Buffett buffet

Tuesday, March 2nd, 2010

In the video clips below, legendary investor Warren Buffett, chairman and CEO of Berkshire Hathaway, talks to CNBC about a variety of topical issues.

On the economy and politics

Source: CNBC, March 1, 2010.

On currencies and market lessons

Source: CNBC, March 1, 2010.

On deal making and financial regulation

Source: CNBC, March 1, 2010.

On Obama and politics

Source: CNBC, March 1, 2010.

Buffett on health care reform

Source: CNBC, March 1, 2010.

Buffett on succession planning and investment strategy

Source: CNBC, March 1, 2010.

Buffett on banks and earthquake insurance

Source: CNBC, March 1, 2010.

Tags: Advertisement, Banks, Berkshire Hathaway, Ceo, Cnbc, Currencies, Earthquake Insurance, Economy, Health Care Reform, Insurance, Insurance Source, Investment Strategy, Investor, March 1, Market Lessons, Obama, Politics, Succession Planning, Topical Issues, Video Clips, Warren Buffett
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Economy and Bond Market Highlights

Sunday, January 24th, 2010

The Economy and Bond Market
Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.

Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.

Strengths

• The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
• China’s GDP rose a very robust 10.7 percent in the fourth quarter.
• 30 year mortgage rates dropped below 5 percent for the first time in four weeks.

Weaknesses

• The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
• Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
• The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.

Opportunity

• Expectations continue to build for growth in the U.S. in the current quarter, possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold.

Threat

• Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.

The Economy and Bond Market

Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.

Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.

Strengths

• The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
• China’s GDP rose a very robust 10.7 percent in the fourth quarter.
• 30 year mortgage rates dropped below 5 percent for the first time in four weeks.

Weaknesses

• The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
• Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
• The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.

Opportunity

• Expectations continue to build for growth in the U.S. in the current quarter, possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold.

Threat

• Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.

Tags: 30 Year Mortgage Rates, Banks, Bond Market, China, Chinese Attempts, Chinese Government, Economic Activity, Economic Data, Economic Recovery, Economy, Emerging Markets, Energy Prices, Financial Markets, GDP, Index Of Leading Indicators, Macro Issues, Market Economy, Measures, Producer Price Index, Rising Energy, Stimulus, Treasury Yields, Year Mortgage
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A Yen for Canada?

Monday, January 18th, 2010

Back in September I wrote Canada on the Cusp of Something Big outlining my case about the Canadian economy, markets, and loonie. My central argument then, and now, was that Canadians need to get in front of the “invest in Canada,” theme before foreigners do. Sound fiscal policy, strong, well capitalized banks, a productive commodity complex, and our good-old-fashioned brand of conservatism, continue to make Canada the leading destination for investors, both on the domestic front, and internationally, in the G7.

There is more to the Canada story than meets the eye. The fundamentals, are only half the story, and relevant, particularly for the longer term outlook . What matters equally in the near and long term, however, is what is going on behind the scenes in the proprietary institutional and hedge fund trading rooms.

Read the whole article here.

Pierre Daillie (AdvisorAnalyst.com), GlobeAdvisor.com, January 18, 2009

Tags: Advertisement, Banks, Canada, Canada Story, Canadian Economy, Canadians, Central Argument, Commodities, Commodity, Conservatism, Cusp, Foreigners, G7, Globeadvisor, Half The Story, Hedge Fund, Investors, Sound Fiscal Policy, Term Outlook, Yen
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The Case Against Tim Geithner

Thursday, January 14th, 2010

As we sit here today, Wall Street continues to exploit a policy of government-sponsored giveaways and secrecy to pay themselves billions.

Record-setting bonuses due to banks like Goldman Sachs as early next week.

Yet instead of acting as our cop, Secretary Tim Geithner has become central to what may be a cover-up of the greatest theft in U.S. history.

Here is the evidence.

Read the whole article here.

Source: The Case Against Tim Geithner, by Dylan Ratigan, The Business Insider
http://www.businessinsider.com/dylan-ratigan-the-case-against-tim-geithner-2010-1

Tags: Acting, Banks, Billions, Business Insider, Cop, Dylan Ratigan, Giveaways, Gold, Goldman Sachs, Government Giveaways, Secrecy, Sit, Tim Geithner, Wall Street
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Chart of the Day: Lending Still Shrinking

Tuesday, January 5th, 2010

As shown in the graph below, courtesy of Clusterstock - Business Insider, the latest figures from the St. Louis Fed show that commercial and industrial lending is still declining.

The dilemma is that US banks can borrow for almost nothing and lend money to the government by buying 10-year Treasury Notes and 30-year Treasury Bonds with yields of 3.8% and 4.6% respectively. “Thus, the banks are thriving on the ‘yield curve’ while the poor slob on the street gets nothing for his savings (assuming he has any savings at all). And when you think about it, why should the banks make risky loans to the poor goof on Main Street when they can play the yield curve with almost zero risk?, remarked Richard Russell, author of the Dow Theory Letters.

It goes without saying that lending needs to expand before a decent economic recovery can get under way.

Source: Clusterstock - Business Insider, January 4, 2009.

Tags: 10 Year Treasury Notes, 30 Year Treasury Bonds, Advertisement, Banks, Business Insider, Dilemma, Dow Theory Letters, Economic Recovery, Goof, Graph, January 4, Money, Poor Slob, Richard Russell, risk, Risky Loans, Treasury Yields, Yield Curve
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Eliot Spitzer’s New Crusade Against Obamanomics

Friday, November 20th, 2009

Are Obama’s economic policies actually working? Eliot Spitzer says No!

Spitzer is taking aim at the [Obama} administration’s approach, accusing it of shying away from the kind of comprehensive reform that the financial system needs. The Obama administration is not so different from the Bush administration, at least so far as their approach to the banking crisis goes, he claimed:

“The fundamental error of this administration is that it is continuity. They have embraced the Bush Administration view that if you solve the problem of big banks everything else flows from that. They are wrong. Too big to fail is too big. They don’t get it. The only two people I know who don’t appreciate that are Tim Geithner and Larry Summers. Paul Volcker, Alan Greenspan, Henry Kaufman, Mervyn King — every major academic has said, We must get rid of too big to fail.”

Watch Spitzer make his case against Obama’s effectiveness as manager of the financial crisis below:

Eliot Spitzer arguing against Obamanomics from Intelligence Squared US on Vimeo.

Tags: Alan Greenspan, Banking Crisis, Banks, Bush Administration, Case Manager, Continuity, Economic Policies, Eliot Spitzer, Financial Crisis, Fundamental Error, Henry Kaufman, Intelligence, Larry Summers, Mervyn King, New Crusade, Paul Volcker, Taking Aim, Tim Geithner, Watch Case
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Velocity of US money supply at long last edging up

Friday, November 20th, 2009

Despite ballooning Fed reserves to bail out banks, money supply as measured by the growth in money supply with a zero maturity (notes and coins, check accounts, savings deposits and money-market accounts collectively) continues to slow.

The slowing growth is contra to what normally happens when the Fed lowers the Federal funds rate.

In real terms the growth rate is also slowing.

The slowing in MZM growth is a consequence of US banks’ tight lending standards. The trend is likely to continue until the banks relax these standards.

Velocity of MZM is at long last picking up after it started falling in the first quarter of 2007 - six quarters before economic growth slumped. The increase in MZM velocity effectively points to increased economic activity. Further increases in this velocity are essential for sustained economic growth.

Bottoms in consumer sentiment and MZM growth coincide, emphasizing the importance of improved consumer sentiment to get the economy going.

Lastly, the US bond market is an excellent indicator insofar as MZM velocity is concerned. Currently the yield on the 10-year note is pointing to further improvements in money velocity. The US bond market therefore also suggests that consumer sentiment is likely to continue improving and that the current improvement in the economy is sustainable, albeit probably at a slow rate.

Note: The source for all graphs is Plexus Asset Management, based on data from I-Net Bridge.

Tags: Asset Management, Banks, Bottoms, Bridge, Coins, Consequence, Consumer Sentiment, Economic Activity, Federal Funds Rate, First Quarter, Graphs, Improvements, Money Market Accounts, Money Supply, Money Velocity, Mzm, Quarters, Sustained Economic Growth, Us Bond Market, Zero Maturity
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Overweight Canadian banks?

Monday, September 21st, 2009

Darko Mihelic, financial sector analyst at CIBC World Markets believes there is a viable case for investors to overweight bank stocks. All but CIBC recently beat the street, and healthily. So what do you do?

Andrew Willis, Globe and Mail columnist writes:

This situation leaves analysts with two options. Door No. 1 is to tell institutional clients that the banks stock are expensive, and likely to tumble, or at least go sideways, and should therefore be under-weighted in portfolios. Much of the Street is pitching this strategy right now. It’s not without risk: The banks make up a substantial portion of the equity benchmark, and if they continue to rally, anyone underweight banks will underperform.

Mihelic’s case is:

On Friday, Mr. Mihelic rolled out his estimates for 2011 earnings at the major Canadian banks. His crystal ball says the banks will, on average, see their profits rise 27 per cent from what they are expect to post in 2010.

…

“Valuing the bank stocks on reasonable valuation parameters, the group appears to have approximately 17 per cent total return upside from current levels, on average.”

…

“Near-term challenges could affect the stocks since the group “looks” expensive on fiscal 2010 estimates,” said Mr. Mihelic. “. However, we believe investors can go overweight with the group and use short-term noise as an opportunity.”

Read the whole article here:

The case for overweighting banks - The Globe and Mail.

Tags: Andrew Willis, Bank stocks, Banks, Benchmark, Canada, Canadian Banks, CIBC World Markets, Columnist, Crystal Ball, Earnings, Estimates, Financial Sector, Globe And Mail, Globe Mail, Institutional Clients, Investors, Parameters, Portfolios, Profits, Substantial Portion, Term Challenges, Term Noise
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Meredith Whitney: Banking Sector Outlook Less Optimistic

Monday, September 14th, 2009

Meredith Whitney says economic and banking fundamentals in the US have not changed in the last year. Whitney sounds less optimistic now than when she upgraded Goldman a few months ago.

Click play to view:
Part 1:

Part 2:

Whitney made the following points:

“No bank underwrote a loan with 10 percent unemployment on the horizon”.

“I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when.”

She said local governments and states are chronically under-funded and “most states are under water,” adding to the problem of low private consumption.

“If you look at the drivers for unemployment I don’t see that reversing very soon,” Whitney said.

If consumers were to decide to spend, “that would be a game-changer,” but it would be an unnatural thing to do in a recession, she said.

“A lot of themes are constant, which is the US consumer and the small business doesn’t have any credit, credit is still contracting.” Whitney said.

Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.

“Obviously that doesn’t bode well for spending,” Whitney said.

Whitney maintains only one buy rating - GS - Goldman Sachs still has a lot of “gas in the tank” and it is taking up a lot of what Lehman left on the table.

“Banks are taking advantage of what the government is doing by artificially inflating asset prices so they can ride a steep yield curve and they’re going to have a third quarter that reflects that.”

The buy rating on GS is a reminder that PIMCO’s advice to “shake hands with the government,” and the ‘new normal,” remain significant themes in this market.

Source: CNBC.com, September 10, 2009

Tags: Asset Prices, Banking Sector, Banks, Cnbc, Consumer Credit, Consumer Debt, Consumers, Credit Cards, Debit Cards, Gold, Goldman, Goldman Sachs, Horizon, Lehman, Local Governments, Market Source, Meredith Whitney, No Doubt, Private Consumption, Recession, Reminder, Sector Outlook, Sounds, Unemployment, Yield Curve
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Keep a Close Eye on Lending Standards

Tuesday, August 4th, 2009

The Federal Reserve Board’s Senior Loan Officer Opinion Survey is due to be published on August 17. This is an important document for assessing to what extent credit markets are thawing and confidence is returning to the financial system.

In the meantime, the European Central Bank’s Euro Area Bank Lending Survey has just been published. The net percentage of banks reporting a tightening of credit standards for loans to firms more than halved to 21% in the second quarter of 2009 from 43% in the first quarter - down from a peak of more than 60% in the third and fourth quarters of 2008.

As one would expect, there is a strong correlation between the lending standards in the US and Europe, as shown in the graph below. Based on the historical relationship it seems likely that the number of US loan officers reporting a tightening of lending standards later this month could decline significantly - from 40% to possibly in the region of 20%.

Source: Federal Reserve Board’s Senior Loan Office Opinion Survey and the European Central Bank’s Euro Area Bank Lending Survey

A decline in the lending standards of US banks should be bullish for the economic recovery and financial markets, but the demand for loans also needs to improve in order for confidence in the world’s financial system to return to more “normal” levels and liquidity to start flowing freely again, fueling a descent economic recovery. The Senior Loan Officer Opinion Survey due out in two weeks’ time should provide quite a few answers.

Tags: Bank Lending Survey, Banks, Confidence, Correlation, Credit Markets, Economic Recovery, Extent, Federal Reserve, Federal Reserve Board, Few Answers, Financial Markets, First Quarter, Graph, liquidity, Loan Office, Loan Officer, Loan Officers, Opinion Survey, Quarters, Second Quarter
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Peter Thiel: Letter to Clarium Capital Partners (April 2009)

Tuesday, April 21st, 2009

Clarium Capital, Peter Thiel’s hedge fund, has released its quarterly letter to shareholders which includes a lucid assessment of the economy, credit market, and a eloquent explanation of what exactly Quantitative Easing is and how it differs from credit easing, as well as whether or not this move is inflationary.

The letter effectively provides a key to understanding how the U.S. of 2009 resembles the U.S. of 1900, and it is not only educational, it is enlightening, and one of the best explainings that we have seen of Quantitative Easing yet in the last year. We urge you to put this on top of your must read pile.

Ordinarily, economic reading is quite onerous, and generally boring. Not this time though.

Here is one excerpt:

Since both Credit Easing and Quantitative Easing increase the monetary base, why don’t they both create inflation? To answer this question one must understand how these operations work. In both Credit Easing and Quantitative Easing, the central bank purchases securities from banks and then credits them with reserves; the increase in reserves is the expansion in the monetary base. In order for this expansion of the monetary base to be inflationary it must make its way into the economy, and the mechanism for doing this is for banks to make more loans against the increased reserves. But in conditions where bank lending is weak, merely increasing the monetary base will not increase lending; hence it is questionable whether a straightforward Quantitative Easing policy would have any effect at all today in the US. (And there is considerable debate whether Japan’s policy had any effect during the time it operated.) Even further, the Fed is paying an interest rate on excess reserves equal to what banks could expect to make on them by lending them overnight, which explicitly motivates the banks to leave the reserves on deposit with the Fed. As long as those reserves simply sit with the Fed, their mere increase has no inflationary effect on the economy.

This comprehensive analysis written by Patrick Wolff, CFA, Managing Director, Clarium Capital, leaves few stones unturned. You may download the complete letter here, or you may view it below, via scribd (click on full screen view button on the top right).

Source: MarketFolly.com, Peter Thiel’s Clarium Capital Investor Letter (Market Commentary)

Download: Clarium April 2009 Letter to Partners

Tags: April, Bank Purchases, Banks, Capital Partners, Central Banks, Clarium Capital, Economy, ETF, Excerpt, Excess Reserves, Hedge Fund, inflation, Interest Rate, Japan, Letter To Shareholders, Loans, Monetary Base, Peter Thiel, Quantitative Easing, Quarterly Letter, Sit
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George Soros: Interview

Friday, April 3rd, 2009

Maria Bartiromo interviews George Soros about the IMFs plan to make available as much as $750-billion in SDRs (Special Drawing Rights) to aid the poorest of developing countries.

Soros also discusses which places in the world are doing better than the rest, and the interview ends on the subject of China and its overtures about an alternative reserve currency. Watch it here or read the full transcript below.

Maria Bartiromo: You’ve seen the communiques, you’ve been in some of these meetings. What’s your reaction, what did you think of the communiques?

George Soros: They managed to get more than I expected. They really pulled a few rabbits out of the hat and I think it was a very impressive communique. And for Gordon Brown, it really was his finest hour.

MB: Why?

GS: Because he really did see the need for addressing this global problem, because you have the less developed world facing potential collapse as the banks don’t roll over their loans. So something had to be done and he did manage to bring it together. I would say that this is probably the first time they are actually ahead of the curve.

MB: Let’s talk about the money, for the IMF that could rise to $750-billion; is that enough and more importantly, Who should get the money?

GS: Well there, they managed to put together a bigger package than anybody expected, and very important is the issue of special drawing rights to $250-billion. That is effectively creating internationally new money, and, that will help to allow the countries that are not able to print their own money the way that we can, actually to stimulate their economies. And I think the way for the rich countries to transfer their allocations to the most needy countries can be worked out.

MB: So are you saying that the efforts as far as the IMF and the communique overall, has completely changed your mind? I mean a week and a half ago you were out very vocal, saying, look, the IMF is going to have to basically bailout the UK. Here we are sitting in one of the greatest cities in the world.

GS: No, that was a misleading headline given to an interview where I said it is most unlikely that England would need to go to the IMF. However the fact that its created such an outcry shows what a stigma there is attached about having to go to the IMF.

MB: A lot of people, when you were talking about the UK and the need for help, and really a bailout. People are saying, well wait a second, you know George Soros years ago, shorted the pound, and made money on this, and maybe he’s playing his book. In fact, Lord Mandelson, he basically said that to me in so many words earlier in the week. Are you shorting the pound right now?

GS: No, I’m not. First of all, I’m withdrawn from actually running the fund. I did it last year, we came through it, and I have handed it back to the people who can do it. So, I’m out of the markets as I was before, I came out of retirement and I’m back in retirement.

MB: Until you feel, I don’t know if you’re going to able to stay in retirement frankly, but let me ask you about the operations in terms of hedge funds, oversight, because this is another thing, the group said, they want more regulation of hedge funds. Did you agree with what they said, and where they’re going in terms of more oversight?

GS: Well I think you absolutely need more regulation, but you really need to have better regulation, and, yes, we have allowed the markets a free hand, and of course that was very unsound. But we don’t want to go overboard, now, with regulation because the fact that markets are imperfect, because they don’t anticipate the future correctly. Regulators are just as imperfect.

MB: Can you characterize the situation for us in Eastern Europe right now?

GS: What happened when Western Europe and America guaranteed the banking system, the other countries in Eastern Europe coudln’t provide similarly convincing guarantees, and the banks in the West started pulling their capital out of there, and the national regulators also encouraged the banks to lend at home, and not abroad, and that created a crisis for Eastern Europe.

MB: What are your thoughts on the developments surrounding mark-to-market? FASB coming out and saying that they do want to make it easier, a little more lax in terms of the regulation for mark-to-market? What are your thoughts on that?

GS: There I remain very critical, because I think the much more effective would have been to recapitalize the banks. And because of the history of the way the TARP money was spent, it was really messy and very badly done. And because of that there’s increasing reluctance by Congress to make new money available, and yet it would be much much better, to create clean banks. Banks that are able to lend. I think we missed the boat on that. And that means that we will be spending a long time allowing the banks to dig themselves out of the hole, and while they are doing that they will not be providing sufficient credit to carry on business. They’ll be charging a lot more, and generally it will weigh on the economy for a period of time.

MB: I know you saw the story about some hedge funds saying, look, we’re going to leave London; the tax situation is not favourable, we don’t like the business conditions here. What do you think about that?

GS: Where are they going to go? Another planet? I mean, you know, there is no alternative. Now with the tax havens being brought under control, I think hedge funds will have to get used to being regulated.

MB: Is there anywhere in the world doing well right now? I mean you where you would say, this is safety, this is where I want to be?

GS: I think that actually China stands to emerge faster and better than most other countries. I think actually, Brazil, that has been hurt by this financial crisis after Lehman, is also basically quite well situated. I think India, because it is less tied in with the rest of the world. So, I think that the global economy will probably start growing next year.

MB: George, the Chinese have said that there should be another option away from the US dollar as the reserve currency. Do you agree with that?

GS: In the long run, that may be appropriate. Its not in the cards now; the special drawing rights that are now being issued, those are not currency, those are bookkeeping entries at the IMF. You have to convert them into a convertible currency before you can use them. I think probably the Chinese Yuan will probably be made into one of the currencies into which you can convert, which is appropriate, because China is now very important. We are no where near the SDRs becoming an international currency.

MB: Long term what would the currency be? Would it be the Chinese Yuan?

GS: No, I think the dollar is the dominant currency, for a while to come, but in the long run it would be, it may be important that the US should be subject to the same discipline as the rest of the world.

Tags: Allocations, Bailout, Banks, Collapse, Communiques, Curve, Developing Countries, Emerging Markets, Finest Hour, Full Transcript, George Soros, Global Economy, Global Problem, Gordon Brown, Imf, Imf Plan, India, Maria Bartiromo, Needy Countries, New Money, Overtures, Places In The World, Rabbits, Reserve Currency, Rich Countries, Special Drawing Rights
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