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Warren Buffett laments that Europe has no Bernanke or Paulson

 

 

Billionaire investor Warren Buffett said Europe lacks the type of strong government financial officials with broad powers who helped stabilize the U.S. economy in the fall of 2008, a deficiency that is prolonging the debt crisis caused by Greece and Italy.

Speaking on CNBC on Monday morning, Buffett said it's not clear who in Europe could play the role that Federal Reserve Chairman Ben S. Bernanke, former Treasury Secretary Henry M. Paulson and former President George W. Bush did in 2008 in assuring markets they would do whatever it took to stem that financial crisis.

The void has led to a run on European debt and investments, Buffett said.

"It’s very very tough to stop a run," said Buffett, whose Berkshire Hathaway Inc. sold all of its European sovereign debt more than a year ago and is not ready to jump back in. "It takes a … widespread belief that the people in authority will do whatever it takes to stop it and they have the ability to do whatever it takes."

"We believed Bernanke and Paulson and the president of the United States when they said that in September of 2008," Buffett said. "There's no one in comparable authority in Europe."

While he's encouraged by the new political leadership in Greece and Italy, Buffett said he's still concerned about the Eurozone's financial situation. Berkshire Hathaway owns no stock in any bank within the zone, he said.

But Buffett appeared confident that Europe eventually would overcome the crisis.

"Europe has all kinds of strengths. Europe is not going to go away," Buffett said. "Ten years from now, we will be selling more goods to Europe and buying more goods from Europe and they will have more GDP per capita. But getting from here to there may be a problem."

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-- Jim Puzzanghera in Washington

 

Good news in Europe drives stocks higher

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The stock market ping-pong ball bounced up as investors cheered new moves by debt-hobbled European nations to tackle their fiscal woes.

The passage of an austerity budget in Italy and further steps toward a unity government in Greece comforted investors who earlier in the week had feared the potential collapse of the continent’s currency union.

Better-than-expected U.S. consumer confidence numbers also stirred optimism that the domestic economy is faring reasonably well in the face of Europe’s troubles.

The Dow Jones industrial average jumped 259.89 points, or 2.2%, to 12,153.68, its fourth gain in the last five days. The rally pushed the Dow to a modest 1.4% advance for the week.

But the sole down day was a big one -– the Dow tumbled nearly 400 points Wednesday on concern that Europe’s debt crisis would consume Italy -– and the market overall continued the volatile up-and-down trading pattern that has gripped it the last three months.

Each sign of progress in Europe sparks powerful rallies in the market, but bad news stirs equally abrupt sell-offs.

“I’ve never seen the markets in such a state, where they are so one-sided and flip-flop from day to day,” said A.C. Moore, chief investment strategist for Dunvegan Associates Inc. in Santa Barbara. “It’s really quite a phenomenon.”

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-- Walter Hamilton

Photo credit: Reuters

Raj Rajaratnam to pay record $93 million in insider-trading case

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After receiving an 11-year prison sentence, Raj Rajaratnam is now getting the bill for his insider-trading misdeeds.

A judge today ordered the once-celebrated Wall Street financier, who was convicted in May of spearheading a massive insider-trading scheme, to pay a civil penalty of nearly $93 million. That comes on top of an earlier $10-million criminal fine and forfeiture of $53.8 million in ill-gotten gains.

Rajaratnam's total tab: $156.6 million.

Both the prison sentence and the $92,805,705 civil penalty are the largest ever in an insider-trading case.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” Robert Khuzami, enforcement chief at the Securities and Exchange Commission, said in a statement.

The SEC alleged that Rajaratnam and more than two dozen others who have been caught up in a massive illicit-trading dragnet garnered illicit profits (or avoided losses) of more than $90 million through improper trading in at least 15 publicly traded companies.

The one-time hedge-fund kingpin was found guilty May 11 of 14 counts, including nine for securities fraud and five for conspiracy to commit securities fraud.

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-- Walter Hamilton

Photo: Raj Rajaratnam leaving federal court after his sentencing last month. Credit: Peter Foley/Bloomberg

Dick Bove is sick of all the bad news

Richard X. Bove is sick of all the bad news.

The widely quoted Rochdale Securities analyst –- who makes frequent appearances on cable news shows -- is now taking aim at what he views as the media's doomsday-like interpretation of financial events.

Dick_bove072In an analyst's research note (a medium best-known for its staid commentary on specific companies or economic events) Bove on Tuesday delivered a sarcastic missive titled "Is It Possible That the World Is Not Ending?"

"Like most people every morning I wake up, look at the news on TV and scan three newspapers," he wrote. "The message is always the same. It is time to slit my throat and leave this morass of misery."

From the European debt crisis to the U.S. housing market, Bove laments, the focus is overwhelmingly negative.

Bove is known for being unusually frank in his commentary.

His point is that perhaps things are not as bad as “the media” would make them seem.

"The GDP figures for the third quarter were up by 2.5%. Just about every banking company that reported earnings beat their estimates and some had record revenues. Approximately 73% of the S&P companies reporting beat earnings estimates at last count,” he continued. “In October, the S&P 500 rose 10.8%; bank stocks were up by 13.4%."

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-- Alejandro Lazo

Photo: Richard X. Bove

 

Use of 'target-date' funds grows in 401(k) plans

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There is a bit of good news in the world of retirement investing.

According to a new study, Americans are increasing their use of so-called target-date mutual funds in 401(k) plans, and most people report being satisfied with them.

Among active and knowledgeable investors, use of target funds has nearly doubled to 41% today from 22% in 2005, according to the survey of more than 1,000 people by investment firm AllianceBernstein.

Among neophytes -- what the firm terms "accidental" investors, who handle their own 401(k) investing only because they must -- 1 in 4 people use target funds, up from 16%.

Target funds typically buy a variety of underlying mutual funds to create a diversified portfolio based primarily on a person's age and expected retirement date. Though target funds have shortcomings and risks, they're generally considered to be a wise choice for unsophisticated 401(k) investors because they handle much of the decision-making, such as which individual funds to buy and how much.

Employees seem to be happy with target funds: 81% of those surveyed said they're as satisfied or more so with them as with the other funds in their plans. Most people understood that the funds are designed to become more conservative as participants near retirement age, according to AllianceBernstein.

Still, Americans feel disillusioned overall about their retirement prospects.

The percentage of people who feel confident in their ability to achieve a comfortable retirement has risen to 26% from 18% in 2009, according to the survey. but that's down from 41% in 2007, prior to the global financial crisis. And even then, only 2 in 5 people feeling upbeat about their retirement prospects was nothing to crow about.

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-- Walter Hamilton

Photo credit: Mark Boster/Los Angeles Times

Groupon shares rise 31% in first day of trading

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The initial public offering of daily-deals site Groupon Inc. was a good deal for some of its investors.

Groupon shares jumped in their eagerly awaited stock-market debut Friday, rising almost 31% from their IPO price. But the stock closed below the $28 level at which trading opened and the $31.14 high of the day.

That meant big profits for professional investors who were lucky enough to get in early, but immediate losses of as much as 16% for many smaller investors who bought in during much of the day.

“It’s successful for the insiders, including the investment bankers, the company and the flippers” who sold at a quick profit, said Francis Gaskins of IPOdesktop.com in Marina del Rey. “The outsiders will probably get burned.”

Nevertheless, Groupon’s offering is likely to be viewed as success overall, thus setting the stage for a host of other offerings in coming months, including those expected from social-media behemoths Zynga Inc. and Facebook Inc.

“It’s really an astonishing first-day opening considering all the criticism it’s endured over the past couple of months,” said Lee Simmons, an IPO researcher at Dun & Bradstreet. “This signals that there’s really pent-up demand for these types of stocks.”

The stock, which was priced Thursday night at $20, closed at $26.11. Groupon raised $700 million in the offering, which valued the company at $12.7 billion. The stock trades on the Nasdaq Stock Market under the ticker symbol “GRPN.”

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-- Walter Hamilton

Photo: The entrance to Groupon's headquarters in Chicago. Credit: Tim Boyle/Bloomberg

More green goes to green projects

Venture capitalists are pouring money into clean technology even as investors scale back funding in many other areas.

Firms in the green sector raised almost $1.2 billion in the third quarter – up 73% from $684 million collected in the same period last year, according to a report released Wednesday by Ernst & Young.
The number of deals in the quarter grew to 76 from 56, according to the report, based on data from Dow Jones VentureSource.

“Confidence in cleantech investing continues despite the challenging investment market,” said Jay Spencer, a director at Ernst & Young.

It was the first time the sector had an increase in funding since the third quarter of 2008.
California pulled in an overwhelming majority of the deals and dollars.

The state lead the pack with 32 deals -- second was Massachusetts with nine. And California’s clean-tech companies received more than half of all the money raised, collecting $583 million in the quarter, up 74% from the same period last year.

Most of that money is going to Northern California, but Southern California is home to some new projects, said Mark Sogomian, a partner at Ernst & Young. He pointed, in particular, to the launch of the clean-tech business incubator in Los Angeles last month.

“It’s really setting the groundwork for early stage companies to grow and thrive here in Los Angeles,” Sogomian said, “and hopefully garner venture capital investment down the road.”

-- Angel Jennings

Auto sales: General Motors stalls in an otherwise strong October

Chev

October was one of the auto industry's best sales months in years.

General Motors Co. said its U.S sales rose only a modest 2%, to 186.895 vehicles, compared with October of 2010.

But Chrysler Group said its sales rose 27% to 114,512 vehicles, its best October since 2007.

“In what is turning out to be a strong new vehicle sales industry we continued to outperform” the industry, said Reid Bigland, the automaker's sales chief.

He said consumers were behind Chrysler's big gain. The automaker's retail sales -- after subtracting out the vehicles that go to rental car companies, governments and commercial users -- rose 40% over the same month a year earlier.

And other automakers were expected to do well. 

Volkswagen said its sales rose 40% to 28,028 vehicles, its best October since 2001. The results did not include the company's Audi brand.

“As the all-new Passat and Beetle start to enter the marketplace, demand for Volkswagen vehicles has already exceeded last year’s annual volume in the first 10 months of the year, “ said Jonathan Browning, chief executive of Volkswagen Group of America,

By the time all the carmakers report, auto information company Edmunds.com estimates an annual sales pace of 13.4 million. Other estimates come in lower but almost all are above the 13-million mark.

“The relatively strong selling rate seen again in October suggests that the fourth quarter may close stronger than previously expected,” said Jeff Schuster, an analyst at J.D. Power and Associates. “Recent bright spots in the economy may also help calm nerves and support stable vehicle sales, but risks remain and consumer confidence is still low, tempering the outlook for 2012.”

There is some division in the industry as to whether the stronger sales rate in October was an indicator of stronger economy -- ot withstanding recent negative consumer confidence measures -- or a byproduct of lost sales earlier this year resulting from an inventory shortage caused by the Japanese earthquake. 

Shoppers may have delayed purchases until brands such as Toyota and Honda had a better supply of vehicles to choose from.

The Japanese automakers have been building back their inventories in recent weeks. But now flooding in Thailand threatens their recovers. Honda plans to cut North American production back by at least 50% in early November because it can't get certain electronics parts out of Thailand. Toyota said it is limiting overtime and also ratcheting back some production.

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-- Jerry Hirsch

Twitter.com/LATimesJerry

Photo: Sales associate Chuck Monsour, left, shows Rita Hovermale a Chevy Malibu at the Bobby Murray Chevrolet dealership in Raleigh, N.C. Credit: Bloomberg

S&P 500 is at break-even for 2011. Invitation to sell?

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Psychologically, many people find it difficult to sell a losing investment. The common refrain is, “I’ll wait to sell until it gets back to even.”

For major U.S. stock market indexes, that back-to-even moment is right about now, at least measuring year-to-date returns.

The Standard & Poor’s 500 index was down just 0.4% year-to-date through Monday (and up 1.3% if you count dividends earned), after losing 2.5% on the final trading day of October.

Even with Monday’s drop, the market rebounded enough last month to recoup most of the losses suffered during the gut-wrenching volatility of July through September.

At its lowest closing level this year of 1,099 on Oct. 3, the S&P was off 12.6% from the end of 2010. Also at that point it was down 19.4% from its multiyear high reached in late April.

After October’s rally, the S&P has trimmed the decline from its April high to 8.1% -- just a garden-variety market “correction.” (Of course, the S&P still is a long way from its all-time high reached in October 2007. It would have to rise 25% from here to recoup that loss.)

The Dow Jones industrial average has fared better this year: It was up 3.3% year-to-date through Monday, and down 6.7% from its April peak.

Smaller stocks are deeper in the red year to date, but much less so than a month ago. The Russell 2,000 small-stock index was down 5.4% from year-end on Monday. It had been down 22.2% as of Oct. 3.

The Russell index also has climbed out of bear-market territory, measuring from its April high. The index is off 14.4% since then. It was down as much as 29.6% as of Oct. 3. The threshold for a bear market is considered a decline of 20% or more from the recent high.

Though the temptation to bail may be strong for many weary investors, the market is entering what has historically been its most bullish season: On average since 1950, November and December have constituted the best two-month period of the year for the S&P 500, according to the Stock Trader's Almanac.

But then, if historical trends were foolproof predictors investing would be a very easy game.

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Chart: Standard & Poor's 500 index over the last year. Credit: Bloomberg News

 

Scam Watch: Acne treatment, StubHub email, real estate loans

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Acne-fighting app -- There are smartphone applications for just about anything -- programming your television’s DVR, researching cocktail recipes or finding a Yelp-approved Thai restaurant within a mile. But one company went too far by claiming its app could clear up acne, the Federal Trade Commission said. The FTC obtained a court order prohibiting AcneApp and AcnePwner from making acne-treatment claims. The mobile applications were sold on Apple’s iTunes store and the Android marketplace and claimed to treat acne with colored lights emitted from smartphones. The app sold for $1.99 on iTunes and 99 cents on the Android marketplace, the FTC said. Nearly 15,000 people paid for the app. Three people who marketed the apps settle a lawsuit with FTC by agreeing to no longer market the products.

StubHub email -- Email inboxes are filled with danger. Click on a link in an email and you could add malicious software to your computer. People down on their luck may find bogus emails announcing they've won foreign lotteries -- all they have to do is pay the taxes upfront. And now there’s this one: emails that appear to come from StubHub ticket marketplace, but actually are attempts to steal your credit card information. People who get the emails are asked to sign in to their StubHub accounts; anyone who does so gives away their user name and passwords, enabling third parties to begin making fraudulent charges to the credit cards, the Better Business Bureau said in a recent bulletin. Anyone who believes that they fell victim to this scam should immediately change their StubHub passwords, alert credit reporting agencies and contact StubHub at safety@stubhub.com.

Real estate loans -- A West Covina woman has been sentenced to nine years in federal prison for running a fraudulent investment scheme that took in about $6.9 million from more than 150 victims. In addition to the prison term, Guadalupe Valencia was ordered to repay $5.2 million to victims. Valencia had pleaded guilty in December to mail fraud, wire fraud and tax fraud. Prosecutors said Valencia ran her scheme out of the Downey offices of Real Estate & Loan Consultants and R.E. Equity Group Inc.  from 2001 to 2009. She told investors that she would use their money to make real estate loans and loans to small businesses. But instead of making the investments, she used the money to make payments to early investors, prosecutors said.

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-- Stuart Pfeifer

Photo: Prototype of an Android phone. Credit: David Paul Morris / Bloomberg

Among investors, short-term pessimism, long-term optimism

Wealthy Californians are more worried about economic issues close to home than they are about the national economic situation, according to a new survey of California investors.

The top two economic concerns for the investors polled were California's state deficit and the state's high unemployment rate, ahead of concerns about the national debt and worries about market volatility.

The survey, conducted by UBS Wealth Management in early October and released today, found that most investors see California's situation as being worse than that of the rest of the nation. But though a majority of those polled are pessimistic about the short-term situation, a majority are optimistic about the long-term situation, as is true among investors nationwide.

In both California and the nation, short-term pessimism has skyrocketed since earlier this year -- with the percentage of very pessimistic investors going from 28% in the spring to 63% now.

To get the economy running, a large majority of California investors want to see the tax code reformed -- but a smaller majority is also in favor of ending tax cuts on the rich and introducing a tax on millionaires like that proposed recently by Warren Buffett.

The poll found predictable differences between investors in Southern California and Northern California. While more in the South see immigration as being a threat to the economy, more in the North are interested in raising taxes.

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-- Nathaniel Popper

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