The Year 2008: While Atlas Shrugged, Buffett Bought

(Buffetologist.com) In almost every conversation I have these days, the topic of Ayn Rand’s epic novel, Atlas Shrugged, seems to rear its head. I happened to dust it off of my bookshelf early this past summer, and what a time to re-read it, as the parallels to what happened in 2008’s market panic were stunningly ironic.

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Cash at 18-Year High Makes Stocks a Buy at Leuthold

(Bloomberg.com) There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound after the worst year for U.S. stocks since the Great Depression.

The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.

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Merrill’s Rosenberg Inspired by Farrell in Foreseeing Crash

A little about David Rosenberg of Merrill Lynch. One of the few to get 2008 right.

(Bloomberg) David Rosenberg drew on inspiration from market-rules theorist Robert Farrell and asset-bubble historian Charles Kindleberger to predict the economy’s demise this year.

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They Told Me That Madoff Never Lost Money

When things look too good to be true, they usually are. Ben Stein was dead on with his Madoff analysis.

(NY Times/Ben Stein Column) ABOUT two years ago, a little delegation from a major investment bank arrived at my home in Beverly Hills. These nice young people were from the bank’s “wealth management division.” I told them straight away that I didn’t have anywhere near enough wealth to make their trip worth their time, but they smilingly insisted that we could help each other.


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2008 Lookback: Surprise, Surprise

(MarketBeat Blog/Wall Street Journal) It is often said that markets hate uncertainty, but in 2008, one of the few certainties was just that — uncertainty. Even investors who believed they had witnessed every strange trick and bizarre outcome found their head spinning after some of what occurred in 2008. “In 28 years in the business, I’ve never seen a year quite like this,” said Don Galante, senior vice president at MF Global. Here, then, is a list of the most surprising moments of the year, the jaw-dropping events that left many speechless. Feel free to include your own overlooked moments in the comments.

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Doug Kass's 20 Surprises Of 2009

(Clusterstock.com) Seabreeze partner Doug Kass was kind enough to send us his 20 surprise predictions for 2009. As Doug explains, these predictions are outliers, not events that have a high likelihood of occuring (if they did, they wouldn't be surprises).

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Christopher Cox Comes Out Swinging; Slams Bernanke And Paulson

Now Cox comes out and says Bernanke and Paulson pressured him into the short-selling ban. Interesting article.

(Clusterstock.com) Wow, guess Hank Paulson and Ben Bernanke won't be spending Christmas at Christopher Cox's party tonight? The outgoing SEC chief, whose agency was under extreme fire since well before the Bernie Madoff affair, used an interview with the Washington Post to defend his reputation and lay some blame on the other guys. It's not subtle:

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CRE Developers: We Need a Bailout, Too

(Housingwire.com) And so the bailout net continues to spread ever wider: not long after news of a bailout for the U.S. auto industry last week, commercial property developers are now making their case for federal dollars, according to a Wall Street Journal report on Monday.


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Last Minute Christmas Gifts

Here are some book recommendations for the value investor...all worth reading

Go see the list here

2008 Lookback: Best Calls of the Year

(Wall Street Journal-MarketBeat Blog) In a year when major stock indexes, real estate, hedge funds, oil, grains, emerging markets, dollar/yen, long/short hedging strategies (thanks to the short-selling ban), high-yield bonds, bank loans, diversification, and the Super Bowl Indicator failed investors, there were precious few “calls” that worked out well.


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Investment Strategy by Jeffrey Saut 12/22/08

(RaymondJames.com) Winter officially began yesterday morning with the arrival of the Winter Solstice. Recall that solstice means “standing-still sun;” and on December 21st at 7:04 a.m. (EST) the sun “stood still” over the southern Pacific Ocean (Tropic of Capricorn). At that time the sun’s rays were directly overhead, giving the impression that the sun was truly standing still. This phenomenon occurs twice a year (winter solstice and summer solstice), for as Earth orbits the Sun the north-south position of the Sun changes due to the Earth’s changing “tilt.” The dates of maximum tilt to the Earth’s equator correspond to the winter and summer solstice, while the dates of zero tilt are termed the vernal and autumnal equinox. In these latitudes most people “frame” the winter solstice as the shortest day of the year. We, however, have always liked the French version, which avers that it is rather the longest night of the year. In the northern “climes” this will mean roughly nine hours of sunlight, and 15 hours of darkness, and that light-to-dark ratio tends to produce “Seasonally Affected Disorder Syndrome” (or SADS) in certain folks.*

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Microsoft, Cheap Enough To Buy Itself ?

(Ritholtz.com/The Big Picture)

Views the video from Barrons Online about Microsoft

Twelve Days of Christmas

(Wall Street Journal/Deal Journal Blog)

2008 TWELVE DAYS OF X-MAS

My true love sent to me:
12 percent unemployment
11 bankers bankrupt
10 lawyers lying
9 zillion pink slips
8 CEOs crying
7 hedge funds sinking
6 bonds defaulting
5 TARPs
4 Fannie Freddie Fuld
3 auto failures
2 big to fail
and a bailout from the Treasury.

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Is the Medicine Worse Than the Illness?

(Wall Street Journal) May require registration

(James Grant) It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can't make up its mind: Is it in the business of central banking or of central planning? And to think -- our disappointed foreign friends mutter -- all of these enormities taking place under a Republican administration.

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More on the 2001 Barron's Madoff Story

(portfolio.com) In the spring of 2001, a Barron's reporter was among the first to publicly question Bernie Madoff's record. She tells Portfolio.com how she did it.

Read the article here

November 7, 2005: World's Largest Hedge Fund is a Fraud

(Ritholtz.com) What follows is the Harry Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a fraud. This highly detailed complaint was filed regarding the apparent Fraud at Madoff Securities.

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FOX Business Gives Self Lump Of Coal With Cramer Grinch Card

(alleyinsider.com) We continue to be bewildered by FOX Business's strategy.

First, there is the apparent conceit that there is a vast audience of casual business viewers who don't want to watch the geeky Bloomberg or ESPN-like CNBC. By captivating this "mid-market" audience, the theory goes, FOX will grab a toehold and then shove its competitors into the small high end of the market, the way it did in general news. FOX is embracing this strategy because it worked for FOX News. But the same "mid-market" that cares about murders, car crashes, and fair and balanced politics couldn't care less about business.

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Madoff's Top Salesman Still Partying

(Clusterstock.com) Walter Noel, the Greenwich based patriarch who runs the "fund-of-funds" known as Fairfield Greenwich Group, isn't letting the $7.5 billion of his clients' money that Bernie vaporized get him down. In fact, he's still showing up at black-tie parties, according the New York society blog Guest of a Guest:

It’s unclear yet where Noel stands with respect to repercussions both legally and financially, but socially he seems to be bouncing back at least for the moment. A tipster writes:

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Get Ready to Scrimp and Save, Says Economist Shilling

(yahoo finance/tech ticker) Hoping for a quick return to the consumer spending habits of past quarter-century, when "financial discipline" meant remembering to withdraw enough home equity to get a new SUV every two years? Forget about it, says Gary Shilling.

We are indeed going to return to the past, but it's going to be the enforced frugality of the 1930s and 1940s, not the debt-fueled orgy of the past couple of decades.

Go here to watch the video and read the rest of the story

Even in Losing, Warren Buffett Wins

(NY Times/Dealbook Blog) Electricite de France has beaten MidAmerican Energy Holdings for a deal with Constellation Energy.

Even so, says Breakingviews, Warren E. Buffett, who controls MidAmerican through Berkshire Hathaway, will more than double the $1 billion he has already invested inside a year — not bad for a broken deal.

MidAmerican swooped in last September when Constellation ran into financial trouble in the heat of the credit crisis. Mr. Buffett’s team offered $26.50 a share — for a total value of $4.7 billion. Deals in the highly regulated sector take months to close. But this one came with a potentially life-saving, immediate infusion of $1 billion in the form of preferred stock.

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On Wall Street, Bonuses, Not Profits, Were Real

(NY Times/Dealbook Blog) For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.

The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business.

Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

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Busting Bernie Madoff: One Man's 10 Year Crusade

(Clusterstock.com) The Wall Street Journal has published a detailed account of private fraud investigator Harry Markopolos's efforts over the past 10 years to persuade the SEC that Bernie Madoff was running a gigantic Ponzi scheme (or, at best, was front-running).

Markopolos submitted extensive analysis to the SEC in 2005, which we've embedded below. The SEC did conduct an investigation thereafter, in the course of which Bernie Madoff "mislead" them about the nature of some of his dealings with his primary fund-of-funds promoter Fairfield Greenwich Group.


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Yale Money Mauled: Did David Swensen Screw Up?

(Clusterstock.com) While other money managers scrambled to survive the financial market meltdown, value investor extraordinaire Seth Klarman (MBA ’82), president of The Baupost Group in Boston, cautiously pursued buying opportunities. After sitting patiently on the sidelines with a mountain of cash — 40 to 50 percent of Baupost’s $14 billion–plus in assets — for several years, the firm’s recent investments have cut its cash stash in half. Distress selling, it seems, breeds the kind of bargains Klarman lives for.

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Seth Klarman: Harvard Business School Bulletin

(alumni.hbs.edu) While other money managers scrambled to survive the financial market meltdown, value investor extraordinaire Seth Klarman (MBA ’82), president of The Baupost Group in Boston, cautiously pursued buying opportunities. After sitting patiently on the sidelines with a mountain of cash — 40 to 50 percent of Baupost’s $14 billion–plus in assets — for several years, the firm’s recent investments have cut its cash stash in half. Distress selling, it seems, breeds the kind of bargains Klarman lives for.


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Live, From GE: Immelt Will Be the Show

(Wall Street Journal) ....One change analysts suspect may be coming: a decision to stop offering quarterly earnings forecasts. Mr. Immelt began the practice to highlight GE's consistent earnings. The forecasts built confidence both on Wall Street and on Main Street (individual investors hold 41% of GE shares). A GE spokesman on Monday said only: "Jeff will provide investors with our annual outlook tomorrow."...

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Merrill Lynch Oil Guru Blanch Shifts From Bull to Bear and Back

(Bloomberg) Francisco Blanch, the Merrill Lynch & Co. analyst who called the $147.27 record crude-oil price nearly on the nose, sent markets into a tailspin with his forecast that the next move may be back to $25 a barrel in 2009. Such relief for consumers may be short-lived once the global recession ends, he said.

“If we reignite economic growth to a very fast level, we will have a shortage of energy again,” said the 35-year-old head of global commodity research at Merrill Lynch in London. Oil may rise to $150 in two or three years, said Blanch. World growth will reach 2.2 percent next year and rise to 4.8 percent by 2011, according to the International Monetary Fund.

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Don't Ask, Don't Tell

Barron's had the Madoff hedge fund figured out in 2001. When something looks to good to be true it usually is.

(Barrons.com/May 7, 2001) Bernie Madoff might as well hang that sign on his secretive hedge-fund empire. Even adoring investors can't explain his enviably steady gains.

Read the entire story. May require registration.

Fed Refuses to Disclose Recipients of $2 Trillion

(Bloomberg) The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.


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U.S. Treasury Ready to Prevent Failure of Automakers

Hank...what is next? Newspapers? Retailers? Fast Food Restaurants? Gotta love Capitalism!

(Bloomberg) The Bush administration dropped its opposition to using the $700 billion bank bailout fund to provide financing for U.S. automakers after the Senate yesterday failed to approve emergency loans.

The administration’s willingness to give short-term help to General Motors Corp. and Chrysler LLC eased the concern of at least some investors that the companies will collapse and worsen what is already the longest recession since the early 1980s. Stocks pared their losses.

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I Knew Bernie Madoff Was Cheating--That's Why I Invested with Him

(yahoo/finance--Tech-Ticker) Specifically, we're hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here's the best part: That's why they invested with him.

For years and years I've heard people say that [Bernie's] investment performance was too good to be true. The returns were too steady -- like GE earnings under Welch -- and too high given the supposed strategy.

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U.S. households pay down debts for first time since 1952

(Marketwatch.com) Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.

As of Sept. 30, households' total outstanding debt shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.

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Whitney: Banks On Life Support Next 18 Months

(CNBC.com) Influential bank analyst Meredith Whitney remains bearish about the economy, and her outlook for the banks that "lubricate the economy" is grim.

"The big banks are going to be on life support for at least 18 months, if not 36 months,"
Oppenheimer's executive director of equity research told CNBC Wednesday morning. "The big banks will not fail, but the big banks will not grow, in my opinion, for at least another two years."

She echoed other analysts who see the funds from the TARP program being used to fill holes, and do nothing to stimulate the economy.

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Pimco’s Bill Gross Regrets Not Buying Treasuries Amid Rally

(Bloomberg) Bill Gross, manager of the world’s biggest bond fund, says he regrets not buying Treasuries in what is shaping up to be the best year for U.S. government debt since 2000.

“If we had our druthers, if we went back 12 months and we had known then what we know now, it would have been all invested in Treasuries,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “The question going forward is ‘Is it the winner over the next 12 to 24 months?’ We don’t think so.”

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Oracles of Doom

(NYMag.com) They always knew the economy would collapse. What do they think will happen next?

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Admit It: You're Worried You Missed The Bottom

(Clusterstock.com) Two weeks ago, everyone agreed: It was a second Great Depression, and the DOW was going to 5,000. Only a fool would step in and buy the S&P 500 at 750, everyone said, because it was obviously going to 600. The economy was headed to hell in a handbasket, Q4 earnings were going to be horrendous, and there was nothing that could be done to stop any of it.

But now, of course, with the S&P 500 up 20% from its low, things look a bit different. Specifically, it looks as though the market might already be looking past ghastly Q4 earnings and hideous unemployment and discounting the eventual recovery. Suddenly, the chatter on CNBC has gotten more positive, and it doesn't seem quite so clear that the DOW is going to 5,000 and the S&P 500 to 600. In fact, it looks as though you might have missed the bottom.

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Treasury Bills Trade at Negative Rates as Haven Demand Surges

(Bloomberg.com) Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

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Why China will recover first

(moneycentral.msn.com) Bill Fleckenstein on why China will recover first.

Recently I traveled to China to deliver a series of speeches. During visits to Beijing, Shanghai and Hangzhou, I was fortunate enough to meet with some people who know a lot about how the country functions. In this week's column, let me share the highlights of what I learned.

I think the most important thing for folks to understand is that China has not suffered the epic credit binge that much of the rest of the world has. China's savings rate is high. Mortgages require sensible down payments. Credit is something that hasn't quite come to China yet (although I understand that credit cards have recently become more available, especially in the big cities).

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Where have all your savings gone?

(Economist.com) FOR American and European savers it has been a lost decade. After two booms and two busts, stockmarkets have earned them nothing, or less, in the past ten years. Low interest rates have made bonds and bank deposits unrewarding too. Were it not for the tax relief they receive, contributors to personal pension plans would have been better off keeping their money under their mattresses. It will be little consolation to Westerners that savers in Japan have known this empty feeling for far longer.

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A Little History on Hedge Funds

From Fortune Magazine (Carol Loomis) in 1966

The Jones Nobody Keeps up With

Insight: Return-free risk

(FT.com) US Treasuries are the investment asset of the year. The less they yield, the more their fans adore them. Then, again, these fearful days, yield seems to have nothing to do with investment calculation. Purported safety is all.

“Super-safe Treasuries”, the papers call these emissions of a government that, this year, will take in $2,500bn but spend $3,500bn. “Toxic assets” is how the same papers characterise orphaned mortgage-backed securities—or, for that matter, secured bank loans, convertible bonds, junk bonds or almost any other kind of debt obligation not bearing the US imprimatur.

“There are no bad bonds, only bad prices,” the traders used to say. They should say it again, only louder. In the spring of 1984, long-dated Treasuries went begging at yields of nearly 14 per cent in the context of an inflation rate of just 4 per cent. Those, too, were fearful times, the recollected horror being the great inflation of the 1970s. Inflation was ineradicable, the bondphobes said. Now a new generation of creditors espouses the opposite proposition. Deflation is baked in the cake, they say.

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4.5% Mortgages: Deja Vu All Over Again

(Clusterstock.com) Stop us if you've heard this one before.

The Treasury is planning to do something or other to get long term fixed mortgage rates down to 4.5% in order to halt the slide in home prices. The idea is that low rates will allow borrowers to afford more expensive homes and bigger mortgages, which will drive up home values.

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Dr. Doom Foresees Much More Pain: So Why Is Roubini's 401(k) All in Stocks?

(yahoo.com/tech-ticker) Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor, has earned the nickname "Dr. Doom" for his dire predictions about the economy over the last couple of years (most of which have come true).

So it was a shocker when word got out on Wall Street that Roubini was the most bullish guy in the room at a recent dinner he hosted in NYC. There were even rumors Roubini's retirement account was 100% in stocks (since confirmed).

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Four Buffett Market Calls

Whitney Tilson has compiled four market calls made by Warren Buffett. Those who view Buffett as out of touch might want to read the following articles assembled by Mr. Tilson.

(TilsonFunds.com) Read the articles here.

Bill Miller Investment Commentary

Actually pretty good piece from the battle scarred Bill Miller.

(LeggMason.com) Read the letter here.

Treasury Schemes To Reduce Mortgage Rates Even More

Schemes is right! Whatever happened to free markets? Paulson and the Goldman boys are changing the very landscape of what made our country great..just my opinion of course.

(Clusterstock.com)Still very few details on this, though CNBC added some more odd reporting, namely that the idea is to spur the purchase of new housing units, not necessarily to producer more refis. We can see why the Treasury would like to do that, since the housing glut is a killer, but how do you go about targeting reduced rates at new housing, and not refis? Plus, there's the concern we addressed below: Who would take out a mortgage today with this news hanging out there?

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PIMCO's Investment Outlook

(PIMCO.com) Here I go again! Gosh it was only six years ago that I cemented my place in stock market history by predicting that the Dow would fall from 8,500 to 5,000, instead of going up to 14,000 where it peaked in October of 2007. Well, I could use the standard set of excuses: 1) No one else saw it coming, 2) I was misinterpreted, and taken out of context, 3) I was tired, overworked, and had family problems, or 4) I had just come out of rehab. But these days what really works is a full confession. I mean, like, uh, it was totally my fault and I take full responsibility. The fact is I was only off by 9,000 points. That’s my story, and I’m stickin’ to it.

Read the entire letter here

The issuance issue

(Economist.com) “ROLL up, roll up. Get your government bonds here. They may not pay much, but they’re safe. Buy ’em now in case stockmarkets don’t last.”

As the recession deepens, finance ministers round the world may be forced to resort to the tactics of the market stallholder. Politicians hope that deficit financing will be the way to stimulate the economy. But someone has to buy all those bonds.

Read the entire article here

North Carolina: Watching and Waiting

(Economist.com) America’s second-biggest banking city comes to terms with the crisis

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Turning Japanese?

I thought we were trying to avoid the same mistakes the Japanese made?

(Bloomberg) Federal Reserve Chairman Ben S. Bernanke signaled he’s ready to dig deeper into the central bank’s toolkit after cutting interest rates almost as much as he can, opening the door to a shift by policy makers this month.

Bernanke yesterday said he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.” Even so, reducing the rate is “certainly feasible,” he said.

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Treasuries In Bubble Phase, Merrill’s Rosenberg Says

(Bloomberg) Demand for Treasuries has reached the ‘bubble” phase seen among technology stocks in 2000 and real estate six years later, according to David Rosenberg, chief North American economist at Merrill Lynch & Co.

“The 10-year note yield is now firmly below the 3 percent threshold and this next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase that quite plausibly sees an overshoot to or even through the April 1954 lows of 2.3 percent,” New York-based Rosenberg said in a research note today.

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Congratulations, Its (Officially) a Recession

(Ritholtz.com) The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

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Reaping the Whirlwind!

(GMO-Jeremey Grantham Qtly Letter)

Read the letter here