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Buffett declares bonds are “terrible investments”; “people could lose a lot of money if they’re in long-term bonds”

May 10, 2013 5:56 pm

Alternatives to Buffett’s ‘terrible’ bonds

By Elaine Moore

Warren Buffett, America’s best-known investor and the world’s fourth-richest person, has made his feelings about bonds clear, declaring them “terrible investments”.

Speaking on US television this week, the chief executive of Berkshire Hathaway said that many investors had been drawn to bonds because their prices tend to rise as interest rates fall. But, he warned, when the situation changes “people could lose a lot of money if they’re in long-term bonds”.

Talk of a “bond bubble” and a “great rotation” away from bonds and towards equities is not new. But bonds are still popular. The best selling sector for Individual Savings Accounts (Isa) money in the most recent tax year was the Sterling Strategic Bonds, according to the Investment Management Association. But in recent months investors have started to put more money in equities than bonds. Read more of this post

Mattel Continuously Innovates to Keep Barbie Alive in a Tech World

Mattel Continuously Innovates to Keep Barbie Alive in a Tech World

by Abram Brown | May 11, 2013

In an era when iPad apps and videogames practically demand children’s attention, Mattel continues to lead by innovating with its old-school plastic playthings

Head 10 minutes south of Los Angeles international airport on the 405, exit at El Segundo and you’ll blunder upon a 200,000-square-foot concrete bunker lurking among the strip malls in this seedy bit of Los Angeles County. The low-slung structure, surrounded by a black iron fence, was once an aircraft parts factory. It now houses the design laboratories of Mattel, Inc, the world’s largest toymaker, and deep inside the high-security facility, a crack 12-person team of screenwriters, computer animators, comic book artists and industrial designers are busy engineering the next great American toy: Max Steel.  In physical form, Steel will be a 6-inch plastic superhero action figure, with a well-developed  backstory: His mission is to harness the turbo energy he possesses to morph into different cyborg forms and save the world from monsters bearing names like Elementor and Dredd. And, just like Superman, he has a mild-mannered alter ego: Maxwell McGrath, a 16-year-old high school kid with brown hair and a square jaw. The Max Steel doll won’t be appearing on US retail shelves until August, but his launch is already well under way. Pull up maxsteel.com and you can play the Max Steel: Hero’s Journey videogame, watch videos introducing him or download a Max Steel mask. In March, a Max Steel cartoon premiered on Disney’s XD digital cable and satellite channel and will soon be available in more than 100 different markets worldwide. Toys used to spring from entertainment. Now entertainment supports the toys. “Having an action hero that’s on for a steady basis—on television, on webisodes, on digital—is going to create a more consistent demand for that product,” says Mattel’s chairman and chief executive, Bryan Stockton. Read more of this post

Man vs. Machine: The Great Stock Showdown

Updated May 10, 2013, 8:25 p.m. ET

Man vs. Machine: The Great Stock Showdown

By MARK HULBERT

It has always been difficult for investors to consistently beat index funds. It has been nearly impossible lately. And there’s a double whammy: The small number of advisers who outperform the market rarely can keep doing so. One big culprit, experts say: the rise of sophisticated computer-trading programs. Consider the 51 advisers out of more than 200 on the Hulbert Financial Digest’s list who beat the market in the decade-long period that ended April 30, 2012, as measured by the Wilshire 5000 Total Market index, including reinvested dividends. Of that group, just 11—or 22%—have outperformed the overall market since then. That’s no better than the percentage that applies to all advisers, regardless of past performance. Over the past year, on average, the group has lagged the Wilshire index by 6.2 percentage points. In other words, going with a recent market beater doesn’t increase your odds of future success. Read more of this post

Mediocre results have raised questions about the very basis of the hedge fund industry

May 10, 2013 7:05 pm

Finance: In search of the big idea

By Dan McCrum and Sam Jones

Mediocre results have raised questions about the very basis of the hedge fund industry

Lincoln Center, home of the Metropolitan Opera and the New York Philharmonic, exchanged art for avarice this week. Taking the stage of Avery Fisher Hall, where Leonard Bernstein used to conduct, was a very select group of performers: the billionaire virtuosos of the hedge fund world. Gathered there were investors who had made big money by making bold calls. Some had made money by taking on governments: Stanley Druckenmiller made a fortune helping George Soros drive sterling out of the European exchange rate mechanism, while Paul Singer, founder of Elliott Management, last year attempted to repossess an Argentine naval vessel to settle a debt. There were also corporate agitators with ambitious ideas. David Einhorn of Greenlight Capital has spent this year fighting Apple over its cash pile. Bill Ackman of Pershing Square wants to shake up Procter & Gamble, the US consumer goods group. The investors were there to promote their latest big ideas and perhaps move markets in their favour, to gain some good publicity and to benefit a good cause. Each man – there were no women – pitched an investment idea from their portfolio to a sold-out crowd of investors, all for a charity set up to honour the late Ira Sohn, a financial analyst who died of cancer at 29. But they also came to get the next big idea, that elusive concept that will generate “alpha” – the hedge fund term for beating markets. Read more of this post

Currency Funds Falter as Policies Shift; “All the old models that said currencies should do X if Y happens are not working.”

Updated May 10, 2013, 9:40 p.m. ET

Currency Funds Falter as Policies Shift

By MATTHEW WALTER

Foreign-exchange funds suffered their worst performance in 10 months in April, as currency managers struggled with a market frequently swayed by central-bank policies. The Parker Global Currency Managers index, which tracks the performance of funds in which the firm invests, fell 1.14% last month. The decline left the index up just 0.57% in the first four months of the year. Even as the easy monetary policies at major central banks have fueled a bumper year for investors in a broad range of assets, from Japanese stocks to European bonds, funds that mainly invest in currencies have underperformed, and there are signs that their clients are losing patience. Investors pulled $1.5 billion from currency funds in the first three months of 2013, even as they piled into hedge funds as a whole at their fastest clip in almost three years, according to Hedge Fund Research Inc. Foreign-exchange funds had $14.4 billion under management in March, down 58% from their peak in 2007. Investors and analysts say the outflows from currency funds are a sign that large asset managers are skeptical that financial markets have truly found their footing. Currency funds proved especially vulnerable when central banks stepped into the market to stimulate growth and calm panics, often with measures that involved printing money or deliberately weakening exchange rates. Investors say they see no sign that central banks are relaxing in their new role policing markets. Read more of this post

China’s Import Data Doubted by Nomura as Tariff Revenue Slumps

China’s Import Data Doubted by Nomura as Tariff Revenue Slumps

China’s “surprisingly strong” import growth in the first four months may have been inflated by fake invoices as companies circumvented capital controls to move funds into China, according to Nomura Holdings Inc.

A 28 percent slump in the value of import tariffs in the first quarter compared with a year earlier casts doubt over the credibility of official data that show imports (CNFRIMPY) rose 8 percent in the period, economists Zhang Zhiwei in Hong Kong and Wendy Chen in Shanghai wrote in a research note today. The two indicators have generally moved in tandem in the past, they said.

Skepticism over import figures in the world’s second-biggest economy adds to concerns that the nation’s trade data are inaccurate after analysts at Bank of America Corp. and Royal Bank of Scotland Group Plc said export figures this year were inflated by fabricated reports. Hot money flooding into China helped push the yuan to a 19-year high yesterday and regulators this week announced a crackdown on companies using trade reports to disguise speculative inflows.

“Some companies may have moved products between Hong Kong and China’s special trade zones to circumvent capital controls and move funds into China,” the Nomura economists wrote. “Such trade is free of import tariffs, so it pushes up imports and exports but not import duties.” Read more of this post

Berkshire CEOs Spend Quietly, Match Buffett on Heinz Deal; “Warren’s not a manager,” Iscar’s Wertheimer said. “He’s a teacher for all of us.”

Berkshire CEOs Spend Quietly, Match Buffett on Heinz Deal

Warren Buffett stole headlines when he committed $12.1 billion in a deal to take ketchup maker HJ Heinz Co. (HNZ) private this year. Managers at his Berkshire Hathaway Inc. (BRK/A) spent as much in 2012 while attracting less attention.

Executives who gathered last week for Berkshire’s annual meeting in Omaha, Nebraska, said in interviews that they plan to spend even more this year as they upgrade a rail network and energy utilities, expand manufacturing capacity and hunt for additional acquisitions.

Buffett, 82, relies on chief executive officers of the operating units to make deals and invest in plant and equipment to build the businesses and widen their competitive advantage. That helps slow the accumulation of cash and reduces the need for Buffett, Berkshire’s chairman and CEO, to find other uses for the money.

“If I don’t take my own cash flow and reinvest, all I do is add to his problems,” said James Hambrick, CEO of chemical maker Lubrizol, which Berkshire bought in 2011.

Hambrick’s unit plans to spend about $1.4 billion over the next three years as it replaces equipment and adds capacity to manufacture products like chlorinated polyvinyl chloride, a plastic that’s used for pipes in buildings. Even after similar spending and acquisitions in recent years, Lubrizol has still sent money to Omaha for Buffett to allocate, Hambrick said. Read more of this post

Bernanke Warns of ‘Important Risks’ in Wholesale Funding Markets

Bernanke Warns of ‘Important Risks’ in Wholesale Funding Markets

Federal Reserve Chairman Ben S. Bernanke said risks persist in wholesale funding markets used frequently by Wall Street brokers to finance securities trading.

“Important risks remain in the short-term wholesale funding markets,” Bernanke said today in the text of a speech at a Chicago Fed banking conference. “One of the key risks is how the system would respond to the failure of a broker-dealer or other major borrower.”

Bernanke outlined how the Fed has overhauled risk monitoring since a collapse in mortgage finance triggered a crisis in 2008 that led to the worst recession since the Great Depression.

“More work is needed to better prepare investors and other market participants to deal with the potential consequences of a default by a large participant in the repo market,” Bernanke said. He said that the “possibility of a run” on money-market funds remains. Read more of this post

Correlation between S&P 500 and Initial Jobless Claims

The Most Beautiful Correlation In The Market Continues To Work Perfectly

Joe Weisenthal | May 10, 2013, 4:52 AM | 6,664 | 18

We’ve been posting this chart for ages, and been marveling forever at how beautiful it is, and it just never ceases to amaze us. The relationship between initial jobless claims (red line) and the S&P 500 (blue line) has held remarkably strong for years now. Initial jobless claims hit a brand new post-crisis low yesterday, and of course, the S&P 500 is making brand new highs. Showing this chart is the perfect counterpoint to anyone saying that this is all a “Fed-driven” market and that there’s no real-economy improvement to back it up.

Swiss Watches Unworn as China Tackles Graft: Chart of the Day

Swiss Watches Unworn as China Tackles Graft: Chart of the Day

China’s love affair with glitzy Swiss timepieces is ending, as President Xi Jinping’s campaign against corruption makes targets of wearers.

The CHART OF THE DAY shows Chinese imports of Swiss-made watches tumbled 24 percent in the first quarter from a year earlier for a third straight decline, while shipments to Hong Kong sank 9.3 percent, according to trade data from Switzerland. The lower panel compares shares of Hengdeli Holdings Ltd. (3389) and Emperor Watch & Jewellery Ltd. (887), the biggest watch retailers traded in Hong Kong, versus the Hang Seng Index, Swatch Group AG and Cie. Financiere Richemont SA, the owner of the Cartier brand. Read more of this post

Vietnam’s Star Is Dimming; the strategy that got Vietnam this far — a China-like heavy reliance on state-owned enterprises and top-down planning — is now holding the nation back

Vietnam’s Star Is Dimming

Like other would-be tiger economies, Vietnam faces a trifecta of new threats: a crisis-paralyzed Europe, a faltering America, and a newly spendthrift Japan. Yet the biggest risk to the nation’s future may be old-fashioned nostalgia.

It has been 27 years since Hanoi launched the “Doi Moi” reforms that allowed privately owned companies to participate in the economy and opened key sectors, such as agriculture. The rapid growth that followed propelled Vietnam toward the realm of middle-income nations, transforming the onetime war zone into a case study for development and poverty reduction. Now, though, Vietnam’s 1986 blueprint for a “socialist-oriented market economy” is looking dated.

Recent data show the strategy that got Vietnam this far — a China-like heavy reliance on state-owned enterprises and top-down planning — is now holding the nation back. Vietnam is losing ground on global competitiveness league tables while growth has slowed to about 5 percent, the lowest rate since 1999. To recover, the country needs to do precisely what it has avoided doing thus far: build a truly vibrant and innovative private sector that can diversify growth and create prosperity. Read more of this post