Investor rating: S&P wins 3 games to 2

A global rout in equity markets, a sizzling rally in gold, a decline in oil and other commodity prices, the prospect of another US recession and a severe debt crisis in Europe. So many things are happening at once. What do the world’s top investors make of it all? How are they viewing the market turmoil? And what is their outlook on different assets?

Here is what some top investors said in recent days.

Warren Buffett:

Let’s start with the most famous investor of them all. By now, most of us know that when Standard and Poor’s downgraded US debt late last week, billionaire American investor Warren Buffett immediately jumped to the defence of his country and criticised the ratings agency for its action, claiming that the US was in fact, worthy of a “quadruple A” rating. He said that US debt should remain top-rated because the country would not have trouble paying off its long-term debt obligations.

“Our currency is not AAA, and in recent months the performance of our government has not been AAA, but our debt is AAA,” Buffett, chairman and chief executive officer of Omaha-based Berkshire Hathaway,told CNBC recently.

Buffett also emphasised that he doesn’t rely on the views of ratings firms when buying and selling securities. Ironically, Berkshire is the biggest shareholder of Moody’s Corp.

In addition, Buffett said S&P’s action didn’t change his view on the security of US Treasury bills. Buffett said at least $40 billion of Berkshire Hathaway’s roughly $48 billion cash and equivalents is still in US Treasury bills, and that he wouldn’t consider parking it anywhere else. “If anything, it may change my opinion on S&P,” said Buffett, who is chairman and CEO of Berkshire.

Speaking about the economy, Buffett said that he doesn’t expect a double-dip recession in the US. “Financial markets create their own dynamics, but I don’t think we’re facing a double-dip recession,” said Buffet. “Clearly what stock markets do have is an effect on confidence, and this sell-off can create a lack of confidence.”

According to media reports, unlike other investors who are opting to sit on cash, the octogenarian investor, despite losing around $1.6 billion during the week of the US credit downgrade, is still busy sniffing out good deals. Last week, his company offered about $3.25 billion for taking over Transaltantic Holdings, an American reinsurance company.

Marc Faber:

The famous publisher of the Gloom, Boom and Doom Report is known for providing excellent media sound bytes. This time too, he didn’t disappoint. “The best thing the Federal Reserve can do for the markets is to collectively resign,” was his tart response to a reporter asking him what the US central bank could do next to revive the floundering US economy.

Faber is highly critical of the way in which Bernanke and team have managed monetary policy until now.“The problem with zero-interest rates is that you can throw money at the system but they can’t control where the money will flow into,” he pointed out in an interview recently.

Like some other market experts, he doesn’t have much faith in the US dollar or Treasuries. “I think long-term Treasuries are a gigantic bubble…. Long-dated Treasuries are the worst investment for the long term, if you invest in 10-year or 30-year Treasuries,” he declares. “Long-dated Treasuries are the short of the century,” he adds.

There’s not much optimism on the dollar either.

“I believe, there is loss of confidence in paper money and money is moving out of paper into gold. The dollar is mildly oversold and should rebound somewhat. But, on the other hand, all paper currencies are rotten because they are run by a bunch of money printers everywhere in the world. I would rather go into assets such as real estate, equities, and precious metals than into paper.”

Unlike some investors, he doesn’t believe the US stock market gyrations are entirely due to Standard and Poor’s downgrading US debt. “It went down for other reasons,” he says, noting that the market is a “discounting mechanism.”

Watch his entire response to the US downgrade below:

“I suspect that in the second half of the year, we could have lower corporate earnings, geo-political problems or debt problems in Europe,” he adds.

“There are many things that can happen which could be far more important than the debt downgrading of the US. So, the market is telling you something is rotten. The markets right now is deeply oversold and I wouldn’t sell today shares. They can rebound but the new high for the year in my opinion is out of the question.”

He also thinks that in the midst of the bloodbath in US and European stock markets, investors could eventually begin to see emerging markets as attractive. “At some stage, you ought to be moving back to emerging markets, because their fundamentals are better than US or European markets,” he says.

He remains a big fan of gold, which hit a record $1,800 an ounce in US trading yesterday. “I think every responsible adult should own gold…. To not have gold is to believe in the government,” he adds. Faber, clearly does not believe in the government.

Continues on the next page

Bill Gross:

This is another extremely influential investor whose opinions count in global markets. Back in 2009, Bill Gross, co-chief investment officer of the financial services company PIMCO, which manages thebiggest mutual fund with $245 billion in assets, outlined the “new normal” scenario for the world economy. He said that following the market collapse in 2008, the US economy would grow at a below-average pace for the next several years as growth in the developed markets slows, unemployment stays high and the “heavy hand of government” would be evident in the markets.

At the time, he was ridiculed by several experts, who believed the US economy would bounce back to its old growth rates soon. Now, it turns out he may have been right after all.

Indeed, he doesn’t think the US will be solving any of its economic problems in a hurry; unlike Buffett, thinks S&P did the right thing in providing the US with a wake-up call. “I think S&P has demonstrated some spine ; they finally got it right,” Gross, who has been critical of Treasuries for months, said in an interview. The US has “enormous problems,” he said, referring to the country’s mounting debt.

That mountain of debt has made Treasuries unattractive, the 67-year-old investor said, because yields don’t offer enough compensation for the risk of inflation. In his monthly investment outlook, published last week, Gross said investors should buy assets of countries with “cleaner dirty shirts " and higher real interest rates, including Canada, Mexico, Brazil and Germany. (Expect to hear that phrase -“cleaner dirty shirts”- more frequently in the next few weeks.)

Gross also believes that if the US wants to revive the economy by using government spending, it needs to target investment, not consumption. “We need to become more productive as a global exporter,” he said.

The economy hasn’t slipped into recession yet, but it may be at a “tipping point,” he also told Bloomberg recently in an interview .“We are at what we call a stall speed, in which corporate profits don’t grow, jobs aren’t created and therefore the economy sinks,” Gross said.

Mark Mobius:

A very respected voice in the global markets, Mark Mobius, executive chairman of the Templeton Emerging Markets Group, remains optimistic on the prospects of emerging markets. “Emerging markets generally have more foreign reserves than developed countries,” and the debt-to-GDP levels of emerging countries also tend to be lower than developed countries, Mobius, wrote on his blog. “This improved ability to manage their currencies and historically better ability to service debt is why we believe emerging market currencies have been so strong - and may continue to be.”

In contrast, the US dollar’s role as an anchor to the global investor community is deteriorating and merging market currencies and stocks could become safe havens, he says. “The initial reaction will be a high degree of uncertainty and thus volatility since investors will not know where to turn for safety,” said Mobius, whose unit oversees $50 billion in emerging market assets. “During the sub-prime crisis safety was in US dollars and US Treasuries. Now that anchor to the global community is deteriorating.”

Watch video: Mobius says emerging markets top the list of safe havens for financial assets

Jim Rogers

The renowned commodity bull believes that gold prices are going higher , but is playing cautious about buying into a rally. He thinks that global equity markets will likely continue to sell off. His favouritesare China and India, but both face headwinds on account ofeasy money policies in the US and Europe, pumping excess liquidityintoemerging markets that often causes inflation.

He also believes that many countries in Europe did not deserve to keep their AAA credit rating.“Governments all over the world are debasing currency; Yesterday August 9), the US Federal Reserve said it will continue to debase their currency. The more the governments will debase paper currency, people will take refuge in real assets and gold is one of them,” he said.

Rogers also expects more US stimulus to keep the economy from falling into a recession.