Month: January 2013

Warren Buffett now winning $1m bet against Wall Street

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For the first time in the five-year history of his “Million-Dollar Bet” against the “experts” of Wall Street, Warren Buffett is now in the lead.

Back in 2008, the Berkshire Hathaway chairman made a 10-year wager with Protege partner Ted Seides. Buffett put his money on a low-cost S&P stock index fund from Vanguard. Seides backed five funds of hedge funds.

Also read: Warren Buffett’s $1 Million Wager Wall Street ‘Experts’ Can’t Beat the S&P

The strategy with the best return at the end of 2017, including the costs associated with the funds, will be the winner, with a guaranteed $1 million going to either Buffett’s designated charity (Girls Inc of Omaha) or Seides’ (Absolute Returns for Kids.)

Fortune’s Carol Loomis reports today that Buffett’s chosen fund is up 8.69 percent, easily ahead of the hedge funds picked by Protege with their 0.13 percent average increase.

It’s vindication, at least so far, of Buffett’s long-held argument that over a number of years, the “experts” aren’t able to outperform the overall stock market. It’s the basis of his belief the fees “helpers” charge investors usually aren’t justified.

Both strategies suffered big losses in 2008, the first year of the challenge, and Loomis notes it took until now for both sides to get into the black.

In arguments on a web site recording the wager, Protege contends that hedge funds are trying to “generate positive returns over time regardless of the market environment,” not just beat the market. Even so, through a cycle, “top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well.”

Protege believes that since there’s a big difference between the returns of the top hedge funds and the average ones, “funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Republicans move to suspend debt ceiling until May

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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House Speaker John Boehner indicated Tuesday that Republicans will vote on an extension of the federal debt ceiling to allow Treasury to borrow money until mid-May. The move would reverse the order of a series of expected debt and spending fights in Washington, an effort designed to put the GOP on more sound political footing.

The Speaker said the measure would be tied to a provision that would suspend the pay of lawmakers if they do not agree to a budget by April 15th. A vote is expected Wednesday.

“I think the American people understand that you can’t continue to spend money that you don’t have,” Boehner said.

At the White House, spokesman Jay Carney indicated the president would likely sign the measure if the Congress passes it. “The House Republicans made a decision to back away from the kind of brinksmanship that was very concerning to the markets, very concerning to business, very concerning to the American people,” Carney said.

(Read More: Could Financial Markets Handle a US Debt Default?)

Extending the debt limit for a few months without demanding specific spending cuts means the next moment of high political and market drama will occur when the so-called “sequester” or automatic across the board spending cuts, kicks in on March 1. That deadline is itself the result of another temporary maneuver by Congress on New Year’s Day to avoid the fiscal cliff.

But for Republicans, having the sequester fight first is politically advantageous — the White House won’t be as easily able to call their bluff as they would in a fight over the nation’s debt ceiling. That’s because many in the GOP say they can live with the consequences of the dramatic spending cuts if no deal is reached. On the other hand, many Republicans (and the White House) argued that the consequences of a stalemate on the debt ceiling – defaulting on federal obligations to pay for earlier spending – would needlessly roil global markets and possibly threaten the nation’s credit rating.

But failure to agree to a deal on the sequester would result in about USD 85 billion in cuts to defense and domestic spending – a far more palatable outcome. Although the defense cuts are more than Republicans would prefer, automatic spending cuts are something many of them see as a necessary belt tightening in an era of runaway federal spending.

A House GOP aide explained a five step process outlined in the new measure to NBC News. First, the Republicans would simply suspend the debt ceiling through May 18. Then, on May 19, they would re-impose the ceiling but raise it by the amount of debt incurred during the suspension. If there isn’t a budget resolution agreed to by April 15, the pay of members of Congress would be put in escrow – and members of the House and Senate would not get paid until their chamber passes a budget. But they would get back salary at the end of the Congress. “Constitutionally, we have to pay members,” the aide said.

(Read More: Why Repealing the Debt Ceiling Is Unconstitutional)

The move reduces short term tensions on a day when Republicans were still reeling from what they saw as a needlessly provocative inaugural address by President Obama on Monday, deepening an already entrenched partisan divide in Washington. “One thing that’s pretty clear from the president’s speech yesterday – the era of liberalism is back,” said Senate Republican leader Mitch McConnell (R-Ky). “An unabashedly far-left-of-center inauguration speech certainly brings back memories of the Democratic Party of ages past.”

And some Republicans in the House are unlikely to vote for a short term debt ceiling extension that the Obama White House is asking for even if their leadership endorses it. “I will not vote to raise the debt ceiling unless significant efforts are made to fix the underlying problem of deficits and accumulated debt that force debt ceiling votes and risk America’s future,” said Rep. Mo Brooks (R-AL). “I take this stance full well knowing the adverse economic effects of a failure to raise the debt ceiling, but also knowing, Mr. Speaker, that those effects pale in comparison to an insolvency and bankruptcy of the America I love.”

Sentiments like those make it unclear whether the debt ceiling extension can pass in the House. Speaker Boehner declined to answer a question about the vote count as he exited a press conference Tuesday evening.

(Read More: It’s the US, Not Europe, in Sharp Focus at Davos)

The Administration responded cautiously to the proposal releasing an official statement from the Office of Management and Budget calling it a “short-term measure” that “introduces unnecessary complications, needlessly perpetuating uncertainty in the Nation’s fiscal system” But the administration also said it was encouraged that the proposal “lifts the immediate threat of default and indicates that congressional Republicans have backed off an insistence on holding the Nation’s economy hostage to extract drastic cuts in Medicare, education, and other programs that middle-class families depend on.”

An analysis prepared for investors by Goldman Sachs noted that the likelihood of a US default on its obligations is not high, because the market consequences would be so severe – but that calculation is nearly reversed for the fight over the sequester spending cuts. “Allowing them to take effect in full could impose a meaningful drag on growth, but the effect might not be severe enough to dissuade Congress from allowing it to occur.”

Goldman economist Alec Phillips wrote that the effect of spending cuts in calendar year 2013 would be about USD 53 billion, or 0.3% of GDP.

-By CNBC’s Eamon Javers; Follow him on Twitter: @eamonjavers

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is it time to switch into European equities?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Analysts tend to start each year optimistically. 2010, 2011 and 2012 all saw an upbeat start to the year for global stock markets. 2013 is hailed by many equity strategists as the start of the long-anticipated “great rotation”, with investors moving into stocks out of bonds, ending the reign of the bond bull market in recent years.

But it’s European stocks that are being seen as particularly investable. BlackRock has seen a marked increase in flows towards European equities.

“These flows initially came from cash and US equities but also more recently from some investors switching out of bonds. The latter is very significant as it is the first time we have seen this for many years,” Nigel Bolton, head of the European Equity Team at BlackRock wrote in the firm’s “Barometer for 2013”.

The U.S. fiscal cliff and debt ceiling uncertainties have shifted the focus of investors’ worries from the euro zone to the US, and highlighted the valuation discount of European equities relative to their US peers.

According to BlackRock, European stocks are trading at a 25 percent discount to the US equity market. That’s close to the highest historic discount, which typically stands at 8 percent on average, BlackRock said.

The turning point for European stocks was the summer of 2012, when investors’ portfolios had a record underweight position in Europe equities, and the European Central Bank (ECB) finally announced it would do everything it could to keep the euro zone together. The ECB’s intervention triggered a rally in European stocks in the second half of 2012. But, according to Nigel Bolton, “we are only mid-way through a bull market.”

BlackRock says, on a price-to-earnings basis, European stocks are still around 15 percent below their historic long-term average, and it sees encouraging signs such as the setting up of the euro zone’s permanent bailout fund, called the European Stability Mechanism.

“The European Stability Mechanism is now de facto funded, given ECB support, ensuring that any country in need of it will be bailed out. Reforms in Italy and Spain are continuing apace,” Bolton said.

But risks remain and the key questions for 2013 are whether a pro-reform government will be elected in Italy, whether Germany will keep its pro-euro zone stance in the election campaign, and whether Spain will need a formal bail out.

These milestones could provide some volatility, but if there is no slippage in political actions, BlackRock’s analysts see returns of 15 percent on European stocks in 2013.

“The European equity market offers an earnings yield of 9 percent and a dividend yield of 4 percent – significantly more attractive than the lower yields investors currently achieve on cash or on low-risk sovereign bonds.”

Related reads:

Bitter Setback for Merkel Months Before German Election
    
Amid Worries, Investors Pile Into Spain
    
IMF: Greece Needs Even More Money

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why the euro zone crisis is over…until September

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Europe’s economies and markets have nothing to fear from the defeat of Chancellor Angela Merkel’s party in German regional elections this weekend as the euro zone crisis will be on hold until Germany’s national elections in September, analysts told CNBC on Monday.

“You simply should not read too much into this for the federal election. We’ve still got eight months to go… I still think Angela Merkel is still going to be Chancellor of Germany in twelve months’ time, ” Alastair Newton, senior political analyst at Nomura said on CNBC Europe’s “Squawk Box”.

Also read: In Germany Debt Is Equal to Guilt: Professor

On Sunday, Merkel’s conservative coalition lost regional elections in Lower Saxony, one of the country’s most populous states. The narrow one-seat victory for the center-left Social Democrats (SPD) and Greens in one of the country’s bellwether states has revived the opposition’s hopes for defeating Merkel in September’s national election.

Merkel’s Christian Democratic Union (CDU) has now lost its majority in the upper house of the German parliament, the Bundesrat, which could make it harder for Merkel to introduce policies in the federal parliament without compromising with opposition parties, Newton told CNBC.

So far, Merkel’s euro zone policy decisions have only been constrained by public opinion and Germany’s constitutional court, which rejected calls in September to block the European permanent bailout fund called the European Stability Mechanism (ESM), but imposed conditions on Germany’s contribution to the fund.

“What this says to me is that she [Merkel] is going to go even more slowly on anything policy-wise to try and fix the euro zone crisis, even slower than she’s going already,” Newton said on Monday. “As far as the politicians are concerned, as opposed to the ECB, I think addressing the euro zone crisis is on hold until after the German elections in September.”

Merkel is still ahead in national polls, enjoying 65 percent support, according to German polling agency, Forschungsgruppe Wahlen. Support has remained strong as voters have endorsed her handling of the euro zone debt crisis and Greece’s bailout. Merkel is hoping to secure a third term as leader in September.

“Headlines are going to be quite excitable today and markets are going to take it apart, but my bottom line is to put it aside, and let’s get through the next 8 months until the federal elections,” Newton said.

The Next Eight Months

In early trading on Monday, the German Dax was up 34 points at 7,736, showing that the election result hadn’t worried investors. But Germany’s economic performance has been shaky of late, with gross domestic product (GDP) shrinking by 0.5 percent in the last quarter of 2012, according to the country’s Federal Statistics Office.

Professor Paul de Grauwe, a leading scholar of European political economy at the London School of Economics (LSE), told CNBC that the economy’s performance has been lackluster because Merkel had pursued a balanced budget policy in order to lower debt.

A slowdown for Europe’s largest economy and the euro zone’s paymaster, is something the region can ill-afford.

“Economically, when you compare [Germany and Chancellor Merkel] to other countries she is doing well, but it’s still a poor performance. The German economy has been growing negatively at the end of last year and it doesn’t look like it’s going to grow very fast in the coming months, so in terms of economic performance it’s not that good,” de Grauwe, who holds the prestigious John Paulson Chair at the LSE, told CNBC.

“One would expect a country (like) Germany to do better. There has been too much focus on trying to balance the budget when the whole of the euro zone is going into a recession. [Germany] shouldn’t have done it now,” de Grauwe added, saying that if Germany’s economy doesn’t recover as elections loom, Merkel could be forced to change tact to stimulate growth and consumer spending.

“By September then it might become a problem. If it doesn’t grow, I can see Merkel swallowing her pride about balancing the budget and trying to stimulate the economy again.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is Davos merely snow polo for the rich?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Growing up in wartime Germany shaped Klaus Schwab’s life. The founder and executive chairman of the World Economic Forum was born in Ravensburg, Germany in 1937, just before the Second World War broke out.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

ANA cancels 141 more flights with dreamliners grounded

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Developed or emerging stocks – Who will win in 2013?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Developed and emerging market equities were locked in a tight race in 2012, both generating double-digit returns of up to 15 percent, however, this year asset managers expect a clear winner.

While US and European stocks have taken the lead since the start of 2013, emerging market shares will likely outperform this year, according to strategists, citing better economic and earnings growth prospects in the latter.

Since the start of the year, the MSCI Emerging Markets Index (XETRA: EMSM-DE) has risen 1.4 percent, while the SandP500 (INDEX: .SPX) and FTSE EuroFirst Index 300 have gained 3.3 and 2.3 percent, respectively, driven by robust investment inflows.

In the first week of the year, global equity funds saw inflows of USD 22.2 billion – the highest since 2007 – with USD 7.4 billion going into emerging market equity funds and USD 14.8 billion entering developed market equity funds, according to EPFR.

Investor interest for European and US equities picked up in the new year on easing concerns over the euro zone debt crisis and on relief over a last-minute deal to avert the “fiscal cliff” – a series of tax increases and spending cuts that were to kick off on January 1.

(Read More: Four Ways to Protect Against the Debt Ceiling)

But going forward analysts expect better news out of Asia and are betting on the region for another good year.

“We’re positive towards emerging markets – they will be more volatile – but we expect they will do better than developed markets,” Andrew Pease, investment strategist at Russell Investments told CNBC on Thursday.

“In emerging markets, there is potential for higher economic and earnings growth – also valuations continue to look attractive,” he added. Emerging market economies are expected to grow 5.4 percent this year, compared with 1.7 percent in the United States and -0.2 percent in the euro zone, according to forecasts by HSBC.

While valuations in Asia climbed higher in 2012, they continue to look compelling from a global and historical perspective, analysts told CNBC.

Major emerging markets including China and South Korea are trading at a price-to-earnings ratio of 11, for example, compared with 15.5 for the SandP 500, which is close to pre-financial crisis levels of 16.5, according to Russell Investments.

(Read More: China Stocks Overbought? Charts Suggest Correction)

Pease, who sees upside of less than 2 percent for US stocks this year said, “The US market is fully valued. Profits as a share of GDP (gross domestic product) are at historically high levels. For bigger gains, the market needs to price a return to pre-crisis growth environment, and this is not likely to happen.”

The Return of Risk-On

Geoff Lewis, global market strategist at JP Morgan Asset Management, said another factor that will boost emerging market stocks is an increase in risk appetite this year given fewer tail risks concerning the “fiscal cliff” and euro zone debt crisis.

In fact, a survey of fund managers published by Bank of America Merill Lynch this week showed that investor appetite for risk in their portfolios is now at its highest in nine years.

“There’s a fair chance that if we get gradual improvement in global economy in 2013 and the euro zone crisis is contained, investors will be more comfortable putting money back into emerging markets. On that basis, they will outperform,” he said.

Emerging markets will outpace the single-digit gains expected from global equities this year, said Lewis, adding that the bank has an overweight position on China, Hong Kong and Thailand for 2013.

Europe May Surprise

While Gary Evans, head of global equity strategy at HSBC, agrees emerging markets in Asia will perform well this year, as a result of their relatively attractive valuations, he isn`t ruling out an equally solid run in European equities either.

“We’re overweight in Asia – China and South Korea look very interesting. China has had a run-up but people haven`t fully invested in the improving growth story. And then looking at which countries benefit most from China`s growth – Korea stands out in Asia – it`s a cheap market currently,” he said.

HSBC forecasts global stocks, or the MSCI World Index (: .WORLD), will rise 15 percent this year – powered by both Asian emerging markets as well as Europe. The bank, however, is underweight the United States.

“We are overweight Europe. We took the position last October, and it was very much a valuation call.” Evans said. He is upbeat on Spain and Netherlands, whose benchmark stock indexes are trading at a price-to-earnings ratio of 10.5 and 14.5, respectively.

(Read More: Which Troubled Country Will Seek New Aid First?)

“The last 5 years has been the worst performance for value (stocks) relative to growth (stocks) since the 1930s. Our call is that value will start to outperform, and it has done for the last quarter or so,” he said.

Pease and Lewis, however, remain cautious on their outlook for European markets, highlighting that earnings remain a concern given the weak macroeconomic environment.

“The main issues in Europe are a lack of a catalyst to break out of the recessionary cycle. The macro doesn’t look like it`s conducive for driving corporate performance,” Pease said, adding that the stronger euro is a worry for the region`s exporters.

Lewis said that while there are some attractive stock picking opportunities in the euro zone markets, it is difficult to make a strong argument to be overweight the region.

“Investors are becoming complacent about the risks in Europe – everyone’s assuming that the OMT (Outright Monetary Transactions) has done its job. I think there`s quite a lot of optimism built into European scenario,” Lewis said, referring to the European Central Bank`s bond buying plan announced in September which is aimed at lowering borrowing costs for governments struggling with unsustainable debt levels.

(Read More: Gear Shift? Relax on Europe, Beware Emerging Markets)

“The discount you get in Europe markets may be compensating you for the potential risks, so it doesn’t make Europe look cheap,” he added.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Which troubled economy will seek new debt relief first?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Spain was widely expected to be the first peripheral eurozone country to take advantage of the European Central Bank (ECB)`s much-anticipated new bond-buying program.

Yet there are growing arguments that Ireland, seen by some as a relative success story for austerity, may want to access the funds, known as Outright Monetary Transactions, to backstop its bonds – or use other methods to prop up its recovery.

Spain’s successful debt auction on Thursday means it has already secured 9 percent of its 2013 funding.

Three auctions of treasury bills in the first quarter of 2013 should give further indication of the appetite for taking a bet on Ireland`s future. The first, on Thursday, appeared to have taken off well.

The most recent European Commission report into Ireland’s bailout confirmed that the Irish government has “signaled their interest” in discussing new ways of gaining market access.

There have been plenty of positive signs on the Irish economy recently. The “bad bank” where state-backed assets are held – the National Asset Management Agency (NAMA) – reported a profit of 131 million euros ($175 million) for the third quarter of 2012.

The Irish government cut its estimate for the 2012 deficit from 8.2 percent to 7.8-7.9 percent of GDP, after a better-than-expected tax take for December.

Bob Parker,head of the strategic advisory group at Credit Suisse, described Ireland as the “major positive development”in the peripheral economies earlier this month – and he is far from the only market watcher to express this view, as the recent performance of Ireland`s bond yields suggests.

Parker forecasts a trading range for the 5-year bond of 2.9-3.5 percent for the first half of 2013, remarkable given that those bonds hit 7.2 percent last May.

However, while 34 percent of loans held by NAMA are fully or partly performing, that still leaves 66 percent which aren`t doing as well.

There are also growing concerns about whether Ireland`s bailed-out banks will have to raise more capital if they don`t start shaking out distressed mortgages. Around 100,000 mortgages come under this description,according to the governor of its central bank – a hefty amount in a country with a population of around 5 million people.

While unemployment has stabilized at less than 15 percent,this includes the effects of a new wave of emigration from Ireland, both by Irish-born citizens and some of those who emigrated from other countries during the boom years.

Ireland`s reputation as the poster boy for austerity hasn`t won it any favors from the troika in terms of changing the terms of its bailout yet, so the OMTs may end up being its best option if the recovery proves too fragile.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow