Can Turtles Fly?

Most of you have probably heard of the scandal engulfing American banking giant, Wells Fargo (WFC). It appears the bank created millions of fake bank accounts under its customers' names. The truth, as always, is never clear but the bank says employees did it under their own will to meet employment goals. Several US government agencies are investigating and the CEO stepped down recently. Berkshire Hathaway is the biggest shareholder of Wells Fargo (WFC) with about 10% ownership and Buffett personally owns another 2 million shares (worth approx. $100 million right now). But Buffett has not commented about the scandal, until now. In a CNN Money interview , Buffett says he still has faith in the bank and couldn't comment publicly until now because it was a passive investment as stipulated to the banking regulators. Buffett essentially says senior management made a terrible judgement with the incentive system. It remains to be seen if this is a symptom of the current cultur...

The year is almost done... hope everyone has had a good year. Now that I'm Twittering , a lot of the articles will be duplicates for any Twitter follower. (Highly Recommended) John Paulson's arbitrage notes (Anh Hoang): John Paulson, before he became popular for short-selling mortgage bonds, was a successful risk arbitrageur. Special situations investing is something that amateur investors should look at. (Recommended) Charlie Rose interviews superinvestor Seth Klarman (CanadianValue for GuruFocus): Arguably the top value investor in the world right now, Seth Klarman rarely gives interviews so you should check this out. However, unfortunately, there isn't anything insightful about investing in the interview. One thing Klarman does point out is that he is still a Graham-type investor whereas Buffett has moved on to a, what I call, 'modern Buffett' investing style. The style that I aspire to is what I call 'Buffett Prime'. Roughly speaking, I would say...

I don't have the answer to the question of the blog post, so does anyone have any idea why European companies tend to have higher leverage than American companies? I remember noticing this when I briefly looked at US-listed European companies a few years ago. This is just one example and one should be careful with extrapolating off one example but, just compare a company like Diageo (DEO) to Brown Forman (BF/B). In any case, the leverage issue is starting to pop up in news these days because European banks tend to have higher leverage than American companies. In an opinion piece for Bloomberg, Simon Johnson remarks  (bolds by me), By any measure, Deutsche Bank is a giant. Its assets at the end of September totaled 2.28 trillion euros (according to the bank’s own website ), or $3.08 trillion. In the latest ranking from The Banker, which uses 2010 data, Deutsche was the second-largest bank in the world by assets, behind only BNP Paribas SA. The German bank, however, is thinl...

Potential Precursor to What May Happen in Europe... MF Global Stock Collapses MF Global is a mid-sized brokerage firm—at the end of 2010, its market cap was around $1 billion, book value hovered around $1.5 billion, and had assets totalling roughly $40 billion—that is being sold off by the market. Investors are clearly heading for the exits and, as many market followers would know by now, loss of confidence in a financial firm often results in its end. I don't know much about the company but it appears to be mostly focused on commodity brokerage operations. There was a commodities broker, Refco, that failed during the financial crisis era a few years ago but the problems faced by MF Global are different and may signal what may unfold in Europe. MF Global is collapsing, not because of its commodities derivatives business, but because it appears to have made outsized bets on European sovereign debt of some questionable countries. The firm is run by a former CEO of Goldm...

I ran across an interesting article from Bloomberg describing the weakening of credit conditions in some key emerging markets. Although too early to say if this portends to any serious calamity, it does feel, at least to me, like the HSBC sub-prime earnings warning from 2007  (of course, when HSBC warned in early 2007, it was widely ignored by many, including me :( ). I hate to quote so much but this could be an important story. Bloomberg reports , Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said. In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisio...

Some articles I either read or am planning to read in the near future... (Highly Recommended) "A Dirty Business" (The New Yorker): In this excellent article, George Packer gives us a detailed look at the prosecution of the hedge fund manager, Raj Rajaratnam, who ran a large hedge fund called Galleon. If appeals aren't successful, this case will likely go down as the biggest insider trading conviction of a fund manager in American stock market history. Conversations with Charlie Munger - the final edition (Ben Claremon for GuruFocus): This is likely one of the very last detailed conversations with Charlie Munger. He is ending the annual Wesco conversations now that the company was taken private and is too old. Nothing earth-shattering in the material covered in during this meeting. (Recommended for contrarians) Howard Marks & distressed debt investing (Bloomberg Markets magazine): The article chronicles Howard Marks' journey in the distressed investing worl...

American Bank Failures (source: " Map of Banks Failed in 2008/2009/2010 ," Portalseven.com) Cost of American Bank Failures (source: " Monthly bank failures cost to FDIC ," Portalseven.com)

Here are some articles I ran across over the last few weeks. Articles near the very-bottom have nothing to do with investing so read it at your discretion. Fortress Paper & Chad Wasilenkoff (Report on Business magazine): Profile of a Canadian success story in the forestry industry " Is Apple once again riding for a fall? " (The Globe & Mail): Eric DeCloet, one of the best business writers in Canada, wonders if Apple is headed for a fall similar to what it experienced in the 90's. (Highly Recommended) John Paulson on the risk in risk arbitrage (market folly; h/t GuruFocus ): Good job by market folly on finding this gem from John Paulson. Before Paulson became famous for his bet against real estate, he was mostly into risk arbitrage. Anyone into risk arbitrage should check out the referenced article. ( PDF of cited article can be found here.) Is Steve Ballmer hurting Micrsoft? (Fortune): The company has been rock solid but on the other hand, it hasn't a...

Reuters Breakingviews hired Nestor Advisors to analyze the directorship at leading European and American banks and there are some differences. Jeffrey Goldfarb summarizes the results  and here are a couple of things that stand out (do check out his article for further info).

Some people are on holidays; others have light loads—assuming you aren't one of those airport workers stuck trying to clean up from the snowstorms ;) Here is some reading material to keep you busy... (Recommended) Potential actions by regulators to control the too-big-to-fail banks (Reuters Breakingviews via Financial Post): Regulators and government officials created huge moral hazard by creating the oxymoronically-named too-big-to-fail banks. Now they are trying to figure out how to regulate them and, ultimately, prevent the banks from turning into too-big-to-save (i.e. banks that will threaten sovereign solvency). This is a good article that presents several solutions and the ones likely to be followed by the government officials and regulators in the near to medium term... As I have mentioned in the past, the "proper" solution in a capitalist society is to punish the financiers who enable all the risk-taking. In this case, the bondholders have been spared (except f...

Hope everyone had a good year and is looking forward to the holidays. Investingwise, it has been a very poor year for me, but, careerwise and in other matters, the year started off rough but it has been good so far. Google introduces Books Ngram viewer (AtlanticWire): Amazing free tool called Books Ngram Viewer that lets users view trends in words on roughly 10% of books printed, in six languages, between 1500 and 2008 (approximately 5.2 million books). Biggest drug recalls in US history (24/7 Wall St): Some of it is not pretty, especially if you consider how humans were harmed. The iPhone increases US trade deficit (The Globe & Mail): A good article that refers to the study, " How the iPhone Widens the United States Trade Deficit with the People’s Republic of China,"  that suggests that Apple's iPhone, although owned, designed and sold by an American company, actually increases the US trade deficit. I was going to write about this in a standalone po...