Friday, May 29, 2009

John Paulson, hedge funds move into gold

There was a good amount of buzz last week surrounding hedge fund manager John Paulson's move into the gold sector, one that coincided with the opening of a new Paulson & Co. fund (the "Paulson Real Estate Recovery Fund") that will invest in real estate.

Market Folly has more on Paulson & Co.'s investments in gold and the gold mining shares in, "Paulson & Co. buys tons of gold":

"The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio.

Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros).

Still though, that's quite a large hedge to have. Not to mention, Paulson also has a copious amount of gold miners now littered throughout his equity portfolio... And, such a massive position in gold and gold miners has to be for more than merely a hedge.

One other thing to consider with Paulson's portfolio is that these holdings listed above are only his long equity holdings. The main reason why we bring this up is because the holdings above represent only a piece of his overall portfolio pie. Many of the positions above are merger arbitrage and event driven positions. While his gold stakes may be a large part of the assets disclosed in this filing, they are not quite as big when you compare them to his total assets under management. So, keep that in mind..."

Jay at Market Folly also notes that other prominent hedge funds, including David Einhorn's Greenlight Capital and Stephen Mandel's Lone Pine Capital, have also recently made notable forays into the gold sector. So should we follow the hedge fund crowd into their recent gold trade?

Andrew Mickey offers an interesting take on this very issue in, "Why Gold Enthusiasm is 'Cool' Again". As he notes in the article, Paulson's Midas touch has made gold the new "cool" investment on Wall Street, which is enough to leave Mickey skeptical on the timing of this particular speculation.

"Right now, gold is the hot sector. Expectations are soaring and it is only a matter of time until the “hot money” finds something new. Gold is glittering now and it will do so in the future, but it’s best to buy it when it’s not being watched so closely.

Yes, I’ve bought gold and gold stocks in the past. I will be buying gold stocks again in the future. It’s all part of my personal investment plan which I’m sticking too.

Inflation is coming. Real assets and shares of producers of real assets will do exceptionally well in the years ahead. For now though, it’s best to look for value in the real asset sectors."

Check out the full piece at the link above (Hat tip to Richard Russell), and see why this writer thinks the recent gold chase has left some hard asset sectors overlooked and relatively undervalued.

Related articles and posts:

1. John Paulson in Bloomberg Markets - Finance Trends.

2. Video: John Paulson & Joseph Stiglitz - Finance Trends.

Wednesday, May 27, 2009

I keep hearing about a "dollar collapse"

I've been getting a lot of questions lately from readers and friends asking about what's going to happen with the dollar, gold prices, and future inflation. If only I knew.

One thing I can tell you is that discussion of a potential "dollar collapse" or US hyperinflation has ramped up noticeably in recent months; an idea that seemed fringe two or three years ago is now openly discussed on blogs, economic and investing/trading forums, mainstream news sites, and business television.

John Rubino's website which tracks these dour trends, aptly named Dollar Collapse, is starting to look prescient, as well as gloomy. Is the trend towards dollar destruction inevitable, or will we somehow manage to escape this fate with some successful maneuvering by the Fed?

While you ponder that, here are two recent articles from Bloomberg (see Christopher Wood's comments near the bottom) and The Financial Times which caught my attention, due to their frank discussion of dollar devaluation and the possibility of a dollar collapse.

One thing we know for certain: the idea of a failing US currency is now a bit more mainstream.

Related articles and posts:

1. Hyperinflation and the bond markets - Finance Trends.

2. Jim Bianco: Fed acts are "hyperinflationary" - Finance Trends.

3. US inflation to approach Zimbabwe level (Marc Faber) - Bloomberg.

Tuesday, May 26, 2009

Niall Ferguson on "What Price Liberty?"

One of the best things I read over the Memorial Day weekend was Niall Ferguson's review in the Financial Times of Ben Wilson's new book, What Price Liberty?. I'd like to share some of it with you.

Here's an excerpt from that review:

"“The privileges of thinking, saying, and doing what we please, and of growing as rich as we can, without any other restrictions, that by all this we hurt not the public, not one another, are the glorious privileges of liberty.”

These are the words of “Cato” (the nom de plume of John Trenchard and Thomas Gordon), writing in the early 1720s. For the better part of two centuries, that view was widely held in England, and Englishmen were not wrong to believe that it set them apart from continental Europeans and “Orientals”.

Also integral to the English conception of liberty was John Locke’s linkage of freedom and private property. In the landmark Entick v Carrington case (1765), Lord Camden ruled against the government for raiding the home of the radical journalist John Entick. “The great end for which men entered into society was to secure their property,” declared Camden. “By the laws of England, every invasion of private property, be it ever so minute, is a trespass.”

Almost as important was the principle of minding your own business. “The taste for making others submit to a way of life which one thinks more useful for them than they do themselves,” John Stuart Mill explained to the French liberal Alexis de Tocqueville, “is not a common taste in England.”

Do what you like as long as you do no harm. An Englishman’s home is his castle. And mind your own bloody business. When did these three great principles of liberty cease to be sacrosanct in England? Wilson has little doubt that it was the two world wars that began the process...".

Do check out the full piece, especially if you're interested to know how an English writer's discussion of liberty pertains to those of us living in the good ole' USA.

As Ferguson notes in his review, you can also download Wilson's book, What Price Liberty?, for any price you wish.

Related articles and posts:

1. Ben Wilson: What Price Liberty? - What Price Liberty? Blog.

2. Niall Ferguson: The Ascent of Money (PBS) - Finance Trends.

Friday, May 22, 2009

Bjorn Lomborg: Barron's interview

Kind of a think piece for Friday and your Memorial Day weekend: Barron's interviews Bjorn Lomborg, "the skeptical environmentalist", for a profile entitled, "Global Warming is Manageable - if We're Smart".

Here's an excerpt from that piece:

"Barron's: Bjorn, what do you think will be the outcome of the negotiations to curb global warming this December?

Lomborg: The participating nations will again agree to spend quite a bit of money to cut carbon emissions and again achieve virtually nothing. We already tried that twice -- in Rio in 1992, and in Kyoto in 1997. Both of these treaties failed.

We will see a lot of posturing, but presumably this isn't about having a lot of environmental ministries or even presidents and prime ministers come out and claim credit for making costly commitments that we won't be able to live up to, and which would barely make a dent in the problem anyway.

When I first started in the global-warming debate, I was struck by the fact that the world was going to pay $180 billion a year for a protocol that could at best reduce the temperature by 0.3 degrees Fahrenheit by the end of the 21st century. The U.N. estimates that for less than half that amount, we could provide clean drinking water, sanitation, and basic health care and education to every single human being on the planet. The same warped sense of priorities will continue to bedevil us this December in Copenhagen..."

Before reading this interview, I didn't know much about Lomborg, a statistician keen on discussing solutions to our environmental problems and debating global warming issues.

I recall listening to his 2007 interview with the Financial Sense Newshour, but I'll have to hear it again to recall the full details of this discussion.

For those who want to hear more, Lomborg also appears in this TED talks video, offering his views on climate change and global health priorities.

Enjoy the interviews, and we'll see you after Memorial Day.

Thursday, May 21, 2009

Finance Trends on Twitter

Just wanted to (finally) let you all know about our Finance Trends Twitter page.

You may have already noticed the new Twitter update links in our sidebar column; I'll use this post to briefly explain (a) what Twitter is and (b) what you'll find at my Twitter site.

Quick explanation of what Twitter is about, for the uninitiated: Twitter is basically an open text messaging system that lets you share your thoughts with the world. You can also think of it as a micro-blogging service with a 140 character limit on each message, or, "tweet" (see example tweet below).

Anyone can read public Twitter messages or "tweets", but you must sign up if you wish to follow or communicate with other Twitter users. By following other Twitter users and encouraging others to follow your own tweets, you can create a network of friends and followers based on dovetailing interests ("hey, he trades stocks and surfs too!") or any criteria you like.

I've actually found Twitter to be a great source for gathering real-time information and reaction to news and events. It's also a wonderful tool for getting in touch with others who share similar interests and are talking about/doing similar things.

For example, some of my fellow market bloggers on Twitter are Maoxian, John Carney, Prieur at Investment Postcards, Toni at Prudent Investor, and Jay from Market Folly.

I've also joined Stocktwits, a community for investors and traders built on the Twitter platform, and exchanged brief thoughts and market-related links with others in the Stocktwits stream. Active traders and beginning traders alike use Stocktwits to exchange trading ideas and market commentary in real-time.

If you visit the Finance Trends Twitter page, you'll find added links and market commentary (including info "retweeted" from other users), as well as my conversations with other Twitter users and some occasional blog-focused or personal updates. Again, it's a great way to share quick bits of info (including items that don't show up here on the blog) and connect with new and interesting people.

To help new users get into the swing of things, I've added a couple of helpful Twitter video tutorials in the related articles section below. Hope to see you there!

Related articles and posts:

1. How to use Twitter - Howcast via YouTube.

2. Getting started with Twitter - CNET video via Impossible Dreams.

Wednesday, May 20, 2009

Marc Faber: Capitalism might fail





Marc Faber told a CNBC Europe "Squawk Box" panel that capitalism may fail like communism did if corporate enterprises and the financial system are not purged of the excesses and losses of the recent past.

Some excerpted (see above article link) comments from Marc:

"A sustainable recovery will occur only when the corporate system will be cleaned of losses and capitalism risks collapsing if this does not happen, Marc Faber, the author of "The Gloom, Boom & Doom Report," told CNBC Friday.

The central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said...

..."I think the final low in markets will occur when the system is cleaned out," Faber said.

Unless the system is cleaned out of losses, "the way communism collapsed, capitalism will collapse," according to Faber. "The best way to deal with any economic problem is to let the market work it through.""

Now, we should point out that Marc is not discussing the popular fallacy of "market failure" as an impetus for the economic crisis; he is actually speaking (from a free-market viewpoint) about the risk of total failure of the capitalist system due to the suppression of financial losses and business failure.

As Marc and Jim Rogers have pointed out many times before, you cannot have a viable capitalist economy without the up-front risk of failure and economic loss which serves as the flipside to business growth and economic gain.

If the risk of failure is removed, and businesses can keep their profits while losses from the financial system are socialized (costs of failure are passed on to the people), what you then have is a a corrupt system of "crony capitalism". At that point, anything resembling true free-market capitalism will have faded from view.

Related articles and posts:

1. Synchronized Boom, Synchronized Bust - Wall Street Journal.

2. Jim Rogers & Marc Faber speak out on bailouts - Finance Trends.

3. Has Capitalism Failed? - Ron Paul via Mises.org

4. The Bailout Reader - Mises.org.

Monday, May 18, 2009

Barron's ranks top 100 hedge funds

Barron's is ranking the top 100 hedge funds of 2009, while highlighting funds that were especially adept at navigating the stormy financial seas of 2008 (hmm, I think all those episodes of Yacht Rock that I recently watched are having their effect on me).

Jay at Marketfolly has provided a super overview of the Barron's rankings; rather than compete with him, let just highlight some of Marketfolly's post here. Here's an excerpt from Jay's post on Barron's ranking methodology and the stars of this year's Barron's 100:

"...Barron's breaks down their top 100 hedge fund list by 3 year annualized returns. They rank by individual investment partnerships, so a couple of firms actually have multiple hedge funds on the list (like Paulson & Co, Galleon Group, etc). Barron's list does have a few criteria though, as they require a minimum AUM of $300 million and have excluded funds that invest in a single "sector, country, or region."

Overall though, the list is definitely a "who's who" of the hedge fund elite. John Paulson's Paulson & Co occupies the #1 and #4 slots, with a 62.67% and 46.81% 3 year annualized returns respectively. Of other hedge funds we cover on the blog, Shumway Capital has a fund listed at #11. Fellow Tiger Cub Paul Touradji has one of his funds in the #16 spot".

Head on over to Marketfolly and Barron's to see the rest, and check out our related posts for more info on some of the hedge fund industry's leading lights.

Related articles and posts:

1. John Paulson profile in Bloomberg Markets - Finance Trends.

2. Hedge funds fight to survive shakeout - Finance Trends.

Sunday, May 17, 2009

Zhao Ziyang: the guy behind the guy

Very interesting article from this weekend's Financial Times about Zhao Ziyang, the Communist Party official who may have been the impetus for some of the major economic reforms credited to China's Paramount leader Deng Xiaoping.

Excerpt from, "Beijing fails to silence voice from the grave":

"When former Chinese Communist party boss Zhao Ziyang died four years ago, the only news published in China was a two-line statement on Xinhua, the state news agency.

The Beijing authorities were afraid the death of the leader ousted for opposing the violent crushing of demonstrators in 1989 would re-open debate about the Tiananmen killings.

Mr Zhao has not been easy to silence, however. Just weeks before the 20th anniversary of the crackdown, his secret memoirs are about to be published, based on 20 tape recordings that friends and associates managed to smuggle out of the country.

An extremely rare first-hand account of elite Chinese politics, Prisoner of the State argues that the decision to impose martial law in May 1989 was illegal and the violent suppression of the protests was a "tragedy".

It also casts light on Deng Xiaoping, the former paramount leader, suggesting it was Mr Zhao who was the real instigator of many of the country's economic reforms and that Mr Deng was a fervent supporter of one-party dictatorship..."

I was scanning the paper when I saw this article, and ended up reading the full piece. Maybe you will find it to be a worthwhile read as well. Enjoy!

Friday, May 15, 2009

Features of the week

It's been a while since we rolled up a new "Features" post, but we're serving one up today. Enjoy our latest selection of Friday links.

1. Robert Murphy: busting the myth of "green jobs".

2. America's AAA rating at risk: David Walker.

3. Hayman Capital's Kyle Bass predicts sovereign defaults.

4. Global crisis 'vastly worse' than 1930s, Taleb says.

5. Distressed debt investors work fallout of buy-out boom.

6. An offer US banks could not refuse: Paulson's tactics.

See also: 10/15/08 post, "Treasury bank plan: not so 'voluntary'".

7. Deleveraging is the only real solution to the crisis.

8. TARP beneficiary says 'sham' bailouts help speculators.

9. Buffett knows how to avoid common value traps.

10. 'Buy and hold' is not dead (if properly defined).

11. A brief history and Dow Theory update: Tim Wood.

Have a great weekend, and thanks for checking in with Finance Trends Matter (click here to subscribe to our RSS feed). We'll see you all next week!

Wednesday, May 13, 2009

Jim Rogers interview with Bloomberg TV

Legendary investor Jim Rogers chats with Bloomberg TV in this recent in-studio appearance from Singapore.

Rogers is still wary of stocks and says he's not looking to buy US shares anytime soon as the fundamentals for most companies have not changed. Jim is (of course) still bullish on commodities and feels that the increased money printing worldwide will surely lift the price of much-needed agricultural products in the subsequent inflationary period.

Most noteworthy, perhaps, are Jim's latest comments on the dollar, highlighted in this Bloomberg article:

"...The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.

The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, the investor added.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said.

“It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.” "

Plenty more from Jim on the various global currencies and more in the full interview above. Enjoy.

Meredith Whitney on CNBC





Meredith Whitney recently stopped by the NYSE to chat with CNBC's Maria Bartiromo about the health of the banking sector and consumer spending in the current recession.

Whitney, who recently formed the Meredith Whitney Advisory Group, told CNBC that banks are currently overvalued and their recent earnings were goosed higher with government aid.

" "...At a core basis, I would not own these stocks," Whitney said in a live interview. "Their business models are not going to come back."

Whitney, a former analyst at Oppenheimer who has her own firm, is renowned for calling out the problems with banks' toxic assets before the issue became widespread.

"This is the great government momentum trade," Whitney said on why bank stocks had seen some improvement lately. "But the underlying core, earnings power of these banks is negligible." "

Whitney also discussed the coming drop in consumer spending and followed up on some of her earlier comments/forecasts on the contraction of consumer credit lines with new data.

Plus, discussion of the stress tests for banks and how government's involvement in the markets have disrupted the rules of the game. Check it out.

Related articles and posts:

1. Meredith Whitney CNBC interview transcript - Moneycontrol.

2. Meredith Whitney on FT.com - Finance Trends.

Monday, May 11, 2009

PPIP "Greatest boondoggle in history"

Last week while thinking about the stress tests and the fact that US banks won concessions on the stringency requirements of these already laughable government exercises, it occurred to me that when all is said and done, this latest chapter in American history could end up making Teapot Dome look like a freaking anthill.

While I usually try to steer clear of hyperbole, it seems that one person who's been speaking out against the stress tests and the PPIP, William Black, agrees. Last week in an interview with Tech Ticker, Black even went so far as to call Geithner's Public-Private Investment Program (PPIP) "the greatest boondoggle in the history of the world".



Here are some choice quotes and main points from Yahoo's summary of the Tech Ticker interview:

"The PPIP is the "greatest boondoggle in the history of the world," says Black, a former bank regulator who was counsel to the Federal Home Loan Bank Board during the S&L crisis. As occurred during the S&L era, Black says the PPIP will allow banks to exchange "trash for cash" and turn "real losses into faulty gains."

If the goal of Tim Geithner and other regulators was "to rip off the American taxpayer for the benefit of the least-deserving wealthiest people you can imagine, well - mission accomplished," Black says. "

Is William Black right, or is he exaggerating? We'll soon find out, but in the meantime check out this interview (if you haven't already) and the related articles and posts for a very brief and to the point explanation of these rather complicated issues.

Related articles and posts:

1. Stress test optimism just Wall St. propaganda - Tech Ticker.

2. How banks cut stress test cap requirements in half - Big Picture.

3. William Black: "stress tests are a farce" - Finance Trends.

Friday, May 08, 2009

Russell Napier: The Next Crash

Sorry for the gloomy title, but here is a great FT.com interview with Russell Napier (w/ a link to part 2), author of Anatomy of the Bear.

Here, Napier discusses how secular bear market lows can often be identified by looking at Tobin's Q ratio, along with cyclically-adjusted P/E ratios. In part two, Napier offers his views on the efficient market hypothesis and a forecast for a 'cataclysmic' bear market to come.

For those who'd like to know more about Russell Napier and his views on bull and bear market cycles, please see our post, "Anatomy of bear markets", where you will find an article by Marc Faber discussing Napier's work and a 2006 interview with Napier on the Financial Sense Newshour.

Thursday, May 07, 2009

Painful lessons for Chrysler lenders

Another important article from the Financial Times that I wanted to add to the blog (after adding it to the Finance Trends twitter page), this time on the subject of Chrysler's 'dissident' senior lenders.

Here's an excerpt from, "Painful lessons for lenders in Chrysler debacle":

"George Schultze will think twice before lending to another troubled company such as Chrysler.

Mr Schultze is one of a group of dissident Chrysler creditors who was rebuked by the US president and other lawmakers for tipping the company into bankruptcy. He rejected an offer aimed at slashing Chrysler’s debt in order to allow the carmaker to be sold. Mr Schultze and other investors – some of whom claim to have received death threats – say the deal is unfair because it does not honour their rights as senior lenders to get paid before other claims, such as a union benefit plan, are met.

They also argue that the deal was orchestrated by the US government, which held sway over the majority of the other lenders, namely a group of banks, following widespread bail-outs.

The question of whether the Chrysler creditors got a raw deal will be decided in a New York bankruptcy court over the next few weeks.

Already, the verdict on Wall Street and in the conference rooms of investment firms round the country is that, at the very least, the situation raises questions about the solidity of time-honoured lending principles and parts of the bankruptcy code. These rules dictate the pecking order for claims to be repaid when a company files for Chapter 11... "

As one distressed debt investor who was quoted in the article said, "Now there is a new risk: government intervention risk...And it is very hard to hedge.".

So, who thinks that problems with uncertainty over bankruptcy procedures and contract law is a growing trend in the US?

Related articles and posts:

1. Justice for all, except bondholders - Globeanmail.com.

2. Chrysler's greedy hedge fund holdouts get it right - Bloomberg.

Gold sales cost central banks $40 billion

Financial Times reports that a decade of gold sales has cost Europe's central banks $40 billion.

"Europe's central banks are $40bn (£26.4bn) poorer than they might have been after they followed a British move taken 10 years ago todayto shrink the Bank of England's gold reserves, analysis by the Financial Times has shown.

London's announcement on May 7 1999 that it would sell a large share of the Bank's gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called "anti-gold" sentiment among European central banks.

Many of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth about $280 an ounce, less than a third of its current level of more than $900."

Of course, as many gold market observers will tell you, gold selling by the central banks is not typically a profit-maximizing endeavor: it is often done to downplay the importance of gold as a form of money competitive with paper currencies.

Tuesday, May 05, 2009

Banks rally ahead of test results

Looks like those short positions in US banks that we mentioned yesterday are a tough trade to be in right now.

FT reports that bank shares 'surged' yesterday as traders bet the upcoming stress test results will reveal better-than-expected news about the large banks' capital raising needs.

"US bank shares surged on Monday as investors bet that some of the country’s largest institutions will have to raise less capital than previously feared after this week’s release of the government’s “stress tests”.

The banks believed to have been told by regulators to shore up their balance sheets, such as Citigroup, Bank of America and Wells Fargo, led the sector higher amid investor optimism that their capital needs will be manageable."

So this latest sentiment on the banks capital raising needs is in stark contrast with the views offered up by Jim Bianco in last week's Bloomberg interview.

As noted in yesterday's post, Bianco felt that the delay of stress test results might signal worse-than-expected news on the banks' capital raising requirements.

FT reports that the government will inform the 19 participating banks about the test results and their capital requirements today; a public announcement is scheduled for Thursday.

So far, 2 of the 3 banks in question (Citi & BofA) are up in today's US trading session, while Wells Fargo is down about 4 %.

Currently making my way through an interesting piece from Naked Capitalism on how the government is managing the news of the stress test results. Any readers have some thoughts on Yves' article and how this all plays out?

Update: See related articles and posts for more on Bank of America's capital needs, plus commentary from Matthew Richardson and Nouriel Roubini on the true state of the financial industry.

Related articles and posts:

1. Tests show Bank of America has biggest capital needs - Bloomberg.

2. We can't subsidize the banks forever - Wall Street Journal.

Monday, May 04, 2009

Back to shorting banks...

Short sales of US bank shares have increased noticeably in recent weeks ahead of the government's "stress test" results, which are scheduled for a delayed May 7 release.

Bloomberg has the details in, "Short selling of banks accelerates":

"Short sellers, the bane of Wall Street executives last year, are back.

The number of Citigroup Inc. shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock.

Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed.

“People are either positioning themselves for the potential of a preferred-to-common conversion, or they have an increased perception of risk in these companies,” said Andrew Baker, an equity strategist at Jefferies & Co. in New York."

Last week Jim Bianco spoke with Bloomberg TV about the delay of stress test results, saying that investors would be correct to assume that delays mean "the news is not good". He added that the stress test results might reveal that surprisingly large "TARP-like numbers" are needed to further recapitalize "stressed" banks for an economic downturn.

Meanwhile, Warren Buffett and Charlie Munger have criticized the stress tests for 19 large US banks, saying that most are not "too big to fail" and could easily be wound down with help from the FDIC. The two added upbeat opinions on some of Berkshire Hathaway's own financial holdings, including Wells Fargo (WFC).

Bloomberg, quoting analysts at CreditInsight, reported that Wells Fargo and some of its smaller rivals may have to turn their preferred shares into common stock as a result of the stress tests.

Related articles and posts:

1. Investors seem resigned to Bank USA - Wall Street Journal.

2. More banks will need capital - Wall Street Journal.

Friday, May 01, 2009

Buffett's successor + Woodstock for capitalists

It's that time again: this weekend a boatload of Berkshire Hathaway (BRK.A, BRK.B) shareholders will descend on Omaha to attend the annual Berkshire shareholders' meeting and hear the great Oracle, Warren Buffett, speak.

Only problem is, this year WB will have some explaining to do. As the Financial Times reports, Buffett faces a grilling from investors who'll expect him to account for the company's worst year ever.

Excerpt from the FT piece:

"Buffett-watchers say this year’s meeting of shareholders in Berkshire Hathaway, his candies-to-insurance group, will depart from the usual pattern of deferential questions and folksy answers and witness some criticism of the billionaire investor.

“The hard questions will be asked this year,” said James Altucher, a hedge fund manager and author of Trade Like Warren Buffett. “There will be people who always stand by him and others who will ask: ‘Have you lost your way?’”."

Another small cloud looming over Berkshire Hathaway is the now-frequently discussed issue of CEO succession. Who will fill Warren Buffett's shoes as Chief Executive Officer and Chief Investment Officer at Berkshire?

In fact, as Berkshire followers already know, it will likely take two individuals to carry out these seperate roles that superstar-CEO Buffett has long carried out himself.

There is a good deal of concern about finding successors who could live up to Buffett's outstanding long-term track record of success, but Berkshire insiders are confident that the unique corporate culture put in place by Buffett and Vice-Chairman Charlie Munger will continue after Buffett is gone.

We've added some recent Bloomberg TV segments here which speak to that issue. Bill Gates, Donald Keough, David Sokol, Byron Trott, and Buffett himself are interviewed for this special on Buffett's inner circle and succession at Berkshire Hathaway. You'll find more on this topic below in our related articles section.

Related articles and posts:

1. Buffett refocuses attention on Berkshire - Bloomberg.

2. Eveillard, Child, Pabrai on Berkshire, Buffett - Bloomberg.

3. Berkshire, Buffett bear brunt of bear market - Finance Trends.