Stocks, Crude, Gold Hit Hard!
(Oct 18, 2008)
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In this issue:
» The week that was
» India's prime lenders in prime health
» Message from Warren Buffett
» ...and more!
It was another week of high drama for the global financial system and the stock markets. Just as it appeared that the credit markets have started loosening on the back of the new bail out plan, there emerged another cockroach in the kitchen. Fears of a worldwide recession sent shivers down the market during the latter half of the week and although the US markets did manage to close higher for the week, investors are unlikely to take home big confidence from this rally.
|| Stocks, Crude, Gold Hit Hard!
Contrasting trend was witnessed among global indices in the past week, an aberration that had indeed become rare in recent times. While key Asian markets with the exception of Japan ended lower for the week, their Occidental counterparts edged higher. However, given the sharply intertwined nature of global capital flows, this ought to be a case of exception rather than the rule. India was amongst the worst hit with the Sensex coming off as much as 5% during the week.
After being rather reluctant to spend taxpayers' money for buying stakes in banks, deteriorating credit market conditions have forced the US Treasury secretary to do exactly just that. We are talking of the new US$ 250 bn bail out plan that was set in motion by the government during the week. Unless banks go into bankruptcy, the plan looks like a win-win situation for both government as well as bank shareholders. More importantly, it addresses the root cause of contraction in capital as the equity capital can now be leveraged 9-10 times over by the banks and hence, make possible that much more lending. The plan did seem to have the desired impact as interbank lending rates for major currencies did show signs of coming down by the time the week progressed.
Crude oil declined by 8% during the week to under US$ 72 a barrel. Gold prices slid by 8% to US$ 783 an ounce. Gold's decline seemed to have been triggered by the speculation that investors are likely to book profits in the yellow metal to make up for losses in other markets.
Just in case you are wondering, "What is the smartest money in the world currently doing?" Let us tell you that it is adding more equities to the portfolio. We are referring to the Oracle of Omaha, Warren Buffett and his investment strategy currently. The master has said that he is buying US stocks in his personal portfolio and if prices keep looking attractive, his non-Berkshire net worth would be soon 100% equities. Comforting thoughts indeed from one of the greatest investing legends of all times.
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The BSE-Bankex index, with a 4% rise, was the biggest gainer among sectoral indices this week. And the result - strong set of numbers from three of the biggest financial entities in the country - HDFC, HDFC Bank and Axis Bank these three recorded strong growth in advances and interest income and stable to higher net interest margins. As for the net NPA (non-performing asset) to advances ratio, it rose for HDFC Bank and declined for HDFC and Axis Bank.
|| 'The week's biggest news - India's prime lenders in prime health
These performances speak volumes about the respective management teams who are trying to steer their companies through slowdown and liquidity worries, while other aggressive players are faltering along the way. While these banking and financial companies might still face weak growth in the short to medium term if the broader slowdown were to persist, that fact of the matter is that times like these are an easy medium for investors to filter out wheat from the chaff.
In an opinion editorial on the New York Times, Warren Buffett delivered an emphatic message - "Now is a good time to buy."
|| Best of this week's 5 Min. WrapUp - Message from Warren Buffett
Buffett says that the stock markets gauge the health of the real economy and react in anticipation. He supports his argument by going back in history and pointing out how the stock markets bottom out earlier than the underlying economy. By the time the underlying economy hits rock bottom, stock markets are generally already on their way up. "Market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over", he says.
He advises investors to check financial leverage and competitive strength of companies before buying. If they pass the litmus test, one needn't worry about earning hiccups.
Cash and cash equivalents is what Buffett would like investors to exit from. He believes the worldwide bailout packages will be strongly inflationary over the next decade thereby eating away into the real value of cash. Of course, one expects him to walk the talk. Almost all the investments in his personal portfolio (and not Berkshire Hathaway's) are now in equities. This is in sharp contrast to the 100% bond portfolio that he had earlier. (Read the full article)
"Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." - Warren Buffett
|| Weekend investing mantra
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