|»5 Minute Wrap Up by Equitymaster|
On This Day - 9 MAY 2009
Blue-chip stocks on a tear. Beware!
In this issue:
With central banks and governments across the world taking concerted measures to pump liquidity into the system and announce fiscal measures, investors have become hopeful that the downturn is not going to last as long as it was previously expected and this explains the mad rush for equities.
But we believe that fundamentals don't seem to be driving the stock markets these days simply because the fundamental issues have not yet gone away. The world continues to fight a financial crisis, economies are in doldrums, policymakers remain confused as to what will be their next step and industries are going slow on expansion given that they remain unsure about the demand environment. From a long-term perspective though, we believe that Indian equities, especially the blue-chips hold a lot of promise.
We wonder how wonderful place the financial markets would have been only if other central bankers had this ability to recognise the devils!
And this sounds eerily similar to the Japanese crisis as even then, the Japanese government, for fear of public backlash, did not commit enough money and ended up prolonging the recession to extraordinary levels. Kenneth Rogoff, a former IMF Chief Economist put it best when he said to Bloomberg, "If the banking plan still falls short, the fiscal stimulus will have been wasted to some extent. We could end up like Japan, sliding in and out of recession." We hope Messrs. Obama and Geithner are listening.
And his warning - "While bankers may find the results of the stress test 'reassuring', the rest of us should be very, very afraid."
What is more, the company had to also slash dividends, ending a spectacular run of a six-fold increase in dividends in 10 years, as it looks to preserve as much capital as possible. Toyota's plight is at least better than some of its US rivals. Worst recession since World War-II has sent car sales into such a downward spiral that companies like GM and Chrysler that were tottering on the edge, have a strong chance of going bankrupt unless the US government bails them out.
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This loss might give an indication that even for the legend he is, Warren Buffett isn't perfect. But then, this 78-year old world's best and most followed investor remains a force to reckon with. And at a time most people his age are looking to get money out of the market rather than put money in it, he's doing the opposite. He's investing in stocks.
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