Worst Year For Warren Buffett As Recession Bites

A new month, but it did not bring new hopes. This week’s stock market opening wasn’t any different as it continues to test new low. Asian bourses were jolted by bleak data while Wall Street fell to fresh 12-year lows on heightened fears about the murky financial sector.

AIG announced $62 billion losses (a cool $460,000 per minute) and a third bailout package was injected which brought the insurance giant closer to becoming absolutely owned by the US government.

Read the full article here.

Putting Your Cash To Use: Be A Gold Bug And Clear Debts

Global stock markets have been whitewashed over the past month, Dow Jones fell to its lowest level in 6 years this week, and gold has charged to a record high $1,007 as investors seek to preserve capital.

Granted that Obama’s administration has been hard at work – a $787 billion economic stimulus was signed into law Tuesday and a $75 billion foreclosure prevention plan was unveiled to aid distressed homeowners and revive the housing market. However, there is little confidence that these measures will be effective.

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Protectionism Will Cost Investors Dearly

The US government revealed on Friday that payrolls tumbled by 598,000 in January (the biggest one-month drop in 34 years) and the unemployment rate is now at a 16-year high of 7.6%. In a month of brutal layoffs, I guess the only bright spark was Obama’s inauguration but even that seems to have fizzled out.

One cannot fault the Obama’s administration for lacking enthusiasm; however, implementation of economic policies has been anything but smooth. Hurling accussations at China for manipulating its currrency disrupts the delicate balance between both countries.

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It Feels Great To Be A Sloth Investor

Warren Buffett once remarked that successful investing consists of long periods of inactivity, bordering on sloth. That pretty much describes my attitude towards investing coming into the new year. If we are going to have more of the October massacre, then we should at least seek cover and conserve cash. 

The losses from Citigroup and Bank of America were staggering and confirmed that the worst of the financial mess is far from over. Analysing when the good days will arrive seem to be a futile exercise now. In any case, I am less worried about the economic recovery which will definitely happen with so much money being dumped into the system. 

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Coming To Grips With A Harsh Year In 2009

I wish all readers of Jeflin’s Investment Blog a Happy New Year in 2009.

The past year has been sobering for taxpayers, retail investors and fund managers, what with severe declines in housing, mortgages, banking, stock markets, commodities, retail, automotive, shipping industry, etc. The extreme volatility in 2008 may be over but more of the same challenges await us.

Personally, I have made a new year’s resolution to be a more careful reader of financial reports, and by that, I mean reading with an inquisitive mind. Of course, if a management wants to get creative with their financial statements and the auditors are in a collusive mood (remember, the person who pays the piper calls the tune), our money is fair game for the predators.

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Treasury Bills Developing Characteristics Of A Bubble

This fancy for Treasury bills is no longer a flight to quality. It is an exodus away from all asset classes, followed by a musical chairs version of quality. 

If investors were to regain their risk appetite and start buying riskier assets in the U.S. such as stocks, corporate bonds, and real estate, then the effect (decline in face value and the US dollar) could be spectacular.

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Will The Automotive Deadlock Be Broken Next Week?

Over $7 trillion dollars have been made available by the US government to rescue the financial sector and the economy. That’s about $23,000 for every American, and more than half of US GDP. However, not much has been allocated to the beleaguered auto industry and Detroit’s Big Three yearns for a larger piece of the pie to save their hides.

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Invest Only What You Can Afford To Lose

Every day we open up the newspapers, we are hit by depressing news – what with retrenchments (DBS axes 900, NOL ships out 1000, Citigroup eliminates 52000 worldwide, etc) and pay cuts (Temasek staff and Cabinet ministers). Taken together, the “contributions” from DBS and NOL are close to surpassing the retrenchment figures for third quarter.

Read the full article here.

One Way Traffic: Dow Plunges Below 8000

It is one way traffic: Dow Jones plunged below 8000, a first since 2003. There was a bear rally on Tuesday but it is a folly to be tempted by profits in all these technical rebounds. For those who are drawn in and end up selling in a panic, you risk doubling your losses. You are doing just fine having the bulk of your money in the bank. If you want to go long (very long), then just nibble at the stocks.

Read the fulll article here.

Citigroup Layoffs 10000 Employees

The tangible effects of recession has hit home. According to the Wall Street Journal, Citigroup will begin distributing 10,000 pink slips to its employees (not only in the United States, but worldwide). The large scale Citigroup layoffs underscore that it is not just Americans who are suffering from large scale job losses.

I am not surprised with these layoffs as troubles rocking the financial sector have not ended yet. After the mortgage mess, financial institutions still need to purge their credit card and auto loans as part of the deleveraging process and it will be a while before we see healthy balance sheets.

The economy is also in a recession with lower consumption and production, so banks can expect lower interest earnings.

For those who are not employees of Citigroup, you may be less perturbed by the retrenchments. However, if you are a Citigroup credit card holder, you have to beware that your credit card interest rate may take a hike.

Up to 20% of Citigroup customers could face a rate hike of up to 3 percentage points. I think it is really poor timing for retailers as these people may just need to use credit cards for gift buying during the upcoming holiday season. Now they could change their mind with the rate hike.