Anthony Bolton : Why Now's The Time To Buy!

Legendary investor, Anthony Bolton reckons that it's time to buy! Why now's the time to buy

• After all, Mr Bolton is one of the most successful investors alive today.
  
  He managed the £2.4bn Fidelity Special Situations fund for 28 years, during which time an investment of £1,000 would have grown to £147,000.
  
  With characteristic modesty, he admitted over lunch this week that he was "a bit early" in turning bearish. When he warned in November, 2006, that the bull market was long in the tooth and share prices seemed unsustainable, the FTSE 100 traded at around 6,000. It went on to top 6,600 before beginning the long decline to where we are today.
  
  More importantly, for an army of investors who follow the "British Buffett", Mr Bolton added that he has been buying shares for the first time in two years because some valuations are the cheapest he has seen in a lifetime.
  
  Speaking at his offices in the shadow of St Paul's Cathedral – where, incidentally, this multi-faceted man has had his choral compositions performed – he said: "Investors who sell now are making the great mistake of being shaken out when markets are low.
  
  "They are probably the same people who bought when markets were high. If you are panicky by nature, you should not have invested in shares in the first place.
  
  "An important part of what responsible fund managers and financial advisers should be doing is hand-holding when the environment looks as uncertain as it does now."
  
  For those who decide that stock markets are just too shocking for them and are determined to switch into cash, Mr Bolton believes the Government should be bolder in its bid to restore confidence in banks.
  
  He said: "In the global economy, you cannot really have regulators in different regions doing different things.
  
  "If the Irish guarantee deposits without limit and Britain does not do so, then the authorities will eventually look back and see that the money has gone elsewhere.
  
  "I think Britain may be forced to follow the Irish. There is an obvious risk there in terms of the cost to the Exchequer but we may have to do that."
  
  But this long-term devotee of the cult of the equity continues to assert that the greatest gains will go to those who seize the opportunity to buy share-based funds today. He said: "For the first time in a couple of years, I have started to feel more optimistic and there have been signs of a market low.
  
  "There has been evidence of final capitulation, with people talking about looking into the abyss and how the whole system could collapse. I have applied the same analysis for 30 years to identify periods of excessive optimism or excessive pessimism and – whether it was 9/11 or when Kuwait got invaded – invested by betting against them. I had not invested in the market for years but I put some money in two weeks ago and put some more in on Tuesday."
  
  He is not a share tipster and would say no more than that he favoured "Fidelity's global funds" on the basis that "sterling is unlikely to be one of the stronger currencies in the next few years".
  
  However, he dismisses the idea that emerging markets can decouple from the woes of developed economies – predicting more trouble in Russia, in particular – and adds that the downward correction of the commodities bubble has much further to go: "After what went before, falling for a few months is not enough."
  
  He is also sceptical about some of the apparently mouth-watering dividend yield forecasts being bandied about: "Something that has not been adjusted enough are earnings estimates.
  
  "I think some are far too high because analysts are often slow to downgrade."
  
  Of course, Mr Bolton is not infallible - for example, he suffered something of a sticky patch in the three years to 1991 when costly mistakes included Polly Peck, a 1980s go-go stock which eventually went bust.
  
  Today, he remains cautious about the timing and shape of the recovery ahead.
  
  He said: "Because of the credit overhang, it will be a protracted and slow upturn; I am not looking for a fast recovery. The current bear market started 15 months ago – which is longer than most bear markets have lasted – and the first sectors to suffer were financials and consumer cyclicals – such as retail and media stocks – and I expect these sectors to lead the upturn.
  
  "The Lloyds TSB takeover of HBOS should go through and will go through. Their share prices today will be seen as anomalies with the benefit of hindsight.
  
  "But I expect lots more regulation of the financial system, banks in particular, and taxes will have to go up to pay for their rescue."
  
  He is scathing about some directors' failure to accept responsibility for destroying household name institutions: "Where they have lost a huge amount of value for shareholders, there has got to be a question about whether the management should remain. When the rewards are there for shareholders, we expect directors to be paid well – but when they are not there, we don't expect them to continue to be remunerated in that way."
  
  Pressed on the specific example of Sir Fred Goodwin, the chief executive of Royal Bank of Scotland, who received substantial bonuses after the £47bn takeover of ABN Amro – now regarded by some critics as a deal too far – Mr Bolton said: "Knowing one of the non-executives recently appointed at RBS, I would be surprised if he went there and expected things to remain the same.
  
  "I agree with Charlie Munger, Warren Buffett's partner, who said that when the ship hits the rocks, the captain loses his job. I think that's a good general principle."

Source of article: here

Do note:

1. He doesn't think highly of emerging countries!

2. He does not think a fast recovery is possible.

3. He expects commodities to go down more!

More Bank Failures??

Not a good thing to read on a Monday Morning.

Posted on MSNBC.com is an article from AP stating that Bank on it — bank failures will rise next year

• SAN FRANCISCO - Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion plan to restore order to the financial industry.
  
  The biggest question is how many will perish and how they will be put out of their misery — in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.
  
  Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.
  
  The government's commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.
  
  "It will help, but it's not going to be the saving grace" because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.
  
  The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?
  
  "It sounds like a joke," said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. "But it sounds safer than the turmoil out there right now."
  
  Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.
  
  But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.
  
  "I don't see why things will be that much different this time," said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University. "We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No."
  
  With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp., the government agency that insures bank and S&L deposits. The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.
  
  Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks that fail during the current crisis at $1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.
  
  The FDIC's fund currently has about $45 billion — a five-year low — but the agency can make up for any shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls.
  
  Through the first nine months of the year, 13 banks and S&Ls have been taken over by the FDIC — more than the previous five years combined.
  
  The FDIC may be underestimating, or least not publicly acknowledging, the trouble ahead. As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list. That represented about 1 percent of the nearly 8,500 institutions insured as of June 30. Entering 1991, about 10 percent of the industry — 1,496 institutions — was on the FDIC's endangered list.
  
  Although the FDIC doesn't name the institutions it classifies as problems, this year's June 30 list didn't include two huge headaches — Washington Mutual Bank and Wachovia. Combined, WaMu and Wachovia had more than $1 trillion in assets; the assets of the 117 institutions on the FDIC's watch list totaled $78 billion.

Read rest of article http://www.msnbc.msn.com/id/27036808/

And the problems with banks in Europe isn't too conformting either. Germany Rescues Hypo, Guarantees Savings

• Germany acted to stem turmoil in its financial sector on Sunday, thrashing out a new rescue for imperiled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.
  
  After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro ($48.50 billion) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened on Monday.
  
  Under an accord, struck just after 11 p.m. local time, the financial sector agreed to provide an extra 15 billion euros ($20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.
  
  "With this commonly forged solution, (Hypo Real Estate) will be stabilized and thereby the German financial marketplace strengthened in difficult times," the ministry said.
  
  Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.
  
  "We say to savers that their deposits are safe," Chancellor Angela Merkel told a news conference in Berlin.
  
  The move was a surprise because, behind the scenes, German officials had been highly critical of Ireland when it announced a similar move last week.
  
  The change in approach reflected the fast-moving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.
  
  The Finance Ministry said the guarantee would cover more than 500 billion euros in deposits.
  
  "This is an important signal so that things calm down and excessive reactions are avoided that would make the current crisis tackling and prevention effort even harder," Finance Minister Peer Steinbrueck said.
  

Read rest of cnbc posting http://www.cnbc.com/id/27039285

Investing Classics: RUMOURS are Contagious!

Here is another investment classic from Wallstraits. ( Sorry I have lost the link)

RUMOURS are Contagious!

There's something really potent about rumours and how they spur people into action. Especially when delivered with minimum information and maximum excitement and conviction, and if you do not allow people to ask questions. Keep the conversation very brief. The trick is to shout something like this, "Hey, buy this stock NOW NOW NOW! Has to be today - before lunch time. Just do it, okay? Make sure it's before lunch otherwise it'll be too late."

Guess what will happen next? The recipient of the message will be in a panic mode (Wah! Very hot tip! Quick! Quick! Must buy now!).

Two things will happen right after the Message from the "Prophet": (1) key in your own trade online, or call your broker/remisier and get him to buy at least 10 lots of the stock before lunch; (2) call your husband/boyfried, mom and dad, best friend, and whoever you're really fond of at the moment, and say in a serious conspiratorial tone, "Hey, GUess what? I've got a hot tip for you. Just go and buy this stock today. Make sure you do it before lunch, okay?"

By this time, your remisier and broker will be feeling extremely uncomfortable, like someone who hears about a big office party and was the only one who did not received an invitation. They'll call their friends who're traders in other brokerage firms, and ask them what's the deal with the stock. Your parents, the proud second-hand recipients of the "hot tip" will be calling their best friends and relatives to buy as well. The reason? "My daughter/son told me to buy. Don't know the reason. Don't ask so many questions. But very good tip. Must buy before lunch."

The stock moves up 10 cents right after lunch. Everyone is happy. End of the day? The stock price has dropped a dollar! Ouch! Ouch! Ouch!

A flurry of calls will follow, and we can just imagine the conversation: "Aiyo! What kind of hot tip is this? Lousy one lah! I thought you told me it will go up? How come it went down one dollar? I just lost ten thousand in half a day!!!" You call your Prophet frantically and when you get hold of him, and try to get the reason for the stock's non-performance, the answer will probably be, "I thought ....but they told me..."

Then you wonder, why didn't you ask him who they are, or why he thought it was a great stock and that the price would go up, before you ran out and told everyone you knew to buy the stock. Now, not only is your reputation down the drain, you've lost quite a few friends, plus ten thousand dollars too!

And the moral of the story is...?

1. As much as rumours are thrilling and spice up an otherwise boring day, minimize your indulgence. If you want to follow, don't buy 10 lots. Buy just 1 lot, so if you lose, it will not be that painful a lesson.

2. To sound like a Guru is a great ego-booster, and with everyone salivating at your 'hot tip' like some juicy story about a friend of a friend who did it with a goat. But it could very well backfire - just like malicious gossip!

3. Investing is boring and slow. Like deep sea fishing. But like deep sea fishing, if you're patient and stick with it long enough, you will get a big fish! For people who want to punt and make a quick buck, you could end up with nothing or some little shrimp.

4. Do your own homework. It's easier to listen to someone than think for yourself. But at the end of the day, it's more profitable and you'll get more satisfaction if you exercise independent thinking.

5. Just don't do it. Avoid it like the foot and mouth disease.

~~~~~~

You might be interested in this other posting.

1. Investing Classics: Deadly Sins Commited By Investors

Tim Woods Says It Ain't Gonna Work

The following passages are taken from Tim Woods editorial today on FinancialSense Market Wrap:


By every historical measure the equity markets slipped into a secular bear market in 2000. As a result, we began to see efforts by the powers that be to keep the market afloat. I have stated all along that manipulation will ultimately not work. I have also stated all along that all this will do is make matters worse in the end. Well, I would think that everyone can now see, matters are indeed much worse. Yet, the Fed, the Treasury and the politicians continue to think that they can “fix” the problem by throwing more money at it. They do not understand that they can’t “fix” this economic crisis. They also do not understand that it is their trying to “fix” things in the past that has created the current situation. All markets as well as the economy must both inhale and exhale. They are trying to prevent the exhaling and it ain’t gonna work.

What we are dealing with is the wrath of Kondratieff Winter, which is about the purging of excess credit. Along with that comes deflation and along with that global stock markets enter into extended declines. Real estate declines, economic growth slows, commodities decline, bankruptcies accelerate as the excess credit is purged from the system, the banking system is shaken, the free market is blamed and we move toward national fascist political tendencies. We are now seeing each and every one of these symptoms of K-wave winter. For the record, I did not make up these symptoms to fit the current situation. I have original writings by Nikolai D. Kondratieff and the signs of K-wave winter were quoted from a book by David Knox Barker titled, The K-wave and was published in 1995. Don’t think the powers that be aren’t aware of Kondratieff Winter. They know full well what we are facing and that is why they have tried to hold back its wrath as diligently as they have since 2001.

Now, from a Dow theory perspective, I have been saying that when the averages moved below their August 2007 secondary low points, on November 21, 2007, that under classical Dow theory, a primary bearish trend change occurred. According to William Peter Hamilton, the great Dow theorist of the 1920’s who called the 1929 top, said that when the averages move below their previous secondary low points, the stock market barometer is forecasting stormy conditions. Interestingly enough, most major averages around the world also topped and entered into primary bearish trends in conjunction with this Dow theory primary trend change.

Let’s now move to the Dow theory chart below. When the non-confirmation between the averages occurred in July, many insisted that that non-confirmation was bullish. I even read articles claiming that the primary trend was bullish in accordance to Dow theory. I have maintained that under orthodox Dow theory nothing has changed the primary bearish trend that was confirmed on November 21, 2007 and that the non-confirmation was merely a warning of a possible trend change, but that it was NOT in and of itself bullish. This has since proven correct. This topic was also addressed in the September 19th WrapUp. There are many that view the Dow theory as some antiquated relic of the past that is no longer relevant. There are others that claim to be Dow theorists, yet they have never read the writings of our Dow theory founding fathers, which again were Charles H. Dow, William Peter Hamilton and Robert Rhea. Anyway, I guess my point here is that the Dow theory first signaled stormy conditions last November and it has proven correct once again. It has also helped me to guide my subscribers through this economic disaster and it is anything but an antiquated relic of the past. If someone says this, then they don’t truly understand Dow theory.

Read rest here: It Ain't Gonna Work

Massive Warning From IMF: US Could Head For Deep Recession.

Makes me chuckle for it was not long that OUR so-called local expert lambasted Warren Buffett for being a lousy economist! ( see past postings Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

IMF has now has released a report stating that US could be heading for a deeper recession!

• OTTAWA -- The U.S. is likely headed for a deep recession, the International Monetary Fund warned Thursday in a report in which it notes that the current banking crisis is the type that's most likely to lead to such a downturn, and suggesting the government's proposed bailout of the banking system is the right course of action.
  
  "Episodes of financial turmoil characterized by banking sector distress are more likely to be associated with severe and protracted downturns," the world's lender of last resort said in a chapter in its world economic outlook, released in the wake of Wednesday evening's vote by the U.S. Senate supporting the revised $700-billion US bailout but in advance of Friday's second vote on the rescue package by the U.S. House of Representatives.
  
  "Financial stress is more likely to be followed by an economic downturn when it is preceded by a rapid expansion of credit, a run-up in house prices and heavy borrowing by households and non-financial firms," it said. "The current situation of the United States bears some resemblance to previous episodes of banking-related financial stress episodes that were followed by recessions."
  
  The report, which looks at past episodes of financial stress and their implications for subsequent economic activity, ranks the current crisis "as one of the most intense for the United States and one of the most widest affecting virtually all countries in the sample."
  
  "Based on a comparison of the current episode of financial stress to previous episodes, there remains a substantial likelihood of a sharp downturn in the United States," it warned.
  
  "Not all episodes of financial stress lead to economic slowdowns or recessions," it added, noting that in fact only about half of the episodes of financial market stress were followed by economic slumps.
  
  "However, when a slowdown or recession is preceded by financial stress, and especially when the stress is concentrated in the banking sector, typically it is substantially more severe than slowdowns or recessions not preceded by financial stress," it said. "In particular, slowdowns or recessions preceded by bank-related stress tend to involve two to three times greater cumulative output losses and tend to endure two to four times as long."
  
  The odds that a banking-related crisis is followed by a slowdown or recession is associated with the extent to which house prices and outstanding credit have risen prior to the eruption of the crisis, it said. Further, while greater reliance on borrowing by non-financial corporations is associated with a sharper downturn in the aftermath of financial stress, the indebtedness of households is "crucial in determining whether the downturn will turn into a recession."
  
  However, the relatively strong positions of corporate balance sheets at the onset of the crisis and the aggressive monetary easing by the U.S. Federal Reserve may provide some cushion in the U.S., while the relatively strong balance sheets of European households offer some protection against a sharp downturn there, it added.
  
  "In the current circumstances, strong actions by policy-makers to deal with the stress and support the restoration of financial system capital seem particularly important," it concluded, adding that of special importance is the restoring the capital bases of core financial intermediaries, including broker-dealers and investment banks to help alleviate economic downturns.

Source: http://www.financialpost.com/story.html?id=856044

Investing Classics: Deadly Sins Commited By Investors

Here's a great investment article that I would like to share. It was posted a long time ago on Wallstraits - sadly the link is broken. http://school.wallstraits.net/viewmodule.php?c=5&m=12

• 4 Deadly Sins of Investors
  
  You've probably heard of the "7 deadly sins"-namely, pride, envy, gluttony, lust, anger, greed and sloth. They are not from biblical reference, contrary to popular belief, but date back to the 12th century when discussed and recorded by Saint Thomas Aquinas. St. Thomas warned that the most deadly aspect of each of the 7 sins was their tendency to lead to the others.
  
  The same holds true today for the 4 deadly sins of investing. If you find yourself guilty of any one of these sins you are likely to be tempted more easily to commit the other three. The 4 deadly sins are - GREED, FEAR, IMPATIENCE & STUPIDITY.
  
  GREED is what moves markets. Greed is the most basic element of playing the stock market with a short-term outlook. Greed is the most deadly of all sins. Greed will lead the investor to making rash decisions without careful thought and consideration. Greed will lead an investor to use margin accounts unwisely, looking to maximize their returns with minimum capital. Greed pushes us to buy the hottest stock in the hottest market, just before it crashes back to reality.
  
  FEAR is the second strongest market mover. Fear makes investors become lemmings, following the latest rumor and trend for fear of being left out or missing a big move. Fear makes us reluctant to chart our own path. We fear going out on a limb to buy stocks we feel are undervalued and out of favor even as we see solid fundamentals under the surface. Fear of loss can even keep us out of the market when we should be in, just as greed keeps us in the market when we should be getting out.
  
  IMPATIENCE causes us to sell when we should be buying. We are often very talented at carefully searching the stock jungle for fine investment candidates, and even buy them. Then, after six months and another earnings release that is right on target with our expectations, the stock price drops another 10%. We lose patience and purge the shares of a perfectly good company from our portfolio and look to invest where there's more action (greed & fear). Common sense and independent thinking would tell us to add to our holdings if the company has grown with expectations and the price has fallen further as an even larger value has been created-and patiently wait for the market to properly value your gem.
  
  STUPIDITY is the final sin. It is usually a result of laziness, a close runner up as deadly sin #5. Technical chartists fall into this category. With no scientific proof to validate any methodologies, they continue to invest based on arbitrarily interpreting the shape of historical pricing charts. This illogical stock analysis fails to bother with understanding the underlying fundamentals of a business, the savviness of their management, their business performance track record, their competitive advantages or their business model and future prospects. No, save time, just view the chart.
  
  So you see, markets have always been and will always be moved by fear and greed, while individual investors are constantly tempted by impatience and stupidity. The investor who can faithfully resist the greed to jump into the hot rumors with borrowed money, deal with the fear associated with independent thought and decision making often against the crowd, be patient with their portfolio companies as long as they meets expectations from a business perspective, and be smart and energetic in their analysis methods-these investors will be without sin, cleansed, purified, holy, sanctified, righteous-and filthy dirty rich enough to afford other sins!

Back in 2006, Michael Dowling wrote an essay called The 7 Deadly Sins of Investors - you can download it via this link here

For me, point 5 or rather sin number 5 was rather important in my view for this is exactly why we see so many investors who likes to remain delusional and not acknowledging what exactly is happening.

• 5. Knowing best (PRIDE)
  
  It is a natural human desire to avoid acknowledging mistakes or losing. This translates into poor investment practice when we are not willing to sell stocks they have bought because they have since fallen in price. Investors do this because they don’t want to have to acknowledge to themselves the mistake they made by buying the stock in the first place. We are reluctant to crystallise losses, a condition known in psychology as Loss Aversion. Modern finance has made huge advances in the last 10 years in modelling and understanding this effect. While we still own the stock, we can convince ourselves that it is only temporarily low in price, and that it will rebound in the future. This can be problematic if it leads to our ignoring negative news about a stock. Similarly, we tend to sell stocks too soon after they have risen in price, even if there is more potential good news for that stock on the horizon. We want to be able to acknowledge to ourselves they have made a successful investment by cashing out and taking their profit. To make matters worse, investors tend to view losses as being determined by external and uncontrollable events, and to view gains on investment as being due to their own intelligent actions. Behavioural finance specialists call this self-attribution bias.
  
  All of this smacks of course of the sin of Pride, an excessive belief in ones own ability. Thus, a lot of investors now view the high prices that stocks achieved in the late 1990s as caused by corporate fraud and deception. By blaming company insiders for the high prices paid for stocks, investors can push the blame for their mistakes onto external factors, and absolve themselves of any fault. However, one main reason for high stock prices in the late 1990s was due to irrational buying on the part of investors. Bitmead shows that the bubble was concentrated in those stocks that were most visible on the internet. Investors, who don’t acknowledge this run the risk of making the same mistake again.
  
  This kind of emotional involvement on the part of investors can lead to them ignoring important news relevant to their investment’s future performance. The best investors keep emotions out of the investment process, although evidence from psychology indicates that persons who are unable to form any emotional attachments are unable to make decisions, so some emotion is necessary, but tempered by reality. These investors simply view each investment as a right to an income in the future. If the share price is excessively high compared to the potential future income from that investment, they will sell. If the share price is low compared to the potential future income, they may consider purchasing the share. Ineffective investors allow emotions to influence their decisions.
  

Dr. Marc Faber Comments On US Bailout

Posted on Bloomberg News.

• Marc Faber Says U.S. Rescue Plan Won't Stop Recession
  
  By Ian C. Sayson
  
  Sept. 30 (Bloomberg) -- Investor Marc Faber said any proposal to rescue the U.S. financial system will fail to avert a recession in the world's largest economy.
  
  A stock rally in the event that a package is approved will be temporary and should be used as ``an opportunity'' to sell, said Faber, who predicted the so-called Black Monday crash in 1987. U.S. lawmakers voted yesterday to reject a $700 billion plan worked out by congressional leaders and the administration of President George W. Bush.
  
  ``The rejection of the package is good because it shows that some people in the U.S. are still sane,'' Faber said in a phone interview. ``A bailout will not buy the U.S. a way out. The government is less powerful than markets in fixing this mess.''
  
  Investors should hold 20 percent of their funds in stocks, 10 percent in gold and the balance in U.S. treasury bills, said Faber, who manages more than $300 million.
  
  The rescue plan's rejection sparked a sell-off in stocks that dragged the MSCI World Index down by 8 percent in the past two days on concern the credit crisis will deepen. The turmoil caused more than $590 billion in losses and writedowns and the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc.
  
  The U.S. economy grew 2.8 percent in the second quarter, slower than the 3.3 percent preliminary estimate of the Commerce Department, as consumer spending and corporate investments weakened ahead of the worsening credit crisis.
  
  `Very Uncertain Times'
  
  The economy probably shrank in the third quarter, economists including Deutsche Bank AG's Joseph Lavorgna and Morgan Stanley's David Greenlaw said. A further contraction is likely in the next two quarters, some economists predicted, making the recession the longest since 1981-82.
  
  Faber, publisher of the Gloom, Boom & Doom report, told investors to sell U.S. stocks a week before 1987's so-called Black Monday crash, according to his Web site, and recommended buying gold at the start of its six-year rally.
  
  Any rebound in equities triggered by an eventual rescue package for the U.S. financial system will not lead to ``new highs'' for stock markets.
  
  ``We live in very uncertain times and nobody knows the extent of the damage from the slowdown of credit growth,'' he said. ``It will be good to diversify.''

Source: http://www.bloomberg.com/apps/news?pid=20601080&sid=alvjAlfEBU1s&refer=asia

US Markets Makes Massive Bounce Back But Baltic Dry Index Continues Its Plunge

The markets had a huge day as Dow makes big comes back

• NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday, with the Dow jumping 485 points on bets that Congress will pass a version of the government's $700 billion package, following Monday's crushing defeat.
  
  But credit markets remained frozen. Several closely watched measures of bank lending fear hit all-time highs, as firms continued to hoard funds.
  
  The Dow Jones industrial average (INDU) added 485 points, recovering much of the record 777 points lost the day before. It was the third-biggest one-day point advance for the indicator in its history.
  
  The Standard & Poor's 500 (SPX) index rose 5% and the Nasdaq composite (COMP) gained about 5%.
  
  Stock gains accelerated late in the day after the FDIC - the agency that insures depositors in case of a bank failure - said it wants to increase the amount of money it can insure.
  
  Raising the limits could make businesses and individuals less anxious to withdraw money from accounts at a struggling bank. It could also help get the $700 billion plan passed by mollifying critics who think the plan is too focused on Wall Street, rather than Main Street.

Time to go in the market? Over at CNBC, Bob Pisani has some important notes.

• The major indices Tuesday regained more than half of yesterday's losses on 1) hopes that a bailout bill will be passed in Congress this week, 2) lack of concerted selling, as volume was lighter than normal due to the Jewish holidays, and 3) hopes that regulators might help out.
  
  This is a dangerous game, because it means that the market is hostage to the “TARP trade,” and has become detached from any fundamental consideration.
  
  And with good reason: without knowing borrowing costs for corporations, it's impossible to figure out where stocks should be trading. That’s what the TARP is supposed to do: put some kind of floor on the credit market.
  
  But this too will pass; by next week, we should get back to real issues like earnings and the global economy.

And the Baltic Dry Index continues its massive plunge!

The Index is now at 3217 points, down some 287 points or another 8.1%!

Many had purchased some shipping stocks as investments when the Baltic Dry Index was trading much higher However with with such drastic plunge, perhaps its time review one's investments and perhaps its best not to be delusional and assume that the Baltic Dry Index would soar back to its previous highs as the business fundamentals has clearly changed.

And how amazing it is that it was just on 1st September that I had highlighted the comments from OSK Research on the BDI Baltic Dry Index in for strong recovery on my blog posting Baltic Dry Index Set For Strong Recovery???.

The index then was 6809 points.

One month later the index is now at 3217 points!

The grave danger of listening to these so-called experts!

On Forbes Shippers Far From Shipshape

• Fear and trembling about the global economy is sinking the Baltic Dry Index, pushing it down to its lowest level in two years on Tuesday. As the uncertainty surrounding the U.S. bailout package and questions regarding the sustainability of China’s industrial demand continue to rock the U.S. stock market, investors should expect freight rates to continue to slide.
  
  The Baltic Dry Index, which measures shipping rates on 40 routes across the world, sank 8.2%, or 287 points, to 3,217, on Tuesday, down from 3,504 on Monday – its seventh straight day of decline.
  
  Lazard Capital Markets analyst Urs Dur said China’s Golden Week holiday has been keeping charterers at bay. While conventional wisdom is that next week, once the holiday is over, activity will begin to pick up again, Dur said high iron-ore inventories in China and plummeting freight rates means it will take a while for the shipping market to right itself. “If you had asked me a month ago, I would have said a turnaround would have come at the end of September, before Golden Week,” he said.
  
  Now things aren’t looking so good. Althouigh owners of ships on long-term contracts are being paid, world trade hasn’t stopped and ships are still moving, the outlook for the next two years is weakening. Dur thinks freight rates will turn around once Congress agrees on a bailout package and banks stabilize lending. That’s when he suggests jumping into stocks like Genco Shipping and Trading, Eagle Bulk Shipping (nasdaq: EGLE - news - people ), and Navios Maritime Holding, which are stable.
  

Other postings on BDI:

1. Views On Current Weakness On Baltic Dry Index
2. The Collapse of the Baltic Dry Index
3. Goldman Downgrades Bulk Shippers!
4. Baltic Dry Index Keeps Falling!
5. Baltic Dry Index Stages Strong Rebound!
6. Baltic Dry Index Set For Strong Recovery???
7. Baltic Dry Index Plunges To Seven Month Lows!
8. The Baltic Dry Index Keeps On Plunging!
9. Baltic Dry Index Continues To Plunge