One of the largest Italian banks – Unicredit was raising lots of cash from the market recently, getting ready for possible collapse of Italian bond market. Banks without excess liquidity in Italy simply would not come out of recession, they will be either nationalized or liquidated.

Theme of Greece is coming back like a boomerang again – guess what – they need more money!

Good news is coming from USA – looks like housing market is improving, and job market is picking steam. US stock market followed with strong performance in the recent quarter, Dow Jones Index is up 9% in the mentioned period.

Most importantly I have learned a lot. The most important is to find “gurus” to follow. I decided that I will model rich and successful people.

These were for me, in order of significance:

- Warren Buffett

- Seth Klarman

- Joel Greenblatt

Both Seth Klarman and Joel Greenblatt share their investment secrets in their books. Warren Buffett has not written anything on this theme, but there is another author, who has gathered knowledge and secrets from Warren, and shared in a book titled Buffetology.

As far as predictions go, I think it is very difficult to make sound predictions in the current situation. The most important unsolved issue is the future of Eurozone, and ability to repay debt by Italy.

If Italy falls down there will be a huge market turmoil, and if I was Italian all my savings would have been in Sweden or Norway already.

If you look at valuations of stocks in Poland (I follow only these now)- they are very low, there are lots of companies with P/E ratios below 10, and with growing earnings. I can find multiple companies (20+) with long-term annual return  (IRR) above 20%. These are return ratios any investor would be very happy about. But if you are looking for fast buck, or if you have high expectations about high returns in the next quarter - abandon the investment game and put your money in a bank account.

I would re-iterate words which I have read in a book Buffettology: It is not market optimism, but market pessimism that made Warren Buffet rich.

There is a lot of market pessimism right now, and I hear that even more bad news can come in Eurozone. This is an excellent news for me. I will be able to grab more assets for a third of a fair price.

I think we can have on hands a serious blow-up on the bond market, similar to the one seen in Greece several months ago.

But this time it would be much more serious.

When I was looking at the Eurozone for the last 5 years I thought that my professor may have been wrong, but now it seems to me that he has been right, since we have a deep crisis of the Eurozone, and we hear that there is a need for fiscal control at the EU level, maybe even a common budget.

I believe there are two options for the EU politicians:

- break-up of the Eurozone;

- further consolidate it;

Key question is whether politicians can work it  out  and to me it is competely unpredictable.

In short, a fundable early stage company should have:

1. Traction
2. Team
3. Product
4. Social Proof
5. Pitch/Presentation

For more information please see:

http://venturehacks.com/articles/unfundable-startup

Stock exchange recovers and rallies before economic growth picks up.

Now economy in Europe, USA, and Poland is weak – significant unemployment, low investment levels.

But recession cannot last forever – even at the time of great depression in the thirties decline lasted only for 3.5 years (1929-33).

My estimate that some time next year we will have a strong bull market, since we will start to spot early signs of a recovery.

As of today: 7.38%.

Link to rates: http://www.bloomberg.com/quote/GBTPGR10:IND

Public debt in Italy stands at approximately 120% to GDP, what means that 8.86% of GDP should go towards interest payments.

GDP to tax revenue ratio in Italy is 43%, so it means that 21% of total tax revenue should go towards interest payments.

Conclusions for me:

Italian goverment may default on their obligations (same as Greece), and since Italy is much bigger than Greece it is impossible to bail them out (as was done with Greece), which would translate to significant losses in the banking system, freeze of lending, reduction of liquidity in the system, recession and low asset prices.

There are tools, that allow to compare interest rates across the banks in Poland, one of them can be found under a link:

http://ranking-lokat.kontomierz.pl/ranking-lokat

Since offer of the banks is in constant change, it is best to check before making a decision.

I do not think that saving long-term (5+ years) on a bank account is a profitable strategy, in my opinion the following circumstances justify saving in a bank:

- you are certain that you will need money sooner than in 2 years from now;

- equity markets are “red-hot”, meaning at their peak => it is best to sell equities and keep cash;

- you want to be able to act fast, in case an excellent investment opportunity comes your way – surplus liquidity allows to invest fast (you do not want to be at mercy of a bank to lend you money for that);

People / governments who are out of money soon face the same problem.

I truly hope that it would not happen for Greece this time.

Now another country is coming on the radar- Italy- also very big debt, and increasing risk perception by the investors.

In the meantime prices of equities in Poland are attractive since markets are gripped in fear.

To me gold is an asset that does not produce any income. Some people say- you can buy the same car for the same amount of golden coins as 60 years ago. But has anybody calculated how many cars you can buy now if you have invested the same amount of money into equities? Is it five? I do not know the exact number.

Therefore I believe buying and keeping gold does not make any sense, at least to me. I can find many more income producing assets: real estate, equities, bonds. Right now I can find many businesses with dividend yield over 5% per annum (for example telecoms). It makes much more sense for me to buy them instead.