mr. Madoff’s funds were reporting.

According to the memo, “We have met with Bernard Madoff and various principals several times at Madoff’s office, twice within the last year, and have had numerous conversations in between.” The letter stated that several of UBP’s senior investment professionals met with Mr. Madoff in 2004 and 2007, and that UBP’s structured risk analysis unit “had a full review in 2006 and recently in 2008 with Madoff himself.”

UBS again made negative headlines for the Swiss banking sector and for European private banks in general with the recent case where The United States indicted UBS wealth management chief Raoul Weil in November, accusing him of helping Americans hide $20 billion from U.S. tax authorities, which many saw as a warning shot for banks who provide offshore services for wealthy clients :

Bradley Birkenfeld, a former UBS banker, has pleaded guilty to helping clients avoid U.S. taxes. On one occasion, he smuggled diamonds into the United States inside a toothpaste tube for a client, according to a grand jury indictment against him.

 

Weil, the highest-ranking UBS executive hit by the U.S. tax investigation, says he is innocent and has stepped aside to fight his case in court. UBS has in the meantime admitted that tax fraud occurred in a limited number of cases at the bank.

 

As a result of the case, banks inside and outside this landlocked nation are watching the UBS case unfold and rethinking how to do business with rich individuals.

 

“This does send the message to other banks: you have to get your house in order if you want to work with Americans and American residents,” said Stephanie Jarrett, a tax expert at law firm Baker & McKenzie.

And the Reuters article goes on to point out that there could be severe repercussions for the private banking industry in Lichtenstein, Jersey and Switzerland if the UBS tax probe case unfolds negatively :

Now, thanks to a U.S. tax probe into Swiss bank UBS (UBSN.VX)and other pressure, a quiet revolution is brewing in the $7 trillion world of offshore banking, as banks realize that holding untaxed money can ultimately sting them.

 

“Some countries have decided that they want to make it more difficult for Switzerland, Liechtenstein and other centers to serve their client base,” said Prince Max, who oversees about $80 billion in client assets at LGT Group, owned by Liechtenstein’s ruling family.

It will be interesting to see if the previously untouchable Swiss banking sector, and not least their many formerly reputed Private Banks, can make a come back in 2009 and beyond to win back the many unhappy private and institutional clients who suffered major losses in 2008 ?

This blog will monitor the development.

Equity Investment, Investment Banking, Investment Fund, Investment Management Credit Suisse, Madoff Scandal, Ponzi scheme, Private banking, Swiss banking sector, UBS

For more than two decades, software giant Microsoft has gone from strength to strength and has despite its obvious failure to get into the online business sphere and take on Google, managed to grow its revenues and profits at a staggering rate.

2008, however, proved to be a bad year for Microsoft in some of its key areas : The failed and much debacled Yahoo! take-over fiasco and its Vista OS failure rang amongst the most notable headlines for Microsoft who is now facing the prospect for the first time of not having their founder, Bill Gates, working at the company as he retires to run his charity organisation with his wife.

While analysts and experts disagree on the state of this giant and how it will fare in 2009 and beyond they do seem to agree that for CEO Steve Ballmer there lies a very challenging year ahead for Microsoft.

This post looks into some of the experts’ opinions and also what exactly lies ahead for Microsoft in 2009.

Shane O’neill of Networkworld.com highlights the obvious areas where Microsoft got it very wrong but is also quick to point out that not everything that Microsoft did during 2008 was a disaster, in fact the contrary :

Equity Investment, Investment Management, Online Investment, US Investments Google, Microsoft, Operating system, search advertising, software

Year end is approaching fast and it is common to find analysts and experts trying to predict what will happen in the coming year. Not less so this year after what has been a very turbulent and difficult year with several large economies sliding into full blown Recession, the stock markets globally having lost in excess of a third of their value, some more, the property market having collapsed in major countries and several large commercial companies being threatened with bankruptcy and closure. Not to mention the financial sector which has seen some astounding collapses or bail outs in the last minute by governments.

One company, SAXO Bank who is a leading player in the Forex market, has made it a kind of tradition to come out with what they boldly call: “10 Outrageous Claims 2009″ which in their own analysts words is :

(A) thought provoking and controversial “Black Swan” exercise (that) always factors in the less likely scenarios as perceived by the market.

The primary reason for doing this “Black Swan” exercise every year is to counter-balance human psychology, which is usually skewed towards optimism. We tend to be somewhat more pessimistic in our Yearly Outlook than the average analyst in the market, and believe that it is important for the investor to always factor in the less likely scenarios (as perceived by the market). Please keep in mind that this is more of a thought exercise than a set of outright predictions – we do not consider the chances are better than 50-50 for all of these claims.

So what are the Danes’ predictions of doom and gloom then ? Well is has everything from Revolutions to Crude Oil falling belwo US$ 25 to the Euro falling below 1 US$ - here is a list of the 10 Outrageous Claims as summarized by Michael Haltman of Gather.com :

1. An Iranian Revolution
2. Crude dropping to $25 a barrel
3. The S&P 500 falling to 500 (880 now)
4. Italy dropping the Euro
5. Australian dollar slumping versus the Yen
6. The Euro falling below $1.00
7. Chinese GDP growth falling to 0% (current estimates range from 6-10%)
8. Eastern European Forex Pegs to Fail
9. Sharp declines in commodities prices
10. Yen could become the Asian currency peg over the dollar

MarketWatch quotes one of their team leaders from their Research & Strategy Division, David Karsbol, Chief Economist at Saxo Bank:

It is not even outrageous to call this the worst economic crisis ever. We have, regrettably, been rather precise in almost all predictions from last year. What used to be outrageous now seems to be the norm”, says Karsbol.

“In a year when markets and economies have fluctuated more widely than ever before nothing seems out of the ordinary or impossible. We believe that 2009 will be equally unpredictable and therefore have made ten outrageous predictions largely focusing and what might happen to global indices and currencies. The good thing is, overall, we predict 2009 will be a turning point because it can’t get much worse” says Karsb0l.

“In 2008 the S&P 500 has fallen well over 25% below its 1182 high of 2007, world oil prices got close to the predicted high of $175, and UK growth has turned negative. Who knows which of our 2009 forecasts will prove to be right but judging by previous years some of them most certainly will,” he adds.

     “When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.” (John M. Richardson, Jr)

“The best thing about the future is that it comes only one day at a time.” (Abraham Lincoln)

     “Stop acting as if life is a rehearsal. Live this day as if it were your last. The past is over and gone. The future is not guaranteed.” (Wayne Dyer)

My interest is in the future because I am going to spend the rest of my life there” (Charles F. Kettering)

He who laughs last laughs longest

 

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SEC Chairman Christopher Cox

 

The Bernard Madoff investment fraud scandal is still evolving with Mr Madoff having been brought before a judge in NYC recently and lately with an open admission of guilt by the SEC Chairman Christopher Cox.

This post highlights his admission of lack of control and investigation and considers what the experts feel about the same.

In a MarketWatch article on the subject Mr Cox is quoted for saying :

In a statement Cox said an initial probe into how Madoff’s alleged fraud remained undetected revealed “multiple failures” by the regulator to thoroughly investigate the former Nasdaq chairman and his firm.

“The Commission has learned that credible and specific allegations regarding Mr Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action,” Cox said in the statement.

He’s revolted by what he found out, but it’s also in his interest to be revolted,” said James Cox, a securities law professor at Duke University in Durham, North Carolina who isn’t related to the SEC chairman. “He’s taken a lot of heat over SEC enforcement.”

Cox said he has ordered a full review to investigate the past allegations against Madoff and why they were not found to be credible. The probe, to be led by the regulator’s inspector general, will also look at all staff contact and relationships with the Madoff family and firm and whether they had any impact on decisions by SEC staff.

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Yesterday The Federal Reserve cut the main U.S. interest rate to as low as zero for the first time ever in an attempt to boost credit and try to end the financial crisis, causing the bond market to collapse and the stock markets to soar.

While this may be a blessing for those consumers looking to buy a house or a car, and hence a boost to the deflationary and slumping US economy, analysts are divided as to the long-term effect of this drastic move will have on consumer spending and the economy overall.

This post looks into some of the prevailing arguments surrounding the historic Fed cut.

MarketWatch quotes an economic team at Wells Fargo for being very optimistic about the cut:

This latest change in monetary policy strategy by the Fed has the potential to be highly effective in our view, and will better reduce the cost of borrowing for a vast majority of consumers and businesses,”

The same article also quotes Stephen Gallagher, Chief Economist of SocGen:

Bank confidence in its ability to finance itself today and in the future is an essential for making loans,”

Bloomberg quotes The Federal Open Market Committee for saying that:

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

According to Wlliam Poole, former president of the St. Louis Fed:

The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,”

Associated Press quotes  an impressed Mark Zandi who feels that The Fed is ahead of the game this time:

The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them,” said Mark Zandi, chief economist at Moody’s Economy.com.

The article, however, suggests that the crisis is not over and may go on for some time due to the depth of same:

Economists cautioned that even with the Fed’s bold moves it will take months for the economy to stabilize given that it is confronting the worst financial crisis since the Great Depression and a year-long recession that is already the longest in a quarter century.

The news on the economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

And AP’s article concludes that at least when it comes to the US Government’s inflationary fears things are on the up:

The weak economy is helping to keep a lid on prices. The government reported Tuesday that consumer prices fell by a record 1.7 percent in November as gasoline and other energy prices continued to plunge. The Fed noted that “inflation pressures have diminished appreciably,” a development that gives the central bank maneuvering room to focus on boosting growth.

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