Tuesday, August 16, 2011

Buffet Holdings


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Stocks & QE II
Check out this chart that shows the recent history of the stock market coupled with significant QE events (click to enlarge):
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Buffet ...

OK, so let’s tally all those items up:

  • $5 billion payment for shares
  • $500 million early repayment fee
  • $1.25 billion in interest already paid
  • $1.9 billion unrealized gain on stock appreciation (warrants)

That all totals $8.65 billion.

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He also received warrants to buy $5bn of ordinary shares at any point over the next five years at a strike price of $115 – $50 below Goldman's current price
( 24 Jul 2009 story date )

were Berkshire to sell now, would be equivalent to 111pc based on a $9.1bn value for its preference shares, warrants and reinvested dividends.

That compares to the 23pc annualised return the US government received for its $10bn capital injection in the bank last October, which was repaid in June, with the bank buying back associated warrants earlier this week for $1.1bn.


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Buffett Increases Wells Fargo Stake

http://www.bloomberg.com/news/2011-08-16/buffett-increases-wells-fargo-stake-buys-stocks-on-sale-amid-declines.html

Berkshire accelerated purchases on Aug. 8 as the Standard & Poor’s 500 Index plunged 6.7 percent, its steepest decline since December 2008.

“I like buying on sale,” Buffett, Berkshire’s chief executive officer and head of investments, said in a television interview with Charlie Rosebroadcast on PBS yesterday. “Last Monday, we spent more money in the stock market buying than any day this year.”


Berkshire’s biggest holdings, including Wells Fargo and Coca-Cola Co. (KO), have slipped in the last three weeks as global equity markets retreated. The Wells Fargo stake is valued at more than $8 billion, and the Coca-Cola investment at more than $13 billion.
- Buffett has reiterated his view that the U.S. would avoid a second recession in three years.

Berkshire’s equity portfolio was valued at $67.6 billion as of June 30,
- with 40 percent in consumer-products firms
- and 37 percent in financial companies such as banks and insurers.
- The rest was in a group Berkshire labels “commercial, industrial and other.”


Posted by Vision at 10:50 AM 0 comments Labels:

Friday, August 12, 2011

QE2


What is Fed's QE2, and what will it do? Experts explain in everyday English



Turning government bonds into circulating money is called monetizing the national debt.

• Quantitative easing is a euphemism for creating money out of thin air. In the vernacular, we call it "printing money," even though it really has nothing to do with the U.S. Bureau of Engraving and Printing.

• The way it's supposed to work is that the Fed buys securities in the open market, paying with a government "check." (That's how the money is created.) The sellers deposit those checks into their banks. The banks redeploy those deposits as loans to consumers and business. The money supply expands and, in turn, so does the economy.

Or so the theory goes.

• The money supply hasn't increased over the last two years from the first round of quantitative easing. The trillion-plus the Fed paid for mortgage-backed securities is still sitting in vaults as bank reserves.

"The system is clogged" is how Bob McTeer, former president of Federal Reserve Bank of Dallas, described it.


How is buying back $600 billion in U.S. bonds being cautionary? "There is a demand for fixed-debt instruments. You're able to print money and keep interests rates low. Supply and demand. The federal government will be able to sell its Treasury bonds every week, every month, because the Fed is going to be there to buy them. That creates demand for the bonds, keeps interest rates down low, for now, until those bonds come due.

"It could create inflation, OK?

"But that could be a good problem to have. If we have a little bit of inflation, hopefully that means the economy is growing again. People are making money. Businesses are expanding. The economy starts overheating a little bit.

"You would much rather have that problem to deal with than deflation.

"In the '30s, people stopped spending money. There were plenty of people in the world who still had money but they wouldn't spend it, because they were so uncertain and they thought prices were going down.

"If you put people in the position where they have no confidence and don't want to spend money, then you create a deflationary spiral, which is much worse than having to worry about a little bit of inflation.

"If we do get inflation down the road, the Federal Reserve can always raise interest rates and slow things down.

"When the Fed 'prints currency,' they use that currency to buy securities typically held by commercial banks and then those commercial banks have more currency, so they have more reserves in their vaults.

"Then banks loan that money to businesses. Businesses take the money and invest in projects. Then they spend the money, and the money comes back into the bank. The money supply grows by multiples of what the Fed's injected.

"But none of that happened over the past two and a half years.

"When the Fed printed all this currency from $825 billion to $2.3 trillion, it did not result in any increase in the money supply. In fact, it fell a little bit.

"We've been flirting with deflation for two years. That's really bad for the economy. This is a carefully engineered yet somewhat desperate attempt to get money supply to rise so that prices will rise.

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http://en.wikipedia.org/wiki/Quantitative_easing

The central bank can also lend the new money to private banks or buy assets from banks in exchange for currency.[citation needed]
These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.[42
]
Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus creating the illusion of increasing wealth in the economy.[22]
QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.
Posted by Vision at 2:53 PM 0 comments Labels:

Wednesday, August 10, 2011

US Economy




Corporate America’s record cash building

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Gross Domestic Product by Industry Graph http://www.bea.gov/newsreleases/glance.htm


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U.S. Household Worth Declines by $149 Billion

http://www.bloomberg.com/news/2011-09-16/household-worth-in-u-s-fell-by-149-billion-in-second-quarter.html

Net worth for households and non-profit groups decreased by $149 billion, a 1 percent drop at an annual pace, to $58.5 trillion, theFederal Reserve said today in its flow of funds report from Washington. It rose at a 7.4 percent rate in the previous three months. Housing wealth decreased for a fourth consecutive quarter from April to June.
A loss of $947 billion in real estate assets over the past year was compounded by a drop in the Standard & Poor’s 500 Index last quarter, the first decline in a year. The erosion in wealth, which remains below pre-recession levels
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Gold Tops $1,880 in Longest Weekly Rally Since ’07 - Aug 19, 2011 http://www.bloomberg.com/news/2011-08-19/gold-climbs-to-record-set-for-best-weekly-run-since-2007-on-haven-demand.html
"Gold is the currency of the world at the moment, with the world convinced that the monetary and fiscal authorities are likely to do nothing right and everything wrong when it comes to resolving the world’s current fiscal problems ,” Dennis Gartman, the economist who correctly forecast 2008’s commodities slump, said in his daily Gartman Letter today.

".Medium term - the disorder of the global monetary system
and long-term -inflation threat will amplify gold’s nature as a currency and an inflation hedge,”
said Cai Hongyu, an analyst at China International Capital Corp., the country’s biggest investment bank.

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Treasury 30-Year Yields Poised for Biggest 5-Day Drop Since 2008

Treasuries have returned 2.2 percent since S&P lowered the U.S. credit rating for the first time on Aug. 5 and are up 3.3 percent this month, the most since December 2008, according to Bank of America Merrill Lynch’s Treasury Master Index. The firm’s Global Government Bond Index, which excludes the U.S., has increased 2.2 percent in August.

asr: Treasuries RETURN means, if you BUY Treasury futures , you can get that gain that is 3.3% in this month of AUGUST 2011 .
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But wait – we always compare APYs of banks! So how do we find the APY for T-Bills?
APR = PeriodicRate x Periods in a Year
.04619 = 0.00353 x (365/28)
–
APY = (1 + PeriodicRate)^(Periods in a Year) – 1
= 1.00353^(365/28) – 1 = .0472 = ~4.70% APY
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S&P 500 Payout Beats Bond Yield in 2008 Echo: Chart of the Day

Falling bond yields were primarily responsible for the latest crossover. The Treasury’s yield tumbled 89 basis points in 12 days as investors sought a haven from a stock-market rout. Each basis point amounts to 0.01 percentage point.
The decline ended with the 10-year yield at 2.11 percent two days ago, when it dropped below the S&P 500 dividend yield. The stock index yielded 2.32 percent. The relationship didn’t last, as the Treasury yield closed about 12 basis points higher yesterday.
“This may be more of a short-term event than in 2008,” Kevin Pleines, an analyst at Birinyi Associates in Westport, Connecticut, said yesterday in an interview. “We were in real trouble then.” Pleines helped put together a similar chart that Birinyi published on Aug. 10.
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Bernanke’s Lower Bond Yields Make Sitting Tight Painful

The Fed’s decision this week to keep its benchmark interest ratenear zero through mid-2013 sent five-year Treasury yields as low as 0.82 percent, below the 2.21 percent two-year rate before the collapse of Lehman Brothers Holdings Inc. in 2008. Lower returns on the safest investments will spur equities purchases, said David Kellyof JPMorgan Funds.
“The Fed’s making it extremely painful not to take on some risk,” said Kelly, who helps oversee $408 billion as chief market strategist for the New York-based firm. “People will tend to push money into equities.”
This is aimed at encouraging people to leverage up, with the knowledge that their borrowing costs will likely be very low for a long period of time,” said Lou Crandall,

Buying Back Stock

“The lower yields are, the more these companies are going to have an incentive to either invest directly in the stock market or even simpler, just buy back their own stock,” he said. “The incentive for a clear-thinking CEO must be huge.”
“The Fed has vindicated its power over the term structure of interest rates by being clear about the expected path of short-term rates,” said Peter Fisher, head of fixed income at BlackRock Inc., the world’s biggest asset management firm, who was markets chief at the Federal Reserve Bank of New York from 1994 to 2001. “It does encourage those looking for returns to look in credit assets and then further out the yield curve.”
“It is mainly a signal that the Fed will do more, including buying government bonds, if the Fed believes the economy needs it,” said Goodfriend, a former research director at the Richmond Fed. The Fed in June ended a $600 billion bond- purchase program.
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Pimco’s Gross Proves Summers Wrong as Selloff Shows ‘New Normal’ Is Real


Now Gross and co-chief investment officer Mohamed El-Erian, who coined the term more than two years ago, have been vindicated by the U.S. Federal Reserve, which said yesterday that the economic recovery is “considerably slower” than anticipated, following the biggest stock market loss since December 2008. Being right on the big call hasn’t prevented Gross from making a tactical miscalculation when he stayed out of Treasuries just as concern about the economic slowdown fueled a rally in U.S. debt.
“A lot of the new normal characteristics have played out,” El-Erian, chief executive officer ofNewport Beach, California-based Pimco, said in an interview. “Some people confused new normal with fatalism, but the intention was the opposite. There was the hope that policy makers would recognize that there are structural responses they needed to embark on.”

Missing the Rally

Gross dumped U.S. Treasuries earlier this year from his $245 billion Pimco Total Return Fund (PTTRX), only to miss a rally as investors fled to U.S. debt amid market volatility and the sovereign debt crisis in Europe.
- His fund has advanced 4.1 percent this year, lagging behind 65 percent of peers, according to data compiled by Bloomberg. ( asr: due to he sold T-notes early with his expected slow growth ..)
- Over the past five years, the fund has advanced at an average annual rate of 8.7 percent, beating 98 percent of rivals, according to the data.
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Money managers called the summer market plunge

Commentary: In June, they were ridiculed, but now they are geniuses

The Summer Crash of 2011, Or the Great Re-Adjustment


1/ Gayed wondered: If a bull market was truly on, why were defensive sectors — consumer staples, health care and utilities — -outperforming the broader market? Typically, these stocks are where investors run to hide in a recession. Oh, and why were bonds beginning to outperform stocks — -even as the Federal Reserve ended its QE2 bond buying program?
2/ “The bond market is clearly afraid of something,” Gayed wrote. “The stock market has not yet noticed what the bond market is screaming.”
3/ “If Wal-Mart is outperforming the S&P 500, what does that tell you?” Gayed said. “Wal-Mart only does well when the economy does poorly.”
4/ “And bonds are out-performing stocks in a way that has not been seen since the Lehman collapse,” he said.
Going forward, the guys who predicted the summer market plunge remain bearish on stocks but bullish on bonds, even as Standard & Poor’s has dashed America’s AAA credit rating.
Loan demand, they argue, is so low interest rates won’t go higher anytime soon. So S&P’s downgrade simply means a shift in credit quality. “If the AAA is no longer AAA, then everything else has to get downgraded,” Dempsey explained.
The U.S. will remain one of the safest borrowers, relatively, even if it is only rated AA+, Dempsey said.
Meantime, the risks of investing in stocks remain too great because too many things have yet to happen in a fragile global economy, said Gayed, who believes the stock market has further to fall on events that are out of anyone’s control.
Posted by Vision at 12:02 PM 0 comments Labels:
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