Warren Buffett's 3 Favorite Books: A guide to The Intelligent Investor, Security Analysis, and The Wealth of Nations



Latest Buffett Headlines

Loading...

Monday, August 31, 2009

BLOOMBERG: BYD Says It Will Beat Vehicle Sales Target This Year

By Mark Lee

Aug. 31 (Bloomberg) -- BYD Co., the Warren Buffett-backed maker of cars and rechargeable batteries, will exceed its target for vehicle sales of 400,000 vehicles this year, Chief Executive Officer Wang Chuanfu said.

The Shenzhen-based company plans to start selling an electric vehicle in the U.S. next year, Wang, who is also chairman, said today. The automaker started selling the F3DM, the world’s first mass-produced plug-in hybrid car, in December.

BYD’s car sales surged after it added models including the F3-R compact, and China cut taxes on smaller vehicles to boost industrywide demand. The gain offset slumping demand for mobile-phone batteries as consumers worldwide pared spending on electronics amid the global recession.

First-half net income rose 98 percent to 1.18 billion yuan ($173 million) from a year earlier, the Shenzhen-based company said yesterday. Revenue increased 30 percent to 16.1 billion yuan.

BYD, China’s seventh-biggest carmaker, boosted first-half vehicle sales to 176,814 autos, outpacing a 26 percent gain in nationwide passenger-car sales. Revenue from the auto business more than doubled to 8.88 billion yuan, the statement said.

MidAmerican Energy Holdings Co., a unit of Buffett’s Berkshire Hathaway Inc., completed the acquisition of a HK$1.8 billion stake in BYD last month. The company has made more than $1 billion from the investment, according to Bloomberg calculations.

BYD rose 2.4 percent to HK$46.10 as of 11:53 a.m. in Hong Kong trading. The stock has more than tripled this year, compared with a 37 percent gain in the benchmark Hang Seng Index. MidAmerican bought 225 million new shares for HK$8 apiece.

The tie-up with Buffett may help boost BYD’s profile overseas and also reassure potential customers, Wang said last year.

The company also plans to sell shares on the mainland next year, he said today.

For Related News and Information: Top transport news: TRNT China auto news: TNI CHINA AUT China auto sales: CNVSPSGR HCP M

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading

Buffett: The Making of an American Capitalist
Buffett: The Making of an American Capitalist by Roger Lowenstein
Buy new: $12.92 / Used from: $9.89
Usually ships in 24 hours

Kindle 2/Kindle DX: Amazon's New Wireless Reading Devices (Latest Generation)


Bookmark and Share

BLOOMBERG :BYD’s Wang Says Buffett’s MidAmerican May Boost Stake


By Mark Lee

Aug. 31 (Bloomberg) -- Warren Buffett’s MidAmerican Energy Holdings Co. wants to boost its stake in BYD Co., said Wang Chuanfu, chairman and chief executive officer of the Chinese company. BYD shares rose to a record.

“They are very positive about BYD’s business,” Wang told reporters in Hong Kong today. BYD will discuss plans by MidAmerican to increase its investment, he said. Ann Thelen, a spokeswoman at MidAmerican, didn’t immediately reply to an e- mail seeking comment.

BYD has surged more than five-fold in Hong Kong trading since September 2008, when it first disclosed the HK$1.8 billion ($232 million) initial investment from MidAmerican, a unit of Berkshire Hathaway Inc. The transaction has generated a profit of more than $1 billion for the U.S. power producer, according to Bloomberg data.

“If Buffett were to make an additional investment in BYD, the deal’s pricing will provide a benchmark for the stock’s value,” said Barry Leung, who rates BYD shares “buy” at Sun Hung Kai Securities in Hong Kong. “BYD’s shares have run up a huge amount following Buffett’s initial investment, so even if they can agree a discount to the current stock price, it will still be a lot more than what they paid in the first deal.”

BYD, China’s seventh-biggest carmaker, rose 8 percent to close at HK$48.60 in Hong Kong, compared with a 1.9 percent drop in the city’s benchmark Hang Seng Index. The stock traded at HK$8.40 on Sept. 26, 2008, a day before MidAmerican announced its proposed investment. The U.S. company last month completed its acquisition of BYD shares at HK$8 each.

MidAmerican will help BYD’s plans to expand in the North American market, Wang said today. The Chinese company now aims to start selling an electric-powered vehicle in the U.S. next year, earlier than its previous target of 2011, he said.

BYD plans to sell shares on the mainland next year, Wang said today. The company last month said it is seeking regulatory approval to offer 100 million so-called Class A shares in Shenzhen, where the company is based.

The company’s car revenue more than doubled to 8.88 billion yuan ($1.3 billion) after it added models including the F3-R compact, and China cut taxes on smaller vehicles to boost industrywide demand. The gain offset slumping demand for mobile-phone batteries as consumers worldwide pared spending on electronics amid the global recession.

First-half net income rose 98 percent to 1.18 billion yuan from a year earlier, the company said yesterday. Revenue increased 30 percent to 16.1 billion yuan.

BYD more than doubled first-half vehicle shipments to 176,814 autos, outpacing a 26 percent gain in nationwide passenger-car sales.

For Related News and Information: Top transport news: TRNT China auto news: TNI CHINA AUT China auto sales: CNVSPSGR HCP M

Last Updated: August 31, 2009 04:26 EDT

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading

THE ESSAYS OF WARREN BUFFETT: LESSONS FOR INVESTORS AND MANAGERS
THE ESSAYS OF WARREN BUFFETT: LESSONS FOR INVESTORS AND MANAGERS by LAWRENCE CUNNINGHAM
Buy used from: $112.70

Bookmark and Share

Friday, August 28, 2009

GLOBE AND MAIL: Berkshire without Buffett

Fabrice Taylor

From Friday's Globe and Mail

Few things are guaranteed in the investment universe, but here’s one: Whoever takes over from 79-year-old Warren Buffett as the head of Berkshire Hathaway will have a hard time filling his shoes.

That worry might explain why Berkshire’s stock has struggled lately. As I write this, the company’s class A shares—which Buffett has not allowed to split, no matter how high the price—are trading at about $91,000 apiece (all currency in U.S. dollars). The high over the past year was $147,000.

Succession worries are partly to blame: Does anyone have Buffett’s knack for putting money to work? The Oracle of Omaha has said he plans to stay on the job until five years after his death. More seriously, and without naming them, Buffett has said there are four candidates ready to take over his investment role. The current scuttlebutt is that David Sokol, chairman of Berkshire’s MidAmerican Energy, is the front-runner.

Many of Berkshire’s short-term problems are due to last year’s market meltdown, which clobbered its vast investment portfolio. Mistakes don’t help, however, particularly selling $35 billion worth of put options on stock indexes when share prices were much higher than they are now. Those options are a form of market insurance—if the holders exercise the options, the seller (Berkshire) has to pay them higher prices guaranteed in the options contracts. According to a Berkshire financial report, its paper losses were about $5 billion.

But you also have to consider Berkshire’s long-term success. The company’s share price was about $20 when Buffett took over in the 1960s. One big reason for the astonishing growth since then is that Buffett and his lieutenants often take advantage of other investors’ impatience. Most of us want a quick buck, so we ignore out-of-favour stocks that will take a while to recover. Once they do, even if Buffett didn’t buy them at the bottom, those stocks perform well.

The crisis this past year has given Buffett one of the greatest opportunities of his lifetime to put his value investing skills to work. Last October, he wrote an op-ed piece for The New York Times, saying that he was buying U.S. stocks for his personal account. Until then, that account held nothing but government bonds. Berkshire went on a buying spree, too, investing in battered blue-chip companies—including General Electric, Goldman Sachs and Dow Chemical—and others that weren’t hit as hard, like Wrigley.

In total, Berkshire has invested about $22 billion over the past year, and the clever twist is that, by and large, it hasn’t bought straight common shares. Instead, it’s invested in preferred shares that pay fat dividends and can be converted into common stock at a low price. In the case of Goldman, Berkshire bought $5 billion worth of preferreds last September that pay a 10% dividend, and that came with warrants that gave Berkshire a five-year option to buy common shares at $115 apiece. Goldman shares sank to $52 last October, but have climbed steadily to $160 lately. That’s a paper profit of $2 billion, in addition to the dividends.

So, while some investors fret about Buffett’s age, buying Berkshire today will give you at least one more chance to profit from a legend’s investing skills. Don’t count the Oracle out yet, even if he does depart soon.

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share

Wednesday, August 26, 2009

TRANSWORLD NEWS: Berkshire Hathaway (NYSE: BRK.A) Extends Exchange Offer Again

Buffalo, NY 8/25/2009 05:25 PM GMT (TransWorldNews)


Berkshire Hathaway (NYSE: BRK.A), the holding company run by billionaire Warren Buffett, said Monday it extended the expiration date of a registered exchange offer to Friday, the second such extension.


Berkshire Hathaway Inc. said $1 billion in 4 percent senior notes due 2012 can be exchanged for an equal amount of privately placed 4 percent senior notes, also due 2012.

As of Aug. 21, about $980 million had been tendered for exchange, which is up from $975 million that had been tendered Aug. 14, which had been the original expiration date before Berkshire Hathaway announced the first extension on Aug. 17.

The exchange offer was announced July 17.

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share

CHINA CAR TIMES: BYD are going for gold, selling batteries to SAIC and selling cars in the USA

26 August 2009

byd-e6d

BYD are in for a roller coaster few years with them planning to sell batteries to the Chinese rivals, SAIC, and also selling cars in the USA very soon.

SAIC and BYD recently signed a contract that will see BYD supply SAIC with lithium-ion batteries that will be used in the Roewe 750 hybrid concept that was shown at the 2006 Beijing Auto Show but has not yet been put into production but is expected to be formally released in early 2010 according to CCT sources. BYD also plans to supply the Shanghai World Expo 2010 with over a 1000 green vehicles which will include hybrids, pure electric and hydrogen powered cars.

In other news it was revealed that BYD are planning to enter the US market as early as next year with a $40,000USD car:

From The Wall Street Journal:

XIAN, China — BYD Co., the Chinese auto maker part-owned by Warren Buffett’s company, is finalizing plans for an all-electric battery car that would be sold in the U.S. next year, ahead of the original schedule, Chairman Wang Chuanfu said.

In an interview at a BYD factory here, Mr. Wang said the company aims to use money from a planned new-share sale in China to help pay for the U.S. push, as well as for a second production line for automotive lithium-ion batteries near BYD’s Shenzhen headquarters.

It seems that BYD are about ready to beat GM to launching the first mass made cheap electric vehicle in the USA, after all the Chevrolet Volt is going to be a 2011 model for GM which means it isnt likely to be launched until mid 2010 which is likely to be after the BYD E6 is already launched in the USA. Although the Volt is set to produce 10,000 units in the first year, where as the BYD E6 is only going to e in the low hundreds to raise BYD’s brand profile.

You might find these other posts of interest:

  1. BYD and VW Sign Up to make batteries, and the future Perhaps the boss of Honda would like to take back his words now: FRANKFURT (Reuters) - Volkswagen (VOWG.DE) plans to explore the options for a partnership with China’s BYD Co...
  2. SAIC and Co’s Mega Plans for the Chinese market Shanghai Automotive Industry Corporation, otherwise known as SAIC, has several joint ventures in China, most noticably the GM and VW joint ventures which have both been extremely profitable for the...
  3. SAIC to purchase Buick? Rumor mill in overdrive Rumors regarding the possible purchasing of Buick by SAIC have been going around since the probability of GM going bankrupt started early last year. Various media outlets are linking SAIC...
  4. New Roewe 750, new MG7, new A-class car, new everything at SAIC SAIC top man Mr. Chen Zhi Xin, announced yesterday that Roewe and MG will unite together for research, production, scope, purchasing and share investment resources to build their respective brands....
  5. Greatwall Electric Car - Oh La La La! So we’re not quite sure how the GW Electric cars English name is pronounced, the Chinese name is ‘Ou La‘, the English name is ‘KuLa‘. The design seems to be...
  6. The Revolution Begins Now - PRC to get electric car charging stations The Chinese State Electricity Grid is anticipating a massive move by the Chinese people from gasoline based cars to electric cars over the coming years. The State Grid has unveiled...
  7. SAIC talking with Fiat regarding odd JV set up According to a report in the China Business Magazine, SAIC and Fiat are currently in talks regarding business matters, and a final agreement will be reached in September. From what...
  8. Honda President says BYD’s electrical cars cant be too great In an interview with the Chinese automotive website, auto.163.com, Honda’s president Mr.Takeo Fukui, downplayed any enthusiasm over BYD’s launch of the BYD F3DM (Dual Mode Electric Hybrid) sedan at the...
  9. SAIC doubling up Longbridge UK staff The Birmingham Mail reports that SAIC’s UK staff are to moved to Longbridge prior to production of new models, including the TF: LONGBRIDGE is back up and running with a...
  10. BYD F3DM and Zotye Electric cars to launch soon According to a recent list of new cars which are set to launch soon, it appears that there are five new energy vehicles ready to be launched in China very...
Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

CNBC: Warren Buffett: Bernanke Doing "Right Thing" at Fed Despite Inflation Threat

Published: Tuesday, 25 Aug 2009 | 12:43 PM ET

By: Alex Crippen
Executive Producer

Warren Buffett hasn't spoken out publicly today, but we assume he's happy with President Barack Obama's announcement this morning that Ben Bernanke will be nominated for a second term as Federal Reserve Chairman.

Despite his concerns the government's efforts to revive the economy over the last year will probably lead to serious inflation down the road, Buffett has repeatedly endorsed Bernanke's performance at the Fed, calling him the best person for the job.

Here's what Buffett told us in a live CNBC Squawk Box interview one month ago:

BECKY QUICK: Now, Warren, you talk about your views on inflation and you use very long-term timeframes. Right now versus ten years. When Ben Bernanke was speaking to Congress earlier this week, he talked about some of these things, too, saying this is not necessarily something we need to worry about over the near-term. He's probably talking a couple of years down the road. Are you kind of in sync with what Bernanke was telling Congress earlier this week?

BUFFETT: I don't think you can have anybody better than Bernanke in the job. I mean, he understands all of the issues. But the time to worry about something that's going to happen in the long-term is in the short-term. And I'll guarantee you that he is thinking about that. But he needs to do what he's doing now. And the Fed needs to be doing what it's doing now. It will have, it will have after-effects, and we'll be facing those, and they'll be addressed at that time. But I don't think you can do what we're doing now, and are going to be doing, without having real inflationary possibilities down the road. But that doesn't mean I think he's doing the wrong thing. I think he's doing the right thing.

Current Berkshire stock prices:

Berkshire Portfolio

Class A: [BRK.A 101180.00 --- UNCH (0) ]

Class B: [BRK.B 3328.6001 3.10 (+0.09%) ]


Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Tuesday, August 25, 2009

CNBC: Warren Buffett: I Don't Eat As Badly As You Think

Published: Monday, 24 Aug 2009 | 6:54 PM ET

By: Alex Crippen
Executive Producer

Warren Buffett with one of his favorite meals, as seen at the 2007 Allen and Co. media conference in Sun Valley, Idaho.
AP
Warren Buffett with one of his favorite meals, as seen at the 2007 Allen and Co. media conference in Sun Valley, Idaho.

Warren Buffett makes no secret of his love for hamburgers and Cherry Cokes, steaks and hash browns, topped off with a root beer float.

Most vegetables? No, thanks.

In The Snowball he tells biographer Alice Schroeder, "Broccoli, asparagus, and Brussels sprouts look to me like Chinese food crawling around on a plate. Cauliflower almost makes me sick. I eat carrots reluctantly. I don't like sweet potatoes. I don't even want to be close to a rhubarb, it makes me retch."

But Buffett says his "bad" eating habits aren't as absolutely awful as everyone thinks.

The Omaha World-Herald relates Buffett's response to a New Jersey nutritional dentist who had written a letter encouraging him to eat more healthy food and take nutritional supplements:

"My diet, though far from standard, is somewhat better than usually portrayed. I have a wonderful doctor who nudges me in your direction every time I see him. All in all, I’ve enjoyed remarkably good health — largely because of genes, of course — but also, I think, because I enjoy life so much every day."

He's also been exercising more in recent years.

Back in 2007, Buffett told CNBC that his doctor had given him a choice two years before: "Either you eat better or you exercise." Buffett said he chose exercise, the "lesser of two evils."

Current Berkshire stock prices:

Berkshire Portfolio

Class A: [BRK.A 100900.00 --- UNCH (0) ]

Class B: [BRK.B 3325.50 -4.00 (-0.12%) ]


Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Snowball: Warren Buffett and the Business of LifeThe Snowball: Warren Buffett and the Business of Life by Alice Schroeder
Buy new: $13.60


AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share

Monday, August 24, 2009

CHINA KNOWLEDGE: BYD set to sell all-electric cars in U.S. next year


Aug. 24, 2009 (China Knowledge) - BYD Co<1211>, China's largest rechargeable battery maker and a well-known automobile producer, plans to sell its new all-electric battery-powered vehicle in the U.S. next year, ahead of the original schedule, said Chairman Wang Chuanfu, sources reported.

BYD will use some of the funds to be raised from a planned new-share sale in China to finance its business expansion in the U.S., where it will soon begin selling its five-seat e6, one of its most advanced cars, for just over US$40,000 each.

The firm will initially target government agencies, utilities and maybe some celebrities and will then choose a specific region in the country where it will sell a few hundred units through a small number of dealers.

The auto maker has reportedly formed a partnership with MidAmerican Energy Holding Co, a unit of Warren Buffett's Berkshire Hathaway Inc, which purchased a 9.9% stake in BYD for US$230 million in 2008.

MidAmerican Energy is ready to help BYD with the latter's foray into the U.S. auto market, said its chairman David Sokol, adding that the company also might invest in BYD's new initiatives in the U.S., which include automobiles, solar panels and battery technology for power utilities.

BYD aims to raise RMB 2.85 billion via a placement of not more than 100 million shares in an initial public offering on the Shenzhen Stock Exchange next year. The proceeds from the proposed A share issuance will be invested in the production of lithium ion batteries, expansion of an automobile parts and accessories unit, and the second phase of a solar battery manufacturing project.

The company earlier said it would seek approval of the plan from shareholders on Sep. 8.


Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share

Wednesday, August 19, 2009

CNBC: Warren Buffett's 'Greenback Effect' Warning: A Call to Buy Stocks

Published: Wednesday, 19 Aug 2009 | 1:58 PM ET

By: Alex Crippen
Executive Producer

Warren Buffett: The Greenback Effect
Warren Buffett is back with a new piece in the New York Times, but today he's not using the high-profile platform to explicitly urge us all to buy stocks as he did last October.

But there's still a big "buy" recommendation implicit in the dollar doomsday scenario he lays out in his latest op-ed.

In The Greenback Effect, Buffett details his ongoing warning that the "enormous dosages of monetary medicine" being used to rescue the U.S. economy will eventually produce a dangerous "side effect."

He worries there won't be enough lenders ready and able to absorb the nation's growing debt relative to its economic output over the years, forcing Washington's "printing presses" to work overtime churning out paper money.

All those "greenback emissions" will, he fears, feed potentially "banana-republic" style rates of inflation.

Warren Buffett Watch Commentary

Buffett's warning, however, doesn't come with a policy prescription that has to be filled right away.

He still believes our "immediate problem" is to get the economy "back on its feet and flourishing" and that the nation should continue to do "whatever it takes."

While "the United States economy is now out of the emergency room and appears to be on a slow path to recovery," Buffett argues that "once recovery is gained ... Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources."

"With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can't come close to bridging that sort of gap.

Buffett recognizes that's a very difficult position for politicians who depend on voters for their jobs.

Since they will "correctly perceive" that raising taxes or cutting spending will hurt their re-election chances, legislators may instead "opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes."

Buffett, however, believes the "invisible" and "latent" threat of inflation could be "as ominous as that posed by the financial crisis itself."

Berkshire Portfolio
The world "properly" worries about greenhouse emissions causing global warming, says Buffett. "Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress."

It's hard to imagine Washington will have the discipline to properly handle that responsibility, and that brings us back to Buffett's previous op-ed in the Times last October.

What should an investor do in tough economic times with inflation on the horizon? Buffett's recommendation then was to buy stocks rather than try to play it safe with cash:

"People who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts."

He repeated that advice late last month, when he told CNBC viewers that with "real inflationary possibilities" down the road, he "would much rather own equities at 9000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money."

So, while Buffett doesn't explicitly use today's Times piece to repeat his advice to buy stocks, that remains the implicit recommendation given his argument that it will be very difficult, if not impossible, for Washington to summon the "extraordinary political will" to hold off serious long-term inflation.

Current Berkshire stock prices:

Class A: [BRK.A 101400.00 --- UNCH (0) ]

Class B: [BRK.B 3329.50 55.00 (+1.68%) ]



Related Links


Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Monday, August 17, 2009

NEW YORK TIMES: Warren Buffett Op-Ed - The Greenback Effect

Published: August 18, 2009

Omaha


IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Share Investor Forum
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share

Friday, August 14, 2009

CNBC: Berkshire Hathaway Back in the Black On $1.5 Billion In Derivatives Gains During Second Quarter

Published: Friday, 7 Aug 2009 | 5:28 PM ET

By: Alex Crippen
Executive Producer

Berkshire Hathaway: Earnings Central

Warren Buffett's Berkshire Hathaway reports $1.532 billion in after-tax derivatives gains during its second quarter, helping to bring the company's net back into the black.

Most of the "paper" gains for Berkshire's derivatives are the result of rallies by the quartet of stock indexes covered by its "long duration equity index put options contracts."

The contracts are essentially insurance policies against long-term stock market drops. Their current value rises and falls along with the stock indexes they cover, and has to be included in net earnings, according to accounting rules.

Berkshire points out that the mark-to-market accounting produces "extreme volatility in our periodic reported earnings." While Buffett has consistently remained optimistic the contracts will make Berkshire a lot of money years from now, the market hasn't been so sure, and that's helped put pressure on BRK shares, and Buffett's reputation. (It was only a few days ago that Berkshire shares went back above $100,000 for the first time since January.)

This quarter's derivatives gains contributed to an overall net after-tax profit of $3.295 billion dollars for the quarter ($2123 per class A share.) That's up 14.4 percent from $2.880 billion in the second quarter of 2008.

It's also a return to profitability for Berkshire, after it reported a net loss of $1.5 billion in this year's first quarter.

Berkshire Portfolio
In its second quarter news release, Berkshire says its book value (assets minus liabilities) increased 11.4 percent over three months to reach $73,806 per share at the end of the quarter on June 30. That works out to a total of $114.5 billion, an increase of $11.7 billion dollars since March 31. Book value had fallen in each of the two previous quarters.

Buffett puts an emphasis on book value in Berkshire's annual reports, saying its the best way to estimate the company's "intrinsic value."

Operating earnings came in at $1,147 per share, down 21.7 percent from last year's second quarter, and below the average forecast of $1,238 from the handful of analysts who cover the stock.

Profits from Berkshire's non-insurance businesses, many of which depend on consumer spending, fell by 47 percent to $574 million. Buffett has said in recent months that he's seeing no signs of an economic rebound, based on constantly updated data coming to him from Berkshire's consumer-oriented companies.

Current Berkshire stock prices:

Class A: [BRK.A 102150.00 1150.00 (+1.14%) ]

Class B: [BRK.B 3355.00 33.50 (+1.01%) ]

Related Links

Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Share Investor Forum
Share Investor's Daily Forex Updates

Recommended Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy used from: $10.95

AMAZON - Sony BDP-S560 1080p Blu-ray Disc Player

Bookmark and Share