When $5 Billion Sounds Cheap
09/25/2008 12:00 am EST
The bailouts continue! While the US Congress ruminates on the latest proposed solution—a $700-billion bailout of the nation’s financial system by the US Treasury—world markets avidly await the outcome to determine whether the end of the financial crisis is near.
Not even a $5-billion investment in Goldman Sachs (NYSE: GS) by Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) was enough to get the markets in a good mood. World stock exchanges are feeling the effects, with Europe, especially, suffering sympathetic declines. Some think that this debacle is even worse than Japan’s 1997 banking crisis, which came after a decade of delays in responding to the 1980s bubble and bust in Japan’s stock and real estate markets.
Meanwhile, foreign markets and companies continue to suffer right along with us. Every day, more firms report the consequences of their business dealings with failed Lehman Bros. (NYSE: LEH). Financial News announced that French hedge fund manager ADI has been forced to close five of its funds after bets on Lehman. And companies from the Netherlands, Britain, Japan, China, and Italy have been busy reporting their exposure to Lehman’s bankruptcy.
These potential losses are not small potatoes. They include $373 million at Dutch insurer Aegon (AS: AEGN); $705 million at French-Belgian retail bank Dexia (BR: DEXI), and $675 million at French bank Société Générale (PA: SOGN). Some of the hardest hit were Japanese investors who were left holding $1.8 billion of Lehman’s yen-dominated bonds.
The uncertainty has led to more injections from central banks around the globe. To help add liquidity to the markets, the US Federal Reserve agreed to $30 billion of currency swaps with Australia, Denmark, Norway, and Sweden.
The United Nations Conference on Trade and Development indicates that global markets are a long way from being out of the woods: it estimated global foreign direct investment will drop 10% this year, largely due to a sharp decline in merger and acquisition activity.
Oil didn’t help matters as it stunned the markets this week with an almost $25-per-barrel rise on Monday (which some attributed to short covering on option-expiration day) before it settled back down to around $106, giving regulators something else to investigate.
But advisors are still recommending stocks, and some investors are actually buying.
In this week’s Q&A, Christoph Scherbaum, editor of the German edition of Personal Finance, told me that German investors are cautiously optimistic, and he shared a couple of sectors that he thinks are particularly promising.
Andrew McHattie, editor of Investment Trust Newsletter, discusses how some overseas investors are using international investment trusts to increase their exposure to US markets.
The Indian banking sector was profiled in a recommendation from Paul Goodwin, editor of Cabot Wealth Advisory, and Nick Hodge, editor of Energy and Capital, sees investments in solar companies as ripe for the picking.
Stay tuned for more updates—it’s sure to be a rollicking ride over the next few months!
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.