Comment, analysis and other offerings from Tuesday’s FT,
Short View: Risk of “Armageddon scenario” fallen significantly?
John Authers asks is it safe to go back in the water? The easing of tension in the money markets in the week since world governments made their most drastic efforts to deal with the credit crisis is now palpable. Credit default swaps suggest the risk of a default but a series of big banks – the true “Armagedon scenario” – has fallen significantly. But there are many caveats. Continuing extreme volatility in equities shows persistent fears of another accident, most likely from a hedge fund rather than a bank he says.
Editorial Comment: The bull of Omaha
Everyone knows that when the shoeshine boy offers you investment advice, it is time to sell. So what should you do when the Sage of Omaha does the same thing? Warren Buffett announced last week that he was buying US stocks on his personal account. “Be fearful when others are greedy, and be greedy when others are fearful,” he advised, not for the first time. But is he right? Long-run price/earnings data show two things: that US stocks seem cheap by historical standards, and that there is scope for them to get much cheaper.
Editorial Comment: Those BBC ‘leaks’
The last thing we need in a crisis caused in no small part by the opacity of modern financial alchemy is to keep railing against the bearers of bad tidings. Short sellers and fair value accounting have already been shot, if not mortally wounded, as messengers. Now, the railers appear to have another victim in their sights: step forward Robert Peston, business editor of the BBC.
Insight: Emerging economies have not lost their appeal
Mark Mobius, chairman of Templeton Asset Management, suggests emerging markets offer a number of important reasons why investors should adopt a positive view for the long-term. While global growth has slowed, emerging markets are still expected to grow at a much faster rate than developed markets. Predicted growth for emerging markets is an average of 5 per cent in 2009, compared with 1 per cent expected in developed markets. Of course that is not to say that a prolonged slowdown in the US economy will not affect emerging markets, but the impact will be much less than would have been the case 10 years ago.
Maverecon Blog: The US tax payer is indeed getting a lousy deal for his $125 bn capital injection
Willem Buiter says leading healthcare economist Uwe Reinhardt is absolutely correct. The US tax payer is getting a terrible return on the $125bn worth of capital that was injected on his behalf by US Treasury Secretary Paulson into the nine largest US banks. This is surprising to me, because the complete or partial nationalisations of a number of US financial behemoths earlier in the year represented rather better value for money for the tax payer. In the case of the Fortunate Nine, the injection of capital is through (non-voting) preference shares yielding a ridiculously low interest rate (5 per cent as opposed to the 10 per cent obtained by Warren Buffett for his capital injectcion into Goldman Sachs). Without voting shares, the government has no voice in the running of these banks. It also has no seats on their boards.
European Economic Weather Forecast
The latest European economic ‘weather map’ shows how the forecast for the continent’s economies has changed.
Government interventions Map
Governments across the world have stepped up their interventions to stem the worst financial crisis in decades. They are taking a variety of measures including interest rate cuts, capital injections, and lending guarantees to restore liquidity, revive the ailing banking system and rebuild investors’ confidence. This graphic examines the content and the scale of government interventions.
The Fund must be a global asset manager
The chaotic, costly and ineffective international response to the current financial disorder has prompted French president Nicolas Sarkozy, British prime minister Gordon Brown and German president Horst Köhler, a former head of the International Monetary Fund, to call for a new Bretton Woods conference to design a new global financial system. The core IMF function should be multilateral surveillance write
Michael Bordo, professor of economics at Rutgers University and Harold James a professor of history and international affairs at Princeton University and Marie Curie Professor at the European University Institute.
Turner’s ‘heavier touch’ is playing to the gallery
Ian Morley, chairman of Corazon Capital, warns of a Shakespearean tragedy for the FSA. New chairman Adair Turner is trumpeting that the era of “light touch” regulation is over. While this sounds great, it is too simplistic Morley says. The government and the tabloid press are happy to blame the FSA as it gives them a convenient target. The FSA is happy to accept blame, even if misplaced, if this results in it getting greater powers of oversight. Will this repositioning work? Probably not.
Lex on the crunch that stole Christmas
If investors are to be believed, Santa’s sack will be light this year. Share prices of Mattel and Hasbro, the two big US toymakers, have fallen by a third since August. Third-quarter numbers released on Monday from both manufacturers prompted downgrades to earnings expectations in spite of solid sets of topline growth. Has Christmas been cancelled?