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)

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

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)

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.

Equity Investment, How it all works, Investment Fund, Investment Management, Investment News, Investment opportunities, US Investments bank lending, consumer spending, deflation, inflation, interest rate cut, liquidity, The Federal Reserve, US Dollar, US Economy

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.

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This posts provides an overview of what some of the leading experts and sources list and recommend as Hot Stocks given their recent performance and value so have a read through !

Forbes has a good overview of movers and shakers from The Far East:

The China Enterprise Index of top locally listed mainland Chinese firms was up 1.87 percent to 7,362.09.

Here are some of the stocks on the move:

Financial stocks remained strong after China said it planned to stabilise its stock market and ensure liquidity in the banking system.

China’s biggest lender, ICBC, and smaller rival China Construction Bank gained about 1 percent on hopes China will further cut the reserve requirement on deposits to spur lending.

The nation’s No. 1 insurer, China Life Insurance, rose 3.7 percent, while smaller rivals Ping An Insurance soared 6 percent and PICC P&C surged 3.2 percent.

 * Properties remained in focus with investors hunting for bargains after their recent weakness amid the gloomy outlook for the real estate sector.

Developer Sun Hung Kai Properties rose as much as 1.5 percent on Friday morning despite revising downward its apartment sales target by 20 percent to HK$16 billion for this fiscal year ending in June 2009 from HK$20 billion as the global financial crisis hits Hong Kong’s property market, but it expects a market pick-up in early 2009.

And the article ends up with a round up some other Asian giants and how they are performing :

* Chinese telecom shares rose on renewed speculation that 3G licences will be issued by the end of the year. The nation’s biggest cellular phone network China Mobile rose 2.9 percent, while smaller rival China Unicom gained 2 percent.

 * Hutchison Whampoa rose 2.4 percent after Shenzhen Yantian Port Group said on Thursday that Hutchison, the world’s biggest container terminal operator, had agreed to invest in a container terminal in the city’s Yantian East area.

 * Shanghai Electric Group’s H-shares surged 3.4 percent, marking the trading debut of domestic A shares of the heavy equipment maker in Shanghai on Friday. The company said it has secured more than 80 billion yuan worth of orders in 2008, with outstanding orders in power equipment, heavy machinery and transportation equipment divisions valued at over 180 billion yuan as of Sept 30.

Jim Jubak of MSN Money is hot on Commodity Stocks and explains why:

We’re building the foundation for the next boom in commodity prices — and commodity stocks.

I can’t give you any guarantee that commodity prices won’t tumble further in the short term. In fact, I think that’s very likely to happen as the U.S. economy slips into recession (possibly along with the economies of Japan and the European Union).

But right now commodity stocks are factoring in huge declines in demand and tumbling commodity prices over the long term that just aren’t going to occur. A patient investor who can put up with the pain of the next six, nine or 12 months can now buy a very reasonably priced option on the shares of the strongest commodity producers for the next leg up in commodity prices. I peg the beginning of the next boom at late 2009 or early 2010.

Mr Jubak goes on to explain why even the current financial crisis could impact the commodity stocks postively :

The economic laws of supply and demand don’t care if we’re reluctant to revisit a stock market sector that has delivered so much pain. And as hard as it may be to believe right now, it looks like the current meltdown in global financial markets isn’t going to have much effect on the trends that made commodity stocks big winners until mid-2008.

Growing demand from the rising economies (and the increasingly wealthy consumers) of China, India, Brazil and the Middle East is still going to drive up the long-term price of everything from oil to zinc. In fact, the current global financial crisis could make the commodity boom that much stronger when it does return.

Marketwatch.com has some predictions for Monday trade which are worth noting:

Among the companies whose shares are expected to see active trade in Monday’s session are National Semiconductor Corp., H&R Block Inc., and Worthington Industries Inc.

Click here for their full recommendations and insights.

Finally, Richard Gibbons of The Motley Fool talks about stocks you should avoid at present:

The amazing thing about this market is that there are so many cheap stocks. The problem with this market is that there are so many companies that could really blow up on investors.

Your investing success in the next year will be largely determined by your ability to sniff out and avoid losers. With that in mind, here are some suggestions for stocks you should avoid.

Speculative companies
Right now, you should avoid money-losing businesses, companies that need high growth to justify their high earnings multiples, start-up companies that are dependent on the growth of new markets, and other speculative stocks.

Right now, you can find solid, blue-chip stocks that are undervalued by unprecedented amounts. If you can buy a stock that should be trading at double or triple the price, why would you want to risk your money on a stock with less probable gains? In such an environment, speculative bets just don’t make sense.

For instance, right now General Motors (NYSE: GM) is trading at 66-year lows — and the stock still isn’t cheap. The company is projected to lose money as far as the eye can see, and it’s begging for government assistance. Why would you even consider buying GM when you can get Microsoft (Nasdaq: MSFT) — arguably the strongest company in the world with $18 billion in yearly income — at less than nine times its forward earnings multiple? GM simply doesn’t make sense.

When even established, well-capitalized companies are seeing strong headwinds, stay away from the companies that aren’t well-positioned.

To read this rest of his article on things to consider before you buy shares click here - and you should also consider getting their Motley Fool Inside Value report - worth a read for sure !

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