Business News

Buffett and Bernanke lose out to bears

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by Peter Switzer

It was the usual negatives — a troubled Europe and a weaker US economy that brought Wall Street down despite a Buffett bet of US$5 billion on Bank of America and the Bernanke speech tomorrow with one of the US’s top economist believing QE3 is coming!

You know if the market was up today, I was ready to say that I would have been worried that the Yanks were buying the rumour but that they could sell on the fact.

For the record, and before the explanation, let’s look at the scoreboard.

The Dow was down 170.89 points, or 1.51 per cent, to 11,149.82. The S&P 500 was off 18.33 points, or 1.56 per cent, to 1,159.27.

So, what were the big hits on the Wall Street playing field? Try these:

Warren Buffett put a $5 billion bet on BOA arguing that the country’s biggest bank was a good wager. The company has been slugged 30 per cent this year and Buffett obviously thinks the sell-off has been overdone and his action pushed the stock up 10 per cent but it lost momentum as the negatives crept into the hip pocket equation.
European shares dived on rumours of a short-selling ban in Germany.
Again in Europe, there were issues about the Greek bailout that also unsettled investors but what’s new?
To the US economic story, jobless claims rose last week.
And if the rest of the world isn’t looking pretty well stuffed, UBS chopped back the growth forecasts for China for 2011 and 2012 based on a slower global economy than was expected.
The Kansas City Federal Reserve president, Thomas Hoenig, put a US recession at 20 per cent and this guy is regarded as a respected commentator. However, Nouriel Roubini, the bear of the GFC who got it right, like Steve Keen locally, expects a global recession and thinks Ben Bernanke will eventually opt for QE3, even though he might not out his cards on the table tomorrow at his Jackson Hole speech.

Obviously, the twin black clouds of Europe’s debt, as well as the EU’s mismanagement combined with the US recession talk has day-to-day investors buying dips and selling the rallies but I think Bernanke and Buffett will win out in the long run. I don’t have as much faith about the Europeans and so these guys will be getting the benefit of my prayers!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, August 26, 2011

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