Buffett: Financial Panic is Over

Nov 14, 2009

In this issue:
» Financial panic over, says Warren Buffett
» Now you can trade mutual funds through stock brokers
» First mega highway project in two months
» Monetary policy cannot address food prices
» ...and more!

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Investors who heeded what Warren Buffett had to say about a year ago, when the panic over the global financial meltdown was at its peak, would have done rather well for themselves. He had said in no uncertain terms that it was a good time to buy.

At a talk at the Columbia Business School, he recollects that he wasn't worried about the ultimate survival of the US financial system but the problems needed straightening out. In his opinion, Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Timothy Geithner managed the financial crisis well. Warren Buffett now believes that the financial panic is behind us.

As for buying opportunities, he says, "It's a terrible mistake to look at what's going on in the economy today and then decide whether to buy or sell stocks based on it." Some of the best bets would be those that are tied to the overall prosperity of the economy over the long term. In fact, it is based on this premise that Buffett has made his investment in the railroad company, Burlington Northern.

This theme certainly applies well to us here in India. If India has to grow, many of its companies will also create a lot of wealth in the years to come. As long as investors can insulate themselves from worrying about the short term gyrations of both the stock market and the underlying economy, such companies would be sound investments.

 Chart of the day
After the considerable damage that the erratic monsoons did to the Kharif crop, there are indications that the Rabi harvest might also fail to meet expectations. The price of wheat, the most important winter sown crop, has touched US$ 329 to US$ 350 in Southern India at a time when it is falling globally. As a result, India is set to import wheat for the first time in two years. At a price of around US$ 270 to US$ 300 per tonne, the imports amount to a tiny 10,000 tonnes primarily because the government currently blocks bulk imports. However, the chart of the day shows why there is still no need to press the panic button yet. We have had a strong production of wheat over the last two years. As a result, we had stocks of 28 m tonnes of the food grain as on 1st October, 2009 as against a target of 11 m tonnes.

Source: Reuters

Investors in mutual funds have plenty to choose from these days. Right from looking for the cheapest means to buy and sell mutual fund units to the easiest mode of transacting the same. While the SEBI directive banning distributor commissions and entry loads were a good start, the mutual fund regulator has now made the offer even better. SEBI will now be allowing investors to buy and sell mutual funds through stock brokers. This move is expected to significantly reduce the transaction costs for investors compared with what they were paying before SEBI clamped down on distributor commissions. However, there continues to remain lack of clarity on how additional costs such as securities transaction tax and stamp duty would be levied. Having said that, mutual fund investors need to make sure that this time the stock brokers do not cash in on them by inducing them to churn their portfolios time and again.

Please share your thoughts on SEBI's decision to allow buying and selling of mutual funds via stock brokers.

What do you do when the biggest economy in the world is hell bent on inflating every bubble imaginable and supporting asset prices? All you can do is ride the increase in asset prices till the fundamentals support them and then sell off and wait for the bubble to deflate. One thing you dare not do is be on the wrong side of the bubble while it is still inflating.

Jim Rogers, one of the world's foremost commodities expert also has a similar opinion. Speaking to a finance portal, Rogers opined that this is one of the few times in life that he has not had shorts anywhere in the world. "I have kept away from shorts because there is a gigantic amount of money being printed and it has to go somewhere. . . I thought some of it would end up in the stock market, and it has," Rogers is believed to have said and seems to be making a reference mostly to the US stock markets.

Investors in Indian stocks however need not worry about bubbles as stock prices currently seem to be well supported by fundamentals. But if stocks from here on run up too soon, too fast, then alarm bells should indeed start ringing. However, as of now there seems to be no such threat.

While the Indian stock markets may not be in a bubble territory right now, this does not mean that they would continue to go higher. One big risk is the further tightening of the monetary policy by the RBI, which can perhaps throttle the GDP growth and in turn, put pressure on stock prices. But even that fear seems to have been put to rest, atleast for the time being. RBI's biggest concern was the rising inflation but Mr. Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission, believes that the inflation cannot be tamed by monetary policy as it is mostly related to food prices where monetary tightening will not have too much of an impact. Instead, he believes that efforts should be made to get GDP back on track and ensure more job creation.

Mr. Ahluwalia also expressed confidence that India's GDP should grow in the region of 6.3% in the current fiscal with an upward bias and that growth from FY12 onwards should be in the region of 9%.

However, it should be noted that the last time India's GDP grew at 9%, it received a lot of support from the booming global economy. But with the same expected to face anemic growth rates for quite some time to come, making India grow by 9% again would indeed require some huge structural changes.

Goods and services could soon be cheaper. The Transport Ministry is looking to award contracts for 10 mega highways over the next two years, with each highway running an average distance of over 1,000 kms. These mega highways are expected to be a boon to the Indian economy giving a fillip to India's infrastructure and help cut down the time and cost of transporting goods. While the main barrier to Kamal Nath's pet project will be acquiring land, steps are being taken by the government to expedite the acquisition so that the project can start on time. With Rs 2 trillion worth of projects to be awarded in the next two years, infrastructure companies are also expected to benefit.

After witnessing a recovery in the previous week, key markets worldwide staged another positive performance this week. India's benchmark index, BSE-Sensex, which gained about 5.4% last week, ended higher by another 4.3% this week. As for global markets, Russia led the pack of gainers (up 7.2%). Following Russia was the US market, which recorded gains of 2.5%. The other important markets of China and the Brazil also saw gains of 0.7% and 1.3% respectively. Japan stuck out like a sore thumb; it was the sole loser amongst the key markets, recording a weekly loss of 0.2%. Amongst commodities, while gold inched higher, crude oil fell 1.4% during the week.

What lent overall confidence to the global markets was the meeting of G20 nations where it was agreed that interest rates would be kept low and the government would continue to maintain record budget deficits. Indeed, this helped lift the huge cover of uncertainty that had begun to descend upon the participants, many of whom had started believing that with the worst behind us, it was now perhaps the time to wind back stimulus measures. But since that has not happened, it gave the investors the excuse they wanted to inject a fresh dose of buoyancy into the markets.

Source: Equitymaster, Yahoo Finance

 Weekend investing mantra
"People calculate too much and think too little." - Charles Munger

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59 Responses to "Buffett: Financial Panic is Over"

Abhishek Jain

Nov 20, 2009

Good grief!! This would make mutual fund investments a gambling platform. People would buy in morning, sell in the evening.

Abhishek Jain



Nov 18, 2009

It is really good move.It will save both time and money of the investors.Now investors have more freedom & flexibility in investment.


arvind midha

Nov 18, 2009

Investment(s) in MFs thru Fund Manager or Investors Service centres have been quite hassle-free and transparent too.New guidelines to bring stock brokers in to scene should not have any hidden cost



Nov 17, 2009

1.How will the payment mechanism work out? All Mf's will become exchange traded? Currently Mf's directly receive and make payments to investors. how will the new mechanism work?

2.Will the stock brokers have the time and energy to advise the investors reg exit loads?

3. All investors will need to have a demat a/c. currently that is not required. that rules out a large section of the investing retail population.

4. please ask sebi to think it through.


Pankaj jha

Nov 17, 2009

Really good start.


Prashant Manohar

Nov 17, 2009

SEBI's decision makers should be trained in Logical and Consistent decision making. On the one hand they have removed entry load and reduced the cost for the investors. On the other hand they are adding 0.50%-0.75% brokerage plus STT for BUy & SELL transactions. SEBI, please explain.


Santhana Krishnan

Nov 17, 2009

SEBI is clueless as to what they are doing. They should allow the individual investor to decide how and through whom, he wants to invest. Give him the choices and let him choose. It is his money, not SEBI's. SEBI wants to collect the turnover fee, on their MF transactions through the Brokers. That is ALL they want.

Also it would be prudent to segregate the MF investments of Corporates and Retail Investors and NOT pool them together, so the corporate can not, by their large investments and withdrawals, harm the investments of the individuals. They should have a seperate corpus and scheme. It would solve the problem of short term fund flow in and out of various schemes.



Nov 16, 2009

Great move, more choices and ease of investing in all great funds just like shares for all investors. I don't want to maintain multiple relationships and just use my one single online broking account to buy any mutual fund I like. Coming to STT and brokerage, that is small fee for the ease I am getting.


Sunil Doshi

Nov 16, 2009

MF on Share Terminals is a Good move.We have a very Transparent Wide spread and Quick Trading System with near zero mistake level.With a little presence of mind Investors would be better off.


aniket kulkarni

Nov 16, 2009

I am MBA student and these articles are proving to be very helpful for me...

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