Buffett: I'm buying stocks

 

Buffett: I'm buying stocks

Berkshire Hathaway CEO gives advice on how to invest during America's money crisis in a New York Times op-ed.

NEW YORK (CNNMoney.com) -- Billionaire investor Warren Buffett used a guest commentary article in the New York Times on Friday to announce that he's sticking with stocks.

Buffett, the so-called Oracle of Omaha for his ability to buy up the right companies at the right time for his holding company Berkshire Hathaway, said the worst may not be over for the faltering economy.

"In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary," Buffett wrote.

But for that reason, the Berkshire CEO said, he has converted his personal portfolio almost entirely to U.S. stocks. Previously, he said he owned nothing but Treasury bonds.

Buffett said the fear surrounding the disastrous credit crisis, which has dropped stocks about 36% from their all-time highs set around this time last year, has left equities with attractive purchasing prices.

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," said Buffett. "And most certainly, fear is now widespread, gripping even seasoned investors."

Stock prices have been volatile, to say the least. Consider what happened this week alone: The Dow Jones gained 976 points on Monday; fell 76 points on Tuesday; dropped 733 points on Wednesday and then gained 401 points Thursday. But Buffett says the future is much brighter for stocks.

"Fears regarding the long-term prosperity of the nation's many sound companies make no sense," wrote Buffett. "Most major companies will be setting new profit records 5, 10 and 20 years from now."

Still, many nervous investors have been ditching the up-and-down stock market and pouring their funds into physical assets like gold or cash equivalents. Though they may feel safe now, Buffett said those investors are holding "terrible long-term assets" that will not come close to matching the future gains of stocks.

"The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy," Buffett added.

So if strong companies are destined for long-term success, bad news is good news when you're looking to invest in the stock market.

"Bad news is an investor's best friend," Buffett said. "It lets you buy a slice of America's future at a marked-down price."

 

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Courtesy: CNN

Financial crisis: How to stop the panic

The world's governments are shocked and dismayed by their inability to
stop the increasingly grave financial crisis. Nothing they have
attempted has gotten lending flowing normally. Profitable companies
are cut off from borrowing. Confidence is shot.

Through Oct. 7 the U.S. stock market had its worst five-day
performance since 1932 on fears of a severe economic downturn. Says
Stephen Jen, currency economist at Morgan Stanley in London: "The
choices for the real economy are between a recession and a
depression."

Can anything be done to halt this panic? As a matter of fact, yes. It
won't be quick or easy. But the prerequisite for a new approach is
unlearning doctrines that were developed in the aftermath of the Great
Depression, the last time financial conditions were worse than this.
The world has changed in the intervening seven decades, and what
worked to quell the financial crisis then may not work now - as anyone
trying to borrow money can see.

So far, crisis managers in the US and abroad have relied mostly on
using "helicopter money" - that is, dropping dollars across the
financial landscape in hopes of reviving lending and spending.
Generations of mainstream economists around the world learned this
approach at the feet of the late Nobel laureate economist Milton
Friedman, who coined the helicopter metaphor.

Federal Reserve Chairman Ben Bernanke, while parting from Friedman in
some particulars, shares his general approach - and in fact earned the
moniker "Helicopter Ben" after citing Friedman's coinage in a 2002
speech.

Following this logic, the Federal Reserve is aggressively lending
money to all comers. The synchronized international rate cuts on Oct.
8 - which lowered the US federal funds rate to just 1.5% - is another
example of helicopter money.

Central banks figure that by flooding the banking system with
reserves, they can get banks to relend the money to the rest of the
economy. But while lowering interest rates and providing liquidity is
essential, it's no longer enough, says Paul J J Welfens, president of
the European Institute for International Economic Relations in
Wuppertal, Germany. Says Welfens: "It's very dangerous if you don't
have a strategy. The situation is worsening because no one is doing a
(basic) program to restore confidence."

An alternate approach that's gaining favor in many quarters is to
place money strategically where it can do the most good, even if that
means picking winners and losers and allowing some channels of credit
to dry up for the time being. One tactic: direct government
investments in selected banks on a large scale.

The theory behind this approach is that the banks are so wounded that
simply lending them more money won't solve anything. To restore their
positive net worth so they can lend freely, banks need fresh equity,
and government is the only party that's capable of providing it in
these extreme conditions. Sweden used this strategy to end a banking
crisis in the early 1990s.
And on Oct. 8, Britain took a giant step in the same direction,
announcing an offer to buy up to $88 billion worth of preferred shares
in Britain's biggest banks. The government also said it would
guarantee up to $437 billion of the banks' debt. "This is beginning a
process of (undoing) a big problem where banks won't lend to each
other for long periods," Chancellor Alistair Darling told Sky News.

On Oct. 8, US Treasury Secretary Henry Paulson broadly hinted that
Washington is likely to use a targeted approach with at least some of
the $700 billion authorized by Congress to deal with toxic mortgage-
backed securities and other assets - including buying equity shares in
some financial institutions.

A targeted approach doesn't waste money on weak banks that deserve to
disappear. "You are going to see significant consolidation in banking
across Europe. As the tide goes out, the weak models and weak
managements are revealed," says Robert E. Diamond Jr., president of
Barclays, the British banking company.

More policymakers and economists are coming around to approaches such
as Britain's because of the manifest failure of loans, guarantees, and
asset purchases to get the job done. In fact, an unhealthy dynamic has
developed. The Fed and other central banks have steadily expanded the
portions of the economy to which they are lending freely - in effect,
declaring them to be protected within the walls of the fortress. But
it's having unintended consequences.

Central bankers' desperate extension of credit to new kinds of
borrowers simply worsens the condition of solvent institutions left
outside the walls, because investors and lenders pull money out of
them. That explains the wild swings in stock prices and credit
spreads.

For example, the branches of British-owned banks in Ireland lost money
to locally owned rivals after Dublin offered blanket protection on all
deposits of Irish-owned banks there. And in the US, corporations that
borrow in the commercial paper market were cut off from funding
because investors moved to safer Treasuries - forcing the Fed to say
on Oct. 7 that it would step in to buy the commercial paper itself.
The logical endpoint of this game is for governments to protect all
financial assets. That's an awfully Big Government outcome for an
approach that started out with a small-government thrust.

Moral hazard:

US policymakers have sometimes departed from the helicopter-money
approach, as in the rescues of Fannie Mae, Freddie Mac, and American
International Group, which gave the government big equity holdings.
They may need to jettison another bit of orthodoxy, which is that it's
dangerous to make explicit promises of taxpayer support for fear it
will encourage risky behaviors.

Economists have long been taught to avoid creating "moral hazard" -
giving people an incentive to take big risks. Letting Lehman Brothers
fail was intended to send a warning to risk-takers. But by trying so
hard to avoid moral hazard, governments aren't giving markets the
confidence they need, says Richard Portes, an economist at the London
Business School, adding: "In circumstances like this, the last thing
you want is ambiguity."

The longer the banks are incapacitated, the worse the damage to the
real economy. "Banking institutions are really the rock foundation of
all of the economic activity that occurs," says Edward Liebert, who is
treasurer of Philadelphia-based chemical maker Rohm & Haas as well as
chairman of the National Association of Corporate Treasurers.
Policymakers are getting the message.

"Generally speaking, central banks and governments are just beginning
to understand the severity of the crisis and how it impacts on their
economies," says Donald Moore, chairman of Morgan Stanley in Europe.
"My view is we are going to take another three to six months to sort
this." It may take that long for the generals to learn how to fight
this war, not the last one.

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Courtesy: Rohit,_._,___

'Satyam banned from World Bank'

 

11 Oct, 2008, 1322 hrs IST,AGENCIES

 

NEW YORK: Software major Satyam Computer Services has reportedly been banned from doing any off-shore work with the World Bank after forensic experts and bank investigators discovered that spy software was covertly installed on workstations inside the bank's Washington headquarters, allegedly by one or more contractors from Satyam Computer Services.

According to a FOX News report, apart from Satyam, two IP intrusions have been reported from China, and there have been six intrusions in all.

Investigators say that the software, which operates through a method known as keystroke logging, enabled every character typed on a keyboard to be transmitted to a still-unknown location via the Internet.

Upon its discovery, bank officials shut off the data link between Washington and Chennai, where Satyam has long operated the bank's sole offshore computer center responsible for all of the bank's financial and human resources information.

"I want them off the premises now," World Bank President Robert Zoellick reportedly told his deputies. But at the urging of CIO De Poerck, Satyam employees remained at the bank as recently as October 1 while it engaged in "knowledge transfer" with two new India-based contractors.

Satyam is publicly listed on the New York Stock Exchange and boasts having two billion dollars in sales and more than 150 Fortune 500 companies as clients.

In 2003, Satyam won a lucrative five-year "sole source" contract to design, write and maintain all of the World Bank's information systems. The contract, which began at $10 million, had grown to over $100 million by 2007. This year, the contract was not renewed. Satyam has declined to comment.

FOX News claims that outsiders have raided the World Bank Group's computer network, one of the largest repositories of sensitive data about the economies of every nation, repeatedly for more than a year.

It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution's highly restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank's network for nearly a month in June and July.

The crisis comes at an awkward moment for Zoellick, who runs the world's largest and most influential anti-poverty agency, which doles out $25 billion a year, and whose board represents 185 member nations.

This weekend, the bank holds its annual series of meetings in Washington, and just in advance of those sessions, Zoellick called for a radical revamping of multilateral organizations in light of the global economic meltdown.

Zoellick is positioning himself and the bank as an institution that can help chart a new path toward global financial stability. But that reputation, more than ever, depends on the bank's stable information infrastructure.

According to internal memos, "a minimum of 18 servers has been compromised," including some of the bank's most sensitive systems, ranging from the bank's security and password server to a Human Resources server "that contains scanned images of staff documents."

One World Bank director told FOX News that as many as 40 servers have been penetrated, including one that held contract-procurement data. It took ten days for bank officials to detect that they'd been invaded. Once they did, they shut down all external servers, except for e-mail, which it turns out the invaders were already using as their entrance point.

A World Bank spokesman, however, rubbished the Fox News story, saying it is riddled with falsehoods and errors.

 

Courtesy: TOI

ICICI Bank facing no liquidity crisis: Chanda Kochhar

10 Oct, 2008, 1348 hrs IST, ECONOMICTIMES.COM

NEW DELHI: ICICI Bank is facing no liquidity crisis and has as much as Rs 12,000 crore liquidity even in international markets and the bank does not use rupee liquidity to fund the growth of its international operations, according to ICICI Bank Joint Managing Director and CFO Chanda Kochhar.

Stepping in to dispel rumours that led to a near 26 per cent dip in the ICICI Bank stocks on Friday, Kochhar said: "We have no sizable international investments and the ones that are present are in the form of international loans to Indian companies to fund their international operations. As far as the UK subsidiary is concerned, yes we have investments but the exposure is very small for a company with a networth of Rs 47,000 crore."

Commenting on rumours that ICICI Bank's exposure is large as it has given easy loans with inadequate collaterals in form of shares, and with the shares taking a beating, the Bank's loss may be more than is made obvious, Kochhar said: "All the loans are secure and we have enough cash against them that will help us tide over any uncertainly in their share values. Our NPAs are zero even in the UK subsidiary and we have a cash collateral of $45 million from Bumi on a loan amount of $100 million, which is being cited as a risky case for ICICI Bank in UK," she added.