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)

This author was amazed to read that UBS of all banks were voted Forecaster of the Year by MarketWatch given the fact that UBS has been one of the biggest losers of the Credit Crunch and also caused massive losses for its investors.

MarketWatch reports on their recently released results:

U.S.-based economists at two Swiss banks took top honors in MarketWatch’s forecasting contest, MarketWatch announced Monday.

A team of economists at Credit Suisse led by chief economist Neal Soss had the most accurate forecasts of economic data released in December among 44 economists surveyed, winning its third Forecaster of the Month award.

And the team at UBS led by chief economist Maury Harris had the most accurate forecasts over the course of 2008, winning the team’s second Forecaster of the Year award in the past three years. Harris and O’Sullivan have won five monthly contests, including this past September’s. They also garnered the full-year title in 2006.

Is it not a fair question to ask then : How could things go so bad if they could see it coming ?

How it all works, Investment Banking, Investment Company, Investment Management MarketWatch, UBS, UBS credit crunch & executive bonuses

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

Every retailer expect and need surging sales in Q4 peaking with Xmas sales and it is no different for the E-tailers, traditionally led by eBay and Amazon.com.

Lately, however, whilst traffic and revenue figures have continued to grow for fixed-price online E-tailer Amazon.com, the picture is quite different for auction site eBay who is seeing a drop in year-on-year traffic and sales figures. this year. And that worries observers of the industry who are now asking themselves whether eBay has got what it takes to turn around this negative trend and win back its lost market share and end-users.

This post looks into the problems at the heart of eBay and what experts and analysts have to say about this falling giant who only a few years back was synonymous with E-tailing.

Christopher Lawton of Wall Street Journal points to the dropping performance by eBay as being primarily caused by customers who now seem to favour the fixed-priced sites such as Amazon.com and where eBay has less of an edge and also because of continued problems with unscrupulous sellers which make customers turn to other sites with better control over the purchase process:

Weekly traffic to the auction site fell 16% between Nov. 3 and Dec. 14 from a year ago, according to research firm comScore Inc. In contrast, Amazon.com had 6% more unique visitors during the same period.

The weakness is showing up in the sales of eBay sellers such as Gary Meyer. Mr. Meyer owns Gem Enterprises Inc. in Merchantville, N.J., which lists more than $300,000 in tech equipment such as printers on eBay. So far this holiday season, Mr. Meyer’s sales on eBay are down 30% to 40% from a year ago, he says. “We’ve geared up our Web site more and started listing on Amazon.com and other venues,” Mr. Meyer says.

Mr Lawton continues by hinting that after the change a year ago of their CEO from Meg Whitman to Mr John Donahoe, the company’s strategy and course are now more confusing to users and analysts alike as new initiatives trying to win back lost clients seem to have led to mixed results and so far not encouraging financial results:

EBay performance this quarter could be a referendum on the changes Mr. Donahoe has made this year. Since taking over for former CEO Meg Whitman in March, Mr. Donahoe has sought to rev up growth and reclaim buyers who had stopped visiting the Web site.

His most significant move has been to make eBay less of an auction house and more like Amazon, Walmart.com and Sears.com, selling fixed-priced goods, which consumers now prefer for speed and convenience. Among other changes, Mr. Donahoe has cut the fee to list fixed-price items on eBay and boosted the fee charged when an item sells, a model that helps fixed-price sellers better set profits.

Yet the changes have so far had little financial impact — and have angered many loyalists. Transaction revenue per listing between October and the end of November plunged 28% from a year ago to $1.44, according to Majestic Research. Wall Street analysts now estimate the San Jose, Calif., company will post its first year-over-year revenue decline when it reports fourth quarter earnings next month. Seattle-based Amazon has forecast an at least 6% increase in fourth quarter revenue over last year.

“We haven’t observed…any material positive changes on the buyers’ side of the equation,” at eBay, says John Aiken, managing director with Majestic Research.

The fact that the purchase process is faster and less complicated on fixed-priced sites such as Amazon.com should not in some experts’ views make eBay abandon their core strategy which is all about offering consumers the chance to sell and buy at flexible prices. Lately, however, eBay has under its new leadership of John Donahoe been encouraging sellers to offer items at fixed prices, making it appear more like a traditional online retailer.

Stephen Foley of UK-based The Independent quotes Laura Martin, a media analyst at Soleil Securities for putting the blame for this wavering strategy at the top of the company:

Consumer spending numbers are going down for all retailers, but eBay has particular problems because it is becoming increasingly difficult for customers to find the deals that they want on there, amidst all the clutter of fixed-price items. I don’t understand why eBay is making itself more like their competitors instead of less.”

Michael Fowlkes of Bloggingstocks  reminds us that eBay is still the King of e-commerce but he does acknowledge that there are problems facing the giant especially as Amazon’s traffic and revenue numbers continue to grow despite financial crises:

While it is true that eBay has been seeing a large number of users defecting to other popular e-commerce sites such as Amazon, Walmart.com and Sears.com, it is also important to note that eBay is still the king when it comes to e-commerce, and the site is still sitting on three times the volume of its competition. Regardless, the writing is on the wall, and the site is doing all it can to move quickly into the fixed-price marketplace that has been gaining steam over the past couple of years.

Mr Fowlkes goes on to point out that eBay could find themselves in the classic stuck-in-the-middle strategy if they are not quick to clearly define what their business and service is all about to end-users and investors alike:

It is a tough situation for eBay as it tries to aggressively redefine itself. For a company that has built itself on the back on the auction business, a too rapid and aggressive move into the fixed-price business is definitely going to ruffle a few feathers. The company has to try its best to appease its current sellers while at the same time moving as strongly as it can to keep and regain buyers, all the while trying to entice new shoppers into the site.

Some sellers have voiced disapproval, stating that the company is moving too quickly into the fixed-price business, and that their loyal customers are still more interested in finding the lowest price merchandise available, which is often achieved through the auction side of the business.

Though it remains a fact that eBay has many loyal users and bidders, there seems to be a trend among consumers lately to prefer the no-nonsense fixed-price sites to the auction based ones with speed, convenience and assurance to get the item one wants being the key reasons for consumers preferring an Amazon type online offering to the auction based ones which eBay invented and still rules.

So when Amazon is about to officially record its best ever Xmas sales, eBay is about to record declining sales for the first time in its operating history and one has to ask the question if eBay’s strategy is the right one moving forward?

How it all works, Investment Company, Investment News, Online Investment, US Investments Amazon, E-Tailers, eBay, Online shopping

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

 

Currency, Equity Investment, How it all works, Investment Banking, Investment Company, Investment Management, Investment News, Investment Services 2009 Forecast, Australian Dollar, Commodity prices, Crude Oil, Euro, Iran, SAXO Bank, Yen

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.

Equity Investment, Investment Banking, Investment Company, Investment Fund, Investment Management, Investment News, Investment Securities, Investment Services, US Investments Bernard Madoff, financial scam, Insider trading, The Securities and Exchange Commission (SEC)

Apple

Analysts of tech stocks have been impressed with Apple’s performance during 2008 where they have outpaced their PC competitors with robust demand, even in times of financial turmoil and reduced consumer spending.

In November, however, Apple for the first time recorded a drop in sales compared to last year and also vis-a-vis the PC sales which actually rose and analysts are now worried that this could be the beginning of a bad run for Apple who seems determined not to enter the discounting game as their PC rivals have done.

This post looks into some of the experts’ opinion on whether this success company is in for a tough run or if indeed they shall, again, come up on top, outperforming the markets and their competitors.

The Wall Street Journal quotes David Bailey of Goldman Sachs:

Some analysts are worried that sales will slow after the holidays as consumers pull back. On Monday, Goldman Sachs analyst David Bailey cut his estimate for Apple’s 2009 profit, warning “some nicks have started to emerge.” Mr. Bailey warned the company faces “a tougher environment” in the first two quarters of next year, when he believes consumer demand will further deteriorate.

Experts are now worried that Apple’s so-far successful premium price policy will now backfire in times of reduced spending from consumers and see signs of trouble ahead if Apple does not adapt to their competitors’ strategy of aggressive pricing and bargains:

The November data indicate that falling prices for Windows-based PCs, and the rise of low-priced computers like netbooks — mini notebooks that cost as little as $300 — have finally tripped Apple, said Gene Munster, an analyst at Piper Jaffray, who still expects Apple to continue outpacing the market over the next year. “What you’re seeing in the numbers is price sensitivity with the consumer,” he said.

While Apple CEO Steve Jobs has been quoted saying “”we’re not tremendously worried the downturn will drive customers to cheaper PCs”, analysts of the tech sector remain concerned that with PC rivals having lowered their prices by as much as 35-45% on key products, compared to Apple’s modest 5-10% discount, Apple could lose out on sales in 2009 if they do not make some kind of comeback strategy or massive new product launch.

Other analysts point to the fact that recent surveys point to many US businesses voting in favour of adding Macs to their corporate portfolio of computers in 2009 and the trend is apparently increasing which promises well for Apple and its Mac sales in 2009 despite their premium price policy.

Computerworld quotes Laura DiDio, an analyst at Information Technology Intelligence Corp. (ITIC) :

In a just-published survey, 68% of some 700 companies polled said they will allow their end users to deploy Macs as their work systems in the next 12 months. That’s exactly double the percentage of businesses that answered the same question eight months ago, said Laura DiDio, an analyst at Information Technology Intelligence Corp. (ITIC).

“And Apple hasn’t done anything to actively promote this,” DiDio said. Instead, faced by users “begging to use a Mac,” IT managers are reacting to the “consumerization” of technology in the enterprise, she explained.

And she concludes that:

“After watching this for the last two years, I can say this is a steady, sustained trend,” said DiDio, of the overall trend of Macs moving into business. “I see no sign of it abating. I’m not going to proclaim that Macs are going to sweep Windows away in a tidal wave, but this is clearly Apple’s best showing in the enterprise in the last 20 years.”

Other experts again are pointing to the fact that Apple is no longer just in the business of making computers and notebooks due to the explosive rise of their iPod sales and not least their iPhone range which have taken the world markets by storm. Add to that what appears to be a solid rumour that Apple will tie up with none other than the retail giant Wal-Mart for sales and support in 2009 and you can easily argue a case of strength and promising future for the Cupertino based company.

MarketWatch’s Therese Poletti is one analyst to highlight this and with iPhone now comprising 39% of Apple’s turnover one has to seriously consider the non-compueter sales and products too when looking at Apple:

Apple is clearly looking to make the iPhone as mainstream as possible, much as it has done with the iPod, which is now the dominant digital music player in the U.S.

The iPod, which has an entry retail price of $49 for an iPod shuffle, now has a 71% stake of the $2.4 billion MP3 market, as of the end of September, according to NPD Group’s retail tracking service. The iPod can be found at Wal-Mart.

“Apple’s potential partnership with Wal-Mart likely indicates that Apple ultimately wants to drive mass-market adoption of the iPhone (like it has done with the iPod), rather than maintain a high-end positioning (as in the case of the Mac),” Sacconaghi wrote.

“Wal-Mart will have a greater impact on the iPhone’s demographic reach in terms of raising awareness and availability among lower-end consumers who are less likely to shop at the Apple Stores or Best Buy.”

So for those waiting for an even lower-priced iPhone, it may not happen this year, even if the iPhone is sold at Wal-Mart. But Shaw Wu of Kaufman Brothers Equity Research believes the $99 price point is inevitable at some point, as Apple “rounds out its cell phone product line.”

So yes, some of the exclusiveness of the first iPhones will inevitably be lost in the process as the price falls, but isn’t that true with all hot new electronics products, thanks to the constant evolution of ever-shrinking semiconductors and storage at the heart of most consumer electronics devices?

Equity Investment, Investment Company, Investment Management, Investment News, Investment opportunities, US Investments Apple, iPhone, PC Sales, Tech stocks, US Consumer demand

As if it isn’t enough for private as well as institutional investors world-wide to have the worst financial crisis upon them in decades, if not ever, to deal with, the world markets were rocked last week by the shocking exposure of the Bernard Madoff investment fund.

Investors are now scrambling to assess an alleged fraud up to US Dollar 50 billion and every type of investor is involved and exposed it appears, many of them high-profile (click here for a list over investors exposed). Mr Madoff’s Investment Securities firm is supposedly, and in the founder’s own words, “all just one big lie” and “basically, a giant Ponzi scheme”.

These investors are now angrily asking each other and more importantly the regulatory authorities : How could this be allowed to happen ?

This post looks into some of the prevailing arguments to this scandalous story of fraud, lack of control  and personal greed.

Bloomberg reports that The Securities and Exchange Commission (SEC) apparently never inspected the firm:

U.S. regulators never inspected Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion, after he subjected it to oversight two years ago, people familiar with the case said.

The Securities and Exchange Commission hadn’t examined Madoff’s books since he registered the unit with the agency in September 2006, two people said, declining to be identified because the reviews aren’t public. The SEC tries to inspect advisers at least every five years and to scrutinize newly registered firms in their first year, former agency officials and securities lawyers said.

Investors and analysts are shocked that a scam of this proportion could be allowed to go on for so many years and the article quotes a leading expert:

“Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered,” said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. “It’s hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems.”

CNBC has an interesting storyon a firm, Aksia, that during its due diligence of Madoff’s firm and fund discovered several reasons for not engaging in business with the company:

The firm, named Aksiaand run by Jim Vos and Jake Waltour, based its warning on several red flags it discovered during an investigation. Those included ….

1. The Madoff investment strategy, called “split-strike conversion,” is known to be very volatile; it involves trading huge positions around options expirations. Despite that volatility, its returns over the past decade were an amazingly stable 8-10 percent.

2. Aksia discovered a 2005 letter to the Securities and Exchange Commission from a financial advisor who supposedly studied Madoff’s operations. That letter asserted Madoff was running a Ponzi scheme. There was also a Wall Street Journal story at the time about one of the Madoff’s associated “feeder funds” getting shut down in 1992.

3. Madoff’s strategy was bizarre: He said he would move $13 billion in various trades at once, yet Aksia couldn’t find traders who saw his trades. There were also no regulatory filings. And family members were running the firm.

The Wall Street Journal points to even more red flags having been raised towards Madoff’s investment fund:

Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff’s stock-options strategy and was convinced the results likely weren’t real.

“Madoff Securities is the world’s largest Ponzi Scheme,” Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.

Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.

The article continue and quotes another expert, Chris Addy, for saying that there were also conflicts of interest involved:

Conflicts of interest also proved a concern. “There was no independent custodian involved who could prove the existence of assets,” says Chris Addy, founder of Montreal-based Castle Hall Alternatives, which vets hedge funds for clients seeking to invest money. “There’s a clear and blatant conflict of interest with a manager using a related-party broker-dealer. Madoff is enormously unusual in that this is not a structure I’ve seen.”

And the article goes on:

Recent securities filings showed that the firm held less than $1 billion of shares, raising questions about where the rest of the money was. Some of Mr. Madoff’s investors say they were told the firm put the bulk of its money in cash-equivalents at the end of each quarter, explaining why the public filings showed so few shares, but raising questions about where the proof was for all the cash.

Until at least November, 2006, the firm, which claimed to manage billions of dollars and be among the largest market makers in the stock market, used as its auditor Friehling & Horowitz, a small New City, New York firm.

Mr. Vos says his firm hired a private investigator and determined that the accounting firm had only three employees, one of whom was 78 and lived in Florida, and another was a secretary, and that it operated in a 13 foot by 18 foot office. His firm felt that was too small an operation to keep an eye on such a large firm operating a complicated trading strategy. A message left for the accounting firm was not returned.

Finally check out this video from YouTube on the scandal:

This post will continue to follow this amazing story ofd what could turn out to be the largest investment scam in decades if not ever.

Equity Investment, How it all works, Investment Company, Investment Fund, Investment Management, Investment News, Investment Securities Bernard Madoff, Fraud, Investment Scam, The Securities and Exchange Commission (SEC)