Letters of the Week

Pundits offered a deal to die for. A hard look at the Future Fund. Value in overseas bank stocks?

Are you feeling lucky?

In my dream last night an armed band of enraged investors, totally unhinged by horrid recent losses, kidnapped at gunpoint all of Eureka Report's contributors and offered the following deal: Be shot dead now, or estimate the level of the All Ords at December 31, 2012, and be shot dead then if not within 20% of the truth. In addition, place $10,000 into your choice of listed equities and be shot dead in January 2013, failing a 10% gross return. Would any Eureka Report contributor care to enter into the spirit of my dream by acting out the two parts of this test?

– D King

Future Fund

Scott Francis’s item on the Future Fund (see Surprise lessons from the Future Fund) is much too gentle. The performance is just woeful. It is another example to prove the point that when you get public servants pretending to be businessmen you get disaster. David Murray is the classic "great pretender". Having done the CBA a favour by getting out he then launched his bias into the destruction of the fund's great asset in Telstra and did lots of collateral damage to the Telstra price along the way. His performance sits snugly alongside those other pretenders who sit on the boards of BlueScope Steel and CSR, make bad decisions or no decisions and come up with flowery codswallop to explain the disasters they collectively oversee.

– B Rumpf

Overseas banks

Looking at overseas bank stocks, most are at or near all-time lows. Despite the conflicting views from Eureka Report columnists about whether we are in a bull or bear market, over the long term don’t these stocks represent extreme value? In particular, I refer you to stocks like Lloyds Banking Group, Barclays, Credit Suisse and RBS. I do concede that these stocks may be too risky for people looking to preserve their capital, however for young investors (looking to buy and hold over the long term) or investors who are less risk-averse, doesn’t this present a promising opportunity?

– B Mifsud

Michael Feller’s response: I’ve been relatively bullish on European and American markets for some time, believing not only that the downside risk priced in, but that both are relatively cheap in terms of the Australian dollar. Having said that every bank is different and I’d be inclined to look at American lenders before European ones, considering the outside chance of a Greek default or protracted sovereign debt crisis in southern Europe. Royal Bank of Canada is another overseas lender that I’ve mentioned in a recent note.

To read this week's letters, click here.

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