Stock take

SOVEREIGN RISK:Morgan Stanley this week advised investors to "buy Irish sovereign risk" following "credible" stress tests results but the latest quarterly sovereign report from financial information company Markit confirms that markets view Irish debt as among the riskiest in the world.

The report looks at credit default swaps (CDS), which offer a form of insurance against debt default. Irish debt is viewed as the third-riskiest globally behind only Greece and Venezuela. Argentina and Portugal are close behind, with Ukraine, Dubai, Lebanon, Egypt and Vietnam further back in the risk stakes.

Italy and Spain were among the top sovereign outperformers over the last quarter.

In contrast, there has been a distinct lack of movement in Irish and Greek swaps. Europe insists that debt restructuring will not happen, but markets clearly believe otherwise.

EARNINGS ILLUSIONS:US earnings season began this week. Earnings have beaten analyst estimates for the last eight quarters and the trend is expected to continue. SP 500 profits are predicted to hit a record $91 a share by August, ensuring that stocks remain cheap, bulls say.

But are they sustainable, or pumped up by government stimulus? Bloomberg data shows this to be the quickest earnings recovery in over a century. Crucially, projected earnings are now a whopping 59 per cent higher than the 10-year average, a figure typically seen near the peak of economic expansions. Accordingly, US stocks merely have the illusion of value.

BUFFETT WOES: It's been a rough week for Warren Buffett. One of his top executives, David Sokol, resigned amid allegations of possible insider trading, prompting a tongue- lashing from billionaire investor Michael Steinhardt, who said Buffett was "the greatest PR person of recent times". "He has managed to achieve a snow job that conned virtually everyone in the press," snorted Steinhardt, who said Buffett had been involved in a number of "ugly phenomenons".

Harsh? Yes, but Steinhardt is right to question the Berkshire Hathaway chief executive’s folksy reputation. Buffett lobbied for government bailouts in 2008 as someone who had major stakes in eight financials that benefited. He was the largest shareholder in Moody’s, the credit rating agency that assigned top ratings to dodgy subprime products.

Buffett is as tough a negotiator as any, as he showed when taking stakes in Goldman Sachs and General Electric at the height of the banking crisis. He “practically stepped on their throats”, said Cullen Roche, founder of the Pragmatic Capitalism website.

As for Buffett’s famed philanthropy in recent years, he “gave away 2½ cents for the first 70-some-odd years of his life”, said Steinhardt. Ouch.