Pu'er tea Bubble Bursts

A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts
Shiho Fukada for The New York Times
A statue in Menghai County, China, where Pu’er tea is processed.


By ANDREW JACOBS
Published: January 16, 2009
MENGHAI, China — Saudi Arabia has its oil. South Africa has its diamonds. And here in China’s temperate southwest, prosperity has come from the scrubby green tea trees that blanket the mountains of fabled Menghai County.

The New York Times
Menghai is in a lush, mountainous tea-growing region.
Over the past decade, as the nation went wild for the region’s brand of tea, known as Pu’er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu’er.

But that was before the collapse of the tea market turned thousands of farmers and dealers into paupers and provided the nation with a very pungent lesson about gullibility, greed and the perils of the speculative bubble. “Most of us are ruined,” said Fu Wei, 43, one of the few tea traders to survive the implosion of the Pu’er market. “A lot of people behaved like idiots.”

A pleasantly aromatic beverage that promoters claim reduces cholesterol and cures hangovers, Pu’er became the darling of the sipping classes in recent years as this nation’s nouveaux riches embraced a distinctly Chinese way to display their wealth, and invest their savings. From 1999 to 2007, the price of Pu’er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu’er, before tumbling far below its preboom levels.

For tens of thousands of wholesalers, farmers and other Chinese citizens who poured their money into compressed disks of tea leaves, the crash of the Pu’er market has been nothing short of disastrous. Many investors were led to believe that Pu’er prices could only go up.

“The saying around here was ‘It’s better to save Pu’er than to save money,’ ” said Wang Ruoyu, a longtime dealer in Xishuangbanna, the lush, tea-growing region of Yunnan Province that abuts the Burmese border. “Everyone thought they were going to get rich.”

Fermented tea was hardly the only caffeinated investment frenzy that swept China during its boom years. The urban middle class speculated mainly in stock and real estate, pushing prices to stratospheric levels before exports slumped, growth slowed and hundreds of billions of dollars in paper profits disappeared over the past year.

In the mountainous Pu’er belt of Yunnan, a cabal of manipulative buyers cornered the tea market and drove prices to record levels, giving some farmers and county traders a taste of the country’s bubble — and its bitter aftermath.

At least a third of the 3,000 tea manufacturers and merchants have called it quits in recent months. Farmers have begun replacing newly planted tea trees with more nourishing — and now, more lucrative — staples like corn and rice. Here in Menghai, the newly opened six-story emporium built to house hundreds of buyers and bundlers is a very lonely place.

“Very few of us survived,” said Mr. Fu, 43, among the few tea traders brave enough to open a business in the complex, which is nearly empty. He sat in the concrete hull of his shop, which he cannot afford to complete, and cobwebs covered his shelf of treasured Pu’er cakes.

All around him, sitting on unsold sacks of tea, were idled farmers and merchants who bided their time playing cards, chain smoking and, of course, drinking endless cups of tea.

The rise and fall of Pu’er partly reflects the lack of investment opportunities and government oversight in rural Yunnan, as well as the abundance of cash among connoisseurs in the big cities.

Wu Xiduan, secretary general of the China Tea Marketing Association, said many naïve investors had been taken in by the frenzied atmosphere, largely whipped up by out-of-town wholesalers who promoted Pu’er as drinkable gold and then bought up as much as they could, sometimes paying up to 30 percent more than in the previous year.

He said that as farmers planted more tea, production doubled from 2006 to 2007, to 100,000 tons. In the final free-for-all months, some producers shipped their tea to Yunnan from other provinces, labeled it Pu’er, and then enjoyed huge markups.

When values hit absurd levels last spring, the buyers unloaded their stocks and disappeared.

“The market was sensationalized on purpose,” Mr. Wu said, speaking in a telephone interview from Beijing.

With its near-mythic aura, Pu’er is well suited for hucksterism. A favorite of emperors and imbued with vague medicinal powers, Pu’er was supposedly invented by eighth-century horseback traders who compressed the tea leaves into cakes for easier transport. Unlike other types of tea, which are consumed not long after harvest, Pu’er tastes better with age. Prized vintages from the 19th century have sold for thousands of dollars a wedge.

Over the past decade, the industry has been shaped in ways that mirror the Western fetishization of wine. Sellers charge a premium for batches picked from older plants or, even better, from “wild tea” trees that have survived the deforestation that scars much of the region. Enthusiasts talk about oxidation levels, loose-leaf versus compacted and whether the tea was harvested in the spring or the summer. (Spring tea, many believe, is more flavorful.)

But with no empirical way to establish a tea’s provenance, many buyers are easily duped.

“If you study Pu’er your whole life, you still can’t recognize the differences in the teas,” said Mr. Wang, the tea buyer. “I tell people to just buy what tastes good and don’t worry about anything else.”

Among those most bruised by the crash are the farmers of Menghai County. Many had never experienced the kind of prosperity common in China’s cities. Villagers built two-story brick homes, equipped them with televisions and refrigerators and sent their children to schools in the district capital. Flush with cash, scores of elderly residents made their first trips to Beijing.

“Everyone was wearing designer labels,” said Zhelu, 22, a farmer who is a member of the region’s Hani minority and uses only one name. “A lot of people bought cars, but now we can’t afford gas so we just park them.”

Last week, dozens of vibrantly dressed women from Xinlu sat on the side of the highway hawking their excess tea. There were few takers. The going rate, about $3 a pound for medium-grade Pu’er, was less than a tenth of the peak price. The women said that during the boom years, tea traders from Guangdong Province would come to their village and buy up everyone’s harvest. But last year, they simply stopped showing up.

Back at Menghai’s forlorn “tea city,” Chen Li was surrounded by what he said was $580,000 worth of product he bought before the crash. As he served an amber-hued seven-year-old variety, he described the manic days before Pu’er went bust. Out-of-towners packed hotels and restaurants. Local banks, besieged by customers, were forced to halve the maximum withdrawal limit.

“People had to stand in line for four or five hours to get the money from the bank, and you could often see people quarreling,” he said. “Even pedicab drivers were carrying tea samples and looking for clients on the street.”

A trader who jumped into the business three years ago, Mr. Chen survives by offsetting his losses with profits from a restaurant his family owns in Alabama. He also happens to be one of the few optimists in town. Now that so many farmers have stopped picking tea, he is confident that prices will eventually rebound. As for the mounds of unsold tea that nearly enveloped him?

“The best thing about Pu’er,” he said with a showman’s smile, “is that the longer you keep it, the more valuable it gets.”

http://www.nytimes.com/2009/01/17/world/asia/17tea.html?pagewanted=all

Credit Crisis -- The Essentials

Credit Crisis -- The Essentials
Latest Developments: Updated: Feb. 7, 2009

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Overview

By THE NEW YORK TIMES
In the fall of 2008, the credit crunch, which had emerged a little more than a year before, ballooned into Wall Street’s biggest crisis since the Great Depression. As hundreds of billions in mortgage-related investments went bad, mighty investment banks that once ruled high finance have crumbled or reinvented themselves as humdrum commercial banks. The nation’s largest insurance company and largest savings and loan both were seized by the government. The channels of credit, the arteries of the global financial system, have been constricted, cutting off crucial funds to consumers and businesses small and large.

In response, the federal government adopted a $700 billion bailout plan meant to reassure the markets and get credit flowing again. But the crisis began to spread to Europe and to emerging markets, with governments scrambling to prop up banks, broaden guarantees for deposits and agree on a coordinated response.

Origins

The roots of the credit crisis stretch back to another notable boom-and-bust: the tech bubble of the late 1990’s. When the stock market began a steep decline in 2000 and the nation slipped into recession the next year, the Federal Reserve sharply lowered interest rates to limit the economic damage.

Lower interest rates make mortgage payments cheaper, and demand for homes began to rise, sending prices up. In addition, millions of homeowners took advantage of the rate drop to refinance their existing mortgages. As the industry ramped up, the quality of the mortgages went down.

And turn sour they did, when home buyers had to leverage themselves to the hilt to make a purchase. Default and delinquency rates began to rise in 2006, but the pace of lending did not slow. Banks and other investors had devised a plethora of complex financial instruments to slice up and resell the mortgage-backed securities and to hedge against any risks — or so they thought.

The Crisis Takes Hold

The first shoe to drop was the collapse in June 2007 of two hedge funds owned by Bear Stearns that had invested heavily in the subprime market. As the year went on, more banks found that securities they thought were safe were tainted with what came to be called toxic mortgages. At the same time, the rising number of foreclosures helped speed the fall of housing prices, and the number of prime mortgages in default began to increase.

The Federal Reserve took unprecedented steps to bolster Wall Street. But still the losses mounted, and in March 2008 the Fed staved off a Bear Stearns bankruptcy by assuming $30 billion in liabilities and engineering a sale to JPMorgan Chase for a price that was less than the worth of Bear’s Manhattan skyscraper.

Sales, Failures and Seizures

In August, government officials began to become concerned as the stock prices of Fannie Mae and Freddie Mac, government-sponsored entities that were linchpins of the housing market, slid sharply. On Sept. 7, the Treasury Department announced it was taking them over.

Events began to move even faster. On Sept. 12, top government and finance officials gathered for talks to fend off bankruptcy for Lehman Brothers. The talks broke down, and the government refused to step in and salvage Lehman as it had for Bear. Lehman’s failure sent shock waves through the global banking system, as became increasingly clear in the following weeks. Merrill Lynch, which had not been previously thought to be in danger, sold itself to the Bank of America to avoid a similar fate.

On Sept. 16, American International Group, an insurance giant on the verge of failure because of its exposure to exotic securities known as credit default swaps, was bailed out by the Fed in an $85 billion deal. Stocks dropped anyway, falling nearly 500 points.

The Government’s Bailout Plan

The bleeding in the stock market stopped only after rumors trickled out about a huge bailout plan being readied by the federal government. On Sept. 18, Treasury Secretary Henry M. Paulson Jr. publicly announced a three-page, $700 billion proposal that would allow the government to buy toxic assets from the nation’s biggest banks, a move aimed at shoring up balance sheets and restoring confidence within the financial system.

Congress eventually amended the plan to add new structures for oversight, limits on executive pay and the option of the government taking a stake in the companies it bails out. Still, many Americans were angered by the idea of a proposal that provided billions of dollars in taxpayer money to Wall Street banks, which many believed had caused the crisis in the first place. Lawmakers with strong beliefs in free markets also opposed the bill, which they said amounted to socialism.

President Bush pleaded with lawmakers to pass the bill, but on Sept. 29, the House rejected the proposal, 228 to 205, with an insurgent group of Republicans leading the opposition. Stocks plunged, with the Standard & Poor’s 500-stock index losing nearly 9 percent, its worst day since Oct. 19, 1987.

Negotiations began anew on Capitol Hill. A series of tax breaks were added to the legislation, among other compromises and earmarks, and the Senate passed a revised version Oct. 1 by a large margin, 74 to 25. On Oct. 3, the House followed suit, by a vote of 263 to 171.

When the bill passed, it was still unclear how effective the bailout plan would be in resolving the credit crisis, although many analysts and economists believed it would offer at least a temporary aid. Federal officials promised increased regulation of the financial industry, whose structure was vastly different than it had been just weeks before.

The first reactions were not positive. Banks in England and Europe had invested heavily in mortgage-backed securities offered by Wall Street, and England had gone through a housing boom and bust of its own. Losses from those investments and the effect of the same tightening credit spiral being felt on Wall Street began to put a growing number of European institutions in danger. Over the weekend that followed the bailout’s passage, the German government moved to guarantee all private savings accounts in the country, and bailouts were arranged for a large German lender and a major European financial company.

And even as the United States began to execute its bailout plan, the tactics continued to shift, with the Treasury announcing that it would spend some of the funds to buy commercial paper, a vital form of short-term borrowing for businesses, in an effort to get credit flowing again.

Continued Volatility

When stock markets in the United States, Europe and Asia continued to plunge, the world’s leading central banks on Oct. 8 took the drastic step of a coordinated cut in interest rates, with the Federal Reserve cutting its two main rates by half a point.

And after a week in which stocks declined almost 20 percent on Wall Street, European and American officials announced coordinated actions that included taking equity stakes in major banks, including $250 billion in investments in the United States. The action prompted a worldwide stock rally, with the Dow rising 936 points, or 11 percent, on Oct. 13.

But as the prospect of a severe global recession became more evident, such gains were impossible to sustain. Just two days later, after Ben S. Bernanke, the Federal Reserve chairman, said there would be no quick economic turnaround even with the government’s intervention, the Dow plunged 733 points.

The credit markets, meanwhile, were slow to ease up, as banks used the injection of government funds to strengthen their balance sheets rather than lend. By late October, the Treasury had decided to use its $250 billion investment plan not only to increase banks’ capitalization but also to steer funds to stronger banks to purchase weaker ones, as in the acquisition of National City, a troubled Ohio-based bank, by PNC Financial of Pittsburgh.

The volatility in the stock markets was matched by upheaval in currency trading as investors sought shelter in the yen and the dollar, driving down the currencies of developing countries and even the euro and the British pound. The unwinding of the so-called yen-carry trade, in which investors borrowed money cheaply in Japan and invested it overseas, made Japanese goods more expensive on world markets and precipitated a steep plunge in Tokyo stock trading.

Oil-producing countries were hit by a sudden reversal of fortune, as the record oil prices reached over the summer were cut in half by October because of the world economic outlook. Even an agreement on a production cut by the Organization of the Petroleum Exporting Countries on Oct. 24 failed to stem the price decline.

Stock markets remained in upheaval, with the general downward trend punctuated by events like an 11-percent gain in the Dow on Oct. 28. A day later, the Fed cut its key lending rate again, to a mere 1 percent. In early November, the European Central Bank and the Bank of England followed with sharp reductions of their own.

Federal officials also moved to put together a plan to aid homeowners at risk of foreclosure by shouldering some losses for banks that agree to lower monthly payments. Detroit’s automakers, meanwhile, hard hit by the credit crisis, the growing economic slump and their belated transition away from big vehicles, turned to the government for aid of their own, possibly including help in engineering a merger of General Motors and Chrysler.

The leaders of 20 major countries, meanwhile, agreed to an emergency summit meeting in Washington on Nov. 14 and 15 to discuss coordinated action to deal with the credit crisis. The group agreed to work more closely, but put off thornier questions until next year, in an early challenge for the Obama administration.

The Crisis and the Campaign

The credit crisis emerged as the dominant issue of the presidential campaign in the last two months before the election. On Sept. 24, as polls showed Senator John McCain’s support dropping, he announced that he would suspend his campaign to try to help forge a deal on the bailout plan. The next day, both he and Senator Barack Obama met with Congressional leaders and President Bush at the White House, but their efforts failed to assure passage of the legislation, which went down to defeat in an initial vote on Sept. 29, a week before it ultimately passed.

The weakening stock market and growing credit crisis appeared to benefit Mr. Obama, who tied Mr. McCain to what he called the failed economic policies of President Bush and a Republican culture of deregulation of the financial markets. Polls showed that Mr. Obama’s election on Nov. 4 was partly the fruit of the economic crisis and the belief among many voters that he was more capable of handling the economy than Mr. McCain.

As president-elect, Mr. Obama made confronting the economic crisis the top priority of his transition. Just three days after his election, he convened a meeting of his top economic advisers, including the billionaire investor Warren Buffett; two former Treasury secretaries, Lawrence H. Summers and Robert E. Rubin; Paul A. Volcker, a former Federal Reserve chairman; and Eric E. Schmidt, the chief executive of Google. After their Nov. 7 meeting, he called quick passage of an economic stimulus package, saying it should be taken up by the the lame-duck Congressional session, and that if lawmakers failed to act, it would be his main economic goal after assuming office Jan. 20.

Mr. Obama also faced a host of other demands as president-elect, including calls to bail out the auto industry, particularly General Motors, which warned that it would run out of cash by mid-2009. And some economists and conservatives questioned whether, given the economic crisis, he could still meet some of his pledges from the campaign, like rapidly rolling back the Bush tax cuts, which some felt would hurt demand, and pushing ahead with his planned expansion of health care coverage, which could greatly increase a soaring deficit.

Deeper Problems, Dramatic Measures

With credit markets still locked up and investors getting worried about the big banks, Wall Street marked a grim milestone in late November when stock markets tumbled to their lowest levels in a decade. In all, the slide from the height of the stock markets had wiped out more than $8 trillion in wealth. The markets inched back in the weeks that followed as investors looked forward to a new administration and a huge economic stimulus package, but key indicators of the economy only got worse.

In December, an obscure group of economists confirmed what millions of Americans had suspected for months: the United States was in a recession. The economy had actually slipped into recession a year earlier, a committee of economists said, putting the current downturn on track to be the longest in a generation. Unemployment rose to its highest point in more than 15 years. Trade shrank. Home prices fell farther. As inflation virtually halted, economists began to worry about deflation, the vicious cycle of lower prices, lower wages and economic contraction.

Retailers suffered one of the worst holiday seasons in 30 years as worried consumers cut back, raising the likelihood that dozens more would join stores like Sharper Image, Circuit City and Linens 'n Things in bankruptcy.

On Dec. 16, the Federal Reserve entered uncharted waters of monetary policy by cutting its benchmark interest rate to nearly zero percent and declaring that it would deploy its balance sheet and essentially print money to fight the deepening recession and locked credit markets. Investors cheered, sending the Dow up more than 300 points, but many economists began to worry about the world's appetite for hundreds of billions of dollars in new Treasury debt.

Other countries followed the Fed with rate cuts of their own. Britain’s central bank a wave of refinancing that nevertheless skipped many homeowners.

But as Mr. Obama took office, investors were just as worried as ever, as evidenced by Wall Street’s worst Inauguration Day drop ever. The fourth-quarter corporate earnings season was marked by billion-dollar losses and uncertain outlooks for 2009. The economy showed no sign of turning around. And many lawmakers and analysts began to wonder whether the first $350 billion in bailout money had any effect at all. Banks that received bailout funds sat on their money, rather than lend it out to consumers or home buyers.

And bailout recipients such as Citigroup and Bank of America were forced to step forward for additional lifelines, raising one of the most uncomfortable questions a new president has ever had to address: Would the government nationalize the American banking system?

http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/index.html

How to Value Stocks

How to Value Stocks
By Motley Fool Staff May 23, 2008 Comments (3)

So just how do you value the shares of a company? Should you look at earnings, revenues, cash flow, or something else entirely? Do you need to apply one or several valuation methods to discern what the fair price for a share of stock would be?

In this series of informative articles, Fools can learn many ways to value a company's shares, as well as helpful methods to determine whether or not a stock is undervalued right now.

How to Read a Balance Sheet
These articles explore the mechanics of a balance sheet and define the items that go into one. Readers will understand how to use this knowledge most effectively to pick stocks.

Introduction to Valuation Methods
How do you value the shares of a publicly traded company? This helpful series details the many and varied ways one can understand the fundamentals about a company's business to value its shares. You can learn to use earnings, revenues, cash flow, equity, dividend yield, and subscribers to figure out how much a company is worth.

Return on Equity
Disarmingly simple to calculate, return on equity (ROE) stands as a crucial weapon in the investor's arsenal if properly understood for what it is. ROE encompasses the three main "levers" by which management pokes and prods the corporation -- profitability, asset management, and financial leverage. This series walks you through how to use ROE to value stocks.

A Look at ROIC
(Return on Invested Capital)It isn't profit margins that determine a company's desirability; it's how much cash can be produced by each dollar of cash that is invested in a company by either its shareholders or lenders. Measuring the real cash-on-cash return is what return on invested capital (ROIC) seeks to accomplish. This series is an introduction to how ROIC is calculated.

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http://www.fool.com/investing/beginning/how-to-value-stocks.aspx

Madoff Topples Zsa Zsa School of Investing

Madoff Topples Zsa Zsa School of Investing
By Selena Maranjian
February 5, 2009 Comments (1)


A few years ago, I spotlighted Zsa Zsa Gabor as a surprising source of investing insights. Now I'm having second thoughts.

Gabor, who's now almost 92, is in the news again. Why? Well, there's a summary of the situation on a website in her native Hungary, and although it reads like Greek to me, one word in particular stands out ... Madoff. Yes, Zsa Zsa's one of the many customers apparently duped by Bernie Madoff.

Avoiding scams
The glamorous Ms. Gabor has my sympathy, as do all of Madoff's victims. They were swindled, plain and simple. Still, some of them might have suffered less if they'd followed some basic investing rules. For example:

Diversify!
I'm not suggesting you should own hundreds of stocks. Heck, even eight might be enough, as long as they're distributed among different industries and maybe even a few different countries. It appears that many Madoff victims left the lion's share of their wealth in his hands. That's always risky, no matter how much you trust someone.

Tend to your asset allocation
If you have decades to retirement, you might want to be 100% in stocks, as they tend to grow fastest over the long haul. If you have only a few years, you might want to keep some money in bonds. Considering that Gabor is in her 90s, she might do well to keep a chunk of her money in conservative income-producing dividend payers. Here are some contenders -- companies with dividend yields above 3%:

Company
Recent dividend yield

Bristol-Myers Squibb (NYSE: BMY)
5.5%

ArcelorMittal (NYSE: MT)
5.1%

Consolidated Edison (NYSE: ED)
5.7%

Kraft Foods (NYSE: KFT)
4.4%

Titanium Metals (NYSE: TIE)
3.9%

Sysco (NYSE: SYY)
4.0%

Spectra Energy (NYSE: SE)
6.8%


Source: Motley Fool CAPS.


A free, no-obligation trial of our Motley Fool Income Investor service will give you dozens of researched recommendations, many yielding 8% or more.

Be skeptical
Finally, Gabor and others should have been wary of Madoff's relatively consistent returns. Know that the stock market has always gone up over the long haul -- but as we were reminded sharply in 2008, it can swing wildly from year to year.

Don't wait until you're 92 to brush up on your investing basics. They're your best defense against swindles, scams, and other Wall Street dangers.

http://www.fool.com/investing/dividends-income/2009/02/05/how-madoff-swindled-one-of-my-favorite-investors.aspx

Panic of 2008

The Wall Street Panic of 2008
By Todd Wenning
October 8, 2008 Comments (14)


Panic: In economics, acute financial disturbance, such as widespread bank failures, feverish stock speculation followed by a market crash, or a climate of fear caused by economic crisis or the anticipation of such crisis.
-- Britannica Online

Make no mistake -- by this definition, what we've witnessed so far in 2008 is nothing less than a global market panic.

Acute financial disturbance? Freddie Mac and Fannie Mae imploded. Bear Stearns got "rescued" along with AIG (NYSE: AIG), but somehow Lehman Brothers wasn't saved. Money markets "broke the buck," and there was a formal bank run on IndyMac.

Feverish speculation followed by a crash? Our housing bubble fueled excessive borrowing and risky lending practices, resulting in the credit crisis we're now dealing with. The S&P 500 is down 31% year to date, erasing the past five years of market gains.

Climate of fear? U.S. investor sentiment is at record lows, and the CBOE Volatility Index (the "fear index") has posted all-time highs in recent days. No one seems to know where the next shoe will drop.

The list, sadly, could go on.

Don't panic
Of course, no one wants to call this a market "panic." Instead, in most places it's been labeled a "crisis." In fact, the term "panic" hasn't been widely used to describe a market since the Panic of 1907 -- which is unfortunate, because understanding this as a panic has something to teach us.

In the 19th century (the high time for market panics), Yale professor William Graham Sumner defined a panic as:

... a wave of emotion, apprehension, alarm. It is more or less irrational. It is superinduced upon a crisis, which is real and inevitable, but it exaggerates, conjures up possibilities, takes away courage and energy.

In other words, the subprime and credit mess is the "crisis," and the "panic" is the exaggerations and doom-and-gloom language that come with it. We've seen plenty of that in recent months. Three of the world's major financial publications have likened our current economy to the Great Depression more than 250 times so far this year. So please, let's call this market by its proper name: the Panic of 2008.

Fortunately, "a panic," Sumner continued, "can be partly overcome by judicious reflection, by realization of the truth, and by measurement of facts."

Let us be judiciously reflective
So what do the panics of the early 20th century tell us about how we might overcome this one?

The last official panic -- the Panic of 1907 -- shook the U.S. economy to its core. Wall Street brokerages failed, depositors ran on banks, well-known companies went under, and the market's liquidity was in question. (Sound familiar?) In this instance, J.P. Morgan and friends famously put together $25 million to keep the market afloat -- a role now occupied by the Federal Reserve. By 1909, the Dow Jones index had more than recovered from pre-panic highs.

In 1914, the year the Great War began in Europe, the U.S. stock markets actually closed for nearly four months after foreign investors began pulling their money out of U.S. equities en masse to support the war effort. When it reopened, the market was devalued about 30%, but sustained rallies doubled that opening by the end of 1916.

Then, of course, came the Great Depression -- the single most important economic event in U.S. history -- which began with the Crash of 1929 and lasted arguably until the U.S. entered World War II in 1941. In 1932, unemployment hit 24.9%, and more than 9,000 banks failed during the 1930s. And there were no federally insured deposits until the Banking Act of 1933 created the FDIC, so when the bank failed, your money went with it. In fact, Wall Street's very future -- not to mention the economic model of capitalism -- was in question.

For those investors who had both the money and the courage to invest in the 1930s, it paid off. One man famously borrowed money to buy 104 U.S. stocks trading for less than $1 a share in 1939. Talk about investing at the point of maximum pessimism! Four years later, though, his money had quadrupled. His name, of course, was John Templeton.

OK, what's your point?
Judicious reflection, realization of the truth, and measurement of facts all say the same thing: We've seen markets like today's before -- and some far worse. And in every case, the point at which the market has turned irrational or overly pessimistic is precisely the time we long-term investors should have bought equities.

Despite the headlines proclaiming the next Great Depression, this is no Great Depression -- only a panic helped along by the short-term mind-set of the financial industry. Financial media's job is to attract readership by sensationalizing news events, and financial institutions, which are built on commissions and fees, want to keep money moving in and out in order to bulk up their own revenues. So both fan the flames of panic.

Individual investors like us do not have the advantage versus Wall Street when it comes to short-term trading, but we do have longer time horizons. Wall Street focuses on minutes, hours, and days, while we focus on years and decades. And that's what makes their panics a good time for us to buy.

Let's take the most modern example of market irrationality -- the dot-com bubble and subsequent burst -- and see what's happened to some quality names since the S&P 500 was near its low in September 2002.

Company
Returns (9/30/2002-Present)

Cisco Systems (Nasdaq: CSCO)
80%

Oracle (Nasdaq: ORCL)
113%

Schlumberger (NYSE: SLB)
264%

CVS Caremark (NYSE: CVS)
139%

Baxter (NYSE: BAX)
127%

Adobe Systems (Nasdaq: ADBE)
201%


Data provided by Capital IQ. Returns adjusted for dividends.


You didn't need to be a market genius to invest in these names in 2002. They were all well-known to both consumers and investors. All six had been beaten down considerably by the bear market, though, and that downturn presented investors with excellent opportunities to buy great companies at great prices.

Ironically enough, however, the third quarter of 2002 had the fewest equity-based mutual fund assets of the entire post-dot-com bust. Put simply, investors bailed on the market at exactly the wrong time.

It's still scary
Don't get me wrong -- some of the financial headlines we've seen over the past few months are downright frightening. But it's important to not join the panic and to keep a long-term perspective on market panics, booms, crises, and everything in between. In this market, that means you should keep investing, and make sure you're diversified.

At our Motley Fool Stock Advisor investing service, Fool co-founders Tom and David Gardner had a lot of success picking up great companies during the post-dot-com bust. Their long-term focus helped them add names like Amazon.com at a time when the market wanted nothing to do with them -- and their picks are subsequently beating the market by 30 percentage points on average.

They're taking a similar approach now, and count top brand names such as Starbucks among their "best buys" right now. To see what else they're recommending, take a free, 30-day trial. Click here to get started -- there's no obligation to subscribe.

This article was originally published on Sept. 4, 2008. It has been updated.

Todd Wenning panics at the sight of clowns, but at little else. He does not own shares of any company mentioned. The Fool, on the other hand, owns shares of Starbucks, which is a Stock Advisor and an Inside Value pick. Amazon is a Stock Advisor recommendation. The Fool's disclosure policy keeps a steady hand.
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Investing for income: Dividend yield and Dividend cover ratio

Investing for income: Where savers can escape zero interest rates
As deposit accounts pay next to nothing, dividends on shares seem attractive. But you'll need to choose carefully.

By Richard Evans Last Updated: 3:06PM GMT 06 Feb 2009
The Bank of England's decision to cut interest rates to 1pc means that many savers will now receive virtually no return from their money. As a result, many will be looking for alternative homes for their nest eggs. Among the options are dividend-paying shares.

"Cash-rich individuals will be scouring the stock market in search of a decent income from their savings," according to DigitalLook.com, the private investors' website.

Many large companies pay decent dividends once, twice or even four times a year. The yield – the dividend expressed as a percentage of the share price – is often attractive by comparison with interest rates on savings. There are now a wide range of blue chip companies yielding 4pc or more, DigitalLook said.

When comparing a dividend yield with the interest rate on a savings account, however, certain warnings should be borne in mind.

1. The first point is that your capital is not guaranteed; share prices can and do fall.
2. Secondly, dividends can be cut drastically or axed altogether with little or no notice – and this can lead to a fall in the share price as well.

So just buying the shares with the highest dividend, without researching how safe that dividend is, can be a mistake.
"There are now a huge range of high yielding blue chips but it is best to look for a dividend that is less likely to be cut even if that company's profits fall," said Andy Yates of DigitalLook.

The long-established measure of a dividend's reliability is dividend cover: the ratio of net profits to the size of the dividend payout.

Generally, a cover ratio of at least two – meaning that the company has twice as much net earnings as the amount earmarked for dividend payments – is considered a strong indicator.

A high yield alone is not synonymous with a decent dividend.

Shares in Land Securities yield 9.5pc, for instance, but this reflects investors' concerns about the property market.

There are companies that analysts expect to have a good chance of sustaining their dividends. These include AstraZeneca, the drug maker, International Power and Sage Group, the software firm, according to DigitalLook.

Mr Yates pointed out that an increasing number of companies, including Xstrata, the miner, and JD Wetherspoon, the pubs group, have announced over the past few weeks that they are going to skip their dividends.

But careful research should enable investors to sidestep enough potential problems to build up a well diversified high-income investment portfolio, he added.

"If you carry out thorough research and pick the right shares, you will get better value for your cash than by leaving it in a savings account."

The table below is a selection of FTSE100 companies with a forecast dividend yield of at least 4pc and a dividend cover of two or more.
Source: DigitalLook.com. Based on averaged forecasts from analysts at over 20 investment banks and stockbroking firms as of Feb 5 – forecasts on dividends excludes all UK listed banks
Data as on 05/02/09 at 12.30

Forecast
Forecast

Name
Forecast Dividend Yield...Forecast Dividend Cover

Prudential
5.80% ...4.1

WPP Group
4.20% ...3.4

Next
4.70%...2.8

FirstGroup
7.40% ... 2.6

InterContinental Hotels Group
5.00% ... 2.6

International Power
4.80% ... 2.6

Thomas Cook Group
6.30% ... 2.4

AstraZeneca
5.60% ... 2.4

Rolls-Royce Group
4.60% ... 2.4

Whitbread
4.70% ... 2.3

Smiths Group
4.00% ... 2.2

Aviva
10.60% ...2.1

Reed Elsevier
4.20% ... 2.1

Sage Group
4.10% ... 2.1

TUI Travel
5.30% ... 2

Imperial Tobacco Group
4.20% ... 2

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4537565/Investing-for-income-Where-savers-can-escape-zero-interest-rates.html

Savings: Where should I put my money?

Savings: Where should I put my money?
Savers have had a rough time of late, but they really shouldn't despair.

By Harry Wallop, Consumer Affairs Editor Last Updated: 7:50PM GMT 05 Feb 2009

Yes, savings rates are the lowest since the 17th Century. But that doesn't mean you should not lock your hard-earned money into iron chests and place into your cellar, as Samuel Pepys did during the Great Fire of London.
For starters there is the stock market. Yes, really. Unless you genuinely believe capitalism is dead, the stock market should be considered. It has consistently outperformed every other asset class, including property during the last century.
Only last week, I topped up the Wallop children's child trust funds – confident that when they are allowed to touch the money, it will be worth a great deal more than if I put the money into Premium Bonds.
Shares are likely to tread water for the next year or two, but in the intervening period most companies should pay out a dividend to their shareholders.
BP, for instance, intends to pay a dividend of £7.70 for every £100 invested. Okay, it is conceivable in these unprecedented times that this oil giant will cut payments to shareholders, but it seems a risk worth taking.
If you don't have the luxury of time – a prerequisite for investing in shares – there are other options.
Most savings accounts pay out less than 1.5 per cent, but there are banks desperate for your money and prepared to offer unprofitable (for them) rates if you scout around.
Standard Life Bank's Easy Access ISA has a rate of 3.5 per cent – a remarkable rate of return, considering Bank rates have hit just 1 per cent.
Or you can always turn to the last refuge of the desperate: gold, which is proving an impressive, if volatile, performer during the financial crisis.
Either buy the stuff via gold exchange traded funds, which trade on the stock market, or pop down to a bullion dealer and buy a bar of the hard stuff.
You can then store it in your cellar.

http://www.telegraph.co.uk/finance/economics/interestrates/4528415/Savings-Where-should-I-put-my-money.html

IMF confident in ability to aid crisis victims

IMF confident in ability to aid crisis victims
By Chris Giles in Davos
Published: January 30 2009 13:37 Last updated: January 30 2009 13:37

The International Monetary Fund expressed confidence on Friday that its members would ensure the fund remains adequately funded and able to support any country that might be hit by the global financial crisis.
Speaking to the Financial Times at the World Economic Forum in Davos, John Lipsky, the deputy managing director of the IMF, said the institution was seeking to double its financial firepower to come to aid any country that needs its support in the downturn.

EDITOR’S CHOICE
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In depth: Davos 2009 - Jan-28
Mandelson warns on public finance - Jan-30
Video: Bill and Melinda Gates on aid outlook - Jan-30
Erdogan returns to mixed reaction - Jan-30
HSBC pushes for G20-style business grouping - Jan-30

It has already received a pledge of $100bn of contingent reserves from Japan last November and is seeking another $150bn to enable it to lend to countries facing sudden capital flight.
“I am very confident our membership will not allow the situation to emerge where the fund has insufficient resources to fulfil its mandate and responsibilities,” Mr Lipsky said.
Predictions from the Institute of International Finance this week showed the net capital flows to emerging are likely to fall to only $165bn this year, less than a fifth of the level two years ago with banks making a net withdrawal of capital.
Such potential repatriation of cash will place many emerging economies in a vulnerable position, especially those countries with large current account deficits who rely on large capital inflows, Mr Lipsky said.
The IMF wants to make its finances bullet proof so that it can lend to any emerging economies that experience a sudden withdrawal of funds.
In recent weeks, attention has been drawn to the possibility of Southern European countries, Ireland and the UK being vulnerable to a sudden flight of international capital.
Although the IMF does not see signs of imminent need to get involved in any of these countries, officials are making contingency action plans should the need arise. It thinks that the better its finances, the more confidence it can bring to markets, making any intervention a much more remote possibility.
Mr Lipsky downplayed the possibility of the financial crisis morphing into an external financing crisis for large industrial countries. He continued to urge countries to act quickly with necessary reforms to remove uncertainty from financial institutions and to provide stimulus for their economies. “In current circumstances it is preferable to commit errors of commission rather than omission,” he said.
Mr Lipsky reiterated the fund’s pessimistic view of economic prospects in the world for 2009, which is likely to record the slowest rate for world output growth since the second world war.
But he stressed there were forces for recovery – lower energy prices, China’s expected growth, the continued spending of oil exporting countries even as energy prices fall, the lack of leverage of non-financial companies – which would help the world emerge from recession in 2010.
Refusing to discuss the aggressive comments of Tim Geithner, the US Treasury secretary, regarding the Chinese currency, he nevertheless pointed to the failure of all the world’s leading economies to address trade imbalances before they contributed to the current economic crisis. He said the policies agreed by the US, eurozone, China, Saudi Arabia and Japan, in 2006 and 2007 to deal with global imbalances “were applied with insufficient vigour”.
In this respect he praised the Chinese stimulus package as something the IMF was counting on to restore global growth. “The [Chinese] policies put in place are consistent with its long-term interests,” he said because they would encourage domestic expansion rather than the previous focus on exports.

http://www.ft.com/cms/s/0/f1c9c6d8-eed1-11dd-bbb5-0000779fd2ac,dwp_uuid=261fcad4-db24-11dd-be53-000077b07658.html

When globalisation goes into reverse

When globalisation goes into reverse
By Gideon Rachman
Published: February 2 2009 19:10
Last updated: February 2 2009 19:10

The World Economic Forum in Davos.

For the past decade, the Davos meeting has brought together big business, high finance and top politics to promote and celebrate the integration of the global economy. Whatever their business rivalries or political differences, the Davos delegates all agreed that the road to peace and prosperity lay through more international trade and investment – globalisation, in short.

But this year the forum has had to confront a new phenomenon – deglobalisation. The world that Davos Man created is slipping into reverse. International trade and investment is falling and protectionist barriers are on the rise. Economies are shrinking and unemployment is growing.
The symptoms of deglobalisation are all around us. Last week, it was reported that global air cargo traffic in December 2008 was down 22.6 per cent compared with December 2007. Abhisit Vejjajiva, prime minister of Thailand, told the forum that tourist receipts in his country had fallen by about 20 per cent year-on-year, in line with the general decline in international travel (and stripping out the effects of the temporary closure of Bangkok airport). In the US and Europe, governments are scrambling to bail out not just banks but also car companies. But, as the European Union has long acknowledged, “state aid” to national industrial champions is a form of protectionism.
Then there is “financial mercantilism”, the talk of this year’s Davos. This is the growing pressure on banks and financial institutions to retreat from international business and concentrate on domestic markets. Trevor Manuel, South Africa’s finance minister, captured the fears of many when he warned that his country and other emerging markets were in danger of being crowded out of international capital markets and of “decoupling, derailment and abandonment”.
Financial protectionism is driven by the logic of the market and political pressure. Banks that have lost confidence and capital in the credit crunch are retreating to the home markets they know best. And because so many banks have been bailed out by national taxpayers, they are also coming under political pressure to lend at home rather than abroad.

http://www.ft.com/cms/s/0/be73375a-f134-11dd-8790-0000779fd2ac,dwp_uuid=261fcad4-db24-11dd-be53-000077b07658.html?nclick_check=1

Three breeds of rogue trader

Three breeds of rogue trader

The most effective traders, says Hugo Pound, managing director of management consultants RDI, tend to be disciplined, innovative and brave. They enjoy challenges and pushing boundaries. Unfortunately, that profile also fits a different breed of trader – the rogue, writes Tom Drew.

Pound is a psychologist, and part of his job is to weed out potential troublemakers from top banks’ new recruits: “The problem is that after some success, they realise that there is more personal reward available through fraud than they can ever achieve through the system.”
He says fraudulent traders can be divided into three psychological profiles:

• the rogue trader,
• the cover-up artist, and
• the benevolent rebel.

A rogue trader must know what he’s doing (and it almost always is a “he”) and be solely motivated by personal financial gain.

The cover-up artist has been playing double or quits and keeps on losing, “so they carry on digging a deeper and deeper hole … in the hope that they will sort themselves out”.

And the benevolent rebel breaches boundaries set by an employer or government authority because he believes that, eventually, it will all come good.

Using Pound’s definitions, Nick Leeson was not a rogue trader at all, but a cover-up artist. As such, Pound thinks he was treated harshly, absorbing most of the blame for a bank whose systems and controls had failed. Jérôme Kerviel, apparently driven by a desire for corporate profit, not personal gain, falls into the benevolent rebel category. “I personally don’t have any experience of traders who have knowingly stepped over the boundary for their own benefit,” says Pound.

He believes it is difficult to measure the incidence of benevolent rebels because much of the time they are successful and stay unnoticed – or are even rewarded. “Banks don’t want to reward the safe traders because they’re not the ones who make the money. So it’s very difficult to get a line between rewarding real, brave [workers] and the people who go too far.”

http://www.ft.com/cms/s/2/2d78785c-e755-11dd-aef2-0000779fd2ac.html

Josef Ackermann's bravado doesn't match reality at Deutsche Bank

Josef Ackermann's bravado doesn't match reality at Deutsche Bank
Josef Ackermann’s bravado surely can’t be shaken, not if it wasn’t undone by last quarter’s horror show.

By Jeffrey Goldfarb, breakingviews.comLast Updated: 1:52PM GMT 05 Feb 2009
The Deutsche Bank boss remains confident about his investment-banking-heavy business model. He thinks the group can power through a financial crisis and potentially deep recession, despite reporting its first annual loss since just after the Second World War.
Such steely resolve is usually a comfort to investors. But not all of them share Ackermann’s iron-clad view that Deutsche Bank can survive – and “emerge successfully” from this mess – without additional capital, or any siphoning of its gargantuan balance sheet into a government-sponsored “bad bank”.
Deutsche Bank struggled to offer sufficient evidence on Thursday to support its stubborn resistance to such rescue measures. None of its divisions churned out any meaningful profit in the fourth quarter – which led to a €3.9bn net loss for the year. Big gains in foreign exchange and money markets were more than offset by disappointment from the core trading areas of credit and equity derivatives.
What’s more, Deutsche Bank seems to be exhausting its bag of available tricks to deleverage and sustain its capital ratios. A dividend cut released funds that had been accumulated for a higher payout, while a change in pension plan accounting freed up still more.
Some of the bank’s sizeable balance sheet reduction also was down to a bit of smoke and mirrors. Its hefty leveraged loan exposure all but disappeared when two US buyouts collapsed, and another €11bn of assets vanished under new accounting rules.
The woeful performance of the investment bank, the lower profits generated by the retail bank and the loss of funds from private banking and asset management make it hard to see where Ackermann gets his mettle. He is making adjustments, to be sure, but remains “firmly committed to the business model”.
Ackermann touted significant revenue gains in January as one reason to cheer. But it will take considerably more walking the walk to justify the swagger.

http://www.telegraph.co.uk/finance/breakingviewscom/4525321/Josef-Ackermanns-bravado-doesnt-match-reality-at-Deutsche-Bank.html

Writedowns push Deutsche Bank to first full-year loss

Writedowns push Deutsche Bank to first full-year loss
Deutsche Bank has posted its first full-year loss in more than 50 years after a catastrophic three months for its core investment banking business.

By Philip AldrickLast Updated: 7:07PM GMT 05 Feb 2009

Josef Ackermann, CEO of Deutsche Bank addresses the media during the bank's annual news conference in Frankfurt. Photo: REUTERS

Germany's largest lender was hit by heavy writedowns and a plunge in revenues from trading debt and other products. A €5.8bn (£4bn) loss in the investment bank pushed the group to a record fourth quarter net loss of €4.8bn and a full year loss of €3.9bn.
Chief executive Josef Ackermann put on a brave face, insisting that the bank would not need government support and that the worst of the crisis was over. Revenues had recovered "significantly" in January to €2.8bn and Deutsche will pay a 50 cent dividend, "confidence in the bank's future performance", he said. The company paid a dividend of €4.50 in 2007.
Although refusing to rule out more "earthquakes", he said: "[The conditions] exposed some weaknesses in our business model. We are therefore repositioning our platform in some core businesses ... We are certain Deutsche Bank will emerge from this crisis stronger."
Further job losses are likely this year, he said, but not at the levels of last year, when 1,200 positions were axed and the proprietary trading desk closed. Mr Ackermann said last month that the bank expects no more "material negative impact" from leveraged loans, commercial real estate and other credit investments.
Germany's financial flagship has recently reinvented itself as a retail bank, striking a deal to buy 22.9pc of German post-office lender Deutsche Postbank for €1.1bn. Mr Ackermann reaffirmed plans to step down in May 2010 and added that the bank currently had no need for fresh capital.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4525618/Writedowns-push-Deutsche-Bank-to-first-full-year-loss.html

----

Deutsche Bank in first quarterly loss in five years

By Philip AldrickLast Updated: 12:50AM BST 01 May 2008

Deutsche Bank said it had managed to limit its losses through the sale of stakes in Daimler, Allianz and Linde
German financial giant Deutsche Bank has suffered its first quarterly loss in five years as conditions worsened to what chief executive Josef Ackermann described as "the most difficult in recent memory".
Worsening trading due to the credit crunch has forced the bank to write down €2.7bn (£2.13bn) of assets and scale back forecasts for its successful investment banking activities.
Finance director Anthony di Iorio added to the gloom by stating that the crisis had made it impossible to provide an accurate forecast for the full year. "These are very uncertain times - the markets are unpredictable," he said.
Deutsche reported a pre-tax loss of €254m for the first three months of the year, against a €3.16bn profit a year earlier, and saw revenues in its investment bank dwindle from €6.1bn to €880m as markets in key business areas such as leveraged finance and structured credit dried up. Analysts were phlegmatic about the writedowns but questioned whether the bank's core divisions could continue to operate successfully in the current environment.
Mr Ackermann, who has been among the most outspoken members of the industry on the need for new regulation, said:
"In the first quarter of this year, the financial market conditions were the most difficult in recent memory. In March, pressure on the banking sector was more intense than at any time since the current credit downturn began."
Deutsche said it had managed to limit its losses through the sale of stakes in Daimler, Allianz and Linde. Without these gains, the net loss would have climbed from €141m to €1.1bn.
Unlike British rivals, Mr Ackermann has not resorted to capital raisings. He stressed the bank was "well positioned to emerge stronger than ever from the crisis".

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2789203/Deutsche-Bank-in-first-quarterly-loss-in-five-years.html

Recession: glimmers of hope?

Recession: glimmers of hope?
The first glimmers of hope are starting to emerge across the world, reports Ambrose Evans-Pritchard.

Last Updated: 3:28PM GMT 05 Feb 2009

Glimmer of hope: the Baltic Dry Index measuring freight rates for iron ore and other bulk goods has been creeping up for two months after crashing 94pc in the worst fall in shipping history.
The pace of economic decline is slowing. Housing sales are picking up, even if prices are falling. Credit markets have begun to thaw.
This is the time-honoured pattern you expect to see when the downward spiral burns itself out and the cycle slowly starts to turn, helped this time by an unprecedented global monetary and fiscal blitz. But it may equally be a false dawn.
The Baltic Dry Index measuring freight rates for iron ore and other bulk goods has been creeping up for two months after crashing 94pc in the worst fall in shipping history. Copper prices are also edging up after plunging by two-thirds from their June peak. So are lumber prices.
The debt markets have opened like a flower in spring, at least in one sense. Companies issued $246bn (£171bn) in bonds in January, the most since the credit crisis began. France's EdF has raised €9bn (£8bn). Shell and RWE each raised €3bn this week. Blue-chip groups can borrow again.
"The mood is upbeat. There are swathes of cash pouring back into credit," said Suki Mann, a credit strategist at Société Générale. "The market closed down after the Lehmans collapse so there was a lot of pent-up demand, but they are having to pay materially higher spreads than pre-Lehmans."
So far this has not helped the rest of the corporate universe. Average yields on BBB-rated debt are a prohibitive 19.6pc. "The market is absolutely closed. There is no trickle-down yet," he said.
The interbank freeze has started to thaw, again in one sense. David Buik, from BGC Partners, said interest spreads on three-month dollar Libor have come down to 1pc from the extremes above 2pc at the height of the panic. "The cost of money is coming down, but the banks are still not lending to each other. It's virtually moribund," he said.
The US Federal Reserve's loan survey this week showed that lending is again picking up, albeit tentatively. The number of banks expecting to tighten credit has fallen from 80pc in the autumn to nearer 60pc, the lowest in a year.
Mortgage demand has stabilised, though that is small comfort in a country where 19m homes are standing empty and foreclosures are running at 6,000 a day. The number of evictions reached 2.2m last year. But at least the Fed is taking drastic action by purchasing mortgage securities (with printed money) in order to drive down the costs of home loans. The rate for 30-year mortgages has fallen to 5.28pc from 6.5pc two months ago.
The first fruit of these actions is ripening. Pending home sales rose by 6.3pc in December, led by the South and Midwest, a sign that the great glut of unsold houses may start to clear – albeit at very low prices, and very slowly. Some 45pc of the all homes sold in December were foreclosures or distressed sales.
US house prices have fallen 27pc from their peak, according to the respected Case-Shiller index, dropping every month since July 2006. They will fall further. The downward momentum is overwhelming, and the $200bn "option-arm" time-bomb is only just starting to detonate as these rates ratchet up. But it is telling that the shares of builders D.R. Horton, Toll Brothers, and Lennar have begun to rally. The ITB builders share index has risen 45pc from its nadir in December.
The bloodbath in manufacturing industry across the world since September has been frightening – Korea's GDP fell by an annualised 21pc rate in the fourth quarter – but the leading indicators in a clutch of countries look slightly less awful. China's PMI purchasing index rebounded for a second month in January, even if actual output has been declining for four months.
"There are tentative signs of stabilisation. China's manufacturing is no longer in free-fall," said BNP Paribas.
The indexes also bounced in the US, the eurozone, and Britain, despite cataclysmic car sales. The inventory cycle of the OECD club of rich states may be turning. Companies ran down their stocks during the credit crunch when capital costs soared. At some point this process must exhaust itself, forcing companies to start producing again. Michael Vaknin from Goldman Sachs said we are getting "closer to the point" in the re-stocking cycle where industrial output stabilises.
Veterans of Japan's Lost Decade know that these moments of optimism can be intoxicating – and costly. Japan had four bear market rallies before investors finally had the stuffing knocked out of them. Global debt deflation this time may prove just as powerful.
"Nothing moves down in straight lines," said SocGen's perma-bear Albert Edwards. "There will be little bounces. But our view is that investors can afford to be lazy and wait. There is not a cat's chance in hell that this really is the bottom of the cycle."

http://www.telegraph.co.uk/finance/4514330/Recession-glimmers-of-hope.html

How to play the coming gold price jump

Questor: how to play the coming gold price jump
Questor explains why it thinks gold is a good investment and the options available to those looking to invest.

Garry WhiteLast Updated: 3:01PM GMT 04 Feb 2009
Questor's view
Gold has always been about wealth preservation - it does well in a time of crisis.
In good times there are better ways to make money than buying gold. However, equities are now volatile, house prices are falling and current interest rates make saving unattractive. Significantly, people no longer trust the banking system.
In the last few months gold has hit a series of all-time highs in sterling terms because of weakness in the pound - and it is likely to rise further.
Questor feels that now is a good time to look at all the different ways investors can buy into gold, be it coins, bullion or via funds. Questor is not recommending any specific dealers in the metal, but points you in the direction of the World Gold Council (WGC) investor website (www.invest.gold.org)
Click on "where to invest" and you will find a list of dealers in each of the different asset classes. There is a substantial amount of information on the site regarding gold and enough information to decide which asset is best for your own circumstances.
Questor remains a bull of gold through 2009 and urges investors without exposure to buy.
Here are some options available to investors.
Gold coins
The premium on gold coins such as sovereigns and Krugerrands has widened recently as demand for the coins has accelerated.
This means you have to pay more than their weight in gold to make a purchase.
This premium, which could be as much as 20pc, is partly due to their current popularity, but also because of what they are. You are, in effect, buying a piece of history. This will always demand a premium.
To find out more about premium, discuss this with a coin dealer listed on the World Gold Council's website. They should only be too happy to help.
Gold coins are an easy way of storing your wealth and they are easily transported. However, this means that you must pay attention to storage – and there will be insurance costs to consider as well.
Gold bars
You can also buy gold bars through bullion dealers. However, storage and insurance is a problem here too.
There are a number of organisations and mints which run certificate schemes for gold in their vaults.
This means you can invest in the precious metal without having to store the bars yourself. You receive a certificate of deposit showing how much gold is allocated to you.
Perhaps the most famous is the Perth Mint Certificate from Australia. This programme is the only government guaranteed certificate program in the world.
The same service is provided by a number of European organisations too – see the WGC website.
However, there are storage costs associated with this way to play gold. Make sure you check out all the details of the certificate programme before you invest.
Gold funds
Gold exchange traded funds (ETFs) have been around since 2003. It is a way of buying into movements in the gold price without physically storing the metal yourself.
Investors may be aware that in September a number of ETFs were suspended as they were backed by AIG products.
However, one gold ETF that was not suspended because it is backed by real gold was the ETF Securities Physical Gold fund, which trades on the London Stock Exchange under the symbol PHAU.
Some investors may have a US trading account. In this situation they may like to buy the world's largest gold ETF fund streetTRACKS Gold, which is listed in the US under the symbol GLD.
Gold shares
One of Questor's tips of the year is gold miner Centamin Egypt.
The company is set to become a gold producer in the second quarter of this year at the Sukari mine in Egypt.
A detailed analysis of the company was published in this column on Tuesday this week. The shares have risen 13pc since their recommendation and remain a buy.
Silver
Silver is also a precious metal that should not be ignored.
The price of silver tends to move with the gold price – and should the gold price spike, Questor expects that the silver price will rise too.
Questor's recommended investors buy into the world's largest silver producer Fresnillo on January 18.
The shares are up 34pc, after the silver price jumped 17pc since the recommendation was made. Shares in Fresnillo remain a buy.
The technical view
Although Questor does not believe technical analysis alone is a solid basis for making an investment decision, it is a useful tool. So, it is worth taking a look at the situation right now.
Citigroup analyst Yutaka Yoshino believes that the gold price could reach $1,190 or $1,300 in March or May. He thinks that gold has upward resistance at $933 an ounce (the current price is $901).
He argues that a push through $933 would increase the likelihood of gold renewing last spring's all-time high at an early stage.
However, if it fails to breach this level, it would be vulnerable to a pull back and any upward spike will be delayed until March or May.

http://www.telegraph.co.uk/finance/markets/questor/4512793/Questor-how-to-play-the-coming-gold-price-jump.html

Benjamin Graham's timeless key investing principles

Benjamin Graham's timeless key investing principles

Published: 2009/01/28


This is the first in a weekly series of articles by the Securities Industry Development Corp to help educate investors.
"TO ACHIEVE satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks." - these were the wise words of Benjamin Graham, the father of two fundamental investment disciplines - security analysis and value investing.
Not a name unheard of in the investing world, Benjamin Graham was an icon for many, including William J. Ruane and Irving Kahn. One of his most loyal and notable disciples, however, was Warren Buffet.
There is no better way to learn how to make it big in the investing world than learning it from the best and it doesn't get any better than Benjamin Graham.
Benjamin Graham was born in the UK in 1894 and moved to US when he was eight and a half years old. Although he came from a poor family, he was exceptionally bright at a young age. He graduated from Columbia University in 1914 and started his investment career by joining Wall Street as a financial analyst.
He established his first private investment organisation, the Benjamin Graham Joint Account, at the age of thirty two. During the Great Depression, between 1929 and 1932, he lost 70 per cent of his US$2.5 million (RM9.05 million) fund. Although some of his clients gave up, his fund managed to survive the worst, and by 1935, he recovered all the losses.
What did Graham consider as critical elements to successful investing? Here, we will briefly note the investing principles propoun-ded by Benjamin Graham.

* Understand the difference between investment and speculation.
Graham established a clear distinction between an investment and a speculation. To qualify as an investment, it must go through analysis, must have a good margin of safety and a satisfactory return. Speculation, on the reverse, merely involves timing and profiting from market fluctuation.

* Do a detailed analysis as stocks represent a share of business.
In the process of doing a detailed analysis, investors need to have the mindset of treating stock purchasing as if they own a piece of the business to evaluate stock prices from the perspective of the underlying asset value, financial strength and future earning prospect, instead of focusing on the short-term fluctuation of the market. This is regarded as the intrinsic value of the company.

* Build Margin of Safety.
Graham's most famous and influential motto is 'margin of safety'. The experiences that he cumulated during the frenzy of the Great Depression made a deep impression on him. He became a very cautious investor whose number one investment concern is the safety of investment principal.
If the intrinsic value of a stock is RM1 and you buy the stock at the price of 67 sen, then your margin of safety is 33 per cent. This serves as a cushion to your investment in the case of a market downturn or to provide you with a margin of error in calculating the intrinsic value, so that the chances of you losing your principal are at the lowest.

* Have a realistic return objective.
The objective of making an investment is to make money. However, Graham warns against aiming for unrealistic return objective. If you expect an abnormally high return from your investment, chances are you will be exposing yourself to unnecessary risk in order to achieve your return objective, which will become speculation instead of investment.
There is no short cut or quick ways to making money. Graham's way of investing is to set a realistic return objective and making investments based on sound investment principles and having the discipline to follow through.

* Treat the market as servant, not master.
Graham believes that risks and returns do not increase proportionately. He sees the opportunities in market volatilities. To him, the stock market is manic-depressive and investors should go for a bargain hunt during a market down turn.
The risk of investment can be significantly reduced if investors understand the business and apply good judgment based on the above first three elements in searching for good fundamental stocks, which are temporarily depressed due to market reasons.
However, he discourages making decisions based on any form of forecast and timing of the market. Instead, the decision making should be made based on price attractiveness.
Graham's stock selection criteria include a price-to-book ratio of 1.5 times, price-to-earnings ratio of below 20 times and debt-to-equity ratio of 0.5 times.
From the above, you can observe that Graham advocates defensive investing approaches. This later became the foundation of the investing principles of the famous investing guru, Warren Buffet, who learned about the quantitative screening process from Graham while working in Graham's company.
However, for a lay person to successfully apply Graham's approaches, you need to be prepared to overcome some hurdles. You need to do a lot of hard work and have good accounting knowledge in order to dissect the financial information provided in the annual report or other financial publications.
In addition to that, you will have to be highly sensitive to any news that will affect the performance of the company or the relevant industries. Having the ability to derive your own conclusion from your research, you will also then need to have the determination and faith in your work so as to prevent yourself from being blown away by the market.

This is the first in a weekly series of articles by the Securities Industry Development Corp to help educate investors. Incorporated in March 2007, SIDC is a leading capital markets education, training and information resource provider. For more tips on wise investing, log on to www.min.com. my

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC1/Article/index_html

Jim Rogers and his theories of relativity

Jim Rogers and his theories of relativity
Jim Rogers. Investing legend or so the Alabama-born financial maven would like us to believe.

By Jame Quinn, Wall Street Correspondent Last Updated: 6:57PM GMT 03 Feb 2009

Jim Rogers is one of the best-known and most vocal investors in the world
Ever since the bow-tie wearing, world-travelling Mr Rogers appeared on the scene as one of the co-founders of the Quantum fund – along with George Soros – a vehicle that delivered a 4,200pc increase in value in a decade, he has not been shy about sharing his views with the world.
From commodities to oil to the dollar, when he speaks, the investment community tends to listen. That appeared to be true two weeks ago when he took on Gordon Brown and slammed sterling, saying the City of London was finished, and that the UK would be too once the North Sea's oil reserves ran dry.
The pound responded quickly, hitting a 24-year low later that day, as followers appeared to agree.
But as the Royal Bank of Scotland's Ross Walker and David Simmonds promptly pointed out, the UK has been running an oil deficit for four years, and manufacturing contributes more to the UK economy than the Square Mile ever has done.
Not that that stopped Mr Rogers predicting just last week that sterling would again reach parity with the dollar.
The problem with Mr Rogers' rants, however – as the past fortnight has perhaps shown – is that he is not always as right as he seems to think he is.
Take one of his more recent punts, on the rise of China and the growth of the Asian region as an economic superpower – a viewpoint in which he believes so strongly he has relocated to Singapore and is teaching his young children Mandarin.
But China's growth is slowing, and fast. From an annualised growth rate of 9pc in the third quarter of 2008, the International Monetary Fund predicts the Chinese economy will grow by 6.7pc in this year, its slowest pace of growth for more than seven years.
The Chinese economy is stagnating – as seen in news that more than 20m rural migrant farm workers had lost their jobs by the start of the recent lunar new year festivities. Mr Rogers may yet prove to be right in the long term, but not right now.
When it comes to oil, Mr Rogers has long been a bull, predicting a price of $200 a barrel long before last summer's $140-plus price squeeze, and again as recently as this month.
But his thesis is predicated on a lack of supply, which perhaps seems valid, until you look at his other theories.
After all, one of Mr Roger's favourite current mantras is that the US economy is ruined, thanks in part to the mishandling of the recent crisis by the Bush administration.
So, given that the US remains far and away the largest consumer of oil, if its economy is in freefall, surely its need for oil will wane sharply, freeing up supply?
The investment "guru" also contradicts himself by being bullish on the future of shares in airlines, a sector that tends to be crippled by high oil prices.
One of his most resounding ideologies is his unnerving belief in the value of commodities, which led to him being coined the "commodities king".
So fervent is his belief that in 1998 he even set up a tradable commodities index in his name - the Rogers International Commodities Index (RICI).
But, unfortunately for him and for those who have invested in it, the RICI delivered a negative return of 41.35pc in 2008 in large part due to the slump in commodity prices at the tail-end of last year. As a result, the index's return since inception, as at the end of December, was 159.36pc, a five-year low.
The RICI – which is based on a "basket" of 36 commodities – is led by the man himself, along with a committee of eight others from banks including Merrill Lynch and UBS.
Interestingly, crude oil and Brent account for 35pc of the indices' weighting, perhaps in part explaining the recent fall in its value.
To be fair, Mr Rogers has in the past admitted he is not the best when it comes to timing, and that when it comes to short-term trading, he is "horrible".
Behind the sound-bites for which he has become known, he recently admitted that if it hadn't been for shorting US banks and investing in the Japanese yen, his own personal portfolio wouldn't have made a profit last year.
Mr Rogers has proven to be bang on the money in the past, and his current overriding mantra, that Asian economies will replace those of the West, will be no doubt proven correct in the long-term.
But, to paraphrase an old adage, you shouldn't believe everything you hear, no matter who it is that's saying it.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4446729/Jim-Rogers-and-his-theories-of-relativity.html