Microsoft Founder Foresees Another Financial Crisis Ahead

According to one of the world's wealthiest and most respected businessmen and philanthropists,,Microsoft principal founder and billionaire Bill Gates,another shattering downturn is on the way.Making his annual appearance on the Reddit programme "Ask Me Anything" on 27 February 2018,Mr.Gates opined:
It is hard to say when,but this is a certainty.
Fortunately,we got through the last one (2008) reasonably well.Warren (Buffett,billionaire co-founder of Berkshire Hathaway) has talked about this and he understands this area far better than I do.Despite this prediction of bumps ahead,I am quite optimistic about how innovation and capitalism will improve the situation for humans everywhere.*
Mr.Gates had a bit of advice for investors in the face of this warning:
If you aren't willing to own a stock for 10 years,don't even think about owning it for 10 minutes.*
Mr.Buffett had these words for investors in his 2018 annual letter to Berkshire Hathaway investors:
It is a terrible mistake for investors with long-term horizons-among them,pension funds,college endowments and savings-minded individuals-to measure their investment "risk" by their portfolio's ratio of bonds to stocks.Often,high-grade bonds in an investment portfolio increase its risk.*
There is simply no telling how far stocks can fall in a short period.Even if your borrowings are small and your positions aren't threatened by the plunging market,your mind may well become rattled by scary headlines and breathless commentary.And an unsettled mind will not make good decisions.*
Stick with big,"easy" decisions and eschew activity.*
Microsoft (MSFT),Berkshire Hathaway Inc. Class B Shares (BRK.B)

GE Chief Jeff Immelt Resigns - major investor sought sea change

Jeff Immelt,who led General Electric through some tumultuous years after the celebrated Jack Welch retired,has turned over the reigns of the multinational conglomerate to John Flannery,President and CEO of the GE Health Care subsidiary.Mr.Immelt was faulted by investors for the company's lackluster share price;indeed,it was down about 12% on the year as of close of trading on Friday.
Mr.Flannery said:
I am privileged to have spent the last 16 years at the company working for Jeff,one of the greatest business leaders of our time.*
Mr.Flannery,who takes over on 1 August,also promised to assess the company's condition.He was credited with the turnaround of GE Health Care,increasing organic revenue by five percent in 2016.*
Mr.Immelt was well-liked by his fellow CEOs,including Jamie Dimon of Chase;Lloyd Blankfein of Goldman Sachs;and Jack Welch,his predecessor.As for GE itself,it stated that:
Immelt's vision has positioned GE for the future and greatly strengthened the GE culture.
Lead independent director Jack Brennan added that:
During this time of dynamic global markets and relentless focus on technical and operational excellence,there is no better person to lead GE than John Flannery.He brings unique experience and a broad skill set to the job.*
Jeff Immelt,who took charge immediately before the 9-11 attacks,saw the company through the years of the Afghan and Iraq Wars,as well as the Financial Crisis.He slimmed GE Finance down and jettisoned GE Appliances;while at the same time purchasing France's Alstom Power and establishing GE Software.This wasn't quite enough for one of the firm's biggest investors,billionaire Nelson Pelz,whose Trian Capital bought a one percent stake in GE in 2015.Trian pushed GE to reduce costs and boost profitability.*
The company's shares rose 3.67% to 28.97 as of 12:36 pm.*
General Electric (GE)

Leading Banking Analyst Cautions Investors During Downtrend

Unless buying materialises,says Richard X. Bove,vice president of equity research at Rafferty Capital,LLC in a note to investors,there is nothing to stop a massive move to the downside due to the lack of liquidity in the markets.At this moment,I would strongly caution to remain on the sidelines until a definable source of new funding is determined to maintain or bolster stock prices.
At its base,the key problem is that the historic protections that once existed in the markets to prevent massive downslides have been removed.This country's claim that it has deep and liquid markets is being put to the test.*
Mr.Bove is bitterly critical of the plethora of new regulations that have been imposed on the banking industry post-financial crisis.These include the US Congress passing the Dodd-Frank Act;Basel III,Supplementary Leverage Ratio;Liquidity Coverage Ratio;and the Orderly Liquidation Authority;and the Total Loss-Absorbing Capital Regulation.The impact of these regulations,rules and pieces of legislation has been the complete takeover of the banking industry by the government.In my view,the industry has been effectively nationalised,Dick Bove said in a December 2014 interview,in which he also predicted that banking industry regulations would limit the earnings of banks in the long term.It is these regulations that have also ultimately restricted the flow of funds to the point of making the markets vulnerable to collapse.

With Global Economy Still Suffering,GDP Forecast Lowered

The International Monetary Fund has lowered its global GDP growth forecast for 2015 to 3.3% on a number of factors,including China's stock market turbulence and the Greek debt crisis.As well,both the US and Canadian economies have been downgraded by the IMF.A 20% surge in the U.S. dollar brought on by investors taking refuge in US assets has been crimping exports;while in Canada,falling commodity prices have hindered that natural resource-rich country's economic performance.Still,in 2016,the IMF is predicting global growth to rise to 3.8%.
The end result is not a very impressive number,said IMF chief economist Olivier Blanchard,but it's not a catastrophe,either.We're very much where we expected to be.
The Fed can wait a bit longer to raise rates.We're not very far from where we want to be in the US.Take one step back,the US is doing fine.
There has always been a disconnect between the Chinese stock market and the Chinese economy.It may have an effect on spending,but it's more or less octagonal.When you have exchange rates and stock prices moving quickly as they do in China,you don't know how you can handle it.
Any deal in Greece has to have two parts:
1.The Greeks have to do something.
2.There must be aid and debt relief.
The post-financial crisis world is one of high debt,and it doesn't take much,with these debt dynamics,to go wrong.We have to be ready to see other episodes of that kind.*

Should You Invest in the PIMCO Total Return Fund

The policy rate is the key going forward,said PIMCO founder and co-CIO Bill Gross,the "Bond King."We at PIMCO think it's gonna stay low for a long,long time.We think that unemployment of 6.5% is their target.We think the policy rate is the key, and has to stay down there to anchor and keep other rates low.*
Every week that we keep the government shut down subtracts 0.10% from GDP.Ultimately,the possibility of default is a million to one.The uncertainty going forward is not good for the Treasury rate.Every month,the Treasury brings in 300 billion dollars,and pays out 45 billion.It wouldn't even think about defaulting.*
The Total Return Fund suffered rather significant outflows,but September was a magical month,and investors are coming back.*
As for overseas investing,Brazil has particular problems in terms of its infrastructure and pension payments.It's not the paradise many investors had thought,Bill Gross observed.*
Despite outflows for five consecutive months,PIMCO's Total Return Fund is regarded as a core bond holding by many.It is the world's largest mutual fund.It saw 5.4 billion dollars of outflows in September,and 28.7 billion of outflows year to date.That's -10.1% of assets under management.This decline in popularity is pegged to a Wall Street notion that the Federal Reserve will soon begin hiking rates-a belief that hasn't been supported by the continuing slow pace of the recovery from the financial crisis and the drag of fiscal uncertainty.
The fund closed at 10.82 a share on Monday,down 0.09%.Nonetheless,Morningstar Associates gives it an outstanding five star rating.The fund has very low expenses of 0.46%,and bonds are still considered an essential element of a balanced portfolio.Over the long term,you are better off having significant exposure to the bond market.Among bond mutual funds,Total Return remains the clear favourite.*
PIMCO Total Return Fund(PTTRX),PIMCO Total Return ETF(BOND)

Goldman Misses,Yet Improves

The profit miss recently reported by Goldman Sachs is quite instructive.It shows how conservative Goldman has become in the wake of the financial crisis.Not only is Goldman averse to monetary losses;it also doesn't want any more egg on its face.The company took quite a drubbing in Congress and in the media for its business practices leading up to the crisis.
As well,the decrease in compensation for its employees reflects this new conservatism on the part of the iconic Wall Street firm.The luster may be off this storied company to a certain extent,but it can only gain in the long run with these new practices leading to a more secure and stable future.
Goldman Sachs(GS)

Investing Today:Strategies For a Choppy Period

According to Stephen Wood,PhD,chief market strategist at Russell Investments,what we're looking at is a square root sign,a market plateauing at a lower rate of growth.It's probably a significant slow patch in the overall recovery.This is not terribly surprising.
There are gonna be choppy markets.Consider Japan,the Middle East,the Greek debt issue-a lot of headlines could cause volatility.
You're probably in a lower return environment.A portfolio should be globally diversified and have more equities,commodities and infrastructure.
Dr.Wood likes JP Morgan Chase.It has a 2.40 yield and is an industry leader,coming through the financial crisis extremely well.It has a strong balance sheet and is a good,old-fashioned consumer bank.
He also favors Pfizer.The economy's gonna do O.K.,but not spectacularly.Pfizer levels the volatility.People stay in it longer.People are gonna have to ride out the volatility with a more disciplined long term time horizon.
As for Google,longer term,it's probably gonna be a name that's the 500-pound gorilla in its space,Stephen Wood believes.
Stephen Wood has been with Russell Investments since 2005.He has conducted research on the economy,capital markets,portfolio strategies and investor behavior,also serving as a commentator on those topics.In addition,Dr.Wood has worked with institutional clients and retail partners to explain Russell's investment process and portfolio management.
JP Morgan Chase(JPM),Pfizer(PFE),Google(GOOG)

What Scares Alan Greenspan

Alan Greenspan,former longtime chairman of the Federal Reserve,is very concerned about the fate of the U.S. economy.We are running out of time,he says.We've never had anything like this deficit issue.These are the most fundamental questions that a democratic society must choose.
We no longer have what we had in the Kennedy space program days:a real buffer of national resources.Because we have fallen behind in education,the U.S. economy will not be growing at the rate seen in the past to support social programs such as Medicare.The last three years,the proportion of GDP whose lifespan is 20 years or less has increased.
In every cycle we have come out of,construction has always been a major factor in the recovery.This is the first time that construction has not come out of this.Commercial construction of structures is very deeply discounted now as business cannot see what is gonna happen 20 years or more from now.
The more things that you introduce into the economy,a whole structure of activism that occurred in the aftermath of the financial crisis,the more uncertainty is created.I don't think the whole conception system of how capitalism works is contained in the reform.s are gonna happen in ways that are gonna be very surprising.
The rulings that are gonna solve the consumer market problems are gonna eliminate the market,shutting down consumer finance.You could have prevented the crisis if you'd had adequate capital.Your senior debt never fails if you do.The ideal regulation is capital adequacy,Mr.Greenspan believes.
Alan Greenspan,85,was chairman of the Federal reserve from 1987-2006.He has continued to play an active role in public life as an economic elder statesman.

Waves of Financial Crisis

Jessica Haverson of MF Global sees the financial crisis as ongoing.The analyst says she believes we can always go lower.It is a crisis that comes in waves.The first wave was the financial freezing of credit;the second wave was the economic expression of the credit freeze;the third and current wave is a sovereign debt problem.
The sovereign debt issue is a rolling crisis.It has rolled from Southern Europe to the U.K.Eventually,it will roll to the U.S. as America faces a day of reckoning with its own debt.
MF Global is now headed by former New Jersey Governor Jon Corzine.Mr.Corzine was also CEO at Goldman Sachs before he served in the U.S. Senate and as Governor.

Early Edition :Portfolios Affecting Health

That haggard look is returning to faces as citizens and their leaders once again try to deal with their eroding wealth.You could definitely see it on German Chancellor Angela Merkel's face as she emerged from a meeting with French President Nicolas Sarkozy a few weeks ago.Investors whose portfolios had more than recovered from their lows of March 2009 are finding themselves in the red again.It is an ordeal that can be described as Dantesque,a scene from a personal financial Inferno.The effects on the general health cannot be good.
To counteract the stress,music is very significant;so is exercise.And they cost little if anything.That in itself is a relaxing thought.Even little bits of recreation improve our health prospects.The longer we feel self-pity,the worse it will be for us.Remembering that we've been through all this before-we recovered then,and we can do it again-will help to lift us out of this red danger as well.
Many of our ancestors had to deal with financial issues such as the Great Depression.Survival is in our heritage.

Special Coverage:Correction Grips World Markets

Investors worldwide are dusting off their worry beads as markets tumble into correction mode.Asian markets are down from 2-4% following sharp drops on Wall Street.Indeed,the Dow Jones Industrial Average experienced a plunge of more than 900 points-it's worst one-day plummet ever-before rallying back to a more manageable level.Much of the record fall is being attributed to technically faulty trades that have subsequently been canceled by the exchange authorities.
Lights are burning at the Securities and Exchange Commission and Commodity Futures Trading Commission as they work with stock exchanges to protect investors from further chaos.Although much of the correction is a legitimate reaction to the Greek debt crisis and fear of contagion,as well as a European Central Bank that is biding its time on further measures to deal with the matter,it appears to have been exacerbated by electronic or human error or both.A congressional subcommittee will examine the event on Tuesday.
The correction comes at a time when small investors were beginning to feel encouraged about their prospects again.It may be a setback with an indefinite horizon.Many analysts believe we could see a further loss of 5-15% in the short term.On the other hand,bonds and gold surged in response to the free fall.

Recovery Without A Script

Mohamed El-Erian,co-CE0 and co-Chief Investment Officer at PIMCO,said that Friday's employment report was a half-full/half-empty report.It points to long term unemployment going up.There are structural aspects to unemployment.The question is whether you believe levels matter.You really need big changes.Mr.El-Erian doesn't believe there is a playbook to this.What with sovereign debt risk and regulatory shock,you need to reach escape velocity.The question is what you get in the second half of the year.
There is an inventory spillover,Mr.El-Erian pointed out,asking whether it is sustainable.Do balance sheets matter or not?The tug of war between cyclical and structural is very interesting.A tremendous amount of temporary and temporal stimulus is in the system right now.Do you face a hand-off to private demand or structural headwinds which the market isn't comfortable with?
Unfortunately,the crisis has been a balance sheet issue.There are few occasions of a balance sheet shock on top of a cyclical story,as we have now.PIMCO builds portfolios with four different layers:secular;structural;cyclical;and tactical.At this point,there are certain corporate bonds that PIMCO likes,Mohamed El-Erian noted.He was formerly manager of the Harvard Endowment.

Coach Gets An Upgrade

Luxury retailer Coach,which offers a line of fine leather goods,received an upgrade from JP Morgan.The old investment firm raised Coach from hold to buy,also increasing its price target for the stock from 35 to 40 dollars.JP Morgan cited Coach's improving margins and increased square footage.
As the affluent's portfolios rebound from the financial crisis,they are returning to the stores.Another member of the group that is benefiting is department store chain Saks.Others to watch for include department store Nordstrom and jeweler Tiffany.

Budget Jeopardizes Student Health

In Frederick County,Maryland,school health rooms are staffed by health technicians,and these are supervised by registered nurses.Today,when an RN leaves her position,she is not being replaced for budgetary reasons.That means the RN's job must be done by the remaining nurses.RNs have gone from supervising two schools each to supervising three to four schools.As well,five schools lack a full-time health technician.When an HT isn't there,a school administrator mans the health room,rather than someone trained in the health culture.Such is the situation in this economic downturn as described by Dr.Barbara Brookmyer,Chief Public Health Officer,as she addressed a recent Board of Education meeting.She pointed out how serious this was for diabetic children,who need ongoing help with medication,glucose monitoring and so on.
BOE member Daryl F. Boffman said he was appalled that society has come to this point.Board President Kathryn B. Groth noted that some schools aren't close to an ambulance,so it could take some time for a professional emergency response.Dr.Brookmyer,who was supported by several of the school health staff who also attended the meeting,pleaded for the BOE to raise the issue with the County Commissioners,who control the purse strings.It was a scene undoubtedly being played out across the cash-strapped country,if not the developed world.

Special Access:With the Central Banker

Ben Bernanke,Chairman of the Federal Reserve,testified before the House Financial Services Committee last week,strongly defending the Fed's role in supervising the largest financial institutions.He also reflected on the current economic situation,including inflation and the structural deficit.We're not expecting inflation to rise in the near or medium term,Mr.Bernanke said.Employers are seeing slow wage growth and strong productivity gains.Unit labor costs are falling and there is weak demand,discouraging price increases.It's conceivable long term debt could directly or indirectly affect the economy by causing a loss of confidence.
The Federal Reserve still retains 1.25 trillion dollars of mortgage-backed securities.We think our holding them will keep mortgage rates down,even though we are ending new purchases.The very high vacancy rates in rental properties are keeping rents down.
Stripping the Fed of supervisory authority,in light of the recent crisis,would be a grave mistake.Large institutions need to be seen as a whole,the wide range of activites of a complex international financial firm.The Fed has a range of multidisciplinary skills for consolidated oversight.The Fed is the one institution with the full breadth of skills.The Fed of course made errors,but we were hardly alone in that respect.
We've learned that regulations need to be tougher;we have changed our approach to one of tougher risk assessment.We've increased capital requirements and scrutiny of executive compensation.You have to be careful not to restrict hedging activity,which involves securities purchases.We would implement regulations as part of our overall risk assessment of the company,whether the company has adequate management capabilities to manage those risks.A lack of strong controls would be grounds for the supervisor to require changes or elimination of those activities.If you can get market discipline to bear on firms,that would help the regulators,Mr.Bernanke told the committee.
Ben Bernanke was recently reappointed and confirmed for another four-year term as Chairman,despite distrust of the Fed by some members of Congress.Congress feared disrupting financial markets by denying his reappointment,among other considerations.

Crunching the Market:PIMCO

Reacting to a mildly favorable jobs report,Bill Gross of PIMCO said the unemployment we've been seeing is a structural issue.It's gonna be very hard to replace those 8.5 million lost jobs.Many of them were in real estate,construction and mortgages-areas at the heart of the financial crisis.To posit a vibrant,positive economy based on the jobs report is off-base.
The economy,the asset markets have been reflated by the government,Mr.Gross explained.Now a lot of that has been halted,and some has been withdrawn.The private wallet and the will that must take over are being questioned by the markets.The minute that government check disappears,the private market is standing all alone.PIMCO thinks the transition to final demand is different this time than it was for other recessions.Instead of levering,we're delevering;instead of deflating,we're inflating.The new normal taking shape,a protracted period of slow growth and high unemployment,is a sea change,not a readjustment.

Bankers Dislike Regulatory Proposals

The American Banking Association,a trade group,is uncomfortable with the current climate in Washington.Ed Yingling,ABA president,says there's a general situation that is of concern to bankers:that the language portrays banks as risky.The financial crisis should be seen as international in origin,Mr.Yingling believes.The Obama administration's definition of proprietary trading means banks can't have a bond portfolio,in his estimation.All banks have one,Mr.Yingling indicated.
The U.S. has been the world leader for financial services for many years,Ed Yingling recalled.Now only six U.S. banks are in the top 50 of the world.Without coordination of regulation with international authorities,there would be no U.S. banks among the global leaders,Mr.Yingling warned.
Under the Obama administrations proposals,banks' share of the capital markets would be capped at 10%;they could no longer own hedge funds;and proprietary trading,or trading banks do for their own profit,would be taken away from them,resulting ultimately in less money for lending,critics of the proposals point out.

SEC:The Challenge of Regulating

Mary Schapiro,Chairman of the Securities and Exchange Commission,appeared before the Financial Crisis Inquiry Commission recently in Washington,D.C.She said she has spent a year taking the SEC apart,trying to understand where its strengths and weaknesses lay.It's quite an independent agency,but is subject to congressional appropriations,while other regulators are self-funded.It's critically important that we continue to have independent standard-setters for accounting;it's particularly important for the profession to remember that the investor is their audience at the end of the day,the soft-spoken Ms.Schapiro observed.
Mary Schapiro was herself an SEC commissioner 20 years ago.As a general matter,I am a huge fan of transparency across the board,she declared.The amount of data to sift through is overwhelming.For us,it's a matter of acquiring new technology,reviewing millions and millions of trades.Our tech budget is 50% below what it was five years ago.I'm concerned about over the counter derivatives markets,their ability to do what is not permissible in regulated markets,Ms.Schapiro added.
The SEC,which has five commissioners,has voted to approve the reining in of computer systems that certain financial firms use to trade huge amounts of shares at high speed.The SEC is concerned this practice may distort market activity and give these firms a leg up on other participants.The commission has also begun an inquiry into the impact of technology on financial markets generally.

NYSE/Euronext Ponders Capital Markets

NYSE/Euronext,or NYX,parent of the New York Stock Exchange,has been analyzing the basis of the capital markets.Trust is the powerful global currency that makes commerce possible,NYX says.The trust between buyers and sellers;the trust in governments;the trust in open markets and in the innovative technologies that power them are crucial to the exchange of capital that creates businesses and jobs.Recently,NYX points out,uncertainty,not trust,has dominated the conversation in unsettled global marketplaces.Properly regulated marketplaces such as NYSE/Euronext are crucial to restoring trust by protecting the interests of investors through transparent and accountable business practices.
NYX notes that its fundamentals have guided it through triumphs and tragedies in every conceivable market condition.As new regulations are being developed today,these principles are as important as ever-if not more so.Proceed with confidence,NYX reassures investors.

Focus on Regulatory Reform:The Financial Future

A lot of concern centers on the proposed granting of powers to the Federal Reserve for the monitoring and control of systemic risk.The Fed would have to get Treasury Department approval for spending large amounts of money during crises.At such a time,although Treasury is involved,it is very important that the Federal Reserve preserve its independence and accountability for price stability and stable growth,Treasury Secretary Timothy Geithner told the Senate Banking Committee last week.Central banks around the world have traditionally policed systemic risk.Proposed changes to the Fed's role are modest.The Fed chairman would still be accountable to Congress.Our solutions focus on the central causes of the financial crisis.Conservative constraints on risk-taking will mitigate the too big to fail hazard.There is no conflict between the Fed conducting monetary policy and policing systemic risks,Mr.Geithner said.
A lot of things contributed to this crisis,Mr.Geithner explained.Future crises will require a study of how macroeconomic policy contributed to them.We need to be realistic in recognizing how difficult it will be to anticipate future risks.The critical failure of policy was in not imposing constriction on leverage in the good times.The Fed has a better feel for financial markets than any other government entity.
We're still in the midst of a challenging recession on a global scale,and we want to be able to respond to future risks,so Treasury should retain any money repaid to it by financial institutions,Mr.Geithner asserted at the Senate hearing,wearing a charcoal suit,white shirt and burgundy tie.He seems to be gaining the respect even of Republicans who doubted his suitability for his position.The gravity of the reform process was clearly evident in the atmosphere of the hearing.You could feel the weight of the occasion on everyone's shoulders.Would the Federal Reserve lose its independence under the reforms,or would the Fed be too powerful? No one wants to disturb the delicate balance of the financial regulatory bodies,but the wheels of government are rolling down this path of reform,and there doesn't seem there is any chance of stopping them.