Chapter 8: The Investor and Market Fluctuations
An investor must prepare both financially and psychologically for the fluctuations certain to occur in the market.
There are two ways an investor tries to profit from fluctuations:
1. Timing: Buy when you think the price will go up, and then sell once it goes up.
2. Pricing: Buy when the price is below fair value and sell once it reaches or exceeds fair value.
Consistent market timing is exceptionally difficult, as is evident by the countless market predictions and forecasts by industry professionals that differ from actual events by a wide margin. The variety of these predictions is great enough that an investor can make any move he chooses and find a prediction that supports this move.
Graham goes so far as to say it is absurd to think that the general public can ever make money out of market forecasting. There is no basis in logic or history to believe otherwise.
With regard to the pricing approach, Graham says that this is also extremely difficult to properly execute. Cycles often last for 5 years or more which causes people to lose their nerve and act irrationally. For example, in a prolonged bull market, people may fear being left behind, so they buy at the slightest indication of a bear market, feel vindicated as the prices escalate further, and then lose when the real bear market returns.
Also, any signals identified by experts to help determine whether this is a bear or bull market have been shown to be inconsistent in successfully identifying the position in the market cycle.
Conclusion: If you are banking on market fluctuations, you will not consistently perform well. Market fluctuations are not sound portfolio policy!
The intelligent investor uses a formulaic approach to determine whether stock prices have risen too high and he should sell, or prices have dropped significantly, and he should buy. Or, in other words, if he should alter the allocation of stocks to bonds in his portfolio (as per the tactical asset allocation policy that Graham discusses in previous chapters). The ideal approach is the rebalancing approach discussed in previous chapters (varying from 50-50 allocation to up to 75-25, and reviewing at set intervals throughout the year).
Business Valuation and Stock-Market Valuation
The stock market is paradoxical in that the highest grade stocks are often the most speculative because they gain great premiums over book value and are based more on the changing moods of the market and its confidence in the premium valuation it had put on the company in the first place. Thus, for conservative investors, they would be best to focus on companies with relatively low premiums placed upon them - a market rate no more than 1/3 above the net tangible-asset value.
However, a stock does not become sound because it can be bought close to asset value. The intelligent investor must also demand a satisfactory price-earnings ratio, sufficiently strong financial position, and the prospect of earnings being maintained over the years.
Intelligent Investors with portfolios close to the net tangible asset valuation of the underlying companies need worry less about stock market fluctuations than those who paid high multiples of earnings and assets. The intelligent investor should disregard the market price and not allow the mistakes that the market will make in its valuation to affect his feelings about the business. Do not let the market’s madness fool you into selling your shares at a loss - such a move requires reasoned judgment independent of the market price.
It is in this chapter that Graham creates the oft-cited Parable of Mr. Market. Essentially, you area private business owner. You own a share that you purchased for $1,000. Your partner is Mr. Market. Every day, Mr. Market quotes you a price for your interest and also offers to sell you his interest for the same price. Sometimes the quote is rationally connected with the business. On other days, it is clear that Mr. Market’s enthusiasm or fear has gotten to him, and the value he has placed is irrational. Graham says the Intelligent Investor would only let Mr. Market’s daily quote affect him if the Intelligent Investor agrees with the price (due to his own analysis of the value of the company), or he wants to buy from or sell to Mr. Market. Unless you want to transact with Mr. Market, you would be wiser to make your own analysis of the value of the company. If you want to transact, then you must compare Mr. Market’s value to the value you reached independently. This parable reflects the way a stock market investor should treat his relationship with the stock market.
Monday 20 April 2009
Sunday 19 April 2009
What will it take to become a multi-millionaire?
What will it take to become a millionaire?
Interesting calculator to help set one's goal.
http://partners.leadfusion.com/tools/motleyfool/savings01/tool.fcs
INPUT
Current age
Desired age to be a millionaire
Amount you have invested
$
Amount you can save monthly
$
Your savings rate
%
Your federal tax rate
%
Your state tax rate
%
Inflation rate
%
RESULTS
If you invest $50,000 now and $500 monthly at 6.00%, you'll be a millionaire in 44 years at age 81.
To be a millionaire at age 65, you'll need to:
Increase the amount you invest now to $218,691 , or
Increase your monthly investment to $1,344 , or
Achieve a rate of return of 11.17%.
When adjusted for inflation, $1 million in 44 years would be equivalent to $277,174 today.
GRAPHS
Interesting calculator to help set one's goal.
http://partners.leadfusion.com/tools/motleyfool/savings01/tool.fcs
INPUT
Current age
Desired age to be a millionaire
Amount you have invested
$
Amount you can save monthly
$
Your savings rate
%
Your federal tax rate
%
Your state tax rate
%
Inflation rate
%
RESULTS
If you invest $50,000 now and $500 monthly at 6.00%, you'll be a millionaire in 44 years at age 81.
To be a millionaire at age 65, you'll need to:
Increase the amount you invest now to $218,691 , or
Increase your monthly investment to $1,344 , or
Achieve a rate of return of 11.17%.
When adjusted for inflation, $1 million in 44 years would be equivalent to $277,174 today.
GRAPHS
Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life".
Value Investing Conference 2008 #5
Keynote: Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life". Introductory remarks by John Macfarlane.
Fear Is Your Friend
Fear Is Your Friend
By Andrew Sullivan, CFA April 17, 2009 Comments (1)
Warren Buffett said back in October that he was buying U.S. stocks. In his widely publicized editorial in the New York Times, he didn't seem all that concerned about our ailing economy. And in times past, he's been right. But since October:
- The U.S. consumer confidence index hit three consecutive all-time lows.
- Trade activity has collapsed, with shipping rates from Asia to Europe hitting zero for the first time ever.
- Citigroup (NYSE: C) was brought to its knees -- its shares falling 75% since Buffett's article.
- The weak economy pummeled energy prices along with bellwethers like ExxonMobil (NYSE: XOM).
That's scary news, but I'd imagine Mr. Buffett is aware of all of the above. Yet the world's smartest investor is probably still buying. What the heck is he thinking? Isn't he concerned about the ongoing banking crisis, trillion-dollar bailouts, and skyrocketing unemployment? How could he see opportunity in a time like this?
Looking into the future
Buffett is buying because he can see the future. He can see the future not because he secretly spent a billion dollars to construct H. G. Wells' time machine in his basement. Nor did he hire Google to build an algorithm that can predict the future. His smarts are based on a simple way of viewing the markets and valuing businesses that anyone can grasp.
Buffett realizes that you buy stocks for the future, not the present. When you buy a share, you should do so with thoughts of owning that business for decades, not just the next few years. He also knows that the driving impulse of a capitalist society is to grow. Armed with this knowledge, he bought stocks like PetroChina (NYSE: PTR), Coca Cola (NYSE: KO), and The Washington Post when no one wanted them, and made quite a killing at it -- with his Berkshire Hathaway-fueled personal fortune worth $62 billion dollars at last count.
Buffett really does see the future.
And the future he sees now is drastically different from what the pundits would have you believe. Buffett sees a future in which banks function on their own, in which the U.S. innovates, in which the economy grows, and in which stocks are valued based on normal growth prospects.
Fear is your friend
When you take this sort of long-term view, the horrific market indicators above are actually your friends because they lower prices of the stocks you are interested in. Fear is your buddy. Doom and gloom are close pals. Economic devastation is your friend. In fact, you should want the market to freak out because there is no other easy way to get a fantastic price for a business. Of course, I'm speaking in an investing sense -- obviously a recession is no fun on a day-to-day basis. But fortunes are built in times like these.
Why should you care about a few years of poor results if someone is willing to sell you that business for a song? In two or three years, you could be sitting pretty while the seller will be left with only remorse.
But of course, we want to be choosy with our investments in these turbulent times, so we suggest you focus on:
- Companies with good track records (earnings per share growth, return on equity)
- Companies with strong balance sheets (low debt-to-equity ratios)
- Companies highly rated by the Motley Fool CAPS community (four stars or better, out of five)
- I fired up the handy CAPS screening tool and found 86 companies with at least a $5 billion market cap, long-term debt-to-equity under 50%, an EPS growth rate of 10%, and return on equity above 20%.
Here are three results I find interesting:
Company Name
CAPS Rating (out of 5)
Market Capitalization ($B)
LT Debt-to-Equity Ratio
EPS Growth Rate (last 3 Yrs)
Return on Equity (TTM)
Becton, Dickinson & Company (NYSE: BDX)
*****
16.3
16%
16%
25%
ITT (NYSE: ITT)
*****
7.6
15%
31%
26%
Abbott Laboratories (NYSE: ABT)
****
67.6
50%
20%
28%
At our Motley Fool Inside Value service, we spend every day ignoring the market panic and searching for the stocks that nobody wants, but that offer significant upside potential. We constantly evaluate businesses based on their future prospects in a normal world rather than in the scary present.
Andrew Sullivan has no financial interest in any of the stocks mentioned in this article. The Motley Fool has a disclosure policy. Coca-Cola is a Motley Fool Inside Value and a Motley Fool Income Investor selection. ITT is a Motley Fool Inside Value pick.
http://www.fool.com/investing/value/2009/04/17/fear-is-your-friend.aspx
Mary Buffett - Warren Buffett and Long-Term Investing
She has written a few simple books. Well worth buying.
****Value Investing Conference (Videos)
Value Investing Conference 2008
"Introduction to Value Investing"
"Developments in the Investments Industry" - Panelists discuss the current financial crisis, its implications for investors, for value investing, and for the future of the hedge fund industry.
"Navigator of the Year" Award
"The Psychology of Human Misjudgement and Our Best Idea
Keynote: Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life". Introductory remarks by John Macfarlane.
"How To Get Fired As a Pension Fund Manager" - Prominent money managers discuss where they find value and why these underexplored areas are often less popular with institutional investors.
"A Casual Talk with Two Guys from Richmond" - The interplay and overlap between the worlds of investing in business and managing businesses from the perspective of two areas that have demonstrated ...
"A Funnel of International Value" - From the global mega cap companies to the regional mid cap companies to the national smaller cap companies, these global investors take you on an international q...
"Hidden Values" - From a macro and micro perspective, three industry leaders examine how to capitalize on variant perceptions via portfolio bets.
"Groundhog Day +1" - The subprime crisis has occured, what's next and how that impacts a value portfolio.
Closing Remarks & presentation: "Does the Implosion of the Shadow Banking System Give Classic Investing a Second Wind?"
"Introduction to Value Investing"
"Developments in the Investments Industry" - Panelists discuss the current financial crisis, its implications for investors, for value investing, and for the future of the hedge fund industry.
"Navigator of the Year" Award
"The Psychology of Human Misjudgement and Our Best Idea
Keynote: Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life". Introductory remarks by John Macfarlane.
"How To Get Fired As a Pension Fund Manager" - Prominent money managers discuss where they find value and why these underexplored areas are often less popular with institutional investors.
"A Casual Talk with Two Guys from Richmond" - The interplay and overlap between the worlds of investing in business and managing businesses from the perspective of two areas that have demonstrated ...
"A Funnel of International Value" - From the global mega cap companies to the regional mid cap companies to the national smaller cap companies, these global investors take you on an international q...
"Hidden Values" - From a macro and micro perspective, three industry leaders examine how to capitalize on variant perceptions via portfolio bets.
"Groundhog Day +1" - The subprime crisis has occured, what's next and how that impacts a value portfolio.
Closing Remarks & presentation: "Does the Implosion of the Shadow Banking System Give Classic Investing a Second Wind?"
Citigroup Q1 results top Wall Street forecasts
Citigroup Q1 results top Wall Street forecasts
By Madlen Read, AP Business Writer
NEW YORK — Citigroup's(C) problems are far from over, but Friday it reported its smallest quarterly loss since 2007.
The bank released first-quarter results Friday that were buoyed largely by strong revenues from bond trading, but that burst of activity is not expected to continue. And Citigroup also said it's still facing loan losses that are expected to increase throughout this year.
Citigroup became the fourth bank in a week with earnings news that pointed toward a recovery in the banking industry after the devastation caused by the mortgage and credit crisis and the recession. But the outlook for the industry is still difficult because the global recession is causing defaults in mortgages, credit cards and commercial real estate loans
Chief Financial Officer Ned Kelly said in a conference call with investors that certain consumer delinquency rates have been moderated, but he still expects loan losses to worsen before they improve.
"The elephant hasn't made its way through the python," Kelly said.
The bank posted a first-quarter loss to common shareholders of $966 million after massive loan losses and dividends to preferred stockholders. However, before paying those dividends, which were tied to the government's investment in Citigroup, the bank earned $1.6 billion.
Citigroup's results topped analyst forecasts. The company reported a loss per share of 18 cents, which was narrower than the 34 cents analysts predicted, according to Thomson Reuters. A year ago, Citigroup suffered a loss of more than $5 billion, or $1.03 a share.
Separately, Citigroup said Friday it is delaying the government's exchange of billions of dollars worth of preferred shares into common shares until the government completes its "stress test." The government has been gauging the health of U.S. banks, and the results are expected in early May.
Citigroup's revenue doubled in the first quarter from a year ago to $24.8 billion thanks to strong trading activity in its investment bank. Its credit costs were high, though — at $10 billion — due to $7.3 billion in loan losses and a $2.7 billion increase in reserves for future loan losses.
Citigroup has been the weakest of the large U.S. banks, posting quarterly losses since the fourth quarter of 2007. But in March, CEO Vikram Pandit triggered a stock market rally after he said that January and February had been profitable for Citigroup.
Citigroup's better-than-expected report on Friday came after surprisingly solid earnings from JPMorgan Chase, Goldman Sachs Group, and Wells Fargo over the past several days. While recent results from these healthier banks have brought some relief to investors, many have been waiting to see how more troubled banks such as Citigroup have fared.
Pandit said in a statement Friday that he was "pleased" with Citigroup's performance.
"While we and the industry face challenges in the coming quarters as we work through the weak economy, we will remain focused on strengthening the Citi franchise," he said.
One concern among investors is that the strong trading activity seen by banks in the first quarter was a one-time event — the first quarter saw a surge in corporate bond issuance as the credit markets started thawing from 2008's frozen fourth quarter. Even JPMorgan CEO Jamie Dimon acknowledged Thursday that trading activity is unlikely to remain so robust.
The question is whether banks like Citigroup can find other ways to offset loan losses, which nearly all economists and bankers agree will keep rising throughout the year as the unemployment rate ticks higher. The global recession is causing defaults in mortgages, credit cards and commercial real estate loans — and Citigroup is heavily exposed to all of these.
In early March, Citigroup stock hit an all-time low of 97 cents per share. It has since quadrupled, but remains down 40% for 2009. And at $4.01 a share Thursday, Citigroup stock was down 93% from its late 2006 peak.
Since late 2007, Citigroup has gotten a new CEO, a new chairman, and a new structure that splits its traditional retail and investment banking business from its consumer finance units, asset management, and risky mortgage-related assets. It's also been downsizing by selling off businesses and laying off a fifth of its employees. And it's gotten $45 billion in government funding and a federal backstop on roughly $300 billion in assets.
http://www.usatoday.com/money/companies/earnings/2009-04-17-citi_N.htm
By Madlen Read, AP Business Writer
NEW YORK — Citigroup's(C) problems are far from over, but Friday it reported its smallest quarterly loss since 2007.
The bank released first-quarter results Friday that were buoyed largely by strong revenues from bond trading, but that burst of activity is not expected to continue. And Citigroup also said it's still facing loan losses that are expected to increase throughout this year.
Citigroup became the fourth bank in a week with earnings news that pointed toward a recovery in the banking industry after the devastation caused by the mortgage and credit crisis and the recession. But the outlook for the industry is still difficult because the global recession is causing defaults in mortgages, credit cards and commercial real estate loans
Chief Financial Officer Ned Kelly said in a conference call with investors that certain consumer delinquency rates have been moderated, but he still expects loan losses to worsen before they improve.
"The elephant hasn't made its way through the python," Kelly said.
The bank posted a first-quarter loss to common shareholders of $966 million after massive loan losses and dividends to preferred stockholders. However, before paying those dividends, which were tied to the government's investment in Citigroup, the bank earned $1.6 billion.
Citigroup's results topped analyst forecasts. The company reported a loss per share of 18 cents, which was narrower than the 34 cents analysts predicted, according to Thomson Reuters. A year ago, Citigroup suffered a loss of more than $5 billion, or $1.03 a share.
Separately, Citigroup said Friday it is delaying the government's exchange of billions of dollars worth of preferred shares into common shares until the government completes its "stress test." The government has been gauging the health of U.S. banks, and the results are expected in early May.
Citigroup's revenue doubled in the first quarter from a year ago to $24.8 billion thanks to strong trading activity in its investment bank. Its credit costs were high, though — at $10 billion — due to $7.3 billion in loan losses and a $2.7 billion increase in reserves for future loan losses.
Citigroup has been the weakest of the large U.S. banks, posting quarterly losses since the fourth quarter of 2007. But in March, CEO Vikram Pandit triggered a stock market rally after he said that January and February had been profitable for Citigroup.
Citigroup's better-than-expected report on Friday came after surprisingly solid earnings from JPMorgan Chase, Goldman Sachs Group, and Wells Fargo over the past several days. While recent results from these healthier banks have brought some relief to investors, many have been waiting to see how more troubled banks such as Citigroup have fared.
Pandit said in a statement Friday that he was "pleased" with Citigroup's performance.
"While we and the industry face challenges in the coming quarters as we work through the weak economy, we will remain focused on strengthening the Citi franchise," he said.
One concern among investors is that the strong trading activity seen by banks in the first quarter was a one-time event — the first quarter saw a surge in corporate bond issuance as the credit markets started thawing from 2008's frozen fourth quarter. Even JPMorgan CEO Jamie Dimon acknowledged Thursday that trading activity is unlikely to remain so robust.
The question is whether banks like Citigroup can find other ways to offset loan losses, which nearly all economists and bankers agree will keep rising throughout the year as the unemployment rate ticks higher. The global recession is causing defaults in mortgages, credit cards and commercial real estate loans — and Citigroup is heavily exposed to all of these.
In early March, Citigroup stock hit an all-time low of 97 cents per share. It has since quadrupled, but remains down 40% for 2009. And at $4.01 a share Thursday, Citigroup stock was down 93% from its late 2006 peak.
Since late 2007, Citigroup has gotten a new CEO, a new chairman, and a new structure that splits its traditional retail and investment banking business from its consumer finance units, asset management, and risky mortgage-related assets. It's also been downsizing by selling off businesses and laying off a fifth of its employees. And it's gotten $45 billion in government funding and a federal backstop on roughly $300 billion in assets.
http://www.usatoday.com/money/companies/earnings/2009-04-17-citi_N.htm
Ireland's pain begins
Ireland's pain begins
Once the 'best place to live in the world', Ireland is haunted by the spectre of bread queues as public services are slashed
Mary Fitzgerald guardian.co.uk, Friday 10 April 2009 11.30 BST
For a country that was enjoying roaring growth just a few years ago, the outlook for Ireland is now shockingly bleak. The number of unemployed is expected to reach 450,000 by the end of the year, which, in a country of only 4 million, is staggering. Privately, financial experts say that Taoiseach Brian Cowen's prediction of a 10% drop in living standards is "a dream" – the reality is likely to be closer to 30%. Of those still in jobs, nine out of 10 have taken pay cuts to keep them. It's all beginning to look "quite 1930s", as one friend observed: dole queues have quadrupled and April saw the first bread queues in Dublin for more than 20 years.
Just as in Britain and the US, there is outrage at the bonuses paid to the chairmen of banks bailed out by the government. Unlike anywhere else, though, the government seems to be blaming its own citizens for the crisis, and punishing them for it. Tapping into old Catholic traditions of guilt and penance, it's pushing a message of "collective guilt". Society has overindulged and must now pay the price, or so the logic goes, and so finance minister Brian Lenihan framed his emergency budget earlier this week as "a call to patriotic action".
What it is, in reality, is a cynical cutback on vital public services – at a time when they are more likely to be needed than ever. In an attempt to balance its books, the government aims to shed €6.6bn from the public purse by 2011, including some €725m earmarked for badly needed road projects, €81m from the education budget and €62m from the Department of Health's budget. Even services that, in a recession, will be relied upon more than ever, face cuts.
Peter McVerry, who runs a Dublin-based trust for homeless people, says that the government's kneejerk reaction of "indiscriminate, slash and burn cutbacks" amounts to little more than an outright attack on the poor. The decision to halve jobseeker's allowance for the under-20s was particularly brutal, as McVerry points out, given the rampant inflation of the past decade, a young homeless person "just cannot survive on just €100 a week".
The government is making a big show of practising the austerity that it preaches, culling the number of junior cabinet ministers and announcing pay cuts for those remaining. Yet, despite the protests from some quarters against "taxation with a vengeance", the truth is that Lenihan's budget increases taxes on the rich only marginally. In short, those who did well from the boom are not being made to pay for its consequences.
"The real pain of political self-interest, incompetence, negligence and laziness will be kept clear of those who have left the Irish economy so unprepared for the severe global slowdown that is forecast in 2009," predicts Michael Hennigan, founder and editor of Finfacts.ie.
Worse still, the government has squandered many of the opportunities afforded during the good years to reinvest in the country. Although average incomes have risen, little has been done to pull the generational poor out of poverty. Just minutes from the sleek new Smithfield development in north Dublin, with its organic shops and crisp new apartments, lies the Devaney housing project, where many windows and doors are boarded up and shops are Portakabins with bars on their windows and doors. Some of the apartment blocks have been demolished and local authorities have been promising for years to redevelop the estate, but there is as yet no sign of this, and families still live in appalling conditions. Scenes like these, familiar in all of Ireland's cities, stand at sharp odds with the official brand image of a country judged by The Economist in 2004 to be the "best place to live in the world".
Unlike in previous generations, the Irish cannot blame their problems on anyone else now: this is their own mess – and they will have to fix it. They could start by electing a new government.
http://www.guardian.co.uk/commentisfree/2009/apr/09/globalrecession-banking
Once the 'best place to live in the world', Ireland is haunted by the spectre of bread queues as public services are slashed
Mary Fitzgerald guardian.co.uk, Friday 10 April 2009 11.30 BST
For a country that was enjoying roaring growth just a few years ago, the outlook for Ireland is now shockingly bleak. The number of unemployed is expected to reach 450,000 by the end of the year, which, in a country of only 4 million, is staggering. Privately, financial experts say that Taoiseach Brian Cowen's prediction of a 10% drop in living standards is "a dream" – the reality is likely to be closer to 30%. Of those still in jobs, nine out of 10 have taken pay cuts to keep them. It's all beginning to look "quite 1930s", as one friend observed: dole queues have quadrupled and April saw the first bread queues in Dublin for more than 20 years.
Just as in Britain and the US, there is outrage at the bonuses paid to the chairmen of banks bailed out by the government. Unlike anywhere else, though, the government seems to be blaming its own citizens for the crisis, and punishing them for it. Tapping into old Catholic traditions of guilt and penance, it's pushing a message of "collective guilt". Society has overindulged and must now pay the price, or so the logic goes, and so finance minister Brian Lenihan framed his emergency budget earlier this week as "a call to patriotic action".
What it is, in reality, is a cynical cutback on vital public services – at a time when they are more likely to be needed than ever. In an attempt to balance its books, the government aims to shed €6.6bn from the public purse by 2011, including some €725m earmarked for badly needed road projects, €81m from the education budget and €62m from the Department of Health's budget. Even services that, in a recession, will be relied upon more than ever, face cuts.
Peter McVerry, who runs a Dublin-based trust for homeless people, says that the government's kneejerk reaction of "indiscriminate, slash and burn cutbacks" amounts to little more than an outright attack on the poor. The decision to halve jobseeker's allowance for the under-20s was particularly brutal, as McVerry points out, given the rampant inflation of the past decade, a young homeless person "just cannot survive on just €100 a week".
The government is making a big show of practising the austerity that it preaches, culling the number of junior cabinet ministers and announcing pay cuts for those remaining. Yet, despite the protests from some quarters against "taxation with a vengeance", the truth is that Lenihan's budget increases taxes on the rich only marginally. In short, those who did well from the boom are not being made to pay for its consequences.
"The real pain of political self-interest, incompetence, negligence and laziness will be kept clear of those who have left the Irish economy so unprepared for the severe global slowdown that is forecast in 2009," predicts Michael Hennigan, founder and editor of Finfacts.ie.
Worse still, the government has squandered many of the opportunities afforded during the good years to reinvest in the country. Although average incomes have risen, little has been done to pull the generational poor out of poverty. Just minutes from the sleek new Smithfield development in north Dublin, with its organic shops and crisp new apartments, lies the Devaney housing project, where many windows and doors are boarded up and shops are Portakabins with bars on their windows and doors. Some of the apartment blocks have been demolished and local authorities have been promising for years to redevelop the estate, but there is as yet no sign of this, and families still live in appalling conditions. Scenes like these, familiar in all of Ireland's cities, stand at sharp odds with the official brand image of a country judged by The Economist in 2004 to be the "best place to live in the world".
Unlike in previous generations, the Irish cannot blame their problems on anyone else now: this is their own mess – and they will have to fix it. They could start by electing a new government.
http://www.guardian.co.uk/commentisfree/2009/apr/09/globalrecession-banking
Divorce is a financial catastrophe
How to prevent 'I do' turning into 'I don't'
Divorce is a financial catastrophe and some couples are more at risk than others. A leading lawyer explains why 'pre-nups' may have a role to play.
By Jane Keir
Last Updated: 3:26PM BST 18 Apr 2009
The Office for National Statistics (ONS) tells us that in 2007 the average age of those divorcing in England and Wales was nearly 44 for men and just over 41 for women. What really catches the eye, however, is that, of those divorces, one in five had a previous marriage end in divorce – a proportion that has doubled since 1980.
So why are second marriages more vulnerable? The answer may lie in trying to align emotional and romantic expectations for one another, while at the same time recognising the financial needs, responsibilities and priorities with regard to the children of each previous relationship.
Children who may already have experienced the seismic upheaval of the separation and divorce of their parents may now dread and therefore oppose, consciously or otherwise, the refocusing of the attention and love of one or both of their parents on a newcomer.
Parents will usually strive to ensure that the development of a new relationship moves at a pace with which the children can cope, but they often overlook the financial consequences of remarriage.
EXAMPLES OF POTENTIAL COMPLICATIONS
1. When a father is committed to funding the full cost of private education for his children in circumstances where they may still have several years to go before the end of secondary education and whose second wife-to-be has similar aspirations, but not the financial means, for her children who are living with them.
2. When a couple, whose children are older and no longer living at home, both have their own properties and she invites him to move in with her, sell his property and live off of the sale proceeds.
The prospects arising from the situations above may be enough to put the brakes on remarriage or lead to very substantial reluctance perhaps to even live together, unless there is good – and even brave – communication between them so they can talk through their concerns.
Family law is not all about divorce and separation. Many solicitors are spending an increasing amount of time looking at premarital contracts (more commonly known as ''pre-nups'') which are often given a hard time in the media as being "unromantic'' and viewed as some sort of self-fulfilling prophecy.
The reality is that the preparation of such a contract requires a couple to sit down and take a long, hard look at what they have in the way of financial resources and how they should organise them. For those marrying for a second time such an exercise – not necessarily negotiating a premarital contract, but talking together about what they both have and what they want to achieve – may take away a lot of the heartache, angst and even mistrust that builds up where there is a problem, but no willingness or even ability to talk about it.
Take the father in example one who wishes to preserve a large part of his income to pay school fees. The couple might find out that, by combining their respective resources and running one household rather than two, that it is possible. They might also agree that, were he to die before the children finish school, then he will nominate some part of his death in service benefits to ensure that there is sufficient in the pot to enable the rest of the school fees to be paid. Thus, in the event of his early death, his second wife knows exactly where she stands and there is no danger of expensive and stressful litigation with the "first family''.
In example two, the couple may agree to transfer the wife's property into joint names after they marry (but not necessarily into equal shares if her property is worth considerably more than his) and to prepare new wills. The preparation of new wills not only addresses the question of who gets what upon death but also, like the work that goes into the preparation of a premarital contract, it requires both parties to take a considered look at their respective finances and to work out what they want to happen.
The added advantage to the process is that they may well discover that there are steps they can be taking now to maximise and protect their wealth, for example, by using their lifetime allowances and rebalancing the risk of both inheritance tax and capital gains tax (CGT) liabilities. Or they might agree to rent out his property, so that they can enjoy the income it generates (albeit that the rent is likely to be subject to income tax and possibly a charge to CGT if sold during his lifetime, so that they may still need to review whether she should give him a share in her property).
The preparation of new wills may also help to mollify older children concerned at the prospect of "their'' inheritance moving away from them to a new stepmother/father. Of course, children have no absolute right to inherit in England and Wales – in contrast to some other European jurisdictions – as apart from an obligation to provide for "dependants'' – that is, people financially dependant on a person at the time of his death – anyone may leave his estate to whomever or whatever he likes, or spend it all entirely in his lifetime.
Jane Keir is a partner and head of family law at Kingsley Napley
http://www.telegraph.co.uk/finance/personalfinance/consumertips/5178027/How-to-prevent-I-do-turning-into-I-dont.html
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Divorce is a financial catastrophe and some couples are more at risk than others. A leading lawyer explains why 'pre-nups' may have a role to play.
By Jane Keir
Last Updated: 3:26PM BST 18 Apr 2009
The Office for National Statistics (ONS) tells us that in 2007 the average age of those divorcing in England and Wales was nearly 44 for men and just over 41 for women. What really catches the eye, however, is that, of those divorces, one in five had a previous marriage end in divorce – a proportion that has doubled since 1980.
So why are second marriages more vulnerable? The answer may lie in trying to align emotional and romantic expectations for one another, while at the same time recognising the financial needs, responsibilities and priorities with regard to the children of each previous relationship.
Children who may already have experienced the seismic upheaval of the separation and divorce of their parents may now dread and therefore oppose, consciously or otherwise, the refocusing of the attention and love of one or both of their parents on a newcomer.
Parents will usually strive to ensure that the development of a new relationship moves at a pace with which the children can cope, but they often overlook the financial consequences of remarriage.
EXAMPLES OF POTENTIAL COMPLICATIONS
1. When a father is committed to funding the full cost of private education for his children in circumstances where they may still have several years to go before the end of secondary education and whose second wife-to-be has similar aspirations, but not the financial means, for her children who are living with them.
2. When a couple, whose children are older and no longer living at home, both have their own properties and she invites him to move in with her, sell his property and live off of the sale proceeds.
The prospects arising from the situations above may be enough to put the brakes on remarriage or lead to very substantial reluctance perhaps to even live together, unless there is good – and even brave – communication between them so they can talk through their concerns.
Family law is not all about divorce and separation. Many solicitors are spending an increasing amount of time looking at premarital contracts (more commonly known as ''pre-nups'') which are often given a hard time in the media as being "unromantic'' and viewed as some sort of self-fulfilling prophecy.
The reality is that the preparation of such a contract requires a couple to sit down and take a long, hard look at what they have in the way of financial resources and how they should organise them. For those marrying for a second time such an exercise – not necessarily negotiating a premarital contract, but talking together about what they both have and what they want to achieve – may take away a lot of the heartache, angst and even mistrust that builds up where there is a problem, but no willingness or even ability to talk about it.
Take the father in example one who wishes to preserve a large part of his income to pay school fees. The couple might find out that, by combining their respective resources and running one household rather than two, that it is possible. They might also agree that, were he to die before the children finish school, then he will nominate some part of his death in service benefits to ensure that there is sufficient in the pot to enable the rest of the school fees to be paid. Thus, in the event of his early death, his second wife knows exactly where she stands and there is no danger of expensive and stressful litigation with the "first family''.
In example two, the couple may agree to transfer the wife's property into joint names after they marry (but not necessarily into equal shares if her property is worth considerably more than his) and to prepare new wills. The preparation of new wills not only addresses the question of who gets what upon death but also, like the work that goes into the preparation of a premarital contract, it requires both parties to take a considered look at their respective finances and to work out what they want to happen.
The added advantage to the process is that they may well discover that there are steps they can be taking now to maximise and protect their wealth, for example, by using their lifetime allowances and rebalancing the risk of both inheritance tax and capital gains tax (CGT) liabilities. Or they might agree to rent out his property, so that they can enjoy the income it generates (albeit that the rent is likely to be subject to income tax and possibly a charge to CGT if sold during his lifetime, so that they may still need to review whether she should give him a share in her property).
The preparation of new wills may also help to mollify older children concerned at the prospect of "their'' inheritance moving away from them to a new stepmother/father. Of course, children have no absolute right to inherit in England and Wales – in contrast to some other European jurisdictions – as apart from an obligation to provide for "dependants'' – that is, people financially dependant on a person at the time of his death – anyone may leave his estate to whomever or whatever he likes, or spend it all entirely in his lifetime.
Jane Keir is a partner and head of family law at Kingsley Napley
http://www.telegraph.co.uk/finance/personalfinance/consumertips/5178027/How-to-prevent-I-do-turning-into-I-dont.html
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Warsaw alternative looks less risky than the Anglo-American model
Warsaw's solution to crisis could yet be a masterstroke
Poland is following the Korean road to recovery. Controlled government deficits and a big currency fall seem to be stabilising its fragile economy.
By Martin Hutchinson
Last Updated: 9:52PM BST 17 Apr 2009
The country isn't in desperate straits. It wants $20bn (£13.5bn) from the International Monetary Fund. The facility would be only a precautionary flexible credit line, similar to Mexico's. Such a line, granted to countries with policies that the IMF deems sound, provides a backstop to existing foreign exchange reserves.
When Korea and other east Asian countries lost foreign support in 1997, they responded with austerity plans. Sharp currency devaluations made life at home more expensive, but supported exports. Governments preferred spending cuts to exploding deficits. Within a couple of years, Seoul and the others were running balance-of-payments surpluses that enabled them to repay or refinance debt and resume economic growth.
The Polish economy was bound to suffer from the decline in world trade and the drying up of foreign investment, which had peaked in 2007 at 5pc of GDP. But the country had fairly low government expenditure, at 25pc of GDP, a modest fiscal deficit and a free-market economic structure. It also had the freedom to let the zloty fall, since it was not tied to the euro, unlike the Baltic states, Slovakia and Bulgaria. The currency has dropped 30pc against the euro. That has kept exports stable in zloty terms, while imports are slightly down. The effective devaluation has also lessened the risk of deflation. Polish inflation is around 3.6pc.
It's too early for final judgement on the Polish approach. After all, the current account deficit is still expected to be 5pc of GDP in 2009 – a sum that has to be financed by foreigners.
But the Warsaw alternative looks less risky than the Anglo-American model of large "stimulus" programmes, huge budget deficits and rapid monetary expansion. In a small economy, such policies would have been likely to lead to a zloty collapse and a government debt crisis. Poland is right to look to Asia.
http://www.telegraph.co.uk/finance/breakingviewscom/5173214/Warsaws-solution-to-crisis-could-yet-be-a-masterstroke.html
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Poland is following the Korean road to recovery. Controlled government deficits and a big currency fall seem to be stabilising its fragile economy.
By Martin Hutchinson
Last Updated: 9:52PM BST 17 Apr 2009
The country isn't in desperate straits. It wants $20bn (£13.5bn) from the International Monetary Fund. The facility would be only a precautionary flexible credit line, similar to Mexico's. Such a line, granted to countries with policies that the IMF deems sound, provides a backstop to existing foreign exchange reserves.
When Korea and other east Asian countries lost foreign support in 1997, they responded with austerity plans. Sharp currency devaluations made life at home more expensive, but supported exports. Governments preferred spending cuts to exploding deficits. Within a couple of years, Seoul and the others were running balance-of-payments surpluses that enabled them to repay or refinance debt and resume economic growth.
The Polish economy was bound to suffer from the decline in world trade and the drying up of foreign investment, which had peaked in 2007 at 5pc of GDP. But the country had fairly low government expenditure, at 25pc of GDP, a modest fiscal deficit and a free-market economic structure. It also had the freedom to let the zloty fall, since it was not tied to the euro, unlike the Baltic states, Slovakia and Bulgaria. The currency has dropped 30pc against the euro. That has kept exports stable in zloty terms, while imports are slightly down. The effective devaluation has also lessened the risk of deflation. Polish inflation is around 3.6pc.
It's too early for final judgement on the Polish approach. After all, the current account deficit is still expected to be 5pc of GDP in 2009 – a sum that has to be financed by foreigners.
But the Warsaw alternative looks less risky than the Anglo-American model of large "stimulus" programmes, huge budget deficits and rapid monetary expansion. In a small economy, such policies would have been likely to lead to a zloty collapse and a government debt crisis. Poland is right to look to Asia.
http://www.telegraph.co.uk/finance/breakingviewscom/5173214/Warsaws-solution-to-crisis-could-yet-be-a-masterstroke.html
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Will copper outshine gold and silver?
Will copper outshine gold and silver?
All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.
By Paul Farrow
Last Updated: 7:55AM BST 18 Apr 2009
The copper price has risen by more than 50pc this year Photo: GETTY
All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.
It is only a year ago that the commodity bull run was still in full swing. The wheels fell off in August, since when the price of metals has nose-dived. Orders for metals dried up overnight and the subsequent price falls have been deeper than during the worst years of the Great Depression.
But could there be glimmer of hope for a metals revival?
John Meyer, a mining analyst at Fairfax, the investment bank, thinks so. He is revising many of his metal forecasts upwards because of several factors, including a weaker US dollar, inflation fears and the renewed demand from China.
"The ratio of the copper price versus gold is at its lowest level since 1990 – people forget that many metals, not just gold, are a hedge against inflation. China is buying up copper and, while some see it as strategic buying, it also has to buy metals simply to maintain its economic growth," said Meyer. "Copper is our principal focus, although lead, zinc and tin may fare well too."
The revelation that China's State Reserves Bureau (SRB) has been buying copper on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons has caught many investors' imagination. There's even talk of China creating a 'copper standard' for the world's currency system.
Nobu Su, the head of Taiwan's TMT group, which ships commodities to China, said the next industrial revolution was going to be led by hybrid cars - and that needs copper. "You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.
The SRB has also been accumulating aluminium, zinc, nickel and rarer metals such as titanium, indium (used in thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
Evy Hambro, who runs the BlackRock World Mining investment trust, said the key question for metal commodities was whether the renewed demand for metals was due to companies restocking inventory levels which had been run down, or whether they were turning the capacity tap back on. If it is the former, the commodity revival could be short-lived.
He remained unconvinced that it was the latter. "We are not seeing a pick-up in demand in Europe or the US – and demand for commodities tends to slow in the summer in the northern hemisphere anyway. But we remain overweight copper, which has some of the best fundamentals."
Investors looking at copper ought to be aware that its price has risen by more than 50pc this year, so late joiners have missed some of the recovery already.
Hambro is still positive on gold, but is less convinced that aluminium will shine. Aluminium's price has fallen by more than half since last summer, but there is still a huge oversupply, which is unsupportive of a sharp price rise if demand turns.
The central banks' stimulus to kick-start the flagging car industry could also provide a fillip to metals. For example, more than 80pc of lead is used for car batteries, while 53pc of a car is made from steel.
Fairfax pointed out that sales of cars rose sharply in Germany in February after its government introduced a stimulus plan which allows consumers to trade an old car for a new one with state aid of €2,500. "That's a pretty huge increase – sales had fallen 14pc year-on-year in January," said Meyer.
Hambro agreed that fiscal stimulus would boost many metals involved in car production, but that it was difficult to judge when it would be seen to filter through. "If a car plan is announced in next week's Budget, will orders for aluminium rise sharply? Unlikely."
But early signs that the economic downturn may be reaching a floor have led many analysts to believe that silver could outperform gold. The debate about the relative merits of gold and silver was triggered because the world's largest consumer, India, did not import any gold in March for the second month running.
"In India you have people who can only afford silver and people who will only buy gold, but there are a large number of people in the middle who will rotate from gold to silver," said Ashok Shah, the chief investment officer at London & Capital.
That phenomenon is likely to be repeated in other countries as unemployment, salary cuts and potential tax rises take their toll on consumer spending. Eugen Weinberg, an analyst at Commerzbank, said: "Silver over the past 30 years has been the poor cousin. In the first half of the last century gold and silver were on a similar footing in terms of monetary value and their roles as safe havens."
Just as with copper, a measure of value is the ratio of gold to silver prices, which in the last century fell as low as 14 and compares with levels of around 70 now – suggesting gold is overvalued. Since the early 1980s the ratio has averaged about 65 and mostly ranged between 30 and 100.
Weinberg added: "The ratio could drop to between 40 and 50 in the medium term. People who cannot afford to buy gold for jewellery will buy silver."
Industrial demand for silver, including from the photography industry, is reckoned to be about 65pc of total global supplies, estimated at 895 tonnes. For gold, industrial and dental demand is about 11pc of supplies estimated at around 3,880 tonnes, according to consultants GFMS.
Part of the boost for silver will come from investment demand. With gold prices still near $900 an ounce, holdings of exchange- traded silver funds are expected to rise.
The iShares Silver Trust, the largest silver-backed exchange-traded fund listed in New York, holds a record 8,413 tonnes, a gain of more than 20pc since early January. That compares with a rise of more than 40pc in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund.
Metal commodities have become a staple part of many portfolios, as investors look for diversification and assets that are not correlated to the performance of shares. There are several ways you can get exposure to individual metals – one of the most popular is exchange-traded commodities (ETCs), which you can buy through most stockbrokers or online share dealers.
London-listed ETCs last week experienced net inflows for the fifth consecutive week, with precious metals ETCs seeing the largest inflows. They included ETFS Physical Gold ($38m), ETFS Physical Platinum ($14m) and ETFS Nickel ($2m).
The other option is to buy a unit or investment trust that invests in a spread of equity-related commodities. Popular funds include BlackRock World Mining, Investec Resource Enhanced or JPM Natural Resources.
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5165209/Will-copper-outshine-gold-and-silver.html
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All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.
By Paul Farrow
Last Updated: 7:55AM BST 18 Apr 2009
The copper price has risen by more than 50pc this year Photo: GETTY
All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.
It is only a year ago that the commodity bull run was still in full swing. The wheels fell off in August, since when the price of metals has nose-dived. Orders for metals dried up overnight and the subsequent price falls have been deeper than during the worst years of the Great Depression.
But could there be glimmer of hope for a metals revival?
John Meyer, a mining analyst at Fairfax, the investment bank, thinks so. He is revising many of his metal forecasts upwards because of several factors, including a weaker US dollar, inflation fears and the renewed demand from China.
"The ratio of the copper price versus gold is at its lowest level since 1990 – people forget that many metals, not just gold, are a hedge against inflation. China is buying up copper and, while some see it as strategic buying, it also has to buy metals simply to maintain its economic growth," said Meyer. "Copper is our principal focus, although lead, zinc and tin may fare well too."
The revelation that China's State Reserves Bureau (SRB) has been buying copper on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons has caught many investors' imagination. There's even talk of China creating a 'copper standard' for the world's currency system.
Nobu Su, the head of Taiwan's TMT group, which ships commodities to China, said the next industrial revolution was going to be led by hybrid cars - and that needs copper. "You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.
The SRB has also been accumulating aluminium, zinc, nickel and rarer metals such as titanium, indium (used in thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
Evy Hambro, who runs the BlackRock World Mining investment trust, said the key question for metal commodities was whether the renewed demand for metals was due to companies restocking inventory levels which had been run down, or whether they were turning the capacity tap back on. If it is the former, the commodity revival could be short-lived.
He remained unconvinced that it was the latter. "We are not seeing a pick-up in demand in Europe or the US – and demand for commodities tends to slow in the summer in the northern hemisphere anyway. But we remain overweight copper, which has some of the best fundamentals."
Investors looking at copper ought to be aware that its price has risen by more than 50pc this year, so late joiners have missed some of the recovery already.
Hambro is still positive on gold, but is less convinced that aluminium will shine. Aluminium's price has fallen by more than half since last summer, but there is still a huge oversupply, which is unsupportive of a sharp price rise if demand turns.
The central banks' stimulus to kick-start the flagging car industry could also provide a fillip to metals. For example, more than 80pc of lead is used for car batteries, while 53pc of a car is made from steel.
Fairfax pointed out that sales of cars rose sharply in Germany in February after its government introduced a stimulus plan which allows consumers to trade an old car for a new one with state aid of €2,500. "That's a pretty huge increase – sales had fallen 14pc year-on-year in January," said Meyer.
Hambro agreed that fiscal stimulus would boost many metals involved in car production, but that it was difficult to judge when it would be seen to filter through. "If a car plan is announced in next week's Budget, will orders for aluminium rise sharply? Unlikely."
But early signs that the economic downturn may be reaching a floor have led many analysts to believe that silver could outperform gold. The debate about the relative merits of gold and silver was triggered because the world's largest consumer, India, did not import any gold in March for the second month running.
"In India you have people who can only afford silver and people who will only buy gold, but there are a large number of people in the middle who will rotate from gold to silver," said Ashok Shah, the chief investment officer at London & Capital.
That phenomenon is likely to be repeated in other countries as unemployment, salary cuts and potential tax rises take their toll on consumer spending. Eugen Weinberg, an analyst at Commerzbank, said: "Silver over the past 30 years has been the poor cousin. In the first half of the last century gold and silver were on a similar footing in terms of monetary value and their roles as safe havens."
Just as with copper, a measure of value is the ratio of gold to silver prices, which in the last century fell as low as 14 and compares with levels of around 70 now – suggesting gold is overvalued. Since the early 1980s the ratio has averaged about 65 and mostly ranged between 30 and 100.
Weinberg added: "The ratio could drop to between 40 and 50 in the medium term. People who cannot afford to buy gold for jewellery will buy silver."
Industrial demand for silver, including from the photography industry, is reckoned to be about 65pc of total global supplies, estimated at 895 tonnes. For gold, industrial and dental demand is about 11pc of supplies estimated at around 3,880 tonnes, according to consultants GFMS.
Part of the boost for silver will come from investment demand. With gold prices still near $900 an ounce, holdings of exchange- traded silver funds are expected to rise.
The iShares Silver Trust, the largest silver-backed exchange-traded fund listed in New York, holds a record 8,413 tonnes, a gain of more than 20pc since early January. That compares with a rise of more than 40pc in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund.
Metal commodities have become a staple part of many portfolios, as investors look for diversification and assets that are not correlated to the performance of shares. There are several ways you can get exposure to individual metals – one of the most popular is exchange-traded commodities (ETCs), which you can buy through most stockbrokers or online share dealers.
London-listed ETCs last week experienced net inflows for the fifth consecutive week, with precious metals ETCs seeing the largest inflows. They included ETFS Physical Gold ($38m), ETFS Physical Platinum ($14m) and ETFS Nickel ($2m).
The other option is to buy a unit or investment trust that invests in a spread of equity-related commodities. Popular funds include BlackRock World Mining, Investec Resource Enhanced or JPM Natural Resources.
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5165209/Will-copper-outshine-gold-and-silver.html
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Gold: longest losing streak since August
Gold headed for its fourth weekly decline, the longest losing streak since August, as a global stock rally eroded demand for the metal as a store of value.
By Bloomberg staff
Last Updated: 4:19PM BST 17 Apr 2009
Gold eased as Asian stocks advanced on growing confidence the global recession is easing. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, dropped to 1,119.43 metric tons after holding at a record high of 1,127.68 tons the previous four days.
“Further strength in equity markets would signal an increasing risk appetite, which would be detrimental to precious metals, which have relied on safe-haven demand for support as the majority of commodity prices collapsed under the weight of rapid and severe economic deterioration,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty.
Bullion for immediate delivery fell for a second day by as much as 0.4pc to $872.63 an ounce. It traded at $873.30 in Singapore, down 1pc for the week. Gold has fallen 4.6pc in the past month while the benchmark MSCI Asia Pacific Index soared 18pc.
US stocks rose after the government said fewer Americans filed claims for jobless benefits last week, and as JPMorgan Chase & Co posted better-than-expected earnings yesterday. A day earlier, US consumer prices posted their first annual decline since 1955, alleviating concern that Federal Reserve actions will cause inflation to soar.
“Over the longer term however, unprecedented fiscal and monetary stimuli have increased inflationary expectations, which will be constructive to gold prices,” said Hassall.
Among other precious metals for immediate delivery, silver was down 0.5pc at $12.18 an ounce, platinum gained 0.4pc to $1,211.50 an ounce, and palladium climbed 0.4pc to $234.50 an ounce.
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5172424/Gold-longest-losing-streak-since-August.html
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Gold headed for its fourth weekly decline, the longest losing streak since August, as a global stock rally eroded demand for the metal as a store of value.
By Bloomberg staff
Last Updated: 4:19PM BST 17 Apr 2009
Gold eased as Asian stocks advanced on growing confidence the global recession is easing. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, dropped to 1,119.43 metric tons after holding at a record high of 1,127.68 tons the previous four days.
“Further strength in equity markets would signal an increasing risk appetite, which would be detrimental to precious metals, which have relied on safe-haven demand for support as the majority of commodity prices collapsed under the weight of rapid and severe economic deterioration,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty.
Bullion for immediate delivery fell for a second day by as much as 0.4pc to $872.63 an ounce. It traded at $873.30 in Singapore, down 1pc for the week. Gold has fallen 4.6pc in the past month while the benchmark MSCI Asia Pacific Index soared 18pc.
US stocks rose after the government said fewer Americans filed claims for jobless benefits last week, and as JPMorgan Chase & Co posted better-than-expected earnings yesterday. A day earlier, US consumer prices posted their first annual decline since 1955, alleviating concern that Federal Reserve actions will cause inflation to soar.
“Over the longer term however, unprecedented fiscal and monetary stimuli have increased inflationary expectations, which will be constructive to gold prices,” said Hassall.
Among other precious metals for immediate delivery, silver was down 0.5pc at $12.18 an ounce, platinum gained 0.4pc to $1,211.50 an ounce, and palladium climbed 0.4pc to $234.50 an ounce.
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5172424/Gold-longest-losing-streak-since-August.html
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A 'Copper Standard' for the world's currency system?
A 'Copper Standard' for the world's currency system?
Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
By Ambrose Evans-Pritchard
Last Updated: 2:41PM BST 16 Apr 2009
Comments 83 Comment on this article
China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.
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"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."
"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.
The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.
John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."
Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.
The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.
If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.
Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.
While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.
One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.
This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.
The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.
Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html
Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
By Ambrose Evans-Pritchard
Last Updated: 2:41PM BST 16 Apr 2009
Comments 83 Comment on this article
China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.
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"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."
"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.
The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).
While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.
John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."
Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.
The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.
If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.
Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.
While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.
One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.
This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.
The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.
Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html
IMF warns over parallels to Great Depression
IMF warns over parallels to Great Depression
The International Monetary Fund has warned of "worrisome parallels" between the current global crisis and the Great Depression, despite the unprecedented steps already taken by central banks and governments worldwide.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 8:42PM BST 17 Apr 2009
Comments 8 Comment on this article
This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund, releasing two advance chapters from its World Economic Outlook. However, it warned there is a risk that it could spiral down into a full-blown slump unless further action is taken to stop "feedback effects" gathering force.
Dominique Strauss-Kahn, head of the IMF, said millions of people risk being pushed back into poverty as the economic storm ravages the most vulnerable countries. "The human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping," he said.
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Sharp rate rises could create risks for euro-zone, warns IMF
"The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today."
Mr Strauss-Kahn called for a urgent action to "cleanse banks" of toxic assets and for further fiscal stimulus beyond the 2pc of global GDP already agreed. The snag is that high-debt countries may have hit the limits already.
"The impact becomes negative for debt levels that exceed 60pc of GDP," said the Fund.
While no countries were named, this would raise questions about Japan, Germany, France, Italy and ultimately Britain and the US after their bank rescues.
The IMF said the US is at the epicentre of this crisis just as it was in the Depression, setting the two episodes apart from normal downturns. However, the risks are greater this time. "While the credit boom in the 1920s was largely specific to the US, the boom during 2004-2007 was global, with increased leverage and risk-taking in advanced economies and many emerging economies. Levels of integration are now much higher than during the inter-war period, so US financial shocks have a larger impact," it said.
The IMF said the global financial system is still under acute stress, with output tumbling and inflation falling towards zero in key nations. "The risks of debt deflation have increased," it said.
Abrupt halts in capital flows can have "dire consequences" for emerging economies, it said. Eastern Europe has already suffered the effects, with a 17.6pc fall in industrial production in February. The region is highly vulnerable to the credit crunch since it owes more than 50pc of its GDP to Western banks.
Synchronised world recessions striking all major regions are "historically rare" events, the Fund said. They last one and a half times as long typical downturns, and are followed by painfully slow recoveries.
http://www.telegraph.co.uk/finance/financetopics/recession/5166956/IMF-warns-over-parallels-to-Great-Depression.html
##In every crisis, there exists some opportunities. Be brave.
The International Monetary Fund has warned of "worrisome parallels" between the current global crisis and the Great Depression, despite the unprecedented steps already taken by central banks and governments worldwide.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 8:42PM BST 17 Apr 2009
Comments 8 Comment on this article
This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund, releasing two advance chapters from its World Economic Outlook. However, it warned there is a risk that it could spiral down into a full-blown slump unless further action is taken to stop "feedback effects" gathering force.
Dominique Strauss-Kahn, head of the IMF, said millions of people risk being pushed back into poverty as the economic storm ravages the most vulnerable countries. "The human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping," he said.
Related Articles
The global economy is at the point of maximum danger
Private equity collapse on cards, says IMF
Gold hits record against euro on fear of Zimbabwean-style response to bank crisis
Bank losses from credit crisis may run to $1,600bn, warns Bridgewater
Sharp rate rises could create risks for euro-zone, warns IMF
"The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today."
Mr Strauss-Kahn called for a urgent action to "cleanse banks" of toxic assets and for further fiscal stimulus beyond the 2pc of global GDP already agreed. The snag is that high-debt countries may have hit the limits already.
"The impact becomes negative for debt levels that exceed 60pc of GDP," said the Fund.
While no countries were named, this would raise questions about Japan, Germany, France, Italy and ultimately Britain and the US after their bank rescues.
The IMF said the US is at the epicentre of this crisis just as it was in the Depression, setting the two episodes apart from normal downturns. However, the risks are greater this time. "While the credit boom in the 1920s was largely specific to the US, the boom during 2004-2007 was global, with increased leverage and risk-taking in advanced economies and many emerging economies. Levels of integration are now much higher than during the inter-war period, so US financial shocks have a larger impact," it said.
The IMF said the global financial system is still under acute stress, with output tumbling and inflation falling towards zero in key nations. "The risks of debt deflation have increased," it said.
Abrupt halts in capital flows can have "dire consequences" for emerging economies, it said. Eastern Europe has already suffered the effects, with a 17.6pc fall in industrial production in February. The region is highly vulnerable to the credit crunch since it owes more than 50pc of its GDP to Western banks.
Synchronised world recessions striking all major regions are "historically rare" events, the Fund said. They last one and a half times as long typical downturns, and are followed by painfully slow recoveries.
http://www.telegraph.co.uk/finance/financetopics/recession/5166956/IMF-warns-over-parallels-to-Great-Depression.html
##In every crisis, there exists some opportunities. Be brave.
Almost one million UK home owners in negative equity, says CML
Almost one million home owners in negative equity, says CML
Almost one million home owners are in negative equity, the Council of Mortgage Lenders has suggested.
By Myra Butterworth, Personal Finance Correspondent
Last Updated: 7:54AM BST 18 Apr 2009
It claimed that about 900,000 home owners currently have some degree of negative equity, where the value of their home is less than their mortgage.
Bob Pannell, head of research at the CML, said negative equity had "resurfaced" as house prices have fallen and that it "will contribute to subdued property turnover".
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However, the CML said the majority of those in negative equity - around two thirds - face only modest shortfalls of less than 10 per cent, equating to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers.
The CML's estimate is less than some economists' predictions that nearly four million home owners are already suffering from the predicament. And it is still less than the 1.5 million households estimated to have negative equity at the depth of the last housing market slump in 1993.
It said: "Falling house prices have once again raised the prospect of negative equity for borrowers. Although negative equity may reduce a household's coping strategies should they encounter payment difficulties, it does not of itself affect the ability to keep up mortgage payments or create a risk of repossession."
Comment: Probably not dire. Once the housing problems settled and confidence returns, these negative equities will disappear. Should inflation sets in, the losses may turn to gains.
Banking Industry Showing Signs of a Recovery
Banking Industry Showing Signs of a Recovery
By ERIC DASH
Published: April 16, 2009
Just three short months ago, many of the nation’s biggest banks were on life support.
Related
Times Topics: JPMorgan Chase & Company
Now, a number are showing glimpses of a recovery, aided by a tentative improvement in some corners of the economy and new business picked up from rivals that stumbled in the wake of the financial crisis.
On Thursday, JPMorgan Chase became the latest bank, after Goldman Sachs and Wells Fargo, to announce blockbuster profits in the first quarter. The reports fed a rally in financial stocks that began more than five weeks ago, when Citigroup and Bank of America, two of the banks hit hardest by the crisis, suggested the worst might already be over.
Banks are enjoying a fresh wave of profits from the government’s efforts to nurse the industry back to life. Ultralow interest rates have led flocks of consumers to seek deals on mortgage loans. Investment banking and trading activities are enjoying a bounce from the billions of dollars spent to thaw frozen credit markets. And even before the results of a new health test for the nation’s 19 largest banks are unveiled, those who can flaunt an improvement from their dismal recent performance are quickly trying to free themselves from government money.
But this silver cloud has a dark lining: millions of consumers continue to default on their mortgages, home equity and credit card loans. Corporate loan losses are just starting to pile up. And the residential housing crisis is seeping into commercial real estate with a vengeance: on Thursday, General Growth Properties, one of the nation’s largest mall operators, filed for bankruptcy in one of the biggest such collapses in United States history.
“We are in the eye of the storm,” Gerard Cassidy, a banking analyst at RBC Capital Markets. “The worst is behind us for housing. For commercial real estate and corporate lending, there is still a big dark cloud.”
JPMorgan Chase reported a $2.1 billion profit in the first quarter, besting analysts’ average forecasts. Revenue increased to $25 billion, up 45 percent from $16.9 billion in the period last year.
Still, the results reflected continued turmoil in sectors like credit card services and private equity, businesses that reported losses or steep drops in revenue, reflecting the lingering effects of the recession on consumer spending and the credit markets.
Many banks are preparing for the next rainy stretch, setting aside more money now to cover future loan losses. Regional and community lenders, which are particularly exposed to corporate and real estate loan defaults, are socking away tens of millions of dollars to add to their reserves; big banks like JPMorgan are adding billions. “Times aren’t exactly great as we speak,” Michael J. Cavanagh, the bank’s finance chief, said in a brief interview. “Until home prices stabilize and unemployment peaks, we will continue to be under pressure for losses on our balance sheet.”
As long as interest rates remain low, and the government continues to offer financial support, banks hope to earn enough profit to cushion the blow of some of these looming losses.
The question remains whether the profitability is sustainable if the recession worsens.
Some experts are saying fears of nationalization and bank solvency are subsiding. “What we are recognizing now is that they can produce profits,” Charles Peabody, a financial services analyst at Portales Partners. “The next debate is on the sustainability of those profits.”
With good reason: the banking industry has gotten relief from recent changes to accounting rules, which could inflate earnings.
What’s more, a brief moratorium on home foreclosures during the winter will postpone when some banks book losses on a big swath of soured loans. At the same time, banks have benefited from unusually good trading results and low interest rates, which have propped up the value of their mortgage investments.
The official stress test findings, expected to be released on May 4, may help investors sort out the handful of banks that can generate enough earnings to absorb their losses if the economy worsens. Their conclusions may bear little resemblance to banks’ first-quarter results because the stress test is taking a forward-looking view of the banks’ conditions over the next two years. Quarterly earnings reports, by their nature, look back.
Officials involved in the stress test say they expect the results to show that some banks will need to raise fresh capital. A senior administration official emphasized, however, that those banks would not necessarily need new government money. Besides tapping private investors, banks could derive a major source of capital by converting the preferred stock now held by the government into common shares, as Citigroup intends. The Treasury is likely to rely on individual banks to release their results, and officials said they expected banks that need more capital to immediately announce plans for raising it.
But even ahead of the stress test, investors already appear to be rendering verdicts on which banks will emerge as survivors. Goldman Sachs shares are around $121. Citigroup shares, which fell below $1 in March, are trading at just over $4; Bank of America’s shares have rebounded to above $10.
On Tuesday, Goldman Sachs raised $5 billion of fresh capital in anticipation of repaying the government’s investment.
Jamie Dimon, JPMorgan’s chairman and chief executive, was adamant on Thursday that his company would pay back $25 billion as soon as regulators allowed. “Folks, it has become a scarlet letter,” said Mr. Dimon, referring to the taxpayer infusion the bank received in October. “We could pay it back tomorrow,” he said. “We have the money.”
Mr. Dimon added that his bank did not plan to be a buyer or seller in the Treasury’s public-private partnership program to siphon loss-making investments from banks’ books. “We’re certainly not going to borrow from the federal government because we’ve learned our lesson about that,” Mr. Dimon said.
Stephen Labaton contributed reporting from Washington.
http://www.nytimes.com/2009/04/17/business/17bank.html?em
By ERIC DASH
Published: April 16, 2009
Just three short months ago, many of the nation’s biggest banks were on life support.
Related
Times Topics: JPMorgan Chase & Company
Now, a number are showing glimpses of a recovery, aided by a tentative improvement in some corners of the economy and new business picked up from rivals that stumbled in the wake of the financial crisis.
On Thursday, JPMorgan Chase became the latest bank, after Goldman Sachs and Wells Fargo, to announce blockbuster profits in the first quarter. The reports fed a rally in financial stocks that began more than five weeks ago, when Citigroup and Bank of America, two of the banks hit hardest by the crisis, suggested the worst might already be over.
Banks are enjoying a fresh wave of profits from the government’s efforts to nurse the industry back to life. Ultralow interest rates have led flocks of consumers to seek deals on mortgage loans. Investment banking and trading activities are enjoying a bounce from the billions of dollars spent to thaw frozen credit markets. And even before the results of a new health test for the nation’s 19 largest banks are unveiled, those who can flaunt an improvement from their dismal recent performance are quickly trying to free themselves from government money.
But this silver cloud has a dark lining: millions of consumers continue to default on their mortgages, home equity and credit card loans. Corporate loan losses are just starting to pile up. And the residential housing crisis is seeping into commercial real estate with a vengeance: on Thursday, General Growth Properties, one of the nation’s largest mall operators, filed for bankruptcy in one of the biggest such collapses in United States history.
“We are in the eye of the storm,” Gerard Cassidy, a banking analyst at RBC Capital Markets. “The worst is behind us for housing. For commercial real estate and corporate lending, there is still a big dark cloud.”
JPMorgan Chase reported a $2.1 billion profit in the first quarter, besting analysts’ average forecasts. Revenue increased to $25 billion, up 45 percent from $16.9 billion in the period last year.
Still, the results reflected continued turmoil in sectors like credit card services and private equity, businesses that reported losses or steep drops in revenue, reflecting the lingering effects of the recession on consumer spending and the credit markets.
Many banks are preparing for the next rainy stretch, setting aside more money now to cover future loan losses. Regional and community lenders, which are particularly exposed to corporate and real estate loan defaults, are socking away tens of millions of dollars to add to their reserves; big banks like JPMorgan are adding billions. “Times aren’t exactly great as we speak,” Michael J. Cavanagh, the bank’s finance chief, said in a brief interview. “Until home prices stabilize and unemployment peaks, we will continue to be under pressure for losses on our balance sheet.”
As long as interest rates remain low, and the government continues to offer financial support, banks hope to earn enough profit to cushion the blow of some of these looming losses.
The question remains whether the profitability is sustainable if the recession worsens.
Some experts are saying fears of nationalization and bank solvency are subsiding. “What we are recognizing now is that they can produce profits,” Charles Peabody, a financial services analyst at Portales Partners. “The next debate is on the sustainability of those profits.”
With good reason: the banking industry has gotten relief from recent changes to accounting rules, which could inflate earnings.
What’s more, a brief moratorium on home foreclosures during the winter will postpone when some banks book losses on a big swath of soured loans. At the same time, banks have benefited from unusually good trading results and low interest rates, which have propped up the value of their mortgage investments.
The official stress test findings, expected to be released on May 4, may help investors sort out the handful of banks that can generate enough earnings to absorb their losses if the economy worsens. Their conclusions may bear little resemblance to banks’ first-quarter results because the stress test is taking a forward-looking view of the banks’ conditions over the next two years. Quarterly earnings reports, by their nature, look back.
Officials involved in the stress test say they expect the results to show that some banks will need to raise fresh capital. A senior administration official emphasized, however, that those banks would not necessarily need new government money. Besides tapping private investors, banks could derive a major source of capital by converting the preferred stock now held by the government into common shares, as Citigroup intends. The Treasury is likely to rely on individual banks to release their results, and officials said they expected banks that need more capital to immediately announce plans for raising it.
But even ahead of the stress test, investors already appear to be rendering verdicts on which banks will emerge as survivors. Goldman Sachs shares are around $121. Citigroup shares, which fell below $1 in March, are trading at just over $4; Bank of America’s shares have rebounded to above $10.
On Tuesday, Goldman Sachs raised $5 billion of fresh capital in anticipation of repaying the government’s investment.
Jamie Dimon, JPMorgan’s chairman and chief executive, was adamant on Thursday that his company would pay back $25 billion as soon as regulators allowed. “Folks, it has become a scarlet letter,” said Mr. Dimon, referring to the taxpayer infusion the bank received in October. “We could pay it back tomorrow,” he said. “We have the money.”
Mr. Dimon added that his bank did not plan to be a buyer or seller in the Treasury’s public-private partnership program to siphon loss-making investments from banks’ books. “We’re certainly not going to borrow from the federal government because we’ve learned our lesson about that,” Mr. Dimon said.
Stephen Labaton contributed reporting from Washington.
http://www.nytimes.com/2009/04/17/business/17bank.html?em
Saturday 18 April 2009
Tips for Investors Just Starting Out
Tips for Investors Just Starting Out
These tips help investing newbies seize the day.
By Hilary Fazzone 04-14-09 06:00 AM
Not so long ago, my newly employed friends and I applauded ourselves for being responsible and choosing to make high automatic contributions to our 401(k)s. A few years later, we've hardly been rewarded for taking the "prudent" route. Far from watching our savings grow, we've lost much of it.
For those of us in our twenties who are beginning to generate income and wondering how to make the most of our savings, the behavior of the stock market during the past few years has been uninspiring to say the least. To start, the performance of domestic equities over the past 10 years has been unimpressive. If one invested $10,000 in the Dow Jones Wilshire 5000 Index, which tracks the 5,000-largest public companies in the United States and which is a nearly complete representation of the broader stock market, three years ago, it would have been worth about $6,500 at the end of March 2009 (based on the return of SPDR DJ Wilshire Total Market TMW), an exchange-traded fund that tracks the Wilshire 5000).
What's more, the precipitous marketwide downfall that characterized the second half of 2008 called into question for many the worth of diversification, as nearly all asset classes apart from Treasury bonds suffered severe blows. This came as a shock to those who believed that diversification would help them avoid portfoliowide stumbles. Furthermore, the deleterious and hard-to-predict impact that heavy-hitting, low-transparency vehicles such as hedge funds have had on the broader market recently, combined with the market's recent apparent disregard for company fundamentals, has left many less-sophisticated investors feeling as though the deck is stacked against them.
Yet investor sentiment often runs the most negative when it's most opportune to invest, and right now is shaping up as a golden opportunity for newbies. By many measures, stocks look cheap. Although they've been early, many of the mutual fund managers with whom Morningstar analysts speak daily have been touting the cheapness of stocks for months.
Brian Rogers, T. Rowe Price's chief investment officer and manager of T. Rowe Price Equity Income (PRFDX), has said that stocks look inexpensive relative to historic norms. Marty Whitman and Ian Lapey have been increasing their personal investments in their own Third Avenue Value (TAVFX ) for the attractiveness of its current portfolio. Chuck Royce and Whitney George have been bargain-hunting for their Royce Premier (RYPRX ) portfolio.
Morningstar's stock analysts agree. The Market Valuation Graph that values in aggregate the entire universe of stocks covered by Morningstar analysts showed a ratio of 0.81 on Friday, April 3, meaning that stocks are 19% undervalued, according to our analyst team. Warren Buffett also agrees. The stock market cap/gross domestic product ratio that he uses to gauge the market's attractiveness indicates that as of March 2009, the total value of publicly traded U.S. stocks represented just more than 60% of GDP. At the end of 2007, by contrast, the stock market represented more than 140% of GDP. Buffett thinks that a higher ratio indicates overvaluation while a lower ratio indicates undervaluation.
For all of the uncertainties that plague the market, the long-term upside potential appears to be there, and the rewards are apt to be particularly great for new investors who have many years to see their investments compound.
How to do it is the question. What follows is an introductory, though not exhaustive, explanation of some of the best ways to begin investing.
Index Funds
One of the most difficult decisions in investing is what kind of stocks to buy. Broadly diversified index funds make that decision easier by giving you exposure to many different companies and industries in a single mutual fund. The Dow Jones Wilshire 5000 Index, for example, captures practically every stock in the U.S. market. The Russell 2000 tracks the smaller end of the market-cap range, and so forth. In addition to providing one-stop diversification, index funds can also be cheap. Traditional index funds and exchange-traded funds that track major indexes typically cost much less than actively managed mutual funds. Fidelity is an industry leader on the low-cost index-fund front. Vanguard also provides some of the most competitively priced index funds and offers them with relatively low minimums, which make it easier for new investors to dip their toes in the water. Dan Culloton, editor of Morningstar's Vanguard Fund Family Report, examined in a recent article how index funds fared during the recent bear market, and the results were competitive with active funds' returns.
All-In-One Funds
Generally speaking, those of us in the early stages of our investing careers can tolerate higher stock allocations, which can present greater downside risk but also greater return potential, because we have longer time horizons over which to recoup our losses. Still, given the behavior of the stock market in recent years and the uncertainties that do remain in the current downturn, new investors may be uncomfortable having the bulk of their assets in stocks. All-in-one funds such as those in Morningstar's moderate-allocation category provide a nice middle ground, giving you stock exposure but also muting volatility with some bonds and cash. Target-date funds are an all-in-one, low-maintenance way to shift from a higher to a lower stock allocation over time as your risk tolerance decreases. Both target-date and moderate-allocation funds tend to offer smoother rides than equity-only funds and are good alternatives for those who would like to start investing but are nervous about the downside risk of equities. Morningstar's Analyst Picks in the moderate-allocation and target-date categories are a great place to start looking for topnotch all-in-one options.
Dollar-Cost Averaging
When to buy a particular stock or mutual fund is another hot topic for investors just starting out. It's a mistake to get too hung up trying to buy and sell at the perfect time; the typical investor isn't any good at calling the market's highs and lows. Dollar-cost averaging, which is the default investing method for most 401(k) plans, is an easier way. Once you've decided that a certain stock or fund is a good long-term fit for you, dollar-cost averaging enables you to invest in it gradually and regularly over time. By investing uniform chunks of money at set intervals, you reduce the chance that you'll be putting a lot of money to work right before the market goes down. For a more in-depth discussion of dollar-cost averaging, click here.
There is much more to investing than the simple tips I've laid forth here, such as navigating fund fee structures and understanding investment vehicles such as 401(k)s, but these introductory guidelines are a good start for investors who are wary of the stock market and wondering how to make good, basic decisions at a time when opportunity is abundant.
http://news.morningstar.com/articlenet/article.aspx?id=286673
These tips help investing newbies seize the day.
By Hilary Fazzone 04-14-09 06:00 AM
Not so long ago, my newly employed friends and I applauded ourselves for being responsible and choosing to make high automatic contributions to our 401(k)s. A few years later, we've hardly been rewarded for taking the "prudent" route. Far from watching our savings grow, we've lost much of it.
For those of us in our twenties who are beginning to generate income and wondering how to make the most of our savings, the behavior of the stock market during the past few years has been uninspiring to say the least. To start, the performance of domestic equities over the past 10 years has been unimpressive. If one invested $10,000 in the Dow Jones Wilshire 5000 Index, which tracks the 5,000-largest public companies in the United States and which is a nearly complete representation of the broader stock market, three years ago, it would have been worth about $6,500 at the end of March 2009 (based on the return of SPDR DJ Wilshire Total Market TMW), an exchange-traded fund that tracks the Wilshire 5000).
What's more, the precipitous marketwide downfall that characterized the second half of 2008 called into question for many the worth of diversification, as nearly all asset classes apart from Treasury bonds suffered severe blows. This came as a shock to those who believed that diversification would help them avoid portfoliowide stumbles. Furthermore, the deleterious and hard-to-predict impact that heavy-hitting, low-transparency vehicles such as hedge funds have had on the broader market recently, combined with the market's recent apparent disregard for company fundamentals, has left many less-sophisticated investors feeling as though the deck is stacked against them.
Yet investor sentiment often runs the most negative when it's most opportune to invest, and right now is shaping up as a golden opportunity for newbies. By many measures, stocks look cheap. Although they've been early, many of the mutual fund managers with whom Morningstar analysts speak daily have been touting the cheapness of stocks for months.
Brian Rogers, T. Rowe Price's chief investment officer and manager of T. Rowe Price Equity Income (PRFDX), has said that stocks look inexpensive relative to historic norms. Marty Whitman and Ian Lapey have been increasing their personal investments in their own Third Avenue Value (TAVFX ) for the attractiveness of its current portfolio. Chuck Royce and Whitney George have been bargain-hunting for their Royce Premier (RYPRX ) portfolio.
Morningstar's stock analysts agree. The Market Valuation Graph that values in aggregate the entire universe of stocks covered by Morningstar analysts showed a ratio of 0.81 on Friday, April 3, meaning that stocks are 19% undervalued, according to our analyst team. Warren Buffett also agrees. The stock market cap/gross domestic product ratio that he uses to gauge the market's attractiveness indicates that as of March 2009, the total value of publicly traded U.S. stocks represented just more than 60% of GDP. At the end of 2007, by contrast, the stock market represented more than 140% of GDP. Buffett thinks that a higher ratio indicates overvaluation while a lower ratio indicates undervaluation.
For all of the uncertainties that plague the market, the long-term upside potential appears to be there, and the rewards are apt to be particularly great for new investors who have many years to see their investments compound.
How to do it is the question. What follows is an introductory, though not exhaustive, explanation of some of the best ways to begin investing.
Index Funds
One of the most difficult decisions in investing is what kind of stocks to buy. Broadly diversified index funds make that decision easier by giving you exposure to many different companies and industries in a single mutual fund. The Dow Jones Wilshire 5000 Index, for example, captures practically every stock in the U.S. market. The Russell 2000 tracks the smaller end of the market-cap range, and so forth. In addition to providing one-stop diversification, index funds can also be cheap. Traditional index funds and exchange-traded funds that track major indexes typically cost much less than actively managed mutual funds. Fidelity is an industry leader on the low-cost index-fund front. Vanguard also provides some of the most competitively priced index funds and offers them with relatively low minimums, which make it easier for new investors to dip their toes in the water. Dan Culloton, editor of Morningstar's Vanguard Fund Family Report, examined in a recent article how index funds fared during the recent bear market, and the results were competitive with active funds' returns.
All-In-One Funds
Generally speaking, those of us in the early stages of our investing careers can tolerate higher stock allocations, which can present greater downside risk but also greater return potential, because we have longer time horizons over which to recoup our losses. Still, given the behavior of the stock market in recent years and the uncertainties that do remain in the current downturn, new investors may be uncomfortable having the bulk of their assets in stocks. All-in-one funds such as those in Morningstar's moderate-allocation category provide a nice middle ground, giving you stock exposure but also muting volatility with some bonds and cash. Target-date funds are an all-in-one, low-maintenance way to shift from a higher to a lower stock allocation over time as your risk tolerance decreases. Both target-date and moderate-allocation funds tend to offer smoother rides than equity-only funds and are good alternatives for those who would like to start investing but are nervous about the downside risk of equities. Morningstar's Analyst Picks in the moderate-allocation and target-date categories are a great place to start looking for topnotch all-in-one options.
Dollar-Cost Averaging
When to buy a particular stock or mutual fund is another hot topic for investors just starting out. It's a mistake to get too hung up trying to buy and sell at the perfect time; the typical investor isn't any good at calling the market's highs and lows. Dollar-cost averaging, which is the default investing method for most 401(k) plans, is an easier way. Once you've decided that a certain stock or fund is a good long-term fit for you, dollar-cost averaging enables you to invest in it gradually and regularly over time. By investing uniform chunks of money at set intervals, you reduce the chance that you'll be putting a lot of money to work right before the market goes down. For a more in-depth discussion of dollar-cost averaging, click here.
There is much more to investing than the simple tips I've laid forth here, such as navigating fund fee structures and understanding investment vehicles such as 401(k)s, but these introductory guidelines are a good start for investors who are wary of the stock market and wondering how to make good, basic decisions at a time when opportunity is abundant.
http://news.morningstar.com/articlenet/article.aspx?id=286673
****Warren Buffett MBA Talk on Investing and Stock Market Wisdom (Videos)
Warren Buffett MBA Talk on Investing and Stock Market Wisdom
Warren Buffett is the richest guy in the whole world and his wisdom on stock market, value investing and corporate governance is priceless. Many people from all over the world come and listen to him. When it comes to value and growth investing methodology, Warren Buffett is the guy.
Warren Buffett talk to MBA students on various topics ranging from business management to investing for growth. Visit this site to see the 10 parts video: http://tradeorinvest.com/warren-buffett-investing-and-stock-market-wisdom-mba-talk/.
These are also posted below. Enjoy them.
Warren Buffett MBA Talk - Part 1
Warren Buffett MBA Talk - Part 2
Warren Buffett MBA Talk - Part 3
Warren Buffett MBA Talk - Part 4
Warren Buffett MBA Talk - Part 5
Warren Buffett MBA Talk - Part 6
Warren Buffett MBA Talk - Part 7
Warren Buffett MBA Talk - Part 8
Warren Buffett MBA Talk - Part 9
Warren Buffett MBA Talk - Part 10
Warren Buffett is the richest guy in the whole world and his wisdom on stock market, value investing and corporate governance is priceless. Many people from all over the world come and listen to him. When it comes to value and growth investing methodology, Warren Buffett is the guy.
Warren Buffett talk to MBA students on various topics ranging from business management to investing for growth. Visit this site to see the 10 parts video: http://tradeorinvest.com/warren-buffett-investing-and-stock-market-wisdom-mba-talk/.
These are also posted below. Enjoy them.
Warren Buffett MBA Talk - Part 1
Warren Buffett MBA Talk - Part 2
Warren Buffett MBA Talk - Part 3
Warren Buffett MBA Talk - Part 4
Warren Buffett MBA Talk - Part 5
Warren Buffett MBA Talk - Part 6
Warren Buffett MBA Talk - Part 7
Warren Buffett MBA Talk - Part 8
Warren Buffett MBA Talk - Part 9
Warren Buffett MBA Talk - Part 10
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