Use this vending machine

The German Financial Times (FTD) reports that Germans are ordering gold, especially gold coins, in unprecedented amounts. Frank Ziegler, head of precious metals at Bayern LB is quoted with the words “People buy Krugerrands like crazy”. But other coins are in high demand too: Münze Austria, which makes the “Wiener Philharmoniker” coins talks about “Panik-Käufe” (panic purchasing). The spread between coin gold and the gold market price has risen to 8% - usually it is 2%.

Most likely it is the German fear of inflation, reaching a fever pitch after the Greek bail-out, that drives gold sales. People still have the historic memory of the hyper-inflation 1923 and the currency reform 1949 which detroyed the paper savings of millions. Some market experts are fanning the flames: Quirin Bank’s (a private bank based in Berlin) chief strategist Claus Vogt said last week that “in 8-10 years our money [the Euro] will be worth only the half”. This statement implies an inflation rate of more than 5% starting in 2011.

However, we believe that this panic may be ill-informed. Gold is not a particular good inflation hedge and the price of gold may have already reached a near peak. Rick Bookstaber, well known risk expert and former hedge fund manager, who is presently an adviser to the SEC, has warned investors about the gold bubble on MyPrivateBanking.com. Germans should heed his advise - in the long-run, returns from gold have been near zero.

Business Week carries a great, long story on Goldman Sachs and how the firm is been forced to defend itself against a public perception that they have been the epicenter of the global financial crisis. The magazine sums Golman’s situation up:

“Business is booming, but Goldman, which once prided itself on avoiding the ostentatious and on making money for the long haul, is a different firm, with a perception problem that mere explanation can’t solve. In committing to market-making at all costs, the firm has opened itself up to forces beyond its control. The question is: Has Goldman Sachs shorted itself?”

The article can’t answer the question whether it was Goldman who brought down AIG and whether Goldman really sold shoddy CDOs (collateral debt obligations) to its customers only to turn around and short these CDOs, effectively betting against its own clients. What becomes clear however is that Goldman,  the hallmark of global banking, is under a lot of pressure. Pressure that may translate into new regulation constraining its business model.

Bloomberg reports that it is safer to lend to Warren Buffett than to Barack Obama aka the US government:

“Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg.(…) Berkshire Hathaway’s 1.4 percent notes due February 2012 yielded 0.89 percent on March 18, 3.5 basis points, or 0.035 percentage point, less than Treasuries, composite prices compiled by Bloomberg show.”

When will Mr. Buffett announce his candidacy for president of the United States?

Here is the answer.  I am not really sure if this industry is in worse shape than the housing, banking or car industry. Yet the report sounds really grim.  I hope that all the unemployed investment bankers have some time to spend on the green and start kind of a stimulus program.

The most disturbing finding during our mystery shopping tour in the beginning of the year was that the proposed asset allocation varied extremely: We were stunned on how different the private banks our test clients visited reacted to one and the same story. Ok. We were at the heights of the crisis, but still the variance in the asset allocation was breath taking – especially in the equity portion: We got everything from a little more than zero percent in stocks to 95 percent. Inspite all the prevalent doomsday scenarios at this time we regarded the equity portion of most proposals as far to low, given the investment horizon and risk appetite of our test client. The last months proved our judgement: Just imagine how much the value of a portfolio with no stocks vs. almost all stocks will differ now ! Never forget: The choice of your adviser can be the most expensive or profitable decision in your investment life, so always take your time and shop round.

… in Germany! 44 wealthy people have founded an initiative that demands an extra wealth tax on all fortunes of more than Euro 500,000. On the weekend they have staged a demonstration in Berlin. The argument is that “if they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said [Dieter Lehmkuhl] the retired doctor and heir to a brewery“.

The majority of the 44 members of this group has inherited their wealth.

Looking at the last 10 years the stock market has not made a lot of progress - despite big swings up and down. In conclusion “buy-and-hold” strategies are very much out of fashion right now and many wealth advisers recommend active market timing strategies (buy low - sell high, trade a lot) . But according to Wells Capital we might just enter a new period when a buy and hold strategy could become very attractive again (see page 12 of the linked document). It is striking how people have alsways felt positive about market-timing-strategies when it really made sense to buy and hold equities.

That is the amount a 22 year old college graduate in the US will have to pay over his lifespan for the 2008/09 government bank bailout. The calculation seems quite reasonable, the results are very unpleasant. From an economic point of view it’s much better to be old these days…