Aug. 26 (Bloomberg) — Jonathan Garner, Morgan Stanley’s chief emerging-market and Asia strategist, talks about the outlook for Asian stock markets. Garner also discusses Japan’s yen, Federal Reserve monetary policy and investment strategy. He speaks with Haslinda Amin, John Dawson and Zeb Eckert on Bloomberg Television’s Asia Edge.” (Source: Bloomberg)
Ben Bernanke’s Jackson Hole Speech
The much awaited Jackson Hole speech has been posted to the US Federal Reserve website; below are some highlights. The first quote is the one most people will be interested in, and refers to the fact that the Fed is optimistic on the long term prospects for the US economy, but that short term weakness should potentially be addressed; there is no obvious tip for a “QE3”, instead the line is that the FOMC has options and will consider the issues and act accordingly. In other words Bernanke has not ruled out further stimulus, but hasn’t strongly signaled an impending move either. Bernanke also stresses the role of fiscal policy and the need to address the long term sustainability of the US, but in the context of short term weakness. Read the quotes below or see the whole speech and post your thoughts in the comments section below.
Stamenkovic Says 10-Year Treasury Yields May Reach 3%
Aug. 26 (Bloomberg) — Nicholas Stamenkovic, a fixed income strategist at RIA Capital Markets Ltd., talks about the outlook for Treasury yields ahead of Federal Reserve Chairman Ben S. Bernanke’s speech in Jackson Hole. Stamenkovic talks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
Warren Buffett’s ‘strong, well-led’ pump and pump!
By Aaron Tyrrell
Bank of America (BoA) gapped up from $6.99 a share to trade 24% higher on the open of the New York Stock Exchange last night.
Thanks to Warren Buffett’s $5 billion investment.
So… that’s it…
The Oracle of Omaha – the great sage of investing – has thrown BoA a five-billion-buck ‘lifeline’… He’s a true believer…
‘I… recognise,’ says BoA chief executive, Brian Moynihan ‘that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.’
Only Warren doesn’t really believe in the bank, does he?
No… Warren’s company Berkshire Hathaway may be long to the hilt on bank stocks… But he doesn’t believe they’re sound businesses, strong or well-led… (we’ll show you why this is the case in a moment… And why he’s prepared to tell you differently… )
But Warren truly believes in making deals that make him money.
Investing in outstanding companies trading at a discount to value is one technique he’s used to make who knows how much over the years…
But that’s not the only way to make a sound investment.
In this latest case, Warren’s bought $5 billion worth of ‘preference shares’. These shares give him a guaranteed return of 6% per year. Six per cent of $5 billion… $300 million a year… Not bad…
On top of that, the bank can buy these preference shares back from Berkshire Hathaway any time – for a 5% premium.
That’ll come to a $250 million gain on top of the $5 billion… Not bad either.
But it’s not great, is it?
I mean, 5%… 6%… These gains won’t set the world on fire. So why bother?
Consider this…
The stock market is volatile and uncertain right now… If you could get a guaranteed annual return of $300 million a year and a bonus $250 million when you sell, wouldn’t you take it?
And, if you were in Buffett’s shoes… Long to the hilt on bank stocks, looking for a way to turn the tide of investor sentiment in your favour… Could you think of a better way to boost investor confidence – and get the herd on your side – than throwing $5 billion at a bank that seemed like it was down for the count last week?
He might be getting a bit long in the tooth. But Warren’s no dummy.
He’s investing in a beat-down stock trading at its lowest point since the 2008 financial crisis. His investment, when compared to the size of the company, isn’t that big. He’ll get a guaranteed 6% return each year. And a bonus 5% if and when the bank buys those preference shares back.
Exciting? No. Profitable? Yes. Safe? You betchya.
What lesson could you take from this and apply to your own investment strategy right now?
Aaron Tyrrell
Editor, Money Morning
P.S. Our resident value-investment guru, Greg Canavan, looks for sound investment opportunities just like this for members of the Sound Money. Sound Investments service every day. In fact, he has 22 current open recommendations… And 11 of them are buys. For your chance to sneak a peek at Greg’s list of ASX-listed value plays, click here now
ECB Releasing Less Money into European Market
Annualized data out of the euro zone this morning revealed a mildly sluggish growth in private loans issued throughout the region. The data seems to suggest either banks’ unwillingness to lend out money from tight financials, or individuals not pursuing loans out of economic pessimism. Either way, it does not bode well for the euro zone.
Supporting this data was Friday’s publication of the M3 money supply, also presented in an annualized format, which revealed lower than expected growth in the amount of local currency in circulation domestically. A reduction in the amount of private loans issued and slower-than-expected growth in the domestic money supply seems to point towards unwillingness by the European Central Bank (ECB) to loosen its grips on the EUR in an attempt to stabilize the market. Given the weakness felt in EUR values these past few weeks, the move does not seem unjustified.
Read more forex trading news on our forex blog.
Tokyo Core CPI in Contraction
The Japanese Statistics Bureau released its consumer price index (CPI) readings for Tokyo this morning, revealing an unexpected contraction in consumer prices. The news was not understood as negatively as in other places since a contraction was already expected, but the deeper downturn does raise a specter of tension in the island economy.
With the Bank of Japan’s (BOJ) recent forex intervention, the strength of the yen has been called into question and is being challenged on several fronts. The news that prices are in decline across Japan indicates that the value of domestic goods is falling as fewer people are buying, and the Japanese economy is coming under pressure as a result.
Read more forex trading news on our forex blog.
Further Signs of Swiss Economic Stress
Friday’s publication by Switzerland of its KOF Economic Barometer revealed growing concerns about the future of the Alpine nation’s growth potential. The rising strength of the franc (CHF) has begun to worry many investors who see its meteoric rise as a sign of future trade gouging and GDP decline.
Today’s KOF report only served to underline this heightened tension. The figure was forecast to come in near a reading of 1.84, but fell from last month’s adjusted 1.98 reading to 1.61 over the past month. With the other safe haven currencies, the USD and JPY, meeting resistance from market tension and bank interventions, respectively, the Swiss franc still appears to be climbing despite this growing pessimism.
Read more forex trading news on our forex blog.
ING’s Brzeski Says There Is Case for Further Fed Easing: Video
Aug. 26 (Bloomberg) — Carsten Brzeski, senior economist at ING Groep, discusses the outlook for Federal Reserve monetary policy. Brzeski, speaking from Brussels with Francine Lacqua on Bloomberg Television’s “Countdown,” also talks about the Greek debt crisis and short-selling bans in France, Spain and Italy.
UBS’s Pu Recommends Gold, Says Silver `More Speculative’
Aug. 26 (Bloomberg) — Pu Yonghao, chief investment strategist for Asia-Pacific at UBS Wealth Management, talks about the U.S. economy, Federal Reserve monetary policy and investment strategy. Pu speaks with Haslinda Amin on Bloomberg Television’s “First Up.” (Source: Bloomberg)
The Steve Jobs Retirement: What it Means for Apple
Steve Jobs announced his retirement on Wednesday, as his declining health has made it impossible for him to continue as Apple CEO. We certainly wish the best for Mr. Jobs and his family, and hope that he makes a full recovery. Still, Jobs’ departure raises a very uncomfortable question for Apple (NASDAQ: AAPL). How does a company that owes so much of its success to the vision of one man cope with his absence?
Apple stock is taking a hit in pre-market trading, indicating traders are wondering the same thing.
Apple is a company I’ve considered recommending in The Sizemore Investment Letter or buying for clients for years. In every measurable respect, it is a company worth owning. It has been in the cutting edge of consumer electronics since the rollout of the iPod and has continued that dominance with the successful launch of the iPhone. It created a new market where none previously existed for tablet computers with the iPad.
The company is wildly profitable—it has profit margins of 24% and its return on equity is an eye-popping 42%. It’s earning are growing at over 100% per year. And shockingly, the company is cheap. It trades at a forward P/E ratio of less than 12, has no debt, and 8% of the stock price is cold, hard cash.
Yet despite all of this, I couldn’t get comfortable with the company because of the unquantifiable risk that something might happen to Steve Jobs. How would Apple perform without Jobs at the helm? Frankly, I don’t have an answer for that question. And I couldn’t put money at risk with that kind of elephant in the room left unexplained.
History is full of stories of successful companies that have prospered after the departure of an iconic founder. Wal-Mart (NYSE:WMT), for example, has done just fine since the passing of Sam Walton. Going further back in time, John D. Rockefeller’s oil companies survived his death and thrived to the point of trust-busting, living on today as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).
The difference, of course, is that innovation is far more important in a modern technology company than in a discount retailer or oil company. Jobs’ successors will no doubt do a fine job of selling iPods, iPhone, and iPads. The question is “what next?” Without Jobs to think of the next great idea, is the rest of the Apple management team up to the task? Again, I don’t have a satisfactory answer to this question.
This is not the first time investors have pondered the “Jobs question.” In January, the iconic CEO took a leave of absence from Apple. Shares dropped -8% in late January to $325 as a result. Now the stock is up 15% from that low to about $375.
Will the shares shrug off this news again? Maybe. In the meantime, Apple investors are now left to ponder the following scenarios.
- Given the stock’s cheap valuation, investors already long ago factored the possibility of Jobs’ retirement into prices. Apple is thus fairly priced.
- Jobs’ recent contributions have been overstated due to his cult of personality in the industry, and his lieutenants will get along just fine without him. In this case, Apple is a screaming buy at these prices.
- The intangible benefits of Jobs’ leadership—i.e. his vision and creativity—is even more valuable than investors currently appreciate. If this is the case, Apple faces a very uncertain future.
Given the unknowns, I would hope for Scenario 2, but prudence would make me fear for Scenario 3. I have to rate Apple a “sell” for now. There are enough uncertainties in this market already.
In Jobs’ retirement, the company, the industry, and the world at large are losing a truly visionary giant. Our best wishes for his speedy recovery.
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