Warren Buffett deepens dollar worries

Warren Buffett

Warren Buffett has warned that the US trade deficit risks creating a “sharecropper’s society” as his letter to shareholders sounded an increasingly bearish tone about the value of the dollar. Mr Buffett stepped up his warning about the US trade deficit and the need to finance it with foreign investment, devoting more than two full pages of the annual report to the topic.“This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8bn daily, an increase of 20 per cent since I wrote you last year,” he said. “Consequently, other countries and their citizens now own a net of about $3,000bn of the US”

In particular, he warned that this meant a sizeable portion of what US citizens earned in future would have to be paid to foreign landlords.“A country that is now aspiring to an “Ownership Society” will not find happiness in – and I’ll use hyperbole here for emphasis – a “Sharecropper’s Society,” added Mr Buffett. “But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.”

Jim Rogers on us dollar

Jim Rogers

Jim Rogers, the veteran investor who predicted the 1999 commodities rally, declared that the US economy was "in recession" as he said he would take flight from the dollar and switch his investments into currencies including the Chinese yuan.

Mr Rogers, who ranks among the world's best-known investment figures, said he was putting his faith in China's politically-sensitive currency alongside the Japanese yen and the Swiss franc.

"I live in Asia. It is really not that strange that I am selling out of the US dollar," he told The Daily Telegraph. "All other things being equal during the next six months, that's the way I will go. But if the Swiss franc goes through the roof, I probably won't put money into the Swiss franc."Mr Rogers' comments are followed slavishly by many members of the international investment communities, and his view that the US economy is in a worse state than that suggested by most economic commentators is likely to add to pessimism in some quarters about its health.

"The US economy is undoubtedly in recession," he said. "Many parts of industry are actually in a state worse than recession. If it were not for [Federal Reserve Governor Ben] Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is."Mr Rogers, a long-time enthusiast for investing in stocks hanging on the coat-tails of China's economic boom, said he had not altered his views about the booming Shanghai stock market.

Earlier this year, with the benchmark Shanghai index trading at around 4000, Mr Rogers, a former investment partner of George Soros, added his voice to the chorus of warnings about an incipient bubble forming in the mainland Chinese capital markets.With the Shanghai Composite Index closing at 5843 points, Mr Rogers said he was relaxed about the market's continued growth."I still feel the same way. It's not a bubble yet - if it goes past 9000 in January I'll have to sell. Bubbles always end badly," he said. "I do not want to sell Chinese stocks. I want to own them forever and I want my [four year-old] daughter to own them."

Mr Rogers' comments came as Warren Buffett, the 'Sage of Omaha', urged investors to be cautious about the Shanghai market's surge, which has seen it rise by more than 125pc this year.Speaking to Bloomberg during a visit to China, Mr Buffett said Berkshire Hathaway, the investment company he fronts, shied away from buying into soaring stocks.Mr Buffett has been a major beneficiary of Shanghai's growth, reaping a profit of hundreds of millions of dollars from his stake in PetroChina, one of the world's largest companies by market value.

George Soros quits dollar

George Soros

Billionaire investor George Soros has said fallout from the U.S subprime crisis will bring about the end of the dollar's status as the world's reserve currency. Soros, during a debate in Davos, said the current crisis will be the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. He said the rest of the world was now increasingly unwilling to accumulate dollars.Soros made US$1 billion in 1992 betting against the pound, forcing the British government to abandon a peg to a basket of European currencies. International Monetary Fund members say the dollar's share of global foreign-exchange reserves fell to a record low of 63.8 per cent in the third quarter as demand for U.S assets waned after the collapse of the U.S housing market.

The billionaire investor famous for "breaking" the Bank of England in the 1990s has warned that Britain is heading for a recession. George Soros said that a recession in both the United States and Britain "will be very difficult to avoid". He was speaking on the fringes of the World Economic Forum summit in Davos, Switzerland, where many of the world's top politicians and businessmen are meeting. The warning is significant, since although many of the major investment banks now agree that the US is set to suffer a recession, most economists have predicted that Britain's fortunes will be far better.

His warning came less than 24 hours after the US Federal Reserve used an emergency three-quarter percentage point cut in interest rates to try to prevent the world's biggest economy slumping dramatically. It will also fuel speculation that Mr Soros has been betting against the pound in recent months. Sterling has fallen dramatically since late last year, with the housing market slowing fast and the Bank of England being forced to cut interest rates.

Mr Soros also warned that the dollar's status as the world's reserve currency was drawing to an end, thanks in part to the financial crisis on Wall Street. He said the plight of US households, who are facing major slumps in nationwide house prices for the first time in living memory, was increasing the distaste among international investors for the greenback. He said: "The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars."

Another market turmoil...

The past week has seen an upheaval in the financial markets worse than the previous year as mentioned in my last few postings. We should view at what a few of the very well-known investors/speculators have to say about the current crisis and their outlook.....

Great Expectations

Here it is, as promised a couple of weeks ago though it seems eons ago to me..they didnt tell me how tertiary life could be so hectic and all..read a very interesting article about the difference between top students and the Average Joe..urhh..digressing again!

Expectation plays a critical role in the financial world supporting your basic fundamentals with number crunching...even in my Economic class, i learned that the E subscript e, i.e. expectations, play a key mathematical role by being part of the equation for the determing the currency exchange..you may go..'Hey, so expectations play a part in my FX trades!' well, yah it is everywhere not only in the financial markets. Including your parents, external family members', friends, professors' Great Expectations of you...tell me about it!

So basically, the jizz of it all is such that if the market expect stock A's revenue to increase by 5% while the actual results is 8%, the share price would appreciate. On the other hand, if the posted revenue increased by only 2%, the share price would fall. In restropect, if the market expects stock B's revenue to decrease by 10% while the actual decrease was only 4%, the share price would increase. As such, if you are gonna tell me that if the revenue actually decrease by more than 10% the share price would drop you basically got the hang of it!

Market sentiments is very important esp with regards to expectations. As long as humans exist, there will exist -- the herd mentality.

Market Crash

ahhh...well, finally here am i back to blogspot. okay, i admit i am an IT idiot just in case you were wondering where i have been after coming with a post that says the correction will not be anywhere soon and BOOM! the market crashes on the 27th and 28th of February

I was trying to log in all these while, thinking i am under the old blogger sign-in and trying to rem my username and password. darn! the username was correct but the password wasnt.. however i remembered my password to be ABCDEFG..try as i may, i was wondering why the emails that i requested to be sent to my email account wasnt received..I sms-ed my 'brother' and he was lost..so was i..lost in the secrecy of many usernames and accounts. never in the world did i realise that the username is ur password!?!? goSh!

Alright..so here i am..finally logged in after a 2week desperation attempt at my 1st blog account..
i had actually wanted to log in the next day to write more where i left off -- expectations. Since there was a global equity crisis, or the correction, we shall now examine the issue.

As you all know, the global 'crash' began with a 9% drop in China, followed by a 400+ point drop in the DowJones. Then began the domino effect where almost every market in the world was equally affected. Indexes around the world dropped and there you go! weak in the knees.

Many believed the catalyst was to our dear Mr Greenspan mentioned the 'R' word..To top it off, it is 'highly prossible but not probable' to put it in his words. And the lastest development is that is now 1/3 likely that the US may face a recession. that figure converts to a numerical 66.67%. Now, Mr G is usually humble and doesnt blurt out unnecessary info..besides, you he is a numbers person which means all the more we gotta tread carefully in the weeks ahead and months to come.

CNY festivities seemed to have put everyone in a bouyant mood last week while this week the dreaded correction has cast a cloud of gloom over most ppl (who invested that is) & seeing everyone counting their losses does have its effect. After all almost everyone you know is affected and greeting revolve around another cycle about bitching about the US, Iran, Shanghai and Greenspan. Its almost depressive. With the effect extending towards other things.

A few others i know also took the opportunity to buy in during the dip. There's where you make money. Buy low, Sell high ( i am sure you have heard this zillion times over). This rebound...is it sustainable? It seems to be a good tiding amidst a sea of confusion..but i am in a dilemma.

why so? here goes...
1. buy in dips. true, the market has rebounded back but it could be set for a greater correction at 30% off to about 2300 points in the STI. risky isnt it?

2. use the wait-and-see strategy (so called the best strategy right now). If things are rougher, time to buy. If not, miss the opportunity, when we could, to buy it cheap during the dip. Obviously, we have to pay more as the bull continues to run...

sighss....
ah well...back to my project

STI hits new high

Do you feel the fear?

Well, the answer is quite obvious with the STI hitting a new high today cruising past the 3300 mark. A couple of brokerage houses and analysts have predicted a few months ago of a correction sometime after the CNY due to profit-taking off the table.

A number of my fellow analysts felt the market is over-bought and they are waiting for 'that' correction before taking any actions. Friends of friends have cut down their holdings with profit-taking amist the pare-down. However, the correction that many have been waiting for will not occur anytime soon. Why so?

First off, my question to you would be: What would substantiate a correction? Are the prices relatively high to earnings? Certainly not for the STI index. Within firms, maybe a couple, but the overall market indicates a strong no. Many companies who have reported for the full year or quarterly earnings have posted strong growth with an average of 10-25%, depending on which sector they are in. Thus, the robust economy is certainly not a case for correction to set in.

We should expect to see the index sailing past the 4000 mark within the year with expectations of investors going strong and the growth figures -- in revenue and profits, surpassing these expectations. What could possibility sustain the current growth that we are enjoying? The answer could simply be what everyone has been chasing after -- Asia's age of discovery, in particular the twin growth, China and India. A phenomenon that could last 20years down the road akin to that of the America Dream story.

However, with high expectations comes greater responsibility on our part as we have to be more alert. For the next result reporting quarter, any actual figures that are below the expectations would see a drop in the prices. These earnings are affected by the relative performance of the economy. Therefore, the stock market becomes a leading indicator of how well the economy is faring. In a buoyant economy like this, all boats rises.

With a robust economy, the one critical factor in deciding which boat rise or sink -- expectations.