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Stocks

Market gyration and why I think Buffett is still the guy

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Week in review 11/17/08 to 11/22/08
Crazy market
If you have not paid attention to the market lately (for whatever reason), yesterday and today’s market should have got your attention, because of its huge volatility: big down yesterday and big up today. Note yesterday Paulson spoke at California and today’s news is NY Fed chief Tim Geithner is reported picked by Obama to run the treasury department. But these are just the reasons on the surface. The real reason, I think, is the real economy in the world is shadowed by the credit crisis. There are enormous fear in the market, as we can saw from the panic sell in the last trading hour yesterday and panic short covering last hour today.

Also in the news, the bailout of Detroit big 3 car makers have been put on hold; and Citi Group (NYSE: C) has under pressure as its stock dropped below $4.

Buffett also makes mistake
It is not pretty week for the Oracle of Omaha either. Berkshire Hathaway (NYSE: BRK.A, BRK.B) stock dropped more than 10% last week on the reports of its surging CDS levels (Reuters). I read this artticle from seekingalpha, by Whitney Tilson (who holds Berkshire A shares).

I also doubt those long term stock market Index (expires in 2019 to 2030) puts will lose money eventually, but the CDS positions (expire in 2009 to 2013) will lose some money. This is not really surprising because Buffett is also human, he makes mistakes too. I remember he lost money on currency trades a while back.

Categories
Investing

Fannie Freddie and the market

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Fannie/Freddie
Short term I think it’s a deal for fed. But long term (it seems nobody is caring about long term these days), why should China continue to buy the Fannie/Freddie debt, for some premium over the US treasuries with substantial mortgage market risk (liquidity). I agree the US treasuries and Fannie/Freddie debt are co-related. It seems the greenback will continue to be a large part of China foreign exchange holdings.

But think a minute, if the United States can not sort out this mortage thing, why should China/Japan mess with it? I think the implication of this mortage crisis will be much greater than many peoeple (convention wisdom) think. The house will NOT always go up. The housing sector and homeownership are good thing, but sometimes too much of a good thing could be a bad thing. I think the people in China state investment Cos. should seriously think about their strategy.

The Market

Categories
Investing

Six years ago

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Recent market turmoil reminds me 6 years ago: Enron, WorldCom and Tyco scandals are all in the news. Even blue chip names like GE and Xerox have some corporate governance problems. GE gave excessive benifits to retired chairman Jack Welch, the benifits including Manhantan condo, free corporate jets, season tickets to Yankee baseball games etc. Xerox had to re-state its financial statements (I remember got this news from Chinese newspaper when I was in Shanghai, summer 2002). It seems the corporate bean counters can not get the numbers right. That’s when I started to invest in the US stock market (sharebuilder), although in very small amount.

Shortly after we got Sabane Oxly Act, which targets the corporate internal control and financial reporting (GAPP). I remember in dot com days all the internet companies used “pro formula” (non GAPP) to tell the fairy tales to the investors. April 2003, US invaded Iraq. The US stock market bottomed there, and took off until the recent sub prime debacle.

When will the current bear market bottom? I don’t know. But one thing I know is the market go down, and goes up…all the time, as said by famous fund manager Peter Lynch (Lynch’s take on market, mp3, 5 mins)

Categories
Master Series

Unofficial indicator of market bottom

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Peter Lynch once described our human’s psychology about stock market during different cycles, in his book One Up on Wall Street. I remember he used a party as an example, and he looked at the number of people approached him (people know he is a fund manager), and the amount of conversations about stocks, as an unofficial indicator about the market. So, for instance, in a red hot market, almost everyone came up to him and recommended his/her stock pick; while in a bear market, people will talked about “how is the weather”, and pretty much regard him as a dentist.

According to my observation, we are somewhere in between at this time. I mean, people think the stocks are risky, if not toxic 🙂

I would really be interested in learn how this plays out in the gatherings of Chinese New Year back home.