Thursday, 16 February 2012

Why Buffett is cold on gold


One of Buffett’s favourite topics of late has been investors’ fascination with gold and with cash (in the form of bonds). As usual, Buffett explains a complex issue in simple terms.

Buffett characterises gold as one of the assets “that will never produce anything, but that are purchased in the buyer's hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future”.

I can already hear the gold fans shouting at this point. The last few years have seen the price of gold skyrocket.
With the risk of government default and the inflationary effects of '‘quantitative easing'’ (a gentleman’s expression for cranking up the printing presses to deflate the currency and stimulate demand), many see gold as something real, solid and measurable – an asset whose quantity can’t simply be increased at the whim of a nervous central banker.


Read more: http://www.watoday.com.au/business/motley-fool/why-buffett-is-cold-on-gold-20120214-1t3vk.html#ixzz1mUwlnkqP

UK: Helping savers would push Britain back into recession

Mervyn King: helping savers would push Britain back into recession
The Governor of the Bank of England has ruled out help for savers hit by “negligible” returns on their savings, warning that moves to reward their prudence would tip the economy back into recession.

Sir Meryvn King also suggested that growing household savings rates are one reason for Britain’s recent poor economic performance.
He also warned that the UK economy is set to “zig-zag” between growth and contraction this year, partly because of an additional bank holiday for the Diamond Jubilee.
The Governor was speaking amid growing public and political unease about the impact of the Bank’s emergency measures – pumping £325 billion of new money into the economy and Bank rate at a historic low – on savers and pensioners.
Those policies have cut the returns on savings and annuities to record lows. Saga, a campaign group, estimates that more than 1 million pensioners have retired with permanently lower retirement incomes because of the impact of the Bank’s quantitative easing programme.
Savers have also been hit by high inflation, though the bank predicted that inflation will fall back to 1.8 per cent by the end of 2014, easing the recent squeeze on household budgets.
Sir Mervyn insisted he understood the problems facing savers, but made clear he believes he can do nothing to help.
“I have deep sympathy with those who are totally unconnected with the origins of the financial crisis who suddenly find that the returns on their savings have reached negligible levels,” he told a press conference. "These are consequences of the painful adjustment prompted by the financial crisis and the need to rebalance our economy."
The Bank could respond by increasing Bank rate from its current level of 0.5 per cent to 4 or 5 per cent, he said. But that would push up the exchange rate, depress investment and consumer spending “and we would go back into a recession.”
“All groups in society are suffering from the financial crisis,” Sir Mervyn said, insisting that there can be no special help for particular groups. “Difficult though it is, we have to make a difficult judgement about the right course of action for the economy as a whole.”
During periods of economic turmoil, many people save more because they are worried about their future prosperity.
According to the Bank’s latest Inflation Report, the household savings ratio increased sharply during the recession. Even though it has fallen back since, the latest figures show households are still saving 6.6 per cent of their disposable income on average, well above the pre-crisis levels of 2007.
The report also suggested that saving may yet rise again, because “households may want to increase the amount that they save due to other factors, such as the need to save more for future retirement provision.”
Sir Mervyn said that savings were effectively acting as a brake on the economy:One of reasons for slow growth in the last year was weakness of consumer spending and higher savings by household.”
The economy shrank in the last quarter of 2011, but the Bank predicted there will not be a second consecutive contraction, meaning no “double-dip” recession.
Growth this year will be around 1.2 per cent, but the expansion will be uneven. “For much of this year, there is likely to be a zigzag pattern of alternating positive and negative quarterly growth rates,” Sir Mervyn said.

http://www.telegraph.co.uk/finance/personalfinance/savings/9084399/Mervyn-King-helping-savers-would-push-Britain-back-into-recession.html

UK Inflation Report

Sir Mervyn King has got his mojo back


Biff! (Photo: Bloomberg)
Sir Mervyn King hasn’t looked so relaxed for ages. The Bank of England Governor even found time at the Inflation Report press conference to quip, when asked whether he had trouble sleeping given the risks in the economy, that he’d “given up not sleeping at night and decided to sleep instead”.
When he wasn’t cracking jokes, he was hitting back at his critics and claiming bullishly that Britain was light years ahead of the rest of the developed world in dealing with its problems.
“We said that inflation would come down. It is coming down,” he said. “Certainly, those people who said [money printing] would lead us down the path of the Weimar Republic and Zimbabwe have been proved wrong.” Biff. One in the solar plexus for those testy economists.
“More than any other advanced economy, we are in the position that we’ve put in place the conditions that are needed to make that big adjustment,” he continued. “There is a credible medium-term fiscal plan to put our deficit in shape and to get back to a point where the ratio of national debt to GDP can begin to fall back.” Boff. One on the chin for the US and the awkward squad in the eurozone.
Coming on the back of a year in which Sir Mervyn endlessly reminded us all how terrible life would be (sharpest decline in living standards since the 1920s, seven lean years, that kind of thing), this was a Governor not just in high spirits but on fighting form.
The fall in inflation from 4.2pc to 3.6pc last month and the Bank’s outlook that it will be below 2pc before the year-end was probably behind his good mood. Having written nine letters in a row to the Chancellor to explain why inflation was so far above target, the last being on Monday, he has the genuine prospect of putting down his pen for a while now.
Declining inflation will allow the Bank – and the Governor – to justify its decision not to tackle high inflation by raising rates. And as it falls, the pressure on household finances will ease – so clearing the Governor’s conscience of the one ill side-effect of the Bank’s policy. “The ease on real incomes is already being seen,” he even ventured.
Beyond that, though, there was not much good news for the rest of us. The recovery will be “a zig-zag pattern of alternative positive and negative quarterly growth rates”. The right policy may be in place to get Britain back on track, but it will “take a long time”. The euro crisis still poses an unknowable risk and, even if the problems are contained, the UK will face headwinds to growth. Households will also have to face up to “a marked reduction in their future earning prospects”.
There is little more that policy can do to get the recovery motoring, either. Sir Mervyn pointed to the “automatic stabilisers”, the benefits that kick in to help those who lose their jobs, for example, and “supply side reforms”, roughly translated as improving taxes and regulations to encourage businesses to hire and invest. Hardly the big economic kick desired.
“Patience is a virtue I would urge on all of us,” he said. Rates look like remaining at 0.5pc through to March 2014 and there may even by more quantitative easing on top of the £325bn committed already.
Waiting for the recovery may be made easier by low borrowing costs and improving family finances, but that’s about as optimistic as the Governor suggested we can get.


http://blogs.telegraph.co.uk/finance/philipaldrick/100014950/sir-mervyn-king-has-got-his-mojo-back/

The 5% Money Management Rule

By Richard Krivo, Trading Instructor
21 October 2010 21:51 GMT 
Student’s Question:
I've read somewhere that you should risk no more than 5% per trade. I've been trading 3% per trade and probably open 4 positions a day. So I've been risking 12% per day. Listening to one of your webinars on this 5% topic, should I then risk 1.25% per trade (5% in total)? I was always under the impression that "no more than 5% per trade" meant every trade you open should not be risking more than 5% of your account.eg. $1000: 1st trade: can risk $50, 2nd trade (first trade still open): can still risk $50, etc.
Instructor’s Response:
The 5% rule pertains to the TOTAL amount of the account balance at risk at any one time...NOT on any individual trade. So, if you have one trade open, 5% is the maximum allowable risk. If you have two trades open it would 2.5% per trade and so forth. Think of it this way, if it were 5% per trade, a trader could open five trades risking 5% on each trade and still be within the rules. What would prevent a trader from opening up ten trades and only risking 5% on each one? There has to be something that prevents the trader from over leveraging their account and that something is the “5% risk at any one time” part of the rule. Otherwise, as you can see from the previous 5% per trade example, the trader with five trades with 5% account risk on each one would have 25% of their account at risk and the trader with ten trades would have had 50% of their account at risk. Clearly, neither of those would be a situation in which a prudent trader would want to find themselves
Learn more about the 5% rule and determine the appropriate leverage for your account:
--- Written by Richard Krivo, Trading Instructor



Income-seekers beat frozen bank rates

By   


Last updated: February 7th, 2012
icicles in St Petersburg
Base rates are still frozen - despite rapid inflation
Nearly three years after base rates were frozen at a historic low of 0.5pc,despite inflation running about 10 times that level, savers and investors are waking up to this slow-motion bank robbery – and pouring money into share and bond-based funds to preserve its real value or purchasing power.
Equity income and corporate bond funds dominated the best-selling individual savings accounts (Isas) last month, according to Skandia Investments; one of the biggest Isa platform providers. Nor is Skandia talking its own book. Rival managers M&G and Invesco Perpetual took seven of the top 10 slots.
With the best easy access deposit accounts paying 2.5pc before tax, what’s not to like about shares yielding 3.3pc net of basic rate tax – to take the FTSE 100 index of Britain’s biggest blue chips as a benchmark – or corporate bonds yielding even more?
It ain’t rocket science. Other sources, including Capita – Britain’s biggest share registrars – have been reporting rising investment by individuals for months now. Shares not only offer a higher initial yield to income-seekers but also the prospect of capital gains in future, if the current recovery in stock markets continues.
True, there is no guarantee that you will get your money back from investments in shares or corporate bonds; the latter being IOUs issued by big companies. In both cases, stock market setbacks may mean you get back less than you invest. But unit and investment trusts provide a convenient and effective way to diminish the risk inherent in stock market investment by diversification.
While the Government adheres to its unspoken policy of running negative real interest rates to inflate away its debts, the only certainty bank and building society deposits offer to long term savers is the certainty of becoming poorer slowly. Yorkshire Building Society reckonsthe average savings account lost nearly £2,500 of its real value over the last decade.
Perhaps the big surprise is that it took so long for people to wake up to what is going on. Most bank and building society deposits’ apparent security is a sham over anything other than the short-term while they fail to match the rate at which inflation is eroding what these savings can buy.
http://blogs.telegraph.co.uk/finance/ianmcowie/100014666/income-seekers-beat-frozen-bank-rates/

Wednesday, 15 February 2012

UK Unemployment

Why Buffett is cold on gold


Scott Phillips
February 14, 2012 - 2:36PM

Each year, usually toward the end of February, many investors look forward to the release of the Berkshire Hathaway (NYSE:BRK-A, BRK-B) annual report.
The numbers are useful, but a key highlight for most readers is Berkshire chairman and CEO Warren Buffett’s letter to shareholders.
For the uninitiated, this isn’t your usual public company CEO spiel. For too many (but not all) listed companies, the pieces written by their key office holders are little more than spin – documents written to reassure investors that their money is invested in the right place, and that their management and board is doing a great job.
Of sins and all-stars
Buffett’s letter is different. For as long as he has been writing these letters, Buffett has used them as a tool to share more information with his investors. He and Berkshire’s vice-chairman Charlie Munger take an approach of treating investors as partners, and Buffett has written these letters to convey the information he’d want to know, were the positions reversed.
Buffett’s letters are part information update, part investment lesson. He’s quick to admit his mistakes and quick to praise the managers of the Berkshire Hathaway businesses that have succeeded throughout the year. He also takes great care to share his thoughts on investing in general and on the issues of the day in particular.
In that vein, investors keenly read an abstract of Buffett’s upcoming letter to shareholders which was published online by Fortune magazine.
‘You can fondle it, but it won’t respond’
One of Buffett’s favourite topics of late has been investors’ fascination with gold and with cash (in the form of bonds). As usual, Buffett explains a complex issue in simple terms.
Buffett characterises gold as one of the assets “that will never produce anything, but that are purchased in the buyer's hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future”.
I can already hear the gold fans shouting at this point. The last few years have seen the price of gold skyrocket.
With the risk of government default and the inflationary effects of '‘quantitative easing'’ (a gentleman’s expression for cranking up the printing presses to deflate the currency and stimulate demand), many see gold as something real, solid and measurable – an asset whose quantity can’t simply be increased at the whim of a nervous central banker.
The need for monetary mothballs
Buffett agrees – but with the diagnosis, not the treatment. Buffett agrees that holding cash is a path to the poor-house. In fact, he says they may be “thought of as “safe”. In truth they are among the most dangerous of assets.”
While the nominal dollar value of your investment may be protected, the purchasing power of that cash is being eaten away while it sits there. To cement the point, Buffett remarks that the US dollar has fallen in value by 86 per cent since 1965, due to just that phenomenon.
The Oracle of Omaha restates the greater fool (note the lower case ‘'f'’!) theory: “the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth – for a while”.
The case for shares
Instead, and unsurprisingly, Buffett makes the case for investing in shares – the productive capacity of democratic capitalism. He also gives a sense of the best businesses to own. Buffett prefers '‘first-class'’ companies that can keep up with inflation and that also require only minimal new capital to produce their returns. Buffett cites Coca-Cola (NYSE:KO) as one such example.
He says “I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by far the safest.”
That’s a critical point – equities are often characterised as risky, volatile and complex (and some companies’ shares can be all three), but when compared to the risk taken by buying assets that don’t sustain your purchasing power, Buffett argues that the safest way to secure your financial future is to swap some shorter term volatility for longer term ‘'purchasing power'’ protection.
The article is accompanied by a picture – which may or may not have been Buffett’s work – comparing the returns from investing in the three asset classes discussed since 1965.
$US100 invested in US government bonds would have compounded to be worth $US1336 by the end of 2011. Gold would have far outpaced cash, turning into $US4455, but equities would have done over one-third better, compounding its way to $US6072.
Foolish take-away
For what it’s worth, I think the difference will be more pronounced in 10 years time. Stocks are still fighting their way back from the recent slump and gold is riding the wave of uncertainty - I think each is likely to revert to the mean in due course, widening the gap.
Oh, and in case you were wondering, the same $US100 in Berkshire Hathaway book value in 1965 became $US490,000 at the end of 2010 (the most recent data available).
Ignoring Buffett’s words in the past has been an expensive exercise – it’s a brave person who does so now.
Scott Phillips is The Motley Fool’s feature columnist. Scott owns shares Berkshire Hathaway and Coca-Cola.


Read more: http://www.watoday.com.au/business/motley-fool/why-buffett-is-cold-on-gold-20120214-1t3vk.html#ixzz1mPIFJsyt

Tuesday, 14 February 2012

Darkest Days of Lim Kit Siang and Lim Guan Eng

Bank of England pumps more cash into economy


February 10, 2012

The Bank of England voted to inject more cash into the economy to shore up a fragile recovery and shield the country from fallout from the unresolved euro zone debt crisis.
The central bank said on Thursday it would buy another 50 billion pounds of assets - mostly government bonds - with freshly printed money, taking the total to 325 billion pounds, as economists had expected. The BoE also left its key interest rate at a record-low 0.5 per cent.
The cash boost is welcome news for the government, which has come under pressure again to loosen its austerity drive after the economy shrank at the end of 2011 and unemployment hit its highest level in more than 17 years.
"Some recent business surveys have painted a more positive picture and asset prices have risen," Bank of England Governor Mervyn King said in a letter to finance minister George Osborne, explaining the decision.
"But the pace of expansion in the United Kingdom's main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries," he added.
The central bank said inflation would have probably fallen below the target of 2 per cent over the medium term without further easing, as a significant amount of unused capacity in the economy was bearing down on prices.
Some improvement in Britons' real incomes was set to support a gradual recovery this year, though the tight credit conditions and the government's austerity measures presented headwinds.
Osborne said the central bank's loose monetary policy continued to play a "critical" role in supporting the economy as he continued his austerity program, and remained the main tool to respond to changes in the outlook.
Vote split?
Sterling rose to a session high against the US dollar while gilts reversed gains on Thursday after the BoE decision.
The BoE surprised markets in October by deciding to restart its program of gilt purchases funded earlier than expected, going on to buy 75 billion pounds' worth of gilts over four months, largely to shield Britain from the euro zone crisis.
This time around, a majority of analysts polled by Reuters had penciled in a 50 billion pound injection over three months. But most were surprised by what the BoE described as an "operational" decision to focus its gilt purchases on slightly shorter maturities than before, to avoid market frictions.
Many economists expect further increases in quantitative easing in May, although they also noted that some policymakers may already have second thoughts about more easing.
"We still think that QE2 has much further to go," said Vicky Redwood from Capital Economics. "There is a chance that today's decision was not unanimous, with those members less convinced that inflation will fall sharply, for example Spencer Dale, perhaps voting to keep the asset purchase program at 275 billion pounds."
The minutes from the two-day Monetary Policy Committee meeting will be released in two weeks, but economists will get an earlier steer when BoE Governor Mervyn King presents fresh quarterly inflation forecasts next week.
Inflation fell from the three-year peak of 5.2 per cent in September to 4.2 per cent in December, and policymakers have voiced confidence that it will dip below the BoE's 2 per cent target later this year, as predicted in November.
With the government's hands tied by its pledge to erase the country's huge budget deficit over the next five years, the onus to boost the faltering economy is firmly on the central bank, though doubts about the impact of its easing continue to linger.
Britain's recovery from a deep slump during the 2008-2009 financial crisis has been weak so far, and the contraction of the economy in the final quarter of 2011 stoked fears of a renewed recession.
But recent surveys indicated that manufacturers and service firms made a surprisingly strong start to the year, and on Thursday data showed that industrial production already rebounded in December from the slump in the previous months.
In addition, the European Central Bank's long-term liquidity operation in December eased banks' funding strains and associated money market tensions.
Reuters


Read more: http://www.smh.com.au/business/world-business/bank-of-england-pumps-more-cash-into-economy-20120210-1s5w7.html#ixzz1mJ6O6hMg

The Four Big Threats to Your Wealth in 2011 (Toxic Investments)



Uploaded by  on Apr 7, 2011



The Four Big Threats to Your Wealth in 2011 (MoneyWeek Magazine)

UK Housing threat
UK Stock market threat
Drop the Euro before it collapses
The "bond bubble" is about to burst


The fact is we're in unchartered territory ... and it's a very dangerous and unstable situation.

Does a 40% rise in the FTSE and a 9% rebound in property prices over the last 18 months seem right to you?

The way we see it, these aren't healthy markets at all ... they're not even recovering markets ...
...these are grossly inflated markets, pumped up by desperate government intervention.

Will the UK economyh sink into deflation if the Government follows through its pledge to rein in our national debt? ...

... Or, with the Bank of England's furious attempts to keep the ball rolling, is it inflation we have to fear?


So ... what should you do?
Survival Action #1 Buy defensives and "bear market protectors"

Defensive stocks: These kinds of companies don't need economic growth to make money, because people have to spend on their products out of necessity. In short, they're specifically suited to keep your portfolio ticking over in times of upheaval ... and GROW when the market truly recovers.


Survival Action #2 Get the right dividend players into your portfolio now

But since the bust up of 2008, investors have rediscovered the appeal of dividend cheques. This is for three reasons ...

1. Dividends outperform bond yields. According to Bloomberg, by the third quarter of 2010 more U.S. stocks were paying dividends that exceed bond yields than any time in the last 15 years.
2. Dividends can't be fudged - they have to be paid with real money.
3. Dividend-payers are excellent stocks to own in times of unprecedented uncertainty.
Dividends contribute to share price stability. If the share price of a dividend-paying firm falls, it is likely to fall less sharply than a pure growth stock. That's because as the price falls, the yield tends to pick up, encouraging investors to buy back in.


Survival Action #3 Ride gold all the way to $2,230 .. or even more!
... you're talking an eye-popping gold spike to $23,450 per ounce. And during times of confusion, gold often performs better than most other assets. Consider this ... adjusted for inflation, the 1980 gold peak of $850 gives you a price of $2,230 still on the horizon today.

Plantation Stocks

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