Archive for September, 2008
New Warren Buffett book to be out today
The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
In India the book is available at Strands Book Stall for Rs.660 against publication price of Rs.995.
FII Selling: Don’t dismiss as a lost cause
Stocks with large FII holdings
Hold on to quality stocks, even if they get decimated in this market as FII selling this time around has been more due to the liquidity crunch.
ot so long ago, FII interest in a stock was seen as a reason to add it to your portfolio. Now, with marquee names in the investment banking business — Merrill Lynch, Lehman Brothers, Morgan Stanley and Goldman Sachs — engulfed by the credit crisis, a sizeable holding by one of these crisis-ridden institutions is seen as a red flag.
The alacrity with which “Lehman” stocks have been pummelled to single-digit valuation multiples over the past few weeks and the widely circulating lists of ‘Lehman’, ‘Merrill’ and ‘Goldman’ stocks on blogs and investment groups force you to ask if you should stay well away from stocks fancied by these institutions. Given the ‘across-the-board’ selling by a few FIIs, should you give stocks with sizeable FII holdings a wide berth, moving, instead, to stocks with low or negligible FII interest?
Click here for the full article.
The seven best books on boom and bust
Here is a list of the seven best books on previous episodes of financial euphoria and collapses
by Niranjan Rajadhyaksha
This has been an astonishing month in the global financial markets—the collapse of Lehman Brothers Holdings Inc., the sale of Merrill Lynch and Co. Inc., the nationalization of Freddie Mac, Fannie Mae and American International Group Inc., and fears that several other financial institutions are tottering.
It is hard to make sense of what is happening in New York, London and elsewhere. And while there is no shortage of newspaper commentary, blog posts and videos to keep you busy, here is a list of the seven best books I have read on previous episodes of financial euphoria and collapses. These are not academic tomes, but those that combine insight and good writing.
U.S. Bailout Tab
Buffett Warned Us in 2003, Few Listened
by Todd N Kenyon – GuruFocus
Warren Buffet foresaw the current financial disaster more than five years ago. I pulled out his 2002 Chairman’s Letter, wherein he addresses derivatives and their potential to scuttle the entire financial system. Here are some key passages:
“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.”
“In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great “earnings” – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. “Mark-to-market” then turned out to be truly “mark-to-myth.””
Read the rest of this entry »
Challenges!
The Complex World of AIG
Credit Crisis: The Perfect Storm
So, it has come to full circle (as of now!). A perfect Black Hole for Wall Street’s most reputed firms engulfed in credit crisis which has resulted into tectonic shift in financial might.
Additional Reading
- Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create
- Bank of America Will Buy Merrill for $50 Billion as Credit Crisis Broadens
- AIG Slumps After Insurer Rejects Flowers Offer, Seeks $40 Billion Fed Loan
- Stocks Plunge, Treasuries Soar, Dollar Falls Versus Yen on Lehman Collapse
Give the stock-market experts a miss
Markets often behave contrary to the predictions of economists and analysts
“In a few months, I expect to see the stock market much higher than today.”
You might have heard the above line on one of the business news channels just this morning. That’s how common it has become, although the speaker may be forgiven for not understanding its historical importance enough.
The sentence was famously uttered by Irving Fisher, a famous American economist and a professor at the Yale University, just 14 days before the Wall Street crashed on October 29, 1929, the infamous “Black Tuesday.”
Fisher was not the only one who got it wrong around then. The Harvard Economic Society, too, had ruled out the chances of a depression. But, as is well known, the US saw what is now known as the Great Depression following the stock market crash.
“Stock market crashes are often unforeseen for most people, especially economists,” writes Didier Sornette in his book Why Stock Markets Crash – Critical Events in Complex Financial Systems.
Just before the stock market crashed in January this year, a stock brokerage firm had even predicted the Sensex hitting 25,000 by the year-end. While there is no ruling it out completely, such an event does appear highly improbable under the present circumstances.
And why do economists and other experts get their forecasts wrong? “A financial collapse has never happened when things looked bad,” writes Sornette. “On the contrary, macroeconomic flows look good before crashes.”
Click here for the full story.
