Tracking Hathaway
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This weekly Briefing Note aims to pick out some of the key financial and economic issues touched on in the press over recent days and from time to time includes the views of some of our independent fund managers. It was a slippery end to the week in more ways than one as the Winter Olympics started in Despite an extremely nervous end to the week, As reported in The Sunday Telegraph, the widely anticipated bailout package for Greece from the other European member states failed to materialise from Thursday’s emergency summit of EU leaders in Brussels, with Angela Merkel, the German chancellor, insisting that Greece should cut its budget deficit by 4 per cent before the rest of Europe run to the aid the struggling country. After the initial statement from EU leaders was digested, the lack of any detailed commitment became obvious and markets moved into retreat. Whilst Greece is a relatively minor eurozone economy, representing about 3 per cent of the region’s GDP, the impact of a default on its debt commitments could be contagious with many now fearing the panic could spread to Spain, Portugal, Italy and Ireland – all of which are also suffering from ‘ballooning budget deficits and overburdened consumers.’ These fears are also placing the European currency under relentless selling pressure with the euro already having lost 5 per cent of its value against the dollar – falling to an 8-month low on Friday and one analyst commenting “The question is not whether to sell the euro or not, the question is when and at what level.” Analysts are predicting further losses for the euro against the dollar, with a short-term target of $1.30. For this trend to change, and for confidence to return, investors have to believe that It was the fragility in equity markets in part caused by Enter the Dragon Access to easy credit was at the heart of the country’s rapid recovery over the past year, which had seen its economy grow by more than 10 per cent in the final quarter of 2009. However, one Standard Chartered analyst, commenting in The Financial Times, argues that the move by China’s central bank was ‘technical liquidity management, not monetary tightening’ and was aimed at controlling asset bubbles forming and controlling the boom so we don’t have to experience the bust in the second half of the year. The announcement impacted mining stocks on Friday as the thought of a stalling Chinese economy hit commodity prices, with oil |
falling 3 per cent to $73 a barrel, and copper and gold also losing ground. Barclays Bonus Banking bonuses were front-page news once again as John Varley and Bob Diamond, Barclay’s two most senior executives, announced that they will forgo cash bonuses for 2009 as the bank looks to fend off public backlash over multibillion-pound payouts to its staff. This move also seems to be a reaction to the message from central government to show ‘restraint’ over the level of bonuses paid. The Financial Times reported that the bank, which will be the first of the Dividend Pressure In The Financial Times Money it was reported that investors lost £1.29bn-worth of dividends last year as Some interesting statistics were unearthed in the article, which stated that in total 202 Tracking Hathaway Warren Buffett’s Berkshire Hathaway completed its listing on the S&P 500 on Friday after the markets closed for trading. Mr Buffett has run the conglomerate for 45 years and the $176bn firm owns businesses ranging from chocolate makers to banks, and has recently completed the acquisition of railway operator, Burlington Northern Santa Fe. As The Saturday Telegraph pointed out, the listing will result in millions of Americans now owning a piece of the firm through consumer backed investment funds that track the index. It is estimated that these index funds have had to buy 150-175m ‘B’ shares worth between $11.3bn to $13.2bn in order to ensure the correct weighting to accurately track the index. The article went on to say that, ironically, the American public’s increased exposure to Berkshire follows the conglomerates recent loss of its triple-A credit rating amid concerns over its debt position. Yet long-term, few would bet against the ‘Sage of Omaha’ delivering excellent returns for shareholders. BEGS the Question The Saturday Telegraph reported on the widely awaiting Barclay’s Capital Equity Gilt Study (BEGS) being released. The study, which compares the fortunes of shares, gilts, corporate bonds, deposit and inflation, uses data from as far back as 1899 to spot trends and fashions of these mainstream investment instruments. Despite 2009 recording the best equity market returns for more than 20 years, it doesn’t take a study of this nature to tell us that it has been a dismal decade for shares. However, the study does provide some measure of reassurance over the long held theory that holding shares over the longer term can produce better investment results versus cash and fixed interest (bonds). Contained in a table showing the probability of shares beating bonds or deposits over varying holding periods, the Study shows that there is 75 per cent probability that shares will beat cash and bonds if held for five years. This percentage increased to 89 per cent for bonds and 99 per cent for cash over a holding period of 18 years.
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