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A Monday as usual

Mar 2, 2009

Staring at another weak week...
Asian markets have opened this week in the red as worries about a deeper slowdown looms large on countries, especially those dependent on exports for economic survival. Factory closures and employee downsizing seems to have become the order of the day from Japan to India. The economic stimuli from the respective governments have yet to benefit the Asian economies, as they see dwindling exports, lower domestic consumption and tight liquidity. In the US, meanwhile, the Obama government continues with its bailout doles to industries as financial markets remain in a tailspin. The stock markets, for instance, are tottering around their 12-year lows on the back of enormous uncertainty regarding the way things will pan out in the future. On the other hand, while banks continue to fail (at last count, 16 banks have failed in the US since the start of 2009), there are other bigger institutions like AIG that continue to be bailed out on the back of their 'too big to fail' status. After all, more aid for the ones like AIG will be cheaper than the economic collapse that follows not aiding them, something the US policymakers must have learned after Lehman Brothers was allowed to go down in September 2008.

Coming back to Asia, while the region has not seen any major bankruptcy so far, it (bankruptcies) seems absolutely inevitable given the way the situation is unfolding. The only question is ... when.

Buffett's fears and beliefs
Warren Buffett's 2008 letter to shareholders is out. Mr. Buffett mentions that the current crisis is likely to last beyond 2009. He also warns that inflation will be one of the after effects of the stimulus packages.

However, he urges people to place things in perspective. There have been difficulties earlier too. If the system is based on the right fundamentals, it creates better standard of living over a period of time despite occasional obstacles. In fact, investors should take heart because, "When investing, pessimism is your friend, euphoria the enemy."

He also has a practical word of advice on financial projections, "Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols."

For oil watchers, he says, "I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price."

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